08 branka bilan katic:tipska.qxd 87 branka bilen-katić1, nikola radovanović2 1intellectual property office of the republic of serbia 2intellectual property office of the republic of serbia the role of intellectual property in developing a knowledge-based society udc: 347.77/.78 doi: 10.7595/management.fon.2014.0007 spin´ 13, belgrade, 05-06. november 2013. 1. intellectual property system in knowledge-based economy at the start of the last decade of the 20th century, globalization and technological revolution challenged the principles of world economy. just like the steam engine and railway transport were triggers for the deepest changes in the sphere of social and economic organization of society at the beginning of the industrial era, the computer and the internet initiated the transformation of social relations in the direction of the information era (levi-jakšić, 1995; harris et al, 1998). fast and cheap electronic communication worldwide provides an easy access to information and transforms it into active knowledge, but also enables an efficient performance of business transactions, such as the provision of various services regardless the geographic distances. as a response to these changes, the european union started investing significant efforts in the development of competitiveness of its economy and supporting innovativeness, education and research. prerequisites for economic development of a society in the knowledge-based economy include the soundness of intellectual property system and its efficient utilization. economically speaking, intellectual property, i.e. intellectual assets, can be considered as goods which at first must be created, i.e., “produced”, and then commercialized, i.e., made economically functional for making profit (grandstand, 1999; bader, 2006). the economical perspective of intellectual property widens the presented concept to all kinds of intellectual property (thus including more than it is envisaged as a possible subject matter of protection by the intellectual property laws), under the condition that some legal or material mechanism is secured for appropriation of profit for the economic utilization of that property (cowan and harrison, 2001). the most striking form of that concept of intellectual property is the know-how, which is categorised as a “soft ip”. exclusivity with regard to the economic utilization of the know-how is obtained by the actual inaccessibility of the know-how to others, and not on the grounds of exclusive rights. furthermore, information and knowledge which have practical use in economic life can be the subject matter of intellectual property even when they are not the subject matter of the legal protection, or the subject matter of know-how (sveiby, 1997; van caenegem, 2002). one of the examples which describes this is the socalled lead-time, which equals a situation when a company gained the advantageous market position which enabled it to recover the investment in creating that asset in a reasonable time period, and to maintain the management journal for theory and practice management 2014/70 a long-time dominant position of protective features in the intellectual property (ip) rights has been neutralized by their commercializing possibilities. patents, trademarks and other forms of ip are increasingly being seen as trading assets rather than protection agents. the economic approach to intellectual property emphasizes the material value of intellectual property, which can be appropriated only if that property is used economically, regardless of its actual legal protection status. national institutions dealing with ip rights need to have a continuous service-oriented approach with developing new and specialized services to facilitate the needs of societies which tend to base their competitiveness on the strength of knowledge they possess. the process of transformation to a knowledge-based economy demands that companies fully understand and take advantage of the ip system, which is where business support institutions can provide assistance. a contribution to the increase in the use of the ip system by serbian companies in recent years can be attributed to the introduction of new services by the intellectual property office of the republic of serbia. keywords: intellectual property, knowledge society, economy, patents, serbia. advantage over the competition in a longer period of time due to the earlier start of using a given intellectual property (al-ali, 2003). in a word, the economic approach to intellectual property focuses on the economic value underlying the intellectual property, which can be materialized and appropriated only if that property is used economically, regardless of whether it is legally protected or not. having in mind the abovementioned, it can be stated that the intellectual property rights have several basic functions. the first function is to stimulate the “production” of creations by providing a possibility of gaining legal monopoly on the economic exploitation of new intellectual creations, such as inventions, plant varieties, topographies of integrated circuits and copyrights. in such a way, contribution is given to the technical and cultural progress of a society. the second function is to reduce the information gap between the subjects which provide and the subjects which demand certain goods and services on the market, by securing an exclusive right for the utilization of distinctive signs (trademarks, geographical indications of origin and industrial designs), which reduces transaction costs, stimulates investments into the quality of goods and services and contributes to the efficiency of the market. the third function is in the facilitation of the transaction of rights for the use of intellectual property assets. the fourth function is the logical outcome of the previous one: intellectual property rights facilitate economic implementation of the protected intellectual property assets. however, in the cases when the right holder has no capacity or interest to directly utilize a certain intellectual property asset, he or she can assign or license that right to the subject which has the capacity and the interest for doing it. in such a way, due to the legal protection of a non-material asset, an intellectual property asset finds its way to practical implementation. in the countries in transition, such as the republic of serbia, the intellectual property right has one additional function, which, from the point of view of current economic policy, sometimes comes as a priority. it is a function of attracting foreign direct investments (kanwar & evenson, 2009). in the conditions of global economy, capital searches for favourable conditions for doing business. efficient legal protection of intellectual property encourages foreign companies to import products and services based on new technologies, renowned trademarks and service marks, and the so-called creative industry into the country that facilitates these conditions. on the other hand, an efficient system of intellectual property protection represents a constituent part of the business environment which favourably influences the development of host knowledgebased economy, stimulates research and development projects and the development of the sector of new economy (kanwar & evenson, 2009; yang & maskus, 2009; bilen-katić, 2010). in such a way, serbian economy can transform from a predominantly net-user into a net-provider of intellectual property. observed in the middle and long-terms, it can favourably influence the results in foreign trade. 2. intellectual property rights in the republic of serbia the republic of serbia is a country with a long tradition in the legal protection of intellectual property. the kingdom of serbia was one of the 11 founding states of the paris union for the protection of intellectual property in 1883. although the first office for the protection of industrial property in the kingdom of serbs, croats and slovenians, later the kingdom of yugoslavia, was established in 1920, the first legal texts which regulated this area had been enacted in 1884, when the law on trademarks and the law on design were adopted. today, the intellectual property office of the republic of serbia (ipo) that has changed its name and competences during more than 90 years of its existence, is an independent governmental institution in charge of all industrial property rights except plant varieties (which right is under the competence of the ministry of agriculture, forestry and water management), as well as of copyright and related rights. apart from administrative tasks, the ipo is also responsible for the following: application of international agreements regarding intellectual property protection, presentation and representation of interests of the republic of serbia in international organizations specialized in intellectual property protection, supervision of collective societies in the area of copyright and related rights, development of intellectual property protection, information and educational activities related to intellectual property protection. regarding the ipr legislation in the republic of serbia, the national ipr laws have been continuously harmonized with the eu legislation. this process has been intensified since 2000, when the stabilisation and association process has been launched. also, all international conventions administered by the world intellectual property organization (wipo) were ratified and implemented. after seven years of validity of the agreement between the federal government of the federal republic of yugoslavia and the european patent 88 2014/70management journal for theory and practice management organisation on cooperation in the field of patents — co-operation and extension agreement, in 2010, the republic of serbia became a member of the european patent convention, and thus a full member of the european patent organization (epo). taking into consideration national and international regulations in force in the republic of serbia, the conclusion is that the republic of serbia provides a high quality legal ground for the protection of intellectual property, which complies with high international standards. however, there is a need for further work, particularly in the context of accession of the republic of serbia to the world trade organization and the further course of european integrations. this particularly relates to the eu accession process, since according to the stabilization and association agreement (article 75 and 139) and the interim agreement (article 40, paragraph 3), the republic of serbia has an obligation to secure the level of protection of the intellectual property similar to the level existing in the community, including efficient means for the enforcement of those rights, in the period of 5 years since the interim agreement entry into force. in the last few years, the ipo has been in the process of intensive human resources transformation and modernization with the aim of increasing institutional capacities for the purpose of an efficient execution of its competencies. largely due to the foreign aid (the eu funds, funds of the european patent office and the world intellectual property organization), a considerable improvement has been achieved in the field of ict infrastructure, which has also enabled the ipo stakeholders to use the web site of the ipo and access the national databases of the industrial property. this process continues in the context of extension and a general shift in focus of the ipo from the administrative tasks (conducting administrative procedure) towards client-oriented activities, such as providing information, education, mediation and coordination between the representatives of certain stakeholder groups. since 2008, the ipo has put a lot of effort in developing educational and information activities and providing support to the innovative stakeholders. the realization of these activities has been backed up by the eufunded project “support to the establishment of the education and information centre (eic) in the ipo”. since january 2010, with the overall aim of streamlining ipo in this field, the eic has been set and became fully operational. the main goals of the eic are oriented towards: providing information on nationally granted rights by promoting the use of national databases, raising awareness and understating the benefits of ip, especially to the smes, and improving cooperation with all stakeholders’ groups. in july 2011, the parliament of serbia adopted the strategy for the development of ip for 2011-2015 with a list of concrete measures to be implemented in order to advance the innovation in serbia, stimulate direct foreign investment, influence the development of national knowledge based economy and stimulate research and development within serbia. the strategy’s long term goal is to transform the serbian economy from a predominantly net-user to a net-creator of ip. the strategy focuses on four main areas: legal and institutional basis for the protection of intellectual property, suppression and sanctioning infringements of intellectual property rights, economic implementation of intellectual property and raising public awareness and education. the section of the action plan to the strategy related to raising awareness and education included the increase in publicity and ip promotion, systematic planning awareness raising activities, provision of support for lecturing on ip at faculties and strengthening of the network between the eic and business support institutions, universities, enforcement authorities and other ip stakeholders. 3. strengthening the client-oriented approach in the ipo of the republic of serbia numerous results have been achieved in the last four years. regarding dissemination of information and education among smes, the eic and the ipo have developed specialized services for smes, such as the intellectual property pre-diagnosis (ipp), the ip response, tailor-made seminars for companies and specialized seminars and workshops in business support institutions (serbian chamber of commerce, network of chambers of commerce, national agency for regional development and network of regional development agencies) designed for their staff as well as for representatives of smes in their respective regions, and other. 3.1 intellectual property pre-diagnosis the ipp represents an evaluation of the intellectual property factors of any enterprise by the placement of ip into the appropriate context and taking into account numerous parameters. it has been designed for all enterprises wishing to assess their potency in the area of ip and to use it for their development. the ipp 89 management journal for theory and practice management 2014/70 analysis provides guidelines to the enterprise for developing an ip strategy and including it in the corporate strategy management. enterprises can benefit from this service in various ways. primarily, ipp provides sincere diagnosis of the existing situation in the company in view of its needs in connection with industrial property, based on an objective and qualified analysis. apart from examining the existing ip, this service offers clients a possibility to get an insight into potential future benefits that industrial property can generate. in that context, by simultaneously emphasizing the dimension of protection and the other aspects of exploiting industrial property, enterprises are offered support in deciding how and where to use their intellectual property. it is important to note that ipp focuses not only on patents, trademarks and other “standard” ip rights. it also includes identification of “soft ip” elements, such as know-how, confidential information and trade secrets. in light of that, companies also receive recommendations and suggestions for the management of these rights. intellectual property pre-diagnosis is performed by experts of the education and information centre of the intellectual property office. the process consists of four steps: preparation for the visit to the enterprise, visit to the enterprise, compiling a report and delivering the report on ipp. since the initiation of the service in july 2010 up to the end of 2013, 112 ipp visits have been carried out throughout serbia. this resulted in new patent and trademark applications from the companies in which ipp has been carried out. in total, 69 applications for registering different intellectual property rights have been filed solely as a result of the ipp consultancy service (this number includes 3 patent applications, 2 petty-patent applications, 54 trademark applications and 10 industrial design applications). 3.2 ip response in september 2013, the ipo has launched the adjusted version of the ip response in the serbian language, which represents the tool originally developed by the danish patent and trademark office. this online tool provides an analysis of the knowledge potential and its alignment with companies’ business. the service includes a 15-minutes test which a user completes online, with questions covering areas of business knowledge strategy, company procedures, resources and concrete business results. by collecting the necessary data from the user during test, the tool generates a report, which contains the main steps for managing intellectual property rights and other knowledge-related resources. in total, 35 companies have used this service from september to december 2013. 3.3 tailor-made seminars since the establishment of the education and information centre, this ipo department organized 339 educational events (seminars, workshops, conferences and other) for 8878 attendees. in relation to the seminars for smes, in the period from june 2010 to december 2013, the total of 86 educational events for 1791 participants were organized by the eic alone or in cooperation with the business support institutions. however, the number of participants from smes in the educational events of eic is higher, since many participants from the sme sector participated in other educational events which were organized not strictly for companies. educational events normally include lectures on different intellectual property rights, application filing procedures and rules, ip management aspects, soft ip features and other, depending on the audience. 3.4 publications regarding raising awareness and understanding benefits of ip among smes, the eic and the ipo have published 18 different publications on intellectual property, which include guides, studies and handbooks. one of the most important publications is the study named “small and medium enterprises and intellectual property” dated late 2010, which revealed an increase in influence of the ip protection on business in serbia. in addition, the education and information centre publishes the eic newsletter on a quarterly basis. the newsletter includes sections dedicated to stakeholders, education and information providing. it is published on the eic website and also distributed in electronic and printed forms to stakeholders. a total of sixteen newsletters have been published so far. publications of the education and information centre also include various leaflets on specific ip rights, innovativeness and other ip-related issues. 3.5 support to the technology transfer process in november 2010, the ipo and the university of belgrade signed the contract on support to the ipo and on establishment of a technology transfer office (tto) at the university of belgrade. the establishment of the tto was specified in the ipa national project “support to the establishment of the education and information centre”. the contract stipulates that both parties should cooperate on promoting and commercial90 2014/70management journal for theory and practice management izing intellectual property rights, as well as on enhancing understanding and application of iprs in various activities of the university. the tto received strong support by the ipo as expert partner in relations between the university and economy and in improving the use of research results published at the university. it should also be noted that in 2008 ipo has reached a cooperation agreement with the technical faculty of the university of novi sad. in relation to educational activities towards academia, the education and information centre carried out 107 educational events (lectures, round tables and workshops) for faculties, institutes and secondary schools in the period from june 2010 to december 2013. the intellectual property office also supports the tempus project of setting up ttos at universities of novi sad, kragujevac and niš. 3.6 other activities of the eic in the period 2010-2013 other activities aimed at raising awareness on ip include 28 conferences for public, 26 appearances of the eic experts at specialized fairs as organizing or lecturing party and 36 open door consultations, which include a 2-hour provision of information on all ip types in direct consultation with interested parties in the premises of the ipo one day per month. in order to support capacity building in the field of ipr enforcement, the ipo and the eic have organized comprehensive training for enforcement authorities in serbia in 2011 and 2012. the training was carried out for various groups of stakeholders: market inspectorate, customs administration, police and representatives of courts and public prosecution offices, tourism inspection and other. it was divided into basic and advanced training and comprised 39 seminars in total. for this purpose, experts from the united kingdom and denmark were engaged as lecturers together with experts from the ipo of serbia. 4 recent trends in ipr applications like most of the national ip offices in the world, the ipo of serbia does not keep any record on the exploitation of intellectual property rights by their respective holders, making it very difficult to assess the actual efficiency of the use of particular intellectual property rights on the market. therefore, filed applications for particular ip rights are generally used as indicators of the use of ip system by companies and other ip stakeholders. looking at the ten-year statistical data of filing domestic patent applications, it is evident that the share of patent applications from companies and faculties and institutes has been slightly growing in recent years. it should be noted that the number of patent applications from these entities experienced steep growth in 2012. regarding the applications from companies, this strong upward trend continued in 2013, while the number of patent applications from universities and institutes declined to the level recorded in 2011. as far as trademark and design applications are concerned, they experienced a slight decline in 2012, followed by the sharp increase of the number of applications in 2013. the upward trends are considered to be largely linked with the increase in eic educational and awareness raising activities and the introduction of ip-specialized services in the last three years. the following table contains the data on patent, trademark and industrial design applications filed in the period between 2011 and 2013. the data from this period have been selected and presented based on the fact that the full availability of the new ipo services and the increase in the number of seminars and workshops were achieved only from the second half of 2010. table 1: domestic patent, trademark and design applications for years 2011-2013: 91 management journal for theory and practice management 2014/70 ipr applications / year 2011 2012 2013 patents applications from companies 8 18 31 patents applications from universities and institutes 21 30 19 trademark applications 1135 1113 1334 industrial design applications 78 66 94 references: [1] al-ali, n. (2003). comprehensive intellectual capital management. john wiley & sons, new jersey. [2] bader, m. (2006). intellectual property management in r&d collaborations. the case of the service industry sector. physica-verlag, heidelberg. [3] b. bilen-katić. (2010). uspostavljanje kancelarija za transfer tehnologija na univerzitetu u beogradu. tematski zbornik radova xvii naučnog skupa međunarodnog značaja ”tehnologija, kultura i razvoj“, sept. 1-2, 2010, tivat, montenegro, pp. 223-232. akademska misao: belgrade. [4] brkanović, i. (2010). small and medium enterprises and intellectual property. center for development of entrepreneurial society. intellectual property office. retrieved from http://www.zis.gov.rs/upload/documents/pdf_en/pdf/study_smes_and_intelectual_propertyen_final.pdf [5] cowan r. & harison, e. (2001). intellectual property rights in a knowledge-based economy. paper drawn from the report commissioned by awt published as awt background study no. 21 (june 2001). merit, university of maastricht. [6] government of the republic of serbia. (2011). strategy of the intellectual property development. official gazzette of the republic of serbia, no. 49. [7] grandstand, o. (1999). the economics and management of intellectual property. edward elgar. northampton, ma. [8] harris, m., harris, p. & hannah, s. (1998). into the future: the foundations of library and information services in the post-industrial era. ablex publishing corporation, greenwich, ct. [9] intellectual property office of the republic of serbia. (2013). annual report for 2012. retrieved from http://www.zis.gov.rs/upload/documents/pdf_sr/pdf_o_nama/gi2012%20final_web.pdf [10] intellectual property office of the republic of serbia. (2012). annual report for 2011. retrieved from http://www.zis.gov.rs/upload/documents/pdf_sr/pdf_o_nama/gi2011_web.pdf [11] intellectual property office of the republic of serbia. (2011). annual report for 2010. retrieved from http://www.zis.gov.rs/upload/documents/pdf_sr/pdf_o_nama/godisnji%20izvestaj%202010%20web.p df [12] intellectual property office of the republic of serbia. (2013). informator o radu. [document in serbian] retrieved from http://www.zis.gov.rs/upload/documents/pdf_sr/pdf/informator/2013/informator_decem bar%202013_ver%2001.pdf [13] kanwar s. & evenson, r. (2009). on the strength of intellectual property protection that nations provide. journal of development economics 90, 50-56. 92 2014/70management journal for theory and practice management economic growth relies on knowledge. however, there is a need to put knowledge in a framework which enables its management, in terms of materialization, protection and commercialization. the system of intellectual property rights supports this process. if there were no clearly defined intellectual property rights, the market would not allow individuals and firms to exclude potential competitors from using new knowledge, therefore undermining exploitation efforts, benefits and also future investments into research and new knowledge generation. a general attitude is that the intellectual property system in the republic of serbia provides a fertile ground for the enhancement of creativity and innovativeness. for several years now, the intellectual property office of the republic of serbia provides services of ipr registration and also educational activities for various groups of stakeholders. in addition to this, the activities of the education and information centre, which was established in 2010, strongly increased the raising of awareness and educational activities of the intellectual property office. in the last few years, an increase in domestic patent applications filed by companies has been recorded. the upward trend has also been shown at trademark and design applications, which can be generally attributed to companies as filing parties. the recorded trends send a signal that the awareness of the benefits of the ip system among companies in serbia has been increased. the upward trends coincide with the strengthening of the awareness raising and specialized ip consultancy efforts by the intellectual property office. this particularly refers to a large number of participants at seminars organized by the education and information centre and also to the results of the ipp consultancy service performed for companies in serbia. we can, therefore, conclude that newly developed specialized services and the increase in awareness raising activities of the intellectual property office, particularly with the support of its department – the education and information centre, greatly contribute to the increase in use of the ip system by companies in serbia. conclusion [14] levi-jakšić, m. ed. (1995). inovativno preduzeće, fakultet organizacionih nauka, beograd. [15] sveiby, k.e. (1997). the new organizational wealth: managing and measuring knowledge-based assets. berrett-koehler, san francisco. [16] caenegem, w. v. (2002). intellectual property and intellectual capital. bond university, faculty of law, law papers. [17] yang, l. & maskus, k.e. (2009). intellectual property rights, technology transfer and exports in developing countries. journal of development economics 90, 231-236. receieved: november 2013. accepted: march 2014. branka bilen-katić intellectual property office of the republic of serbia. bbilenkatic@zis.gov.rs branka bilen-katić is an assistant director at the intellectual property office of the republic of serbia and holds an m.sc in mechanical engineering and naval architecture. her areas of expertise include public administration and european integrations. she is specialized in intellectual property and project management issues. she is also author of many articles published in specialized technical journals. nikola radovanović intellectual property office of the republic of serbia nradovanovic@zis.gov.rs nikola radovanović is a consultant and lecturer at the intellectual property office of the republic of serbia and a ph.d. candidate at the university of belgrade, with the background in economics. he is specialized in knowledge management and intellectual property management. nikola radovanović published several papers and articles on the topics of knowledge management and intellectual property in specialized journals and magazines in serbia and abroad. 93 management journal for theory and practice management 2014/70 about the author 05_dusko jacimovic:tipska.qxd 49 duško jaćimović1, zoran rakićević2, jasmina omerbegović-bijelović3 1 the ministry of finance, the treasury, republic of serbia 2, 3 university of belgrade, faculty of organisational sciences management 2014/71 required and realized support to serbian agricultural farms at the beginning of the xxi century udc: 631.1(497.11),,20’’ ; 338.43.02(497.11),,20’’ doi: 10.7595/management.fon.2014.0011 spin´ 13, belgrade, 05-06. november 2013. 1. introduction agriculture represents an important branch of the economy of the republic of serbia (rs). the following facts can confirm that claim (statistical office of the rs): a) over 57% of the total territory of the republic of serbia belongs in the category of “agricultural land“; b) agricultural households and farms are the main habitat for 43.64% of the rs’s population and the main work environment for 21% of the citizens capable of working (among all economy branches, agriculture is the one that employs the largest part of the population) and they contribute to gross national product of the rs their share being 12.3% in it. agriculture farms (afs) represent the basic form of organizing economic individuals in agriculture. the main task in stimulating the agriculture sector is accomplished by supporting afs. in order to give an adequate support, it is necessary to record the requirements of afs for support and, according to that, define types and actions of support for the sme sector. 2. serbian agricultural farms an agricultural farm is a productive unit on which an economic society, a collective farm, an institution or other legal entity, entrepreneur or farmer performs agricultural production. there are different ways to classify afs and one of them is a classification according to registration. according to this criterion, there are two main types of afs: a) registered agricultural farms (rafs) – agricultural farms which are registered in the business registers agency and in the agricultural farms registry in the treasury of the ministry of finance; b) unregistered agricultural farms (uafs) – agricultural farms that are not part of the registration system. by registration, an af gains the right to get incentives for agricultural production (refunds, subventions, bonuses, credits, etc.), which, at the proposal of the ministry of agriculture, trade, forestry and water management, is enforced by the governmental decrees of the republic of serbia (through decrees). the paper focuses on the research of support provided to agricultural farms (af) in serbia, which are, in this paper, considered as smes. the basic idea of this paper is to analyze the support that is necessary to be provided to the existing af in modern serbia, with the aim of improving the level of quality in managing their business. the intention of the authors is to: 1. explore afs’ expectations from support; 2. determine the level of these expectations achievement; and 3. determine the critical areas where support is not at an adequate level, all with the aim of successful (effective and efficient) planning of support to afs. the results of this study are intended for afs, the state and its institutions that provide support to afs and other stakeholders. keywords: agricultural farms (afs), small and medium enterprises (smes), support for afs. agricultural farms can be classified by their size and the level of development, according to the following characteristics (jaćimović, 2013): the level of mechanization – a parameter by which the characteristic “mechanization, tools, attachable units, automatization and standardization of the production process” on the observed af are assessed; the size of the arable area – a parameter by which is measured the size of the area on which the agricultural production of the observed af is done is measured; human resources – the labour of the observed af; this characteristic represents the number of workers engaged on an af. according to these characteristics, family afs can be classified into the following categories: micro, small and medium agricultural farms and they belong to the following type of enterprise –the category of “small and medium enterprises” (smes). in view of smes, they are recognized as the enhancers of the national economy development, as the greatest potential of (self)employment and a generator of new jobs, and also as enterprises which have a great influence on national, regional and local development of the surroundings in which they are located (as a “tool” for stopping the migration of people from economically undeveloped areas) and which are increasingly taking on the character of international enterprises (taking into account the fact that they operate on the global market). the smes, according to the current reputation, represent the key source of the national economies’ growth (spicer&sadler-smith, 2006, p. 134). by virtue of the following facts, we can say that serbian afs require strong support from the community: a) there are 452,606 registered afs in serbia (according to the information from the treasury of the ministry of finance, there are 778,000 afs altogether in serbia); b) the average age of the agricultural machines is about 12 years (gulan, 2008); c) unfavourable educational structure of the rural labour and poor knowledge (97% of the rural population did not attend additional educational courses); d) human resources in afs do not have enough additional skills (54% of the rural population do not have particular knowledge and skills, according to living standard measurement study, 2007). 3. support to serbian agricultural farms all types of formal and informal financial and non-financial support (from individuals, enterprises, institutions, state, or suprasystems), are considered to be the support to smes and afs (rakićević et al., 2012). chrisman and mcmullan (2004) showed that small enterprises that use services of the public agencies as support have a higher rate of existence and a higher growth in comparison with the companies that do not use this kind of service. therefore, we can say that support has its significance and that, accordingly, the help to the sme sector can be more successful by upgrading the community’s support. an essential factor of influence on smes (and, within it, on afs), which is of great importance from the point of view of the support that is analyzed in this paper, are the sme’s surroundings. business environment represents the business potential, namely, the refund of smes (lazić-rašović & omerbegović-bijelović, 2006), and, according to porter, “the root of enterprises’ competitiveness is precisely in the nature of the surroundings in which they operate“. the business surroundings’ participants of sme are its stakeholders: buyers, suppliers, competitors, investors and banks, educational and research institutions, state and its institutions, local community, ecologically oriented and other similar organizations, media, organizations and agencies which provide support to the sme sector (omerbegović-bijelović, 2006, p. 5). smes can gain a great benefit of and get support and help from all stakeholders from the surroundings (regardless of whether this help is money or other material resources, knowledge, information, etc.). as a rule, every stakeholder has an interest to follow (mainly to help and support) existence/development of a concrete sme. the support to agricultural farms can be done via their stakeholders: state (its ministries and agencies for rural development, industry, agriculture, tourism, education, traffic, infrastructure, economics, etc.), collective farms and associations, local rural communities and international organizations and enterprises that do their business in the branch of agriculture. 50 2014/71management table 1 presents the review of some support programmes designed for serbian agricultural farms at the beginning of the xxi century. these types of support programs are usually realized through regional development agencies (“regional centers for the development of sme and entrepreneurship“, as they were called). 4. the research of serbian agricultural farms’ requirements for surroundings’ support the research on which this paper focuses on was done during 2012; the record of the conditions was gotten by taking a sample from agricultural farms (afs) from the territories of the following municipalities: pančevo, smederevo and čačak (jaćimović, 2013). in these municipalities 72 afs were polled and there were three different categories within these 72 afs (they were classified according to their activity: crop farming; fruit and vegetable growing; livestock farming). in the observed sample there is an equal number of all types of agricultural farms (classified by their activity). the poll consisted of questions about the expected types of support where afs were expected to express their opinion. types of support (table 2) were classified into seven categories: i) fair economic conditions for agricultural farms to do their business; ii) subventions for agricultural activities; iii) help for the rural infrastructure development; iv) protection from natural disasters protection; v) help for the development of villages; vi) help for agricultural farms’ activities; vii) more convenient gaining and exercise of the rights of registered agricultural farms. besides that, each af was also to answer the question about whether previously expected types of support (from the above mentioned seven categories) were realized or not. table 2 shows the detailed report of information obtained from the poll. 51 management 2014/71 institution support program to af national agency for regional development 1. information and advices about a possibility to use agricultural credits and incentives. ministry of economics and regional development 2. improving the quality of tourist offer for 2012. 3. (credits for afs and entrepreneurs.) regional agency for socio-economic development „banat“ 4. establishing and equipping regional agency for supporting the development of fruit and vegetable production; 5. agri-eco industrial park – north banat; 6. intermunicipal agricultural work zone; 7. sample fields for supporting the development of fruit and vegetable growing – kikinda. center for the development of jablanica and p inja districts 8. the development of consortium and associations of agricultural producers in jablanica and p inja districts. regional development agency “south“ 9. arrangement of agricultural soil via land consolidation and building irrigation systems; 10. support to the viniculture development through the resumption of wine-growing hills in niš; 11. support to the fruit growing development in the niš region; 12. support to the livestock farming development – svrljig, gadžin han. regional development agency „zlatibor“ 13. the increase in competition between small and medium enterprises that are active in producing and processing raspberry in west serbia; 14. the improvement of agricultural production by applying scientifically based approach to doing agriculture; 15. upgrading the productivity and quality of fruit production in the zlatibor district. regional development agency „srem“ 16. contribution to better protection of the environment and creating conditions for producing more quality food and agricultural products. table 1: some of the realized programs of support to agricultural farms 52 2014/71management table 2: expected and realized support to afs in serbia at the beginning of 21st century no required support expected realize d difference ran k (1) (2) (3) (4) (5) = (3)-(4) (6) i fair economic conditions for afs’ business 89.10% 28.20% 60.90% iii 1 well-timed information about agricultural businesses’ conditions 100 % 56.8 % 43.20% 35 2 higher prices of agricultural products 88.6 % 20.5 % 68.10% 21 3 more favourable credits for agriculture 95.5 % 43.2 % 52.30% 32 4 guaranteed purchase price 68.2 % 2.3 % 65.90% 22 5 tax relief (the refund of vat for buying modern mechanization, etc.) 93.2 % 18.2 % 75.00% 14 ii subventions for agricultural activities 84.09% 20.79% 63.30% ii 6 higher subventions for seeding 88.6 % 11.4 % 77.20% 12 7 higher subventions for mechanization 97.7 % 15.9 % 81.80% 7 8 higher subventions for fuel 95.5 % 75 % 20.50% 47 9 higher subventions for fertilizing 81.8 % 13.6 % 68.20% 18 10 higher subventions for plant protection 70.5 % 2.3 % 68.20% 19 11 higher subventions for irrigation systems 72.7 % 9.1 % 63.60% 26 12 higher subventions for insurance 81.8 % 18.2 % 63.60% 27 iii help for the rural infrastructure development 53.72% 14.05% 39.67% v 13 embankment and flood protection 0 % 0 % 0.00% 53 14 rural transport infrastructure development 77.3 % 43.2 % 34.10% 40 15 more traffic stations 6.8 % 0 % 6.80% 52 16 the development of po/cable network in villages 18.2 % 2.3 % 15.90% 50 17 electricity supply system 43.2 % 6.8% 36.40% 38 18 the improvement of water supply system 72.7 % 22.7 % 50.00% 33 19 the improvement of fire prevention 36.4 % 6.8 % 29.60% 45 20 the improvement of sewer network 88.6 % 2.3 % 86.30% 5 21 the improvement of gas network 50 % 4.5 % 45.50% 34 22 the improvement of waste disposal methods 100% 34.1 % 65.90% 23 23 more efficient snow removal 97.7 % 31.8 % 65.90% 24 iv protection from natural disasters 40.15% 2.65% 37.50% vi 24 the improvement of anti-hail protection 88.6 % 0 % 88.60% 3 25 preventing floods in/around villages 0 % 0 % 0.00% 54 26 preventing drought in/around villages 65.9 % 0 % 65.90% 25 27 reduction of earthquake consequences 0 % 0 % 0.00% 55 28 reduction of strong wind consequences 27.3 % 0 % 27.30% 46 29 the improvement of protection from insects invasion 59.1 % 15.9 % 43.20% 36 v help for the villages development 76.05% 7.33% 68.72% i 30 education development in villages 81.8 % 4.5 % 77.30% 11 31 health service development in villages 95.5 % 4.5 % 91.00% 2 32 culture development in villages 84.1 % 27.3 % 56.80% 29 33 trade (and export) development in villages 95.5 % 13.6 % 81.90% 6 34 industry development in villages 43.2 % 4.5 % 38.70% 37 35 the development of villages’ level of organization 61.4 % 2.3 % 59.10% 28 36 crafts development in villages 88.6 % 9.1 % 79.50% 10 37 tourism development in villages 52.3 % 0 % 52.30% 31 38 sport development in villages 93.2 % 13.6 % 79.60% 9 39 ecological development of villages (controlling waste, organic agriculture, renewable energy resources, etc.) 79.5 % 2.3 % 77.20% 13 40 media development in villages 38.6 % 6.8 % 31.80% 42 41 taking care of young people (retaining them in villages) 95.5 % 0 % 95.50% 1 42 taking care of old people 79.5 % 6.8 % 72.70% 15 the results of the poll research, presented in table 2, indicate that there is a high level of expectations directed by afs to the following categories: i) fair economic conditions for agricultural farms to do their business (and, within that, especially timely information about the conditions for agricultural business, tax relief, more favourable credits for agriculture, higher prices of agricultural produce); ii) subventions for agricultural activities (higher subventions for mechanization, fuel, seeding, insurance); iii) help for the rural infrastructure development (improving waste disposal, more efficient snow removal, the development of highway construction and maintenance industry in rural areas, the improvement of sewer network); iv) natural disasters’ protection (improvement of anti-hail protection, prevention of drought in villages); v) help for the development of villages ( the development of education, health service, culture, trade, crafts and sport in villages); vi) help for agricultural farms’ activities (organizing farms, improvement in the organization of purchase, rights gained on the grounds of work); vii) more convenient gaining and exercise of the rights of registered agricultural farms (simple process of registering afs, low-cost registration). results (in table 2) show the low percentage of realization of the expected types of support (column 4 – “realized“). the analysis of deviation between the realized and the expected values can be seen in column 5 (“difference“). these results indicate that support is nott at an adequate (expected) level yet, and that it is necessary to put in more efforts into achieving the expected values. higher ranged fields in column 6 are a priority when talking about support (for example: taking care of young people (retain them in villages), health service development in villages, improvement of anti-hail protection, rights gained on the grounds of work, the improvement of sewer network, trade (and export) development in villages, higher subventions for mechanization). 53 management 2014/71 no required support expected realize d difference ran k (1) (2) (3) (4) (5) = (3)-(4) (6) vi help for afs activities 67.71% 13.87% 53.84% iv 43 organization of farmers 88.6 % 15.9 % 72.70% 16 44 the improvement of help in harvest gathering 68.2 % 13.6 % 54.60% 30 45 favourable storage of gathered harvest 54.5 % 20.5 % 34.00% 41 46 more help in transport of agricultural products 20.9 % 4.5 % 16.40% 49 47 the improvement of organization of purchase 90.9 % 20.5 % 70.40% 17 48 constant advisory support for afs 81.8 % 47.5 % 34.30% 39 49 jobs for inmates 34.1 % 2.3 % 31.80% 43 50 higher pension income 81.8 % 0 % 81.80% 8 51 rights guaranteed by the labor law 88.6 % 0 % 88.60% 4 vii more convenient gaining and using the rights of raf 97.75% 64.78% 32.98% vii 52 simple registration of afs 100 % 31.8 % 68.20% 20 53 low-cost registration of afs 100 % 68.2 % 31.80% 44 54 simple and low-cost re-registration 95.5 % 77.3 % 18.20% 48 55 compliance with the re-registration procedure 95.5 % 81.8 % 13.70% 51 conclusion the paper presents a research into the support to agricultural farms in serbia. the research indicates that afs in serbia have higher expectations from the state, its institutions and organizations about the support which should improve their growth and development. agricultural farms’ support expectations were researched, results are presented and, according to the difference between them, areas that have a priority in getting support are identified. this support, concerted with the agricultural farms’ demands, would help improving the quality of afs’ operations, as well as growth and development of agriculture as one of the strategic branches of the serbian economy. further research on this topic will be evidenced by measuring the effect of the support provided to afs, with the aim of presenting those results to the organizations which provide support, in order to make national afs achieve the standards of afs from the most developed countries in the world. references [1] chrisman, j. j. & mcmullan, e. w. (2004). outsider assistance as a knowledge resource for new venture survival. journal of small business management, 42(3), 229-244. [2] gulan, b. (2008). the possibilities of demographic development of serbian villages. (in serbian: mogućnosti demografskog razvoja sela srbije, the agro-business (magazine), accessed at: http://www.agropress.org.rs/tekstovi/10097.html (19.10.2013) [3] jaćimović, d. (2013). planning of rural households' translation into registered farms (in serbian: planiranje prevođenja seoskih domaćinstava u savremena poljoprivredna gazdinstva) master thesis (the mentor: jasmina omerbegović-bijelović, ph.d.), faculty of organisational sciences, belgrade. [4] lazić-rašović, g. & omerbegović-bijelović, j. (2006). the connections of sme and its environment as a business resource. conference proceedings of xx international symposium symorg “management and organizational changes – challenges of european integration”, faculty of organisational sciences, zlatibor. [5] omerbegović-bijelović, j. (2006). planning and preparation of production and servicing. university of belgrade, faculty of organizational sciences. [6] porter, м. (1990). the competitive advantage of nations, the macmillan. [7] rakićević, z., omerbegović-bijelović, j., lazić-rašović, g. (2012). improvement of smes environmental support planning based on new structure of support determination, conference proceedings of xiii international symposium symorg 2012 „innovative management and business performance“. 634642, zlatibor, june 5-6. [8] statistical office of the republic of serbia (“demography statistics in the republic of serbia, 2011“, „statistical yearbook of the republic of serbia population, 2012“, “labour force survey, 2012“, “living standard measurement study, serbia“, 2007), downloaded from: http://webrzs.stat.gov.rs/website/default.aspx (12.10.2013) [9] spicer, d. & sadler-smith, e. (2006). organizational learning in smaller manufacturing firms. international small business journal, 24(2), 133–158. receieved: december 2013. accepted: june 2014. 54 2014/71management duško jaćimović ministry of finance, the treasury, republic of serbia, jacimovic.dusko@gmail.com duško jaćimović, m.sc., works at the treasury of the ministry of finance, rs. he completed his master studies at the faculty of organizational sciences (fos): planning of rural households’ translation into registered farms (in 2013). his main interests are: the development and promotion of agricultural farms (afs), small and medium enterprises (smes), and particularly observing afs as smes and their support. he was an executive of a small enterprise and he is himself engaged in work in agriculture. zoran rakićević university of belgrade, faculty of organisational sciences zoran.rakicevic@fon.bg.ac.rs zoran rakićević, m.sc., works as a teaching assistant at the faculty of organizational sciences (fos), department for operations management (chair of production and service management). he did two master studies: entrepreneurship and management of smes (in 2012) and operational research and computational statistics (in 2013), and is currently enrolled in phd studies at the fos. his research and teaching area of interest includes entrepreneurship and management of smes, planning of production and servicing and operations management. jasmina omerbegović-bijelović, university of belgrade, faculty of organisational sciences omeja@fonbg.ac.rs jasmina omerbegović-bijelović, ph.d., is full time professor and head of chair of production and service management (department for operations management, faculty of organizational sciences, university of belgrade). her main areas of interest are: planning (of production, services and new business venture), entrepreneurship and management of small and medium enterprises, resource management, servicing management, tools for quality improvement and problem solving. she is an author of the metamanagement and metacybernetic system concepts and has published numerous papers in the fields mentioned above. 55 management 2014/71 about the author 08_natasa petrovic:tipska.qxd 82 nataša petrović 2017/22(2) nataša petrović university of belgrade, faculty of organizational sciences, serbia udc: book reviews doi: 10.7595/management.fon.2017.0019 the science and research practices of the last few decades emphasize the growing ecological issues and crises caused by the activities of humankind, while obvious environmental problems have reached their critical point in the 21st century, and only continue to grow rapidly. in parallel, global population growth has led to an increase in the inefficient consumption of natural resources. this has resulted in immoderate depletion of non-renewable energy sources. there are forecasts that world energy consumption will peak in 2035, with the world economy entering into a prolonged depression after 2040. also a result of energy production and consumption is an increase in green gases emissions and consequent global warming, with global carbon dioxide emissions from fossil fuels projected to peak in 2027. this leads to violations of the basic concept of sustainable development, i.e. the principle of intergenerational justice, which is defined as meeting the needs of present generations without jeopardizing the ability of future generations to meet their needs. our responses as a still post-industrial civilization to this unenviable situation are reflected not only in international agreements like the united nations framework convention on climate change, the kyoto protocol, and foremost, the paris agreement, but in the body of theories and practices of this field, an example of which is the book our renewable future: laying the path for 100% clean energy. the work’s authors are energy expert richard heinberg and scientist david fridley, who in our renewable future try to respond to the challenges brought about by the shift to 100 percent renewable energy as the transition to totally clean energy use. bearing the above in mind, the authors tried and succeeded in, through 248 pages, transparently covering most, if not all, major topics of this crucial issue. thus, through 11 chapters in which they strived to answer the question: “how would a 100 percent renewable world look and feel?”, heinberg and fridley focused on the following: the basics of energy, currently power society, energy supply and demand issues, energy quality, available renewable energy capacity, and conclusions about future energy supply. for these reasons, the book’s authors included the following: the laws of thermodynamics; energy returned on energy invested (eroei, or eroi); net energy analysis (nea) (represents a basis for economic usefulness of any energy resources); life cycle analysis (lca) (evaluation of energy technologies as well as products and services); energy resource criteria (energy density, direct monetary cost, other resources needed, renewability, scalability, location, reliability, transportability); demand management (managing the increased penetration of variable electricity generation such as solar and wind); transition to renewable transport fuel system; non-energy uses of fossil fuels as feed stocks; the problem of economic growth; nuclear energy (the same role as wind, hydro, and solar); transition of today’s coal power industry to carbon capture and storage (ccs); the need for massive technology improvements; the injustice of today's energy wealth as well as energy problems of rapidly industrializing nations (china, india, and parts of southeast book review of: our renewable future: laying the path for 100% clean energy by richard heinberg and david fridley. island press, washington, dc, 2016. 248pp. isbn-13: 978-1-61091-779-7 (paper), isbn-13: 978-1-61091-780-3 (electronic) jel classification: q290 corresponding author: nataša petrović, e-mail: petrovicn@fon.bg.ac.rs asia); the role of governments in support of overall switch from fossil fuels to renewable energy and, last but not least – crucial national and international climate policies and a responsibility of every individual. after all, the authors prioritize solar and wind as the primary recommended renewable sources, claiming that solar and wind have “spectacular growth”, especially solar, which will become the dominant electricity source by 2024. in view of this, the book presents two case studies of the most foremost countries in terms of renewable energy use, spain and germany. spain has succeeded in ensuring 27.4 percent of its electricity is derived from solar and wind (in 2014) and germany uses about 30 percent of electricity from renewable sources (including hydro). perhaps the most interesting part of the book is its forecasting the total amount of energy that we will need for “our 100 percent renewable future.” the work lists the following factors that will affect the future of energy supply: falling prices, technical improvements, public attitudes toward solar and wind energy, source intermittency, the need for storage and grid redesign, and the difficulties of electrifying heavy transport and many industrial processes. but it also presents the largest aggravating circumstance related to transitioning our economy to 100 percent renewable energy – “how shall we maintain social and material benefits to the world's people as population continues to grow, but energy availability declines and economies stall and contract?” finally, if stopping climate change is our goal (and it is), it’s no doubt that our renewable future: laying the path for 100% clean energy is a must-read, because as authors heinberg and fridley put it – “it’s all about energy.” (received/accepted) (september 2017 / september 2017) nataša petrović faculty of organizational sciences, university of belgrade, serbia e-mail: petrovicn@fon.bg.ac.rs dr natasa b. petrovic is a full professor at the university of belgrade faculty of organizational sciences, serbia, where she acquired her m.sc. (1999) and ph.d. (2002) degrees in environmental management. she is the founder and head of centre for environmental management and sustainable development. areas of her research include: environmental management, environmental science, sustainable development, green marketing, environmental education and education for sustainable development, climate change education, environmental risk management, sustainable energy management. 83 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03_sandra jednak:tipska.qxd 29 sandra jednak1, dragana makajic nikolic1, dragana kragulj1, mirko vujosevic1 1university of belgrade, faculty of organizational sciences management 2014/71 economic activities structure and development: evidence from serbia udc: 330.34.014(497.11)”2008/2011” doi: 10.7595/management.fon.2014.0012 balcor 2013, 07 – 12 september, 2013, belgrade – zlatibor, serbia 1. introduction economies undergo certain reforms in order to increase economic growth and development. in order to achieve the set goals, governments use different tools and mechanisms to make structural and institutional changes. the role of government is to coordinate and make decisions for the economy transformation and achieve the best possible economic performances. economic development demands the growth in production, employment and income. productivity increase and better distribution of natural resources and physical and human capital contribute fastest to achieving economic growth and development (cypher and dietz, 2009). due to different levels of development, different economies should combine various relevant concepts and theories of the classical economic analysis with the new models that provide wider approaches. moreover, depending on the available resources, the government has to invest in the activities that contribute to the rise of the gross domestic product. the aim of this paper is to analyse the influence of economic activities structure on the serbian economic development. the purpose of this paper is the analysis and optimization of investment into certain activities that contribute most to achieving economic development. investment problem is formulated as a portfolio optimization problem based on markowitz’ theory of mean-variance optimization. the rest of this paper is structured as follows: characteristics of sectors’ structure during economic development are presented in section 2. the overview of the serbian economic growth and the development strategies is given in section 3. in the methodology section the optimization model is introduced. the following section illustrates the application of the proposed model on the real data for the period 2008 2011. finally, concluding remarks are presented in the last section. 2. sectors’ structure during economic development different economic activities enable development. investments, productivity and competitiveness increase the income. depending on the available resources, certain economic activities are being developed that represent target activities for development. there are various models and strategies of growth and development. many economic models of growth and development are based on the analyses of efficient allocations of the available resources in a given economy, along with the change of institutional structure. for differences in the level of economic achievement in different countries are determined by the availability of resources and economic policies. economic development could be influenced by the structure of economic activities. the paper brings the analysis of serbian economic activities structure and its influence on the level of development during the period 2008-2011. the optimization model has been used to show economic activities to be invested in in order to achieve development. the results show that the most important economic activities in enhancing development are information and communication; finance and insurance; water supply, sewerage, waste management and remediation activities. keywords: economic activities, structure, economic development, serbia, optimization example, classical theories of economic development are: 1) rostow stages of growth, 2) market based, 3) international dependence and 4) structural change (todoro & smith, 2003). structural changes that are important and necessary for achieving growth and development are: decreased agriculture share in production, increase in industry production, changes in export structure, increased level of knowledge application and undergoing fundamental institutional changes. when transitional countries are observed, the structural change that occurred in production patterns is the reallocation of physical capital from inefficient to efficient sectors and the emergence of a new, competitive economic system (pintea).transitional countries need to make both structural changes and establishk a market based economy. those models are connected due to establishing market based economy that demands structural changes and vice versa. this is emphased by the obligations to fulfill the eu requirements. developing countries base growth upon agriculture. however, along with economic growth come the changes in the sectors` structure that economic growth is based upon. economic development is related to increasing the share of industrial sector, and decreasing the share of agriculture in the gdp (punnyasavatsut & coxhead, 2002; arandjelovic et al., 2013, savic, 2014). thus the development of industrial sector influences the service sector to gain more importance. owing to a wider usage of technology, the industrial sector becomes more profitable than agriculture. the usage of technologies, knowledge, human and physical capital helps establishing a more efficient industrial sector that increases the level of production. furthermore, the development of industrial sector causes changes in the export structure. the development of industry sector enables exports of industrial, knowledge and technology supported products. however, for achieving a higher level of development, institutional changes are necessary. new institutions and infrastructure lead towards modernisation and economy development. some economies apply traditional ways of achieving economic growth and development (capital, work), while the others manage their development by applying and implementing new factors, such as knowledge, new technologies and innovations. in order to speed up the development of an economy, there is a need for synergy, cooperation, and coordination of knowledge, innovation, and advanced technologies. new knowledge creates innovation, which has its applications in the manufacturing and services industry sectors (jednak, 2012). nowadays, the most developed countries and countries with high competitiveness have their economic growth and development based on the knowledge-based industries telecommunication, software, research and certain public sector activities (health care, social work activities and education). due to this fact, some of the transitional economies invest and enhance growth in those industries (jednak and mijatovic, 2012). the question of which economic activities should be the basis of the serbian economic development are explained in this paper by applying markowitz’ theory of mean-variance optimization. 3. overview of serbian economic growth and development strategies the government should do the analysis of all the available capital resources and provide a long-term economic growth and development by carrying out the appropriate economic policy (stigliz, 2006). the government can borrow or create the environment that would attract foreign investments in order to achieve a high gdp rate in a short run time. a country debt is usually considered to be foreign capital inflow, mostly provided by international institutions. on one hand, capital inflow can also influence export funding, customer loyalty increase, inflation decrease and appreciation of exchange rate, while on the other, it can increase the risk of the future decrease in capital inflow due to variations in exchange and interest rates. as for the serbian economy, besides borrowing, foreign direct investments are considered to be the significant source of economic growth and development. however, in the period after the economic crisis it is hard to attract foreign investors. an underdeveloped financial market, an unfavourable economic situation and economic performances make it harder and slower. there has been a drop in demand, and at the same time the investments decline. the foreign capital inflow decreased from 14.3% to 5.6% gdp (in 2009) and the slower pace of credit activities has resulted in a drop in production, income, personal consumption, and consequently in the drop in domestic demand (about 7%). for all these reasons, the government of serbia has changed its strategies for economic growth and development (jednak et al., 2013). the conomic growth and development of serbia rested on a large-scale domestic demand, import and the need for foreign funds. in the period 2001-2008, the economic growth was achieved (annual average of 4.9%) (report on the development of serbia / izvestaj o razvoju srbije, 2010) as a consequence of the un30 2014/71management dergone institutional reforms, economic and social policy and permissive environment in the international capital market (djordjevic and veselinovic, 2010). at the time, serbia was following the strategy of economic growth and development (2001-2008) that rested on the investment in the following sectors: 1) traffic, storage and connections, 2) trade and 3) financial brokerage. these economic activities were the basic components of the economic growth and amounted to 30% gdp. in the year 2001 agriculture, hunting, forestry, fishery and manufacturing comprised 32 % gdp, but their share decreased in 2008 to 24% gdp (the postcrisis model of economic growth and development of serbia / postkrizni model ekonomskog rasta i razvoja srbije 2011-2020). the influence of the economic crisis was reflected on the economic activities as well. the production growth in manufacturing achieved for the period 2001-2009 (18.6%) was annulled by the production drop of 8.7% in 2009. the number of employees decreased by 4.7%. however, in 2010 the manufacturing achieved a growth of 3.9%, while the export of goods recorded a growth of 24% and investments 5% (report on the development of serbia / izvestaj o razvoju srbije, 2010). however, when the “europe 2020” strategy was adopted, serbia worked out a new model of growth for serbia 2020. the new growth model was changed from consumer-oriented to pro-investment and export-oriented economic growth. the growth according to this new strategy is based on the reform of the public sector, economy restructuring and infrastructure development. the main objectives of this model are – increase in the number of employees, human capital improvement, investing in knowledge and technology, export-based growth, rational energy use and poverty decrease. accomplishing such objectives depends on: fixed investment increase, reducing the share of public consumption in gdp, raising the share of exports in gdp and reducing the current account deficit. furthermore, according to the ebrd, serbian strategic priorities are corporate and financial sectors and infrastructure. in the corporate sector, financing will be provided for privatisation and post-privatisation restructuring to both local and foreign corporations, while in supporting the financial sector, it will look for opportunities to develop new products. the ebrd, together with its partner ifis, has a role in developing transport, energy and infrastructure. the fiscal policy of serbia for 2013, with projections for 2014 and 2015 (the draft of the fiscal strategy for 2013 with projections for 2014 and 2015 / nacrt fiskalne strategije za 2013. godinu sa projekcijama za 2014. i 2015.godinu), envisages the following economic acitivites to be the basic ones for economic growth and development: agriculture, mining and power industry, transport, telecommunications, tourism, health care, education and science. according to the statistical office of the republic of serbia report of serbian economic activity for 2012, the highest growth of gdp was recorded for the following economic activities: information and communication, professional, scientific, innovation, technical, administrative and service industries. on the other hand, the greatest production reduction was in the sectors of agriculture, forestry and fishery, other service industries and in the sectors of accommodation and food services. the drop in industrial production was 3.4%. this fall was mostly influenced by the decrease in production in the sectors of power, gas and steam. agricultural production also declined by 17.5%. furthermore, there was a decrease in construction, retail, transport and storage activities, while the telecommunication and wholesale activities recorded growth. 4. metodology the mean–variance model, proposed by markowitz (1952), represents the basis for the modern financial portfolio theory. it is based on two conflicting criteria: the risk of a portfolio which should be minimised and the expected return on the portfolio which should be maximised. the return represents the performance of an investment while the risk of a portfolio is measured by the variance of return (cornuejols, 2011). although this approach has been originally developed for financial portfolios, it was applied in other areas. the problem of resource allocation between different regions within a state was observed as a portfolio optimization problem since the 1970s. the analogy between a regional economy and a stock portfolio was established by conroy (1974). this analogy is based on the statement that real resources which a region invests in any industry generate a variety of returns (employment, wage income, nonwage income or their weighted subsets) which are essentially stochastic. several years later, based on this concept, industrial diversification of nine regions in canada is measured using markowitz’ portfolio concept in order to compare the existing industrial portfolio with an efficient potential portfolio (louis, 1980). by analyzing the same approach on the case of us countries, brown, d. j., pheasant, j. (1985) proved that interindustry covariances are not uniform nationwide and that other data sets in addition to employment data should be investigated. 31 management 2014/71 a portfolio management framework as a basis for developing regional economic strategies is also given in (lande, 1994). the authors propose the us employment portfolio by considering employment growth rates and employment volatility. starting with the assumption that the regional (urban) economy has a lot in common with an investment portfolio, spelman (2006) applied the portfolio theory to the data on the economies of the 316 us metropolitan areas. the goal was to improve local economic development policy which includes both stability and growth. the portfolio optimization concept is widely applied on the individual industrial sector. junning and leung (2006) observe the hawaii’s agricultural sector as a portfolio composed of a variety of individual agricultural industries. using the data about the production value as a measure of the general performance of the agricultural sector, the authors applied portfolio analysis to assess the growth and stability of the agricultural industries. recently, a large number of research concerns the application of portfolio optimization in the energy sector. rodoulis (2010) uses the optimization portfolio theory to evaluate the planned electricity generation mix consisting of oil, natural gas, wind, and coal energy for the country of cyprus. the similar research was done by cucchiella et. al (2012) in the case of investment in italian renewable energies: biomass, wind, hydro and photovoltaic. as in the previous research, the goal was to minimize energy risk and energy dependency. westner and madlener applied a mean-variance portfolio analysis on the combined heat and power (chp) portfolio in the case of four european countries: germany, france, italy and the uk (2010), where regional diversification was investigated as well as in the case of germany (2011), where different chp technologies and the expected development of chp generation in germany where considered. the basic portfolio optimization model considers an initial sum for investment and n securities with random returns. the goal is to determine an investment proportion vector x = (x1,…, xn), also called a portfolio, which specifies the proportions of the initial sum to be invested in the n securities. the natural condition relating to x is: (1) we can now introduce s, the set of all feasible investment proportion vectors: (2) where the αi and ωi are lower and upper bounds on the xi. let vector µ = (µ1,…, µn) specify the expected returns of the n securities to be realised at the end of the observing period. the portfolio return can be expressed as: (3) the overall risk of the portfolio is then defined as a quadratic combination of the covariance of the securities included in it: (4) two optimization models can be formulated: the maximum return for a given level of risk (5), or the minimum risk for a given level of return (6). 32 2014/71management (5) where σ and r are the target values for the variance and expected portfolio return. many authors observe the portfolio selection as the bi-criteria problem with the return (3) and risk (4) as objectives and subject to (2). (ehrgott et al., 2004) however, incorporation of additional criteria and/or constraints into the model can be rarely found in literature. anagnostopoulos and mamanis (2010) formulated the portfolio selection as a three-objective optimization problem with risk, return and the number of securities included in the portfolio as objectives. steuer et al. (2006) give the example consisting of five different objectives (dividends, growth in sales, amount invested in r&d, social responsibility and liquidity) and even twelve in (steuer et al., 2005) which can be appended to portfolio return. in this paper, we investigate the problem of investment in different economic activities, taking into account two increases: employment and gross value added (gva). for this purpose we introduce the following notation: expected increase of employment of the i-th activity, i=1,...,n; expected increase of gva of the i-th activity, i=1,...,n. based on the given increases, the corresponding covariance and (i, j=1,...,n ) can be obtained. the mathematical model for serbian economic activities portfolio optimization: since greater importance is given to the gva increasing, the objective function in model (7) is the expected gva growth, which should be maximised. the first constraint refers to the expected employment increase, which should be at least re. parameter re can be estimated based on the optimal value of model (5) for portfolio optimization based only on employment increase. the second and third constraints are related to the risk of gva and employment increase, respectively. the set s is as defined in (2). the values of lower and upper bounds on the xi will be as follows. let be the optimal values of xi in model (5) based on gva and employment increase, respectively. then, the lower bound of on the xi in model (7) will be , where . analogously, the upper bound of on the xi in model (7) will be , where . 33 management 2014/71 (6) (7) 5. results and discussion data are used from the statistical yearbook of serbia for 2012. the data presented here are given at the level of the macroeconomic indicators (employment and gva) for the period after the economic crisis (20082011). table 1 shows the gva in current prices in mill rsd, while table 2 represents employment in different activities of the serbian economy. based on gvas in table 1, a gva rate for each economic activities and each year is determined, and the expected gva growth rate g is calculated as its average. table 1: gdp in different activities of serbian economy analogously to the previous case, based on the number of employers in table 2, the employment rate for each activity and each year is determined, and the expected employment growth rate e is calculated as its average. table 2: employment in different activities of serbian economy 34 2014/71management gva, mil rsd in current prices activities 2008 2009 2010 2011 µg agriculture, forestry and fishery 237474 218005 245127 284234 0.0673 manufacturing 373645 370264 389942 437953 0.0557 electricity, gas, steam and air conditioning supply 69284 86388 90119 101238 0.1378 water supply; sewerage, waste management and remediation activities 26754 28897 33736 38089 0.1255 construction 125692 111747 114513 127797 0.0099 wholesale and retail trade; 277794 258486 267969 292275 0.0193 transportation and storage 122502 126593 132582 141909 0.0503 accommodation and food service activities 25612 27693 27507 29768 0.0522 information and communication 106128 114393 123813 135778 0.0856 financial and insurance activities 77917 85076 94803 106502 0.1099 professional, scientific and technical activities 112861 97084 97926 118193 0.0253 public administration and defence; compulsory social security 91633 90452 100137 104203 0.0449 education 114757 119411 121467 134655 0.0554 human health and social work activities 144343 150012 151009 169188 0.0554 employment activities 2009 2010 2011 µe agriculture, forestry and fishery 40238 37392 34815 -0,0698 manufacturing 329491 301452 295363 -0,0526 electricity, gas, steam and air conditioning supply 28099 27854 27996 -0,0018 water supply; sewerage, waste management and remediation activities 32279 32240 32427 0,0023 construction 82032 74506 72405 -0,0600 wholesale and retail trade 190689 186748 183326 -0,0195 transportation and storage 91223 89003 86265 -0,0275 accommodation and food service activities 22520 20863 20392 -0,0481 information and communication 36646 36504 37738 0,0150 financial and insurance activities 38812 39305 39025 0,0028 professional, scientific and technical activities 50415 51758 52251 0,0181 public administration and defence; compulsory social security 71222 69897 70479 -0,0051 education 134795 136179 138391 0,0133 human health and social work activities 158740 159449 161016 0,0071 first, the mathematical model (5) for gva increase is solved. the obtained optimal values are given in the column “gva (5)“ in table 3. this solution implies that 41.69% of investment funds should be invested in electricity, gas, steam and air conditioning supply and 58.31% in water supply; sewerage, waste management and remediation activities. the expected gva increase in these activities is 13.06%. then, the mathematical model (5) for employment increase is solved, whose optimal values are given in the column “employment (5)“ in table 3. if employment is the only criterion for investment, optimal portfolio includes 85.05% investment in professional, scientific and technical activities and 14.95% in information and communication. the expected employment increase in these activities is 1.76%. finally, model (7), which includes the entire observed problem, is solved. due to the feasibility of the solution, the parameter re in the first constraint must be set to 50% of the optimal value obtained by solving the mathematical model “employment (5)”. the risk levels expressed by and have the same values as in corresponding models (5). the optimal solution of the mathematical model (7) is given in the column “optimal portfolio (7)“ in table 3. optimal portfolio suggests the following investment plan: 49.48% of investment funds should be invested in information and communication, 49.34% in financial and insurance activities, and 1.18% in water supply; sewerage, waste management and remediation activities. the expected gva increase in these activities is 9.81% while the expected increase in employment is 0.88%. table 3 optimization results both domestic and foreign organisations mention in their reports and development strategies for the serbian economy that economic growth can be achieved by investing in infrastructure, the power sector, the ict sector, education, the financial sector and the agricultural sector. the results achieved by the analysis of the selected economic activities and indicators for the observed period of time show that investments should be directed towards the sectors of information and communication and financial and insurance activities, because they provide a balance between growth and security regarding gva and employment in serbian economic activities. 35 management 2014/71 activities gva (5) employment (5) optimal portfolio (7) agriculture, forestry and fishery 0 0 0 manufacturing 0 0 0 electricity, gas, steam and air conditioning supply 0.4169 0 0 water supply; sewerage, waste management and remediationactivities 0.5831 0 0.0118 construction 0 0 0 wholesale and retail trade; 0 0 0 transportation and storage 0 0 0 accommodation and food service activities 0 0 0 information and communication 0 0.1495 0.4948 financial and insurance activities 0 0 0.4934 professional, scientific and technical activities 0 0.8505 0 public administration and defence; compulsory social security 0 0 0 education 0 0 0 human health and social work activities 0 0 0 references [1] arandjelovic, z., petrovic randjelovic, m. & marjanovic, v. (2013). structural changes in the light of new industrial strategy. ekonomika preduzeca 61, 373-385 [2] anagnostopoulos, k.p., & mamanis, g. (2010). a portfolio optimization model with three objectives and discretevariables. computers and operations research 37, 1285–1297. [3] begovic, b., & mijatovic b. (2005). four years of transition in serbia, cdls. [4] brown, d. j., & pheasant, j. (1985). a sharpe portfolio approach to regional economic analysis. journal of regional science. 25(1), 51–63 [5] conroy, m.e. (1974). alternative strategies for regional industrial diversification. journal of regional science. 14(1), 31-46 [6] , new york [7] cucchiella, f., d’adamo, i., & gastaldi, m. (2012) modeling optimal investments with portfolio analysis in electricity markets. energy education science and technology part a: energy science and research 30(1), 673-692 [8] cypher james, m., & dietz james, l., (2009). the process of economic development, 3th editon, routledge, new york, [9] djordjević, m., & veselinovic, p. (2010). razvojne karakteristike srpske ekonomije u periodu tranzicije. visa poslovna skola novi sad [10] ehrgott, m., klamroth, k., & schwehm, c. (2004). an mcdm approach to portfolio optimization, european journal of operational research 155, 752–770. [11] izveštaj o razvoju srbije 2010, (2010). ministarstvo finansija i privrede. available at http://mfp.gov.rs/userfiles/file/dokumenti/izvestaj%20o%20razvoju%20srbije%202010.pdf [12] jednak s., makajic nikolic d., kragulj d., & vujosevic m. (2013). strucutre and performances of the sectors in serbian economic development. balcor 2013 -xi balkan conference on operational research, conference proceedings, 12-21. [13] jednak, s. (2012). development of a knowledge based economy: opportunities and challenges, belgrade, zaduzbina andrejevic. [14] jednak, s., & mijatovic, i., (2012). transition to a knowledge based economy – the case of the western balkans, 4th slovenian social sciences conference “rethinking democratization”, piran, slovenia, 2729 sept.2012, conference proceeding: “selected issues of modern democracy”, ljubljana, vega, 187199. 36 2014/71management adequate economic policies, development strategies and an active role of the government are important for obtaining economic development. the appropriate economic policy targets economic activities that could be significant for development. the government could apply different models and strategies of economic development. the main question is which economic activities should be invested into. priority should be given to the economic activities that contribute most to economic growth. however, there are some limitations. firstly, it depends on the available resources. secondly, the outcomes of investing in certain activities are not the same. thirdly, the results is not visible simultaneously. for example, the growth in some manufacturing economic activities can be achieved fast, while in some other activities such as power supply, automotive and construction industry it is slower. finally, the source of finance can influence the investments to be directed to particular activities. many international institutions that provide capital (credits, loans, aids and other source of finance) may require the fulfillment of certain conditions and capital allocation in certain economic activities. along with the requirements serbia has to establish its strategic priorities energy, agriculture, ict, education, financial sectors and infrastructure. due to strategies, serbian economic policies direct both domestic and international capital towards the target activities for achieving economic development. those activites are mostly in the service sector which has a large share in obtaining economic growth. the results of this paper show that the most important economic activities for enhancing development are information and communication; financial sector and insurance; followed by water supply, sewerage, waste management and remediation activities. these results indicate that the sectors` structure changed. moreover, the service sector and infrastructure contribute significantly to serbian economic growth and development. for the period after economic crisis, the best incentives for the economic growth in serbia are investments into service sectors. however, electricity, gas, steam and air conducting supply as well as professional, scientific and technical activities could also contribute to economic growth and development. conclusion 37 management 2014/71 about the author [15] junning, c., & leung, p.s. (2006) growth and stability of agricultural production in hawaii: a portfolio analysis, economic issues #ei-9, cooperative extension service, college of tropical agriculture and human resources, university of hawai’i at manoa, http://scholarspace.manoa.hawaii.edu/handle/10125/2854 [16] lande, p.s. (1994) regional industrial structure and economic growth and instability. journal of regional science. 34(3), 343–360 [17] louis, l.v.st. (1980). a measure of regional diversification and efficiency. the annals of regional science. 14(1), 21-30 [18] markowitz, h. (1952). portfolio selection. the journal of finance 7(1), 77-91. [19] nacrt fiskalne strategije za 2013. godinu sa projekcijama za 2014. i 2015.godinu, ministarstvo finansija i privrede republike srbije, available at http://www.mfp.gov.rs/pages/article.php?id=8626 [20] pintea i. m., optimal fall and recovery of output in transition economies, available at http://www.econ.kuleuven.be/smye/abstracts/p83.pdf [21] postkrizni model ekonomskog rasta i razvoja srbije 2011-2020, available at http://www.kss.org.rs/doc/1102_makroekonomska_proj__razv_srbije_2011-2020.pdf [22] punyasavatsut, c.,& coxhead, i. (2002). on the decline of agriculture in developing countries: a reinterpretation of the evidence. staff paper no. 457, agricultural and applied economics, 47 [23] rodoulis, n. (2010) evaluation of cyprus’ electricity generation planning using mean-variance portfolio theory. cyprus economic policy review. 4(2), 25-42 [24] savic, lj. (2014). new industrialization in serbia – reality or delusion. management. 70, 59-64 doi: 10.7595/management.fon.2014.0005 [25] spelman , w. (2006). growth, stability, and the urban portfolio. economic development quarterly. 20, 299-316 [26] statisticki godisnjak za srbiju za 2012.godinu, republički zavod za statistiku republike srbije. [27] steuer, r.e, qi y, & hirschberger m, (2005). multiple objectives in portfolio selection, journal of financial decision making 1(1) 11-26. [28] steuer, r.e, qi y, & hirschberger m, (2006). portfolio optimization: new capabilities and future methods, journal of business economics, 76(2) 199-220. [29] stigliz joseph e., (2006). ocampo jose antonio, spiegle shari, ffrench-davis ricardo, nayyar deepak, stability with growth – macroeconomics, liberalization, and development, oxford university press [30] todaro, m. p. & smith s.c. (2003). economic development, eighth edition; addison wesley. [31] westner, g., & madlener, r. (2010). the benefit of regional diversification of cogeneration investments in europe: a mean-variance portfolio analysis. energy policy. 38, 7911–7920 [32] westner, g., madlener, r. (2011) development of cogeneration in germany: a mean-variance portfolio analysis of individual technology’s prospects in view of the new regulatory framework energy. 36, 5301-5313 receieved: december 2013. accepted: june 2014. sandra jednak university of belgrade, faculty of organizational sciences sjednak@fon.bg.ac.rs sandra jednak is employed at the faculty of organizational sciences, university of belgrade as assistant professor. she has published numerous scientific research papers in international and national monographs, journals and conferences proceedings. her teaching areas are introduction to economics, macroeconomics, microeconomics, economic development and the eu. her research focus is on the economic growth and development of the see countries. besides, her research interests are economics of ict, knowledge (based) economy, energy economics, international economics and higher education. 38 2014/71management dragana makajić-nikolić university of belgrade, faculty of organizational sciences makajic-nikolic.dragana@fon.bg.ac.rs dragana makajić-nikolić works as assistant professor at the faculty of organizational sciences at the university of belgrade, where she lectures in operations research courses. her research interests are related to mathematical modelling, optimization methods, simulation and risk analysis. she is the author or co-author of over 50 papers and co-author of two books in the or area. dragana kragulj university of belgrade, faculty of organizational sciences kragulj@fon.bg.ac.rs dragana kragulj, ph.d., is full professor at the faculty of organizational sciences, university of belgrade. she was the chair of the department of economics, business planning and international management. she has published several editions of different textbooks on economics, two monographs of her own and over 100 scientific papers published in reputable national and international journals and conferences. she has been involved in several research projects. in addition to her teaching, she is occupied with research of macroeconomic problems, prices, market, inflation, economic development, investment, international trade, agriculture, energy economics, the transition process, international economic integrations, the european union. mirko vujošević university of belgrade, faculty of organizational sciences vujosevic.mirko@fon.bg.ac.rs mirko vujošević graduated in electrical engineering at the belgrade university where he completed his postgraduate studies and earned his doctorate. from 1976 to 1995 he was with mihailo pupin institute, belgrade, and now he is full professor at the faculty of organizational sciences, belgrade university. he published more than 180 professional papers on different topics of operational research, reliability, maintenance, inventory control and applied mathematics. he is author and co-author of two monographs, six textbooks, and several chapters in monographs. 02 vladan pavlovic:tipska.qxd 17 vladan pavlović*, srećko milačić**, isidora ljumović*** * university of pristina, faculty of economics (kosovska mitrovica) ** university of pristina, faculty of economics (kosovska mitrovica) *** economics institute, belgrade controversies about the accounting treatment of transfer fee in the football industry1 udc: 339.72; 796.332.071.2:347.4 doi: 10.7595/management.fon.2014.0001 1. introduction the transfer fee represents a compensation for the termination of a contract, due to a player’s transfer to a new club. this compensation payment is made by the new club, and it stands for the cost of acquiring. transfer is possible only with the approval of the player, both clubs and football association. therefore, transfer enables the relocation of players registration from one club to another. according to the club licensing regulation of the football association of serbia, the transfer fee is defined as ‘the players registration value’ (regulatins/pravilnik fss). the concept of the player’s transfer was established in england after the football association of england introduced the registration of players in the 1880s. until the bosman verdict, in 1995, a fee for players was also paid to players after the end of their contract. in the past few years, there has been a constant increase of transfer fee value, and having in mind the amount, it is not surprising that there is a great public interest in this issue. table 1. list of top 25 transfers in the 2010-11 football season management journal for theory and practice management 2014/70 investments in sportsmen traditionally were considered as costs, together with transfer fees. from the second half of the twentieth century transfer fees are considered as assets. however, in the late twentieth and early twenty-first centuries the opinion prevailed that requirements for capitalization are met, and that capitalization and disclosure as intangibles are an obligatory procedure in almost all countries with a developed accounting tradition. there is the question of justification of the above procedure, having in mind that the contribution of the contracted fee for transfers cannot be determined related to the financial benefit of clubs, that players are often alienated before the end of the contract, and that the requirements for the control cannot be fully met. keywords: accounting policy, transfer fee, registration value, football industry 1 this paper is a part of the results of the research on project 179001 supported by the ministry of education and science of the republic of serbia no. football player from club to club value 1 fernando torres liverpool chelsea 58,500,000 € 2 andy carroll newcastle liverpool 41,000,000 € 3 david villa valencia fc barcelona 40,000,000 € 4 edin dzeko wolfsburg manchester city 37,000,000 € 5 angel di maria benfica real madrid 33,000,000 € 6 yaya touré fc barcelona manchester city 30,000,000 € 7 mario balotelli internazionale manchester city 29,500,000 € 8 david silva valencia manchester city 28,750,000 € 9 luis suarez ajax liverpool 26,500,000 € 10 david louiz benfica chelsea 25,000,000 € 18 2014/70management journal for theory and practice management no. football player from club to club value 11 aleksandar kolarev lázio manchester city 22,700,000 € 12 ramires benfica chelsea 22,000,000 € 13 yoann gourcouff bordeaux olimpique lyon 22,000,000 € 14 james milner aston villa manchester city 22,000,000 € 15 bruno alves fc porto zenith st. petersberg 22,000,000 € 16 darrent bent sunderland aston villa 21,500,000 € 17 javier marcherano liverpool fc barcelona 20,000,000 € 18 carlos eduardo hoffenheim rubin kazan 20,000,000 € 19 giampaolo pazzini samdoria internazionale 19,000,000 € 20 andrea ranocchia genova internazionale 18,500,000 € 21 robinho manchester city ac milan 18,000,000 € 22 mesut ozil werder bremen real madrid 18,000,000 € 23 luis gustavo hoffenheim bayern munique 17,000,000 € 24 andré-pierre gignac toulouse olimpique marseille 16,000,000 € 25 asomoah gyan rennes sunderland 16,000,000 € source: rearranged according to: rosdet nascimento, t. (2012). it is much more cost-efficient for a club to hire players without contracts, because transfer fees are excluded. although this is a case, even with top players2, it is still a rarity. transfers from youth clubs, or signing new contracts with players after the end of their contracts are much more common.3 however, enormous transfer fees of top players, from time to time, can be very profitable for some clubs, primarily as a result of marketing effects. these transfers constantly attract media, football fans and a wider audience attention, leading to the increase of tv broadcast rights and commercial revenues. also, they attract new sponsors, and finally, increase profits. the example of fc real madrid best illustrates the above-mentioned. one of the promises florentino perez made when he ran for president of real madrid in the 2000 elections, was that he would buy a high-priced star each year. he kept the promise and brought luis figo4, zinəddin lyazid zidan5 and ronaldo6. (according to: bourgoies, 2007, p. 6). 2. accounting treatment of transfer fees as pointed out by rowbottom, accounting for transfer fees forms the most controversial area in football industry financial reporting ”the accounting treatment of transfer fees depends upon whether player registrations are recognized as assets… where registrations are viewed as assets, transfer fees are regarded as the acquisition costs. where registrations are not viewed as assets, transfer fees are treated as expenses of the period.” (rowbottom, 1998, p. 110) capitalization of transfer fees, i.e. their recognition as intangible assets, together with their depreciation, for the first time was adopted by the milwaukee braves basketball club in 1963 (flamholtz, 1985. according to: rowbottom, 1998, p. 262). flamholtz states that tax purpose is the main motive for this procedure (rowbottom, 1998). in the usa, the identification and recognition of player registrations as intangible assets is common in basketball, american football, and hockey (rowbottom, 1998). 2 for example, the best german football player, michael ballack, joined fc chelsae without transfer fee, because his contract with fc bayern münchen had ended. he was later hired by bayer 04 leverkusen also without any transfer fees.serbia 3 we should here give na example of an argentinian football player lionel andrés messi cuccitini who is one of the highest-paid players in the world. messi has been playing for fc barcelona since 2000, when he came to europe, from argentina. 4 transfer to real in 2000: €60 million 5 transfer to real in 2001: €73,5 million 6 transfer to real in 2009: € 94 million in europe, until the transfer fee capitalization was mandated, only a small number of clubs opted for this procedure. the research conducted in england in 1996, showed that 89% of clubs treated transfer fees as expenditures. the percentage of clubs that applied the process of capitalization grew from 1991 to 1995 (4%, 9%, 8%, 13%, 16% respectively). however, it appears to have been halted in 1996 possibly due to the bosman ruling. (according to rowbottom, 1998, p. 115) at that time, there were different methods of registration accounting in england, because the subject matter was not clearly defined.7 accordingly, the majority of clubs treated transfer fees as expenses of the period when the registration of players was signed, which exemplified a traditional accounting procedure. however, one group considered expenses as operating expenses, while others considered them as exceptional expenses. some clubs recognized the registration value as intangible assets, and the recognition of registration value as current assets was recorded as well. among the clubs that recognized the registration value as intangible assets, some clubs capitalized only transfer fees increased by agents’ fees. others presented the entire registration value in financial reports together with the registration of players with transfer fees, and registration of players who were transferred from youth clubs, as well as other players without transfer fees. it should be mentioned that at that time, before the bosman verdict, clubs laid claim for transfer fees of both profiles of players, ones with contracts and those without contracts. also, the matter of a player’s value has been of great importance, especially for clubs that disclosed both registration value and players value in their financial reports. the practice of the players evaluation also differed. as mentioned by dobbins and trussell, the valuation of football player registrations was, for the first time, undertaken in the uk in 1975. human resource accounting techniques were used to estimate the value of players’ registrations held by liverpool football club. (according to rowbottom, 1998, p. 266) later, morrow developed a method used in the uefa for the valuation of players without contracts in case of any disputes (this method applied to all of the judgment until the case of bosman). the majority of clubs valuated the registration of players as transfer fees. however, some clubs have been valuing players in financial reports at their insurance value. (rowbottom, 1998, p. 257) unlike the practice in england, transfer fees were presented as prepaid expenses in france, and as expenses of the period in socialist federal republic of yugoslavia. only after frs10 goodwill and intangible assets came into force in december 1998, did the process of capitalization of transfer fees become mandatory in england (amir & livne, 1995, p. 549). passing the frs 10 was soon followed by the ias 38 – intangible assets. in france in 2004, the national accounting council (conseil national de la compatibilité) also made the capitalization of these expenditures mandatory for football clubs. (according to gumb & demoulins-lebault, 2010, p. 5) nowadays, the process of capitalization of transfer fees is mandatory in many countries8. amortization begins with the registration of a player and is calculated during the contractual period. if the contract is prolonged, the initial amortization plan is edited. in accordance with the imparity principle, the capitalized values are annually reviewed and, if necessary, their devaluation is performed. in case of ‘selling a player with a contract’ the difference between the registration value that is not depreciated and the transfer fees is considered a capital gain, i.e. loss. the consequence of presenting players as intangible assets is that “players themselves are the largest funds, with a tendency to constantly increase the share of total assets.” (pavlović, mijatović, milačić, 2013, p.60) 3. review of the justification of transfer fee capitalization the unification of the accounting treatment of transfer fees does not end the discussion about this issue. it is impossible to consider the justification of the accepted accounting policy without a thorough discussion, because there are many different aspects of registration value. if a club has an intention to sell a player before the end of the contract, (before the bosman verdict and after that period) which is a prevailing practice, the registration value can be considered as a club’s asset, which is intended for resale. the reason is that the cub will earn transfer fees by selling a player. namely, if the reg19 management journal for theory and practice management 2014/70 7 the subject matter was defined in england by the the companies act in 1985 and standard ssap 22, accounting for goodwill, [asc, 1989]. 8 the mentioned treatment is also required by the uefa club licensing and financial fair play regulations, and accordingly by the club licensing regulation of the clubs of the football association of serbia, for the competitions organised by the uefa. istration of a player is viewed as an asset, it is a specific asset, since it is used in business, and during the time not only does its not lose its value but its value can grow. if we talk about clubs that create players, the expectations that the fees received on behalf of the transfer fees will surpass the paid fees for the transfer is not unreasonable, especially given the constant growth and value transfer. the above-mentioned represents a specific case for the accounting theory. the specificity should not come as a surprise, since a person is the core of the contract that is the subject of accounting treatment. furthermore, if we look at the registration value as the club’s asset, it is natural to also express the registration of players acquired through the transfer and registration of players acquired without transfer. the key question is how to measure the registration of players if it is observed as described above. if the aim of the accounting treatment of registration is to give an insight into the financial position of the club, the historical cost is absolutely inappropriate for those purposes, for both players with and those without transfer fees. the cost of registration value of both young players and the players who improve their quality or become popular, is much lower that a potential transfer fee. on the other hand, the cost of the registration value for players who show poor performance and results, and especially those whose careers are bound to end soon, is higher than a potential transfer fee, if transfer is possible. in any case, a potential transfer fee will not be even close to the paid transfer fee (cost of registration value). evaluation of the depreciation of this specific asset, in accordance with the imparity principle, can be done exclusively based on personal attitudes of the management. (see more in: knežević et all, 2012) an undervaluation of the cost of the registration value in relation to transfer fees is well illustrated in the following example: for the transfer of ronaldo, sporting cp paid €2,245 to nacional de madeira in 1997, (according to ), then manchester united paid €17.5 million to sporting in 2003, and later real madrid paid €94 million to manchester united in 2009. (http://www.transfermarkt.de). such exorbitance of the cost is exemplified in the cases of the argentinian football player verón and the spanish football player albert luque martos. namely, for the transfer of verón, manchester united paid €42.6 million to lazio in 2001, which was, at that time, the most expensive transfer in the history of football in england. verón did not fit in into the manchester team and he spent most of his time on the bench. in july 2003 he was transferred to chelsae for the price of €22.5 million. (http://www.transfermarkt.de) however, verón got injured after a really good start, so he played only fifteen games in the season 2003/2004. for the transfer of albert luque martos newcastle united has lost €12 million, and ajax amsterdam another €7.5 million. martos barely played while he was in ajax, he was fined and told to leave the club after the conflicts with his teammate luis suárez. (http://www.transfermarkt.de). there are no rules concerning the value of transfer. this value for some players decreases even during their best performance, but later increases abruptly. the example of a french football player valérien ismaël is very illustrative. namely, crystal palace brought ismaël from racing straßburg for €3.8 million, which was the highest amount that this club has ever paid for a transfer. the player has spent ten months at this club, and played only in 13 games. later he has been transferred to a french club rc lens for €1.8 million. therefore, the capital loss was €2 million. the next transfer of this very player was paid €300,000 when he was transferred from racing straßburg to sv werder bremen in 2003. after the participation in the championship league, he was transferred from verder to bayern münchen for €8.5 million. therefore, the capital gain was €8.2 million. (http://www.transfermarkt.de) in a nutshell, we can say that there is a general consensus that the cost of the registration value does not correspond to a potential transfer fee, so the advocates of this thesis suggest a replacement value as more trustworthy. (quirk and fort, 1992, rowbottom, 2002 and others) as pointed out by quirk and fort and invoked by rowbottom, (rowbottom, 2002, p. 255) a player’s replacement value can be ascertained based on transfer fees paid in an active, freely competitive market. financial reporting based on replacement costs basically comes down to the fair value concept. however, an objection may be made here, the value can be rather adequate only for players coming from the secondary market, since the value has been primarily determined upon their use value for a respective club, and often on the basis of yield value. moreover, the fair value concept in the football industry is based on the use of extremely subjective criteria. the registration value of players transferred with historical cost would result in an inconsistency in reporting, besides the fact that the historical transfer value has nothing in common with the current replacement value. the registration of some players would be evaluated according to the current replacement value (players brought without transfer), and registration of others (players brought with transfer) according to the historical transfer value. the absurdity of the above-mentioned can be shown in the example of machester 20 2014/70management journal for theory and practice management united, when eric cantona played for the club. namely, cantona was brought from leeds united to manchester at the transfer fee of €1.8 million. therefore, the registration value of this player, who was voted as manchester united’s greatest player by the inside united magazine in 2001, (ganguly, 2001) would have been much lower than the accounting value of numerous teammates. if transfer fees are considered as assets for sale, their devaluation through amortization is excluded. in other words, a potential transfer value, usually would not be diminished, except for players who are about to end their careers. of course, future transfers will be lowered if a player has previously been overvalued or if his performances decline. this is probably the reason for clubs to opt to present the registration value as current assets. however, the question is what the consequences are if a club fails to sell a player? it turns out that accounting treatment is inappropriate and it is necessary to either recognize the expenditure immediately at the time when the player is transferred, which would be in line with the conservatism principle, or to capitalize this value with the write-off during the contract period, which would be in line with the matching principle. the following conclusion can be drawn: the above-mentioned attitude is unacceptable from the aspect of financial reporting. from another point of view, transfer fees represent an expenditure related to the provision of resources. the cost of registration rights (transfer fees) are known and the effects of investments are expected in the accounting period defined by a contract, so these expenditures are expected to be capitalized and written-off during the contract period. otherwise, financial results of the accounting period would have been incomparable, i.e. undervalued in the period when players were transferred, and overvaluated in the upcoming accounting period. logically, non-existing expenditures cannot be activated, i.e. it is not possible to activate non-existing transfer fees for transfers that have not been realized. in other words, it is improper to present the registration of players brought without transfers in financial reports. even though this is the point of view of regulatory bodies as well, there is still a tendency to present the registration of players who were brought without transfers in financial reports. for example, explaining the thesis on the necessity of financial reporting of the registration value and the player’s value, rowbottom says that the uk accounting standards board suggests that where the acquisition cost is unknown, an asset can be measured according to its ‘value to the business’. (rowbottom, 2002, p.265) here he notices that this value is generally accepted when it comes to players as replacement costs. rowbottom supports this by mentioning the fact that the player registration is a necessary condition for professional football clubs, as a going concern principle. however, when a club acquires players without contracts or players from youth clubs, it does not mean that the club lacks information on the transfer value, but it rather means that there is no transfer value, i.e. historical cost of registration. as mentioned above, the approach to capitalize and write-off transfers during the contract period has been accepted by relevant regulatory bodies. however, this accounting treatment is vigorously criticized. namely, frs 10 and ias 38 require that an intangible asset shall be recognized if it is probable that the expected expenditure will result in economic benefits. it turns out that it is questionable whether acquiring (some) players will increase the club’s financial success. research by amir and livne shows that there is a weak relationship between intangibles, i.e. capitalized transfer expenditures and future benefits. (amir and livne, 1995, p. 549). it has been concluded that investment in players’ contracts is much more connected to incomes than to profitability. in the report of the uefa (uefa, rapport de benchmarking sur la procédure d’octroi de licence aux clubs, exercise 2011, 04.02.2013. p. 108) it can be seen that operating revenues of football clubs are constantly increased (despite stagnation and recession in european countries), but the growth in incomes is not followed by the growth in profitability. on the contrary, european football clubs have constantly generated increasing losses. in 2001, the first league clubs across europe discovered a net operating loss in the amount of €388 million euro, which is the increase in €50 million euro compared to the previous year. in the same year, the loss that exceeded the capital was manifested in 38% of clubs (225 clubs). among these clubs there were 22 out of 77 ‘elite’ clubs. (uefa, rapport de benchmarking sur la procédure d’octroi de licence aux clubs, exercice 2011, 04.02.2013. p.108) despite all the above-mentioned, the football clubs that operate with loss pay off the agreed transfer fees and salaries, which is inconceivable not only in high-profitable industries but in all other sports (in europe). there are many reasons for this increase in losses despite the growth in incomes. certainly, one of the reasons are higher arranged transfers and increasing salaries of players. gumb and demoulins-lebault add the following reasons: (a) motivation of club owners is not often of economic nature, but they buy clubs to enhance the prestige, or for money laundering; (b) players appropriate a great amount of revenues through contractual bonuses; (c) clubs that achieve higher ranking strive to recruit new players or to keep current, and by default increase costs in the medium term, before ensuring revenues to cover these costs. (gumb & demoulins-lebault, 2010, p.7) 21 management journal for theory and practice management 2014/70 22 2014/70management journal for theory and practice management apart from the uncertainty about the contribution of players to future economic benefits, the research of amir and livne shows that investment in players contracts is positive and significant only for two years maximum, which is considerably shorter than the amortization period. therefore, the results of the research do not support the requests of ifr 10 and mrs 38 for capitalization. (amira & livne, 2005, p. 552) however, even if a club operates with profit it is difficult, even impossible, to measure the contribution of individual players. the complexity of the measurement can be illustrated by the case of the argentinean football player rodrigues, who made it possible for marseille to win coupe de france in 1992 by playing for another club. this had a positive impact on the financial results of marseille. namely, rodriguez, who has played for toulon, enabled toulon to defeat marseille’s direct competitor for the coupe de france.9 (bourgeois, 2007, p. 6-7) there is some criticism of the treatment of registration amortization. referring to the works of epingard, bourgeois points out that an amortization period should comprise the period when the effects of the player’s engagement are present, and not a contractual period. (epingard, 1999: according to bourgeois, 2007, p. 8-9) to be precise, revenues of the participation in european clubs are generated by players who played the previous year, and some of them have even left the club. sometimes a positive impact of a player, especially a star, his advice and experience can be felt for several years after his leave. in 2006, aulas, the president of fc lyon, said that anderson’s engagement, (from 1993 to 2006.) and his great contribution are still felt in the club. (according to bourgeois, 2007, str. 9) there are some arguments about the above-mentioned procedure, from the point of securing control over the assets. a problem with injuries and players’ decision to stop playing even if their contracts did not end should be mentioned here. the problem with injuries could be solved with a proper insurance coverage, although it often happens that a player was not covered by insurance at the time of injury. there is a wellknown case of the italian football player padovano who signed a contract with metz in 2000, and had a severe injury on the first day of training, and whose health insurance policy didn’t cover the very first day. (bourgeois, 2007, p. 8) there is another case of stéphane ziani who signed a contract with ajacco in june 2005, and decided to stop playing football the same year in september. (bourgeois, 2007, p. 8) as pointed out by bourgeois, the legislation provides compensation to clubs by players; clubs can claim compensation due to the unfair unilateral termination of the contract by a player. it often happens that the compensation doesn’t cover transfer fees. (bourgeois, 2007, p. 8) however, as mentioned by amira and livne, other findings indicate that market agrees with the treatment provided by frs10. their research shows that there is a relationship between transfer fees and the market value of a club. actually, it is about an anomaly in the football industry. it is usual for football clubs often to have a market value that exceeds their yield value. as mentioned by borré and gelmini, football clubs have a significant goodwill value even with poor economic performances. (borré & gelmini, 2008) in the football industry, there is evidence both for negative results/margins and for positive market values, even in clubs operating with loss that exceeds capital. for example, liverpool fc was sold in 2007 for €197m and then sold again in 2010 for €191m, with accounting value of €53m in 2007 and €7m loss that has exceeded capital in 2010. goodwill was estimated €73m and €71m respectively. (according to uefa, rapport de benchmarking sur la procédure d’octroi de licence aux clubs, exercice 2011, 04.02.2013. p.109). 9 borrowed players do not have the right to play against their own clubs. conclusion transfer fees are the second largest expenditure in the football industry, right after salary costs. however, unlike salary costs, which are always expenses of the period, transfer fees can be seen as an investment in asset, if a club has an intention to alienate a player before the end of the contract. it is unpredictable whether capital gains or capital losses will be achieved. studies conducted in europe show that, in most cases, players have been sold before the end of their contracts. the sale of players does not necessarily imply that the club will have to pay transfer fees, since a player can be acquired without references: [1] amira, e., livne, g. (2005): accounting, valuation and duration of football player contracts, journal of business finance & accounting, 32(3) & (4), april/may 2005, 549-586 [2] borré, l., gelmini, l., goodwill, negative margins and results: some evidence from the professional football industry, eighth international business research conference: research for change, dubai 27-28 mart 2008. [3] bourgeois, f., les joueurs de football peuvent-ils être assimilés à des actifs incorporels?, 28eme congrès de l'association francophone de comptabilité "comptabilité et environnement", ateliers doctoraux "jeunes chercheurs", poitiers 23-27 mai 2007. [4] forker, j. (2005): discussion of accounting, valuation and duration of football player contracts. journal of business finance and accounting, 32(3/4), 587-598. [5] ganguly, a., "eric and us". manchester united, future publishing, march 2001, 42–48 [6] gumb, b., desmoulins-lebeault, f. (2010) : de la pertinence du capital humain comme objet comptable: le cas des joueurs de football. halshs-00526905, version 1 16 oct 2010. manuscrit auteur, publié dans "capital immatériel : état des lieux et perspectives, montpellier : france [7] knežević, s., stanković, a., tepavac, r. (2012): accounting information system as a platform for business and financial decision-making in the company. management – journal for the theory and practice of management, 17(65), 63-69. [8] morrow, s. (1997): accounting for football players. financial and accounting implications of ‘royal club liégois and others v bosnian’ for football in the united kingdom, journal of human resource costing & accounting, vol. 2 iss: 1, pp.55 – 71 [9] morrow, s. the new business of football: accountability and finance in football, basingstoke: macmillan, 1999 [10] pavlović, v., mijatović, p., milačić, s. (2013): financial reporting of football clubs in r. serbia, management journal for theory and practice management, vol. 18(67), 55-62. [11] pravilnik o licenciranju klubova fudbalskog saveza srbije, fudbal van. broj 6 od 09.11.2012, fudbalski savez srbije [12] rosdet nascimento, t. (2012): as 25 maiores transferências mundiais 2010/2011, february 6, 2011: available at http://financefootball.wordpress.com/2011/02/06/as-25-maiores-transferencias-mundiais20102011/ [13] rowbottom, n. (2002): the application of intangible asset accounting and discretionary policy choices in the uk football industry, british accounting review, vol. 34(4), pp. 335-356. [14] rowbottom, n., intangible asset accounting and accounting policy selection in the football industry, phd theses, university of birmingham, 1998 23 management journal for theory and practice management 2014/70 transfer fees, i.e. the club can take over a player who does not have a contract, can renew the contract, or bring a player from a youth club. transfer fees are traditionally considered expenses of the period. however, given that the subject matter was not clearly defined in the second half of the twentieth century, except in clubs who involved transfer fee expenses at the moment of players’ registration, some clubs have capitalized these fees and presented them as intangible assets, while others presented them as current assets. the enactment of frs 10 and ias 38, in the late twentieth century, signified the end of alternative accounting treatment of transfer fees. to be precise, an attitude that requirements for their capitalization were met prevailed, therefore, their recognition and presentation as intangible assets became a mandatory procedure. however, a real question is how the procedure is justified having in mind that it is difficult to determine the contribution of agreed transfer fees to the financial success of clubs where the majority of clubs operate with losses, where players are often alienated before the end of the contract, and requests for control cannot be completely fulfilled. controversies about the accounting treatment of the transfer fee are the consequence of numerous uncertainties, which are inherently present in the football industry. in fact, it is uncertain whether a player will be alienated before the end of the contract or not, what his transfer fee will be, whether and to what extent will a player make contribution to sports results, whether the result will have any consequences in the improvement of the financial result, or whether the player will directly make contribution to the financial success of the club. as the consequence of all the above-mentioned uncertainties, all the accounting policies have their weaknesses. 24 2014/70management journal for theory and practice management [15] uefa, rapport de benchmarking sur la procédure d'octroi de licence aux clubs, exercice 2011, 04.02.2013. [16] uefa, règlement de l’uefa sur l’octroi de licence aux clubs et le fair-play financier, edition 2012, 01 juin 2012 [17] villemus p., gur�u, c., the branding and value of sport performers: an analysis of the european football, cambridge business & economics conference, cambridge, uk, june 27-29, 2011 web page: www.transfermarkt.de receieved: september 2013. accepted: january 2014. vladan pavlović, phd, full professor university of pristina, faculty of economics (kosovska mitrovica) vladan.pavlovic@pr.ac.rs vladan pavlovic was born on 16th december, 1971 in belgrade. he received his bachelor and msc degrees from the faculty of economics in subotica, and a phd from the faculty of business studies, megatrend university, where he was appointed assistant and associate professor in the field of accounting and auditing. he was appointed a full time professor in 2012 at the faculty of economics in pristina (kosovska mitrovica). he has published numerous papers in international and national journals srećko milačić, phd, full professor university of pristina, faculty of economics (kosovska mitrovica) srecko.milacic@pr.ac.rs srecko milačić was born on 12th march, 1965 in priština. he graduated from the economics faculty in priština with honours. he earned his master’s degree at the faculty of economics in belgrade and a phd at the faculty of economics, university of priština, where he earned all scientific titles. he was a scholar of the japanese “sasakawa” foundation. in addition to working at the economics faculty in priština, he was hired as an associate at the institute for economic research in priština and a nicef associate where he participated in the development of many investment projects and assessments. in the period 2001-2006 he was head of the department of finance and foreign trade. he was appointed the chairman of the council of the faculty in 2004. since 2006 he has served as dean of the faculty of economics in two terms. from october 2012 he is the rector of the university of priština. isidora ljumović, phd, research associate economic institute, belgrade email: isidora.ljumovic@ecinst.org.rs isidora ljumović was born on 9th of april, 1980 in zaječar. she graduated from the faculty of organizational sciences, university of belgrade. she received her msc from the faculty of business studies, megatrend university, and a phd from the faculty of economics, university of niš. she was appointed assistant professor at the faculty of business studies, megatrend university. in 2012 she acquired the title of research associate. she has published numerous papers in international and national journals. about the author 05 ljubodrag savic:tipska.qxd 59 ljubodrag savić, university of belgrade, the faculty of economics new industrialization in serbia – reality or delusion udc: 330.341.424(497.11) doi: 10.7595/management.fon.2014.0005 spin´ 13, belgrade, 05-06. november 2013. 1. industrial development in serbia – a historical perspective the focus on new industrialization policy and strategy as the new goal of serbian economy has emerged and become more explicit in the public -scientific/academic, government and industrial domains. the reasons are to be found in the following arguments: the greatest pace of economic development in serbia was achieved in the period of industrialization after the second world war; industrialization has proved to be the most efficient method of economic development; industrialization has been used as the dominant strategy in the majority of countries in the world to achieve intensive development; the transition model that has been used in serbia has proved to be a complete disaster. these arguments deserve special attention and on this occasion i will comment briefly on each of them. the effects of postwar industrialization – until the disintegration of the socialist federal republic of yugoslavia (sfry) in 1990. in the postwar period, it can be concluded, serbia was categorized as a medium developed industrial economy, according to the rankings of the oecd and other international criteria placing economies into categories of underdeveloped, medium developed and developed ones. the rate of industrial development in the period 1955-1990 was 7.7% which was and still is an extremely high rate. nowadays this high rate of development, characterized by some authors as ‘accelerated development rate’, is accomplished by newly emerging economies (brazil, india, south korea, china, russia) who have never abandoned the goal of enforcing industrial production and mastering increasingly sophisticated technology and operations in creating goods and services. in 1990, the overall industrial production had risen 11.4 times in comparison to the level recorded in 1955, which clearly points to the increasingly rising industrial capacity in the 35 year period. the total exports that amounted to 5.8 billion dollars, were realized with a 95% participation of industrial products. at that time serbia had 1.1 million of industrial workers and the share of industry in the gdp amounted to 44.5%. at that time, many towns in serbia developed to become important industrial centers and they represented the bearers of an overall social and economic development. management journal for theory and practice management 2014/70 the crucial question demanding answer is why are we once again focusing on industrialization as a strategic goal in a situation of global economic crisis, and in the perspective of the recovery of serbian economy? in this discussion paper the difficulties that serbian economy is facing are analyzed having in mind the historical perspective encompassing different social, political and economic circumstances and changes that serbia underwent in the period after the second world war. in this overall historical perspective, the development of industry and its overall effects on economic development in serbia are analyzed. the prospects and economic effects to be expected from new industrialization policy measures are discussed. keywords: industrialization, development, exports, production, employment 1.2. effects of postwar industrialization, period 1991-2000. this difficult decade was designated by disintegration of the country, economic sanctions, bombardment that brought destruction and demolition to the country. all this had negative effects on people, material goods and natural resources, and these effects are still present and will influence the economy and our lives for decades to come. in the period 1991-2000 the development rate was negative, -6.6%. in the year 2000, the increase of industrial production in comparison to the year 1955 was 5 times. with exports amounting to 1.6 billion dollars in 2000, the share of industrial production was noted to be 29% of the gdp. the number of industrial workers fell to 765 thousand, which meant it had lost roughly about one third of industrial workers in just ten years. all the industrial centres registered in bigger towns in serbia suffered deep economic crisis. in this period all economic indicators showed a drastic fall and decline, with deep social, political and economic discontent and turmoil rising. 1.3. the second phase of transition: the ‘post-october industrialization’ period, from 2001 the events of 2001 have brought radical change, it all began with big promises and even greater expectations at all levels of the economy and society. looking at ‘hard’ indicators of economic activity and development in this period, it can be concluded that the decreasing, falling trends of the previous decade are persistent and some show a tendency to accelerated decline. the rate of industrial production in the period 2000-2011 was as low as 0.7%. in comparison with the year 1955, industrial production had risen 5.4 times in 2011. the number of industrial workers in 2013 had fallen to 275 thousand, equal to the number of industrial workers that were registered in 1955. the share of industry in the gdp for 2010 had fallen to 18.1% and to 44% of the industrial production registered in 1990. industrial production had more than halved in the period of two decades, from 1990 to 2010. the previous industrial centers of serbia have become the ‘dark, black holes’ of development in serbia. in table 1 the effects of deindustrialization are presented by the number of workers in industrial centres of serbia in the years 1990 and 2007, respectively. table 1. effects of deindustrialization by industrial centres and number of industrial workers in 1990 and 2007. the example of a well known serbian company for agro-industrial machines “zmaj” from zemun provides evidence, at a micro level, of the devastation of the industrial sector. in “ex-yugoslavia”, 95% of the harvest was processed by combines of zmaj. in the 1980s , about 5, 000 workers were employed in this company, while by 2012 only 49 were still employed. in the 1970s, 1 200 combines were produced per year, while in 2005 only 34, and from 2007, there has been no production. on the 18 hectares of land where the industrial company zmaj was situated today we have trade companies dis, djak, vitorog and dalas. 60 2014/70management journal for theory and practice management industrial workers year industrial centers ↓ 1990 2007 beograd 245 390 13 842 kragujevac 57 574 8 331 niš 25 285 3 358 novi sad 24 848 5 512 kruševac 23 378 3 653 vranje 20 357 6 907 subotica 16 130 2 374 pirot 13 362 2 126 total 426 324 46 103 61 2. the significance of industrial development the development of national economies in the nineteenth and twentieth centuries provides evidence that industrial development affects different aspects and spheres of economic and social life. figures show that the overall living standard has risen immensely and this is one of the main accomplishments directly related to industrial developments. also, the industrial and overall structure of the economy has undergone deep change and there is an overall and steep rise of economic development indicators. industrial development has been shown to materialize comparative and competitive advantages of nations while enabling a dynamic growth of employment, labour productivity and efficiency of all the inputs engaged in industrial production. this leads to technological developments, intensive innovation and major new technological breakthroughs. dynamic development is observed in all the other sectors as well, with spill-over effects and as a result of high growth in the core industrial sectors. agriculture is often cited as the very obvious example of such growth. the structure and trade relations are changing and the exports increase providing steady and healthy grounds for future economic development. having in mind the complex positive effects of industrial development, it can be concluded that it is in industrial and technological progress that we have found the key to the overall rise of civilization level of societies. more than ten years ago, in 2000, at the eu summit in lisbon, it was concluded that “...the eu had committed a major mistake in the previous period... by not directing the attention of policy makers towards maintaining a strong industry, but had been oriented on the widespread opinion that modern economies are today more based on the service sector and that the industry does not play a crucial role any more...” the evidence from numerous countries and economies, such as japan, south korea and before those, the check republic, slovakia, and especially china, confirm the significance of industrial development in achieving amazing results in economic growth. it should also be noted that germany has, thanks to efficient industrial development, gone through the period of the latest global economic crisis with the least damage and more lightly than the rest of the west world countries. the opposite is true for great britain who has traditionally been the cradle of industrial development and today is facing economic problems much affected by the economic crisis. 3. what went wrong with the serbian model of development? some of the reasons why the model of economic development in serbia in the last decades of transition has failed to provide the planned and expected results could be listed as follows: the model was based on the ineffective grounds of the neo-liberal concept of development; macro-economic stability, based on low inflation and stable foreign exchange rate, has become a goal on its own, per se, instead of being a means to enable higher goals of economic effectiveness; instead of introducing incentives for more savings, rise of production and exports, the focus of development policies was on the consumption, rise of services and enormous imports. 3.1. the main features of serbian development model the main characteristics of the economic model of development in serbia is that it is basically oriented towards the dependence on direct foreign capital and investments that will enable revival and growth of the gdp. besides, it is the service sector that is given priority and very modest achievements have been made in the real sector, growth rates of industry and agriculture are lagging behind. the main impulse for the rise of the gdp was placed on enormous imports which amounted to 113 billion euros in the period 2001-2011. the enormous amounts of imported goods had to be transported, insured, sold and money had to be found for these transactions. these sectors were the fastest growing in the previous period, 2-3 times faster than the gdp growth. special attention should be paid to the significance of the added value tax on imported goods that provided the state with lavish and stable influx to the state budget. this model was kept alive and gave results because it a enabled constant and sufficient influx of foreign capital. in the period 2001-2011, an influx of 115 billion euros has been registered, without taking into account the capital obtained by privatization. the structure of this foreign capital influx is as follows: • 14 billion euros – net external debt growth • 29 billion euros – money orders • 15 billion euros – fdi • 3 billion euros – donations • 54 billion euros – exports. the policy of strong domestic currency, dinar, dominated and in the period 2002-2011 the euro rose by 74.3%, while the total rise of prices amounted to 142.1%. this model of strong dinar in a weak economy brought benefits to importers, the state, but also to a rising number of people that quickly and without caution took loans and credits becoming more and more indebted. the overall effects of such a model could be listed in summary as follows: constantly high foreign trade deficit; growth of public and external debt; growth of fiscal deficit; unemployment growth; economic structure disbalance – the share of industry in the gdp was only 18.1% in 2011; gdp in 2011 was only 72% of the gdp level registered in 1990. in this period a total devastation of the industry in serbia took place and it can be stated that it started with sanctions and wars, and concluded with transition based on a fatal concept of privatization. the level of industrial production in 2011 amounted only to 44% of the level registered in 1990. 3.2. which model should we choose? having in mind the accumulated problems in the economy and a decreased influx of foreign investments, it is the author’s opinion that one of the main pillars for future economic growth should be in export oriented industrialization. it is the path that will bring: increase and growth of production (and gdp), increase in employment increase in exports and this will enable: decrease in foreign trade and fiscal deficits, and capability of servicing the fast growing public debt. the expected effects of the new model of development are the following: restructurring of the economy, increase in labour productivity, increase in exports and balancing of foreign trade, rise in employment, intensive scientific and technological progress, dynamic development of other sectors, especially agriculture. the main paths of industrial developoment in the next period should be oriented at specific development in: the energy sector enabling self-sufficiency, traditional labour-intensive industry, with ownership restructuring and technological modernization and specifically with loan arrangements and unique products in smaller batches, ferrous and non-ferrous metallurgy – modernization and greater product finalization, agroindustry development – a comparative advantage of serbia; in order to become a competitive advantage as well, it deserves more consideration, higher investments and less uncertainty, chemical industry with higher levels of processing, finding strategic partners, 62 2014/70management journal for theory and practice management automobile and electric power industry – represent a very promising opportunity but strategic partnerships are necessary for future development, firms in restructuring – limited capacity for growth, the opportunity lies in production based on middle and low level technologies where extremely large batches are not necessary. there are serious problems in how the development priorities were determined in the previous periods. different interests (of individuals, political parties) dominated which is obvious from the listed 16 national priorities among which 6 sectors do not belong to industry (i.e agriculture, infrastructure, transport and logistics, tourism, civil engineering and pro-aging). also there is a vivid mix and misunderstanding concernig what represents a sector, field, branch or a group. the proiorities should be set at the level of products and based on their comparative and competitive advantage assessment with detailed analysis of demand for these products on world markets. the set of priorities established in such a way are to enjoy state support which means that the state should conduct an industrial policy. the new industrial policy should be based on a selective approach making use of the following instruments: accelerated amortization, investment subsidies, investment reserves, fiscal loans (credits) and fiscal policy in the function of more fdi, especially oriented towards exports and employment growth, deducting reinvested profits from taxes, support, incentives for foreign investment, monetary and credit policy, customs protection, foreign exchange rate, with special emphasis on realistic foreign exchange rate and keeping in mind that exports are more profitable than imports, stimulations and incentives for new technology and innovation with the goal of structural change of the economy and intensive growth, intellectual property oriented towards environment protection and international standardization, the highest priority should be given to firms with production, exports and employment with moderate protection of export oriented and production ventures bringing new employment. 4. concluding remarks on immediate measures among the urgent measures that are to be taken immediately in order to make a turnaround towards industrial development, we see the necessity to establish a separate ministry for industry to limplement change and to deal with the specific industrial policy and strategies. it is in line with the necessity to develop the operational plan for industrial recovery with goals, instruments and measures for realization. cutting costs in all the spheres should be part of this plan, savings wherever possible and cutting down state administration is among the priorities. simultaneously, it should be noted that investments are not costs and there is no progress without investing. the creating of healthy business environment should be among the top priority measures comprising cheap and efficient state, modern and unambiguous regulations, efficient implementation of laws equal for all, significantly smaller and more efficient state administration. it would be highly recommended to form a development bank with the main goal to enable high quality and adequate sources for financing production, exports and employment. having in mind all that has been said, it would be important to start with the realization of the concept of programmed depreciation of national currency, enabling production and exports to become more attractive and profitable in comparison to imports and realization on the domestic market. within these efforts, state subsidies should be denied to public firms and firms with losses, and the policy of state support for producers and exporters should be based on principles already used in south korea some decades ago. 63 management journal for theory and practice management 2014/70 64 2014/70management journal for theory and practice management there should be a detailed analysis of natural comparative advantages in serbia (one example is food production), with a detailed analysis of world demand for those products in the period to come. with this evidence based approach we should decide what would be the products to receive support within the industrial policy of serbia. in an effort to focus on these products and sectors we should concentrate all our means and creative capacities. finally, there should be an overall understanding and consensus around these questions especially in the domain of an overall understanding that the new industry would represent a relevant pillar for future social and economic development. these decisions are not easy to implement since it is a common fact that it is easier to deal with services than to produce new value. it is well known that industrial policy will bring payoff in the long run, while short-termed profits and benefits are always more attractive. in conclusion, new industrial policy and development is the only sustainable path for the future development of serbia. references: [1] commission of the european communities, com (2002) 714 final, communication from the commission to the council, the european parliament, the economic and social committee and the committee of the regions, industrial policy in an enlarged europe, brussels, 11.12.2002. [2] dimitrijević, bojan, �uričin, dragan, �urić, draginja, grujić, branislav, perčević, goran, spasojević, toplica, nacrt strategije reindustrijalizacije srbije, radna grupa za reindustrijalizaciju nacionalnog saveta za privredni oporavak, beograd, 2013. godine [3] european council, conclusions, brussels, 17 june 2010. [4] http://ec.europa.eu/eu2020/pdf/council_conclusion_17_june_en.pdf (25.11.2013.) [5] narodna banka srbije, platni bilans republike srbije 2001-2012, beograd, 2013, http://www.nbs.rs/internet/cirilica/80/platni_bilans.html (03.12.2013) [6] republika srbija, ministarstvo ekonomije i regionalnog razvoja, republički zavod za razvoj, strategija i politika razvoja industrije republike srbije 2011-2020, (predlog), beograd, 2011.godine [7] republika srbija, ministarstvo finansija, bilten javnih finansija, beograd, avgust 2013.godine [8] rodrik, dani, industrial policies for the twentx-first century, harvard university, 2004. [9] savić, ljubodrag, ekonomika industrije – 8. izd. beograd, cid, ekonomski fakultet, 2013.godine [10] savić, ljubodrag, industrijalizacija – mit ili stvarnost, politika, 29. novembar 2013, beograd [11] savić, ljubodrag, srpska industrijalizacija za dvadeset prvi vek, industrija, 1/2009, ekonomski institut, beograd, 2009. godina [12] savić, ljubodrag, tranzicija srpske privrede – kriza razvoja industrije, beograd, cid, ekonomski fakultet, 2008.godine [13] službeni glasnik rs, br. 54/10, uredba o klasifikaciji delatnosti, beograd, 2013, http://webrzs.stat.gov.rs/website/public/pageview.aspx?pkey=412 [14] world bank, world development reports, 2013., http://data.worldbank.org/indicator/nv.ind.totl.zs receieved: november 2013. accepted: march 2014. ljubodrag savić university of belgrade, the faculty of economics ljubas@kof.bg.ac.rs born in tripkovo, near cajetina, in 1955. graduated from the faculty of economics, belgrade in 1980. got the msc degree in 1985, and the phd degree in 1992. has been teaching at the faculty of economics since 1981. married, three children. teaching commitments: economics of industry. gave lectures in scientific and technological progress. research interests: industrial policy. other professional activities: manager of several projects on capital evaluation in the centre for evaluation and auditing within nicef scientific and research centre of the faculty of economics. about the author 04_ljubomir drakulevski:tipska.qxd 37 ljubomir drakulevski¹, leonid nakov² ¹“ss. cyril and methodius” university in skopje, faculty of economics ²“ss. cyril and methodius” university in skopje faculty of economics managing business model as function of organizational dynamism udc: 005.721/.722 doi: 10.7595/management.fon.2014.0025 xiv international symposium symorg 2014, 06 10 june 2014, zlatibor, serbia 1. introduction business modelling and the process of managing it has emerged on the basis of importance of applicative usage from the mid 1960’s when dynamic companies, such as ibm – generally framing the computer from the industrial to the predominantly personal, sears roebuck – in shifting from overall catalogue offer to a retailing specialized catalogues, motorola – from consumer electronicsoperating method to high-technology added value in telecommunications, mobile and internet based competitive model, ikea from immense non compositional to separate segmented business offer, and many others, have identified the necessity of changing the dominant business logic, with regards to the contingency analyses of the internal and external stimuli, determinants and obstacles to a prominent and recognizable sustained competitiveness. each organized effort in planning and implementing a certain business model integrates not only the organizational, but also the departmental level, especially to those organizational units which are most critical to a proper determination and combination of business elements whose relationship and inter-dependence forms the scope and depth of the competitive potential of any enterprise. in this context, business modelling is a process rather than a state, predominantly due to the needed changes, transformational or transactional, that shape the process of managing it. 2. methodological determination and elements of business model despite the fact that applicative importance of business modelling has emerged from the mid 1960’s, up to the end of 1990’s there has not been a unified and accepted methodological framework for managing an organizational business model, which interrelates with the increase in the need for a planned, not an incidental organizational change, mainly focused on changes towards adopting the strategies concerning the complex environment. however, it is quite important to emphasize that the concept of business modeling is management 2014/72 one of the most challenging managerial attempts nowadays is undoubtedly an attempt to create a business model which will best integrate the organizational position and the external adaptation and integral integration. this managerial process is a logical continuation of modelling a competitive advantage of a certain enterprise, in such a way that the organizational learning would best integrate the used, not the overall organizational knowledge; the flexibility of the organizational systems wwill determine the potential of the behavioural processes and the changes oriented towards innovation will enable strategic positioning regarding the existing and potential competition. the prior objective of creating and further managing a business model is to achieveg an integrated and proactive combination of elements that implement the needs of an organizational dynamism, in the process of problem analyzing the sustainable dimensions of the competitive advantage. therefore, the ultimate target is managing a customer-integrated business model, as one that places an ‘integrated importance’ to the role of the customer within managing the organizational competitive advantage. keywords: organizational inertia and dynamism, pro-activity, strategic positioning and flexibility, customer-integrated business model far from applying the organizational strategy, or operative accommodation of strategic elements. in detailing the desired nature and capacity of their business model, every organization focuses on their particular combination of resources especially the used knowledge, skills, capabilities and experience, on one hand, with the capacity for proactive behavior, strategic flexibility and organizational inertia, on the other hand, both of which aimed at reaching the state of organizational dynamism. the fundamental logic of the business model is finding out the key value – adding resources and capabilities and integrating them in accordance with the organizational strategy, structure, systems and human resources. theoretical defining of a business model presents a variety of methodological approaches, which determine it as follows: the method of doing business by which a company can sustain itself through generating revenue (chesbrough & rosenbloom, 2002); firm’s intended or actual response to how value is created or appropriated (magretta, 2002) design of organizational structures (baden-fuller & morgan, 2010), such as boundary – spanning transactive structures (amit & zott, 2001); an operational tool expressing the business logic of an organization (osterwalder, 2004); a convention between partners concerning the generation and sharing of value among stakeholders (verstraete & jouison, 2007); a firm’s underlying logic and strategic choices to create and capture value within a value network (shafer, smith & linder, 2005) and the most prominent and influencing definition in the business modelling literature is: an architecture for the product or service, an information flow, a description of the benefits for the business actors involved and a description of the sources of revenue (timmers, 1998). it is evident from a majority of the above detailed definitions that the business model initially refers to using a ‘dual business developmental perspective’, in terms th at it simultaneously stipulates, in our profound analyses, the following organizational counterparts: � pragmatism and innovative changes; � integrity and particularization; � management and leadership; � adaptively and proactively performing � short-term profit orientation and long-term business value maximization; � strategic choices and user generated operational context etc. each business model integrates various constitutional elements, predominantly determined and described through the following table: table 1: business model elements source: adopted according to osterwalder, a., pigneur, y. & tuchi, c.l. (2005), clarifying business models: origins, present and future of the concept, communication of the ais, vol.16 (1), p.13 38 2014/72management no. element of business model description 1. value proposition an overall view of the company’s bundle of products and services 2. target customer segments of customers a company wants to offer value to 3. customer handling/distribution channel various means of the company to get in touch with its customers 4. customer interfaces/relationship kinds of links a company establishes between itself and its different customer segments 5. value configuration arrangement of activities and resources 6. capability/core competency competencies necessary to execute the company’s business model 7. partner network network of cooperative agreements with other companies necessary to efficiently offer and commercialize value 8. cost structure monetary consequences of the means employed in the business model 9. revenue model a way a company makes money through a variety of revenue flows 1. the initial element of each business model is value proposition, which refers to the perceived value benefit, which a customer would get from the specific combination of the organizational products or services. it precisely determines the quality features from the organizational offer which are prevalent for the customer. this first element details the cognitive offer view which, in fact, is dominant for the perceived value from the transactions with the specified organization. 2. in order to accommodate the numerous products or services to the most particular customer demand, an organization has to undertake changes in order to position itself in front of the target customer – the model of interdependence starts from identifying the customer portfolio which can be best served with organizational products and services that have undergone transactional or transformational changes. the importance of this second business model element lies in a clear determination of the customer wishes, tendencies, motives, expectations, benefits etc., received with the act of purchasing the product or the service. 3. the process of achieving a full alignment with the identified needs, in a broader meaning of the word, includes a proper way of handling them, through the distributive channels. as a third element, the customer handling/distribution channel integrates all communicational approaches in order to create a sense of satisfaction in a specific customer, in terms of mutual articulating, gestures, emphasizing common interest of both sides etc. this element is absent only at public tenders, in which case this element is included in the customer interface/relationship. 4. each customer, as a member of various determined target customer segments, possesses different means of establishing and developing a closer relationship, which is accomplished in the customer interfaces/relationship element. it implies that, with regards to the handling method, the complete relationship is built with an accent on the stimulus for a customer segmented satisfaction, which is highly important especially for the higher customer segments that need a clear distinction in satisfying their determined needs. 5. immediately after the relations with the customers have been established, the company should create a specific combination for optimal usage of its resources and capabilities, particularly processes and activities which add value for the customers, which is accomplished in the fifth business model element – value configuration. it is important that each organizational configuration of resources and capabilities must be unique in comparison with other companies, as well as in comparison with various customer segments. it details the capacity of the organization to be original in satisfying its customers. 6. in certain circumstances, an organization may be able to integrate its resources and capabilities proactively, but will not bear the required competencies for implementing the desired business model – it is the focal point of the sixth element, i.e. capability/core competency. as an applicative element, it stipulates that core organizational competencies are expected to be sustained, and therefore to influence a more complete delivery of the promised organizational outcome – benefit from the products or services for the customers. 7. partner network, as an element of the business model, refers to the undeniable truth that no organization can be specialized in every business function. the tendency for finding out a solid and serious network of business partners would result in bringing about a higher quality of performance at lower cost. it focuses upon an increased efficiency and, at the same time, upon commercializing the benefits that arise from the achieved value for the targeted customers. 8. it is useful to measure the invested money in increasing the level of satisfaction of the customer segments. therefore, in the element named cost structure, an organization makes efforts to leverage the benefits, in order to determine which means of effecting value configuration are a priority, and which are of a second level of importance. the cost structure should not lower the promised quality level to the customers, and at the same time it is not expected to be based on a non-sustainable combination of resources and capabilities. 9. finally, the business model finalizes with the creation of the revenue model – which implies that an organization should determine the level of risk exposure for different revenue flaws, in order to enable itself to put priority to those that are best suited to the contingency combination of internal and external elements. the importance of the revenue model is in categorizing the revenue flows in accordance with the degree of prosperity and potential for influencing its competitive advantage. every element of the business model affects both the fulfillment of the consecutive one and the overall effectiveness and efficiency of the already created business model, in which the most creative and sensitive elements usually are the target customer, the value configuration, the building capability/core competency and the partner network. 39 management 2014/72 a categorization of the elements of the business model which pays due attention to using transformational strategy for changes is detailed as constituted of the following integral business model elements1: value proposition, nature of inputs, how to transform inputs (including technology), nature of outputs, vertical scope, horizontal scope, geographic scope, nature of customers, organization of the model. the most important difference of the last model from the first, previously detailed business model, is in the position of the customers, and that is on the 8-th level. the prior reason for it lies in the fact that in strategic modelling of the business, customers are initially positioned, as an element which influences to all other elements. in this context, customers on the 8-th level may manifest certain variability with regards to a closer integration of the resource/capability combination compared to the desired level of customer satisfaction. in addition to these two business model concepts, the most intriguing issue in creating and managing the most efficient business model is in the proper combination of resources and competencies, aimed at adding value to the organizational performance. a model which pays most attention to it is named the rcov model (resources and competencies, value proposition, organization), in which each combination of the resources and competencies is measured through its marginal influence to the customer quantitative and qualitative benefits. the presentation of the approach, in combining the elements of this configurative business model would best be detailed in the following figure: figure 1: the rcov business model (demil & lecocq, 2010) it is evident that the integration of elements of the rcov business model is done through organizational and customer learning, socialization and acquisition of new customers, offer specification, production and/or distribution by the customers, resulting in the customer-integrated character of this model, although the customer him/herself is not an element of the model, but may appear within the external organization dimension. 40 2014/72management 3. managing proactivity, organizational inertia, strategic positioning and flexibility for organizational dynamism in order to increase the level of successfulness, each business model is expected to execute certain management criteria for success of a business model2, among which, as most applicable, arise the following: a proactive business approach that turns thoughts into looking out for business and our marketing strategies to creating a need and away from a current business model where marketing focuses on fulfilling a need and waiting for the customer to ring, undertaken through these managerial steps: � figuring out the company culture, � putting a business plan in place, � showing leadership, and � recruiting and retaining top performers. business model constitutes a change in the company culture, one that allows us to plan and one that still maintains a sense of urgency. the new culture is about creating more opportunities and building relationships. organizational proactivity is higher in an experienced organization, in comparison with young and start-up companies, in which the manifestations of organizational inertia, especially the structural one, emerge owing to the managerial determination3 that is less subject to structural inertia; young organizations may seem more adaptive than established firms, but their agility depends critically on the availability of resources to pursue multiple paths, aimed at reaching the strategic continuity. the integration of proactivity and organizational inertia leads to a proper determination and consecutive application of the concept of strategic positioning for managing business models, which fundamentally consists of the following constitutive elements4: the right goal, a value proposition, a distinctive value chain, trade-offs, fit among strategy elements, continuity of direction. the managerial challenge is to interrelate these elements in order to achieve an organizational dynamism from their predominant static character, in such a manner that it has been achieved in ikea, neutrogena etc. in doing so, an organization should initially attempt to achieve its strategic flexibility, a propulsive business concept that is theoretically determined as: the ability to identify innovation opportunities, commit resources to new courses of action, or reverse unproductive resource deployment (shimizu and hitt, 2004; uhlenbruck, 2003). strategic flexibility is influenced by organizational structures and dynamic capabilities, on one hand, and, on the other hand it influences the organizational dynamism, which in return is critical in creating and managing the dynamic business model through reducing the structural complexity and making a full use of a proactive organizational culture. the key determinant in the organizational dynamism are the dynamic capabilities, which refer to: a learned and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness (zollo and winter, 2002). in creating a dynamic business model, dynamic capabilities are interrelated with the forms of knowledge needed for anticipating and proper effecting of customer needs through structures and routines, on the following managerial approach for their dynamic integration5: 41 management 2014/72 a relationship between the structures and routines is captured by a firm’s business model, existance of a constant and iterative need for creating and sharing the know-how to drive improvements to both structures and routines. an actual dynamic change model which fulfills the above detailed managerial approaches would best be presented in the following figure: figure 2: a dynamic business model (mason and leek, 2008) fundamentally, in order to proactively manage the dynamic character of the business model, it is essential to adopt the need and form of the knowledge of the internal combination of structures and routines, on one hand, and of the nature and depth of the needs of the specific external customer segment, on the other hand. 42 2014/72management each organized effort for planning and implementing a certain business model integrates not only the organizational, but also the departmental level, especially in those organizational units that are most critical for a proper determination and combination of business elements whose relationship and interdependence form the scope and depth of the competitive potential of any enterprise. in this context, business modelling is f a process rather than a state, predominantly due to the needed changes, transformational or transactional, that shape the process of managing it. however, it is quite important to emphasize that the concept of business modelling is far from applying the organizational strategy, or operative accommodation of strategic elements. in detailing the desired nature and capacity of their business model, every organization focuses on their particular combination of resources especially the used knowledge, skills, capabilities and experience, on one hand, and the capacity for a proactive behavior, strategic flexibility and organizational inertia, on the other hand, both of them aimed at reaching the state of organizational dynamism. each business model integrates various constitutional elements, predominantly determined as: value proposition, target customer, customer handling/distribution channel, customer interfaces/relationship, value configuration, capability/core competency, partner network, cost structure and revenue model. the most intriguing issue in creating and managing a most efficient business model is in the proper combination of resources and competencies, aimed at adding value to the organizational performance. a model which pays most attention to it is named the rcov (resources and competencies, value proposition, organization) model in which each combination of the resources and competencies is measured through its marginal influence to the customer quantitative and qualitative benefits. conslusion references [1] bock, j. adam, tore opsahl, gerald george and david m. gann (2012, march), the effects of culture and structure on strategic flexibility during business innovation, journal of management studies, vol.49, issue 2, 279-305 [2] coulson-thomas, colin (2013, autumn), to business excellence and beyond, management services,vol.57, issue 3, 18-23 [3] demil benoit & lecocq xavier (2010), business model evolution: in search of dynamic consistency, long range planning, vol. 43, no.2, 227-246 [4] marx matt (2008), on a short leash? young organizations, strategic change and venture capital, paper presented at the academy of management annual meeting proceedings, 1-6 [5] mason, j. katy and leek sheena (2008, june), learning to build a supply network: an exploration of dynamic business models, journal of management studies, vol.34, issue 4, 774-799 [6] mokhlesian shahin and holmen magnus (2012, september), business model changes and green construction process, construction management and economics, vol.30, 761-775 [7] osterwalder, a., pigneur, y. & tuchi, c.l. (2005), clarifying business models: origins, present and future of the concept, communication of the ais, vol.16(1), 1-25 [8] pauwels koen & weiss allen (2008, may), moving from free to fee: how nline firms market to change their business model successfully, journal of marketing, vol.72, 14-31 [9] ple loic, lecocq xavier and angot jaques (2010), customer-integrated business models: a theoretical framework, management, vol.13, no.4, 226-265 [10] porter, e. michael (1997, january-february), what is strategy, harvard business review, vol. 75, issue 1, 156-157 [11] rasler kent (2010, december), run a proactive, not reactive business, air conditioning heating and refrigerating news, vol.241, issue 17, 8-9 [12] yip s. george (2004, summer), using strategy to change your business model, business strategy review, vol.15, issue 2, 17-24 receieved: june 2014. accepted: september 2014. 1 yip s. george (2004, summer), using strategy to change your business model, business strategy review, vol.15, issue 2, p.20 2 rasler kent (@010, december), run a proactive, not reactive business, air conditioning heating and refrigerating news, vol.241, issue 17, p.8 3 marx matt (2008), on a short leash? young organizations, strategic change and venture capital, paper presented at the academy of management annual meeting proceedings, p.5 4 porter e. michael (1997, january-february), what is strategy, harvard business review, vol. 75, issue 1, p.157 5 mason, j. katy and leek sheena (2008, june), learning to build a supply network: an exploration of dynamic business models, journal of management studies, vol.34, issue 4, p.776 43 management 2014/72 the integration of proactivity and organizational inertia leads to a proper determination and consecutive application of the concept of strategic positioning for managing business models. strategic flexibility is influenced by organizational structures and dynamic capabilities, on one hand, and, on the other hand, it influences the organizational dynamism, which in return is critical for creating and managing of dynamic business model, through reducing the structural complexity and making full use of a pro-active organizational culture. fundamentally, in order to proactively manage the dynamic character of the business model, it is essential to adopt the need and form of the knowledge of the internal combination of structures and routines, on one hand, and of the nature and depth of the needs of the specific external customer segment, on the other hand. 44 2014/72management about the author ljubomir drakulevski “ss. cyril and methodius” university in skopje, faculty of economics drakul@eccf.ukim.edu.mk ljubomir drakulevski is full professor at the faculty of economics-skopje, ss. cyril and methodius university in skopje, engaged as full professor of strategic management, international management and organizational behaviour, at the first cycle (undergraduate) and second cycle (postgraduate) of studies at the faculty of economics in skopje. he published 5 books, over 50 papers in the country or abroad, and since from 2011 he has been engaged as dean of the faculty of economics, ss. cyril and methodius university in skopje. leonid nakov “ss. cyril and methodius” university in skopje faculty of economics lnakov@eccf.ukim.edu.mk leonid nakov is associate professor at the faculty of economics-skopje, ss. cyril and methodius university in skopje, predominantly focused on the scientific disciplines in the area of organizational sciences and management change management, business ethics and organizational behaviour, at the first cycle (undergraduate) and the second cycle (postgraduate) of studies at the faculty of economics in skopje. over the previous period he has published over 30 scientific and research papers in the country and abroad, attended over 40 national and international conferences, symposia, seminars, research studies and summer schools. leonid nakov participated in 12 scientific, research or applicative projects, domestic and international, is the only adizes top leaf moderator in macedonia and serves as an economic advisor to numerous macedonian managers. 06 maja levi jaksic:tipska.qxd 65 maja levi jakšić1, sanja marinković2, jovana rakićević3 1,2,3 university of belgrade, faculty of organizational sciences sustainable technology entrepreneurship and development – the case of serbia udc: udc: 330.341.1(497.11); 005.342 doi: 10.7595/management.fon.2014.0004 spin´ 13, belgrade, 05-06. november 2013. 1. introduction it is generally accepted, theoretically elaborated and practically tested and proved that growth and development are clearly based and dependent on new technology and innovation. firms strategically oriented towards constant innovation and product (goods and services) and process development are the ones that survive on the market and register competitive advantages. sustainability is the critical and key new dimension essential to modern business development and achievement of long term competitiveness. intensive economic growth and development is often followed by different modes of violation and endangering of the environment: resource exhaustion, water, soil and air pollution and degradation, and other. this led to the wrong conclusions that economic development necessarily brings negative environmental effects, that it is the price to be paid for the development, that it could not be realized in a different way. the efforts made in reversing this common misunderstanding are mainly oriented to directing innovation activity towards creating new sustainable, environment-friendly, green technological solutions. operations based on green technology are enabling a simultaneously environment-friendly and profitable business activity. there is a rising need for managing development with taking into consideration multiple factors and goals: social, economic, and environmental. modern concepts in development management are essentially focused upon technology and innovation which are at the base of all operations and actions that man undertakes in order to fulfil the different needs and goals in nature and society. it is argued that the technology we use is the initial and determining factor of our performance and the crucial generator of risks to our environment. the last decades of the twentieth century have witnessed a rapid ascent of the scientific discipline of technology and innovation management. this was mainly due to the rising and urgent necessity to direct, guide and manage the exponential growth of new technology towards fulfilment of social and economic goals, at all levels and in different spheres of the actions taken by mankind (levi jakšić, 2010). results and breakthroughs in technology and innovation management become increasingly important, at least as important as the development of new technology per se. today, ecological and environmental goals are especially pointed out as critical to the survival, existence, and development of mankind. the theory and practice of technology and innovation management is preferential with a crucial new dimension of sustainability incorporated in all the aspects and issues considered. the concept of sustainable technology management is based on a complex set of principles, goals, models and methods which correspond to the overall sustainable development context. (levi jakšić, 2011). management journal for theory and practice management 2014/70 technology entrepreneurship is oriented towards competitiveness based on strong relationships between science, new technology, learning and creating new value for the customer in the form of advanced goods and services leading to their commercialization. in this paper special focus is on two crucial issues of sustainable technology entrepreneurship: definition of the concept of technology entrepreneurship based on sustainable innovation and technology, and specific technology entrepreneurship indicators for serbia related to vertical and horizontal technology transfer. keywords: sustainable development, sustainable technology entrepreneurship, vertical and horizontal technology transfer, indicators. the focus of theory and practice in this field is towards fundamental issues of development and implementation of sustainable technology. this means dealing with the early, initial, and all subsequent stages of guiding research and development towards scientific discoveries, new technology and innovation substantially and fundamentally leading to sustainable growth and development. despite the economic crisis and high degree of unemployment registered in a great number of countries, both developed and developing, the key to the resolution of these problems lies in even more intensive innovative efforts and new technological investments creating the necessary turnaround towards new sustainable opportunities for the new economic cycle of prosperity and development. the eu has proposed technological priorities in the effort to identify crucial strategic technological areas where we should concentrate creative efforts, engage material and financial assets for future development. high expert group delegated by the ec has pointed out five key enabling technologies, ket (european commission, 2011) that are essential for future development: • advanced material technology • nanotechnology • industrial biotechnology • photonics • micro and nanoelectronics • advanced manufacturing systems the above listed technologies are in the foundations and cutting across the majority of new products and services for the future. integrated, they express multiplication and synergistic effects to social and economic development. 2. the concept of sustainable development sustainable development is a complex, multidisciplinary concept. the most widespread and generally cited definition of sustainable development was created and presented in 1987 within the report of brundtland. it emphasises that, in essence, sustainable development encompasses the issues of managing the overall sustainability of society, economy, organization and individuals, consistently pursuing the goal of satisfying the present needs in given circumstances, but without jeopardizing the development or creating any risks for future generations to fulfil their own needs, as well. the concept of “green" growth has established a definite and substantial division between economic growth and environmental degradation, meaning that economic growth is not necessarily environmentally damaging, but, to the contrary, it should be and can be guided towards upgrading of the environment. the concept points out that both goals of "green” and “growth" can be accomplished bringing satisfaction of needs for present and future generations. green growth means "further economic growth and development that ensures nature will continue to provide resources and services that our welfare depends upon." (oecd, 2011). in current practice, we are still witnessing severe violations brought to the environment by diversified operations performed under the erroneously proclaimed to be "contributions to economic growth". the understanding of economic growth should experience a transition towards the inclusion of environment goals as necessary dimensions which, if neglected, are bearing disaster and not growth. this calls for new theoretical and practical solutions with a new conceptual framework of growth and development based on a complex set of principles, models, methods for strengthening and satisfying multiple goals – social, economic, environmental, cultural, political, etc. sustainable development, in its essence, means working together, at a global scale and perspective, in order to create a future that will in the least possible manner exploit the resources, eliminate degradation provoked by pollution and waste accumulation, avoid any actions that provoke disturbance and disruption of the environment, build strategic, long-term dimensions for development and growth means and solutions (levi jakšić & marinković, 2012). eco-innovation is at the core of establishing economic growth while simultaneously keeping the environment safe. special attention is drawn to the new business model that will bring eco-innovation to the market and enable its intensive diffusion. based on the business model perspective, it is the new technologies and technology management issues that gain significance in generating new value with additional attributes intro66 2014/70management journal for theory and practice management duced related to preservance and protection of the environment, while simultaneously realizing profitable business with innovative products (goods and services). the identification and analysis of multiple aspects, factors and goals of sustainable development is essential. long-term sustainability lies on developing the capacities to create decisions, solutions and act in accordance with this multi-factor perspective, oriented towards fulfilment of multiple goals. 3. sustainable technology entrepreneurship scientific discoveries, new technology and innovation are not by themselves sufficient enough in the effort to achieve the complex sustainable development goals. the conceptual framework developed within technology and innovation management discipline, intensively growing and gaining significance in the last decades, establishes the patterns, principles, models by which technological research and development are guided, directed, planned, organized and controlled within different layers of society and economy. sustainability goals emphasize the necessity to re-examine and reassess all our practices and theoretical background, to reengineer all our processes, operations and means by which we act in the economy and society. they call for new approaches and sometimes radical changes to the already established concepts, frameworks, habits, and beliefs, meaning a complete new philosophy that is emerging in all aspects, ways and standards of life. te concept of technology entrepreneurship has emerged as the result of the significance of the issues of technology and innovation for production and consumption, for all economic units and actors, including firms of different size, public and private sectors, in all domains of manufacturing and services. technological entrepreneurship means the creation of a new business venture that generates value (welfare, business operations, employment, progress) for the actors while developing a unique, new way of combining and generating new resources, including technology, to satisfy the needs of customers and society. (byers et al, 2011) the concept of entrepreneurship today most generally focuses upon small and medium enterprises and very broadly addresses a range of potentials defined as opportunities for new business venture or simply, new business enterprise. technology entrepreneurship is focused upon new technology and technological innovation as major opportunity identified in organizations of different types, where strategic management and entrepreneurial teams determine and lead projects of research and development, procurement and implementation of new technology. in other words, when any mode of vertical and/or horizontal technology transfer takes place in an organization, the complex change enforced by such projects, both incremental and radical, is recognized as technology entrepreneurship. the change is initialized by strategic management, realized through operational management and it involves all organizational segments. in this paper special attention is given to two major issues of sustainable technology entrepreneurship: 1. clarification and precise definition of the concept of technology entrepreneurship based on sustainable technology and innovation, emphasizing the overall links within network relations and embeddedness of sustainable technology entrepreneurship deeply rooted, influenced by and dependent on complex relationships within the economy and society, and 2. analysis of special indicators of technology entrepreneurship, presented and implemented in the case of serbia. 3.1. technology entrepreneurship definitions technological entrepreneurship (also found under the terms techno-entrepreneurship, technical entrepreneurship, knowledge and technology entrepreneurship) encompasses in a complex way: opportunity identification and analysis, technology and innovation management, strategic management, new business models development. different definitions of technology entrepreneurship found in literature are basically related to technology and innovation at the core of development. "technological entrepreneurship encompasses all the activities related to the identification of potential entrepreneurial opportunities arising from 67 management journal for theory and practice management 2014/70 technological developments, and the exploitation of these opportunities through the successful commercialization of innovative products (goods, services)" (petti, 2012). one of the definitions points to investments and projects as major determinants, "technological entrepreneurship is an investment in a project that assembles and deploys specialized individuals and heterogeneous assets to create and capture value for the firm. what distinguishes technology entrepreneurship from other entrepreneurship types (e.g., social entrepreneurship, small business management, and self-employment) is the collaborative experimentation and production of new products, assets, and their attributes, which are intricately related to advances in scientific and technological knowledge and the firm's asset ownership rights." (bailetti, 2012). technology entrepreneurship exists where there is investment in new technological projects interdependent on scientific discovery and new technologies. some definitions emphasize risk as a significant characteristics of innovative technological projects, and it is pointed out that "technological entrepreneurship means organization, management and risk bearing of a technology based business" (nicholas & armstrong, 2003; cited in bailetti, 2012). the functions of organizing and technology management are considered as crucial along with the determination to undertake risk, meaning that technology entrepreneurship is always present when new technology is being developed and implemented in an organization. technological entrepreneurship, in a broad sense, deals with "transformation of technological research, developments and related investments into value: economic value in terms of returns for entrepreneurs, investors, employees and taxes for governments; and societal value in terms of growth, employability and improvement of living standards. " (petti, 2012). in this paper, the authors have come to the conclusion that two main determinants of technological entrepreneurship emerge within the concept broadly considered at different levels: national economy, regional, industry sector, organizational. technological change at the organizational level is concerned with: 1. research and development activities oriented towards the development of new product (goods, services) and process technology, modification and adaptation of existing technologies (basically vertical technology transfer), and 2. procurement (purchasing) new technologies, developed by someone else, through different modes, business arrangement and transactions (i.e. horizontal technology transfer). strategic technology management determines the type of technology entrepreneurship in accordance with the business strategy and sustainable development goals. technology entrepreneurship is realized by small, medium and large firms relying on internal and external factors, and diversified modes of technological entrepreneurship depend on resources, developed skills and firm competencies in concrete situations in practice. 3.2. technology entrepreneurship main features and significance the main features and the significance of sustainable technology management lie in the following: 1. founding on sustainable technology and innovation (mcintyre et al., 2013). 2. technology entrepreneurship is, in a sense, a broader concept than entrepreneurship, as it encompasses a chain of activities related to both the development and implementation of technology. it expands over science and knowledge development, research and development (r&d) where entrepreneurial direction is necessary to enhance and plan those r&d projects and activities which possess the greatest potential to contribute to sustainable growth of the economy, region, firm and society as a whole. technology entrepreneurship is related to vertical and horizontal technology transfers which extend entrepreneurial actions in creating new technology as well as in commercializing the technology by developing new ventures. 3. technology entrepreneurship is, in relation to some specific issues, narrower than entrepreneurship 68 2014/70management journal for theory and practice management due to the fact that it focuses upon technology as the opportunity to entrepreneurial venturing, thus excluding some other domains of entrepreneurial opportunity and narrowing the concept of opportunity. the main thesis is that opportunity is created by investing in technological innovation and new technology is the opportunity: identifying and pursuing business opportunity means also that r&d and new technology investments are necessary as response to opportunity, new technology is an opportunity and technological innovation is a starting point for new ideas for business opportunity. 4. technology entrepreneurship is realized by teams assembled to work together primarily on projects of technology development and implementation. 5. technology entrepreneurship is embedded within the goals of modern society and it essentially contributes to sustainable development since it deals with new, green and sustainable solutions for new technology at the base of all operations. the concept of key enabling technologies (ket) directs the efforts towards those technological platforms that will lead the economy and society in the most efficient manner towards these goals. 6. technology entrepreneurship is not related strictly to small and medium enterprises and new ventures. it is equally well implemented in new and in the existing firms as well as in firms of different sizes, including large firms. (bailetti et al, 2012) the concept is comprehensive, it is recognized in firms of different sizes, new and old, public and private sectors, and is based upon strong network relations and strong systems of support within national economies, but also within regions and at a global level. 7. technology entrepreneurship is analysed through different approaches, along many perspectives, from different angles. it is based on system solutions in the economy and society, it determines policy and strategies, emphasizes the role of the state, higher education, industry, and determines new business models. 3.3. technology entrepreneurship indicators measuring entrepreneurship indicators in developed countries is a complex process that provides important information and enables analysis and comparisons. a comprehensive list of entrepreneurship indicators in the oecd report "quality assessment of entrepreneurship indicators" defines six categories of determinants: 1) the legal framework; 2) market conditions 3) access to finance, 4) creating and diffusion of knowledge; 5) entrepreneurial skills; 6) entrepreneurial culture (oecd, 2012). data sources in most cases are the world bank and the oecd statistics and databases. in case of serbia, it is important to define entrepreneurship indicators and technology entrepreneurship indicators with valid sources in order to enable continuous monitoring and analysis. in this paper, we observe indicators classified into two groups: 1) indicators of vertical technology transfer; 2) indicators of horizontal technology transfer. 3.3.1. technology entrepreneurship indicators – vertical technology transfer in the field of vertical technology transfer, important macro indicators are: 1) investments in research and development as a percentage of gdp; 2) patent applications (residents and non-residents); and 3) trademark applications (residents, non-residents). investments in r&d is an indicator of “current and capital expenditures (both public and private) on creative work undertaken systematically to increase knowledge, including knowledge of humanity, culture, and society, and the use of knowledge for new applications. r&d covers basic research, applied research, and experimental development” (worldbank). figure 1 shows the trend of the indicator r&d investments (% of gdp), measured for the republic of serbia in the period from 2003 to 2011 (source: worldbank). the graph 69 management journal for theory and practice management 2014/70 shows that during the period 2004-2008 investments in r&d did not exceed 0.5% of gdp, which ranked serbia among the countries with the lowest investment in r&d (both in the developed world and in the region). in 2008, the r&d investment in serbia was 0.38% of gdp, while in the eu this percentage was 1.85% (kojic et al., 2011). according to these data, it is obvious that serbia is far behind the eu when it comes to the intensity of investments in r&d. however, it is encouraging to note that the value of this ratio in 2009 increased to almost 1% of gdp and has not fallen below 0.7% during the following two years (2010-2011). figure 1: trend of r&d investments (% of gdp) in the republic of serbia, period 2003-2011 (source: worldbank) the second indicator – patent applications, refers to “the worldwide patent applications filed through the patent cooperation treaty procedure or with a national patent office for exclusive rights for an invention a product or process that provides a new way of doing something or offers a new technical solution to a problem” (source: worldbank). figure 2a shows the trends of indicators patent applications, residents and non-residents, while figure 2b shows the trends of indicators trademarks applications, direct residents and non-residents for the republic of serbia during the period 2007-2011. trademark applications refer to “applications to register a trademark with a national or regional intellectual property (ip) office” (source: world bank). as far as patent applications in serbia are concerned, a worrying fact is that from figure 2a we clearly see a declining trend in resident applications, from 395 applications in 2007 to only 180 applications in 2011. if we observe the region countries, in 2011 croatia was better with 230 applications, while albania, bosnia and herzegovina, macedonia and montenegro were worse than serbia with 3, 43, 37 and 20 applications, respectively (source: worldbank). similar situation is present in trademark applications in serbia. from figure 2b we can see a declining trend in direct resident applications, from 1858 in 2006 to 1133 in 2011. generally, from figure 2 we can conclude that r&d activity in serbia is not fertile enough in terms of creating output in the form of protected intellectual property. figure 2: 2a trend of patent applications, residents and non-residents for the republic of serbia, period: 2007-2011; 2b trend of trademark applications, residents and non-residents for the republic of serbia, period: 2007-2011 (source: worldbank) 70 2014/70management journal for theory and practice management 3.3.2. technology entrepreneurship indicators – horizontal technology transfer in the field of horizontal technology transfer, four relevant indicators are: 1) charges for the use of intellectual property; 2) ict goods imports (% of total goods imports); 3) ict goods exports (% of total goods exports); and 4) total investments in equipment. charges for the use of intellectual property are “payments and receipts between residents and non-residents for the authorized use of proprietary rights (such as patents, trademarks, copyrights, industrial processes and designs including trade secrets, and franchises) and for the use, through licensing agreements, of produced originals or prototypes and related rights” (source: worldbank). table 1 shows charges for the use of intellectual property – payment and receipts in serbia during the period 2007-2012. payments for the use of ip (hundreds of millions of u.s. dollars) are far above receipts for the use of ip (tens of millions). the largest payments in serbia were in 2008 – above 196 million dollars, while the lowest payments were in 2007 and 2009 – around 143 million dollars. as far as receipts are concerned, the largest value was in 2009 – above 61 million dollars, while the lowest was in 2007 – only 10 million dollars. table 1: charges for the use of intellectual property – payment and receipts in serbia (u.s. dollars), period: 2007-2012 (source: world bank) ict goods imports and exports include “telecommunications, audio and video, computer and related equipment; electronic components; and other information and communication technology goods. software is excluded” (source: worldbank). table 2 shows changes in ict goods imports and exports in serbia during the period 2007-2011. ict goods imports in serbia decreased over the observed period of time – from 5.73% of total goods imports in 2007 to 4.30% in 2011. on the other hand, ict goods exports increased from 1.1% of the total goods exports in 2007 to over 2% in 2008 and 2009, but then decreased to 1.42% in 2011. table 2: ict goods imports (% of total goods imports) and ict goods exports (% of total goods exports) in serbia, period: 2007-2011 (source: world bank) table 3 shows total investments in equipment measured for the republic of serbia in the period from 2004 to 2010 (source: statistical yearbooks of serbia from 2006 to 2013). over the observed period of time, serbia invested more money into domestic equipment. these investments increased from over 80 million rsd in 2004 to over 138 million in 2011, (for imported equipment they increased from over 62 million in 2004 to over 100 million in 2011). this resulted in the increase of the indicator total investments in equipment – from 142 million in 2004 to 240 million in 2011. the highest intensity of technology transfer, monitored through this indicator is observed in the period 2007-2008. 71 management journal for theory and practice management 2014/70 charges for the use of intellectual property year payments receipts 2007 143603138.4 10456233.7 2008 196380003.8 29039521.67 2009 143291864.2 61611211.98 2010 155910993.7 39040235.46 2011 183330205.4 56902140.75 2012 175339875.5 35530709.25 year 2007 2008 2009 2010 2011 ict goods imports (% of total goods imports) 5.73 4.69 4.38 4.22 4.30 ict goods exports (% of total goods exports) 1.10 2.04 2.39 1.63 1.42 table 3: total investments in equipment in serbia (thousands rsd), period: 2004-2011 (source: statistical yearbook of serbia) references: [1] bailetti, t. (2012). technology entrepreneurship: overview, definition, and distinctive aspects. technology innovation management review, february, 5-12. [2] bailetti, t., bot, s., duxbury, t., hudson, d., mcphee, c., muegge, s., weiss, m., & wells, j., westerlund, m. (2012). an overview of four issues on technology entrepreneurship in the tim review. technology innovation management review, may 2012: technology entrepreneurship. [3] byers, t.h., dorf, r.c., & nelson, a.j. (2011). technology ventures: from idea to enterprise, 3rd ed., international ed. mcgraw hill. [4] european comission (2011) high level expert group on key enabling technologies, final report, june. retreived from:http://ec.europa.eu/enterprise/sectors/ict/files/kets/hlg_report_final_en.pdf [5] kojić, j., levi jakšić, m., marinković, s., & petković, j. (november 2011). research and development as an indicator of technological development performance. paper presented at viii symposium of business and academics –spin’11 ”operations management in the function of sustainable economic development of serbia 2011-2020”, belgrade (in serbian). [6] levi jakšić, m., & marinković, s. (2012). management of sustainable development, fos, belgrade (in serbian). [7] levi jakšić, m. (2010). management of technology and development, čigoja štampa, belgrade (in serbian). 72 2014/70management journal for theory and practice management total investments in equipment year domestic equipment imported equipment total 2004 80281222 62244532 142525754 2005 81733736 57011259 138744995 2006 116015693 72078453 188094146 2007 159917749 111833753 271751502 2008 176793551 132070343 308863895 2009 160396458 92972386 253368844 2010 138435706 92111327 230547033 2011 138713003 101416419 240129422 conclusion technology entrepreneurship includes research and development activities aimed at developing new technology products (goods and services) and processes, modification and improvement of the existing ones (vertical technology transfer), as well as procurement activities, acquisition of new technologies (horizontal technology transfer) through various business arrangements and transactions. sustainable technological entrepreneurship is based on sustainable technologies and innovation and is associated with the principles of sustainable development. monitoring the relevant indicators of technology entrepreneurship represents an important phase in the overall process of managing the development of a society. in the case of serbia, there is clear evidence of the lack of continuous efforts in the field of developing the most relevant set of indicators and subsequent monitoring of the technology entrepreneurship indicators. indicators of vertical and horizontal technology transfer can provide valuable information. in this paper we analyzed investments in research and development (% of gdp), patent applications and trademark applications as indicators of vertical technology transfer, while charges for the use of intellectual property, ict goods imports and exports and total investments in equipment were analyzed as indicators of horizontal technology transfer. indicators of vertical technology transfer ranked serbia among the countries with the lowest investment in r&d with the declining trend of patent and trademark applications. in 2009 we noted a large increase in r&d investments in serbia (from 0.38% in 2008 to almost 1% of gdp in 2009), which could be an encouraging fact. but, if we take a look at the patent activity of serbia, this well known innovation input has not yet been transformed into output, since during the period 2009-2011 we had a declining trend in patent and trademark applications in serbia (patent applications: from 318 in 2009 to only 180 in 2011; trademark applications: from 1373 in 2009 to 1133 in 2011). the horizontal technology transfer, analysed through the above mentioned indicators, reveals that larger amounts of transfer were conducted in 2007 and 2008 compared to 2010 and 2011. further work is needed to define technology entrepreneurship indicators through a comprehensive approach. this approach should consider the specificities of local conditions and provide valid parameters for assessment of serbia's progress in this field. [8] levi jakšić, m. (2011). sustainable technology and innovation management, in the book y. tsekouras, a. damyanov, ed., recent economic crisis and future development tendencies, 425-437. [9] mcintyre, j.r., ivanaj, s., & ivanaj, v. (2013). strategies for sustainable technologies and innovations, edward elgar, london. [10] nicholas, s.p., & armstrong, n.e. (2003). engineering entrepreneurship: does entrepreneurship have a role in engineering education? antennas and propagation magazine, ieee, 45(1), 134-138. [11] oecd (2012). list of indicators of entrepreneurial determinants, in entrepreneurship at a glance 2012, oecd publishing. http://dx.doi.org/10.1787/entrepreneur_aag-2012-27-en [12] oecd (2011). towards green growth, oecd publishing, paris. [13] petti, c. (2012). technological entrepreneurship in china, edward elgar, london. [14] statistical yearbook of the republic of serbia (2006-2013), statistical office of the republic of serbia, available at: http://webrzs.stat.gov.rs/website/ [15] worldbank, http://data.worldbank.org/indicator (access date: 4.3.2014.) receieved: november 2013. accepted: march 2014. maja levi jaksic university of belgrade, faculty of organizational sciences levi¯jaksic.maja@fon.bg.ac.rs maja levi jaksic, phd is a full professor at the faculty of organizational sciences, head of department for technology, innovation and development management. she has been teaching as visiting professor at universities in greece, the united kingdom, japan, and france and is a dual diploma master programme leader with middlesex university, london. prof. levi jaksic has published more than 20 books and monographs, about eighty articles in journals and more than ninety papers in the proceedings of domestic and international scientific conferences. she was also a project leader and member of about twenty domestic and international scientific projects. she is member of the editorial board of technovation. sanja marinkovic university of belgrade, faculty of organizational sciences marinkovic.sanja@fon.bg.ac.rs sanja marinkovic, phd is an assistant professor at the faculty of organizational sciences, department for technology, innovation and development management. she is the author and co-author of several books and more than 60 scientific papers. she is a lecturer and link tutor at dual award master programme international business and management, validated by middlesex university, london. her research and teaching interests lie in the fields of technology and innovation management, sustainable development and smes development. jovana rakicevic university of belgrade, faculty of organizational sciences rakicevic.jovana@fon.bg.ac.rs jovana rakicevic (m.sc. management of development) works as a teaching assistant at the faculty of organizational sciences, department for technology, innovation and development management. she is currently enrolled in phd studies – information systems and management. she is the author and co-author of about twenty scientific papers. her research and teaching area of interest includes technology and innovation management and smes development. 73 management journal for theory and practice management 2014/70 about the author 05_danica lecic cvetkovic:tipska.qxd 41 nikola atanasov1, zoran rakićević2, danica lečić-cvetković3, jasmina omerbegović-bijelović4 1,2,3,4 university of belgrade, faculty of organizational sciences an approach to stock cover indicator adequacy udc: 657.474.51; 005.216.1 doi: 10.7595/management.fon.2014.0026 spin´ 13, belgrade, 05-06. november 2013. 1. introduction modern customers expect an increasing number of types and quality improvement of products and services (delivery, for example), as well as low prices. such business conditions dictate the constant development of products/services, the improvement of processes of production, supply and distribution (and maintaining of stocks of raw materials and (semi) products), as well as the improvement of the management process (and planning) – by using new methods and techniques of enterprise management. the goal that the authors of this paper have is to present one of the possible ways to improve (increase adequacy) performance indicators of the production/distribution enterprise and to apply it as a new approach to inventory management. by applying the new approach in practice, the improvement of the methodology for determining (calculating) the value of performance indicators in inventory management of production and/or distribution enterprise, is verified. the authors also pointed out the functional connectivity of strategy/ methodology for determining /calculating the value of performance indicators inventory management with “market characteristics” (level of development) and “components of time series” of realized sales. these market characteristics and components of time series directly influence the importance of certain types of stock cover indicators in the vector that represents the complex indicator of balanced stock cover which is shown in the work of atanasov et al. (2013). 2. inventory management based on key performance indicators the main task of inventory management is the coordination in the realization of common stock policies adopted by different members of the supply chain; while the common goal is balancing of material/goods flows in achieving customers’ demands satisfaction and minimization of belonging costs (giannoccaro & pontrandolfo, 2002). the key performance indicator (kpi) in inventory management, which is considered and used in this paper is the “stock cover” (stc); it determines the priorities for replenishment of certain products/goods, and hence for the timing of production/or purchase orders launching (omerbegović-bijelović, 2006). stc, as the chosen kpi, cannot be considered independently of other kpis in a production enterprise management 2014/73 stock cover is presented by a key performance indicator calculating the number of days of forecasted consumption which the current stock level can face. the identified problem in production companies, when calculating the “stock cover” indicator companies opt for one of three ways, among which there are large deviations in planning frequency and launching the orders for procurement or/and production, as well as a wide aberration in the volume of customer orders; which directly affects costs and competitiveness of enterprises. the idea of the authors of this study was to make “stock cover” indicator and “balanced stock cover” to be more adequate, and at the same time more efficient and effective in the operational management of a company. keywords: key performance indicators, inventory management, stock cover indicator, balanced stock cover indicator, adequacy of indicators (also in the chains in which it operates); therefore, it is necessary to realize the impact of certain decisions on the overall business and other kpis used. according to lin & chen (2005), despite the use of kpi in inventory management, production enterprises have a defined (among others) kpi that measures the level of customer satisfaction customer service level (csl) which represents a valuable indicator to those who monitor the quality of management (omerbegović-bijelović, 1998) to decide whether the established concept of inventory management achieves desired results. the basic concept of determining customer satisfaction and appropriate ways to measure that satisfaction are listed in meyr (2009), while further research on the application of indicator csl with selective satisfaction of customers’ orders with limited stocks is presented in the paper authored by lečić-cvetkovic et al. (2010). babarogić et al. (2012) pointed out the possibilities for maximizing the customer satisfaction in case of a manufacturing enterprise that operates in conditions of limited production capacities and limited stocks of final products. inventory management cannot be considered separately from demand forecasting. in demand forecasting, techniques of time series analysis can help. (time series is a collection of data which describes the movement of the value of some variable in a given period of time.) the time series has four components (heizer & render, 2011): • trend gradually ascending or descending trend of data movement over time; • seasonality regular movements in time series (up or down), which are related to events that repeat; these patterns of data behaviour can be repeated after a certain number of hours, days, weeks, months or quarters; • cycles data patterns that occur every few years; there are business cycles (life cycles of products and enterprises), economic cycles, etc; • random variations deviations from the rules in data patterns, which result in random or unusual situations that do not follow the visible pattern and that are difficult to predict. by performing a detailed analysis of trends, seasonality, cycles and variations for each product, while keeping in mind the development level of the market in which the enterprise operates, it is possible to generate recommendations for determining the significance of components of the “balanced stock cover” vector, and, thus, for the right selection of inventory management strategy. table 1: demand in relation to the market characteristics and components of the time series speaking of the model of supply chain and inventory management applied approach which is created in accordance with the market needs to be supplied, hugos (2003) presents a simplified model of market categorization. in this model, the combinations of supply and demand are considered by classifying market into four types: 1. developing market is characterized by low and erratic supply and demand, with potential growth in the future; the ability of utilization of the growth potential and development in these markets is based on the efficient management of small quantities of products in stock and fast responses to demand changes; 42 2014/73management ��������� � � �� ����� ������ �� ���� � ���� ������� ��� �������� ���� ������� ����� � ����� � ��� � ��������� � ����������� � �!�"� ���������� ����� ���� �� �� � � � �������������� � ���� ���������� ���� � � � ���������� � �� �������� � �� �� �� �� ���� ��� �� ���� � ���#���� � �!�"� � ����� ���� � � �� � ������������ ���� ���������� ���� � ������������ ������� �� � ������� ������������ �� �� �� ���� ��� �� ���� � �" $��� � �!�"� ������ ��� ���� � � �� � �� ������� ���������� ���� � �� ��������� � �� �������� � � ���� �� �� �� ���� ��� �� ���� � � "%��� � �!�"� ����������� ��������� ���� �� �� � � � �������� ������� ��� ���� � �� �������� � �� �������� �� �� �� �� �� ���� ��� �� ���� � � 2. growing market is characterized by demand which exceeds supply, and the supply which is variable, hence a successful business in this market directly depends on the provision of high quality customer service (through timely shipments and deliveries of the entire quantity of ordered products); in contrast to low costs of sales, inventory costs rise in order to increase the level of stocks, which provides high quality of customer service; 3. in a stable market, supply and demand are high and relatively predictable, so that the relationship between supply and demand is balanced in the long run; this market needs the supply chain management to focus on inventory optimization (by defining the min-max corridor), while maintaining a high level of customer service; 4. the basic characteristic of the supply chain in a mature market is that the supply fully meets the demand which is stable or slightly decreasing (due to a large number of competitors and a wide range of supply); in this market, flexibility in responding to changes in demand (in order to achieve a high level of customer service quality) represents the challenge in supply chain management; stocks in an obsolete market are needed to be maintained at a minimum level to compensate for very high costs of promotion and attracting customers from this market. the market characteristics and components of the time series represent two important factors that define the demand for a particular product, which is presented in table 1. the above mentioned market characteristics and time series components directly affect the strategy of inventory management and prioritization in the selection of an appropriate type of indicator stc in inventory management. 3. stock coverage indicators the stock cover, expressed through the stc indicator, represents the time period in which the available stocks will be able to satisfy the estimated demand (omerbegović-bijelović, 2006). the stc indicator enables the monitoring of stocks increase or decrease in the warehouse, as well as ordering of new stocks. in particular, the basic form of the stc indicator is calculated on the basis of stocks that are available in the enterprise and that can meet the current demand for products: (1) the authors of this paper have identified three different approaches to measuring stc (three types of stc): a) based on historical sales (historical sales): (2) b) based on sales plan (sales plan): (3) c) based on revised sales plan (last estimation): (4) as observation from different perspectives can provide different values of stc (which becomes the vector stc = (stchs, stcsp, stcle)), the authors propose measuring the balance of the above mentioned three indicators components of the vector stc = (stchs, stcsp, stcle). details of the measurement of balance of three stated indicators and components of the vector bstc are presented in atanasov et al. (2013). in the ����� � �� ��� �� � ���� � ����� � ����� ���� �������� � ����� � ����� � �� ���� �������� � ��� ������� ���� ������ � ����� � �� ���� �������� � ��� ������� ��������������� � � ��� � ������ �� �� ��� � �� �������� � 43 management 2014/73 same paper, the vector balance indicator stc (bstc) whose value depends on the indicators stchs, stcsp and stcle, is also defined. in order to improve the application mode of the balanced stock cover indicator (presented in the paper “an approach to lean inventory management by balanced stock cover”, presented at the conference leantech’13), the authors propose further recommendations for the identification of significance coefficients for each of the elements that constitute the bstc vector. in the identification of significance coefficients for stchs, stcsp and stcle in a complex bstc vector it is also recommended to respect the following two criteria: 1) “characteristics of the market in which the enterprise operates,” and 2) “identified time series in demand of the observed product”. in order to transform such decision into the inventory management policy, the authors propose a comparative analysis of: a) sales data (identification of trends, seasonality, cycles and variations) and b) characteristics of the market in which the enterprise operates. 4. case study the concept of inventory management, by the application of the balance indicator stc (bstc); it is applied to a real case from the practice of the enterprise whose core business is the distribution of consumer goods in the serbian market. the planning horizon is one month. by applying excel spreadsheet tables, a system for calculating the stc according to three different approaches to stc measurement (“historical sales”, “sales plan” and “last estimation”) was created, and the same was done for the balance indicator stc for four products (tab. 2). table 2: the system of calculation of stc indicator and a balance indicator bstc (source: atanasov et al. (2013)) the target value of the stc indicator (defined by the enterprise management) is 1,5 [month], so that the ideal point of balance is positioned in m (1,5; 1,5; 1,5). for product a, the value bstca = 2,5 is obtained; for product b the value bstcb = 2,3 is obtained; for product c the value of bstcc = 3,5 and for product d the value bstcd d = 1,2. in order to increase the adequacy of the balance indicator, the authors (in this phase of the topic research) propose further development of the methodology (recommendations) for determination of the priorities among stc types in the complex balanced indicator bstc. for a more precise analysis of the “stock cover” it is possible to use the technique of analysis of product sales time series. by observing graphics in fig. 1 (which represents the monthly amount/volume of sales of products a and b), behaviour patterns of the curve (different trends of growth and decline and seasonality) that can be useful in predicting future demand and stock levels can be identified. 44 2014/73management ��������� � ������� � ������� ����� ������� � ��� ��� � ��� ��� �� �� ����� �� � ��� � ��� �� �� �� ����� ��� � ����� � � ���� �� ����� � � ����� ������������ ��� ������ � ��� � ��!"#� ! � $! � � � � � %&%��'���������� ������ � ��� � ��!"#� ! � $! � ��"� ���� (�!� (�#� ������������ ��� $��##� (� � � � (��!#� "�# � ��� � � � � � ������������������ �##� � � ��"()� � � � � � � %&%��'���������� $�#� � (� � � � "��)"� "�# � ��� � (�#� (��� ��"� (��� ������������ ��� #����� $� !"� � ��#"�� � � � � � � ������������������ � � � � �))� #�" � ��� � � � � � ����������������(� (!�� � � )�)� � � � � � � ������������������ "�!� � � (#�� � � � � � � %&%��'���������� #�$"!� $� !"� � ��#�!� #�" � ��� � ��)� (�!� ��$� ��#� ��������*��� ��� #")� � (�( � ��"(�� ��# � "�# � � � � � ��������*��������� (�! �� � � ���$�� � � � � � � ��������*�������(� "#� (�� "� � ""�� � ��� � � � � � %&%��'��������*� ��( �� (�� "� (�( � �� #�� ��# � #�! � (�#� (�(� ��"� ��(� ������ ��� �� ��� ��� � ��� ���� �� ������� � �� �� ���� ���� �� � �� � � product a – it has a declining trend in demand with moderate seasonality of demand, which is typical of an obsolete market (fig. 1). when planning replenishment of stocks, it can be assumed that demand forecasting is based on historical data, so that the indicator stchs has a major importance in a complex indicator bstc. in other words, target stocks should strive to value between 2.5 (bstc) and 1.4 (stchs) weeks of stock cover. figure 1: the dynamics of demand for products a and b for product b besides a slight increase in overall demand, expressed seasonality of demand that occurs during the market placement of promotional products can be identified (fig. 1). at the moment when a promotional product is launched in retail (eg. 20 [%] extra products or more favourable price), sales of the main product fall to a minimum and are close to zero. these characteristics suggest the possibility that this is a market which is in transition from a developing to a growing market. in this case, promotional activities for each product are defined by the sales plan, so that the indicator stcsp has the greatest significance; target stocks should strive to the value of 2,3 weeks of stock cover (in this case bstc = stcsp). if the implementation of the promotional activities plan is being continuously monitored, and is in compliance with the sales trend, the revised sales plan has higher accuracy than fixed sales plan, so, in this case, the indicator stcle has a greater importance; or, in other words, target stocks should strive to the value between 2.3 (bstc) and 3.4 (stcle) weeks of stock cover. product c in addition to the basic product, it includes a group of promotional products (fig. 2). a decline in sales of the main product, in periods when promotional product is introduced to the market, can be noticed; while, by observing the total amounts, balanced demand is identified. by launching different promotional products, the enterprise makes efforts to maintain sales at the previous level, which indicates the characteristics of the market which is in transition from a stable to an obsolete market. in this case, there are a number of promotional products, whose launching is planned in advance, and which directly affect the demand for basic products and other promotional products. it is necessary to harmonize replenishment with the sales plan that contains all the necessary data, or, differently put, target stocks should strive to value between 3.5 (bstc) and 2.6 (stcsp) weeks of stock cover. figure 2: the dynamics of demand for products c and d 45 management 2014/73 product d example of a product in which promotional products (products “d promo” and “d promo 2”) indicate an expressed seasonality of demand and a decline in an overall demand, which points out to an obsolete market. if the total sales of product d are observed, a negative sales trend can be noted, which brings into question the accuracy of the sales plan (a highly unlikely probability that a sales plan foresees sales declining), so business is planned based on the revised sales plan. in this case, the indicator stcle has a greater importance; or, in other words, target stocks should strive to value between 1.2 (bstc) and 1.4 (stcle) weeks of stock cover. references [1] atanasov, n., lečić-cvetković, d., rakićević, z., & omerbegović-bijelović, j. (2013). an approach to lean inventory management by balanced stock cover, proceedings of leantech’13, belgrade, serbia (in printing). [2] babarogić, s., makajić-nikolić, d., lečić-cvetković, d., & atanasov, n. (2012). multi-period customer service level maximization under limited production capacity, int. j. comput commun, 7(5), 798-806. [3] giannoccaro, i., & pontrandolfo, p. (2002). inventory management in supply chains: a reinforcement learning approach, int. j. production economics, 78, 153-161. [4] heizer, j., & render, b. (2011). operations management, 10th edition, prentice hall. [5] hugos, m. (2003). the essentials of supply chain management, john wiley & sons, inc., usa. [6] lečić-cvetković, d., atanasov, n., & babarogić, s. (2010). an algorithm for customer order fulfilment in a make-to-stock manufacturing system, int. j. comput commun, 5(5), 983-791. [7] lečić-cvetković, d., atanasov, n., & omerbegović-bijelović, j. (2012). improvement of supply chain management by bullwhip effect reduction, proceedings of sym-org ’12, zlatibor, serbia, 226-234. [8] lin, j., & chen, j.h. (2005). enhance order promising with atp allocation planning considering material and capacity constraints, journal of the chinese institute of industrial engineers, 22(4). [9] meyr, h. (2009). customer segmentation, allocation planning and order promising in make-to-stock production, or spectrum, 31(1), 229-256. [10] omerbegović-bijelović, j. (1998). metamanagement and quality of management (in serbian: metaupravljanje i kvalitet upravljanja) monograph, zadužbina andrejević, belgrade. [11] omerbegović-bijelović, j. (2006). planning and preparation of production and service provision (in serbian: planiranje i priprema proizvodnje i pružanja usluga), fos, belgrade. receieved: may 2014. accepted: october 2014. 46 2014/73management conslusion different perspectives of available data observation (realized sales, planned sales, market characteristics, etc.) can generate incomplete criteria for decision making in the inventory management. in order to prevent such situation, the authors of this paper have proposed the improved concept of inventory management by applying the balanced indicator stc. in order to further identify the adequacy of stock cover indicators, the authors have proposed a basic concept of determining the importance of some stc indicators in the bstc vector. the identification of the importance of different types of stc derives from the characteristics of the market in which the enterprise operates and also from the identified time series in the observed product’s demand. the authors have also identified opportunities for further improvement of the presented concept of inventory management. 47 management 2014/73 nikola atanasov university of belgrade,faculty of organizational sciences atanasovn@fon.bg.ac.rs nikola atanasov, msc, received his msc degree in operations management from the faculty of organizational sciences in belgrade in 2012. currently he is working on his phd thesis named: “a model for an appropriate set of performance indicators selection for production management”. his current research interests are in the general area of supply chain and production management. he is the author of more than 30 papers from field of his interest. zoran rakićević university of belgrade,faculty of organizational sciences zrakicevic@fon.bg.ac.rs zoran rakićević, m.sc., works as a teaching assistant at the faculty of organizational sciences (fos), department for operations management (chair of production and service management). he completed two master studies: entrepreneurship and management of smes (in 2012) and operational research and computational statistics (in 2013), and is currently enrolled in phd studies at the fos. his research and teaching area of interest includes: planning of production and servicing, operations management and entrepreneurship and management of smes. danica lečić-cvetković university of belgrade,faculty of organizational sciences danica@fon.bg.ac.rs danica lečić-cvetković, phd, is an associate professor of production and services management and e-manufacturing at the department for operations management, at the faculty of organizational sciences of the university of belgrade. her research interests and fields are related to operations management, production and services management, e-manufacture. this author has published more than 70 papers in journals and conference proceedings, published in international and national journals and conferences. jasmina omerbegović-bijelović university of belgrade,faculty of organizational sciences, omeja@fon.bg.ac.rs jasmina omerbegović-bijelović, phd, is a full time professor and head of chair of production and service management (department for operations management, faculty of organizational sciences, university of belgrade). her main areas of interest are: planning (of production, services and new business venture), entrepreneurship and management of small and medium-sized enterprises, resources management, servicing management, tools for quality improvement and problem solving. she is an author of the metamanagement and metacybernetic system concepts and has published numerous papers in the fields mentioned above. about the author 03_vasojevic:tipska.qxd 23 nena a. vasojević1*, snežana kirin1, predrag j. marković2 *innovation center of the faculty of mechanical engineering, university of belgrade, serbia *institute for contemporary history, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2018/23(1) abstract: knowledge has become the most valuable resource of the new era and the resource of the future. the intention of this study is to improve knowledge about the problem of migration of educated people from serbia from the perspective of scholarship holders who, after spending some time abroad, returned to their country. the aim of this research is to show the profile of the scholarship holders of post-academic and post-graduate students, who studied abroad and then returned to serbia. their motives for departure and return, as well as their perception of integration into the work environment in serbia and utilization of their knowledge is presented. methods: for the purpose of this research a questionnaire was constructed which was distributed online. collected data were analysed using statistical tools. results: this research has shown that the primary motive for education abroad is the desire for personal development. it has also been shown that an important factor for the return of students from abroad is their expectation of comparative advantage in the labour market and their belief that they will be able to get a desired job. apart from this, it is shown that the scholarship holders only partially use the acquired knowledge and thus do not have enough influence on the development of their organizations.conclusion: the main research contribution is reflected in the improvement of the knowledge about the motivation of scholars to return from developed countries and in highlighting the problems scholarship holders have on coming home. implications and research limitations: the results obtained can be generalised to countries that are undergoing or have recently commenced a transition, and are similar in cultural characteristics. the present contains certain limitations that must be taken into account while interpreting final results. the most significant constraint is the sample size, but the obtained results, especially the motives of the scientific experts for returning to this country, are extremely important and can be considered the starting basis for further research. key words: scholarship holders, motives for going abroad, motives for return, application of knowledge, job satisfaction jel classification: i25, i23, c00 research on scholarship holders who studied abroad and returned to serbia doi: 10.7595/management.fon.2017.0020 1. introduction globalization has imposed ruthless competition in all areas of work. related to that, knowledge has a strategic importance in developing unique capacities of the organisation and in providing it with sustainable competitive advantage in an interaction with all the activities of the business (kirin & janovac & sedmak & jakic, 2014:264). accelerated reorientation of developed economies in the world to invest in people is a definite confirmation of the place and role of human resources in their development strategies (alagaraja & wang, 2012; kramar, 2014). this can be observed in the strategy adopted by the european union in lisbon in 2000 (lisbon strategy, 2010) and europe 2020 (europe 2020 strategy,2010). the intention of the presented study is to improve knowledge about the problem of migration from the perspective of scholarship holders who, having spent a period of time abroad, returned to serbia. so far, there have been no studies in the literature that have dealt with these issues. * corresponding author: nena a. vasojević, e-mail: nenavasojevic@hotmail.com the aim of the study is to show the profile of scholarship students studying abroad and then returning to their home country. the study has analysed their motives for departure and return, as well as their perception of integration into the work environment in serbia and utilisation of their knowledge. the paper is composed of seven main sections. in the introductory section, the importance of knowledge in the contemporary world was pointed out and the purpose aa well as the goals of the study, which are related to the application of knowledge. the second section explains the importance of the temporary academic migration in the country and points out the problem of migration of highly educated experts from serbia. in the third section a hypothetical a methodological framework of the research is given. in the fourth chapter characteristics of the sample are presented. in the fifth chapter results of the study using statistical tools are shown. the intention was to highlight the main motives of scholarship holders to go abroad to study and return to their home country, as well as their perceptions of the possibilities to apply acquired knowledge and skills. the sixth section presents a discussion where the hypotheses and conclusions concerning them are summarised. conclusions are given in the seventh section: how the obtained results can be generalised and what the limitations that have to be taken into consideration are. 2. analysis of the impact of migration of highly educated experts 2.1. overview of the importance of temporary academic migrations through academic migrations, individuals acquire significant experience, knowledge, skills, establish valuable contacts with researchers from their own and related fields, and preserve different cultural forms. academic migrations strongly influence the career of students, as well as their social life. the research conducted by the european union ( he erasmus impact study, 2014), shows that the mobility of students plays a major role in the employment of students. even 64% of employers underlined the tendency to delegate more demanding and responsible tasks to graduates who had “international“ school “career”. they also point out that mobility has an impact on the social life of students, and that even 33% of respondents who were mobile have partners of a different nationality. this range of qualities, brought by the exchange of experts through training, is, in fact, a product recognised as an investment in human resources. the exchange of highly qualified personnel and scientists, in particular, was increasing in the eighties and nineties of the last century, as a consequence of globalisation (musikic, 2016:117-118). the migration of educated people can be permanent or temporary. permanent migration refers to individuals who leave the country and never return to it, and it is commonly known as “brain drain”. temporary migration refers to the departure of young people for the purpose of education, whereby after completion of the scheduled time they return to their country and continue to work in it. the outcome of migrations in this respect depends on various factors. studies regarding the cause of the migration rely mainly on macro-structural “push-pull“ theories (pudar, krstic, radovanovic, 2015). among push factors, operating in home countries, are poor social conditions, political instability, lack of meritocracy in the labour market which hinders employment opportunities for young talents, low pay, inadequate living and working conditions, the little prospect of professional development, etc. the strongest “brain drain” pull factors pertaining to host countries are globalization of knowledge, right social conditions, political stability, good job opportunities enriched with flexible career paths, higher pay, superior working conditions, higher level of job satisfaction, possibility for professional development, strong entrepreneurial culture and improved living standard (filipovic, 2012:36). experts argue that the decision of a highly educated person to migrate is determined by the calculation of the investment return through the income, a gain of new knowledge and a better chance for employment (grecic, 1999:14). numerous researchers point out that highly educated returnees in several countries succeeded to a large degree in increasing national innovation capacity (bodrozic, 2014:56). lin (2010:123) calls that ”the development of innovation capacity with the help of diaspora”. king (2000) thinks that returnees can, through investments and innovations, contribute to the general welfare of the society in the countries of their origin. although the state has defined several strategies and measures that would reduce the brain drain, reports like the one from the world economic forum (world economic forum, 2016), show that the trend from the past decades is still present and that a large number of academically educated people leave serbia, among them a highest percentage of medical doctors (vasojevic & filipovic, 2017:191). 2.2. migration of highly educated personnel in the republic of serbia in media, but also in the academic circles, warnings have been published that serbia, due to such a high rate of departure of the most educated young people, remains without its own future. considerably less fre24 nena a. vasojević, snežana kirin, predrag j. marković 2018/23(1) quently, highly educated young people who have decided to return to the country after education abroad are discussed. grecic (2005) points out that serbia has traditionally been one of the emigration countries. until the 1920s moderate emigration was recorded, while the last 15 years indicate a galloping loss of human resources (grecic, 2005:195). filipovic estimates the number of serbian scientific diaspora to be around 7000 phds (filipovic, 2012:143-144). according to baird & klekowski von koppenfels (2010:31), the question about the reasons for migration from serbia has a multiple response, because migration decisions occur due to the complex social factors which include factors such as family and local communities. in the strategy for education (strategija razvoja obrazovanja u srbiji do 2020, 2012) the topic of migration is marginally mentioned, while in the strategy for science this issue is mentioned, but there are no developed measures for its control (istrazivanje za inovacije, 2016:22). 3. research in real terms 3.1. hypothetical methodological framework this research has been focused on defining the profile of post-academic and post-graduate scholarship holders who acquired their education abroad, on determining their reasons for their departure as well as their experiences upon returning to the country. the defined hypotheses represent three pillars of research: a motive for education abroad, motives for returning home and applying acquired knowledge in the organisations in which they work. the authors assume that the main reason for students to study abroad is their desire for development and the inability to get scholarships to the desired scientific field in their own country. on the other hand, there is a presumption that the primary reason why scholarship holders return to their countries is of existential nature, defined through better opportunities for employment in comparison to those educated in serbia. based on these assumptions, the basic hypotheses are: h1: the desire for personal development through training, advancement of knowledge and experience is the main motive for education abroad. h2: comparative advantage in the labour market and expectation of getting the desired job is an important factor why scholarship holders return to their country. h3: scholarship holders, through the realisation of their careers, influence the development of their organisations. 3.2. methodology of the research for the purposes of this study, a questionnaire was constructed and distributed online. the questions were made in a way to examine the attitudes and opinions of scholarship holders that studied abroad. the questionnaire contained 20 questions, based on open and closed type answers. the first part of the questionnaire contained personal data of respondents: age, level of education, work organization, education level of parents, existence of a contract on compulsory return, connection with scholars in the country, departure motive, reason for returning, the idea about how to better apply knowledge, job position. the second part of the questionnaire contained questions which were expressed in the degrees of fulfilment of the claim (from the lowest to the highest) about: job satisfaction, satisfaction with life, participation in decision-making, application of knowledge at work, acceptance from colleagues, level of education abroad, feeling that something is different, impact on employment, use of acquired contacts at work and contact with colleagues from abroad. the study was conducted on the territory of the republic of serbia. in the first step, the goal was a selection and mapping of the research population. post-graduate student scholars were the target group because of the expectations that there was a database of scholars that would facilitate the acquisition of the research sample. it was discovered that the database on scholarship holders that studied abroad using the republic funds or foreign donor funds does not exist and that was the problem in the research. using an online survey, the study involved 96 scholarship holders educated abroad. the data were analysed using methods of descriptive statistics and factor analysis (programmess: ibm spss and ms excel). the presented survey reports contain certain limitations which have to be taken into consideration: non-existence of scholarship database (krnjaic, 2002: 184) emphasizes the lack of data on the number of highly educated young people and even student scholars who went abroad, inability to reach more students – scholarship holders, a relatively small number of respondents, a general sample selection problem of online surveys with lack of personal interactions to verify accuracy of answers, non-existence of similar re25 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) search in the region. the sample size is also limited and because the subject of the study were scholars from the group of the most successful students, whose population is not numerous. 4. research the sample description the sample report according to age, gender, the area of completed studies and working organisation is given in table 1. table 1: characteristics of examinees work institutions are mostly faculties, scientific institutions and universities. the study of djuric shows the significance that people with the highest academic titles have for the sectors of economy and research in developed countries, unlike ours – where they mostly find jobs at universities and faculties (djuric, 2015: 152). the largest percentage of respondents were educated social sciences. the social environment is considered important for the development of an individual; the role of parents and families is generally a common subject of theoretical considerations for educators, psychologists and sociologists. research has shown that the highest percentage of respondents, 79.2%, come from the educated backgrounds. such a large number of students from the most educated families is quite expected, considering the long-term selfreproduction of the educational elite in serbia. this corroborates the “closing of the classes” education as a channel of the social mobility for the lower social strata (matejic-djuricic & filipovic, 2014). scholarship holders are mostly funded by foreign governments and funds, less by the government of the republic of serbia. foreign governments and funds in most cases do not impose an obligation on scholars to return to their country after graduation, while the fund for young talents of the republic of serbia “dositeja” defines this request in scholarship contracts. it is in this way that the “dositeja” fund protects the resources invested in education and formation of educational elite, given that the budget funds of the republic of serbia are in question, and, on the other hand, seeks to mitigate the consequences of “brain drain” (odluka o obrazovanju fonda za mlade talente, 2008). after completing their studies abroad, most of the respondents, 79%, did not continue their education, while 13% continued their education abroad, and only 8% in serbia. 5. results hypothesis 1 is analysed descriptively in section 5.1. hypothesis 2 is analysed descriptively and through factor analysis in section 5.2. (included 5.2.1.). the hypothesis 3 is descriptively analysed in section 5.3. 26 nena a. vasojević, snežana kirin, predrag j. marković 2018/23(1) gender number percentage male 47 49.0 female 49 51.0 in total 96 100.0 age structure number percentage 20-30 7 7.0 30-40 12 13.0 40-50 19 20.0 50-60 26 27.0 older than 60 32 33.0 in total 96 100.0 the area of completed studies number percentage social sciences 31 32.3 natural sciences 26 27.1 medical sciences 17 17.7 engineering sciences 16 16.7 veterinary science 2 2.1 other 4 4.1 in total 96 100.0 working institution number percentage faculty 32 33.3 scientific institutions 24 25 private sector 21 21.9 universities 12 12.5 state administration 5 5.2 medical institutions 2 2.1 in total 96 100 5.1. motives for studying abroad results are shown in table 2 which presents the reasons why respondents chose to study abroad. it can be seen that the most common reason for choosing to study abroad was the desire to gain professional experience in another country, their perception of the quality of studying abroad, and the inability to study in the desired scientific areas in serbia. table 2: distribution of respondents according to motive to study abroad the number of respondents who had no contractual obligation to return to their country after completing their studies was 65.6%, while 34.4% of them had a contractual obligation of compulsory return to the country. the obtained results confirm the hypothesis 1. 5.2. motives for returning to serbia the research aimed to highlight the reasons that influence scholarship holders to decide to return to serbia after completing their studies abroad, table 3. table 3: distribution of respondents according to the reason for returning to serbia the main reason for return was related to family (26.04%), followed by their belief that they have a good chance in serbia (18.75 %). it can be seen that only 16.67% of respondents could not remain abroad for any reason, while others could, but they did not do that due to the reasons set out in table 3. a large number of respondents believe that education abroad had an impact on obtaining their jobs, exactly 44 of them, while 27 believe the opposite. the vast majority of respondents, 95% of them, said they had developed their competencies. determination of the main factors for the return to the country the factor analysis is used in order to more comprehensively perceive the survey results. this technique allows analysing interrelationships among a large number of interrelated variables explaining these relationships regarding a smaller number of latent variables called factors. after checking the feasibility of using the method, (kmo=0.601; bartlett’s test of sphericity: approx. chi-square=415.052, df=153, sig=0.00.) the factor analysis was conducted on 18 variables. using principal components analysis based on the determined characteristic equations, only five factors are considered as essential for further analysis. after varimax orthogonal rotation, a factorial matrix was obtained, table 4. 27 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) percentage number departure motive 26.0 25 quality of studies 18.8 18 inability to study within specific fields in the country 32.3 31 other country experience 1.0 1 network of contacts 9.4 9 departure from serbia 1.0 1 requirement of the workplace 3.1 3 parents who live abroad 6.3 6 internationally accepted diploma 2.1 2 something else 100.0 96 in total the reason number percentage family 25 26.04 the belief that i have a good chance in serbia 18 18.75 inability to stay abroad 16 16.67 it is fine here 11 11.46 there was a chance for employment 10 10.42 contract, workplace in serbia 10 10.42 something else 3 3.13 no answer 3 3.13 in total 96 100 table 4: rotated component matrixa extraction method:principal component analysis. rotation method: varimax with kaiser normalization. a.rotation converged in 6 iterations. the interpretation of the main factors is given in table 5 table 5: interpretation of the main factors by applying the method of factor analysis we have discovered that the return of scholarship holders is mostly influenced by the following factors: satisfaction with work and life, work organization and existence of a compulsory return contract, perception of better position in the country, existing contacts with foreign colleagues and networking and family and job position (the main reason for returning is family, table 3).the obtained results confirm the hypothesis 2. 5.3. perception of students about their lives and possibilities to apply knowledge numerous authors indicate the difficulties of repatriation and deal with the phenomenon of „reverse cultural shock” (oberg, 1960:177-182). some studies state that with repatriation the idea of “returning home” is an illusion and that it is characterised by the absence of happiness and dissatisfaction. each individual process of repatriation can be observed through “social recurrence” which has as its aim the creation of future in the country of origin (for example dürrschmidt, 2016; stefansson, 2004). 28 nena a. vasojević, snežana kirin, predrag j. marković 2018/23(1) variables component 1 2 3 4 5 x1 .831 .044 -.129 -.024 .184 x2 .775 .012 -.148 -.003 .044 x3 .763 .039 .119 -.024 .037 x4 .733 -.033 .098 .035 .121 x5 .619 .256 .105 .073 -.110 x6 .014 .806 -.234 .077 .087 x7 -.290 -.667 -.008 .189 -.320 x8 .029 .649 .073 -.054 -.195 x9 .160 .234 .694 -.307 -.095 x10 .033 .161 -.590 .001 -.192 x11 -.206 -.124 .577 .293 .067 x12 .408 .015 .507 .099 -.140 x13 .175 -.181 -.099 .663 -.160 x14 .006 -.040 .072 .626 .241 x15 -.187 .284 .068 .601 -.354 x16 -.117 .162 .122 -.066 .752 x17 .225 .022 .207 .344 .525 x18 .113 -.087 -.074 -.043 .450 variables interpretation job satisfaction satisfaction with work and life satisfaction with life participation in decision making application of knowledge at work acceptance from colleagues work organization work organization and existence of a compulsory return contract level of education abroad the existence of a contract on compulsory return connection with scholars in the country perception of better position in the country the motive for going abroad feeling different the impact on employment the use of acquired contacts at work existing contacts with foreign colleagues and networking the education of parents contact with colleagues from abroad, reason for returning family and job position the idea about how to better apply knowledge job position. the evaluation of the opportunities of respondents to use the acquired knowledge at their work places are presented in table 6. this can be seen as an attempt to show the openness of work environment towards those who studied abroad. most of the respondents, 44.8%, point out they need a better job in order to use all acquired knowledge, 25% of them say that there is no possibility to use the acquired knowledge while 27.1% of them believe they are using the acquired knowledge in solving and performing business tasks. these results only partially confirm the hypothesis 3, since only 27% of the respondents consider that they have the opportunity to apply their knowledge in their organisation. this distribution indicates that business and academic environment in serbia is not sufficiently open towards the wishes of scholars who returned to serbia. table 6: better application of knowledge in order to determine the level of satisfaction with life in serbia of the former scholarship holders who studied abroad, depending on the reason for their return to the country, the anova statistical test was applied. a statistically significant difference was obtained as regards the level of life satisfaction of scholars, depending on the reason for their returning to the country, figure 1. the most satisfied with life in serbia were scholarship holders who returned because of the family, followed by those for whom for some reason it was impossible to stay abroad. the least satisfied with life in serbia were scholarship holders who had to return due to a contract with the work organisation. 6. discussion according to popovic & maletic & paunovic (2015), the main factors which influence job satisfaction of the employees are interpreted as interpersonal relationships, development opportunities, reward system, job exhaustion, and employee awareness. according to hertzberg’s two-factor theory of motivation (2017), hygiene factors of motivation (wages, work conditions, business policy, company organisation) do not lead to positive satisfaction in the long-term. the motivators symbolised the psychological needs that were perceived as an additional benefit (furnham & eracleous & chamorro-premuzic, 2009). motivational factors include: challenging work, opportunity to learn new things, promotion, recognition, etc. (janicijevic, 2008). the obtained results showed that scholarship holders go abroad mostly because of their desire for personal improvement and acquisition of new experiences, and because of inability to study within specific fields in the country. this coincides with the motivators of hertzberg’s two-factor theory of motivation. consequently, hypothesis 1 is proven. to achieve personal and career goals, apart from formally and informally acquired knowledge, other requirements are important nowadays, such as continuous learning through experience, developing social skills, improving decision-making processes through managing the increasing amount of information. (kirin & janovac & sedmak & jakic, 2014:264). the obtained main factors for the return which scholarship holders who studied abroad and returned to the country describe are: job and lifestyle satisfaction, working contract, believing that studying abroad has a positive effect on their employment, acquired contacts and motivation for return that are significantly related to family, and believing in good chances for the future. the major reasons why students – scholarship holders return to their country are the expectation of obtaining the desired job and the ability to work in the desired field of study. reasons for return related to work occur in over 50%cases which confirm the h2 hypotheses of this research. important reasons why scholarship holders return to their countries are family reasons, and the research has shown that those who returned because of their family were most satisfied with their life. this can partly be explained because of the mainly collectivist national culture in serbia (janicijevic, 2008). the research has shown that the method and type of training, type of scholarship, the level of acquired qualifications, and continuation of education after returning home depend on the work organisation. 29 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) frequency percent valid percent cumulative percent something else 1 1.0 1.0 1.0 no possibility 24 25.0 25.0 26.0 better position 43 44.8 44.8 70.8 in the foreign company 2 2.1 2,1 72.9 already apply 26 27.1 27.1 100.0 total 96 100.0 100.0 references [1] alagaraja, m., & wang, j. (2012). development of a national hrd strategy model: cases of india and china. human resource development review, 11(4), 407-429. doi: 10.1177/1534484312446190 [2] baird t.e. & klekowski von koppenfels a. (2010). the serbian diaspora and youth: cross-border ties and opportunities for development, final report prepared within the mdg joint programme youth employment and migration in serbia. unpublished. retrieved from: http://ec.europa.eu/europe2020/pdf/lisbon_strategy_evaluation_en.pdf [3] bartlett, m.s.(1954). a note on the multiplying factors for various chi-square approximations.journal of royal statistical society, series b,16( 2), 296-298. [4] bodrozic, z. (2014). povratak visoko obrazovanih strucnjaka u srbiju. psiholoska istrazivanja, 7(1), 5575.doi:10.5937/psistra1401055b [5] djuric, m. b. (2015). human capital quality indicators of the serbian scientific community at home and abroad (published phd thesis).university of belgrade, faculty of organizational sciences, belgrade [6] durrschmidt, j. (2016). the irresolvable unease about be-longing: exploring globalized dynamics of homecoming. the sociological review,19(5),495-510. doi:10.1177/1367549416631553 [7] europa 2020 strategy. (2010). retrieved from:https://ec.europa.eu/info/strategy/europeansemester/framework/europe-2020-strategy_en [8] filipovic, j. (2012). management of a diaspora virtual university as a complex organization: serbian diaspora virtual university: an emerging leadership of a nation. lap lambert academic publishing: germany 30 nena a. vasojević, snežana kirin, predrag j. marković 2018/23(1) the research showed that the majority of scholarship holders, about 70% maintain that it is necessary to have a better work position to be able to apply all the acquired knowledge. otherwise, there is no possibility to use all the acquired knowledge in their work organisation. in this way, hence, we have only partially confirmed the h3 hypothesis. in order for scholarship holders to influence the development of their work organisations, it is necessary to view their knowledge as a valuable resource and to use it in a more adequate manner. conslusion “motivation and satisfaction of employees have become the basis for the stability of modern companies. dissatisfied workers may not provide the growth and development of the company, and the presence of dissatisfaction is an important indicator of future problems. understanding the issues of job satisfaction is essential for the design of the workplace, implementing organisational culture, creating motivation system and reward system and defining management style” (kirin & mitrovic & borovic & sedmak, 2016:819) the research highlighted problems that scholarship holders have after returning to the country: low applicability of what has been learnt and unclear idea about skills for work development. most of them think that they should have a better work position to be able to apply all the acquired knowledge, or that there is no possibility to apply the acquired knowledge in their work organisation. also, most of the respondents are not satisfied enough with their work. the obtained motives for return after studying in more developed countries, as well as the problems with which scholarship holders meet after return, are similar in countries of similar national cultures, those that do not have developed economies and favourable job offers. therefore, the results obtained can be generalised to countries that are undergoing or have recently commenced a transition and are similar in cultural characteristics. the presented survey reports have certain limitations that have to be taken into consideration while interpreting final results. concerning online surveys, the following challenges have to be mentioned: insufficient outreach to be representative of all scholarship holders, general sample selection problem of online surveys (underrepresentation), a non-existing database of scholarship holders, lack of personal interactions to verify the accuracy of answers. as there were no studies that have dealt with this topic, the presented study gave some answers and opened up a number of questions about the phenomenon of temporary “brain gain” migrations. considering the importance of the problem, future research should integrate all stakeholders: government, economic sector, scientific organisations, local communities, people from the diaspora, etc. with the aim to create the appropriate environment for better knowledge management. according to (filipovic, 2012:166) the best way to transform brain drain into brain gain is through brain chain (networks). 31 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) [9] furnham, a., eracleous,&. chamorro-premuzic, t. (2009). personality, motivation and job satisfaction: hertzberg meets the big five. journal of managerial psychology, 24(7-8), 765-779. doi: 10.1108/02683940910996789. [10] grecic,v. (1999). „odliv mozgova ”ili „cirkulacija“ visokostrucnih i naucnih kadrova. ekonomska analiza: org. ekonomskog fakulteta u beogradu, 43 (140), 13-27. [11] grecic, v. (2005). upravljanje znanjem: nova strategija „koriscenjaumova“ iz dijaspore. poslovna inteligencija: osnovna uspesnost menadzmenta u globalnim uslovima, 187-210. [12] herzberg’s two-factor theory of motivation, retrieved from: http://www.managementstudyguide.com/herzbergs-theory-motivation.htm [13] istrazivanje za inovacije. (2016). strategija naucnog i tehnoloskog razvoja republike srbije za period 2016-2020. ministarstvo prosvete, nauke i tehnoloskog razvoja. [14] janicijevic,n. (2008). organizational behavior. belgrade: data status [15] king,r. (2000). generalizations from the history of return migration. in b. ghosh (ed.), return migration: journey of hope or despair?, 7–55.retrieved from:http://www3.weforum.org/docs/gcr/20152016/srb.pdf [16] kirin,s., mitrovic,m., borovic,s. & sedmak, a. (2016).impact of the life cycle of company to job satisfaction,tehnicki vjesnik, 23(3),819-825. doi: 10.17559/tv-20140715103959 [17] kirin,s.,janovac,t.,sedmak,a..& jakic,b. (2014,novembar10-11). research of knowledge and skills effects on achievement of employee’s aims, team2014 kecskemét, 264-269. [18] kramar, r. (2014). beyond strategic human resource management: is sustainable human resource management the next approach?. the international journal of human resource management, 25(8), 1069-1089. doi: 10.1080/09585192.2013.816863 [19] krnjaic, z.(2002): intelektualna nadarenost mladih. beograd: institut za psihologiju. doi:159.95.072 [20] lin, x. (2010). the diaspora solution to innovation capacity development: immigrant entrepreneurs in the contemporary world. thunderbird international business review, 52(2),123–136. doi:10.1002/tie.20319 [21] lisbon strategy (2010). strategy evaluation document commission staff working document.retrieved from: http://ec.europa.eu/europe2020/pdf/lisbon_strategy_evaluation_en.pdf [22] matejic-djuricic z., filipovic m. (2014). ekspanzija skolovanja: realnosti privid jednakih sansi u dostupnosti obrazovanja. beograd: socioloski pregled, 1, 87-103. [23] musikic,s.(2016), uticaj procesa tranzicije na nezaposlenost mladih u republici srbiji. doktorski rad. beograd: fakultet za menadzment, beograd. [24] oberg,k.(1960). cultural shock: adjustment to new cultural environments. practical anthropology 7(4), 177-182. doi:10.1177/009182966000700405 [25] odluka o obrazovanju fonda za mlade talente. (2008). sluzbeni glasnik republike srbije. 71/2008 [26] popovic,b., maletic,r., & paunovic,t. (2015). employee satisfaction survey in function of business improvement. management: journal of sustainable business and management solutions in emerging economies, 20(76), 31-40. doi:10.7595/management.fon.2015.0021 [27] pudar, d., krstic, g., radovanovic, n.(2015), studiranje u inostranstvu i povratak u srbiju. studija 2. beograd: institu ekonomskih nauka. [28] stefansson, a. h. (2004). homecomings to the future: from diasporic mytographies to social projects of return. in f.markowitz & a.h. stefansson (eds.), homecomings:unsettling paths of return (pp. 2–20). usa: lexington books [29] strategija razvoja obrazovanja u srbiji do 2020. (2012). sluzbeni glasnik republike srbije, broj 1. 107/2012. [30] the erasmus impact study. luxembourg: publications office of the european union. (2014). retrieved from : http://ec.europa.eu/education/library/study/2014/erasmus-impact_en.pdf [31] vasojevic,n.,& filipovic,m. (2017). studenti medicine, korisnici drzavnih stipendija republike srbije, i njihovo skolovanje u 21. veku: mogucnost poboljsavanja. sociologija, 59(2),189-205. doi: 10.2298/soc1702189v [32] world economic forum (2016). the global competitiveness report 2015-2016, world economic forum geneva retrieved from: http://www3.weforum.org/docs/gcr/2015-2016/srb.pdf received: 2017-06-05 accepted: 2017-10-02 nena a. vasojevic innovation center of the faculty of mechanical engineering, university of belgrade mail: nenavasojevic@hotmail.com nena a. vasojevic (1988) is a the ministry of education, science and technological development of the republic of serbia scholarship holder. also, she is a research fellow at the science project organized by the faculty of mechanical engineering at the university of belgrade. she is currently pursuing her ph.d. at the department of the history and philosophy of natural sciences and technology, the university of belgrade, serbia. her areas of interest include: human resources, polite education and research methodology. snezana kirin innovation center of the faculty of mechanical engineering, university of belgrade mail: skirin@mas.bg.ac.rs snezana kirin is a senior research associate at the innovation centre of the faculty of mechanical engineering in belgrade. she is the author of about 100 scientific papers, 15 of which are on the sci list. she has been involved in several research projects (national and international). her research interests include management, risk management, human resource management, organizational behaviour. predgrad j. marković institute for contemporary history, belgrade mail: predragjmarkovic@yahoo.com predrag j. marković (1965) is a senior research fellow at the institute for contemporary history, belgrade, where he works on social and cultural history, incliuding history of education.he teaches at several universities as a visiting professor. he has written several books and more than 90 academic articles. also, 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07_marija jovic:tipska.qxd 73 marija jović, milica kostić stanković, ema nešković university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2017/22(2) udc: factors affecting students’ attitudes towards e-learning doi: 10.7595/management.fon.2017.0016 1. introduction e-learning is the use of information technologies to deliver information for education and training, regardless of time restrictions or geographic proximity (isik, 2008; shee & wang, 2008; sun, tsai, finger, & chen, 2008). it is one of the most significant developments in the it industry (wang, 2003). in recent years, e-learning has become a popular way of gaining knowledge (benkovic & dobrota, 2012) for many students worldwide, because it represents an easy, modern, and cost-effective solution for universities and lecturers, as well as students (berman & levine, 2008; bouhnik & marcus, 2006; capper, 2002; douglas, gregg, & mangione, 2001; motiwalla, 2007). e-learning systems have been widely used and applied in education in the last 20 years (kim & bonk, 2006). unlike the most developed countries, where e-learning is both common and widely used, in developing countries, such as serbia, it is still new (damnjanovic, jednak, & mijatovic, 2015). a number of authors have considered the benefits of e-learning (bouhnik & marcus, 2006; capper, 2002; concannon, flynn, & campbell, 2005; horvat, dobrota, krsmanovic, & cudanov, 2015). digital literature can contain audio or video content that provides a better sensory experience and more effective learning (jovic, milutinovic, kos, & tomazic, 2012). the most commonly cited benefits of e-learning are that it can take place at any time and place, through asynchronous interaction and group collaboration. according to capper (2002), the possibility of freedom in deciding the time and place of accessing digital content is one of the main benefits for modern students. abstract: e-learning is becoming a widespread method of gaining knowledge in a global environment. accessibility and variety of online content encourage more and more people to get involved in learning using digital resources. however, there has been limited research exploring the factors that could influence students’ attitudes regarding e-learning. in this study, field research was conducted to determine which factors affect students’ attitudes towards e-learning. the questionnaire was developed to collect data about factors that influence attitudes towards e-learning. a total of 286 students were the study cohort. three factors were identified using principal component analysis: e-learning usefulness, ease of use, and content design. regression analysis was conducted to determine the strength of the factors influencing attitudes towards e-learning. all factors had a significant influence on attitude towards e-learning. usefulness of e-learning had the strongest impact on students’ e-learning intention. our study will contribute to the existing work in this field by emphasizing the importance of perception of content design on attitudes towards e-learning. keywords: e-learning, attitudes towards e-leaning, factors, technology acceptance model, e-learning content design. jel classification: d83, c30, 039 corresponding author: marija jovic, e-mail: marijaj@fon.bg.ac.rs bearing in mind the benefits of e-learning, many authors have analyzed the factors that influence e-learning attitudes and intentions. for example, lee (2010) has developed a combination of three models: expectation confirmation model (oliver, 1986), technology acceptance model (tam) (davis, bagozzi, & warshaw, 1989), and theory of planed behavior (netemeyer, ryn, & ajzen, 1991). he has also examined the effects of satisfaction, perceived usefulness, attitude, flow theory, subjective norms, and perceived behavioral control on adoption and continuation of e-learning. the tam shows a great potential in examining attitudes and intentions to use e-learning (masrom & teknologi, 2007; roca, chiu, & jose, 2006; yi & hwang, 2003). according to tam, the perceived benefits of and attitudes to the specific technology influence users to use a particular technology (davis et al., 1989). in addition, intention towards e-learning is the main prerequisite for its actual use. only a few studies have examined the influence of different factors on attitudes towards e-learning (liaw & chen, 2007; park, nam, & cha, 2012). moreover, to the best of our knowledge, only few studies dealing with the influence of different types of content included in the e-learning materials, for example, animations, video, or teacher’s voice, on attitudes towards e-learning have been conducted (buzzetto-more, 2015; cakir & solak, 2014; costley & lange, 2017; hung, yang, fang, hwang, & chen, 2014; liaw & chen, 2007; luzon & leton, 2015; o’connor, mcdonald, & ruggiero, 2014; te pas, waard, blok, pouw, & van dijk, 2016; violante & vezzetti, 2014; wang & antonenko, 2017). in this study, we applied the tam theory and extended it with another factor with a potential impact on e-learning attitudes. we analyzed e-learning ease of use, e-learning usefulness, and the design of the e-learning system. the ease of use reflects users’ perception of the ease of adopting a system (davis et al., 1989). if systems are easier to use, the attitudes, learning experiences, and satisfaction with e-learning are more positive (arbaugh, 2002). consequently, it increases the likelihood of repeated use of e-learning in the future (arbaugh, 2002). there are numerous ways to facilitate handling e-learning systems. usually, this can be achieved through good interface, with different ways to access a particular function of a system (branscomb & thomas, 1984). usefulness is considered a decisive factor affecting educational effectiveness (virvou & katsionis, 1995). usefulness can be considered as a quality or an attribute that represents the ease of use of human–computer interfaces (kneebone, 2003). the iso 9241 defines it as “the extent to which a product can be used by specified users to achieve specified goals with effectiveness, efficiency and satisfaction in a specified context of use”. sharma, dick, chin, & land (2007) define usefulness as an essential factor to increase learners’ self-regulation in e-learning environments, which can enhance their intention to use e-learning. a large number of authors agree that interactive instructional design is an essential factor for learning satisfaction and success (hong, k-w, & d, 2003; jiang & ting, 1998; nahl, 1993; schwartz, 1995). according to te’eni (2004), some design attributes are more important to functionality and others are more relevant to system support. however, system design is a crucial aspect that affects users’ continuance in the use of a system (te’eni, 2004). the aim of the present work was to contribute to the growing body of technology acceptance literature by examining the relationships between tam variables and attitudes towards e-learning. moreover, we expanded the tam model with the design features. specifically, we conducted a study to develop a measure that will predict students’ usage of e-learning. in addition, we provided evidence of internal reliability of the developed measure. 2. the present study the present study investigates which factors influence students’ attitudes towards e-learning. it is grounded on the tam theory, extended with different e-learning content elements. the initial pool of 13 items was examined using principal component analysis (pca). after examining internal reliability of the construct, we strived to examine the influence of given factors on the attitude towards e-learning. to achieve this, we conducted a multiple linear regression analysis. 2.1. participants participants in the study were 286 students from the university of belgrade. description of the sample is given in table 1. 74 marija jović, milica kostić stanković, ema nešković 2017/22(2) table 1. subject demographics (n=286) 2.2. measures based on previous research in this area (liaw & chen, 2007; selim, 2007; sun et al., 2008; y. wang, 2003), we developed a questionnaire that consists of two groups of questions. the first group of question was intended to collect data for descriptive statistic, e.g., gender, computer skills, and previous e-learning experience. the second group of questions was intended to collect data about items that influence the attitude towards e-learning. these questions included adapted tam subscales for measuring perceived usefulness and perceived ease of use (davis et al., 1989), as well as items intended to collect answers regarding different types of contents included in e-learning materials. in addition, the second group of questions contained one question intended to examine a general attitude towards e-learning. answers to these questions were offered in the form of the likert scale of 7 levels (1 = strongly disagree, 7 = strongly agree). 2.3. procedure we adopted a survey approach. participants were informed about the purpose and anonymous nature of the research orally. they participated voluntarily and were not remunerated. the questionnaire took approximately 10 minutes to complete. for the statistical analysis of the obtained data we used the spss 20 software. to identify factors affecting attitudes towards e-learning, we conducted a principal component analysis (pca) of the 13 items related to the perceived usefulness, ease of use, and design of the e-learning system, using direct oblimin rotation. the number of factors to be extracted, was determined by an eigenvalue above 1.0 (the egv1 criterion) and inspection of scree plot (cattell, 1966). since egv1 criterion and scree plot inspection may lead to factor over-retention (patil, mcpherson, & friesner, 2010), for determining a final number of factors we used the results of parallel analysis (hayton, allen, & scarpello, 2004). additionally, we used a minimum individual item loading of .45 as a cutoff value, which tabachnick & fidell (2013) consider as “fair”. to assess the impact of individual factors on attitude towards e-learning and to examine how well the combination of these factor can predict attitude towards e-learning, we used linear multiple regression (tabachnick & fidell, 2013). preliminary analyses were conducted to ensure no violation of the assumptions of normality, linearity, multicollinearity and homoscedasticity (pallant, 2007). for all analyses confidence level was set to 95%. 75 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) ��������� ���� �� ������ ��� ����� ����� ������� �� ��� � �� ��� � ��� ���� ����� ����������� � ����� ���������� �� ���������������� �� � ���� � � �� ���� ������ ��! ����� �"#� ���$� %��&������'�� �������(��������� )��� � $� # �#� *�� $� ���� +� �������,����� *�&���� �-� ��� ����� ��� ��� ��-� �� � .(����� �� ����� /&�� ����'�� ����������������0��,� -'�� ���� ��� � "' � �� � �"� �� 1 � ""� ��� �� 2.4. results the significance of bartlett’s test of sphericity (x2(78) = 1177.04, p < .001) and the size of the kaiser-meyerolkin measure of sampling adequacy (kmo = .79) revealed that the variables had adequate common variance for factor analysis (tabachnick & fidell, 2001). the result of the pca revealed three factors with the initial eigenvalues higher than 1 (4.19, 1.83, and 1.41). inspection of the scree plot also suggested retention of three factors. the results of a parallel analysis confirmed that the first three of the random data were smaller than the real data counterpart. these findings suggest that three factors should be extracted. in the three factor solution, the item “i like the author's photo included in e-learning materials” did not met the item loading criteria. we decided to exclude this item from further analysis. the final, three-factor solution, contained 12 items, explaining 57.18% of the variance, and individual variance of factors are given in table 2. the resulting factors were named as follows: (1) e-learning usefulness, (2) e-learning design, and (3) e-learning ease of use. the values of the cronbach’s alpha coefficients for the given factors are shown in table 2. table 2. pca – pattern matrix the results of the multiple linear regression are presented in figure 1. preliminary analyses were conducted to ensure no violation of the assumptions of normality, linearity, multi collinearity and homoscedasticity was done. the model reached statistical significance (f [3, 282] = 108.07, p < .001), and explains 53% variance of the attitude towards e-learning (r square = .53). e-learning usefulness had the greatest influence (beta = .58, p < .001), followed by the e-learning ease of use (beta = .22, p < .001, and e-learning design (beta = .10, p < .05). figure 1: results of multiple linear regression 76 marija jović, milica kostić stanković, ema nešković 2017/22(2) ������ � ����� � �� �� ������� � � � ����������� �� � ��� ���� ���� ����� ����� ������� � ������������������ � ���� � ����� ���� ����� ���� ������� � �������� ����������������������� � ����� ������� ���������� �� ���������� � � ���� ���� ����� ������� � � ���������� ���� ���� �� � !�� ���� ���� ������� ���� �������� ��������� � ������ ���� ���� �� � �� � !�� ��������������"���� ��� �������� ��������� � ������ ���� ��#� ���� ��� � !�� ����� ��� ���� �������� ��������� � ������ ���� ����� ���� ����� $� ����%�� ��������� � ������ ������� ����� ������� � � ������� ���� ���� �� � !�� ������������������������������� � ��������� ����� ��#� ���� !�� ������������������ ��� ������� ��� ��������� � ������ ���� ���� �� � �� � !�� ��� ��������������������� ��������� � � ��&� ���#� ���� ������� � ��������������� � � ���������� ��� ��'� ��� � ���� ������ �� � ������ ����� �&�'�� �&���� ������ ���� !"�� ��! � � �� �'�� �'�� � 3. discussion in this study, we reported on the development of a measure that provides assessment of attitudes towards e-learning. we identified three factors that influence students’ attitude towards e-learning. these factors are e-learning usefulness, ease of use, and design. our findings suggest that with greater perceived usefulness, ease of use, and liking of the design of e-learning systems, students will have a more favorable attitude towards that system. consequently, according to davis’s tam theory (davis et al., 1989), with a more favorable attitude, it is expected that the intention to use e-learning system among students will be greater. our findings are in line with previous work that confirmed the application of davis’s tam theory in explaining acceptance of e-learning (masrom & teknologi, 2007; roca et al., 2006; yi & hwang, 2003). we found that the ease of use and usefulness of e-learning significantly influenced attitudes towards e-learning, which corroborated previous studies (e.g., teo & milutinovic, 2015; teo, milutinovic, & zhou, 2016) among the serbian population. in addition, our results support other previous studies (e.g., chung-hoon & young-gul, 2003; masrom & teknologi, 2007; park, 2009; roca et al., 2006) that emphasized the potential of the tam theory in acceptance of and intention to use e-learning. in addition to the tam theory constructs, the design of e-learning materials also had a significant influence. this is in accordance with previous research suggesting the importance of incorporating a variety of tactics to gain learner attention through the use of interesting graphics, animation, or any kind of event that introduces incongruity or conflict (keller & suzuki, 2004). in addition, our findings confirm the importance of interactive experience throughout such design that will provide rich sensory experience and responses to learners actions (damnjanovic et al., 2015; jovic et al., 2012). although this study represents one of the few implementations of the tam theory in e-learning in serbia, there were some limitations to our study that need to be considered. the most significant limitation was a lack of repeated studies to test for invariance of the factor structure across different cohorts. another limitation was the homogeneous nature of the sample. replication of these results with a more heterogeneous sample in terms of age, socioeconomics, employment, and educational (i.e., non-student) background should further strengthen our understanding of predictors of attitudes towards e-learning. finally, the study lacked confirmation of construct convergent and discriminant validity. this will be the subject of a future study, including structural equation modelling. references [1] arbaugh, j. b. (2002). managing the on-line classroom : a study of technological and behavioral characteristics of webbased mba courses. the journal of high technology management research, 13, 203–223. doi:10.1016/s1047-8310(02)00049-4 [2] benkovic, s., & dobrota, m. (2012). application of teaching methods and techniques at serbian universities: progress over time. management, 63, 1820–222. doi:10.7595/management.fon.2012.0007 [3] berman, n. b., & levine, d. a. (2008). computer-assisted instruction in clinical education: a roadmap to increasing cai implementation computer-assisted instruction in clinical education: a roadmap to increasing cai implementation. advances in health sciences education, 13, 373–383. doi:10.1007/s10459-006-9041-3 77 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) conclusion regarding the evolving trends in e-learning, empirical results are required to determine the main factors that affect students’ intention towards e-learning. we showed that three factors, namely, e-learning usefulness, ease of use, and content design, had the strongest influence on students’ e-learning intention. our results are in line with other research in this field, which emphasized the significance of usefulness and ease of use in accepting new technology. we want to emphasize the importance of content design for the use of e-learning, particularly due to our expectation that this factor will become more important over time. the most important conclusion that arises from this study is that, in addition to usefulness and efficiency of e-learning systems, it is important to create the contents rich with audio and video clips, animations, and hyperlinks. a rich, multimedia design of e-learning materials will increase students’ intention to use e-learning, together with generating more positive attitudes. 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(2003). predicting the use of web-based information systems: self-efficacy, enjoyment, learning goal orientation , and the technology acceptance model, 59, 431–449. doi: 10.1016/s1071-5819(03)00114-9 (received/accepted) (july 2016 / september 2017) marija jović university of belgrade, faculty of organizational sciences marijaj@fon.bg.ac.rs marija jovic is an assistant professor at the university of belgrade, faculty of organizational sciences. her professional interests include digital marketing, e-commerce, and strategic marketing management. milica kostić stanković university of belgrade, faculty of organizational sciences milicak@fon.bg.ac.rs milica kostic stankovic is a full professor at the university of belgrade, faculty of organizational sciences. her major professional interests include marketing management, public relations, and business communication. ema nešković university of belgrade, faculty of organizational sciences ema.neskovic@fon.bg.ac.rs ema neskovic is a teaching 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08_dusan ljubicic:tipska.qxd 83 dušan ljubičić belgrade business school, serbia has internet changed anything in advertising? udc: 004.738.5:659.1 doi: 10.7595/management.fon.2014.0020 1. introduction in recent years, advertising has been one of main preoccupations of business ethics. is it directed only towards informing prospective customers and clients about a product or service or has it got more hidden ambitions – to create new desires? to what extent is advertising a fertile soil for manipulating the customer desires? the advance of the internet has intensified the problem which was present even in the conventional ways of advertising. what makes customers unwilling to press the “purchase click”? is that a lack of confidence not only in the purchase through the internet but also in the internet in general as a new “technological miracle”? transactions through the internet are characterized by a high level of uncertainty, anonymity, lack of control and possible opportunism, making the risk and confidence the crucial elements of e-business. the competition on the e-market is severe and customers are bombarded by a large number of conflicting advertisements even about similar products. the possibilities for unethical advertisers’ behavior are endless. the consumer cannot check the products or services personally and does not know what the seller (advertiser) will do with his/her personal data. there is a low certainty that the consumer will get the things they have seen on the screen, especially regarding the terms of delivery and the quality and quantity of product/service they ordered. as advertising by internet is not directed only towards enlarging the cognitive sources but also towards provoking consumers’ desires, one cannot but use a mental cut such as confidence as a mechanism for decreasing the complexity of human behavior in situations of high uncertainty. however, confidence is a complex, dynamic and multi-layered concept and there is no generally accepted definition about what it really encompasses. building consumers’ confidence is a conditio sine qua non of successful advertising by internet. advertising is not the only, however, it certainly is the most important marketing device. it is an important constituent of promotive organizational activities. it is imperative for modern business and therefore it is amazing that a great deal of debates that surround it are running according to a disjunctive principle – for or against advertising. such polarization is being supported by the critics of advertising who stress that advertising encourages exaggerated consumerism, even indebtedness, that it extols material values, fattens greed and acquisition, deludes and leads into wrong conclusions; that it is too repetitive and aggressive and treats public as an immature (intellectually inferior) mass, etc. as the end of advertising would mean the end of market economy in its mass consumer pattern, the right question is not whether to advertise or not but where the limits of morally acceptable advertising are? this time we shall not repeat debates on advantages and shortcomings of advertising that started with a wellknown packard’s book (packard, 1957). we shall skip the famous debate between john kenneth galbraith and friedrich a. hayek (hayek, 1961) and ignore beauchamp’s standing about manipulative advertising (beauchamp, 1988). the focus of our research will be on the contribution of postmodernism, globalization and the internet revolution to the everlasting debate about good and bad sides of advertising. management 2014/72 in this paper we shall consider grosso modo actual opinions regarding advertising and advertising ethics. the emergence of the internet aroused hope that advertising ethics is not the ultimate oxymoron (beltramini, 2003). in spite of a negative connotation that postmodernism and globalization added to advertising theory and practice, the appearance of the internet has really changed business philosophy regarding advertising and emphasized its ethical dimension. results of our research confirm this thesis. keywords: advertising, ethics, postmodernism, globalization, internet 2. postmodernism and advertising contemporary cultural inquiries most often describe modern society as a “consumer” society – to which consumption does not give only the meaning and identity but increasingly dominates over other aspects of social life: politics, education, health system and personal relations (baudrillard, 1997). baudrillard condemns galbraith’s ‘’moralizing idealism” and his description of consumer as a passive victim of the system. he claims that the consumer is an active actor in the system who longs for satisfaction of his/her real needs for a social identity and differentiation through consumption. the main baudrillard’s thesis is that advertising today, because of its disproportion, is not a mere addition to a system of objects, but is inseparable from it. it represents a functional apotheosis of the system; the system as much as deifies itself. advertising is useless and needless and, as pure connotation, does not contribute at all to either production or practical use of things. it becomes the object of consumption. so, advertising can be seen as twofold: as a discourse about an object and as an object by itself. the discourse that is needless has to be spent like an object of culture. what is embodied through advertising is ‘’the entire apparatus of personalization and imposed differentiation; of proliferation of the inessential and subordination of technical requirements to the requirements of production and consumption; of dysfunctionality and secondary functionality’’ (baudrillard, 2005). the informative side of advertising discourse and its rhetoric are not crucial for consumers. they do react to protection and pleasantness that are in its base, to signs that cannot be consciously riddled but should inform them about their own wishes. advertizing has to predict and rationalize these wishes providing pleasantness and satisfaction for consumers. in a society in which everything is subjected to the law of profit, advertising is, as it were, the most democratic product, it is the only thing obtained for free and it is free for all. products and services are sold, only advertising is offered for free. it is obvious that advertising and the implicated choice transform commercial, sales relations to personal ones. products and services cannot exist psychologically without the support of advertising. on the other side, without this offer, citizens would not be free. advertising is a measure of collusion, emotional as much as ideological, between an individual and a society. without advertising, individuals will feel frustrated. the industrial society cuts the connection between labour and its product. advertising radicalizes this split: it causes the product not to be seen anymore as such but as a commodity, as an object. the consumer does not see the social history of the product, he/she cannot see the real system of production and exploitation. as a discourse, advertising gives assistance to the political discourse whose demagogy is based on splitting the social reality into real organization and the picture of it in the way that the former is drowned in the latter. when advertising says that the society is totally adjusted to us and that we should completely integrate ourselves into the society – this is an evident deception: what is really adjusting is the picture of the product (society) and we are asked to adjust us to the real product (society) (baudrillard, 2005). advertising steps forward as a substitute for moral and political ideology. moreover, if the later has frequently been imposed by force through the history, advertising techniques need not use force – consumer himself/herself internalizes the norms of social control through the consumption process. 3. globalization and advertising not only advertising but also all segments of marketing are permeated by globalization. people from all countries and cultures are exposed to thousands of advertisements and promotions on a daily basis. however, confidence in advertising is not the same all over the world. asians believe in advertising the most, while russians are the most cynical regarding the same. but only 38% people say that advertisers offer true information to consumers and merely 30% believe that advertisers respect the consumers’ intelligence (belgiovani, 1996). globalization brings some problems to consumers as active participants of organizational life. here we have in mind the reproduction of consumerism, transposition of production and consumption, cultural homogenization and new forms of resistance (crane & matten, 2007). promoting products and brands that are prac84 2014/72management tically inaccessible for most consumers in developing countries multinational companies reproduce a broader dissatisfaction than it is the case in developed countries. the promotion of consumerism is justified by economic arguments of utilitarian ethics: increased demand leads to economic growth that, in the final instance, brings benefit to all. globalization is the main cause of homogenization and erosion of diversity. standardization and uniformity are increased and cause a resistance in consumers who do think about unethical and irresponsible activities of multinational companies. globalization also contributes to emerging of the notion of ethical consumer. ethical consumers can serve as a social control of business to some extent. if they demand business ethics to be improved through the market, it is expected from the businesses to respond to this demand and to listen to the voice of consumers. in this case the consumer uses his/her “vote” to support or criticize some business practices and this vote is called customer citizenship (dickinson & carsky, 2000). laymen and professionals all over the world maintain that successful advertising campaigns are mediated by popular cultures and daily creation of meanings. marketing communications are penetrating secretly into the consciousness of consumers using cultural symbols through which people can take part in socially constructed meanings. this, of course, is quite opposite to the deep-rooted opinion that marketing and advertising culture are morally injurious by themselves. if ethical questions regarding marketing communications and advertising (such as general moral degradation, greedy individualism, consumers’ avidity, hedonism, glorification and trivialization of sex and violence etc.) are social constructions, then globalization brings to light the essential question: if something is wrong in consumerism and consumers, why is it wrong and who is responsible for that (hackley, 1999)? 4. internet revolution and advertising the first e-mail message had been sent 40 years ago. from that time e-mail has been the most used application on the internet. however, as a new advertising device, the internet set up the following dilemma: you can market intrusively, moving into consumer’s space uninvited, or you can market with the permission of the consumer. consumers have become more sensitive regarding unwanted messages. therefore advertisers try to establish permanent relations with consumers and are very conscious about their sensitivity. that is to say that they have to worry about two things: the attitudes of customers and the laws. the result of controlling consumers’ attitudes is that the advertiser ensures that consumers are sent what they really expect to receive and what is relevant and useful. it is necessary for the advertiser to provide an easy way for consumers to go out from each message and to unsubscribe from the list if they feel disturbed. this two-way communication between advertisers and consumers lead to the creation of the best ethical practice of advertising by internet. these are some of the principles of that practice: “1) provide truthful message headers, subjects and content; 2) provide an obvious, simple unsubscribe process (one click is ideal); 3) always actually de-list those who wish to unsubscribe; 4) provide the physical address of the sending company; 5) provide an accessible, transparent privacy policy; 6) use opt-in addresses only, ideally double optin, and never use opt-out addresses; 7) never use third-party lists unless you know they are opt-in; 8) if your list is not opt-in, state clearly that the content of your message is an advertisement, solicitation or commercial message; 9) don’t harvest or scrape addresses from the web; 10) don’t provide addresses to third parties without express permission (parkin, 2009).” having this in mind, brilliance of advertising campaigns was in the way they were made meaningful to get the permission of consumers for propagating some idea. it is considerably easier for consumers to filter and throw out irrelevant messages and more and more difficult for advertisers to find their way to consumers by classical approaches. in classical media, timeliness, context or relevance of message is almost never in congruence with actual consumers’ interests. advertisers may never know whether intrusive advertisements distance people from traditional media or whether they do that because they like to have a greater control in using the media. the internet introduces ‘’on line’’ regime in making connections with consumers. this fact presupposes that advertisers have to be more creative and innovative. it is a mistake to think that there is nothing new in advertising by internet. some people look at the internet as the same marketing mechanism as the ones used in the past but based on digital steroids. this is a dangerous, limited and short-sighted view. the crucial change has occurred in the way in which advertisers act 85 management 2014/72 together with consumers. the main advantage of the internet is that it stimulates communication between equal parts (peer-to-peer) to the extent that previously was not possible. in advertising by internet, failure is a mere consequence of the incapacity of advertisers to rethink their advertising models. in order to survive, companies – all their employees and not only marketing managers have to learn how to establish an interactive relation with consumers in such a way that is quite opposite from what was appropriate even five years ago. building relations with consumers by internet is the future of advertising. it is not about new media models or new tools. it is about connecting people by two-way communication. advertisers must aspire to understand the other person and not only to control his/her behavior. internet is a mighty device in establishing ethical relations between advertisers and consumers. and this is in accordance with the old roman maxim – bona fides. 5. description and the results of the research the empirical research included 214 subjects who answered the poll questions through the internet. the questionnaire consisted of 20 questions that were categorized in 4 groups: 1) general data; 2) data about the internet use; 3) purchasing through the internet; and 4) confidence in advertising by internet. the last question was related to the respondents’ experience in similar polls. this time we shall present some interesting results. since the questions were qualitative, we used a chi-square test contingency table. the poll has shown that the employment status significantly predefines the purpose of the internet use (li=99.146, df = 4, p< .001; cramer’s v=. 435, p< .001). while 62.8% of the unemployed use the internet for entertainment, 46.3% of the employed do the same, the rest of the employed use the internet in the first place for their job. the employment status also significantly predefines why people decide to buy through the internet (li=14.109, df = 4, p< .01; cramer’s v = .297, p< .014). it is indicative that unemployed consumers are attracted by advertisement charm – 64%. on the other side, only 12% of the unemployed decide to buy through the internet because of curiosity, while the number of the employed in this case is 54.5%. another issue the employment status also significantly predefines is the kind of products people buy through the internet (li=14.605, df=4, p< .01; cramer’s v= .268, p< .037), 60% of the unemployed buy entertainment products, while the number of employed in this regard is only 36.4%. the average time that people spend on the internet also has an impact upon whether they purchase through the internet (li= 13.936, df = 4, p< .01; cramer’s v= .181, p< .01). it is amazing that people who spend less than one hour on the internet buy more than people who spend more time on the internet (54,5% vs. 21.6% + 5.4% vs. 29.0% + 1.9%). the average time that people spend on the internet has impact on the kind of product they purchase through the internet (li= 16.695, df = 4, p=< .01; cramer’s v = .325, p< .01). people who use the internet more than 2 hours daily, buy more products for entertainment than people who spend less than 1 hour (27.8%) and people who spend 1-2 hours on the internet (45%). the average time that people spend on the internet has an implication on the fact how people gain confidence in an advertiser on the internet (li = 21.036, df = 6, p< .01; cramer’s v = .331, p=< . 016). in this case the previous experience is less important – reported by only 7%, while the persuasiveness of advertisement is most important – 50.7%. the purpose of the internet use and purchasing through the internet are connected (li = 12.819, df = 4, p =< .012; cramer’s v = .157, p< = .033) – people who primarily use the internet for their job buy more than others. the purpose of the internet use is also connected with the fact why people decide to purchase through the internet (li= 14.521, df = 4, p< .001; cramer’s v = .318, p< .01, in this case the persuasiveness of the advertisement is crucial for making a decision as to purchasing through the internet – 45.1%. 86 2014/72management reading advertising messages on the internet has a significant impact on whether people purchase through the internet (li = 14.688. df = 4, p .001; cramer’s v = .177, p = .01). the analysis demonstrates that people who purchase through the internet gain confidence in the advertiser on the internet primarily on the basis of the advertisement persuasiveness – 50.7%, while the next item is friend’s recommendation – 23.9%. it has also been shown that the reason why people decide to purchase through the internet has a significant impact on the way of gaining confidence in advertisers on the internet (li = 23.967, df = 6, p< .001; cramer’s v = .472, p< .001). the satisfaction with purchasing through the internet has a significant impact upon people’s opinion about ethical rightness of advertising by internet (li = 37.903, df = 6, p< .001; cramer’s v = .483, p< .001). in this case, unsatisfied buyers regard advertisements as unethical because they offer a deceptive picture about a product/service – as many as 69.2%. people’s opinion about the purpose of advertisement on the internet has a significant influence on their views as regards the ethical rightness of advertising on the internet (li = 6.110, df = 1, p< .001; cramer’s v = .902, p< .001). in this case it is obvious that people who think that the purpose of advertisement is to offer a truthful information about a product/service in 92.9% cases regard advertisement as ethical, while quite an opposite opinion is expressed by those who have in mind that the function of advertisement is to convince people to buy some product/service – even 96.9% of them regard advertisement as unethical. references [1] baudrillard, jean the consumer society, london: sage, 1997. [2] baudrillard, jean – the system of objects, london: verso, 2005:178 – 191. [3] beauchamp, tom – manipulative advertising, in: tom l. beauchamp and norman e. bowie – ethical theory and business, englewood cliffs, nj: prentice hall, 1988, pp. 421-430. [4] belgiovane, r. and milne, j. (eds) (1996) the globe report, sydney, australia internet: http:/www.globe.com.au/globereport 210396.html#a, march 21. [5] beltramini, richard. f – advertising ethics: the ultimate oxymoron? journal of business ethics 48: 215-216, 2003. [6] crane, a. and matten, d. – business ethics, oxford: oxford university press, 2007:336. [7] dickinson, r.a. and carsky, m.l. – the consumer as an economic voter. in: r. harrison, t. newholm and d. shaw (eds), the ethical consumer, london: sage, 2000:36. 87 management 2014/72 from the very beginning, advertising has not changed its twofold mission: to inform consumers and to convince them to buy a product/service that is advertised. the advertising media are morally neutral but the content of advertising can be value oriented. postmodern theorists denuded the nature of advertising pointing that it has become an object of consumption and serves to hide the basic relations of exploitation in the modern society. moreover, advertizing does it globally and thus serves as a main support to the actual economic system that advocates values of consumerism. so far, advertising has mostly been a one-way communication. consumers have not had an opportunity to react to advertising. the whole transaction has been based on the confidence that customers have in advertising and this has been frequently misused. the emergence of the internet puts the ethics of advertising into a sharp focus. owing to the internet, a two-way communication can foster advertising, but if this is unethical, the advertiser may experience a catastrophe due to a prompt reaction from the virtual public. the internet restores confidence of consumers in advertising and practically is the most democratic device for establishing the ethics of advertising. our investigation confirmed this changing nature of advertising by internet and pointed out the necessity for modern companies to adjust their business philosophy and to include consumers in the creation of marketing campaigns as well as in advertising itself. conslusion 88 2014/72management [8] hackley, c. – the meaning of ethics in advertising, business ethics: a european review, 1999, volume 8, number 1, pp. 37-42. [9] hayek, a. f. – the non sequitur of the “dependence effect”, southern economic journal, april 1961. [10] packard, vance – the hidden persuaders, new york: david mckay, 1957. [11] parkin, godfrey – digital marketing, london: new holland publishers, 2009: 185. receieved: may 2014. accepted: august 2014. dušan ljubičić belgrade business school, serbia dusan.ljubicic@bbs.edu.rs born in belgrade in 1961, dušan ljubičić received his b.sc and m.sc. degrees at the faculty of organizational sciences, university of belgrade. since 1982 he works at the belgrade business school where he teaches the course in information technology in business. about the author symorg:tipska.qxd 1 nevenka žarkić joksimović, sanja marinković university of belgrade, faculty of organizational sciences, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2018/23(2) symorg 2018 “doing business in the digital age: challenges, approaches and solutions”conference review the international symposium symorg of the faculty of organizational sciences was founded in 1989. since then, the faculty of organizational sciences has traditionally organized the symorg biannually with the aim of improving the theory and the practice of management and management-related disciplines. the symposium brings together members of national and international academic and research communities, representatives of corporate, public and non-governmental sectors, and undergraduate, graduate and phd students who participate in discussions and analyses of relevant issues by presenting their current results, knowledge and experiences. the main topic of the 16th international symposium was “doing business in the digital age: challenges, approaches and solutions”. the aim of the symposium was to offer answers to a myriad of problems arising from new business models created by blurring the digital and physical worlds. as new disruptive technologies and ever-changing needs of important business stakeholders reshape the world of business, digital transformation becomes almost a necessity. the ambition of organizers was to create new visions and catalyze this transformation. the program of the symposium included lectures from keynote speakers, interactive discussions in working sessions, presentations, panels, as well as eventful entertainment time including social gatherings, excursions and sports activities. the opening ceremony of the symposium was held in the ratko mitrović congress center, attended by than 200 participants, professors and students from serbia and abroad. professor ana milićević langović, the state secretary in the ministry of education, science and technological development, wished the participants a successful conference. professor milija suknović, the dean of the faculty of organizational sciences (fos), addressed the audience by saying that “this is the 16th time that professors and students gather to share their experiences, good practices, knowledge and to establish contacts, which implies that the symposium proved its significance.” professor ivanka popović, the vice-rector of the university of belgrade, said that the fos is one of the 31 faculties of the university of belgrade, that the conference is a valuable opportunity for creating good labour market professionals, and for learning how to create an ideal working environment with the use of digital technology.“new time is looking for new educational models and new ways of communication. the internet and social networks are rapidly progressing and it is a fact that some services have become truly addictive. this represents a major challenge both from the psychological and social points of view. these phenomena and changes are looking for new approaches and new solutions”said professor nevenka žarkić joksimović, the president of the symorg 2018 program committee. professor sanja marinković, the vice-dean for international cooperation and the president of symorg 2018 organizing committee, emphasized that the conference was always very useful for doing future business and for this reason it continued to put students in focus. the participants had the opportunity to attend the lectures of three keynote speakers: branislav vujović, the president of the new frontier group, austria, said that we need to know how to create new values, because this is the basic issue of digitization. business in the digital era is changing rapidly and we need to know how to share information in such a way as to keep the client in the spotlight. professor tan, so jiuan, nus business school singapore, represented singapore as a multilingual, multiethnic and multicultural country and reminded the audience of the importance of developing it skills for both an individual and a company. professor katri kerem, estonia business school, estonia, spoke about digitization in estonia, with a special focus on estonian digitized health-care system and the application of digitization in the field of genetics. estonia has a strategy for internet use that encompasses all age groups. she also reminded the audience about the high scores that estonian pupils earn on the pisa tests (1st in europe). the second day of the symposium hosted three roundtables focusing on digitalization. the moderator of the first roundtable entitled current state and future prospects of serbian digitalization was branislav vujović, new frontier group, austria, while the panelists were branko ružić, the serbian minister of state administration and local government, milan simić, executive director of it and ict services at the telekom srbija, mihailo jovanović, assistant professor and director of it and e-government office and nenad paunović, director of it and entrepreneurship team from the cabinet of the prime minister. important issues regarding digital economy and the changes that it brings to clients, companies, administrations, and the society as a whole were discussed during this roundtable. the focus was on the values brought about by the digital economy, and the ways of recognizing and defining them. the panelists tried to provide answers to the questions concerning serbian chances and directions regarding digital transformation, the advantages and disadvantages of a faster digitization progress, and other issues.“digitization is a priority of this government. new registers are needed in order to introduce digitization, so that citizens and users will be at the centre of attention, and the state is providing citizen services “said minister ružić. another roundtable entitled when e-procurement did (not) mean better procurement was moderated by predrag jovanović, the director of the public procurement office in the government of the republic of serbia, while the panelists were sašo matas, the head of division for the development of public procurement systems, ministry of administration, government of the republic of slovenia, miloš jović, the head of division for development of public procurement systems, public procurement office, serbia, dean firkelj, a consultant from croatia, and sandra damijan, research center of the faculty of economics in ljubljana, slovenia. the third roundtable gathered together the former students of the fos who now occupy leading positions in some of the major companies in serbia. mladen čudanov, associate professor opened the topic of redefining knowledge and skills in the digital environment, and the panelists were some distinguished representatives of the academic community: professor ivanka popović, vice-dean of the university of belgrade, professor miladin kostić, the dean of university of novi pazar, mihailo vesović, the councellor of the president of the chamber of commerce, and dušan vujović, assistant professor, the union university. also in the roles of panelists were the representatives of the corporate sector: maša lalić, head of human resources, generali osiguranje, gorana golubović vuksanović, head of corporate communications, mk group, suzana marović, head of development sector, telekom srbija, jovana dačković, hr business partner and talent development expert, coca cola hellenic, and dragana stojanović, people processes manager, air serbia. one of the questions raised referred to formal and informal education. the representatives of the academic community pointed that many university programs wish to maintain their exclusivity and that we have become intolerant to multidisciplinary programmes. this is why it is necessary to redefine them. the representatives of companies, on the other hand, spoke about knowledge and skills that are expected, but hardly ever present in graduates with a degree in it and management. they all agree that the practical knowledge gained in the course of studies is very important for their future careers. on the third day of the symposium, a workshop was dedicated to project activities within erasmus + finac project (financial management, accounting and controlling curricula development for capacity building of public administration). after the introductory words of the project coordinator, professor slađana benković, the participants presented the results achieved so far and agreed on future activities with the aim of sharing the experiences of all the participants from the region. the fourth roundtable, blockchain technologies for better business, was moderated by miroslav minović, associate professor, and mladen đurić, assistant professor, both from the faculty of organizational sciences, while the panelists were radojko miladinović, phd, it director of the belgrade stock exchange, matija stanić, product specialist, societe general bank and novica ninić, production manager, ibm cloud. the roundtable dealt with one of the burning topics – blockchain technology, with a special focus on the implementation of this technology in business. the panelists discussed the main advantages and disadvantages of the blockchain technology, and the possible use of private blockchains for the improvement of business operations in various fields, e.g., quality control, banking, fintech, agriculture, health services, etc. the participants had the opportunity to learn more about the functioning of blockchain technologies, and the panelists were eager to answer the many questions of the audience. all the participants agreed that blockchain will soon become an integral part of everyday business, both on its own and in combination with traditional technologies. this was the first time that symorg was hosting a students’ case study and programming competition symorg case study hackathon 2018, with the support of the serbian government, the swiss office for development and cooperation, the national alliance for local development naled and the tax administration office of the republic of serbia. six interdisciplinary teams worked on finding their solutions for the improvement of flat-rate taxation and user interface for better communication between tax administration and 2 nevenka žarkić joksimović, sanja marinković 2018/23(2) management: journal of sustainable business and management solutions in emerging economies 2018/23(2) 3 taxpayers. the teamwork had lasted for 30 hours and was then presented in front of a jury. the “ggwp” team (kristina đurić, tijana smiljić, milan mojsilović, aleksa đokić, nikola arsić, nikola milovanović) won the first prize, while the second went to the “lightideas/amt consulting” team (svetlana tomić, stevan radovanović, nemanja rašić, aleksandar marković, matija trifunović and bogdan radenković). the third place was won by the“treće mesto” team (filip markovski, dimitrije milenković, marko rušić, milan popović, andrija vulićević and anđelija đorđević). during the gala dinner on the last evening of the symposium, several awards were presented to the most outstanding participants. in the category of the best paper, the award went to teaching assistant nikola zornic and associate professor aleksandar marković, for the paper “crypto-currency price forecasting using time series and monte carlo modelling and simulation”. the best presenter at the symposium was milica maričić, teaching assistant at the department of operational research and statistics. ivona jovanović and uroš jeremić were awarded as the best young authors. a special award was presented to associate professor mladen čudanov, for the best general impression of the symposium. the 16th international symposium symorg 2018 was closed on june 10, 2018. more than 250 participants took part in the symposium with as many as 92 scientific papers, presented in 14 sessions. the president of the program committee, nevenka žarkić joksimović, and the president of the organizing committee, sanja marinković, spoke about the results of the symposium and expressed their gratitude to the participants, partners, companies and institutions that supported the symorg 2018. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01 djordje krivokapic:tipska.qxd 1 đorđe krivokapić1, danilo krivokapić2, ivan todorović1, stefan komazec1 1university of belgrade, faculty of organizational sciences 2share foundation, novi sad udc: 005.336.5:004 005.922.1:351.076(497.11) mapping personal data flow and regulatory compliance in serbian public institutions doi: 10.7595/management.fon.2016.0018 1. introduction personal data represent an important currency in the new millennium (schwartz, 2004, krivokapić 2016.) and are a global issue today (long & quek, 2002). the notion of data protection originated in europe and is now widely accepted throughout the world. although it is not explicitly mentioned in the articles of the conventions regulating the right to privacy, the human rights committee in its general comment 16 on article 17 of the international covenant on civil and political rights (the right to respect of privacy, family, home and correspondence, and protection of honour and reputation)1 included this concept as an integral part of the right to privacy as early as 1988. the committee stated that “the gathering and holding of personal information on computers, data banks and other devices, whether by public authorities or private individuals or bodies, must be regulated by law”, and that “every individual should also be able to ascertain which public authorities or private individuals or bodies control or may control their files”. if such files contain “incorrect personal data or have been collected or processed contrary to the provisions of the law, every individual should have the right to request rectification or elimination”. today, the eu is a global leader in setting data privacy standards (heisenberg, 2005, schoch 2016.). open data policies represent a persistent topic in the eu (van loenen, kulk & ploeger, 2016). serbia is currently in the process of adjusting its legislation with the eu directives in many areas (komazec, todorović, krivokapić & jaško, 2013). most jurisdictions, including that of the republic of serbia, accepted the eu approach and addressed personal data protection by special legislation (law on personal data protection, official gazette of the republic of serbia 97/2008, 104/2009, cvik & pelikánová 2016.). management 2016/80 personal data protection is becoming a major research topic in the last decades. with the technological advances, this issue was given a completely new perspective, due to increased possibilities for both use and misuse. personal data have become a very valuable resource for different organizations worldwide in various sectors. however, regardless the efforts and constant legislation processes, personal data protection has still not been adequately managed, especially in developing countries such as serbia. the motivation for this research was the big leak of personal data collected by the serbian privatisation agency that occurred in 2014. during the research we analyzed legal, organizational and technical aspects of personal data management in six public institutions that are the largest personal data processors in serbia. in this paper we provide the overview of the current situation and the recommendations for policy makers related to personal data protection in serbia with a focus on the public sector. keywords: data protection, personal data, privacy, public administration, public sector management, organizational measures, it security 1 the un human rights committee general comment 16 on article 17 of the international covenant on civil and political rights (the right to respect of privacy, family, home and correspondence, and protection of honour and reputation) 1988. retrieved june 21, 2016, from http://ccprcentre.org/doc/iccpr/general%20comments/hri.gen.1.rev.9%28vol.i%29_%28gc16%29_en.pdf 2 2016/80management recent advances in computer technology and e-government have provided almost instantaneous transmission of personal data (huie, laribee & hogan, 2002, graham, gooden & martin, 2016.) and caused an increased collection and exchange of such data (stoica & safta, 2015, gang-hoon, trimi & ji-hyong 2014). consequently, technology still is, and will continue to be, the preeminent driving force behind legal developments in the field of data privacy (kuner, cate, millard & svantesson, 2014; schoch, 2016; zharova, 2016). on the other hand, information technology misuse has increased the vulnerability of personal data (toval, olmos & piattini, 2002, borgesius, gray& van eechoud, 2015) while privacy impact assessment studies (wadhwa & rodrigues 2013.) are not yet conducted in many countries such as serbia. although the new technologies offer considerable benefits to consumers, businesses and governments, there is a growing concern that their widespread use may threaten the privacy of personal information (pearce & platten, 1998; waxman & barile 2016). public agencies are increasingly required to collaborate with the private sector (fan 2016) and one another in order to provide high-quality e-government services, and since personal data handled by governments are often very sensitive, most governments have developed some sort of legislation focusing on data protection (gonzález, echevarría, morales, & ruggia, 2016). such legislation also affects businesses in the eu (allison, 2016), but outside the eu as well (gilbert, 2016). technology helped modernisation of the eu legislation related to personal data protection (de terwangne, 2014). however, due to a rapid development of information technologies and internet communication, many of the laws are still not in line with the current state of technologies (sidgman & crompton, 2016) and that is why they should be revised in order to set personal data protection on an appropriate level and to enable an efficient protection of reputation (calzolaio 2016.). as a consequence, the european union has decided to review its legal framework by updating current directive 95/46/ec of the european parliament and of the council of 24 october 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data, that until now have had a decisive impact on the development of the personal data protection. the general data protection regulation (gdpr) will be applied from mid 2018 and is expected to significantly improve the protection of personal data and citizens’ rights. this research was motivated by the case of the serbian privatization agency in 2014, when a huge amount of personal data about citizens of serbia became publicly available on the internet. in the next chapter we will describe this case and its implications. chapter 2 will explain the methodology used in the research. chapter 3 provides the overview of key findings, while more details of research results are presented in chapter 4 on an actual example. chapter 5 brings our recommendations and the final, chapter 6 offers the conclusions and guidelines for future research. 1.1. the case of serbian privatisation agency in december 2014 the share foundation has discovered and informed the public2 about the major leak of personal data in serbia so far. a document containing personal information (including unique master citizen number, jmbg) of 5,190,396 citizens of serbia was publicly available on the official website of the privatization agency for more than 10 months without any legal basis. during that period, according to the agency officials, the document was downloaded by unknown individuals ”many times”. having in mind that jmbg is widely used and is an essential part of virtually every personal data collection in serbia, it is still difficult to fully grasp the consequences of this case. nevertheless, it is particularly worrying that many data controllers still use jmbg as a tool for authentication. for example, ”the register of unpaid fines’’3 is an online database where, in order to check if a person has any unpaid fines, the only required information for the search are the name and the jmbg, exactly the information that was made publicly available by the privatization agency. the case of the privatization agency revealed the risks to which our data are exposed, but it also emphasized the lack of reliable knowledge about the practical and technical conditions in which the citizens’ data 2 share foundation (2014, december 24) personal data of more than 5 million citizens of serbia unlawfully published. retrieved june 21, 2016, from http://www.shareconference.net/en/defense/personal-data-more-5-million-citizens-serbia-unlawfully-published 3 the register of unpaid fines. retrieved june 21, 2016, from https://rnk.sipres.sud.rs/ are collected, processed and stored. all operators should take appropriate organizational and technical measures to ensure the protection of personal data and privacy (weber, 2010). it could be said that this case symptomatically depicts a worrisome state of affairs regarding personal data protection in serbia. in the 2015 annual report, the commissioner for information of public importance and personal data protection4 noted that in the area of personal data protection the situation is “very troubling” and that “numerous incidents concerning the violation of the rights to personal data protection, some of them extreeme in size or in character, imperatively demand a complete change of attitude in the government and in the society as a whole towards the protection of personal data and privacy in general’’. 2. methodology of research our research started in april 2015 and included six public institutions: the business registers agency, the center for social work belgrade, the central registry of social insurance, the national health insurance fund, the pension and disability insurance fund and the tax administration. these are all very important and significant data controllers owning huge databases, while some of them process especially sensitive data such as health information, data about adopted children, etc. in the initial phases of research the main sources were publicly available databases and regulations. we analyzed dozens of laws, bylaws, regulations and various documents regulating data processing in targeted institutions. the analysis included a review of relevant and international legal and policy framework. this was followed by desk research which included collection and analysis of data from public sources, technical investigations and documents and information we received via customized requests for access to information of public importance. we sent 20 formal requests to targeted institutions with more than 200 relevant questions. we also investigated procedures for access, copy and information of processed personal data in targeted institutions. we received 52 various documents regarding targeted institutions with more than 250 pages from commissioner’s office. during research we held 15 different meetings with targeted institutions (commissioner included). in the meantime, a team of journalists searched the archive of print media from 2003 onwards, looking for coverage on privacy and data protection issues in the targeted institutions. each targeted institution has been investigated in relation to the processes of collection, processing and dissemination of personal data. the research plan, presented in the table below, was fully executed. table 1 : research plan methodology 3 management 2016/80 4 commissioner for information of public importance and personal data protection, annual report (2015). retrieved june 21, 2016, from http://www.poverenik.rs/sr/izvestaji-poverenika/2328-izvestaj-poverenika-za-2015-godinu.html 4 2016/80management the research team has been composed of various legal, organizational and technical experts. the entire process including completion of outputs was supported by journalists and visualization experts. the results were verified through a two day long meeting and continuous communication with representatives of the commissioner’s office and targeted institutions. all the results have been published at the website www.mojipodaci.rs. 3. key findings the overall conclusion is that personal data of serbian citizens are multiplying and that the same data are located in many of the targeted institutions. for example, data about personal residence or personal salary are located in databases of 4 out of 6 institutions. this is the risk for information quality, but, more importantly, it is a risk for data security, as the case of the privatization agency demonstrated, data leakage in one of the institutions can compromise data security in all of the others. one of the main findings is that all these institutions have their own database servers which are based in serbia, usually in their headquarters, which means that they have a basic prerequisite to have control over the data. none of the institutions use cloud services. during the course of our research, none of the institutions had a data protection officer, the employee responsible for personal data protection. although this is not a legal requirement at the moment, it will become one in the near future, having in mind that this obligation of public institutions is prescribed by the new general regulation on data protection in the eu as well as by the new draft law on data protection in serbia5. education of employees regarding data protection issues is not at a satisfactory level in a majority of institutions and this is why it seems that awareness about privacy as a value and significance of data protection procedures is something that should be raised among the employees of public institutions. all institutions, except the center for social work belgrade, have some sort of a system of roles when it comes to permissions to access personal data of citizens, which is a very good practice. our main conclusion when it comes to personal data protection in these institutions is that the overall conditions are actually good in many areas, while there is room for further improvement. the institution that stands out is the center for social work belgrade. although this institution processes the most sensitive data (data about adopted children, data about persons who experienced violence, etc.), our research revealed it has insufficient means in terms of funds and technical and human resources in order to adequately manage the risks concerning data protection. we also understand that the other five institutions are advanced and have a lot of resources, having received major financial support for development. they are certainly the best examples in serbia, among more than 11,000 public institutions, and we fear that in smaller ones the situation is far worse than what we were in a position to see during this research. 4. example of research findings the case of the central registry of obligatory social insurance (croso) the central registry of social insurance (hereinafter: “the central registry”) was founded in 2010 and became operational in 2013. this institution maintains the central database with personal data of all socially insured citizens in serbia (hereinafter: ”the central database”) and this system, in accordance with the law on the central registry of obligatory social insurance (zakon o centralnom registru obaveznog socijalnog osiguranja, “sl. glasnik rs”, br. 30/2010, 44/2014 dr. zakon i 116/2014), is the main source of personal data for databases at the national health insurance fund and at the pension and disability insurance fund, but is also used by tax administration and the business registers agency. namely, a big volume of personal data is now gathered by submitting a single electronic registration to the central registry. the central reg5 personal data protection draft law. retrieved june 21, 2016, from http://www.paragraf.rs/dnevne-vesti/041115/041115-vest19.html istry also provides electronic links to other registers and databases, which are kept in the republic of serbia, and have significance for social insurance. the central database contains more than 20 different kinds of information about every socially insured citizen, such as the place of residence, the name of the employer, degree of education etc. this information was initially taken over from other institutions such as the national health insurance fund, the tax administration and others, and today this information is gathered by submitting a single electronic registration to the central registry. the central registry does not hold data in the paper form, everything is stored in the electronic form in the information system of the central registry (hereinafter: “is”). the entire is was developed internally and in cooperation with other public institutions. within the is there are two database servers for the collection, processing and storage of personal data, as well as web servers and security servers. all servers are located in the server room in the headquarters of the central registry, and are owned by the central registry. access to the central database is provided to the following categories of users:6 • employees of the central registry access the central database through the designated portal and through special applications of the central registry, and with the use of qualified electronic certificates. every employee is assigned with certain privileges in the is based on the type of work he/she is conducting. • citizens can access the central database and see only their own data. at this moment there are three types of verification for this access: 1) through qualified electronic certificate, 2) using the id card or 3) entering username and password. • companies can access the central database with the use of qualified electronic certificates and carry out various actions in the system, such as viewing information, registration and deregistration of citizens, but only for their own employees. • public institutions that need data from the central database communicate with the central registry through the virtual private network (vpn), the maximum protected mechanism for the electronic exchange of data via the web, and ftp services. vpn connections between all institutions are part of the network of the administration for joint services of the republic bodies (uzzpro). • maintenance of the is is done through a dedicated computer and in order to access the is it is necessary to be physically present in the headquarters of the central registry . every access to the central database is recorded in the logs. logs are kept for a year. figure 1: map of the central registry of obligatory social insurance (croso) 5 management 2016/80 6 my data project. retrieved june 21, 2016, from https://mojipodaci.rs/croso/ 5. discussion and recommendations 5.1. replacing unique master citizen number (jmbg) after the major breach of privacy with the publication of unique personal numbers of more than five million citizens of serbia, it has become clear that this type of identification should be abandoned altogether. moreover, it should never again be used as a means of authentication for access to personal data. as an appropriate substitute there is already in use a personal social security number (lbo) assigned by the central registry and owned by the majority of citizens of serbia. unlike the jmbg, most of the digits contained in the lbo are randomly generated and have no relation to the personal traits of the owner. the number is permanent and it can be used as a unique identifier for all relevant purposes. 5.2. data centralization and shared infrastructure the administration for joint services of the republic bodies (uzzpro) already manages a variety of shared government resources and is an obvious choice of agency to take on tasks related to building and maintaining shared infrastructure. these would include running a state data cloud for the purpose of data centralization. as for now, it is common that chief data controllers gather and process the same personal information redundantly, thus exposing it to unnecessary security risks. aside from reducing the exposure, the data centralization would enable uniform protection measures and access protocols. furthermore, centralized data pave the way to upholding a higher quality of information while improving interoperability and efficiency in the open data regime. 5.3. open data it is imperative to establish a legal framework for exercising the right to re-use of the public sector information. this can be implemented swiftly by following the existing solutions applied in croatia, namely by amending the current law on free access to information of public importance. in such a manner, the open data regime would be kept within the present framework and under the authority of the commissioner for information of public importance and personal data protection. 5.4. organizational measures for personal data protection all institutions that collect, process and store personal data must take a set of formal organizational measures to secure personal data protection. the initial one is the adoption of the internal act on the personal data protection, which should regulate the issues related to the data collection and processing, personal data security, notification of the manner of exercising rights regarding personal data processing and protection, access to personal data and liability for their unlawful processing and use, as well as keeping the register of processing records for each data collection. we also advise the institutions to act proactively and to appoint the data protection officer although it is currently not a legal requirement, since it will be obligatory when the new law on personal data protection is adopted. such person should be on a higher hierarchical level of organizational structure, in the top management if possible, in order to have enough authority and power to secure the implementation of the general act on the personal data protection within the whole institution. a further recommended measure is to define access levels to personal data for all potential stakeholders: 1) employees, 2) other institutions, 3) persons whose data is collected and 4) general public, in accordance 6 2016/80management 7 management 2016/80 with the law on personal data protection. it is necessary to secure that access to the collected personal data is granted only to those who have a legal basis for their processing, and to ensure that each action is recorded. finally, a recommended measure is also to align the rulebook on internal organization and systematization of job positions and integrated management system (ims) documents with the internal act on the personal data protection and the role system for personal data access. 5.5. education a successful development and advancement of e-government depend on an up-to-date education and continual training of the public sector employees in the areas of personal data protection, information privacy and digital security. we propose dual education from the field of personal data management and protection: 1) in employment, 2) annual examination for all employees who deal with personal data. given the present situation, it is recommended that gamified online courses are developed and offered to various public employee categories. 5.6. legal framework a new personal data protection law is required, without any further delay, drafted in line with the new eu general data protection regulation and based on the commissioner’s model. it should also be noted that a new strategy for personal data protection is needed, followed immediately by the adoption of a relevant action plan without which the strategy would be useless. once a new personal data protection law is passed, a series of relevant by-laws would be required, describing in detail the necessary procedures and protocols to enforce the law itself. conslusion as main results of this research, we have written in-depth reports regarding data processing for each targeted institution. these reports were made using the same methodology and they consist of 5 main parts: 1) legal aspect of data processing (compliance with the law), 2) organizational aspect of data processing (which are the organizational measures for data protection), 3) technical aspects of data processing (which are the technical measures for data protection), 4) media coverage of data protection in institutions and 5) documents received from the commissioner’s office. also, our publication “a guide for public authorities – personal data protection” (krivokapić et al., 2016) includes best practices and procedures of data protection that are applied in the analyzed institutions, but also a rich experience of the commissioner in this area, as well as knowledge and innovation of the share foundation, which specifically deals with privacy issues in the digital environment, and policy and organizational design experts from the faculty of organizational sciences at the university of belgrade. the guide is available for free and can be used under a creative commons license. we have developed a research methodology7 for preparing reports on personal data processing in public authorities applicable to any public authority in serbia. this methodology captures the essence of the research process and, when implemented, it can give the answers to the essential questions: what personal data are processed by a public authority and why? what are the organizational measures for data protection and what are the technical measures for data protection? it can be used by other researchers who deal with the issues of privacy and personal data protection, but can also be used by competent state authorities, and, of course, the citizens interested in these issues themselves. 7 share foundaation, research methodology. retrieved june 21, 2016, from http://www.shareconference.net/sites/default/files/u742/metodologija_za_izradu_izvestaja-1_1.pdf references [1] allison, p.r. (2016). what eu data protection rules mean for business. computer weekly, 7/19/2016. pp. 20-23. [2] borgesius f. z,, gray j. & van eechoud m., (2015). open data, privacy, and fair information principles: towards a balancing framework. berkeley technology law journal. 2015, vol. 30 issue 3, p2073-2131. 59p. doi: 10.15779/z389s18 [3] calzolaio s. (2016) digital (and privacy) by default. constitutional identity of e-government, journal of constitutional history (giornale di storia costituzionale). jan 2016, issue 31, p185. [4] commissioner for information of public importance and personal data protection, republic of serbia (2015). annual report on implementation of the law on free access to information of public importance and the law on personal data protection. [5] cvik e. d. & pelikánová r. m. (2016). implementation of directive 2014/17/eu and its impact on eu and member states markets, from not only a czech perspective. 19th international conference enterprise and competitive environment 2016, procedia social and behavioral sciences 31 may 2016 220:85-94. doi: 10.1016/j.sbspro.2016.05.472 [6] de terwangne, c. (2014). the work of revision of the council of europe convention 108 for the protection of individuals as regards the automatic processing of personal data. international review of law, computers & technology, 28(2). pp. 118-130. doi:10.1080/13600869.2013.801588 [7] european parliament (1995). directive 95/46/ec. official journal l 281, 23/11/1995, pp. 31-50. [8] fan m. (2015). private data, public safety: a bounded access model of disclosure. north carolina law review; 2016, vol. 94 issue 1, p161-207, 47p [9] gang-hoon k. trimi s. & ji-hyong c. (2014), big-data applications in the government sector, communications of the acm. mar2014, vol. 57 issue 3, p78-85. 8p. 1 diagram, 1 graph., doi:10.1145/2500873 [10] gilbert, f. (2016). eu general data protection regulation: what impact for businesses established outside the european union. journal of internet law, 18(11). pp. 3-8. [11] gonzález, l., echevarría, a., morales, d., & ruggia, r. (2016). an e-government interoperability platform supporting personal data protection regulations. clei electronic journal, 19(2). p. 8. [12] graham f. s., gooden s. t. & martin k. j. (2016), navigating the transparency–privacy paradox in public sector data sharing. american review of public administration. sep2016, vol. 46 issue 5, p569-591. 23p. doi:10.1177/0275074014561116 [13] heisenberg, d. (2005). negotiating privacy: the european union, the united states, and personal data protection. boulder, usa: lynne rienner publishers. [14] huie, m. c., laribee, s. f., & hogan, s. d. (2002). right to privacy in personal data: the eu prods the us and controversy continues. tulsa journal of comparative & international law, 9(2), pp. 391-470. [15] komazec, s., todorović, i., krivokapić, đ., & jaško, o. (2013). capacities of local self-governments in serbia for compliance with eu directives on public procurement. management journal for theory and practice, 2013(69), pp. 15-23. doi: 10.7595/management.fon.2013.0030. [16] krivokapić, d., krivokapić, đ., todorović, i., komazec, s., petrovski, a., & ercegović, k. (2016). a guide for public authorities – personal data protection. novi sad, serbia: share foundation. retrieved from http://www.shareconference.net/sites/default/files/u742/8_-_vodic_jrga_final.pdf [17] krivokapić, đ. (2016), sukob zakona i nadležnosti koji proizlazi iz povrede reputacije putem interneta, phd thesis, udk: 316.774:34 [18] kuner c., cate f. h., millard c., & svantesson d.j.b. (2014). the (data privacy) law hasn’t even checked in when technology takes off, international data privacy law, 2014, vol. 4, no. 3, 175, doi:10.1093/idpl/ipu01 [19] law on free access to information of public importance (2010). official gazette of the republic of serbia, no. 120/04, 54/07, 104/09 and 36/10. [20] law on personal data protection (2012). official gazette of the republic of serbia, 97/2008, 104/2009 dr. zakon, 68/2012 odluka us i 107/2012. [21] long, w. j., & quek, m. p. (2002). personal data privacy protection in an age of globalization: the useu safe harbor compromise. journal of european public policy, 9(3), pp. 325-344. [22] pearce, g., & platten, n. (1998). achieving personal data protection in the european union. journal of common market studies, 36(4). pp. 529-547. doi: 10.1111/1468-5965.00138. [23] schoch, t. p. (2016). eu privacy regulations' impact on information governance. information management journal, 50(1). pp. 20-25. 8 2016/80management [24] schwartz, p. m. (2004). property, privacy, and personal data. harvard law review 117(7), pp. 20562128. [25] sidgman, j., & crompton, m. (2016). valuing personal data to foster privacy: a thought experiment and opportunities for research. journal of information systems, 30(2). pp. 169-181. doi:10.2308/isys51429 [26] stoica, c. f., & safta, m. (2015). theoretical and practical issues relating to the right to the protection of personal data. juridical trib., 5. p. 88. [27] toval, a., olmos, a., & piattini, m. (2002). legal requirements reuse: a critical success factor for requirements quality and personal data protection. in proceedings of ieee joint international conference on requirements engineering, pp. 95-103. [28] united nations, human rights committee (1966). international covenant on civil and political rights. [29) van loenen, b., kulk, s., & ploeger, h. (2016). data protection legislation: a very hungry caterpillar: the case of mapping data in the european union. government information quarterly, 33(2). pp. 338345. doi:10.1016/j.giq.2016.04.002 [30] wadhwa k. & rodrigues r. (2013). evaluating privacy impact assessments. innovation: the european journal of social sciences. mar-jun2013, vol. 26 issue 1/2, p161-180. doi: 10.1080/13511610.2013.761748 [31] waxman s. s. & barile f. g. (2016). "eye in the sky": employee surveillance in the public sector, albany law review. 2016, vol. 79 issue 1, p131-149. [32] weber, r. h. (2010). internet of things–new security and privacy challenges. computer law & security review, 26(1). pp. 23-30. [33] zharova, a. (2016). the salient features of personal data protection laws with special reference to cloud technologies. a comparative study between european countries and russia. applied computing and informatics, 12(1). pp. 1-15. receieved: june 2016. accepted: september 2016. ðorđe krivokapić university of belgrade, faculty of organizational sciences krivokapic@fon.bg.ac.rs dr đorđe krivokapić, ll.m., is an associate lecturer at the faculty of organizational sciences at the university of belgrade where he teaches courses on business law and it law. before his faculty position, he was employed as a legal associate at the law office of karanović & nikolić where he was involved in numerous successful transactions and projects in the balkan region. before joining karanović & nikolić, đorđe krivokapić graduated with a degree in law from the university of belgrade, earned an ll.m. degree from the university of pittsburgh school of law and a phd from the university of belgrade, faculty of law. as of 2013 đorđe serves as a policy & legal director of the share foundation. danilo krivokapić share foundation, novi sad danilo@sharedefense.org danilo krivokapic graduated from the university of belgrade, faculty of law. after working in the belgrade city administration for 5 years, he passed the bar exam and joined the share foundation, where he works as a coordinator for privacy and data protection. he led the “personal data in the public sector” project during 2015-2016. his research is also focused on topics such as implementation of new privacy and data protection regulations and policies in domestic legal framework, data economy and its impact on privacy, new types of cybercrime etc. 9 management 2016/80 about the author 10 2016/80management ivan todorović university of belgrade, faculty of organizational sciences todorovic.ivan@fon.bg.ac.rs ivan todorovic works as a teaching assistant at the university of belgrade, faculty of organizational sciences. his research area includes organizational design, restructuring, organizational change and business process management. he has participated in more than 15 consulting projects, in companies such as victoria group, ems, milsped, parking service belgrade, gsp belgrade, transnafta, and in several research projects financed by international institutions like the ebrd, unido and usaid. he is a co-author of 3 books and more than 40 articles in international monographs, journals and conference proceedings. from 2011 to 2013 he was a visiting lecturer at the university of maribor, faculty of organizational sciences, in slovenia. he was member of the team that won the hult global case challenge 2012 in london, and he won the balkan case challenge 2010 in vienna. he was also a mentor to students on numerous projects and a jury member at several international and local business case study competitions. stefan komazec university of belgrade, faculty of organizational sciences komazec.stefan@fon.bg.ac.rs stefan komazec is a teaching assistant at the university of belgrade, faculty of organizational sciences. currently he teaches “organizational theory”, “organizational design”, “quality engineering” and “quality planning” to undergraduates and several subjects to master students. his major research interests are business process management, standardization, quality management, organizational change and restructuring. as an author or co-author, he has published 3 books and more than 40 articles from these areas in scientific journals and conference proceedings. he was involved in more than 15 business consulting projects in organizations like milsped, gsp belgrade, transnafta, ems, victoria group and parking service belgrade, as well as in several research projects under the patronage of international institutions such as the unido, ebrd or usaid. he is one of the founders and a project leader of international student sport tournament eurobelgrade, which is organized by the faculty of organizational 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01_ivan stefanovic:tipska.qxd 5 ivan stefanovic1, sloboda prokic2, gheorghe săvoiu3, ion iorga simăn4 1m&i systems, co. group 2 slobodaprokic@yahoo.com 3university of pitesti, faculty of economics 4university of pitesti, faculty of science building a conceptual model of routines, capabilities, and absorptive capacity interplay udc: 005.311.1; 005.22 doi: 10.7595/management.fon.2014.0030 xiv international symposium symorg 2014, 06 10 june 2014, zlatibor, serbia 1. introduction the field of strategic management is primarily concerned with the question of how firms develop strategies and thrive in their respective environments. in this quest, strategic management has developed theories and concepts that examine the environment and look inside the firm (herrmann, 2005). its goal is to explain the underlying mechanisms and depict actions that ought to help firms in satisfying the needs of their stakeholders and outpacing the competition. in the past few decades, the focus of the research has been partially shifted toward some specific internal aspects of firms, such as routines (nelson & winter, 1982; cohen et al., 1996; zollo & winter, 2002; feldman & pentland, 2003; becker, 2004), operational capability (amit & shoemaker, 1993; winter, 2000; schreyögg & kliesch-eberl, 2007; helfat & winter, 2011), dynamic capability (teece et al., 1997; gilbert, 2006; schreyögg & kliesch-eberl, 2007; helfat & winter, 2011), absorptive capacity (cohen & levinthal, 1990; kim, 1997a; 1997b; van den bosch et al., 1999; zahra & george, 2002), etc., in order to explain the creation and retention of their competitive advantage. even though these constructs were initially used to explain different aspects of organizational dynamics and competitiveness, in time they started to become extremely broad and less concise, as a consequence of their frequent use in different contexts. these days, the field of strategic management lacks clear understanding and differentiation between these constructs, as well as clear linkages joining them. the identified gap in the strategic management literature has been the rationale for writing this paper. the effort was undertaken in order to precisely define these constructs based on literature review, make a clear borderline between them, and finally, since all of them are inseparable from the field of strategic management, make a clear connection between them. thus the two primary goals of this paper are: (i) to review the most influential papers in strategy management literature in order to crystallize the meaning of the following constructs routine, operational capability, dynamic capability, and absorptive capacity; and (ii) to reconceptualise their connections by integrating them into a conceptual model extracted from the literature review. management 2014/73 researchers have often used constructs such as routines, operational capability, dynamic capability, absorptive capacity, etc., to explain various organizational phenomena, especially a competitive advantage of firms. as a consequence of their frequent use in different contexts, these constructs have become extremely broad and blurred, thus making a void in strategic management literature. in this paper we attempt to bring a sense of holistic perspective on these constructs by briefly reviewing the current state of the research and presenting a conceptual model that provides an explanation for the causal relationships between them. the final section of the paper sheds some light on this topic from the econophysics perspective. authors hope that findings in this paper may serve as a foundation for other research endeavours related to the topic of how firms achieve competitive advantage and thrive in their environments. keywords: absorptive capacity, dynamic capability, operational capability, routines, inertia, econophysics. 2. conceptual framework for a firm to be successful in the contemporary environment, it is necessary that it should maintain the continuity of its on-going operations, while fostering innovations and change at the same time. continuity and change come together when stability, hierarchy, specialization, formalization and centralization are coupled with attributes such as speed, flexibility and responsiveness (graetz & smith, 2008). in order to achieve a competitive advantage and growth, a firm must be capable of continuously reconfiguring its resources and capabilities in order to adapt to changes in the environment (argyris, 1996), but without compromising the stability of its operations. this is especially true in a situation in which the management of a firm ought to pay attention to a much larger number of variables in the environment and their dynamics than was the case before (stefanovic et al., 2011; 2012). the ability to change continuously while retaining efficiency is a core capability of successful firms, especially in the highly competitive, high-velocity oligopolies in which many contemporary firms compete (brown & eisenhardt, 1997). in other words, “a system has to develop boundaries, identities, procedures, practices, and competencies that bring about institutionalizing effects (replicability, inertia, selectivity, etc.) likely to damage the system’s adaptability and flexibility. responding to those inevitable tendencies (trade-offs), an organization has to find ways to handle this risk of inherent dysfunctional flips and rigidity” (schreyögg & sydow, 2010, p. 1258). in this paper we provide a review and propose a reconceptualization of several constructs that represent antecedents of competitive advantage of firms by achieving efficiency through stability and continuity, and at the same time, effectiveness through instability and adaptability. 2.1. routines “as companies grow, they develop structures and systems to handle the increased complexity of the work. these structures and systems are interlinked so that proposed changes become more difficult, more costly, and require more time to implement, especially if they are more than small, incremental modifications. this results in structural inertia – a resistance to change rooted in the size, complexity, and interdependence in the organization’s structures, systems, procedures, and processes... quite different and significantly more pervasive than structural inertia is the cultural inertia that comes from age and success. as organizations get older, part of their learning is embedded in the shared expectations about how things are to be done. these are sometimes seen in the informal norms, values, social networks, and in myths, stories, and heroes that have evolved over time. the more successful an organization has been, the more institutionalized or ingrained these norms, values and lessons become. the more institutionalized these norms, values, and stories are, the greater the cultural inertia – the greater the organizational complacency and arrogance” (tushman & o’reilly, 1996, p. 18). in order to discuss the concept of routines, we will adopt the approach of nelson and winter (1982), who begin their analysis of routines from the notion of skill, which they define as “… a capability for a smooth sequence of coordinated behaviour that is ordinarily effective relative to its objectives, given the context in which it normally occurs” (p. 73). skill is a basic trait that determines the quality of work performed and things to be done. as far as routine concerns, although the term has been in circulation for decades, we are just beginning to understand its nature (pentland & feldman, 2005). routine represents a general way of doing things, that is, a stable pattern of behaviour that characterizes organizational reaction to a specific internal or external stimulus (zollo & winter, 2002). historically, the term ‘routines’ clearly referred to recurrent interaction patterns, that is, collective recurrent activity patterns (becker, 2004).it is “an executable capability for repeated performance in some context that has been learned by an organization” (cohen et al., 1996, p. 683). in a revision of the extensive literature, becker (2004) identified the following characteristics associated to the routine construct: (1) patterns, (2) recurrence, (3) collective nature, (4) realm of consciousness (mindlessness vs. effortful accomplishment), (5) processual nature, (6) context-dependence, embeddedness and specificity, (7) path dependence and (8) trigger. 6 2014/73management when viewed from a distance, any particular organizational routine can exhibit a great deal of continuity over time, which leads some theorists to emphasize their role in organizational inertia and stability (nelson & winter, 1982). this stability-providing effect of routines is important for organizational learning, as well as for organizational efficiency increase. however, sometimes the stability-providing effect of routines does develop into a pathology. repetition of specific activities takes place, even though there is no obvious evidence of benefits for this kind of behaviour. in other words, routines may lead to inertia (becker, 2004). gilbert (2005) argues that two basic types of inertia are resource and routine rigidity. resource rigidity stems from resource dependency, i.e. blinders created by resource dependence, and incumbent reinvestment incentives, i.e., a desire to preserve market power. resource dependency means that a firm’s external resource providers, i.e., capital markets and customer markets, shape and constrain its internal decision-making process (c.f., pfeffer & salancik, 1978). incumbent reinvestment incentives are found to exist in situations in which firms cannot acquire new technology, and therefore they increase investments in their current market positions (gilbert & newberry, 1982). on the other hand, routine rigidity may influence inflexibility of firm routines as well. in this view, routines are seen as repeated patterns of response that become reinforced through repeated use. routines are self-reinforcing by nature and are not built to change. gilbert (2005) explains that both resource and routine rigidity constrain adaptation, but they have different underlying causal mechanisms. “data show that resource rigidity stems from unwillingness to invest, while routine rigidity stems from an inability to change the patterns and logic that underlie those investments. the former relates to the motivation to respond, the latter to the structure of that response... by analogy, resource rigidity is concerned with movement along a line, while routine rigidity deals with the trajectory of the line... threat decreases resource rigidity but increases routine rigidity” (gilbert, 2005, p. 757). one of his major findings is that the response to discontinuous change in environment requires more than just commitment of resources. the underlying organizational routines that use those resources must also adapt accordingly. therefore: proposition 1: resources and routines, if not questioned and re-examined periodically, have a tendency to become rigid due to the force of inertia. having this in mind, the question that practically imposes itself is whether routines exhibit only continuity and repetition, or whether there is some other trait invisible when viewed from a distance. a closer observation of routines reveals their different kind of nature, the one that is opposite to continuity and repetition. viewed up close, routines change. they change continuously and endogenously, which leads various academics to emphasize their role in flexibility and change (pentland & reuter, 1994). in response to these apparently contradictory empirical findings, pentland and feldman (2005) argue that routines are continuously emerging systems with internal structures and dynamics. the internal structure of a routine can produce a wide range of different outcomes on the continuum between ‘very stable’ and ‘constantly changing’, depending on circumstances. both the stability and instability of routines are desirable. this presents a paradox that continually challenges organizations to balance the two objectives (poole & van de ven, 1989). anand et al. (2012) argue that routines go through alternating cycles of intended stability in terms of adherence to the established procedures, and of intended instability in terms of improvisation and change in these procedures. in other words, operational routines go through regular phases of renewal through organizational learning. in the absence of a renewal, adherence to routines tends to decay, leading to a state of higher entropy over time. the preceding arguments suggest the following proposition: proposition 2: the greater the extent to which firms foster organizational learning, the greater the likelihood they will establish empirically proven routines that will be subjected to renewal as circumstances dictate. 2.2. organizational (operational) capability capabilities refer to a firm’s capacity to deploy and coordinate different resources, usually in combination, using organizational processes, to affect a desired end (amit & shoemaker, 1993). hence, resources and capability represent two different conceptual levels. a firm’s resources at a given time could be defined as 7 management 2014/73 those (tangible and intangible) assets which are tied semipermanently to the firm (wernefelt, 1984). on the other hand, capabilities are focused on the combination and linking of resources, that is, capability represents a distinctive and superior way of allocating resources (schreyögg & kliesch-eberl, 2007), and each firm gradually develops its approach to selecting and using specific resources (schreyögg & kliesch-eberl, 2007), which is why it is also called organizational capability, or even operational capability. all these terms are treated as synonyms in this paper. organizational capability may also be regarded as a firm’s capacity to perform a specific activity or interrelated set of activities in a reliable and at least minimally satisfactory manner (helfat & winter, 2011). “operational capability enables a firm to perform an activity on an on-going basis using more or less the same techniques on the same scale to support existing products and services for the same customer population.” (helfat & winter, 2011, p. 1244) according to winter (2000), an organizational capability is “a high level routine (or collection of routines) that, together with its implementing input flows, confers upon an organization’s management a set of decision options for producing significant outputs of a particular type” (p. 983). hence: proposition 3: firms that incorporate appropriate routines on the selected resources during their operations will have a greater chance to create more effective organizational (operational) capabilities. as already implied in the section covering routines, organizational capabilities may fall into trap of becoming needless routines if their underlying logic is not subjected to continuous re-examination and evaluation. “any capability therefore contains an inherent risk, that is, the risk of rigidity and helplessness in the face of fundamentally changing conditions. as a consequence, organizations are confronted with a dilemma: on the one hand, they have to develop reliable patterns of selecting and linking resources in order to attain superior performance and competitive advantages and, on the other hand, this endeavour constitutes – at least in volatile markets– a considerable risk of becoming locked into exactly these capabilities” (schreyögg & kliesch-eberl, 2007, p. 919). based on the aforementioned: proposition 4: organizational (operational) capabilities, if not questioned and re-examined periodically, have a tendency to become rigid due to the force of inertia. an organizational capability is the result of an organizational learning process (schreyögg & kliesch-eberl, 2007). organization learning is a form of informational updating through which decision makers develop an understanding of relationships between organization’s actions and outcomes (levitt & march, 1988). thus, the factors that define an organization’s capabilities evolve over time: they start with resources, then move to processes and values, and finally end with culture (christensen & overdorf, 2000). seen through these lenses, it is not surprising that creating outstanding organizational capability has a synergistic effect, i.e., it enables the company as a whole to be more valuable than the sum of its parts (brockbank & ulrich, 2009). therefore: proposition 5: the greater the extent to which firms foster organizational learning, the greater the likelihood they will establish adequate organizational (operational) capabilities. 2.3. dynamic capability in an environment where technological, regulatory, and competitive conditions are subjected to rapid change, persistence in the same operating routines quickly becomes hazardous. if the change is not only rapid but also unpredictable and variable in direction, operational capabilities and even the higher-order learning approaches will need to be updated repeatedly. failure to do so turns core competencies into core rigidities (leonard-barton, 1992). thus, established organizational capabilities ought to be changed as quickly and as frequently as the environment changes. in other words, a firm must adapt its operational capabilities fast enough in order to cope with the environment dynamics. 8 2014/73management a firm’s ability to thrive over time lies in its ability to integrate and build upon its current competencies while simultaneously developing fundamentally new capabilities. this is called a ‘dynamic capability’. according to teece et al. (1997), dynamic capabilities may be regarded as “the firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (p. 516). in other words, organizations must develop dynamic capabilities in order to survive in the contemporary environment. dynamic capabilities are those that promote a seemingly radical change in how a firm makes a living (helfat & winter, 2011) on the basis of its existing (operational) capabilities. they refer to the capacity to renew competencies (teece et al., 1997). when change in the environment is discontinuous, residual fit usually remains between the already established firm’s capabilities and some portion of the environment, which means that established capabilities as well as new ones must coexist for some period of time. this is what dynamic capabilities really mean: moving from one competency configuration to another, and maintaining multiple competencies that address inconsistent contexts simultaneously (gilbert, 2006). “dynamic capabilities in this sense build different types of capabilities, which amount to experiential, improvisational, and highly fragile processes of reconfiguration, integration, and acquisition of resources. they make use of real-time information, simultaneously explore multiple alternatives, rely on quickly created new knowledge, are governed by very few simple rules, do not get stored in the organizational memory, and thus do not produce predictable outcomes. their strength no longer flows from architecture but rather from its ability to continuously produce new constellations and solutions” (schreyögg & kliesch-eberl, 2007, p. 919). the foregoing literature review suggests the following proposition: proposition 6: the greater the extent to which firms develop various organizational (operational) capabilities, no matter whether in a successive or simultaneous manner, the greater dynamic capabilities they possess. thus, an organization’s dynamic capabilities depend on simultaneously exploiting current technologies and resources to secure efficiency benefits and creating variation through exploratory innovation. maintaining an appropriate balance between exploitation and exploration is critical for firm survival and prosperity (march, 1991; teece et al., 1997). this is not to say that dynamic capabilities are supposed to replace operational capabilities, but rather that, as graetz & smith (2008) argue, the key characteristic of duality thinking that organizations must achieve if they are to exploit and explore is the bidirectional partnership between continuity (efficiency through operational capabilities) and change (flexibility and responsiveness through dynamic capabilities). therefore, aligning organizations to simultaneous exploitation and exploration is a task of dynamic, rather than static alignment (raisch & birkinshaw, 2008), and the firm’s capability to manage this alignment is called organizational ambidexterity (duncan, 1976; march, 1991). even though organizations need both types of capabilities (exploration and exploitation), organizational ambidexterity can be viewed as an organization-level dynamic capability (jansen et al., 2009), but only if management can repeatedly and intentionally orchestrate firm assets and resources (o’reilly & tushman, 2007). “as a dynamic capability, ambidexterity embodies a complex set of routines including decentralization, differentiation, targeted integration, and the ability of senior leadership to orchestrate the complex trade-offs that the simultaneous pursuit of exploration and exploitation requires. developing these dynamic capabilities is a central task of executive leadership” (o’reilly & tushman, 2011, p. 6). cao et al. (2009) have shown that ambidexterity is fostered by close interrelations between the existing and new knowledge. they argue that synergistic effect can be achieved by allowing the existing resources to be more fully employed to acquire new capabilities, while at the same time permitting new knowledge to be more fully integrated into the existing pool of resources. therefore, since organizational ambidexterity is a dynamic capability, it can be concluded that dynamic capabilities must be developed through learning. zollo and winter (2002) focused on organizational learning as a source of dynamic capability, which they defined as “a learned and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness” (p. 340). they argue that dynamic capabilities emerge from the co-evolution of tacit experience accumulation processes with explicit knowledge articulation and codification activities. it thus follows: proposition 7: the greater the extent to which firms foster organizational learning, the greater the likelihood they will establish dynamic capabilities. 9 management 2014/73 2.4. absorptive capacity an absorptive capacity is the ability of a firm to identify, assimilate and apply useful external knowledge (cohen & levinthal, 1990). it can also be acknowledged as the capacity to learn and solve problems (kim, 1997a; 1997b). in order to identify, assimilate and exploit new knowledge a firm must possess prior related knowledge. the prior knowledge allows assimilation of new knowledge only if some portion of it is closely related to the new knowledge (cohen and levinthal, 1990). an absorptive capacity tends to confine a firm to operate in a specific technological domain (cohen & levinthal, 1990), which may eventually lead to the pattern of inertia (nelson & winter, 1982). hence, two propositions follow: proposition 8: the greater the extent to which firms foster organizational learning, the greater the likelihood they will have effective absorptive capacity. proposition 9: absorptive capacity, if not questioned and re-examined periodically, has a tendency to become rigid due to the force of inertia. “absorptive capacity is more likely to be developed and maintained as a byproduct of routine activity when the knowledge domain that the firm wishes to exploit is closely related to its current knowledge base. when, however, a firm wishes to acquire and use knowledge that is unrelated to its ongoing activity, then the firm must dedicate effort exclusively to creating absorptive capacity (i.e., absorptive capacity is not a byproduct).” (cohen & levinthal, 1990, pp. 149-150) creative utilization of new knowledge will be permitted if some part of the prior knowledge is fairly diverse, although still related (cohen & levinthal, 1990). van den bosch et al. (1999) argued that cohen and levinthal’s (1990) implicit feedback loop (absorptive capacity� learning � new absorptive capacity) is mediated by the environment in which the firm competes and the firm’s success in coping with it. firms facing stable or turbulent environments tend to organize themselves differently and emphasize different ways of combining knowledge (lane et al., 2002). on the other hand, zahra and george (2002) have established a conceptual link between absorptive capacity, organizational (operational) capability and dynamic capability by defining absorptive capacity as “a set of organizational routines and processes by which firms acquire, assimilate, transform, and exploit knowledge to produce a dynamic organizational capability.” (p. 186) according to them, acquisition, assimilation, transformation and exploitation are organizational capabilities that build on each other to yield absorptive capacity. in this way, absorptive capacity may actually be seen as a dynamic capability that enable firms to create and deploy the knowledge necessary to build other organizational capabilities, that is, production, marketing, sales, etc. (zahra and george, 2002). to be more precise, in order to acquire dynamic capability, a firm first needs to have a proper level of absorptive capacity in place. therefore, two propositions are extracted from the foregoing claims: proposition 10: the greater the extent to which firms have established absorptive capacity, the greater the likelihood they will develop dynamic capabilities. proposition 11: the greater the absorptive capacity and dynamic capabilities that firms possess, the greater the possibility they will develop various organizational (operational) capabilities. based on a thematic analysis of the literature, lane et al. (2002) found that organizational learning and absorptive capacity coevolve with each influencing the other. however, they concluded that little attention has been paid to the implications of exploitative versus exploratory learning for absorptive capacity development. thus, lane et al. (2006) suggested a more detailed definition of absorptive capacity as a firm’s ability to utilize externally held knowledge through three sequential processes: (1) recognizing and understanding potentially valuable new knowledge outside the firm through exploratory learning, (2) assimilating valuable new knowledge through transformative learning, and (3) using the assimilated knowledge to create new knowledge and commercial outputs through exploitative learning. hence: proposition 12: the greater the extent to which firms have established absorptive capacity, the greater the likelihood they will foster organizational learning. 10 2014/73management 3. conceptual model the propositions extracted from the literature review of the constructs determine connections between them, thus making a conceptual model depicted in figure 1. besides four constructs being analyzed in this paper (routine, operational capability, dynamic capability, and absorptive capacity), this figure adopts three more constructs (rigidity, resources and organizational learning). it would be impossible to depict this model without taking these three additional constructs into account. figure 1: conceptual model of routines, capabilities, and absorptive capacity interplay almost all the constructs presented in the model, i.e., resources, routines, operational and dynamic capabilities, as well as absorptive capacity, if not questioned and re-examined periodically, have a tendency to become rigid due to the force of inertia. the explanation for this statement lies in the velocity of the contemporary environment in which majority of firms operate (stefanovic et al, 2012). it is well known that in the ever-changing environment sustainable competitive advantage is a thing of the past. thus, contemporary environment has shifted the focus towards the temporary competitive advantage (d’aveni et al, 2010), because the true sustainable competitive advantage is rare and declining in duration (ruefli & wiggins, 2002). long-term survival ought to be embedded in new variations, internal selection that correctly reflects external selection pressures and top management’s capacity for recognizing and retaining viable strategic initiatives (burgelman, 1994). in other words, firms ought to engage in the process of continuous organizational learning in order to cope with the changes and surprises arising from the environment and escape the forces of rigidity. fostering organizational learning within firms increases the likelihood of establishing empirically proven routines that will be subjected to renewal as circumstances dictate. firms that learn how to incorporate these routines on the selected resources during their operations will have a greater chance to create more effective operational capabilities suitable for the specific situation. therefore, widespread organizational learning increases the likelihood of creating adequate operational capabilities, but also plays an important role in establishing absorptive capacity and dynamic capabilities. nevertheless, there is also a direct causal relationship between operational and dynamic capabilities. thus, the greater the extent to which firms develop various operational capabilities, no matter whether in a successive or a simultaneous manner, the greater dynamic capabilities they possess. finally, the greater the extent to which firms have established absorptive capacity and dynamic capabilities, the greater the likelihood they will foster organizational learning and develop the needed operational capabilities. 11 management 2014/73 12 2014/73management 4. an econophysics model based on the system theory and evolution operators a physical model based on the theory of systems and evolution operators allows a generalization, in an econophysical manner, of the above data on the conceptualization of routines, capabilities, and absorptive capacity. thus, the general state of the initial system is defined statically, through three specific or variable states of positioning, or analysis landmarks connected with the capability of being open to learning of a usual corporation or enterprise, of correspondence with areal corporation or real enterprise, as well as the capacity as a self-sufficient or rigid corporation. the main system elements remain the same in the static classical alternative and in this dynamics: routines, capabilities, and absorptive capacity. the statistical model, in its capacity as a classical model, defines the system three-dimensionally, capitalizing on the data enumerated above. from a dynamic standpoint, evolution operators become the key to the econophysics model proposed. in order to express the evolution of a dynamic system of the type of that described and analysed previously, one can have recourses for the construction of an evolution operator χ(t). defining the dynamic function of the system f(x,t), which can be the expression of the parametres analysed in the paper, or a combination thereof, will depend not only on state x of the system at a given moment, but also on the time the state is realized in. consequently, the mechanism of time variation will have to be made clear, and the total variation of f will be expressed through: f(x,t)=χ(-t)f(x) (1) where: f(x,t) is the dynamic function, χ(t) represents the evolution operator defined and f(x) the function in a given state. proceeding from the definition relation of that operator, the following properties can be demonstrated for it: x(t) = χ(t).x (2) χ(0)x = x (3) which means that χ(0) is a unit operator. χ(ti). χ(t).x=x(t+ti) = χ(t) χ(ti).x (4) χ(-t). χ(t).= χ(0). (5) taking into account the fact that f(x,0) is the function of the system stationed, which we want to be at least constant during the evolution of the system then equation: χ(t)f(x,t)=f(x,0) (6) expresses the constancy of that function over its entire evolution. hence, we can express the equation that formally builds the function f(x,t) throughout the time interval considered. f(x,t)=χ(-t)f(x,0) (7) references [1] amit, r., & schoemaker, p. (1993). strategic assets and organizational rent. strategic management journal, 14 (1), 33-46. [2] anand, g., gray, j., & siemsen, e. (2012). decay, shock and renewal: operational routines and process entropy in the pharmaceutical industry. organization science, 23(6), 1700-1716. [3] argyris, n. (1996). evidence on the role of firm capabilities in vertical integration decisions. strategic management journal, 17 (1), 129-150. [4] becker, m. 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(1990). absorptive capacity: a new perspective on learning and innovation. administrative science quarterly, 35(1), 128-152. 13 management 2014/73 conslusion the constructs of routines, operational capabilities and dynamic capabilities, as well as absorptive capacity have been applied to a wide variety of phenomena in recent years. their growing appeal is a reflection of their versatility, but this versatility carries the risk of a lack of clarity in meaning and differentiation between these constructs, as well as clear linkages joining them. in this paper, we attempt to bring a sense of holistic perspective by briefly reviewing the current state of the research and highlighting what is known about the topic. after that, the conceptual model is provided based on the propositions extracted from the literature review of the constructs. even though this paper provides a reconceptualization of causal relationships between routines, operational capabilities, dynamic capabilities, and absorptive capacity, and may present a small contribution to the holistic perspective on how firms achieve competitive advantage and thrive in their respective environments, authors are fully aware of its limitations. first and foremost, this paper presents a theoretical review and reconceptualization based on this review. in other words, the conceptual model presented in this paper has no direct empirical confirmation. it is simply a synthesis of various research papers, which is why its approval in an empirical setting is needed. the second limitation concerns the scope of the literature reviewed. even though some of the most influential articles on the topics of interest are covered, and they share practically the same underlying logic, some less-known articles may indicate other aspects of the gap in the strategic management literature we are trying to bridge. thus, a review that covers a broader scope of articles covering these topics is needed. the third limitation deals with the model itself. this model depicts static relationships between the constructs presenting antecedents of competitive advantage of firms. competitive advantage, as stated in the introduction section, is meant to be achieved and sustained by balancing between efficiency through stability and continuity, and effectiveness through instability and adaptability. thus, dynamics between the constructs and the nature of these relationships ought to be explained in order to make more sense of how this model captures the process of achieving and sustaining competitive advantage over time. nevertheless, we hope that this paper presents a solid starting point for understanding the holistic perspective on the manner in which these constructs create and sustain competitive advantage of firms, as well as encourages future research on this topic. it is reassuring that researchers in diverse organizational disciplines have recognized the explanatory power of routines, operational capabilities, dynamic capabilities and absorptive capacity, and we hope that their future uses of this conceptual model will show greater recognition of its purpose. 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[37] ruefli, t. w., & wiggins, r. r. (2002). industry, corporate, and segment effects and business performance: a non-parametric approach. strategic management journal, 24(9), 861-879. [38] schreyögg, g., & kliesch-eberl, m. (2007). how dynamic can organizational capabilities be? towards a dual-process model of capability dynamization. strategic management journal, 28, 913-933. [39] schreyögg, g., & sydow, j. (2010). organizing for fluidity? dilemmas of new organizational forms. organization science, 21(6), 1251-1262. [40] stefanovic, i., prokic, s., & vujovic, s. (2012). the organizational environment dimensions revisited: analysis of the contemporary context. transformations in business & economics, 11(1), 124-138. 14 2014/73management [41] stefanovic, i., prokic s., & vukosavljevic, d.(2011). the response to the changing landscape of tomorrow: reconfigurable organizations. african journal of business management, 5(35), 13344-13351. [42] teece, d. j., pisano, g., & shuen, a. (1997). dynamic capabilities and strategic management. strategic management journal, 18(7), 509-533. [43] tushman, m. l., & o’reilly, c. a. iii (1996). ambidextrous organizations: managing evolutionary and revolutionary change. california management review, 38(4), 8-30. [44] van den bosch, f.a.j., volberda, h.w., & de boer, m. (1999). coevolution of firm absorptive capacity and knowledge environment: organizational forms and combinative capabilities. organization science, 10, 551-568. [45] wernefelt, b. (1984). a resource-based view of the firm. strategic management journal, 5(2), 171-180. [46] winter, s. g. (2000). the satisficing principle in capability learning. strategic management journal, 21: 981-996. [47] zahra, s. a., & george, g. (2002). absorptive capacity: a review, reconceptualization, and extension. academy of management review, 27(2), 185-203. [48] zollo, m., & winter, s. g. (2002). deliberate learning and the evolution of dynamic capabilities. organization science, 13(3), 339-351. receieved: july 2014. accepted: september 2014. \ ivan stefanovic university of belgrade faculty of organizational sciences ivan.stefanovic@mi-system.co.rs ivan stefanovic holds a phd degree from the faculty of organizational sciences, university of belgrade. his area of interest covers strategic management, organization theory, and organization design. dr stefanovic currently works as bpm consultant at m&i systems, co. group. sloboda prokic slobodaprokic@yahoo.com sloboda prokic holds a phd degree from the faculty of organizational sciences, university of belgrade. her area of interest includes strategic management, interorganizational relations, and organization design. dr. prokic has authored and coauthored a large number of papers in these areas. gheorghe săvoiu university of pitesti (romania), faculty of economics e-mail: gheorghe.savoiu@upit.ro or gsavoiu@yahoo.com gheorghe săvoiu, phd, is associate professor at the department of accounting, faculty of economics, university of pitesti (romania). gheorghe săvoiu graduated with mba from the bucharest academy of economic studies (commerce department – commerce section), and acquired a phd degree in economic sciences from the faculty of economic cybernetics, statistics and informatics, bucharest academy of economic studies (romania). besides pedagogical activities, he held a position of manager at the general board of statisticsargeş county – pitesti. he held a position of dean of the finance – accountancy faculty, to constantin brâncoveanu university in pitesti, between 2003 and 2006. since 2014, he has also been an associate researcher at ince “costin c. kiriăescu” of the romanian academy, part of the new centre of mountain 15 management 2014/73 about the author economics ce-mont. he is a (co)author of more than 30 books, of 20 papers isi thompson (web of knowledge), with hindex isi thompson = 4 and of more than 200 indexed journal and conference papers. he was also engaged as a project manager or member of a project team in more than 10 projects. the major domains of interest: statistics, econometrics, econophysics, sociophysics, logic, philosophy, economics, marketing research, human ecology, management methods, demography, price universe and interpreter indices, rural tourism. ion iorga simăn university of pitesti, faculty of science ion iorga simăn is a director of the quality of academic education and physics professor at the university of pitesti (romania).. he was a dean of the faculty of science. prof. simăn founded or helped the foundation of about nine faculties at the university of pitesti. he published more than 50 books and 300 papers during his more than forty year long research career. 16 2014/73management 07_nela milosevic:tipska.qxd 59 ¹nela milošević, ²slađana barjaktarović rakočević, ³nemanja milanović 1,2,3university of belgrade, faculty of organizational sciences one approach to risk management in smes banking udc: 005.334:336.774 doi: 10.7595/management.fon.2014.0033 1. introduction smes create the market which is an important part of any economy. the most common criteria for the classification of companies include the number of employees, the volume of annual revenues, the value of assets on the balance sheet, as well as the ratio of borrowed and own funds. smes and entrepreneurs represent the most efficient economy segment of most economies worldwide and make the largest contribution to the increase in employment, gross added value and turnover. their role is particularly important in countries in transition which are faced with problems of high unemployment, low level of economic activity, insufficient competition and lack of investment, and where large inefficient state-owned enterprises are still present. the social role in absorbing surplus labour generated in the processes of transition and ownership transformation of state-owned and socially-owned enterprises is also evident. their characteristics, such as size, flexibility, propensity for innovative and risky ventures, and greater opportunity for specialization, enable these enterprises to adapt much easier than large business systems to continuous changes in consumer demand and business conditions in the global market. in this way, smes encourage the strengthening of competition, which results in the improvement of the quality of products and services as well as in lower prices, innovations and development of new technologies, and the growth of the national economy in general. survival, growth and development of small and medium-sized enterprises are primarily determined by funding opportunities from favourable sources. limited access to the sources of finance, both on the money market and the capital market, especially in terms of prices and conditions of use, is perhaps the most important feature and issue for these companies. in an effort to provide the necessary funding, companies are facing the following dilemmas: should the investments and business development be financed from own resources or borrowed resources; how much capital should be obtained from loans; should the capital be provided by banks and other financial institutions, on the securities market, or by attracting formal or informal management 2014/73 the purpose of this paper is to investigate the key determinants of relations between banks and small and medium-sized enterprise segment (sme) in the context of sme banking value chain and credit risk management. due to a limited number of sources of financing, smes often opt for cooperation with the banking sector. on the other hand, most of the banks form separate departments for the cooperation with the sme segment, not only in the field of credit, but also in the field of various advisory services offered by banks. the paper draws on sme financing and banking management literature and discusses conceptual models of credit risk management. the research finds that the stability of the banking sector is greatly influenced by the condition and development of the entire financial system of a country, so it is essential that banks take into account the liquidity and adequate resource policy. bank performance depends on the chosen way of generating revenue (amount of profit), the required quality of assets (risk level) and the defined level of efficiency in operations (operational expense). the findings of the paper highlight the importance of risk management and the complexity of the credit analysis function in banks, as well as provide an overview of quantitative methods for measuring credit risk. keywords: small and medium-sized enterprises (smes), risk management, credit risk measurement, the sme value banking chain, credit analysis investors; and what is the desired capital structure? depending on the objectives of growth and development, the stage in the life cycle, the financial status, the nature of business activity and the investment structure, the stability of cash flows, the relationship to risk management and the availability of certain resources, companies decide to obtain capital from one or a combination of funding sources, while aiming for the optimal capital structure. 2. theoretical background in academia, it is a common opinion that large and foreign banks are generally not interested in investing in smes, while on the other hand, small banks which are focused on a specific niche are more motivated to overcome the problems which arise within smes. torre et al. (2010) have shown that there are no sufficiently plausible arguments for this claim, and that banks find smes to be highly profitable clients. in addition, regardless of the size of the bank, the practice has shown that they are striving to maintain long-term relationships with the sme segment, especially in emerging markets. financial experts argue that the constraints of smes in financial terms are very strong, representing the main potential of credit institutions. large banks, as well as foreign universal banks are leaders in the banking industry, as they are operating under the laws of economy of scale. in addition to having developed mechanisms for analysis and control of the clients, large banks are capable of developing products and services for the specific needs of smes. however, in recent years there has been an increase in the number of specialized banks which do business with only one market segment. the research of torre et al. (2010) indicates that, despite the strengthening of relations between banks and companies, there are still limited opportunities in developing countries for key products, such as loans secured by adequate collaterals, and loans that have long-term fixed interest rates indexed in the local currency. hanedar, broccard and bazzana (2013) investigated the characteristics of the collateral of smes in emerging markets. regarding the type of collaterals, it was shown that the specific features of a loan applicant are significantly more important than the characteristics of the country of their origin. this research emphasized the importance of credit risk which a specific loan applicant brings, as well as the level of transaction costs compared with the characteristics of the underlying collateral. menkhoff et al. (2012) state that companies in the developing countries are less interested in loans that they require collaterals, supporting the results of the research with the fact that they do not have enough highquality collaterals, and that they have access to relatively expensive sources of funding and insufficiently attractive credit terms. the world bank has conducted a research on the business environment and the performance of smes in eastern europe and central asia. the results show that high demands for collateral are the third factor influencing the decision of the company not to apply for loan financing. the first two reasons are related to high interest rates and complicated procedures, which are also very time-consuming. the results of this study can be found in the niinimaki (2009) paper. in addition, berger et al. (2011) emphasize that, in emerging markets, it is very difficult to obtain relevant quality assessment of the collateral, and that a high risk occurs due to information asymmetry. according to bartoli et al. (2013), the information that banks use can be described as “hard” and “soft”. hard information includes various quantitative data that banks obtain from the data in the financial reports or collateral offered by the loan applicant as security. soft information is related to qualitative data, and their main source is the personalized relationship between banks and clients. it is evident that the soft information is more difficult to collect and there is a higher probability of errors, but the aforementioned group of authors believes that it is this information that presents a competitive advantage of the small banks relative to the large ones. they explain this attitude by the fact that small banks are more focused on their clients, that they meet specific requirements better, and that, in this process, they obtain valuable data of insufficiently transparent companies more easily. 3. the key determinants of relations between banks and sme sector one of the main characteristics of small and medium-sized enterprises is a limited access to the necessary sources of finance for starting, surviving and developing the business. throughout their lifecycles companies have different financial needs, which is why a stable banking sector is one of the basic conditions nec60 2014/73management essary for the growth and development of the company. developing countries are often accompanied by underdeveloped financial markets, which is why the only way of raising external funds is through bank loans. in recent years, there has been an increase in the number of research papers dealing with the role of trust in relations between banks and sme segment. the econometric results have shown that the relationship between banks and small and medium-sized enterprises cannot be displayed in tabular form, as trust increases the number of soft and hard information available to managers. in addition, the company as well as bank managers, make decisions more effectively when a high level of confidence is achieved between them. the importance of trust is mostly reflected in situations when a bank approves a loan to micro enterprises even though they often do not have the documentation required by the bank. furthermore, trust contributes to the proper behaviour of financial entities, and plays an important role in reducing agency problems, moral hazard, adverse selection and transaction costs (nooteboom et al., 1997, lewicki et al., 1998). the sme sector clients’ loyalty to a certain bank facilitates business to both parties. a firm’s performance and long-lasting relationships increase risk-adjusted profitability. also, banks are not required to offer their products and services below cost in the fight for market share and have the ability to earn additional profit from the development of small and medium-sized enterprises. small, local banks often contribute to better risk management in the sme sector, so their advisory function ensures economic stability (fredriksson, a., moreau, a., 2014). in the past, banks had an aversion to supporting small and medium-sized enterprises, and some of the reasons are high credit risk, lack of adequate collateral, high transaction costs, inadequate investment projects submitted for consideration, and unreliable financial statements. casey and o’toole (2014) have conducted a research on the relationship between the sme segment and alternative ways of financing, caused by the rigorous rules and restrictions set by the banks. the authors came to the conclusion that small and medium-sized enterprises are turning to informal loans, loans from other companies, market funding and grants, if these methods of financing are available. the relationship between banks and the sme segment is particularly complicated in developing countries, given the lack of diversified financial institutions, undefined standards and procedures, and entrepreneurs’ insufficient experience. today, however, more attention is paid to small businesses, as is evidenced by the fact that certain banks have separate departments specializing in sme. it is also important to note that fiercer competition in the banking market has a positive effect on the availability of credits to small and medium-sized enterprises, as well as on the flexibility of the restrictions in contracts which banks offer (chang et al. 2013). in addition, if the competitiveness of the banking sector is high, small and medium-sized enterprises will offer collaterals of lower quality, which automatically improves their bargaining position in relation to the banks (voordeckers, steijvers, 2006). research has shown (shen et al., 2009, berger et al., 2002) that a banks’ total assets are not the most important criterion when deciding whether or not to finance small and mediumsized enterprises. what affects the commercial banks’ decision to lend their funds to the sme segment is: competition, detailed plans and appropriate legal action. starting from the standard methodology of specialized institutions, theoretical assumptions and their own practice, a bank should develop its own analytical base (matrix) for the credit analysis of companies that will help them to: • form the documentary basis for credit analysis, • execute the analysis of the existing placement and • avoid the risk of non-performing loans (credit risk) in credit activities. 4. sme banking value chain to frame the discussion of how banks approach the challenge of serving smes, a standard banking value chain framework will be used. this framework consists of five discrete stages and one cross-cutting task. the five stages of this banking value chain are (1) understanding the market, (2) developing products and services, (3) acquiring and screening clients, (4) serving clients, and (5) managing information and knowledge. cutting across each of these five stages is the permanent and critical task of risk management. at each stage of the value chain, there are actions and considerations particularly relevant to the sme sector. 61 management 2014/73 the world bank group (2010) suggests the following observations from the five value chain stages: understanding the market is critical and serves as a foundation to being able to address the unique needs of smes, non lending products should not be overlooked, as they may generate more revenues than sme loans, a bank’s current portfolio is a critical potential source of new business, segmenting service approaches can help banks balance customer service and operating cost concerns, and effective information management means knowing how to maximize the use of it systems. 5. challenges along the sme banking value chain – credit risk management approach risk management represents one of the most difficult tasks in the banking industry, especially when taking into consideration informational asymmetries which characterize the sme banking sector. besides the importance of credit, market, strategic and operation risks, special attention in this paper will be paid to the credit risk and the risk of high costs for providing services.the credit risk is related to the bank’s inability to collect the debt and the interest within the agreed time frame. limited information sources are forcing banks to require additional insurance such as different collaterals whose value depends on the assessed risk and the amount of the wanted resources. (beck et al., 2008) claim that more than 80% of the loans for the smes in emerging markets are insured. regarding the banking sector, despite the vigorous expansion of innovation in the financial services sector at the turn of this century, credit risk is still the main reason of the insolvency of banks. the explanation for this should be sought in the fact that in contemporary conditions over 80% of a bank’s balance sheet, in general, refers to this aspect of risk management in banking (greuning van h., s. brajovic – bratanovic, 2003). at the same time, the share of certain types of credit risk varies from bank to bank – natural person risk, company risk and country risk. from the point of view of a bank’s potential losses, credit risk is perhaps the most important of all risks as it directly affects the fundamental banking activity. it is understood that the relative importance assigned to the risk of certain financial operations depends on the scope and development of a country’s financial market, as well as the fragmentary structure of financial intermediaries. better developed markets provide a more complete risk analysis methods as well as broader insurance possibilities due to a larger number of entities in the financial market, the possibility of speculative transactions, and specific forms of regulating credit operations of banks, other financial intermediaries and businesses (dabić et al., 2013). credit risk requires a managing mechanism that is ready for the worst case scenario, even in the conditions of economic stability. the basel standards and central banks promote the importance of risk management and thus contribute to a higher quality of the investment environment, especially when it comes to developing countries. 62 2014/73management ��������� � ��� � �� ����� ��� � �������� �� � � � ������� ����� ��� ���� �� ������ ������ �� ������� ���� � �� ����� ��� ���� ���� � �������������� ����� � •������������ �� �� ���� •����������������� ���������������� ������������� ��� •� ����������� �� ������� ����������� ��� ������� •� �������� ��������� ��������� ������� •� �������������� ���������������������� ����� •������� �� �� �������� �������� ��� •�������� ����������������� ����� ����������� •����������������� �������������� ���������� •� ������������� ��������� �������� ����! �������� •�"��� ������� ���������������� ����������� �� ������ ���� •� ��!������������ ������� •��������� �! ��� ��� ��������� �� ���������� •������������� ���������������� ������������� ������ ����� ������� •"��������� ������#������� ���������� �! ��������� ���� •�$����#���� ����������� ���������������������� �������%������ ���� ������������� � � � •� ������������� � table 1: sme banking value chain (world bank group, 2010) implementation of these steps depend on several factors, such as the informational system the bank is using, as well as recognizing the first indicators of credit risk appearance.the following basic indicators of the credit risk must be taken into consideration: irregular payments, frequent changes of the loan terms, unusually high interest rates, incomplete documentation collected by a client, poor quality collaterals, lack of reports and cash flow forecasts, as well as the client’s reliance on non-renewable sources. for each of the abovementioned phases, the methodology developed by the world bank (2010) suggests adequate approaches to managing credit risk. the first stage of the banking value chain is an adequate understanding of the market needs. in order to diversify their portfolios, banks need to permanently analyze the market and client’s preferences, where the following techniques can be implemented: surveys, a direct insight into the company’s business transactions and the interaction with the employees of the particular firm. in this phase, quantification of risk in target market by leveraging existing bank data is of great importance. efficient credit risk management also demands segmentation of the sme market by risk profile and improvement of predictive capabilities by collecting information on local sme success factors. in order to expand its market share and strengthen its position on the sme market, a bank has to update its offer and attract new clients, where a loyal and long-standing relationship is of major importance. common approaches to risk management related to development of new products and services include loan pricing models tailored for a particular client risk profile, innovative forms of collateral and prioritization of non lending products in order to establish a closer relationship with customers. a broad body of evidence has shown that some banks would take high risks when financing smes without having an adequate collateral. if such contracts are made with several clients, it can be stated that diversification is achieved, but in the case of disproportional increase in the number of unsecured loans during the expansion period, the bank is losing control. a long-term cooperation with clients from the sme sector provides a stable income with the tendency to increase and is an excellent source of desired information. the suggested approaches to credit risk management related to the third phase of sme banking value chain include lending to current clients first, implementation of internal scoring methods for loan assessment and more rigorous underwriting by separation of sales from credit approval. banks serving smes have found ways to cost-effectively meet and even capitalize on the unique demands of smes. this task can be done by using direct delivery channels, segmenting and redefining relationship management, and turning demands into opportunities through cross selling. dedicated staff and provision of advisory services related to cash flow management for clients are most common credit risk management approaches. information and knowledge management in banks represents the fifth stage of the banking value chain.this process is facing two main challenges: developing the infrastructure (tools and systems) to collect and analyze information, and developing the capacity (skills and processes) to turn information into knowledge and adjust operations accordingly. in order to use the knowledge potential, a bank should have a portfolio check and risk analysis. client relations management and profitability analyses are crucial steps in running a good business. in order to manage credit risk more efficiently, it is necessary to establish centralized teams that will be responsible for monitoring the loan data for risks, for the implementation of early warning systems and for the integration of data into credit policies. credit risk management process in this phase can be also improved by the usage of portfolio data in order to customize credit risk scoring models. 5.1. overview of quantitative methods for measuring credit risk credit risk is very difficult to measure with certainty, and the situation is easier for the banks operating in the most developed financial markets due to the fact that with the emergence of a secondary market for bank loans it has become easier to read the price of loans. internal and external rating schemes are still very common but are prone to subjectivity and inaccuracy, as are all qualitative methods for ranking credit risks. 63 management 2014/73 generally speaking, portfolio models can be split into two categories: analytical models and simulation-based models. analytical models provide precise solutions to the loss distribution of credit assets by giving some simplifying assumptions. the main advantage of analytical models is that we can receive results very quickly, although those results usually come at the cost of many strict theories about the drivers of default. on the other hand, the main idea underlying simulation-based models is to approximate the true distribution by a large number of scenarios. these models are flexible and valuable, but also very complex and dependent on computers. in a survey of 41 large international banks, brannan, mengle, smithson and zmiewski (2002) report that more than 80% of banks use one of the models listed above in their estimation of credit risk. the five most popular models used within the international banks, which measure credit risk at the level of financial instruments and total portfolio, are: creditmetrics, credit portfolio view – cpv, portfolio risk tracker, kmv portfolio manager and credit risk +. all five models are used to predict the occurrence of uncollectable receivables and to determine the correlation of the cases of debtors’ defaults. the creditmetrics was published in 1997 by jp morgan bank, and is based on the analysis of historical data on the average frequency of credit transitions from one credit rating group to another within the matrix of ratings. as it is very difficult to assess the value of the debtor’s assets, the debtor’s share prices are used for the purpose of simplification which can significantly affect the accuracy of the results. creditmetrics consists of two processes which determine the risk values for each financial instrument and the values at portfolio level. in this way the effects of portfolio diversification are explained, as well as the changes in portfolio value which lead to a reduction in the number of uncollectable receivables. the consulting firm mckinsey & co. defined a model based on the evaluation of the portfolio, which leads to evaluating the effect of macroeconomic factors on the rate of defaults in a given sector. variables that are commonly used are the growth of gross domestic product or industrial production, interest rates, exchange rates, and unemployment rates. the condition for the application of the approach based on credit portfolio view (cpv) is a properly updated database. although this information is relatively easy to obtain, the developing countries which have underdeveloped financial markets often have problems in securing the data to the rating agencies, which represents a major drawback of this model. in addition, the weakness of the cpv approach is related to the fact that it only defines the aggregate probability of default, neglecting the probability of default at the level of individual borrowers. the portfolio risk tracker is standard & poor’s rating-based model. the main characteristics of this model are that it is a dynamic model and that it includes stochastic spreads which gives the possibility to capture the three sources of credit risk: defaults, transitions and changes in spread. this allows portfolio risk tracker to analyze products such as credit derivatives and cdos and calculate credit value at risk linked with those securities. 64 2014/73management � �������� ����� � ����������� ����� ����� ���� ������� �� ��� ���� ���� ������ �������� �������� ���� �� ��������� ��� �� ����������� � ���� ����� ���������� � ���� ������ � ��������������� ����� ���������� � ���� ����� ��������������� ��������������� ������������ � ����� ������ �������� ����� ����� �������� ����� ����� ������������ �� ������������ �������� �������� �� ���� � ������ ��������� �� ��� ��� ���� ��� ��� �� �������� � ����� ������� ������ ��� ����� �� ��� ������� �� ����� ������ ������ ������� �� ����� �� �� ������ ������ ������ �������� ����� ���� ������ ������������ �� ��������� � � ������ �� �� ����� �� ��������� ��������� ���� ������ ��� ������ � � �������� � �������� � �������� � �������� ��������� � table 2: comparative structure of the main models (servingy and renault, 2004) the kmv portfolio manager model was introduced by the kmv corporation, which specializes in credit risk analysis. the expected frequency, i.e. probability of default, is a function of a company’s capital structure, the level of volatility of return on assets and the current value of the company’s assets. the process of default is seen as a result of the deterioration of the debtor’s assets value. the first step is the assessment of the market value and volatility of the company’s assets, followed by the calculation of the time distance to the moment of default. in the third phase, the time distance to default is balanced against the actual probabilities of default, using their own database of default (srvigny, 2004). creditrisk + was introduced into practice in 1997 by the credit suisse first boston (csfb) and is based on actuarial approach. this means that when measuring credit risk, historical rates of default which are recorded by the statistics for different classes of loans are used, while the assumptions about causes of default are not used in this model. in addition, creditrisc + does not associate the risk of default with the structure of the company’s capital, ignoring changes in the prices of securities, as well as the movement of borrowers from one credit rating category to another. the essence of this model is defining the percentage number of debtors in a given sector who will be in a position to default and whether it will lead to a default at the level of the overall portfolio. the first phase measures the frequency of cases of default, while the second phase analyzes the distribution of losses during a default. table 3: strengths and weaknesses of main models (servingy and renault, 2004) 65 management 2014/73 � ������������ � ������� ���� ���������� ���� ������� �� ��� ���� ���� ����� �������� �������� ���� ������ � ������ �� �� ������� �������� � � ��� � � � � �������� � � ��� � � � � �������� � � ��� � � � � �������� �������� ������ ������ � ����������� �������� �� �� � �� � � ������ � � ������ � � ����� �� ����� � � ��� �� �� ��� �� � �� � ������������� � �� ���������� � ���� � � � � � �� ������� � � � ��� ���� � ���� ��� �� ���� � �������� �� ���� � ������ ������ � � ������� �������� � � ��� ���� � � in recent years, financing of smes has attracted a lot of attention and has become one of the main topics for economists and regulators who are working on economic and financial development strategies. one of the reasons for the great interest in this segment is the fact that most businesses are small and medium-sized, and they employ a significant number of people. in addition, practice has shown that it often happens that small employers eventually become large. the majority of banks have organized a special department for cooperation with the sme segment, not only in the field of credit, but in the light of the various advisory roles which banks can offer as one of their services. considering all the aforementioned, and for the purpose of achieving adequate profits with cost efficiency and minimizing credit risk, a bank first needs to define a strategy that corresponds to its capacity and the chosen market segment. successful banks are focusing on the structure of operations, human resources and software support, whereas risk management is an area where, due to its importance and complexity, constant improvement is required. in favor of further research on this subject, this paper frequently mentions that in spite of vigorous expansion of innovations in the financial services sector, credit risk is still the main reason for the insolvency of banks. the basel standards and central banks promote the importance of risk management and thus contribute to a higher quality of the investment environment, especially when it comes to developing countries. this is also corroborated by the models used to measure credit risk at the levels of financial instruments and total portfolio. however, the appropriate strategy, constant risk control, with an emphasis on credit risk, and business continuity are the backbone of the success of each bank. conslusion references [1] bartoli, f., ferri, g., murro p., & rotondi, z. (2013). sme financing and the choice of lending technology in italy: complementarity or substitutability? journal of banking & finance, 37, 5476–5485, doi:10.1016/j.jbankfin.2013.08.007 [2] beck, t., asli d.-k., & pería, m.s.m. (2008). bank financing for smes around the world: drivers, obstacles, business models, and lending practices. washington, d.c. world bank. [3] berger, a. n., frame, w.s., & ioannidou, v. (2011). tests of ex ante versus ex post theories of collateral using private and public information. journal of financial economics, 100, 85–97. [4] berger, a. n., udell, g. f. (2002). small business credit availability and relationship lending: the importance of bank organizational structure. economic journal, 112, 32–53. [5] berger, a., rosen, r., & udell, g. (2007). does market size structure affect competition? the case of small business lending. journal of banking and finance, 31, 11–33. [6] brannan, s., mengle, d., smithson, c., zmiewski, m. (2002). survey of credit portfolio management practices, report, rutter associates. [7] casey, e., o'toole, c. (2014). bank lending constraints, trade credit and alternative financing during the financial crisis: evidence from european smes, journal of corporate finance 27, 173–193 [8] chong, t., lu, l., ongena s. (2013). does banking competition alleviate or worsen credit constraints faced by smalland medium-sized enterprises? evidence from china, journal of banking & finance 37, 3412–3424 [9] chong, t., t. l., lu, l., & ongena s. (2013). does banking competition alleviate or worsen credit constraints faced by small and medium-sized enterprises? evidence from china. journal of banking & finance, 37, 3412-3424. doi:10.1016/j.jbankfin.2013.05.006 [10] dabić s., vasiljević b., barjaktarović rakočević s., milošević n. (2013). bankarski menadžment, fakultet organizacionih nauka, p. 135. [11] de servingy, a., renault, o. (2004). measuring and managing credit risk, the mcgraw-hill companies, inc., isbn-13: 978-0-07-141755-6 [12] enterprises access to finance. (2001). commission staff working paper. commission of the european brussels. p. 53. [13] fredriksson, a., moro, a. (2014) bank–smes relationships and banks’ risk-adjusted profitability, journal of banking & finance 41, 67–77. [14] greuning van h., s. brajovic – bratanovic. (2003). analyzing and managing banking risk, second edition, the world bank, pp. 135-136 [15] hanedar, e. y., broccardo, e., bazzana, f., (2014). collateral requirements of smes: the evidence from less-developed countries, journal of banking & finance, 38, 106–121, doi:10.1016/j.jbankfin.2013.09.019 [16] lewicki, r.j., mccallister, d.j., bies, r.j.(1998). trust and distrust: new relationships and realities. academy of management review 23, 438–458. [17] menkhoff, l., neuberger, d., & rungruxsirivorn, o. (2012). collateral and its substitutes in emerging markets’ lending. journal of banking and finance, 36, 817–834. [18] moro, a., fink m. (2013). loan managers’ trust and credit access for smes. journal of banking & finance 37, 927–936. [19] niinimäki, j. p. (2009). does collateral fuel moral hazard in banking? journal of banking and finance, 33, 514–521. [20] nooteboom, b., berger, h., noorderhaven, n.g. (1997). effects of trust and governance on relational risk. academy of management journal 40, 308–338. [21] ryan, r. m., o’toole, c. m., & mccann, f. (2014). does bank market power affect sme financing constraints? journal of banking & finance, doi:10.1016/j.jbankfin.2013.12.024 [22] shen m., shen, y., xu, z., bai y. (2009). bank size and smalland medium-sized enterprise (sme) lending: evidence from china, world development, vol. 37, no. 4, 800–811. [23] srvigny, de a., o.renault. (2004).measuring and managing credit risk, mcgraw – hill, new york, p. 62. [24] torre, a., pería m. s. m., & schmukler, s. l. (2010). bank involvement with smes: beyond relationship lending. journal of banking & finance, 34, 2280–2293. doi:10.1016/j.jbankfin.2010.02.014 [25] voordeckers, w., steijvers t. (2006). business collateral and personal commitments in sme lending, journal of banking & finance, 30, 3067–3086. [26] world bank (2010), the sme banking knowledge guide, international finance corporation, washington, d.c.: world bank. receieved: september 2014. accepted: november 2014 66 2014/73management 67 management 2014/73 about the author nela milošević university of belgrade, faculty of organizational sciences nela.milosevic@fon.bg.ac.rs nela milošević is a researcher at the faculty of organizational sciences, university of belgrade. her main fields of interest are financial management, accounting and bank management. she gained professional experience through a number of national and international research projects and case study competitions. slađana barjaktarović rakočević university of belgrade, faculty of organizational sciences sladjana@fon.bg.ac.rs slađana barjaktarović rakočević is associate professor at the department of financial management , faculty of organizational sciences, university of belgrade. her main fields of research interests are financial institutions management, financial markets, performance measurement and managerial accounting. she was a visiting lecturer at the university of maribor and also was on study visits in the united states, at the university of illinois and at the new york stock exchange. she is also a chartered management institute-approved trainer (level 5/7). she is a licensed stockbroker in serbia. currently, she holds the position of vice-dean for international cooperation at the faculty of organizational sciences. sladjana is one of the editors of the international monograph „innovative management and firm performance an interdisciplinary approach” published by palgrave macmillan from the uk. nemanja milanović university of belgrade, faculty of organizational sciences nemanja milanović is a researcher at the faculty of organizational sciences, university of belgrade. his main fields of research interests are financial management and performance measurement. he gained international professional experience through a number of study and professional exchanges, national and international research projects. 02_slobodan miladinovic:tipska.qxd 15 slobodan miladinović university of belgrade, faculty of organizational sciences, serbia research into attitudes about social change and global models of governance* udc: 316.42(497.11) ; 316.324 doi: 10.7595/management.fon.2014.0023 xiv international symposium symorg 2014, 06 10 june 2014, zlatibor, serbia 1. introduction the beginning of the xxi century can be considered as the period of the third wave of democratization (huntington, 1991), the period characterized by an accelerated breaking up with authoritarian systems and the consolidation of democracy at the global level. the third wave was initiated in 1974 with the democratic changes in portugal and continues to this day. the process has been accelerating since the second half of the eighties. authoritarian regimes transit to a democratic form and parliamentary elections become freer and more open. the number of countries in which the democratic electoral system evolves (multi-party parliamentary democracy) has more than doubled in the last three decades. it seems, at least when it comes to the beginning of the xxi century, that this is the age when democracy is, at least nominally, becoming a global political norm rather than one of the possible choice. but in the new democracies, as it is the case with us, it appears, as a general problem, that they still retain an authoritarian heritage since the democratic norms, values and practices still remain a great uncertainty for many actors of social change, starting with political and economic leaders, political parties, civil society associations and the ordinary citizens. it takes time for people to adapt and accept democracy as a form of global management and government of the state and society. so, in order for democratic systems to be functional, it is important to understand how the citizens themselves perceive their functionality among other things, e.g. if they are satisfied with the situation and whether they support democratic process and democratic institutions. hence no wonder that the new democratic society has a lot of problems on its way to democratization. the aim of this paper is to determine the extent to which serbian citizens support the democratic system and democratic institutions, e.g., the extent to which people experience democracy as the optimal form of global management. therefore, we conducted a survey of social attitudes of citizens relating to the acceptance of democracy as a system of global management, their attitude towards social changes and issues such as whether the social subject should be managed by the state. management 2014/72 this paper presents the results of the empirical research “cultural orientation of actors/students, interethnic relations, national identity and the culture of peace in the balkans” performed within the macro project “tradition, modernization and national identity in serbia and the balkans in the eu integration process” (179074). they are related to attitudes about democracy, social change and global management. the key issue of the research is how people perceive the functionality of democracy, whether they are satisfied with the situation and whether they support the democratic processes and democratic institutions. from the findings we can see that the authoritarian legacy consciousness burden the citizens of serbia greatly, and in particular the examined population university students. confirmation of this was seen in the finding that the majority of respondents believe that the best global management model is technocracy. this leads us to the conclusion that our society does not have a fully developed and mature political culture yet since the people are still inclined to accept (personalized) authorities that are ultimately reflected in the state and the holders of state power rather than citizens and their associations. keywords: change, democracy, technocracy, authoritarianism a variety of factors affect citizens’ satisfaction with the democratic process (mcallister, 2008). one of them relates to the institutional aspects of democracy. this is especially true when it comes to whether the elections can provide representation of their will in the establishment, and whether the quality of the electoral process can be ensured, which will be reflected in the effects of the election activities of citizens. second, the support for the democratic system takes into account the responsibility and performance of the system, i.e. whether the system is effective in providing good management as well. it should be taken into account whether the occasional and temporary convergence of political parties in order to create coalitions limits the citizens’ choice. third, the consequences of political participation and political involvement of the citizens to political efficacy are important. here will be analyzed the results of the empirical research “cultural orientation of actors/students, interethnic relations, national identity and the culture of peace in the balkans” performed within the macro project “tradition, modernization and national identity in serbia and the balkans in the eu integration process” (179074) organized by the centre for sociological research, faculty of philosophy, university of niš, which is financially supported by the ministry of education and science of the republic of serbia. the study was a survey and was carried out in the areas of south and southeastern serbia (summer 2013) on a sample of 818 students of the university of niš. the sample is proportional to the composition of students and includes three groups of students: (1) students of social sciences and humanities, (2) students of technical and technological sciences and (3) students of medical and natural sciences and mathematics, by years of study and educational institutions. 2. survey data analysis the decades-long crisis affecting the serbian society has endangered the stability and functionality of the society to the extent that the issue of fundamental social transformation has become a development imperative. of course, there may be different types and different political contexts in which transformation may take place. today, the broader public often raises the question whether it is better for our society to establish a democratic or an authoritarian form of political organization. of course, this is a false dilemma considering that the current social practice has shown that democracy has many advantages over other forms of political organization. every form of authoritarian government favours particular social subjects to the detriment of some others while democracy strives to articulate different interests. of course, democracy may have specific problems and go through developmental difficulties and even “children’s diseases” but at the end of the development path, however, it shows socially favorable results which in general cannot be said for various forms of authoritarian government. revisiting the concept of political power often corresponds to the dominant value patterns in the society among which we will emphasize the global type of national culture and within it the issue of organizational and political culture as particularly important. (mojić, 2010). unfortunately, the society of serbia has in recent history been dominated by patriarchal and traditional cultural patterns within which authoritarianism (kuzmanović, 1994, 1995) and nationalism (miladinović, 2006, 2007; popadić, 2010) play a particularly significant role. in many respects this context has dictated the type of organization and political culture and attitude towards work cultivated in our society. it is no coincidence that the personal authorities were easily accepted in these areas and cults of leaders were built on the basis of them (kuzmanović, 2010). rather than democratic solutions characterized by the free elections and a parliamentary form of government there are often present personal authorities who frequently promoted populism and hid themselves behind the idea of technocracy in the public arena. the essence of a technocratic government, which is supposed to represent the rule of experts, is that they, despite their expertise, are not politically neutral as regards general benefit, but they support various authorities and their ideologies and interest clans. authoritarianism as a value framework and personal power as a political practice are firmly coupled with the demagogic action present in parallel demagogic rhetoric and concrete action designed to satisfy lowly passions, and launch the broad masses support (stojanović, 2011). authoritarianism, the cult of leaders and demagogic actions rendered masses as inarticulate subjects easy to manipulate. in such circumstances, the power of the mass gives legitimacy to the leader and their will is seen as the general will. it has long been known that when ideas controlling the masses become the driving force, they can fundamentally change the social circumstances. the key problem is that the charismatic 16 2014/72management leaders with a skillful manipulative rhetoric present their ideas as ideas of the masses and thus get an enormous social power that is presented as a legitimate political will of the people and their every move is seen as the fulfillment of the people’s will (miladinović, 1994). the recent political history has shown that every social crisis, whether economic or political, is an introduction to the period in which the leader has outgrown the society. the second world war and the period of revolutionary construction led to the cult of josip broz. after his death, the political crisis has brought several nationalist leaders in the political arena (bowman, 2004; denitch, 1996; miladinović, 1994):. ideological turmoil, in conjunction with the birth of a multi-party system, brought to the surface a large number of potential candidates who rely on their personal charisma and fight for the position of an undisputed leader of the nation. the period after the year 2000 is a period of temporary calm. it seemed that the leaders have gone to history, and the vacuum is filled with new social and political patterns. however, the crisis at the end of the first decade triggered the citizens of serbia to turn again to personal authorities and give their support to the cult of personality at the beginning of the second decade of the twenty-first century. at this moment it is an unrewarding task to predict the outcome of the current social and political turmoil. what can only be argued about with certainty is that all the necessary conditions are created to establish the cult of the charismatic leader and his personal power. what will be achieved from this depends on a number of political, economic and cultural factors that set the tone of current events. table 1: to what extent do you agree with the following attitude: 17 management 2014/72 to what extent do you agree with the following attitude: s tr o n g ly d is a g re e ( 1 ) t e n d t o d is a g re e ( 2 ) n e it h e r a g re e n o r d is a g re e ( 3 ) t e n d t o a g re e ( 4 ) c o m p le te ly a g re e ( 5 ) m e a n s td . d e vi a ti o n n democracy may have its problems, but it is better than any other form of government 12.84% 11.60% 31.73% 28.89% 14.94% 3.21 1.210 806 undemocratic order is sometimes better and more efficient than democratic order 14.88% 15.62% 39.24% 19.19% 11.07% 2.96 1.178 806 democracy is the same as anarchy 29.19% 24.26% 30.54% 9.85% 6.16% 2.39 1.177 806 for people like me it does not matter what kind of political system we live in 47.41% 13.92% 22.41% 8.13% 8.13% 2.16 1.318 806 with the aim to determine the tested population attitudes towards democracy we asked respondents to give their opinion as to which extent they agreed with the four statements (table 1): 1.democracy may have its problems, but it is better than any other form of government 2. undemocratic order is sometimes better and more efficient than democratic order 3. democracy is the same as anarchy 4. for people like me it does not matter what kind of political system they live in it turned out that the highest level of compliance exists as regards the first statement. even 43.83% of respondents believe that democracy is better than any other form of government, although it may have its problems. if we take into consideration the dominance of authoritarian patterns in the value structure of the society in serbia, this finding seems to be very favourable. however, it does not provide a developmental perspective of serbia. the problem is that one in four does not endorse this attitude and one in three does not have a clearly defined opinion on this issue. even among those who agree with this statement there is some caution about the claim that democracy is the best form of governing a society (28.89% tend to agree but only 14.94% completely agree). such a configuration of answers suggests that there is a poor subjective potential for adoption and development of democratic political ideas and system in serbia. the largest number of the respondents were reluctant to clearly articulate their attitude to the claim that the undemocratic order is sometimes better than the democratic one (39.24%). there is an equal number of respondents who either disagree with or support this statement (about 30%). within the structure of those who disagree with this essentially anti-democratic attitude, half of them reject it completely but the other half do it in general. this configuration of responses indicates that there is a very good potential for the acceptance of non-democratic forms of governing a society. this finding is not surprising given that previous studies have shown a very high presence of authoritarianism in the value structure of the population of serbia (kuzmanovic, 2010). if we specify the previous attitude and say that democracy is the same as anarchy, then we have a slightly more favorable response configuration. now willingness to defend democracy is shown by more than a half of the respondents (53.45% of which 29.19% completely) while 30.54% are indecisive. so, there are only 16.01% of those who directly admitt that democracy and anarchy can be equated. in the structure of those who equate democracy and anarchy are 6.16% of those who completely agree with this attitude. ultimately, this shows the potential for acceptance of extremist political organizations and their ideologies. this potential can be extended from the current six percent to a significantly higher number in times of crisis. moreover, here is a potential core for extremist forces first line support in any context of escalation of social conflicts and their transmission from parliament and factory halls to the streets. this number can grow in a short time and take on alarming proportions through skillful political manipulation and attempts to establish the cult of the charismatic leader, as it was seen in serbia and former yugoslavia in the nineties. the last statement, “for people like me it does not matter what kind of political system they live in”, expresses a political apathy. political apathy may be considered as an expression of saturation with political events or dissatisfaction expressed by citizens concerning the social perspective or inadequate party and electoral offer and the entire political elite (stojiljković, 2011) as the “lull before the storm“. in our case, only 16.26% of the respondents expressed a direct political apathy in supporting such an attitude. half of the number (8.13%) accepted this attitude completely. to this number may be added the 22.41% of those who do not opt, which makes the total of 38.65% of potentially apathetic citizens, i.e. those who might want to abandon any political activity. on the other hand, there is the majority of 61.33% of the respondents who do not accept political apathy as a way of personal relationship with the government of the state and society. an interesting finding is that almost half of the examined population completely rejects this claim. this means that there is a great potential for political activism in the serbian society, and that the citizens are very interested in the politics and political perspectives of the society. 18 2014/72management table 2: which of the following statements best describes your opinion: a democratic society is essentially a dynamic society. a dynamic society is a society that is willing and able to change itself quickly and create new forms of social behavior. of course, it is important to the changing of society that there are no subjective forces that would be carriers of changes. it is a common understanding that the younger and more educated, which includes our respondents, are more willing to accept and initiate social change. therefore, we offered them to choose an attitude that best reflects their relationship to a global social change (table 2). the offered attitudes exemplify the following orientations: a radical change (radical cut a revolution), a gradual change (reform), a resistance to change and the absence of change attitude. the modal response was that the society should completely change through a reform. so, five out of ten respondents accepted reform, gradual changes, as the best solution to the current social problems. on the other hand, one in four respondents thought that the best pattern of social change is a radical revolutionary action. the key difference between these two versions is the duration of the transformation process. while, on the one hand, the reform involves a long-lasting process, the revolution, on the other hand, implies a relatively short-term action. the revolution brings stormy and very dramatic changes almost as a rule while with the reform it is not necessarily the case. it is an interesting finding that even 7.75% of the respondents think that our society must fight vigorously against any changes. they advocate for the status quo, for preservinf the existing situation of social relations. we need to add 14.74% of those who declare that they cannot opt for any of the available variants. so almost 85% of students have a clear vision of the pace with which the social transformation is supposed to happen and more than a half are in favour of gradually changing the social relations. table 3: who in your opinion should manage the state: the respondents were also expected to give their opinion as to within which global government model changes should happen (table 3). they were asked asked the following question: “who should manage the state?” and the answers offered were standard variants of authoritarianism (strong leader who is not limited by parliament and elections), democracy (the government and parliament elected in free elections), technocracy (experts who know best what is good for the country) and militarism (the army). the answers are surprising. the modal response was based on the idea that the state should be managed by technocrats, i.e., experts who know best what is good for the state. technocracy as the best model of state government is adopted by more than half of the respondents (60.49%). 19 management 2014/72 which of the following statements best describes your opinion: the whole organization of our society must be radically changed (in revolutionary action) 25.31% our society must be completely changed through a reform 52.21% our present society must fight vigorously against any changes 7.74% i do not know 14.74% who in your opinion should manage the state: a strong leader who is not limited by parliament and elections 17.04% experts who know best what is good for the state 60.49% army 3.33% the government and the parliament elected in free elections 19.14% the second ranked was the answer that the best model of state management is a democracy, specified by one in five respondents (19.14%). authoritarianism is accepted by 17.04% and militarism by only 3.33%. thus, the technocratic model is three times more desirable than the democratic model of state management and government. here, in our example, we recognize the authoritarian heritage in accepting the authority of experts. the key disadvantage of the technocratic model compared to the democratic is that professionals are given the carte blanche confidence to make strategic decisions and the bulk of the population is excluded from the decision-making process. technocracy is a kind of the minority educated professionals tyranny over the majority of less educated members of a society. it should be noted that technocracy does not necessarily produce socially valuable results. it can be linked to any political or economic strength of society and can defend its own interests, or can simply take care about its own interests primarily. the point is that global politics should be left to the democratically elected government that will be able to articulate the interests of all stakeholders of civil society and ensure the protection of minority interests in the broadest sense of the word. experts should be left to perform the individual specific tasks that require professional competence and thereby achieve a socially valuable effect. but, as it were, a much more serious problem is that one in five respondents accept authoritarianism either in any form of government of a strong leader who is not limited by parliament and elections or in the form of militaristic government. in the next step (table 4) we crossed questions that show the attitude towards change and attitude that defines the optimal model of change. there is a statistically significant relationship (p = 0.000) of low intensity between these two variables (contingency coefficient c=0.23 and cramer`s v=0.13). a most frequently accepted combination is the one that connects the reformist view of social change with the technocratic model of governance. concretely, 65.3% of the supporters of reform course accept the technocratic model of governance as the best, or 56.4% of the supporters of technocracy accept the reform course. another cell of the table which contains interesting results is one in which even 58.1% of the supporters of the democratic model of governance accept the reform course of changes. of course, acceptance is not bidirectional, as only 21.4% of reformists accept democracy as the optimal model of governance. also interesting are the results in the row where supporters of revolutionary change (radical cuts) intersect given that more than half of supporters of radical change (56.4%) also preferred the technocratic model of governance, while on the other hand, only about a quarter of supporters of technocracy accept the radical changes. it is interesting that 44.3% of supporters of the status quo accept the government of technocracy. the table can also be viewed either in vertical columns or in horizontal rows only. if we look at the vertical columns, we see that, on the one hand, one third of the supporters of the authoritarian model of governance advocate the radical course and, on the other hand, the next third advocate the reform course. it is observed that within this group there is twice more of those who oppose any change (16.2% of supporters of authoritarianism to 7.6% of supporters in the general population). it is observed that within this group, the share of those who oppose any change is twice bigger (16.2% of supporters of authoritarianism to 7.6% of supporters in the general population). the supporters of the technocratic model are mainly directed towards the reform course (56.4%), while a quarter of them (23.6%) accept the radical cut. one third of the body of supporters of the militaristic model of governance prefer radical cuts (33.3%), a quarter of them prefer the reform change (25.9%), while the same number of them are undecided. it is interesting that those who do not have a clearly defined attitude toward the preferred dynamic of social change form a majority (25.9% compared to 14.9% of the total population) among the supporters of militarism. it seems that the militaristic attitude towards choosing a subject of change occurs as an expression of profound social hopelessness considering that a large number of supporters of this form of government either want quick, radical change or just do not know what would be good for the society, the state and the economy and it is in the army that they recognize the force that can bring order in the society. 20 2014/72management table 4: cross tabulation: who, in your opinion, should manage the state * which of the following statements best describes your opinion: it has already been noted that three fifths of the supporters of the democratic government model accept technocrats. it should be added that one in five believes that social problems can best be solved applying radical cuts. analyzed by horizontal lines we observe that technocracy is the modal choice of supporters of radical changes (56.4%). in addition to this, almost a quarter of them advocate an authoritarian model of governance. the presence of the acceptance of democracy and militarism in this group is significantly lower. two-thirds of reform-oriented respondents accept the technocratic model of global management and government, while only one-fifth of them accept a democratic model. other models of governance (authoritarianism and militarism) barely have supporters in this segment of the population. slightly less than half of the opponents of social change (44.3%) accept the technocratic model as the best model of governance, while more than a third of them (36.1%) support the authoritarian model of governance. the distribution of those who are indecisive as to which model of governance would be optimal is almost identical as in the general population. the only visible difference is related to the supporters of the militaristic model whose number is almost twice as high as in the total population (5.8%). 21 management 2014/72 who in your opinion should manage the state: which of the following statements best describes your opinion: a s tr on g le ad er w ho is n ot lim ite d by p ar lia m en t a nd el ec tio ns e xp er ts w ho kn ow b es t w ha t is g oo d fo r th e st at e a rm y th e go ve rn m en t an d th e pa rl ia m en t el ec te d in fr ee el ec tio ns total 23.5% 56.4% 4.4% 15.7% 100.0% the whole organization of our society must be radically changed (in revolutionary action) 35.3% 23.6% 33.3% 20.6% 25.3% 11.6% 65.3% 1.7% 21.4% 100.0% our society must be completely changed through a reform 36.0% 56.4% 25.9% 58.1% 52.2% 36.1% 44.3% 6.6% 13.1% 100.0% our present society must fight vigorously against any changes 16.2% 5.5% 14.8% 5.2% 7.6% 14.2% 59.2% 5.8% 20.8% 100.0% i do not know 12.5% 14.5% 25.9% 16.1% 14.9% 16.9% 60.5% 3.3% 19.2% 100.0% total 100.0% 100.0% 100.0% 100.0% 100.0% χ2=42,946 c=0,23 v=0,13 p=0,000 22 2014/72management references [1] barro, r. j. (1999): determinants of democracy. source: journal of political economy, vol. 107, no. s6 (december 1999), pp. s158-s183. [2] bowman, g. (2004): xenophobia, fantasy and the nation: he logic of ethnic violence in former yugoslavia in: v. goddard, j. llober & c. shore (eds.), anthropology of europe: identity and boundaries in conflict, pp. 143-171. london: berg. [3] denitch, b. d. (1996): ethnic nationalism: the tragic death of yugoslavia. minneapolis: university of minnesota press. [4] huntington, s.h., (1991): the third wave: democratization in the late twentieth century. university of oklahoma press, norman, ok. pp. 13-26. [5] kuzmanović, b. (1994): autoritarity in: lazić, m.(ed): society in crisis, beograd: filip višnjić; [6] kuzmanović, b. (1995): autoritarnost kao socijalnopsihološka karakteristika, u: društveni karakter i društvene promene u svetlu nacionalnih sukoba, priredili golubović, z., kuzmanović, b. i vasović, m. beograd: institut za filozofiju i društvenu teoriju i filip višnjić [7] kuzmanović, b. (2010): autoritarnost – vapaj za jakim i pouzdanim vođama i disciplinom, u: kako građani srbije vide tranziciju, priredio mihailović, s. beograd: friedrich ebert stiftung [8] mcallister, i (2008): public support for democracy: results from the comparative study of electoral systems project. electoral studies 27: 2. pp. 1-.4 conslusion now we can return to the question of how people perceive functionality of democracy, whether they are satisfied with the situation and whether they support the democratic process and democratic institutions. from the findings we can see that the authoritarian legacy burden the consciousness of citizens of serbia greatly, and in particular the examined population university students. the confirmation of this was seen in the finding that the majority of respondents believe that the best global management model is technocracy. this leads us to the conclusion that our society still does not have a fully developed and mature political culture since the people are still inclined to accept (personalized) authorities that are ultimately reflected in the state and the holders of state power rather than citizens and their associations. the technocratic system can be considered as a transitional form between classical authoritarianism, which may be embodied in personalized authority or in authoritarian institutions such as the army in a very limited context, and democracy which is represented in the government and the parliament elected in free elections. in this case it is masquerading as professional competence of their carriers so that it can be easily uncritically accepted as a system of governance which is better than authoritarian personnel governments or military administration in periods of turbulent social upheaval which also impairs the democratic nature of the social system at the same time. the problem is that a technocratic government is not the same as a democracy. the technocratic government and management of society is just one more model of authoritarian rule. the difference, in comparison with other authoritarian models, is that the technocrats hide behind the professional competencies, which may inspire some confidence, but it does not mean that there is an existential interest of experts to work for the common good. technocrats are not controlled by numerous mechanisms of broader social control backed by the citizens. technocrats are controlled by centers of alienated social power and they may be backed by a host of different authorities. the expansion of political freedom (democracy) has different effects on economic growth (barro, 1999). the positive thing is that democratic institutions enable the control of the government, which limits the potential of public servants to accumulate personal wealth or to pursue the unpopular policy. the disadvantage is that more democracy encourages the redistribution of income from the rich to the poor, and the growing power of different interest groups. therefore it can be considered that the net effect of the growth of democracy is uncertain. on the other hand, practice shows that economic development embodied in the higher standard of living promotes democracy. this relationship is clearly shown when a democracy is presented through the electoral rights and civil liberties and impact, and the living rate through the growth of gross domestic product per capita, access to primary education, narrowing the gap in education of male and female populations and the growing importance of the middle class etc. * this paper was written as part of the project ”tradition, modernization and national identity in serbia and the balkans in the process of european integration” (179074) which is implemented by the centre for sociological research, faculty of philosophy in niš, and funded by the ministry of education and science of the republic of serbia. [9] miladinović, s (2007). stanje nacionalne tolerancije u srbiji. u matejić, v. (ur). tehnologija, kultura, razvoj. str.164-173. beograd: udruženje „tehnologija i društvo“ institut „mihajlo pupin“ centar za istraživanje razvoja nauke i tehnologije.; [10] miladinović, s. (1994): fenomen vođe, gradina 1-2-3. [11] miladinović, s. (2006). pitanje socijalnih identiteta nacionalnih manjina i evrointegracijski procesi u srbiji. sociološki pregled, 2: 207-245. [12] mojić, d. (2010): kultura i organizacije: uticaj kulturnih pretpostavki, verovanja i vrednosti na organizacione strukture, sisteme i procese. beograd : čigoja štampa : institut za sociološka istraživanja filozofskog fakulteta. [13] popadić, d. (2010). put iz bratstva i jedinstva – etnička distanca građana srbije“, u mihailović, srećko (ur). kako građani srbije vide tranziciju, istraživanje javnog mnenja tranzicije, str. 105-121. beograd: friedrich ebert stiftung.; [14] stojanović, �. (2011): početak „rata harizmi” u ex-jugoslaviji: od institucionalne ka ličnoj harizmi slobodana miloševića. kultura polisa, god. viii (2011), br.15, str. 107-128. [15] stojiljković, z. (2011): politički kapital i kultura (ne)poverenja: slučaj srbija. u podunavac, m. (ur): ustav i demokratija u procesu transformacije, univerzitet u beogradu – fakultet političkih nauka, udruženje za političke nauke srbije, beograd. receieved: june 2014. accepted: september 2014. slobodan miladinović university of belgrade, faculty of organizational sciences, serbia slobodan miladinović, ph.d. in sociology, is professor at the faculty of organizational sciences, university of belgrade. he graduated in sociology at the faculty of philosophy, university of niš (1983), and earned his ph.d. degree at the faculty of philosophy, university of belgrade (1999). he is a member of editorial boards of two scientic journals: sociological review (sociološki pregled) and new serbian political thought (nova srpska politička misao). he has published six books and over one hundred articles in journals and anthologies. his major works are: elite raspada (elites of disintegration). službeni glasnik. belgrade. 2009; etnički odnosi i identiteti (ethnic relations and identities). fon. belgrade. 2008; društvo u raskoraku (society in discrepancy). nova srpska politička misao. belgrade. 2008; osnovi sociologije organizacije (fundamentals of sociology of organization). fon. belgrade. 2007; uvod u sociologiju organizacije (introduction to the sociology of organization). fon. belgrade, 2003. 23 management 2014/72 about the author 03_joze bencina:tipska.qxd 25 jože benčina, srečko devjak, lan umek university of ljubljana, faculty of administration determining the adequacy of operation of dmus in health care udc: 005.216.1:614.2(497.12); 005.31 doi: 10.7595/management.fon.2014.0031 balcor 2013, 07 – 12 september, 2013, belgrade – zlatibor, serbia 1. introduction the efficiency of the functioning of the public sector must be observed within the concept of adequacy, which is defined within the framework of public expenditure management as a quantitative construct, composed of three dimensions quality, accessibility and efficiency. the assurance of effective functioning of the health system and individual business decision-making units in health care is a complex process (system), where the requirements, data and information are transferred from the policy makers through the implementation of policies to the providers of programmes and projects and back. in the light of planning and monitoring the achievement of effective operation, there are several data and information levels at which various types of variables can be observed. the achievement of the set results depends primarily on: • clear and understandable definitions of the levels of quality and accessibility (standard), which may be achieved within the available resources and requirements in relation to the production volume; • efficient functioning of the units implementing the programmes or projects. the general challenge of adequacy is therefore the assurance of quality health care services that are equally accessible to all users and performed in an efficient manner. the decision makers in the area of care services must take into account all three dimensions of adequacy when considering the investments and costs of health care services. their task is to: • define the suitable measures of quality and accessibility or standards at the level of policy administrators, which are then implemented into the programmes and projects; • plan and ensure the efficiency of functioning. management 2014/73 the authors of the article deal with the quantitative analysis of results of the development of health care services. the aim of the article is to determine the key conditions for measuring the results of health system functioning and evaluation of its adequacy. the research question focuses on the method of measuring the operational efficiency of slovenian hospitals. the introduction defines efficiency within the concept of adequacy and its dimensions of efficiency, accessibility and quality. the empirical part of the article presents the use of the dea method for determining the adequacy of operation of hospitals on the basis of data on slovenian hospitals. it is apparent that the model for the evaluation of adequacy of operation of hospitals is suitable within limitations. the interpretation of results is hampered by inadequately structured data and non-transparent prices of hospital services. therefore, the results of the research indicate the direction in which the database should be developed to ensure greater comparability in a rather heterogeneous population of hospitals. furthermore, the authors point out that new indicators, reflecting the condition of the dimensions of adequacy, should be included in the model for the purposes of the evaluation of adequacy. on the basis of the results of the research, the question of implementing suitable methods of planning and controlling the adequacy of the functioning of health care into practice arises. keywords: dea, health care, adequacy, indicators, hospitals, efficiency. the article addresses the problem of determining the efficient functioning of the business decision-making units in the public sector by using the dea method in the example of the slovenian network of public hospitals. it tests the following statements: • the accessible data on the functioning of the slovenian health system are not suitable for a qualitative analysis of the efficiency of functioning of system units; • the dea method enables the construction of a model for examining the efficiency of the public health care units which provides applicable results in rather heterogeneous sets even with lower quality data; • the results of the model enable the analysis of functioning of individual units in relation to the highest performing units and the analysis of opportunities to improve the functioning of the system as a whole. the remaining content of the article is divided into four chapters. first, the concept and definition of adequacy of public expenditure are presented. next the basic definitions of data envelopment analysis are given. the empirical part presents an example of the use of the dea method in measuring the efficiency of the slovenian acute hospitals. the article ends with the interpretation of results and conclusions. 2. efficiency of functioning of public health care the discussion on the efficient functioning of public health care was set within the context of adequacy. the definition of adequacy of public health care can be developed over the definition of dimensions of performance in health care (basu, andrews, kishore, panjabi, & stuckler, 2012), adopted as a standard by the world health organisation (murray & frenk, 2001): • access and responsiveness (availability, timeliness, hospitality) • impartiality and equality (financial barriers of access to health care services, distributive justice); • quality (integrity of services, standards of management, diagnostic accuracy, retention of patients); • results (treatment success rate, population coverage (when performing actions), morbidity, mortality rate); • responsibility and transparency (accessibility and quality of data, public health functions, capacity for improvement); • efficiency (costs, redundancy, fragmentation, delays). the given six dimensions may be reclassified into the three dimensions above as follows: • accessibility (access and responsiveness, impartiality and equality); and • quality (quality, results and responsibility and transparency); • efficiency. the measure of operational adequacy is therefore composed of the measures of quality and accessibility (interval value with the optimal value in the middle of the interval) and measures of volume (interval value with the optimal value at the upper limit of the interval). according to farrell (farrell, 1957), the measure of efficient functioning of the public sector may be defined as a ratio between the outputs and inputs. public health care services are provided by public or private units for the provision of public services, hereinafter referred to as the business decision-making units epo. a unit operates effectively if it makes an optimal contribution to the outputs of the public sector as a whole. the measure of adequacy of public expenditure at the level of individual business decision-making unit is defined in the same manner as the measure of adequate functioning of the entire health system, whereby the relevant variables used for evaluating the results and expenditure should be taken into account in the calculations. health care costs are common scientific and research, as well as practical topics of various studies, which use different approaches, while significant efforts were made to prove that investments have substantial effects on health care. therefore, the analysis of time series of costs and results of health care is used at the macro level, and on the basis of a significant increase in health indicators, it is presumed that investment in health care is effective, which is also indicated by the future predictions (luce, mauskopf, sloan, ostermann, & paramore, 2006; murphy & topel, 2006). 26 2014/73management however, several authors reply to such a demonstration that while it is true that it may be presumed from the indicators used for proving the suitability of results of investments in health care that the results are suitable, these methods do not reveal whether the investments in health care are too low, adequate or too high. the fact that investments in health care on average produced positive results does not necessarily imply that the health system is efficient (frakt, 2012). thus, most of the persons involved agree that the funds in health care are not spent efficiently and that no link has been established between the increase in funds and the results. it is not known whether the allocation of resources between health care and other uses of public funds is efficient nor how much health we should be getting for the funds invested (baicker & chandra, 2011). the problem is that the benefits of various types of spending vary to a great extent. certain treatments aimed at a wide population of patients bring considerable benefits with a relatively low spending. certain other treatments have high values for individual specific patients and a low value for others. there is also a wide range of treatments which contribute to a rapid growth of spending of funds, while their health benefits are questionable. therefore, a more efficient distribution of spending offers great opportunities (baicker, chandra, & skinner, 2012). the purpose of the discussion on adequacy and efficiency in health care was to establish the necessity of measuring and ensuring the adequacy of spending of health care funds. in view of the responsibility for the results (ordinary operations – management, investment – owners), it is necessary to observe efficiency in terms of the optimisation of ordinary operations (contribution of management) and the optimisation of investment (contribution of owners) separately. the public health care system must operate effectively and efficiently within the challenge of adequacy. in this regard, the model for addressing efficiency analysis is crucial for addressing the complete adequacy. the model for addressing adequacy is an upgrade of the basic model of efficiency; however, the upgrade can be accomplished only on the basis of good, adequately structured data of the model of efficiency. 3. data envelopment analysis (dea) method the data envelopment analysis method is based on the concept presented by farrell (farrell, 1957) in his article on the problem of measurement of efficiency. his aim was to unify the methodology of measuring efficiency to make it more suitable for measuring efficiency of any production unit, from workshops to the economy as a whole. the measures of adequacy and efficiency of the public sector presented in the introduction represent such a model, adapted to the public sector. farrell’s approach is based on the analysis of activity, whereby the measure of efficiency is the ratio between outputs and inputs. initially, the concept was not widely applicable, since it was presented by farrell only on the example of an individual output and input. the method that put the farrell’s concept into operation was developed by charnes, cooper and rhodes (charnes, cooper, & rhodes, 1978), and the original example referred to the evaluation of public programmes, while the authors at the very start indicated the guidelines for using the method in the economic sector or engineering. the method is based on linear programming and measures the proportional efficiency of business decision-making units. the set of business decision-making units for treatment with the data envelopment analysis method can be defined rather freely. the business decision-making unit must offer the possibility of controlling the inputs and outputs, while units where the same variables can be used for evaluating the inputs and outputs can be compared with each other. the basic ccr (charnes – cooper – rhodes) model was a starting point for the development of several different models that take into account various assumptions and limitations. the ccr model is a constant return model and is for n business decision-making units (epo), of which each epoj uses m inputs xij (i = 1, …, m) and s outputs yrj (r = 1, …, s), written in the basic form as a ratio between outputs and inputs (charnes et al., 1978) in the form of a fractional program: 27 management 2014/73 ����� � � � � � � � � � � � � � � � � ��� � ������ � �� � �� � � ������� � � ������ (1) values yrj, and xij are given values of outputs and inputs, indicating past operating results. values ur, vi are variable weights, enabling each unit to be weighted for its optimal benefit function within the given limitations, determined by the values of variable y and x with all units. efficient units are those that reach the ratio 1. the definition is written in the input form; therefore, the proportionally inefficient units reach the ratio < 1. the transformation process, used for selecting the solution with the value of the denominator within the definition equalling 1 among all the solutions of the fractional program (14), enables us to write the problem (14) in the form of a linear program (cook & seiford, 2009): the consideration is the same as with (14), the measure of efficiency remains unchanged, whereas the weights are different; therefore, they are marked with greek letters µ and ν. by using the dual linear program, reference sets of business decision-making units are formed, so the problem is written also in this form: the result of the dual linear program (16) is the measure of efficiency and values of coefficients λj of linear combination of values of variables of efficient units, which represents the manner of operation of the observed epoo unit. thus, the manner of operation is expressed by the manners of operation of the group of reference units that determine the subspace of service possibility for the observed unit. the model is used to establish a convex refracting surface of optimal efficiency, a data envelope that includes efficient units, while the inefficient units are located above (input model) or below (output model) the envelope. the example of the output model was selected as the graphic representation of the method, since it is more easily understood than the graphic representation of the input model. the example of the network of slovenian hospitals was selected to demonstrate the model, and is analysed in detail also in the empirical part. one input and two outputs are used in the example: • input o scope of work of doctors (hours worked by doctors); • output o scope of work of acute treatment of patients – number of weighted comparable examples – hrgweight; o scope of specialist services – number of points of specialist treatment of patients – points. 28 2014/73management �� � ��� � ����� � � �� �� � � � � ����� � � � �� �� � �� � ��� �� � �� ���!��"� #$ (2) ������ ���� ��� � ��!�� " � #� �� � ��! � �� ��� � � ������ � #���� � ��! � ����$ � ������ � #���� � ��! � ����$ � ������ ���%&�% %�' (3) the scope of work of acute treatment of patients is measured using the methodology of diagnosis related group (drg) and equals the sum of all performed procedures. the scope of specialist points is a similarly weighted sum of all performed specialist examinations. in this manner, the graph of service capacity field may be presented with the calculation of relative outputs (figure 1). figure 1: service capacity field – output model the data envelope is a convex broken line, linking the efficient units. it links the unit with the maximum value of the first variable with the units of maximum combinations of both values to the unit with the maximum value of the second variables. the graph nicely illustrates the basic concept of the data envelope which is based on the assumption that units operate in an ideal ratio within the limitations, given by the operation of other units. the given example includes three efficient units, the unit with the maximum value of the variable on the x-axis (the rightmost unit), the unit with the maximum value of the variable on the y-axis (the uppermost unit) and the unit with the largest radial distance from the centre. inefficient units are classified within the service capacity field. these units could become efficient if they moved to the envelope along the line passing through the centre and the given unit. the measure of efficiency is the ratio between the lengths of lines from the centre to the unit in question and from the centre to the intersection with the envelope. this can be a point on one of the lines between two efficient units or, in a specific case, exactly one of the efficient units. the points on the envelope present the manner for an efficient operation of an inefficient unit, which is determined as the weighted sum of manners of operation of efficient units that determine the section of the envelope, where the point of efficiency of a selected unit is located. the manner of operation of an inefficient unit, where the extended line from the centre to the unit falls exactly into one of the efficient units, is identical to this comparative unit. the data envelopment analysis method brought the possibility of comparison and competition between the public sector units, which are generally limited in marketing (selling prices, target groups of customers, market share); therefore, their competitiveness must be expressed in the quality and efficient use of given resources. 4. results of the model the model was designed using the data envelopment analysis (dea) method. the frontier analyst (fa, 2011) software was used to process the data. the model includes five variables, two inputs (the work of doctors (wd) and the scope of care (c)) and three outputs (the number of points for specialist examinations 29 management 2014/73 – points, the sum of weights of groups of acute treatment (diagnosis related group) cases – drg and the number of inpatient hospital care days – id (table 1). table 1: scope of health care services and used scope of health care professionals since this is an environment where it is more difficult for the units to have an impact on outputs (the scope of services depends on the contract with the health insurance institute of slovenia, while the share of marketing activities is very small), we chose the input model. the efficiency of the units may be analysed under the assumption of constant or variable returns to scale. this example is limited to the constant returns to scale due to practical reasons; however, a comprehensive model for addressing efficiency should take into account also the analysis under the assumption of variable returns to scale. table 2: results of comparison of units with the dea model 30 2014/73management � ��� ����� �� ���� � �� � �� � �� ��� �������� ������ ������� ����� ������ ��� �������� ������ ������� ���� ����� ��� ������� ������ ������� ���� ����� ��� �������� ������ ������� ����� ����� ��� ���������� ������� �������� ������ ������ ��� ���������� ������� ������� ����� ������ ��� ���������� ������� ������� ����� ������ ��� ���������� ������� �������� ����� ������ ��� �������� ������� �������� ����� ������ ���� ���������� ������� �������� ����� ������ ���� �������� ������ ������� ����� ������ ���� ���������� ������� ������� ����� ������ ���� �������� ������ ������� ����� ����� ���� ���������� �������� �������� ������ �������� ���� ���������� ������� �������� ������ �������� � ��� ��� ��� ��� ��� � � �� �� �� �� � ���� ��� ��� ����� ������ ������ ����� ���� ���� ����� �� ��� �������� ���� ���� ����� ��� ����� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ������ ��� ����� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ������ ��� ����� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ������ � � ����� ����� ����� ���� ���� ���� ����� ������ ���� ���� ����� � ����� ��� ����� ����� ������ ���� ���� � ��� ��� � ������ ���� ���� ������� ����� ��� ����� ������ ������ ���� ���� ����� ����� ������ ���� ���� ������� ����� ��� ����� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ������ ��� ����� ����� ����� ����� ���� ���� � ��� ������ �� � ��� ������ ���� ����� ���� ����� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ������ ���� ����� ������ ������ �� � ���� ���� ����� ������ ����� ���� ���� ����� ���� ����� ����� ����� ���� ���� ���� ����� ���� � ���� ���� � ��� ����� ���� ����� ����� ����� ���� ���� ���� ����� ��� � ���� ���� ���� ����� ���� ����� ������ ������ ���� ���� ����� ������� ������� ���� ���� ������� ����� �� � ����� ������ ������ � ��� ��� ���� � ���� ������� ���������� ��� �� ���� ����� � key: eo – efficiency, dj – shares of required changes in the variable j, rj – absolute values of required changes in the variable, dj, j = 1, 2, 3, 4, 5 – variable codes: d1 wd – work of doctors, d2 wc – scope of care, work performed by medical personnel, d3 points – number of specialist points, d4 drg-weights – sum of weighted healthcare resource group cases of acute treatment, d5 – icd number of hospital care days. the analysis of the results of the selected data envelopment model will start with the review of the efficiency level which indicates the share of inputs that the units are allowed to spend to become efficient. this is followed by a short description of how this fact affects individual variables. from the perspective of the administrator of the entire system, the most important units are those with the greatest deviations in absolute value, regardless of the efficiency level demonstrated; therefore, the group of units with the greatest opportunities for improvement will be observed separately. the results for this part of the analysis were obtained with the frontier analyst software by using the “data export” function. with units, which offer the greatest opportunities for improvement, a set of equivalent efficient units determining the subspace of service capacities for the selected unit will be presented. the results for this part of the analysis are obtained with the “report” function. according to the efficiency level (e0), the analysis highlighted five efficient units (e2, e3, e4, e8 and e10). five units form a group with the efficiency level between 0.90 and 1.00 (e5, e6, e9, e12, e13). the inputs in these units are up to 10 percent higher than in the efficient units in relation to the outputs. {citation}units e7 to e11 include excessive inputs by 10 to 20 percent, while the surplus of inputs in three units (e1, e14 and e15) exceeds 20 percent. when considering the required improvements, two manners of unit behaviour should be taken into account. the units within the service capacity field, determined by the efficient units, whereby the limitations for all variables in the dual linear program are fully used (no unused limitations are formed), can reach the pareto-koopmans efficiency (without any variables with unused limitations) (cooper, seiford, & tone, 2007; koopmans, 1973) with the unchanged ratio between the variable values (radial shift on the envelope). the units outside the service capacity field include unused limitations. these units can become technically efficient (eo = 1) if they reduce the inputs for the share, determined by the efficiency level; however, they can achieve the pareto-koopman efficiency only if they change the ratio between the variable values, since they must reduce/increase the value of the variable that does not utilise the limitation. when dealing with results, this means that the required proportional changes in the units which can fulfill the conditions for the pareto-koopman efficiency amount to e0-1 for all the variables under consideration (for inputs in the input model and for outputs in the output model). in this manner, units with unused limitations can achieve only technical efficiency, whereas in order to achieve the pareto-koopman efficiency, they must also compensate for the unused limitations. the review of the results shows that all inefficient units display at least one output variable with unused limitations, which is indicated in table 2 as the share of improvement in columns d3, d4 or d5, unequal to zero. the shares of improvement with input variables (d1 and d2) differ only with the unit e6, where the share of required improvement with the care variable is larger than e0-1 by the share, represented by the balancing of the unused limitation. therefore, the plan to achieve efficiency for the least efficient unit e14 could be written as: 1. reduce the scope of work of doctors by 31.9%; 2. reduce the scope of care by 31.9%; 3. increase the number of hospital care days by 11.9%. from the perspective of the system operator, the data on absolute values of opportunities for improvement are in any case more important, since his aim is to improve the efficiency of the entire system. on the basis of data in columns r1 to r5 in table 4, it may be concluded that the units with significant opportunities for improvement are e1 (deviation in the scope of care (r2) and number of points (r3)), e14 (deviation in both inputs (r1 and r2) and in the number of hospital care days (r5)) and e15 (deviation in both inputs (r1 and r2), in points (r3) and in hrg-weights (r4)). 31 management 2014/73 the final part of the discussion of the results of the data envelopment analysis method includes the presentation of the point of efficiency for the inefficient unit on the basis of linear combination. in this manner, the inefficient unit can consider its relation with efficient units with equivalent service models. the operation of the hypothetically efficient unit e14 can be defined with three equivalent units (the values of coefficients in linear combination are the result of the dual linear program (16)): therefore, the target value for the variable wd (work of doctors) is: thus, unit e3 contributes 26.5%, e4 34.7% and e10 38.8% to efficient unit e14 in the input variable wd. the presented manners of handling the phenomenon with the data envelopment analysis method are just part of the possible areas of observation. in any case, we usually do not have reliable data, suitable for a substantial discussion, in the first phase of the use of the model; therefore, the first step of such studies is the analysis of data relevance. in our example, the problem of inconsistent data on the scope of work and data on the scope of services is what stands out the most, since the scope of work also includes the time that was not allotted to services covered in the model. the analysis of the efficiency level and opportunity for improvement allows us to determine both the position of individual unit compared to others and the manners and scope of required improvements. the analysis of unused limitations and groups of equivalent unit can be applied to present a detailed image of the service models used by the units within the system. similar to all methods of comparison, the data envelopment analysis method sets limits on the basis of given values and is therefore a tool for exerting constant pressure on increasing the efficiency of the system functioning. it is important that this method provides us with an insight into the service models used by the system units, so we can monitor and direct the achievement of efficiency within the various service models. 32 2014/73management �)�* +/�0-�*�-. +)��)�./ +-0�� � �������1��0��.*�) � 1//�) conslusion the article introduced the general definition of effective functioning of the public sector into the environment of health care. the review of literature showed that attempts are still being made to prove that the health care system in the present form is efficient; however, it is obvious that the assurance of adequacy of the health care system is a key task of both decisionmakers and providers of programmes and projects. the presented example shows that the development of activities cannot be measured with absolute indicators, but only in a relative manner. quality decision-making can be achieved by subsystems only on the basis of information, the key to success being the accessibility of data and the use of suitable methods. unfortunately, policy administrators are not aware of their responsibility for the functioning of the system and do not understand that for the purpose of development of policies and achievement of effective functioning it is necessary to ensure quality data at the micro level and, by comparing the implementing unit, determine which units are efficient and which are inefficient and why. %&'( � �)�* +%, � �*-�. +%' �).�/ +%&� references [1] baicker, k., & chandra, a. (2011). aspirin, angioplasty, and proton beam therapy: the economics of smarter health care spending. v jackson hole economic policy symposium (let 41). pridobljeno od https://testing.kansascityfed.org/publicat/sympos/2011/2011.baickerandchandra.paper.pdf [2] baicker, k., chandra, a., & skinner, j. s. (2012). saving money or just saving lives? improving the productivity of us health care spending. annual review of economics, 4(1), 33–56. doi:10.1146/annureveconomics-080511-110942 [3] basu, s., andrews, j., kishore, s., panjabi, r., & stuckler, d. (2012). comparative performance of private and public healthcare systems in lowand middle-income countries: a systematic review. plos med, 9(6), e1001244. doi:10.1371/journal.pmed.1001244 [4] charnes, a., cooper, w. w., & rhodes, e. (1978). measuring the efficiency of decision making units. european journal of operational research, 2(6), 429–444. doi:16/0377-2217(78)90138-8 [5] cook, w. d., & seiford, l. m. (2009). data envelopment analysis (dea) thirty years on. european journal of operational research, 192(1), 1–17. doi:16/j.ejor.2008.01.032 [6] cooper, w. w., seiford, l. m., & tone, k. (2007). data envelopment analysis: a comprehensive text with models, applications, references and dea-solver software. springer science & business media. [7] farrell, m. j. (1957). the measurement of productive efficiency. journal of the royal statistical society. series a (general), 120(3), 253–290. doi:10.2307/2343100 [8] frakt, a. (2012, februar 8). the value of health care | the incidental economist. pridobljeno od http://theincidentaleconomist.com/wordpress/value-of-health-care/ [9] koopmans. (1973). activity analysis of production and allocation. yale univ pr. [10] luce, b. r., mauskopf, j., sloan, f. a., ostermann, j., & paramore, l. c. (2006). the return on investment in health care: from 1980 to 2000. value in health, 9(3), 146–156. doi:10.1111/j.15244733.2006.00095.x [11] murphy, k. m., & topel, r. h. (2006). the value of health and longevity. journal of political economy, 114(5), 871–904. doi:10.1086/508033 [12] murray, c., & frenk, j. (2001). world health report 2000: a step towards evidence-based health policy. the lancet, 357(9269), 1698–1700. doi:10.1016/s0140-6736(00)04826-1 receieved: may 2014. accepted: september 2014. jože benčina university of ljubljana, faculty of administration jože benčina, phd, is associate professor at the faculty of administration in the field of economics of the public sector. his research includes methods for the measurement of the public sector performance and methods for the optimisation of decision making in the public sector with the use of fuzzy logic. within his research, he developed and applied special models, such as decision making model for local governments, balanced scorecard for the public sector based on the model of fuzzy aggregation trees and indicators of investment efficiency in healthcare. 33 management 2014/73 about the author srečko devjak university of ljubljana, faculty of administration s.devjak@gmail.com srečko devjak gained more than twenty years of experience in the field of quantitative analyses as a consultant in central slovenian consulting institutes and companies in the field of economics and organisation in entrepreneurship. from 1992 to 2013, he was employed at the university of ljubljana as a higher education lecturer for the field of quantitative analyses and optimisations. for several years, he was the dean and vicedean at the faculty of administration, where he focused on the field of management, quality and partnership of higher education institutions. he lectures at various european universities and institutes as a visiting lecturer. he is now the dean of the mlc college of management and law ljubljana lan umek university of ljubljana, faculty of administration lan umek, phd, is a teaching assistant at the faculty of administration in the field of economics of the public sector where he holds practical work classes in statistics and quantitative methods. he obtained his bsc degree in mathematics in 2005 and his phd degree in statistics in 2011 at the university of ljubljana, faculty of mathematics and physics. his research includes subgroup discovery methods, data mining and other optimization approaches in biological (wine production, genotype-phenotype associations) and administrative sciences (quality of governance, eu countries, questionnaire analysis). 34 2014/73management # 04 24_1 krstic:tipska.qxd 33 miroslava krstic¹*, vladimir obradovic², zorica terzic supic³, dejana stanisavljevic³, jovana todorovic³ 1 national health insurance fund, belgrade, serbia 2 university of belgrade, faculty of organizational sciences, belgrade, serbia 3 university of belgrade, school of medicine, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(1) motivational factors of employees in health care institutions in serbia doi: 10.7595/management.fon.2018.0022 abstract: 1. introduction experiences from the past show that motives for work, action and other behaviour of individual or employee can be different. motivated individuals achieve better performance, and the organization with such individuals has a higher efficiency (ojokuku & salami, 2011; lazaroju, 2015). it is considered that three conditions must be fulfilled in order that the employees be motivated: sense of purpose, sense of responsibility, and knowledge of the results (sindik, tvarog & globočnik žunac, 2013). there is a strong link between health care workers motivation and the quality of health care (top, akdere & tarcan, 2015). leadership is often called guidance. it is a process in which a guide (leader) influences the group/team to fulfill the set goals (northouse, 2012). the job of managers is not simple since people’s reaction to change is different. they must fight employees’ resistance with a clear strategy, vision, and direction (robinson & rose, 2004). *corresponding author: miroslava krstic, e-mail: miroslavakrstic@hotmail.com reserarch question: this paper investigates whether motivational factors have influence on the work of employees in health care organizations of serbia and what factors affect employees. motivation: motivation and job satisfaction among different groups of workers in health care facilities in serbia are an important issue. this study’s purpose is to assist health managers in their efforts to fulfill individual and organizational targets by highlighting the most preferred motivational factors among the employees. with good leadership and with the building of good motivational system the organization can increase its value and competitiveness. it has been shown that employees are more motivated and work under less stress if there is a support from their leader or manager (jensen, 2010). idea: the core idea of this paper is to evaluate the relationship between motivational factors and work of employees in health care institutions in serbia. the central hypothesis of this study is what the managers within health care institutions have to do to improve motivation as well as their abilities for the fulfillment of both individual’s and organization’s needs. data: the cross-sectional study included 217 physicians, nurses, technicians, health associates and non-medical staff in 21 facilities of primary, secondary and tertiary levels in pozarevac, belgrade, nis, pirot, novi sad, zrenjanin, krusevac, varvarin and novi pazar. tools: the research instrument was a questionnaire with questions regarding socio-demographic characteristics, participants’ characteristics and motivational factors. the data were analyzed using descriptive and analytical statistics.findings: the most important motivational factors are: salary, good interpersonal relationships and team work, contribution to population’s health and patient’s satisfaction. around 10% of the participants thought that work could be done well even without motivational factors’ presence. employees from the areas outside belgrade rated job security higher in comparison with employees from belgrade. a study conducted at the university of llorin teaching hospital in 2011 showed that salary was the most important motivational factor, followed by job security (ojokuku& salami, 2011). contribution: salary is an important motivational factor for employees in health care facilities in serbia. managers should work on the improvement of motivational factors through acknowledgement of needs of individual employees as well as through involving employees into decision making. key words: management, motivation, motivational factors, salary. jel classification: i12, i19 the process of inspiring human activity, directed to fulfillment of certain goals is called motivation. motivation is presented with forces which cause the behaviour that leads to fulfillment of set goals (miljković, 2007). the job of a leader and manager is to develop the feeling of common goal among all employees. it is also to liberate a creative potential of an employee through both tangible and intangible incentives. with good leadership and with building of good motivational system the organization can increase its value and competitiveness. it has been shown that employees are more motivated and work under less stress if there is a support from their leader or manager (jensen, 2010, loi, ao & xu, 2014; kim & barak, 2015), but also from co-workers (tafvelin, hyvonen and westberger, 2014). reward can be both material (de gieter & hofmans, 2015) and moral (kamasheva, valeev, yagudin & maksimova, 2015), and consequently, motivation can be moral or material. this is the reason why leaders must work on motivational factors and employees’ needs, as well as on environmental changes. moral motives can also be called collective motives, which is specific for team work in health-care, while the material ones can be called personal (barney & griffin, 1992). studies on employees’ motivation have always been a frequent research topic (iliopoulos & priporas, 2011). motivation cannot be examined separately (bonenberger, aikins, akweongo & wyss, 2014), but must be observed through determinants and outcomes (dieleman, gerretsen b & van der wilt, 2009; willis-shattuck, bidwell, thomas, wyness, blaauw & ditlopo, 2008; lu, barriball zhang & while 2012). studies conducted in serbia so far have not focused on leadership and motivation, including motivational factors of employees in health-care. there have been few studies on motivation and satisfaction of health care professionals conducted in serbia, in primary health care centres and hospitals (djordjevic, petrovic, vukovic, mihailovic & dimic, 2015; stoiljković, 2012). researchers also examined the differences in motivation between health care workers in private and public sectors (babic, kordic & babic, 2014). these studies examined motivational theories, but not motivational factors, leadership and motivation. considering that employees in health care facilities in serbia usually cannot be motivated materially, it is leaders’ responsibility to find motivational factors, to inspire individuals to work in order to achieve the organization’s goals. patients’ satisfaction can be a motivational factor (judson, volpp & detsky, 2015). in that case, patients’ satisfaction can be considered as a multidimensional quality indicator, depending on the structure and processes in health care delivery, as well as on the characteristics of the patients, etc. (vojvodic, terzic-supic, santricmilicevic, wolf, 2017). on the other hand, in the present circumstances, health care facilities are not competitive, which is also a challenge for managers and leaders (ojokuku & salami, 2011). the aim of this study was to examine the motivation of employees in public health care facilities in serbia in the achievement of organizational goals, as well as in leaders’ ability to find possibilities for improvement of motivational processes and fulfillment of needs of individuals and the organization. 2. methods the cross-sectional study was conducted between june 2014 and february 2015 which included 217 physicians, nurses, technicians, health associates and non-medical staff in 21 facilities of primary, secondary and tertiary levels in pozarevac, belgrade, nis, pirot, novi sad, zrenjanin, krusevac, varvarin and novi pazar. there were 7 primary health care centres, 5 general hospitals, 1 public health institute, 1 city institute for urgent medical care, 2 clinical centres, 1 clinical-hospital centre, 1 clinic, 1 institute and 2 specialist hospitals. the sample of these 21 institutions was selected randomly in order to cover different regions in serbia and different types of health care institutions. the research instrument was a questionnaire, based on similar research (steven, 2000). the participants were informed about the research aims and informed that the questionnaire was anonymous. the participants gave their oral consent for the research. it took them around 10 minutes to fill in the questionnaire. the first part of the questionnaire included five questions on socio-demographic characteristics: sex, age, residence, educational status, and profession. the second part was related to motivation and included three questions: motivational factors which influence the work and contribution of every participant most: level of job satisfaction; level of satisfaction with salary and level of satisfaction with personal career opportunities. the third part of the questionnaire included nine questions related to whether only material or only nonmaterial factors influence the job well done and job devotion; or that participant would show better work results if they were better motivated or if managers fulfilled their promises. data analyses were conducted using methods of analytical and descriptive statistics. descriptive statistics was used in the analysis of absolute and relative numbers, average and median values, standard deviations and confidence intervals. statistical significance of differences based on age, sex, health care facility, job 34 miroslava krstic, vladimir obradovic, zorica terzic supic, dejana stanisavljevic, jovana todorovic 2019/24(1) position, education, job experience, type of job and residence was examined using hi-square, mannwhitney and kruskal-wallis tests. the average score was shown on scale 1 to 5. the significance was set at 0.95 (95%) with 0.05 error margin. the spss 20.00 software was used for the analyses. 3. results almost two thirds of the participants (63.6%) were females, while 36.4% were males. the highest proportion of the participants was in the age group of 37 to 42 year olds (24.9%) while the lowest was in the age group of 19 to 24 year-olds (0.9%). the highest proportion of the participants lived in belgrade (33.8%). the proportion of employees from primary health care centres was 42.9%, that from general and specialist hospitals amounted to 32.7%, while 24.4% of the participants worked in the tertiary level health care facilities. medical departments were represented by 49.3% of the participants. the most important motivational factor was salary, according to 22.6% of the participants. team work and good interpersonal relationships were considered the most important motivational factor by 16.3% of the participants, while 13.8% did not want to state their opinion. only 13.5% of the participants were motivated by contribution to population health or patients’ satisfaction, while 4.1% of them considered career advancement and improvement as a motivational factor. almost 10% of the participants considered that the work can be done well even without motivation. just over one third of the participants reported that they were satisfied with their job. an average score for job satisfaction was 3.35±0.981. satisfaction with salary was reported by 18.4% of the participants, while 27.2% of them were partially satisfied. more than a half of the participants were unsatisfied with salary. an average score on salary satisfaction was 2.43±1.204. there were 14.3% of participants who were completely unsatisfied with personal career advancement, while 23% of them were partially unsatisfied. almost one third of the participants were satisfied with career advancement, while 22.1% were partially satisfied, while 10.1% were completely satisfied. an average score on career advancement satisfaction was 2.91±1.203. managers had better opinion about themselves after job well done compared to workers; they also considered that they would have more freedom in their job and that they would be praised by managers of the higher rank (table 1). table 1: significant differences between the managers and the workers 35 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) opinion number median (ir) z p if i work harder and do the job well, i will have a better opinion about myself 18 193 5(1) 4(2) 2.513 p<0.05 if i work harder and do the job well, i will have an opportunity to develop my skills and abilities 18 191 5 (1) 4 (2) 3.621 p<0.01 if i work harder and do the job well, i will have better job security 18 190 5 (1) 4 (1.25) 2.625 p<0.01 if i work harder and do the job well, i will have the opportunity for promotion 18 190 4 (2) 2 (3) 3.428 p<0.01 if i work harder and do the job well, i will have a belief i have done something valuable 18 192 5 (0.000) 4 (1) 3.424 p<0.01 if i work harder and do the job well, i will have more freedom at work 18 192 5 (1) 3 (2) 3.906 p<0.01 if i work harder and do the job well, i will get a praise from my manager 18 190 4 (2.25) 3 (2) 2.063 p<0.05 there was a statistically significant difference between participants with residence in belgrade and those with residence outside belgrade (p<0.01). participants from belgrade had better opinion about themselves after job well done and efforts they made. they considered that they would have more freedom in their work after a job well done, as well as that they would receive praise from their manager after it. (table 2) table 2: differences in opinions between the participants who live in belgrade and those who live outside belgrade salary and job security were important motivational factors for participants with residence outside belgrade; they also valued higher co-workers’ opinion. characteristics of participants from belgrade and participants with residence outside belgrade based on importance of motivational factors are given in table 3. table 3: characteristics of participants from belgrade and from outside of belgrade based on assessment of importance of motivational factors participants residing outside belgrade were more satisfied with job and salary compared to participants in belgrade. the difference was statistically significant (p<0.001). (table 4). 36 miroslava krstic, vladimir obradovic, zorica terzic supic, dejana stanisavljevic, jovana todorovic 2019/24(1) �������� � �� �� ������������ �� �� �� �� �� �� ���� ���� � ������� ���� ���� ���� ���� � ������ ���� ���� �� �� �� �� ���������� ����� ������ �� ����������������� ��� �������� ��� �� � ������������� ��� ������� �� � !!�!��� ��" #� $�"�#� �� �%� �&%�%�� ���������� ����� ������ �� ����������������� ��� � ������� ������������������ ������� �� ��������� !'� � ��%�� �� � !���%�� ��" #� ��" #� ����'� �&%�%�� ���������� ����� ������ �� ����������������� ���������� ������(������ !)� � ��)�� �� � !��! �� ��" #� ��" #� $���$� �&%�%�� ���������� ����� ������ �� ����������������� ���� �� ������� ���������������� � !)� � ��)�� �� � !��! �� �" #� ��" #� ��')'� �&%�%�� ���������� ����� ������ �� ����������������� ��� ���������� ����� ������� � *� � �� ���� �%� ���% �� �� � !!�')�� ��" #� ��$�"�#� ���)� �&%�%$� ���������� ����� ������ �� ����������������� �������� �������� ������� !'� � �$$�� ���� !���$�� ��"�#� ��" #� ���)�� �&%�%�� ���������� ����� ������ �� �����������������*��� ��� ���� ��������� *��� !)� � ��)�� �� � !��! �� ��" #� ��"��#� $�%'�� �&%�%�� �� �������� � �� ������ �� �� �� ������ �� ����� �������� �� ������ �� ����� �� ������ �� �� �� ��� �� ��� �� �� �� �� �� �� ������� ��� ��������� ��� ������� ���� ������� ������ ������ ������ ������� ������� ��� ��� ��� !�"��� ��� ������� ���� ������� ������ ������ ������ #������ ������� ��� �������! "��� ���������"� � �$� ������� ���� ������� ������ ������ ������ �%����� ������� ��� � ���&���" � '��(� ��� ������� ���� ������� ������ ������ ���$�� �%����� ������� ��� ������ "��"� � �� �)'��(����� ��� ������� ���� ������� ������ ������ ����$� ������� ������� ��� ������ "��"� � ���� �*���� ��� ������� ���� ���$��� ������ ������ ��$�$� ������� ������� ��� � �" *����"��&� �$� ������� ���� ������� ������ ������ ������ ������� table 4: level of job and salary satisfaction of participants from belgrade and those from outside of belgrade level of job satisfaction (χ2=16.457, p<0.01) level of salary satisfaction (χ2=24.979, p<0.01) if they were managers, participants would use: salary and other forms of rewarding (26%) and praise (22.8%) as motivational factors (table 5). table 5: motivational factors which participants would use if they were managers there was a statistically significant difference between the opinions of non-medical workers and health care workers. non-medical workers considered, in a significantly higher percentage, that they would secure their job through hard work (z-3.661; p<0.001).the difference between health care workers and non-medical workers was significant in regard to the importance of contribution to population health and patient satisfaction (h=15.948; p<0.01). participants with higher education considered, in higher percent, that they would be promoted after a job well done (z=3.139; p<0.01). there was a statistically significant difference in stating importance of possibilities for job promotion between participants with different educational levels (z=3.139; p<0.01). participants with a lower educational level valued co-workers’ appreciation higher (z=2.788; p<0.05) as was the case with job security (z=2.488; p>0.01), compared to the participants with higher educational level. there was no significant difference between participants in: good interpersonal relationships, salary, working conditions, job security and job satisfaction. there was a statistically significant difference between participants younger than 36 years and older than 36 regarding the importance of opportunities for education and job promotion (h=6.148; p<0.05). 4. discussion the results of this study show that all groups of the participants (based on age, sex, city/town they work in, job position, educational level and department they work in) considered salary to be the most important motivational factor, whereas the second rated most important factors were good interpersonal relationships and team work. these awere followed by contribution to population health and patient satisfaction. the study named: chinese primary care providers and motivating factors on performance has showed that the most important motivating factors for primary care providers are improvement of performance, followed by professional development, training opportunities, living environment, benefits, working conditions and 37 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) ������ ��� ���� �� �������� ���� �� �� �� �� ���� �� ����� ���� ��������� �� ��� ���� � ����� � ����� �������� �� ��� ���� �� ������ �� ����� ���� ���� �� ������ �� ������ �������� ��� ���� �� � ���� � ������ ���� �� �� ����� ���� ��������� �� ��� ���� �� ������ �� ��� �� �������� �� ��� ���� �� ������ �� ������ ���� ���� � ����� �� ������ �������� ��� ���� �� ������ � ������ ����������� ����� � �� ���� ��� ������������ � �� � ������� ��� ��� ������������������� �� ��� ������������� ��� � ��� !�������������������� � � �"� �����#��������$����������������������� ������%������� �� �"� &������������������ � � �"� '�����#%��������#���������������������(� ����������� � )��� *���������������������� � "��� +����������� �����������������,� �� � "��� � income. (hung, shi, wang, nie & meng, 2013). a study conducted at the university of llorin teaching hospital in 2011 showed that salary was the most important motivational factor, followed by job security (ojokuku & salami, 2011). a small percentage of the participants named job security as an important motivational factor in our study. surprising results were also that participants with a lower educational level were more motivated by personal promotion and education in comparison with participants with a higher educational level. on the other hand, continuous medical discoveries require continuous medical education. the results of this study show that opportunities for education and job promotion are important motivational factors. this study showed that participants do not consider goal setting to be an important motivational factor. our research shows that 9.7% of the employees in health care facilities in serbia believe that work can be done well even without motivational factors presence. it is probably because work in health care facilities is specific and cannot be done by everyone. the most important motivational factor among health care workers was contribution to population health and patient satisfaction. successful interventions toward patients, acquiring new knowledge and making advancements are the most important issues affecting job satisfaction of health care professionals (babic, kordic & babic, 2014). in the research conducted in australia during 2000, lack of motivation was recorded among all participants, without any difference as to age, life stages, or between younger and older participants (steven, 2000). at the same time, managers in health care facilities in belgrade had more difficulties in motivating their employees. more than a half of the participants reported dissatisfaction with salary. considering that in this study and in other research works salary was the most important motivational factor (wong, gardine, lang &coulon, 2008), the high percentage of job satisfaction was not expected. health care professionals with higher education were satisfied with all the individual aspects of professional satisfaction in comparison with health care professionals with secondary or higher vocational qualifications. the most satisfied were the health workers in the management positions, male, older than 60, as well as those aged 50 to 59 and with 30 years of service (velickovic, visnjic, jovic, radulovic, sargic, mihajlovic, &mladenovic, 2014). participants with residence outside belgrade were more satisfied with their job and salary compared to participants from belgrade. a possible reason for this may lie in the fact that there are higher expenses of living in belgrade compared to other areas in serbia, and that it is more difficult to find a job outside belgrade than in belgrade. our research showed that employers’ opinion is very important for participants who work outside belgrade, while participants from belgrade do not consider this important. all participants, without any difference in age, sex, educational level, job position or department are satisfied with their work and consider job satisfaction important. a study conducted in norway showed that work validation, praise and feedback are important factors associated with job satisfaction (northouse, 2012). research has showed that praise, good relationship with managers, and good working conditions are important motivational factors which should be used by managers, but that they are not the most important. employees with lower educational level consider praise after a job well done more important than employees with higher education. our study showed significant differences between managers and workers. the analysis of satisfaction in public health care facilities in serbia in 2014 (horozovic, stojanovic, stankovic, & tomasevic, 2014) available at: http://www.batut.org.rs/download/izvestaji/analiza_zadovoljstva_zaposlenih_u_zu_2014.pdf, shows that 14.2% of employees are managers and that they are more satisfied with their job. the main strength of this study is that it includes all different types of health care facilities on different levels of health care. the study on understanding and motivating health care employees (benson &dundis, 2003) concluded that motivating employees was not a problem, even in cases of increased demands with fewer resources. management have to make the employee feel secure, needed, and appreciated and take into consideration the needs of the individual, the new technology that provides challenges and opportunities for meeting those needs, and to provides training to meet both sets of needs, enhance employee motivation. this research was carried out in 2014 and 2015, when health workers did not go overseas to such an extent. the situation today is completely different and a large number of doctors and nurses go to the countries of the european union because of personal dissatisfaction here, and 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[12] kamasheva, a.v., valeev, e.r., yagudin, r.k. and maksimova, k.r., 2015. usage of gamification theory for increase motivation of employees. mediterranean journal of social sciences, 6(1 s3), 77. doi: 10.5901/mjss.2015.v6n1s3p77 [13] kim, a. and barak, m.e.m., (2015). the mediating roles of leader–member exchange and perceived organizational support in the role stress–turnover intention relationship among child welfare workers: a longitudinal analysis. children and youth services review, 52,135-143. doi: 10.1016/j.childyouth.2014.11.009 39 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) salary was the single most important motivational factor, followed by good interpersonal relationships and team work. participants were motivated for work, but were only partially satisfied with salary and job, as well as with interpersonal relationships. a vast majority of the participants considered that they would do their job better if they were more motivated, while some of them considered that job could be done well even without motivation. our participants did not recognize the organizations’ goal as motivational factors. health care managers should work on human resource development, leadership development and development of motivational factors, take into consideration the needs of the individual. to motivate their employees, health care institutions should make them feel secure, appreciated and needed, and reward them with good salary. the results obtained can be used for further research because of the significance of this topic, especially in the situation where a large number of health care workers from serbia go abroad. it is very important for the success of the hospital organizations that employees believe they are as important to organization as the customer and that their significance as an internal customer is institutionalized into organizational practices (nedeljkovic, hadzic&cerovic, 2012). it can be said that the situation in relation to motivational factors is different all around. the research (willis-shattuck, bidwell, thomas, wyness,,blaauw&ditlopo, 2008) shows that motivational factors are undoubtedly country specific, but financial incentives, career development and management issues are core factors. nevertheless, financial incentives alone are not enough to motivate health workers. conclusion [14] lazaroiu, g. (2015). employee motivation and job performance. linguistic and philosophical investigations, 14:97. [15] loi, r., ao, o.k. & xu, a.j. (2014). perceived organizational support and coworker support as antecedents of foreign workers’ voice and psychological stress. international journal of hospitality management, 36, 23-30. [16] lu, h., barriball, k.l., zhang, x., while, a.e., (2012). job satisfaction among hospital nurses revisited: a systematic review. international jousnal of nursing studies. 49, 1017–1038. doi: 10.1016/j.ijnurstu.2011.11.009 [17] bonenberger, m., aikins, m., akweongo, p., & wyss, k. (2014). the effects of health worker motivation and job satisfaction on turnover intention in ghana: a cross-sectional study. human resources for health, 12(1), 43. doi: 10.1186/1478-4491-12-43 [18] miljkovic, s., (2007). motivacija zaposlenih i modifikovanje ponašanja u zdravstvenim organizacijama, actamedicamedianae; 46(2), 53-62. [19] nedeljkovic, m., hadzic, o., &cerovic, s. (2012). organizational changes and job satisfaction in the hospitality industry in serbia. utms journal of economics, 3(2), 105. [20] northouse, p., (2012). leadership-theory and practice, california, usa: sage publications. [21] ojokuku, r.m., salami, a.o, (2011). contextual influence of health workers motivations on performance in university of ilorin teaching hospital. american journal of scientific and industrial research; 2(2), 216-223. doi: 10.5251/ajsir.2011.2.2.216.223 [22] robinson, g., rose m., (2004). a leadership paradox: influencing others by defining yourself: revised edition, bloomington, usa: author house [23] sindik, j., tvarog, s., globočnik žunac, a., (2013). the concept of a self-induced linked discouraging at work: the difference of employees in the public and private sectors. zbornik instituta za kriminološka i sociološka istraživanja; 32(1), 29-47. [24] steven, w.p., (2000). the learning organization: motivating employees by integrating tqm philosophy in a supportive organizational culture, leadership & organization development journal 21(8), 373-378. [25] stoiljkovic, m., (2012). radno zadovoljstvo i radna motivacija zaposlenih u državnom sekotru zdravstvene zaštite srbije, pravno-ekonomski pogledi, 2. available at: http://www.pepogledi.org/arhiva/2012_02/05%20dr%20miloje%20stoiljkovic%20%20radno%20zadovoljstvo%20i%20radna%20motivacija%20zaposlenih%20u%20drz avnom%20sektoru%20zdravstvene%20zastite%20srbije.pdf [26] tafvelin, s., hyvönen, u. and westerberg, k. (2014). transformational leadership in the social work context: the importance of leader continuity and co-worker support. the british journal of social work, 44(4), 886-904. doi: 10.1093/bjsw/bcs174 [27] top, m., akdere, m. and tarcan, m. (2015). examining transformational leadership, job satisfaction, organizational commitment and organizational trust in turkish hospitals: public servants versus private sector employees. the international journal of human resource management, 26(9), 12591282. doi: 10.1080/09585192.2014.939987 [28] velickovic, v. m., visnjic, a., jovic, s., radulovic, o., sargic, c., mihajlovic, j., & mladenovic, j. (2014). organizational commitment and job satisfaction among nurses in serbia: a factor analysis. nursing outlook, 62(6), 415-427 doi: 10.1016/j.outlook.2014.05.003 [29] vojvodic k., terzic – supic z., santric – milicevic m., wolf w. g. (2017), socio-economic inequalities, outof-pocket payment and consumer’ satisfaction with primary health care: data from the national adult consumers’ satisfaction survey in serbia 2009-2015., frontiers in pharmacology, 8,147. doi: 10.3389/fphar.2017.00147. [30] willis-shattuck, m., bidwell, p., thomas, s., wyness, l., blaauw, d., ditlopo, p., (2008). motivation and retention of health workers in developing countries:a systematic review. bmc health serv res, 8,247 doi: 10.1186/1472-6963-8-247. [31] wong, m., gardiner, e., lang, w., coulon, l., (2008) generational differences in personality and motivation: do they exist and what are implicants for the workplace?, journal of managerial psychology, 23(8), 878 – 890. received: 2018-03-18 revisions requested: 2018-05-04 revised: 2018-09-05 accepted: 2018-09-11 40 miroslava krstic, vladimir obradovic, zorica terzic supic, dejana stanisavljevic, jovana todorovic 2019/24(1) 41 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) miroslava krstic republic health insurance fund of serbia e-mail: miroslavakrstic@hotmail.com miroslava krstić graduated from the faculty of economy at the university of belgrade, where she also completed her master degree in 2006. she earned her masters degree at the school of medicine and the faculty of organization sciences in 2016, while she acquired a phd degree at the faculty of law of the university of belgrade in 2016. she works at the republic health insurance fund of serbia since 2007. vladimir obradovic university of belgrade, faculty of organizational sciences e-mail: obradovicv@gmail.com vladimir obradovic is an associate professor at the university of belgrade, faculty of organizational sciences. in his teaching and research work he has achieved substantial results: over 80 papers published in national and international congresses and journals, as well as several monographs. for his scientific results, he has been awarded the highest scientific rank from the serbian ministry of science. he has been engaged at all levels of education on the courses in the management field. he also works as a consultant in several public, non-governmental and profit organizations. vladimir is an active member of a number of international professional and academic associations. zorica terzic-supic university of belgrade, school of medicine e-mail: zoricaterzic37@gmail.com zorica terzic-supic graduated from the school of medicine, university of belgrade, where she defended her msc thesis and then earned her phd degree. she is a specialist in social medicine and she works as a professor of social medicine, school of medicine and centre school of public health and health management, university of belgrade. she is engaged in education of undergraduate and postgraduate students in the fields of social medicine, public health, and health management. dejana stanisavljevic university of belgrade, school of medicine e-mail: sdejana8@yahoo.com dejana stanisavljevic graduated from the school of medicine, university of belgrade, where she defended her msc thesis and later earned her phd degree. she is a specialist in medical statistics and informatics and works as a professor of medical statistics and informatics, school of medicine and centre school of public health and health management, university of belgrade.she is engaged in education of undergraduate and postgraduate students in the fields of biostatistics and biomedical informatics. jovana todorovic school of medicine, university of belgrade e-mail: jole6989@hotmail.com jovana todorovic graduated from the school of medicine, university of belgrade. she earned her master degree in physical activity, health and exercise therapy in 2016. at the moment she is a phd student. she is engaged in education of undergraduate and postgraduate students in the fields of social medicine, public health, and health management. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02 bojan krstic:tipska.qxd 11 bojan krstić1, vladimir radivojević2, tanja stanišić3 1 university of niš, faculty of economics 2 ministry of defense of the republic of serbia, serbian armed forces, niš 3 university of kragujevac, faculty of hotel management and tourism in vrnjačka banja udc: 338.481.31(4) 338.487:339.13 determinants of cee countries’ tourism competitiveness: a benchmarking study doi: 10.7595/management.fon.2016.0021 1. introduction the travel & tourism (t&t) sector plays a very important role in the value creation of european countries. according to the world travel & tourism council (2015), with nearly 14 million direct employees, the t&t sector is one of the leading employers in europe. including its indirect and induced impacts, this sector provided 35 million jobs in 2014, which is 9.0% of regional employment; and the direct gdp of this european industry generated $us 780 billion in 2014, which exceeds the gdp of the europe’s banking, agriculture, chemicals manufacturing, mining, and automotive manufacturing sectors (world travel & tourism council, 2015). the t&t sector is therefore often presented as an agent (sharpley, 2015) or even locomotive (popescu, 2014) and major driver (bimonte & punzo, 2016) of economic growth and development, with a positive trend in recent years (temirbulatova & borza, 2015), and with a tendency to grow during the next period in the european countries. according to the european travel commission (2015), visitor growth forecasts in the period 2015-2017 amounts between 3.4% and 4.4%. the great potential of the t&t sector stems from its contribution to the achievement of various strategic eu objectives, such as (butnaru & niță, 2016, p. 372): sustainable development, economic development, human resources development, economic and social cohesion. also, the t&t sector is closely linked to numerous other economic sectors such as retailing, agriculture and construction, and therefore its development hasa potential to generate positive externalities on the remainder of the economic system (kadiyali & kosová, 2013; li, chen, li & goh, 2016) and hence on the gdp (čerović, knežević & pavlović, 2016). spain, france, and germany are the top three destinations in the world according to the t&t competitiveness criteria (wef, travel & tourism competitiveness report 2015). however, the t&t sector is not equally developed in all european countries. there is no cee country among the top 15 european countries according to the t&t competitiveness criterion. the aim of this paper is to benchmark the competitiveness factors in the t&t sector in cee countries with the top 15 european countries, using the travel & tourism competitiveness index ttci (wef, travel & tourism competitiveness report 2015). the aim is to check the extent to which the cee countries lag behind the top 15 european countries in terms of t&t competitiveness. also, the goal is to determine whether the cee counmanagement 2016/80 the purpose of this research is to analyze the competitiveness determinants of the travel & tourism sector in central and east europe (cee) countries. the aim is to find the critical competitiveness determinants of the travel & tourism sector in the cee countries that is being improved by efficient development strategies in the future. the framework for analysis is a methodology of the travel & tourism competitiveness, created by the world economic forum, and its classification of competitiveness factors – pillars and necessary information basis for this research. the benchmarking study on cee countries’ tourism competitiveness was conducted using the descriptive statistics, comparative analysis and benchmarking. the research results are related to relevant moments for the cee group of countries and show the critical pillars for each country in the cee group. the conclusions of this research give the directions for tourism policy makers in the cee countries. keywords: travel & tourism, competitiveness, cee countries tries have advantages concerning the competitiveness factor (four subindices and fourteen pillars within the ttci) in comparison with the top 15 european countries. the intention is to find the factors that are critical for t&t competitiveness in the cee countries, those that are a priority of the development policy and need urgent improvements to cut the gap between these countries and the top 15 european destinations in the future. this analysis and its outcomes should give guidance to policy makers in defining development goals and improving all pillars for t&t development and competitiveness. for the purpose of accomplishing the task, the paper incorporates three main segments. in the first section, the paper deals with the problems of t&t competitiveness and specifies the various determinants of competitiveness. the research method is presented in the second part of the paper. the third part of the paper refers to the research results and discussions. 2. theoretical background the concept of competitiveness attracts attention and remains at the focus of analysis of many researchers and professionals in various industries. competitiveness is one of the key issues for the tourism and an important area for policy makers in creating strategies for the t&t development in both the developed and less developed tourism countries (ayikoru, 2015). one of the widely accepted definitions of tourism competitiveness is the oecd definition: “tourism competitiveness for a destination is about the ability of place to optimize its attractiveness for residents and non-residents, to deliver quality, innovative, and attractive (e.g., providing good value for money) tourist services to consumers and to gain market shares on the domestic and global marketplaces, while ensuring that the available resources supporting tourism are used efficiently and in a sustainable way” (dupeyras & maccallum, 2013, p. 7). improving the competitiveness of tourist destinations is an especially important issue for the advancement of both t&t competitiveness and country competitiveness (krstić, jovanović & stanišić, 2014). every tourist destination has to develop a set of competitive advantages (cîrstea, 2014; raun, ahas & tiru, 2016). ritchie and crouch point out that the “nature of competitiveness and sustainability is in constant evolution” (ritchie & crouch, 2003, p. 8). in addition, “there is an urgent need for sustainable competitiveness. the consideration of the internal public in tourism destination development and marketing leads to the preservation of natural environment and the cultural identity of the destination” (vodeb, 2012, p. 276). some authors emphasize other important dimensions of competitiveness in tourism, such as policy or technological advances (bălan, balauru & vegheş, 2009). cooper, fletcher, fyall, gilbert and wanhill (2008) discuss the importance of both developing and supporting the activities of the destination, but also of keeping and protecting the existing resources of importance to tourism destinations. ritchie and crouch (2003) present the model of destination competitiveness. they suggest that tourism is open and that it is influenced by a number of factors from both micro and macro environments. in this model, the key elements are (ritchie & crouch, 2003, p. 63): qualifying and amplifying determinants; destination policy, planning and development; destination management; core resources and attractors; and supporting factors and resources. the fact that “tourism managers must identify and explore competitive advantages and analyse the destination’s competitive position” (lin & huang, 2009, p. 270) stresses the importance of the analysis of destination competitiveness. “for effective tourism management it is essential for the destination to be able to determine the points (factors) where certain management interventions (marketing, development, etc.) can help achieve or maintain this success” (papp & raffay, 2011, p. 23). “the most important is the ability of the tourism sector for higher value added, but the value to its products” (bobiră & cristureanu, 2006, p. 10). this view is found also in the study by hassan (2000). he believes that the destination competitiveness is “the destination’s ability to create and integrate value added products that sustain its resources, while maintaining market position relative to its competitors” (hassan, 2000, p. 240). this author emphasizes the importance of the environmental component of competitiveness in tourism. mihalič (2000) also deals with this issue and notes that “destination environmental competitiveness can be increased by appropriate managerial efforts related to environmental impact and environmental quality management. secondly, the destination competitiveness can be enhanced through certain environmental marketing activities” (mihalič, 2000, p. 65). in order to create an adequate framework for the tourism competitiveness evaluation of a country, it is necessary to find a set of indicators. thus, according to the oecd, the key relevant indicators for policy makers in the evaluation of the country tourism competitiveness are the following (dupeyras & maccallum, 2013, 12 2016/80management pp. 7-8): tourism direct gross domestic product, inbound tourism revenues per visitor by source market, overnight in all types of accommodation, exports of tourism services, labour productivity in tourism services, purchasing power parity and tourism prices, country entry visa requirements, natural resources and biodiversity, cultural and creative resources, visitor satisfaction, national tourism action plan. this systematic indicator framework is important since it provides the basis for a benchmarking method which is applied in this paper. kozak and rimmington (1999) also write about the importance of benchmarking and point out that “much management effort goes into establishing strategies and operating procedures which will lead to competitive advantage and to measuring performance against key competitors through benchmarking initiatives” (kozak & rimmington, 1999, p. 273). crouch and ritchie (1999) provide conceptual frameworks for monitoring tourism competitiveness. they show three levels of competition (companies & products, national industries, and national economies) and four elements of competitiveness (the structure, the level of the territory, the stakes, and the tools) (crouch & ritchie, 1999, p. 141). navickas and malakauskaite (2009) also deal with the analysis of the factors that impact competitiveness. they point out that the destination competitiveness is particularly important for countries that want to increase their share on the fast growing tourism market. for monitoring the achieved level of t&t competitiveness, the authors point out the following groups of indicators (navickas & malakauskaite, 2009, p. 41): price competitiveness indicators, infrastructure development indicators, ecology related indicators, technological advancement indicators, human resource indicators, market openness indicators and social development indicators. the methodology for measuring the t&t competitiveness of the world economic forum (wef) systematizes the key factors into 4 subindices, i.e., into 14 pillars to quantify the level of competitiveness of each country and rankings. each of the pillars within the ttci subindices consists of a number of indicators. the score of the pillar is obtained by measuring, transforming, and calculating the average score of variables. the range of the scores is from 1 to 7. transforming the data, i.e., their ranking on a scale from 1 to 7 provides the comparison of the ttci among countries. as noted previously, the ttci consists of four subindices: enabling environment (a), t&t policy and enabling conditions (b), infrastructure (c) and natural and cultural resources (d). the subindex a within the ttci is composed of five pillars: business environment (p1), safety and security (p2), health and hygiene (p3), human resources and labour market (p4) and ict readiness (p5). the second subindex b has four pillars: prioritization of travel and tourism (p6), international openness (p7), price competitiveness (p8) and environmental sustainability (p9). the third subindex c consists of the following three pillars: air transport infrastructure (p10), ground and port infrastructure (p11) and tourist service infrastructure (p12). the last subindex d has two pillars: natural resources (p13) and cultural resources and business travel (p14). the ttci is the unweighted average of the value of aforementioned subindices. each pillar is measured by several indicators. the ttci methodology calculates the score for each country on the basis of 90 indicators within 14 pillars. for example, the business environment pillar consists of twelve indicators, the safety and security pillar consists of five indicators, etc. 3. research methods the subject of this research is to analyze the factors of t&t competitiveness in cee and in european countries. the analysis of the t&t competitiveness determinants is based on the wef methodology. the information basis for this research consists of the secondary data published in the travel & tourism competitiveness report 2015. the focus of this paper is a group of the 15 cee countries. it is a heterogeneous group of countries according to resources, geographical location, tourist offer and the number of tourists, the structure of tourists and other factors that determine the tourism sector development, the contribution of the tourism sector to the gdp and employment, as well as the competitive position of each country according to the ttci. taking into account the heterogeneity of this group of countries, the analysis of the level of t&t competitiveness in this paper does not pretend to specify and formulate a unified recommendation for the tourism development policy for the cee group of countries. namely, the research in this paper aims to identify the critical determinants of competitiveness (pillars in the ttci methodology) for each country from the cee group. benchmarking is used to determine the critical pillars as segments of the tourism development pol13 management 2016/80 icy of cee countries in the future period. since the study covers 15 cee countries, the authors define the group of top 15 european countries as a benchmarking group. evaluating of tourism sustainability and reshaping tourism strategies and activities using the benchmarking method is a challenging task for researchers. nevertheless, benchmarking as a research method is very popular within the tourism industry (wobër, 2002; lennon, 2006; corne, 2015), particularly in the analysis of the tourist destination competitiveness. the term destination benchmarking can be taken into consideration as “the continuous measurement of the performance of tourist destinations (strengths and weaknesses) not only against itself or other destinations in the same or in a different country, but also against national/international quality grading systems by assessing both primary and secondary data for the purpose of establishing priorities, setting targets and gaining improvements in order to gain competitive advantage“ (kozak, 2004, p. 41). benchmarking gives opportunities for getting information for specifying implications and a more efficient decision-making of policy makers (yasin, alavi, koubida & small, 2011). in addition to benchmarking, the following methods are used in this research: descriptive statistics and comparative analysis. comparative analysis is used to determine the relative position of each country in a group of the cee countries (by value of the ttci and the pillar within the ttci), compared to the average value of these indices and pillars for a group of the cee countries. 4. results and discussions 4.1 analysis of cee countries’ tourism competitiveness – considerations and findings the analysis of t&t competitiveness of the cee countries is based on the data about rank and score of the ttci. the wef (2015) analyzes the performance of 141 economies. table 1 shows the position of the cee countries, according to rank and score of the ttci. the best-ranked countries in the cee are: croatia (the first position in the group, the 33rd place in the world), the czech republic (the second in the group, the 37th in the world), estonia (the third in the group, the 38th place in the world), slovenia (the fourth place in the group and the 39th position in the world), and hungary (the fifth place in the group, the 41st place in the world). croatia records the highest score of the ttci among the cee countries (4.30). countries with the lowest score of the ttci are albania (3.22) and serbia (3.34). table 1: the score and rank of cee countries according to ttci subindices (2015) source: the word economic forum, the travel & tourism competitiveness report 2015 14 2016/80management country ttci score (1-7) ttci over all rank (out of 141) rank on the list of isolated group of cee countries enabling environment subindex t&t policy and enabling conditions subindex infrastructure subindex natural and cultural resources subindex score overall rank score overall rank score overall rank score overall rank croatia 4.30 33 1 5.08 52 4.33 39 4.54 38 3.23 30 czech r. 4.22 37 2 5.34 31 4.53 14 4.57 35 2.45 63 estonia 4.22 38 3 5.65 18 4.69 7 4.41 43 2.12 84 slovenia 4.17 39 4 5.21 42 4.43 25 4.43 42 2.64 53 hungary 4.14 41 5 5.28 33 4.76 2 4.06 48 2.47 62 poland 4.08 47 6 5.22 39 4.43 23 3.70 62 2.96 43 bulgaria 4.05 49 7 5.13 46 4.44 22 3.93 52 2.70 48 latvia 4.01 53 8 5.47 25 4.51 16 4.14 46 1.94 102 lithuania 3.88 59 9 5.42 26 4.41 27 3.72 61 1.97 100 slovak r. 3.84 61 10 5.14 44 4.23 58 3.64 66 2.37 67 romania 3.78 66 11 4.88 59 4.37 35 3.49 71 2.38 66 montenegro 3.75 67 12 5.01 56 3.95 91 4.12 47 1.93 105 fyr macedonia 3.50 82 13 5.11 49 3.74 110 3.41 74 1.72 125 serbia 3.34 95 14 4.72 67 3.71 113 3.19 81 1.75 122 albania 3.22 106 15 4.68 69 3.59 122 3.04 90 1.59 135 average 3.90 5.16 4.27 3.89 2.28 the best-placed cee country in the world rankings, croatia, is located at the 33rd place out of 141 analyzed countries, while the weakest positioned albania lags behind croatia by 73 positions, ranked the 106th. the cee countries that record a lower value of the ttci compared to the average value of the ttci are the following: albania, serbia, the fyr macedonia, montenegro, romania, the slovak republic and lithuania. considering 141 countries analyzed by the wef, with the exception of albania, serbia and the fyr macedonia, all cee countries are located in the first half of the ttci ranking list. for the cee countries, the average score of the enabling environment subindex is 5.16, the t&t policy and enabling conditions subindex amounts to 4.27, the infrastructure subindex is 3.89 and the natural and cultural resource subindex is 2.28. 4.2 analysis of top 15 european countries’ competitiveness as group for benchmarking with the aim to analyse the t&t competitiveness of cee countries, it is relevant to find the competitive position of the top 15 european countries with the highest value of the ttci rank and score. the top 15 european countries are a benchmarking group of countries which serves for comparison to the cee countries. table 2 shows the scores and ranks according to pillars within the ttci. table 2: top 15 european countries according to score and rank of the ttci (2015) source: the word economic forum,the travel & tourism competitiveness report 2015 europe, with six countries in the top 10, continues to dominate the rankings (see table 2). spain records the highest score of the ttci among 141 countries (5.31), followed by second-ranked france (5.24) and thirdranked germany (5.22). the first three european countries are followed by united kingdom, switzerland, italy, austria, netherlands, portugal, iceland, ireland, norway, belgium, finland and sweden. the results of descriptive statistics according to the score of the ttci for the top 15 european countries in 2015 show that the minimum score of the ttci is 4.45, the maximum score is 5.31, the standard deviation is 0.31, and the coefficient of variation is 6.54%. the average value of the ttci score of the top 15 european countries is 4.80. compared to the cee countries, it means a big difference according to the average value of the ttci score of the cee countries (3.90). for the top 15 european countries, the average score of the 15 management 2016/80 pillars s p a in f ra n c e g e rm a n y u . k in g d o m s w it ze rl a n d it a ly a u s tr ia n e th e rl a n d s p o rt u g a l ic e la n d ir e la n d n o rw a y b e lg iu m f in la n d s w e d e n a ve ra g e s c o re f o r to p 1 5 e u ro p e a n c o u n tr ie s p1 business environment 4.09 4.52 5.32 5.70 5.76 3.59 4.94 5.44 4.54 4.96 5.37 5.44 4.71 5.60 5.22 5.01 p2 safety and security 5.97 5.44 6.06 5.44 6.32 5.68 6.47 6.16 6.33 6.54 6.18 6.10 6.18 6.70 6.10 6.11 p3 health and hygiene 6.11 6.52 6.85 5.83 6.50 6.27 6.97 6.24 6.06 6.07 5.80 6.17 6.49 6.31 5.94 6.28 p4 human resources and labour market 4.87 4.96 5.18 5.29 5.64 4.45 5.09 5.13 5.18 5.49 5.27 5.24 5.03 5.43 5.30 5.17 p5 ict readiness 5.26 5.55 5.51 6.09 6.03 5.14 5.70 5.96 4.97 5.88 5.28 6.14 5.47 6.37 6.17 5.70 p6 prioritization of travel & tourism 5.89 5.16 4.84 5.10 5.64 4.62 5.52 4.66 5.46 5.89 5.25 5.14 4.47 4.57 4.70 5.13 p7 international openness 3.93 4.22 4.24 4.24 4.11 4.09 3.99 4.25 4.21 4.38 4.53 3.97 4.13 4.10 4.07 4.16 p8 price competitiveness 4.22 2.95 3.62 2.73 2.57 3.49 3.49 3.56 4.23 3.59 3.69 3.23 3.73 3.71 3.38 3.48 p9 environmental sustainability 4.61 4.67 4.90 4.79 5.63 4.34 5.13 4.81 4.42 4.92 5.31 5.22 4.28 5.25 5.03 4.89 p10 air transport infrastructure 4.91 4.98 4.93 5.12 5.03 4.26 4.01 4.89 3.91 4.67 4.16 5.01 3.83 4.41 4.52 4.58 p11 ground and port infrastructure 5.54 5.78 5.99 5.51 6.00 4.65 5.42 6.21 4.54 4.35 4.89 3.81 5.96 4.83 4.76 5.22 p12 tourist service infrastructure 6.58 6.15 5.61 5.08 6.35 6.66 6.83 4.62 6.12 6.28 6.10 5.49 5.65 5.02 4.84 5.83 p13 natural resources 4.59 4.80 4.41 4.79 4.32 4.60 4.07 3.19 3.70 3.63 2.79 3.96 2.65 3.16 3.20 3.86 p14 cultural resources and business travel 6.69 6.56 6.00 5.90 2.93 6.51 2.92 3.51 3.71 1.53 2.82 2.22 3.67 2.13 2.93 4.00 ttci 5.31 5.24 5.22 5.12 4.99 4.98 4.82 4.67 4.64 4.54 4.53 4.52 4.51 4.47 4.45 4.80 1 2 3 5 6 8 12 14 15 18 19 20 21 22 23 enabling environment subindex is 5.65, the t&t policy and enabling conditions subindex is 4.41, the infrastructure subindex is 5.21, and the natural and cultural resources subindex is 3.93. this leads to the view that the cee countries largely lag behind the top 15 european countries according to the ttci score, and are also in a large backlog observing particularly the scores of four subindices within the ttci. table 2 shows very interesting facts about the competitiveness factors and performances of the top 15 european countries according to pillars within the ttci. switzerland and united kingdom occupy the first and the second places when it comes to the business environment pillar. the best countries according to the safety and security pillar are finland and iceland. from the above-mentioned top 15 european countries, austria has the highest ranking in terms of the health and hygiene pillar. when looking at the human resources and labour market, switzerland is the first, and iceland is the second country in europe. finland tops the ranking of ict readiness. spain and iceland share the first place in the prioritization of travel & tourism pillar. ireland and iceland are the first two european countries according to international openness. portugal and spain lead in europe in price competitiveness. switzerland dominates in environmental sustainability. united kingdom, switzerland and norway occupy top three scores in the air transport infrastructure. netherlands, switzerland and germany have recorded three best scores for the ground and port transport infrastructure. austria is the best in europe according to the tourist service infrastructure. france and the united kingdom have the best natural resources. spain and france have recorded two best scores in the cultural resources and business travel. 4.3 comparative analysis of tourism competitiveness determinants within the cee countries to assess the achievements of the cee countries in each pillar treated as tourism competitiveness determinants, the scores of 14 pillars within the ttci for 2015 are presented in table 3. the information serves to understand the relative positions of countries according to each pillar compared to the best score, the average score of the cee countries, as well as the best score and the average score of the top 15 european countries. table 3: the score of pillars within the ttci for cee countries (2015) source: the word economic forum, the travel & tourism competitiveness report 2015 legend: indicates that the value is below the average score of the cee group of countries. * indicates that the value is above the average score of the cee group of countries. # indicates that the value is above the average score of top 15 european countries. 0 indicates that the value is above the score of the best country in the group of top 15 european countries. 16 2016/80management p il la r c ro a ti a c ze c h r . e s to n ia s lo ve n ia h u n g a ry p o la n d b u lg a ri a l a tv ia l it h u a n ia s lo va k r . r o m a n ia m o n te n e g ro f y r m a c e d o n ia s e rb ia a lb a n ia t h e b e s t s c o re o f th e c e e c o u n tr ie s a ve ra g e s c o re o f c e e c o u n tr ie s t h e b e s t s c o re o f t o p 1 5 e u ro p e a n c o u n tr ie s a ve ra g e s c o re o f to p 1 5 e u ro p e a n c o u n tr ie s p1 3.65 4.35* 5.13# 4.03 4.28* 4.35* 4.22 4.59* 4.48* 3.92 4.11 4.39* 4.87* 3.38 4.11 5.13 estonia 4.26 5.76 switzerland 5.01 p2 6.00* 5.71* 6.04* 6.20# 5.79* 5.86* 5.24 5.79* 5.56 5.55 5.42 5.69 5.75 5.46 5.34 6.20 slovenia 5.69 6.70 finland 6.11 p3 6.33# 6.73# 6.25 6.05 6.61# 6.21 6.70# 6.17 6.81# 6.42# 5.94 5.71 5.99 6.04 5.22 6.81 lithuania 6.21 6.97 austria 6.28 p4 4.41 4.75 5.12* 4.69 4.79* 4.80* 4.72 5.18# 4.96* 4.75 4.56 4.85* 4.47 4.29 4.68 5.18 latvia 4.73 5.64 switzerland 5.17 p5 5.03* 5.19* 5.71# 5.07* 4.93 4.90 4.76 5.60* 5.29* 5.05* 4.36 4.42 4.47 4.45 4.07 5.71 estonia 4.89 6.37 finland 5.70 p6 4.51 4.61* 5.76# 4.93* 5.13* 4.10 4.18 4.64* 4.37 4.04 4.34 4.57* 4.41 3.83 4.03 5.76 estonia 4.50 5.89 spain/iceland 5.13 p7 4.14* 4.15* 3.65 3.70 4.15* 4.08* 3.87* 3.97* 3.99* 3.89* 3.91* 2.44 2.36 2.39 2.34 4.15 cze/hun 3.54 4.53 ireland 4.16 p8 4.28 4.47 4.62 4.34 4.60 4.940 5.080 4.840 4.870 4.51 4.890 4.48 4.55 4.56 4.38 5.08 bulgaria 4.63 4.23 portugal 3.48 p9 4.38 4.90* 4.73* 4.74* 5.16# 4.62* 4.62* 4.59* 4.42 4.49 4.35 4.30 3.65 4.08 3.60 5.16 hungary 4.44 5.63 switzerland 4.89 p10 3.06* 3.13* 2.97* 2.44 2.71* 2.57 2.46 3.12* 2.39 1.78 2.34 3.03* 2.39 2.13 2.16 3.13 czech r. 2.58 5.12 u. kingdom 4.58 p11 4.20* 5.15* 4.39* 5.13* 4.45* 4.08 3.26 4.22* 4.55* 4.22* 3.10 3.51 3.25 2.95 3.01 5.15 czech r. 3.96 6.21 netherlands 5.22 p12 6.35# 5.44* 5.87* 5.72* 5.02 4.44 6.06# 5.08 4.24 4.94 5.01 5.84# 4.58 4.50 3.94 6.35 croatia 5.14 6.83 austria 5.83 p13 3.80* 2.59 2.69 3.87* 2.72 3.14* 3.44* 2.55 2.44 3.31* 2.70 2.76 2.15 1.90 2.03 3.87 slovenia 2.81 4.80 france 3.86 p14 2.67* 2.30* 1.55 1.40 2.22* 2.77* 1.96* 1.33 1.50 1.42 2.07* 1.09 1.30 1.61 1.14 2.77 poland 1.79 6.69 spain 4.00 analyzing the cee group of countries, the health and hygiene pillar records the highest average value (6.21), followed by the safety and security (5.69) and the tourist service infrastructure (5.14). nevertheless, bearing in mind that the maximum value of the pillar is 7.00, the cee countries have many possibilities for improvement of almost all their performances that determine the t&t competitiveness. based on the above stated analysis, the list of critical pillars in the cee countries that need to be the priority in development policies and improvements as soon as possible to reach the average value of the group can be determined (see table 4). table 4: pillars within the ttci which require improvements and priority of tourist development policy by cee countries (2015) the total number of deviations below the average value of the ttci (observed by pillars) shows that the worst positioned countries are albania and serbia (14 critical pillars), the fyr macedonia (13 critical pillars), romania (11 critical pillars), the slovak republic and montenegro (9 critical pillars). by poorer performance compared to the average score of the cee group, after the abovementioned countries, stand out bulgaria, lithuania and slovenia with 7 critical pillars. all of these countries must necessarily make a lot of effort to make improvements that bring them closer to the average value of the cee group of countries. it is important to identify the pillars in which most cee countries record a deviation. the price competitiveness and the natural resource pillars require intervention and improvement by the majority of countries in the analyzed cee group (10 from 15 countries) (see table 4). the urgent actions for improving scores of the health and hygiene, the human resources and labour market, the prioritization of travel & tourism, the air transport infrastructure, the tourist service infrastructure and the cultural resource and business travel pillars are necessary in nine countries. the safety and security, the ict readiness and the environmental sustainability are problematic and need corrective action in eight countries. seven countries have to improve initiatives in the case of the business environment and the ground and port infrastructure pillars. the international openness requires improvement in six countries of the cee group. 4.4 benchmarking of tourism industry competitiveness of cee countries in relation to the top 15 european countries the aim of this research segment is to show and analyze the critical pillars of the ttci. problematic pillars, according to their performances, require to be the priority of economic policy of the cee countries. in order to determine the critical pillars it is necessary to perform the comparison of the average score of the pillars (1 to 14) for the cee group of countries and the group of top 15 european countries. the biggest gaps between the average scores of the top 15 european countries and the cee countries are in the following pillars (see table 3): cultural resources and business travel (2.21), air transport infrastruc17 management 2016/80 country the critical pillars which show the deviations from the average score of the group of cee countries number of critical pillars croatia p1, p4, p6, p8, p9 5 czech r. p4, p8, p13 3 estonia p3, p7, p8, p13, p14 5 slovenia p1, p3, p4, p7, p8, p10, p14 7 hungary p5, p8, p12, p13 4 poland p3, p5, p6, p10, p11, p12 6 bulgaria p1, p2, p4, p5, p6, p10, p11 7 latvia p3, p12, p13, p14 4 lithuania p2, p6, p9, p10, p12, p13, p14 7 slovak r. p1, p2, p4, p6, p8, p9, p10, p12, p14 9 romania p1, p2, p3, p4, p5, p6, p9, p10, p11, p12, p13 11 montenegro p2, p3, p5, p7, p8, p9, p11, p13, p14 9 fyr macedonia p2, p3, p4, p5, p6, p7, p8, p9, p10, p11, p12, p13, p14 13 serbia p1, p2, p3, p4, p5, p6, p7, p8, p9, p10, p11, p12, p13, p14 14 albania p1, p2, p3, p4, p5, p6, p7, p8, p9, p10, p11, p12, p13, p14 14 ture (2.00), ground and port infrastructure (1.26), natural resources (1.05) and ict readiness (0.81). these pillars are the priority areas for the cee countries to improve performances and achieve a better place in the ranking list. improvement in the aforementioned areas needs a large amount of investments, especially when it comes to air transport, ground and port infrastructure. the cee countries lag at least when it comes to the health and hygiene pillar. in this pillar, the difference of average scores is the lowest (0.07). however, the cee countries have a better average score than the average score of the top 15 european countries in the price competitiveness pillar (see table 3). interestingly, all fifteen cee countries show better performance in case of the price competitiveness pillar. when it comes to health and hygiene, countries such as croatia, the czech republic, hungary, bulgaria, lithuania and the slovak republic exceed the average of the top 15 european countries. for these countries the austrian score of 6.97 may serve as a benchmark standard. croatia, bulgaria and montenegro scored better results than the top 15 european countries average in the tourist service infrastructure pillar. these countries can use an austrian score of 6.83 as a target, i.e., the benchmark value in the development policy of tourism. estonia exceeds the average of the top 15 european countries in terms of business environment, ict readiness and prioritization of travel & tourism. slovenia exceeds the average of the top 15 european countries in terms of safety and security, so iceland (6.54) can serve as a target standard. hungary scored a better result than the top 15 european countries average in the environmental sustainability pillar. latvia achieves a better performance than the average of the top 15 european countries in the human resources and labour market pillar. the analysis of the pillars shows that all cee countries deviate from the average score of the top 15 countries in the following pillars: international openness, air transport infrastructure, ground and port infrastructure, natural resources, and cultural resources and business travel (see table 3). when it comes to business environment, safety and security, human resources and labour market, ict readiness, prioritization of travel & tourism, and environmental sustainability, fourteen cee countries lag behind the average score of the top 15 european countries. according to the tourist service infrastructure pillar, twelve cee countries have a lower average score than the average score of the top 15 european countries. the purpose of this benchmarking is to find benchmark standards for the cee countries which are relevant to guiding and defining development goals in the t&t. benchmark standards are target levels that each country can set in the tourism development strategy. based on the earlier analysis, certain observations can be specified about the priorities in the development policy of each country from the cee group. the criteria are based on the urgency or time priority. firstly, the cee countries should improve pillars in which they deviate from the average scores of the cee countries. when they succeed in this, the aim should be the average score of the top 15 european countries. after they have reached that score, the cee countries can set a higher goal the level of performance of the best countries in the group of the top 15 european countries. the systematization of pillars is given in table 5. table 5: specification of pillars within the ttci according to priority and urgency of their necessary improvement by the cee countries note: price competitiveness pillar (p8) is not included in the table because all cee countries exceed the average score of the top 15 european countries according to this pillar 18 2016/80management country the first level priority of pillars – the benchmark is the average of cee countries the second level priority of pillars the benchmark is the average of top 15 european countries the third level priority of pillars the benchmark is the best country among top 15 european countries croatia p1, p4, p6, p9 p2, p5, p7, p10, p11, p13, p14 p3, p12 czech r. p4, p13 p1, p2, p5, p6, p7, p9, p10, p11, p12, p14 p3 estonia p3, p7, p13, p14 p2, p4, p9, p10, p11, p12 p1, p5, p6 slovenia p1, p3, p4, p7, p10, p14 p5, p6, p9, p11, p12, p13 p2 hungary p5, p12, p13 p1, p2, p4, p6, p7, p10, p11, p14 p3, p9 poland p3, p5, p6, p10, p11, p12 p1, p2, p4, p7, p9, p13, p14 bulgaria p1, p2, p4, p5, p6, p10, p11 p7, p9, p13, p14 p3, p12 latvia p3, p12, p13, p14 p1, p2, p5, p6, p7, p9, p10, p11 p4 lithuania p2, p6, p9, p10, p12, p13, p14 p1, p4, p5, p7, p11 p3 slovak r. p1, p2, p4, p6, p9, p10, p12, p14 p5, p7, p11, p13 p3 romania p1, p2, p3, p4, p5, p6, p9, p10, p11, p12, p13 p7, p14 montenegro p2, p3, p5, p7, p9, p11, p13, p14 p1, p4, p6, p10 p12 fyr macedonia p2, p3, p4, p5, p6, p7, p9, p10, p11, p12, p13, p14 p1 serbia p1, p2, p3, p4, p5, p6, p7, p9, p10, p11, p12, p13, p14 albania p1, p2, p3, p4, p5, p6, p7, p9, p10, p11, p12, p13, p14 19 management 2016/80 the specification of pillars shown in table 5 gives guidance in defining priorities in the tourism development strategy, i.e., the priorities for pillars improvement as determinants of their competitiveness. the authors have found that albania and serbia have 13 critical pillars in the first level priority of pillars. the price competitiveness pillar (p8) is not included in the specification of pillars shown in table 5 because all cee countries have a better score in this pillar than portugal (4.23), the best ranked european country in the top 15 according to price competitiveness. however, albania and serbia have lower performances compared to the average score of the cee group even in this pillar. in an exploration of the tourism competitiveness determinants, the benchmarking method will not fulfill its purpose if it is not used for a further in-depth analysis of the indicators within the pillars. for one country, the score of each pillar depends on the real values of the indicators within that pillar. formulating national strategies for improving the tourism competitiveness in the cee countries is not possible without concentrating on the precise setting of the target level of indicators within each pillar, using benchmarking. by applying this approach, benchmarking can, in a more correct and detailed way, show all critical determinants of the tourism competitiveness. this step can be performed by calculating the volume of a negative (problematic) deviation in the value of each indicator within the pillar. the identified critical deviations from the benchmark standard require improvement actions, and direct the policy makers and tourism development creators in the cee countries to define the right goals. in the future period, each country should make efforts to achieve their determined goals in order to improve thire competitive score and their rank on both the european and the world ttci lists. conslusion the tourism industry plays an important role in the european development policy given its significant contribution to the gdp and employment. in addition, european countries are prominent tourist destinations and world leaders in terms of competitiveness. this supports the fact that the top three countries in the world, according to the tourism competitiveness, are european countries. however, not all countries in europe are competitive tourist destinations. therefore, the focus of the study is the group of the cee countries, which are the ones that are not among the top 15 most competitive european destinations. the results of the benchmarking method that is applied in the paper point out the competitive factors (pillars) that need to be improved by the cee countries and indicate the priority of its improving. cultural resources and business travel, air transport infrastructure, natural resources, ground and port infrastructure, and tourist service infrastructure are priority areas for improvement in the cee countries in order that they should achieve a better position in the world. however, some cee countries achievt higher scores and better competitiveness levels than the top 15 european countries in terms of business environment, ict readiness, and prioritization of travel & tourism (estonia); health and hygiene (croatia, the czech republic, hungary, bulgaria, lithuania and the slovak republic); safety and security (slovenia); human resources and labour market (latvia); environmental sustainability (hungary); and tourist service infrastructure pillars (croatia, bulgaria and montenegro). all cee countries show better performances in the case of price competitiveness pillar than the best ranked country of the top 15 european countries. in addition, some cee countries, in case of competitiveness in some pillars, do not reach the average score of the cee group, so in the future, their tourism development policy, strategies and national action plans should focus on these factors of competitiveness. upon achieving improvements in such factors, the cee countries should strive to advance the pillars which can reach the average of the top 15 european countries. the limitations of this study arise from the weakness of the ttci methodology. however, this methodology provides a solid starting framework for the analysis of the t&t competitiveness. using the benchmarking method at the ttci level, subindices/pillars within the ttci, and, especially, at the level of indicators within each of the ttci pillars, every cee country can identify the guidelines for defining a future strategy of the t&t development and a competitive position improvement. 20 2016/80management references [1] ayikoru, m. 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[28] temirbulatova, m., & borza, m. (2015). multifunctional development of rural areas of kazakhstan with the application of the unified model of tourism in the context of sustainable development and the green economy, european scientific journal, 11(1), 200-216. [29] vodeb, k. (2012). competition in tourism in terms of changing environment, procedia – social and behavioral sciences, 44, 273-278. doi: [30] wobër, k. (2002). benchmarking in tourism and hospitality industries: the selection of benchmarking partners, cabi. [31] world economic forum (2015). the travel & tourism competitiveness report 2015, accessed at (2016 feb 7). [32] world travel & tourism council (2015). benchmarking travel & tourism: how does travel & tourism compare to the other sector?, europe summary of findings, london, accessed at (2016 feb 7). [33] yasin, m., alavi, j., koubida, s., & small, m. (2011). an assessment of the competitiveness of the moroccan tourism industry: benchmarking implications, benchmarking – an international journal, 18(1), 6-22. doi: receieved: may 2016. accepted: september 2016. bojan krstić university of niš, faculty of economics bojan.krstic@eknfak.ni.ac.rs bojan krstic is associate professor at the university of nis, faculty of economics, serbia, manager of national scientific and research project titled improving the competitiveness of the public and private sectors by networking competences in the process of european integrations, as well as executive editor of the ekonomika – journal for economic theory and practice and social issues, which dates back to 1954. his professional interests include competitiveness of enterprises and national economies, strategic management, strategic control, control systems, business performance management, knowledge and intellectual capital management, theory of firm, as well as competitive strategy. he has published 9 books and monographs, more than 215 scientific journal articles and conference papers, and he is an editor of 11 thematic collections of papers of international significance. vladimir radivojević ministry of defense of the republic of serbia, serbian armed forces, niš vladimir.radivojevic@ymail.com vladimir radivojević earned his phd degree at the faculty of economics, university of niš. he works as head of financial services at the serbian armed forces, ministry of defense. he is an assembly member of the association of economists in niš, member of the serbian mensa society and a lay judge at the military disciplinary court in niš. he is an author or coauthor of several papers published in domestic and foreign scientific journals and conference proceedings. tanja stanišić university of kragujevac, faculty of hotel management and tourism in vrnjačka banja tanja.stanisic@kg.ac.rs tanja stanišić is an assistant professor at the faculty of hotel management and tourism in vrnjačka banja (university of kragujevac). she is a member of the association of economists in niš. her interests include competitiveness, competition policy, and tourism. she has published the papers in many domestic and foreign scientific journals and conference proceedings. 21 management 2016/80 about the author 22 << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01 radukic:tipska.qxd 1 snežana radukić, dušan perović* university of niš, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(2) improving eco efficiency through overcoming sustainability challenges: a case study for bsec member states doi: 10.7595/management.fon.2018.0016 abstract: 1. introduction in the past, people used natural resources very intensively in order to achieve some economic goals and they never thought about the consequences of their activities. with a more dynamic economic and population growth a higher pressure was put on the natural resources since they became an important input for many national economies. an intensive use of natural resources leads to environmental disasters, which incited many people to start thinking more about their acts in order to avoid new disasters in the future. by accepting a sustainable development concept, many states have obliged to give more efforts in creating the world a better place for everyone, especially to improve the environmental aspect of life. although sustainable development is on the path to become a eading doctrine of modern time, many states are facing some difficulties on their way to achieve sustainable goals. one of the biggest challenges for all states in the sustainability area is the existence of the gap between the decreased use of resources that someone should expect from an increased eco efficiency and their real use in the gross rebound effect (grb) (vehmas et al., 2004; bauer and papp, 2009). the rebound effect is * corresponding author: dušan perović, e-mail:dulep89@gmail.com research question: the paper investigated whether a possibility for improving eco – efficiency of the bsec member states exists. motivation: the bsec member states are primarily oriented towards accomplishing various economic goals, and they are very successful in this area. on the other hand, sustainability issue is still one of major problems for these states, since all bsec member states do not pay full attention to sustainable development. also, there are no quality researches that provide a deeper analysis of sustainability issues for bsec member states and so the goal research was to explore if there exists any links between factors that have an impact on eco – efficiency of bsec member states in order to provide sustainable solutions for the bsec member states. idea: the core idea of this paper was to empirically evaluate the relationship between some factors that have an impact on eco – efficiency on the bsec member states, but also to test the implementation of the ehrlich and holdren equation on the bsec member states. data: the analysis was conducted for all 12 bsec member states using data from several databases such as: iea, trading economics and world bank. time series for the analyzed data starts in 1995 and ends in 2015. tools: the statistical analysis of all collected data (descriptive statistics, correlation analysis, linear regression analysis and panel data analysis) was used to draw conclusions between the analyzed variables and check if they have statistical evaluation. findings: the results showed that full implementation of the ehrlich and holdren equation among the bsec member states is not possible due to the social aspect of the equation. the analysis also suggests that gasoline prices, co2 emissions and renewable resources should become a vital part of the future sustainable strategies for the bsec member states, since all these variables have a strong impact on eco – efficiency of the bsec member states. contribution: the paper expands the existing research literature by providing a detailed sustainable development analysis of the bsec region, since there were no so many sustainability analyses of the bsec region such as this in the past. keywords: eco efficiency, natural resources, sustainability, bsec, energy use, renewable resources, panel data analysis jel classification: q34, q51, q56. actually a ratio of the lost benefit compared to the expected environmental benefit when the consumption rate of the natural resource is at a constant level. for instance, if 7% improvement in vehicle improvement fuel efficiency results in only a 2% drop in fuel, there is 71% rebound effect ((7-2)/7=71%) which means that the missing 5% are lost in driving faster or further than before. the grb is closely related to the khazzom – brookes postulate, which suggest that energy efficiency improvements at the micro level should lead to the increased economic growth and higher energy use at the macro level (herring, 1998). based on theoretical approach, gross rebound effect is a much broader variable than the rebound effect since it includes the overall use of the natural resources on the national level which can sometimes offer a realistic view to the energy use in a certain country. in order to avoid the rebound effect, there are suggestions that any cost savings from the efficiency gains must go through taxation which will keep the cost of use at a constant level (wackernagel and rees, 1997). the market – based instruments should create financial incentives for changing the behaviour of the economic subjects for the purpose of increasing the efficiency of environmental and natural resources management (radukic, 2012). treating the rebound effect in early stages or on a preventive basis is important for avoiding many possible problems that can appear with the rebound effect. the structure of the paper, besides the introduction and conclusion, includes five more chapters. the first chapter brings a brief literature review of eco – efficiency, rebound effect and the intensive use of natural resources. in the second chapter, theoretical aspect of problem in this research will be presented. the third chapter brings the analysis of economic and environmental aspects of the bsec organization. in the fourth chapter, the ehrlich and holdren equation will be statistically tested on the example of the bsec member states with a brief view to countries epi performances. since eco – efficiency is one of the elements of the ehrlich and holdren equation, in chapter five the factors that have an impact on eco – efficiency will be analysed in order to give an overall view of the rebound effect problem in the bsec member states. 2. literature review wackernagel and reese (1997) argue that perceptual distortions and prevailing economic rationality, far from encouraging investment in natural capital, actually accelerate the full use of natural capital stocks. the authors analyze the ecological footprint as a biophysics measure of such capital, and apply this concept as an analytical tool for examining the barriers to investing in natural capital. the authors show why low prices cannot affect ecological necessities, how interregional risk pooling encourages resource liquidation, how some terms of trade undermine both local and global ecological stability and how efficiency strategies may actually accelerate resource throughput. sorrell and dimitropoulous (2008) have analyzed all limitations and extensions of the rebound effect. the authors have examined the rebound effect through efficiency and price elasticity and they have discovered three types of effects that could occur with the appearance of the rebound effect. the first one is a direct rebound effect, which can be seen as an intensive use of goods through their lower costs of use. the second one is the indirect rebound effect. the third one is economy wide effect. the fall in service costs reduces the price of other goods and creates new production possibilities with the parallel increase of economy growth. gijum et al. (2008) have analyzed how the use of natural resources in europe is sustainable. the authors presented the three possible scenarios for possible treatment of natural resources on the european and global levels. in the baseline scenario, thr used domestic extraction within the eu remains roughly constant until 2020, while unused domestic extraction decreases (particularly overburden from mining activities). the results suggest that policy instruments for raising the eco-efficiency on the micro level so they can impact the economic growth. holm and englund (2008) analyzed the correlation between eco – efficiency and the gross rebound effect. their analysis involved the usa and six european countries. the authors have found that during 1960-2002 the difference between a potential decrease of natural resources use and their real use was growing faster in the usa than in the six analyzed european countries. the authors also showed that the environmental existence of kuznets curve could not be supported since all analyzed groups have started to make a long distance from improving the ecological footprint. wang et al. (2016) have provided an empirical analysis of the rebound effect through a case study on electrical consumption of beijing inhabitants. the size of the rebound effect largely determines the effectiveness of energy efficiency in mitigating energy consumption. the three income-elasticity, weight change, and proportional re-spending scenario simulation results show that: the residential electricity use in beijing exhibits a partial rebound effect; the long-term direct and indirect rebound effects are 46% to 56%; the short-term direct rebound effect is 24% to 37%. chen et al. (2017) tried to test the process of sustainable development in macau. their research adopted embodied (direct plus indirect) greenhouse gas (ghg) emissions to acquire the decoupling indicators in macao from 2000 to 2013. as for total em2 snežana radukić, dušan perović 2019/24(2) bodied ghg emissions (tege), the results showed that macao’s economy has experienced several decoupling stages, with a distinct tendency towards strong decoupling. when comparing decoupling indicators of tege in terms of systematic accounting with that of direct accounting, many differences are visible. as for total energy consumption (tec), macao’s tec has decoupled from its economic growth. 3. the implementation of the ehrlich and holdren equation in explaining the rebound effect the rebound effect is that kind of a problem that looks for a better treatment in order to prevent future environmental problems. although the rebound effect can produce some effects on the use of natural resources, it can also have an impact on the net effect of societies overall resources use due to consumption patterns, population development and the degree of eco – efficiency (jokinen et al., 1998). the rebound effect can also lead to an inefficient use of natural resources and a higher energy intensity for most of the states. a high level of energy intensity can become a huge problem, since it can lead to the exhaustion of the non-renewable resources, which will leave states without important resources. therefore, transition to renewable resources is required. some analyses have shown that states such as the republic of serbia and bosnia & herzegovina have a very high energy intensity which is not good for solving the rebound effect, but if these states decide to increase the use of renewable resources for 1%, they will improve the energy intensity for 0.452 percentage points (perovic and radukic, 2017). for a too long time, many environmentalists have tried to discover a right formula that will include all important factors that have an impact on the environment. in particular, some have drawn attention to potential inter-relationships among the three factors and others have wished to stress other factors that were not included in the formula, such as political and social structures, scopes for beneficial activities or harmful environmental actions. ehrlich and holdren (1971) were among the first ones who tried to describe the real impact that many factors have on the environment, but in a simpler manner. the authors were the first to describe the impact of human activities on the environment through the following formula: i = pat(1)in this formula (i) stands for the environmental impact, (p) for the population size, (a) for the affluence and (t) for the effects of technology. the largest possible sustainable impact is the carrying capacity and as long as (i) is less than this amount the associated population, affluence and technology that are responsible for (i) are sustainable. since the carrying capacity represents the number of people which a region can support without committing environmental degradation, it is important that value (i) does not exceed the overall value of other variables in the equation or in that case economic degradation will appear and sustainable solutions will not be sufficient in solving environmental problems. variable (p) represents the total population size of an examined area and this value is a frequent subject of changes due to differences in fertility, mortality and migration rates that exist in many states. variable (a) is an expression of the affluence, which represents the average consumption of every person in the world or, in particular, in the analyzed models. the common proxy for the (a) variable is the gdp per capita since it includes both economic and demographic factors in providing the right answers connected to production changes. people spend their income on many products and goods which in the end become waste and another worry for the authorities that take care of the environment. variable (t) shows what an intensive use of resources during the production process really is like. this variable examines the environmental impact on creating, transporting and disposing of the goods and services during their permanent use. with the improvements in resources the use value of variable (t) will fall down, which means reduced and effective use of the resources. for some authors, variable (t) represents the eco – efficiency since it reveals how efficient the use of the resources really is (holm and englund, 2008). the ehrlich and holdren equation has also become a subject of criticism that has involved many aspects of the equation. some authors have pointed out that the equation is very simplified and that in the reality at least 7 independent relations between variables (p), (a) and (t) exist, which only indicates that it is better to rewrite the equation as a i = f (p, a, t) (alcott, 2010). another critic of the equation pledges not including the life style of various social groups whose behaviour is sometimes harmful to the environment and that is why behaviour variable (b) should be included in the equation (schulze, 2002). the equation model depicts people as being purely harmful to the environment, ignoring any conservation or restoration efforts that societies have made and it also does not take into account varying degrees of power, influence and responsibility of humans over the environmental impact (moseley, 2014). this actually means that (p) variable does not include complex social behaviours, which in the end puts pressure on poor households to bear the cost of environmental externalities. the ehrlich and holdren equation is also being criticized for not accounting for the sustainable resource use among some low–income and indigenous groups, characterizing these groups as cultures that support low impact practices (moseley, 2014). 3 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) with all known criticism of the ehrlich and holdren equation, it can have a practical evaluation on many occasions. carbon and water footprint analysis considers the ehrlich and holdren equation where factors affect co2 and water resources and change the strength of their relation. the equation is helpful in assessing the impact of different pat factors to greenhouse gas (ghg) emissions. some reports have shown that the levels of ghg emissions for affluent states increase with higher amounts of affluence, while both population and the level of affluence are significant factors in ghg emission trends in states with a higher poverty rate (cole & neumayer, 2004). in addition to highlighting the population impact on the environmental problems, the ipat made two other significant contributions. it drew attention to the fact that environmental problems are more than pollution, and that they involve multiple factors that by joining together can produce a compounding effect. subsequent research using the ipat indicates that some researchers assume that simple multiplicative relationship among the main factors generally does not hold – doubling population, such as, does not necessarily lead to a doubling of impact (chertow, 2001). the ipat equation helped in understanding the multiple causes of environmental impact, as it continues to use developing techniques such as methods for improving our understandings of these issues. 4. economic and environmental analysis of the bsec bsec (the organization of the black sea economic cooperation) represents a regional international organization focusing on the multilateral political and economic initiatives for close cooperation, peace, stability and prosperity of the countries in the black sea region. in 1992, 11 states signed the summit declaration and the “bosphorus statement” in istanbul and founded the bsec. two years later, the bsec started to work more actively and in 1999 the bsec became a full regional economic organization. the member states of the bsec are: albania, armenia, azerbaijan, bulgaria, georgia, greece, moldova, romania, russia, serbia, turkey and ukraine. among these members only serbia did not access the bsec in the beginning due to sanctions imposed by the un. serbia became a member of the bsec in 2004 and started to bring out all contracts and documents in the bsec. one of the most important activities of the bsec is finding the right solutions to improving the development of sme and entrepreneurship in all member states through organizing frequent meetings on enhancing the regional economic cooperation. in order to give full support to the economic cooperation the bsec formed the black sea trade and development bank (bstdb) in thessaloniki, greece. the main role of the bstdb is to support all development projects of all public and private companies in all member states and to promote regional trade, cross-country projects and foreign direct investments. figure 1: intra regional trade in the bsec region in 1999 – 2010 (%) source: konrad-adenauer-stiftung (2017). the organization of black sea economic cooperation (bsec) – a mechanism for integration in a geopolitical area. retrieved from h the intra–regional trade is very important for the bsec since it is one of the main indicators that can show real economic values of the bsec organization. based on figure 1, the intra–regional trade increased slowly during the eleven year period, which is a good sign. this means that the bsec member states have a very good perspective to work on the further improvement of the intra–regional trade. one of the future plans of the bsec includes improving road and railway infrastructure between the member states, so intra–regional trade can continue to increase. since all the bsec members are developing countries, they have a strong intention to cooperate in overcoming all difficulties that all economies of the bsec have. the bsec, with an economic volume of about € 4 trillion and a population of 330 million people is still a very young but promising market, especially for those members that want to improve foreign trade balances. 4 snežana radukić, dušan perović 2019/24(2) figure 2: epi value for bsec member countries source: environmental performance index (2017). yale university. retrieved from in addition to economic cooperation which certainly is important for the bsec member states, environmental issue is another important area for all member states. the epi values showed that there is a huge difference in the way the bsec member states treat environmental issues. for instance, albania had good epi values until 2014 when it suffered a huge fall. it is the same with georgia, which has the lowest epi value among the bsec members, while, on the other hand, greece and azerbaijan report the highest epi values (figure 2). many of these states have enough space to make progress in the environmental area, but that progress is still not visible since the economic goals are a top priority for all the bsec member states. these states carry out a large nmber of international agreements and economic instruments in the environmental area, but they need to make more efforts if they all want to improve their current environmental performances. coordinating between economic and environmental goals is something that all the bsec member states will be facing in the near future and improving environmental performances will depend on efforts that the bsec member states are willing to make in order to solve the environmental problems. 5. testing the ehrlich and holdren equation on the bsec member states as said above, one of the ways for measuring the environmental impact is through the ehrlich and holdren equation. testing the ehrlich and holdren equation on the group of the bsec member states involves the 1995 – 2015 time period. the availability of data was crucial in selecting the period, but also because in that period serbia applied for membership in this regional organization. since the idea of the statistical analysis is to show if it possible to test the ehrlich and holdren equation on the bsec member states, the research must include a proper choice of the variables. for the purpose of the analysis the panel data model is used and it will be presented through fixed effects model. the analysis involves the period of 1995-2015, while data were used from databases such as: iea, united nations and world bank. usually used as a dependent variable (i) in the equation is the ecological footprint. since the ecological footprint has some limitations (mainly in data), energy use was chosen as a substitute variable because it has a very high correlation with the ecological footprint (hails et al., 2006). (t) is another independent variable, since our interest is to see if there is any kind of impact on the energy use. since (t) also represents the eco–efficiency variable, it is interesting to analyze if this variable has any impact on the environment of the bsec member states. in this analysis electricity consumption per capita represents the (t) variable. variable (p) is described through population growth rate, while variable (a) is defined through gdp per capita (ppp). the choice of values for the analyzed variables was made in order to avoid huge differences in population number and the strength of the economies that exist among the bsec member states. although all elements of ehrlich and holdren equation are important for the research, we must have in mind the research goal which is related to the environmental issues and so eco–efficiency will have a slight advantage over the other two elements of the equation. as the final variable, the financial crisis was chosen. therefore, a dummy variable stands for the financial crisis since in 2008 and 2009 the bsec member states suffered substantial setbacks in their economies. for the purpose of research, several datasets and publications served for taking out proper data (international environmental agency, 2017; united nations, 2017; world bank group, 2017). after explaining basic statistical rules and describing data, the starting hypothesis will be: h1: eco–efficiency has a positive significant impact on the environment of the bsec member states. 5 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) as it was earlier mentioned, the fixed effects model is primary a statistical choice for the analysis for 12 bsec member states and so we have the following number of countries i = 1,..12. since the analysis involves the period of 1995-2015, the time variable is t = 21, so the adequate equation for the model is: (2) where yit stands for the dependent variable, α for the constant, xit k for the dimension row of vector that represents independent and dependent variable, β for k dimension column of vector value for dependant and independent variables, ci is the specific impact of the analyzed economy, and uit represents the residual (baltagi, 2001; wooldridge, 2002). prior to selecting the model, all adequate tests should follow the analysis meant for the choice of a proper model. all data and models in this analysis passed various statistic tests in stata 12 software. table 1: descriptive statistics source: authors’ calculation prior to testing the ehrlich and holdren equation, the analysis will start with the descriptive statistics and correlation analysis in order to prepare data for a panel data model. table 1 first shows the minimum and maximum values where the highest range is exhibited by two dependent variables, gdp growth (ppp) (a) and population growth (p). the highest range is due to constant changes in gdp (ppp) growth, but also due to population growth since some states have higher mortality rate than others. as regards the dependent variable, i.e., energy use (i), and since its value of standard deviation is higher than its mean value, all conditions are in favour of further analysis that includes correlation analysis and testing the model. further analysis should provide the answers to the strength of relation between ipat components and their interpersonal impact. table 2: correlation analysis of ipat components source: authors’ calculation the correlation analysis shows that among all independent variables, only eco-efficiency (t) and dummy variable have a statistically significant relation with the energy use. this significance in case of eco-efficiency is (0.000), while for dummy variable it is (0.043). there is a strong relation between eco-efficiency and energy use (0.614), while the coefficient of correlation between the dummy variable and energy use is (0.143). on the other hand, population growth and gdp growth (ppp) are not correlated to other variables. after the correlation analysis, the model will be assessed through the panel data model. 6 snežana radukić, dušan perović 2019/24(2) �������� �� ��� ���� ���� �� ��� �������� ���� ������ �� �� �� � �� � ���� �� ���� � ���� �� ����� � � � � ���� � ����� �� ���� � ���� ��� � � ��� � �� ��� �� �� �� �������������� ���� ��� ����� ���� �� ���� ����� ��������� ���� ���� ���� ����� � �� � � � �������� �� ���� � �� ���� � �������������� ���������� �������� ������ � � � � � � � � � � �� ���� � ������� ������ � � � � �� ��� � � � � �� ���� � �������� ��� ��� ������ � � � ���� �� ����� � � � � �������������� ���� ��� ��� �� ��������� ������ � � ������� ���� �� ������� � � ���������� ��� �� �������� ���� ���� ��� ��� ������ � ��� �� ������� ������� �� �� � � table 3: panel data analysis source: authors’ calculation table 3 shows the way in which some components of the ehrlich and holdren equation have impact on ecological footprint (energy use). among the independent variables, eco-efficiency (t) and gdp growth have an impact on energy use (i) if statistical significance is observed. if electric consumption per capita increases by only 1%, there will be an increase in energy use by 0.544 percentage points. therefore it is recommended that the null hypothesis should be rejected since eco–efficiency really has a statistically significant impact on the energy use. in case of gdp growth, if it increases by 1%, then the estimated energy use will increase by 0.054 percentage points. on the other hand, the presented model shows that a full statistical significance of the ehrlich and holdren equation does not exist, since population growth does not have a statistically significant impact on the energy use. this actually means that the bsec member states do not fully satisfy the conditions of the ehrlich and holdren equation and because of that a full capacity of the ehrlich and holdren equation cannot be reached in case of the bsec member states. 6. identifying the driving factors of the eco–efficiency for bsec member states after discovering that technology has an impact on the environment of the bsec member states, further analysis will include factors that have an impact on eco-efficiency. world business council for sustainable development describes eco–efficiency as “conditions achieved by the delivery of competitive–price goods and services that satisfy human needs and bring quality to life, while progressively reducing ecological impacts and resource intensity throughout the life cycle to a level at least in line with earth’s estimated carrying capacity” (wbcsd, 2001, p.7). after every new environmental accident, the eco–efficiency concept is always presented as one of the best solutions to avoid future environmental risks. the eco–efficiency concept covers many areas, from preventive actions, manufacturing, product placement, resource use and human resource which all tells that eco–efficiency is actually a multidisciplinary conceptual framework, where environment is in the first place. the bsec member states are also among the states that have accepted the eco–efficiency framework in order to improve environmental performances, but the results of their activities vary from country to country. differences in environmental performances exist because not all of the bsec member states have the same mechanisms for improving the environmental protection systems and they also differ in a way they pursue their environmental policies (aall and husabo, 2010). for some countries water and land qualities are primary issues, for others it is air quality and this all has an impact on making a decision about the use of an adequate eco–efficiency concept. on the other hand, the eco–efficiency concept is very dependable on the natural resources and the way how policymakers see eco–efficiency as a tool for improving environmental performances (basuki, 2015). to give a good analysis of the eco–efficiency concept, some driving factors must come to the top position during the process of identification. in order to analyze the impact on the eco–efficiency of the bsec member states, certain variables must pass several tests first. for the purpose of this research 7 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) � � � � ������� � ����� � � � � � � ������� ��� ������� � ������������������ ��� � � � ���������� ���������� �� ������������������� ! �� � � � "#���� ���� ��������� #��"$$����� %&�� � � � �������������������������"'��� �� � � � � (�)�*� &+������!� , ��)�-�*�.�+������ � � � � � /� ��0�(��������!� 12 �� , � �� ��3��1���� �� /�0�4�4� 5%�6�, � ��7����#"$8� 12 � �2���29� ������� &� ���:�&% �� �:%� ������ ��� �&!&&� �:%�%&�!� / ��� ���� ��� !!%�� ������ �� ��&&� ���� � ���&!� : � �� ��:!�� ;3��� ���� ������: :� ��� !�&%%� �� � ������ ���� �� � � �!%� � (��2������ ���:!�%��� ��� :� �!� �� � ������ � ���&:!� �!�%! � -2 ��� ����! !�!� ���%�!& &� � �� ��� �� ����& �� �%!��% �� ����"-�� � %��!� � � � � � � ����"-�� ��!% !:! � � � � � � �� � � ��&�:: � � � � � � the following variables are taken as appropriate: gasoline prices, co2 emissions per capita, coal production growth rate and the use of renewable resources for electricity production. the selection of these factors is mainly caused and made by the intensive use of fossil fuels that are partially responsible for environmental problems, since coal and gasoline are important parts of economies and traffic, while co2 emissions are the result of the intensive fossil fuel use. as regards the renewable resources, their use represents one of the best ways to solve environmental problems, since they do not harm the environment. in the following analysis the standard linear regression model is in the focus of the implementation but this time with different variables. this time eco–efficiency (electricity consumption per capita) is selected as a dependent variable, while petrol prices, co2 emissions per capita, coal production growth rate and the use of renewable resources for the production of electricity are selected as independent variables. the dummy variable was also included in the analysis as an independent variable to see if global financial crisis affected the eco–efficiency of the bsec member states. for the purpose of this research several datasets served for taking out proper data: iea, united nations and the world bank. therefore, we come to following hypothesis: h2: petrol prices have a positive, while co2 emissions per capita have a negative and statistically significant impact on eco–efficiency. h3: the use of renewable resources has a positive and statistically significant impact on eco–efficiency. table 4: descriptive statistics source: authors’ calculation based on the descriptive statistics in table 4, we can see that the standard deviation value for the dependent variable (1.46143) is higher than the mean value (0.9809). as regards the other variables, all of them, with the exception of renewable resources, exhibit a higher mean value than the standard deviation value. it can be seen from table 4 that coal production has very high values, since it is important for the production of electricity (covert et al., 2016). among the analyzed variables coal production has the highest range value, since the minimum value is 14.91, while the maximum value is 17.29. the co2 emissions also have very high range values, where the minimum value is 0.48 and the maximum value is 12.78. this indicates that the air pollution problem is not treated appropriately among the bsec member states and that all member states should make better efforts in solving the problem of high co2 emissions. after descriptive statistics, the correlation analysis will be implemented in order to discover possible relations between the variables. the correlation analysis will help in estimating the strength and direction of correlation between all analyzed variables. table 5: correlation analysis of eco–efficiency and independent variables source: authors’ calculation 8 snežana radukić, dušan perović 2019/24(2) � � �������� �� ��� ���� ���� �� ��� ������������ ���� �������� � � �� ���� ����� ��� ��� ��� ���� ��� ����� �� � �� � ���� �� � �������� ���� � � � � �� � ��� � �� �� �� ����� �� ���� �� � ��� �������� � �� � ���� ���������� ���� ������ � � � �� ��� �� ��� � ���� ���� ���� ������ � ����� � � �� � ecoefficiency petrolprices co2emiss coalprod renewables fincrisis ecoefficiency 1.000 petrolprices 0.1570* 1.000 0.0126 co2emiss -0.9052* -0.0380 1.000 0.000 0.5478 coalprod 0.1001 -0.0847 0.1248* 1.000 0.1131 0.1802 0.0478 renewables 0.2617* 0.0247 -0.0041 -0.1055 1.000 0.0195 0.6967 0.9489 0.0947 fincrisis 0.0497 0.1542* 0.0014 -0.0424 0.0132 1.000 0.4326 0.0143 0.9820 0.5033 0.8345 � the correlation analysis shows that eco–efficiency has a statistically significant relation with petrol prices (0.012), co2 emissions per capita (0.000) and renewable energy consumption growth rate (0.019). among these variables eco–efficiency has the strongest correlation with co2 emissions per capita (-0.905), while the strength of relation with renewable energy consumption growth rate is 0.261 and, together with petrol prices, it amounts to 0.157. coal production and dummy variable do not show any signs of statistically significant relation with eco–efficiency. after discovering the strength and direction of correlation between analyzed variables, further analysis will be continued with the implementation of the regression analysis. table 6: eco–efficiency regression analysis source: authors’ calculation the regression analysis shows that petrol prices, co2 emission per capita and renewable energy consumption have a statistically significant impact on eco–efficiency. the analysis shows one interesting thing, though – if petrol prices rise by 1%, the estimated eco–efficiency will increase eco–efficiency 0.197 percentage points. this means that companies and individuals will look for alternative fuels that are less expensive and that do not pollute the environment. the ynalysis also shows that a reduction in co2 emission per capita by only 1% will increase the estimated eco–efficiency by 0.284 percentage points. intensive renewable energy consumption will also affect the eco–efficiency since the single increase in renewable energy consumption will increase the estimated eco–efficiency by 0.317 percentage points. the statistical analysis shows that the eco–efficiency of the bsec member states can be improved if these states decide to use renewable resources more intensively. the analysis shows that environmental processes will be crucial for the future economic development of the bsec member states because the future growth of the electricity prices will “certainly encourage individuals and legal entities to use energy from the renewable resources, e.g., heating, using solar energy or energy derived from the biomass” (zdravkovic et al., 2012, p. 390). economic and environmental priorities differ in most of the bsec member states, where under some circumstances economic issues have an advantage over the environmental issues. therefore, it is important for all bsec member states to start the optimization of models that include both economic and environmental issues. based on the optimization model, “every country can define the most desirable economic and environmental policy, and respond appropriately in order to increase the level of economic growth and quality of the environment, meaning social well–being” (radukic et al., 2012, p. 690). 9 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) ������� ��� � ��� � �� ����� ����������� �� ��� ��������� �������� � � � ���� � �� ��� ���� ���� ���������� ��� ���������� ���� � � � ������ ������ ��������� � � ������� �� ��������� � ������ �! ��������� � ��� �� ���" #$% � � ��� ���� �������� ��� �� �� ������� �� ���� � � !"�#���� ��$����%��&� ������'������ �������� �������� ��� ����� ����� �� �������� �(�� ���� ��������� �������� ����� ����� �� ���� � �������� ����'�� � ����� �� �������� ���� ����� ��������� ����� �� ����)������ ���� ��� �������� �� � ����� �������� �������� *��������� �������� �������� ���� ����� ������ �� ������� +����� ������ � ������ � ���� ����� ��������� �������� references [1] aall, c., & husabo, i. a. (2010). is eco – efficiency sufficient strategy for achieving sustainable development? the norwegian case. sustainability 2, 3623-3638. doi: 10.3390/su2123623. [2 alcott, b. (2010). impact caps: why population, affluence and technology strategies should be abandoned. journal of cleaner production, 18(6), 552-560. doi:10.1016/j.jelpro.2009.08.001. [3] baltagi, b. h. (2001). econometric analysis of panel data (2nd edition). new york: john wiley & sons. [4] basuki, b. (2015). eco – efficiency and sustainable development as efforts to produce environmental friendly product: an exploratory case study. issues in social and environmental accounting, 9(3), 199218. [5] bauer, d., & papp, k. (2009). book review perspectives: the jevons paradox and the myth of resource efficiency improvements. sustainability: science, practice & policy, 5(1), 48-54. [6] chen, b., yang, q., li, j.,s. & chen, g.,q. (2017). decoupling analysis on energy consumption, embodied ghg emissions and economic growth – the case study of macao. renewable and sustainable energy reviews 67, 662-672. doi:10.1016/j.rser.2016.09.027. [7] chertow, m., r. (2001). the ipat equation and its variants – changing views of technology and environmental impact. journal of industrial ecology, 4(4), 13-29. 10 snežana radukić, dušan perović 2019/24(2) a low level of eco–efficiency is usually the main cause of many environmental problems and it is also one of the crucial factors for the increase and broader visibility of the rebound effect in the world. the rebound effect brings unnecessary and undesirable costs to all economic subjects in the long term, hence it is important to begin solving this problem immediately and start with effective and efficient use of the natural resources. after testing the ehrlich and holdren equation on the bsec member states, the results show that affluence and technology have a statistically significant impact on the environment. on the other hand, the analysis shows that the population growth rate does not have a statistically significant impact on the environment, which means that full implementation of the ehrlich and holdren equation is not impossible in the case of the bsec member states. the analysis has confirmed the h1, h2 and h3 hypotheses and shown that eco–efficiency is an acceptable variable for achieving sustainable development goals. a higher price of petrol will more than probably turn the attention to the renewable resources, which can help in reducing co2 emissions per capita and increasing the consumption of electricity through their intensive use. the bsec member states have huge potentials for using the renewable resources, but still there are no visible improvements judging from their environmental performances. since eco–efficiency is linked with the rebound effect through an intensive use of non-renewable resources, the statistical analysis has shown that an intensive use of renewable resources can improve eco–efficiency of the bsec member states, which will in the long run slowly reduce the value of the rebound effect in the analyzed region. this is something which is desirable from the environmental aspect of sustainability. the bsec member states should consider creating effective environmental strategies where renewable resources will be a priority since all other natural resources are very close to their limits. another important thing is to structure appropriate laws based on the “polluter pays principle” with very strict penalty policies. it is also important that environmental issue must be in the same correlation (or even higher) with the economic issue. all future economic activities should assess environmental aspect of business if people have a strong will to avoid any possible accidents. finally, all bsec member states should create an environmental joint venture and coordinate their activities in order to improve the overall environmental performances. the eco–efficiency concept will become more important in the future and so future studies should analyze certain areas of the eco–efficiency concept with the aim of achieving the best possible results. the future analysis should consider an intensive use of renewable resources through identifying areas where their use is important for reducing a large number of costs. analysis should help in discovering some creative ideas for small and medium enterprises that will become the carriers of the eco–efficiency concept in the future. it is a final moment for policymakers to consider a larger scale implementation of the sustainable development concept in all areas and to start reconsidering current economic and social activities to create a world as a much better, healthier and safer place for all. acknowledgements parts of this paper have been presented at the conference “sustainable growth in small open economies” on 26th october, 2017, at the institute of economic sciences in belgrade. the paper presents results of the project number iii 44007 supported by the ministry of education, science and technological development of the republic of serbia. conclusion and recommendations [8] cole, m., a, & neumayer, e. 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(2002). econometric analysis of cross section and panel data. cambridge, ma: mit press. [32] world bank group (2017). world development indicators 2017. retrieved from https://openknowledge.org received: 2017-11-14 revision requested: 2018-05-25 revised: 2018-06-30 accepted: 2018-07-03 11 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) 12 snežana radukić, dušan perović 2019/24(2) snežana radukić university of niš, faculty of economics, serbia snezana.radukic@eknfak.ni.ac snežana radukić is an associate professor at the faculty of economics, university of nis. she teaches price theory and policy and microeconomics. she earned her master’s degree at the faculty of economics, university of belgrade, in 2003, and a phd at the faculty of economics, university of niš in 2009. she has published a textbook, three monographs and dozens of scientific papers in journals and conference proceedings of international and national importance. she has been engaged in the projects of the ministry of education, science and technological development of republic of serbia since 1999. the areas of her interest are: microeconomics, state intervention, environmental protection. dušan perović university of niš, faculty of economics, serbia dulep89@gmail.com dušan perović is a phd student at the faculty of economics, university of niš. he obtained his bachelor’s and master’s degrees at the faculty of economics, university of niš after which he enrolled in phd studies at the same faculty. he participated at many domestic and foreign scientific conferences, seminars and workshops. he also published some of his scientific papers in many domestic journals and conferences. he lives in niš. he speaks english, german and french. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07 mihailovic:tipska.qxd 73 jovana mihailovic1 vip mobile d.o.o., belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(2) the future of mobile operators new business models doi: 10.7595/management.fon.2018.0033 abstract: 1. introduction the development of mobile communications has drastically influenced people’s lives. each new release resulted in faster, higher bandwidth and more intelligent network. the terms internet of things, virtual reality, artificial intelligence, big data, machine learning are all used in the context of digitalisation. it is a phenomenon which affects private, professional, and business spheres. companies in the telecommunications sector are undergoing a fundamental shift to adapt to a digital world and have been developing from telephony service providers into data companies. by being the ‘backbone’ of digitalisation, mobile operators become infrastructure providers. this significantly impacts their income since they went from service providers (offering voice and messaging services) to data package distributors. the telecom operators had to painfully experience the disruptive power of ott (over the top) services. the traditional sources of their income are showing signs of becoming obsolete (sujata et al., 2015). messaging platforms such as whatsapp, viber, skype, facebook messenger and many others, have drastically decreased the voice traffic and messaging services. on the other hand, mobile operators are uniquely positioned to create additional value across a range of industries and to become end-to-end service providers. operators are connecting more and more to the digital lifestyle of their customers as they move from selling gigabytes to selling services and applicationscentric benefits (allot, 2014). nowadays mobile operators offer ott services like music and video streaming 1 corresponding author: jovana mihailovic, e-mail: j.mihailovic@vipmobile.rs research question: this paper investigated business model innovation in telecommunication industry by analysing open business models that operators can implement to innovate and stay competitive in the market. motivation: the study tends to cover all strategically important aspects for mobile operators present in literature from telecommunications market analysis (itu, 2017; sujata et al., 2015), the importance of business model innovation (ghezzi, cortimiglia & franc, 2015) to collaboration models that raise innovation activities (xu & chen, 2015; dittrich & duysters, 2007; weiblen & chesbrough, 2015) and to complement them with examples from practice. idea: the aim of this paper is to analyse open business models and collaboration strategies operators have with partners and to show that business model innovation in telecommunication industry is as important as technological innovation. data: research was conducted by analyzing various studies, reports, reviews, books, white papers and articles. tools: to answer the research question, we used statistical data published by respected bodies itu, eurostat, ratel as well as from leading vendors in telecommunication industry cisco and ericsson and leading mobile operators such as telekom austria, telenor, vodafone. findings: the study highlights the rising importance of business model innovation and proposes open business models operators can implement to increase internal innovation activities. contribution: the study complements the open innovation literature, especially in the serbian market where no similar analysis was performed. the findings of this study can help manages and directors refine internal innovation processes and propose collaboration models for their company. keywords: mobile operators, data traffic, innovation, business model, startups jel classification: l22, l24, l96, m13, o31 services, cloud storage, location-based services. these services are provided by the operator itself or, more commonly, through different kinds of partnerships (berec, 2016). in emerging markets today there are many opportunities for mobile operators and startups to collaborate (bayen & ajadi, 2017). companies commercialise new ideas and technologies through their business models (chesbrough, 2010). firms should consider changing their learning approaches over time to successfully renew their business models (foss & saebi, 2016). corporate business model transformation is defined as “a change in the perceived logic of how value is created by the corporation” (aspara, lamberg, laukia & tikkanen, 2013). open innovation is the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. this paradigm assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as they look to advance their technology (chesbrough, 2006). access to external sources of knowledge enables new combinations of technologies and therefore, contributes to the innovation performance of firms (cheng & huizingh, 2014). companies wishing to engage in open innovation must (at least partly) re-organise their business models as to accommodate their open innovation strategies and to subsequently enhance innovative performance (saebi & foss, 2014). mobile operators need a new business model that would incorporate their strategic objectives and targets. the goal of this paper is to show that, for mobile operators, a business model innovation is becoming as significant as technological innovation. the open business model is analysed as a possible model operators can use to enforce internal innovation and expand their portfolio. the research is explored by means of questions: 1. how is telecommunication market changing, how does it impact operators and how do they respond to it? 2. which forms of partnerships do operators create with external organizations? 3. how does the digitalisation trend influence the serbian telecommunication market and how do mobile operators respond to digitalisation trend compared to other developed countries? the paper is structured in the following way. in the second chapter a literature review on new business models in the telecommunication market is presented. the research methodology is described in chapter three. the telecommunication market trend and strategy of mobile operators are analysed in chapter four. chapter five describes possible collaboration models between operators and external partners. each model is followed by an example from practice. chapter six analyses the situation on the telecommunication market in serbia, and how operators deal with it. chapter seven presents results and discussion; chapter eight concludes the work. 2. literature review the telecommunications market is constantly evolving with increasing demand for faster data speeds, ongoing external regulatory and competitive pressures and changing societal expectations (vodafone, 2017). operators are challenged to innovate in both technological and product segments (asimakopoulos & whalley, 2017). the survival of telecom service providers has become very demanding as the telecom market is now highly saturated and on the verge of big changes (yang, trimi & lee, 2016). driven by a digital transformation of the telecom business, operators need to evolve and adjust their portfolios. one of the great challenges operators face is how to compete with other ott providers (wang, lai & chang, 2016). the impact of ott service providers on the telecommunication market, consumer trends toward the adoption of ott services and how they influence operator revenues were analysed by several authors (sujata et al., 2015; lutilsky & ivic, 2016; gerpott & meinert, 2016). monitor deloitte predicted four possible scenarios that could happen to mobile operators in the future depending on infrastructure and services ownership. in the first scenario operators possess the whole system from technological assets to end to end customer services. in the second scenario, mobile operators still hold the network infrastructure, but have lost end user control. the third scenario defines mobile operators as end service providers, who do not control network anymore, and in the fourth scenario, the most pessimistic one, operators have lost the full control over all the elements (monitor deloitte, 2017). no matter which case happens, each of the scenarios triggers changes in the business model operators have nowadays. a business model can be defined in various ways. in a simple and short way, a business model is described as the “way of doing business” or its “business concept” (hamel, 2002; voelpel, leibold, tekie & krogh, 2005). campanovo and pigneur (2003) define the business model as a detailed conceptualization of an enterprise’s strategy at an abstract level, which serves as a base for the implementation of business processes. 74 jovana mihailovic 2019/24(2) ghezzi, cortimiglia & franc (2015) assumed that external and internal changes influence the company’s strategy and affect business model elements, as a result, strategic re-planning process should be triggered. new customer preferences also represent an opportunity for business model changes (casadesus-masanell & zhu, 2012). mobile operators can take different actions to empower innovation and stay competitive in the market: • create a development centre (rohrbeck, thom & arnold, 2015) • create partnership with ott players (bayen & ajadi, 2017; xu & chen, 2015) • charge otts mobile internet access fee (xu & chen, 2015). when mobile operators innovate inside organization, the investment required is quite high and the approach is risky for operators as they do not have the necessary skills to launch such services (sujata et al., 2015). xu and chen (2015) concluded in their research that for both mobile operators and ott service providers the biggest profit on both sides could be achieved through cooperation strategy rather than charging otts access fee. hung and chou (2013) conclude that technological turbulence significantly and positively moderates the effect of inbound open innovation on firm performance. competitive advantage is a key strategic element of open innovation (ghezzi, balocco & rangone, 2016). creating networks with external organisations seem to offer flexibility, speed, innovation, and the ability to adjust smoothly to changing market conditions and new strategic opportunities (dittrich & duysters, 2007; schneider & spieth, 2013; munir, linaker, wnuk, runeson & regnell, 2017). the ability of the firm to maintain and develop external connections is the first critical enabler that explains higher levels of success (sisodiya, johnson & gregoire, 2013). companies are trying to collaborate with startups and to transform them into engines of corporate innovation since the corporation has resources, scale, power, and the routines while a startup has promising ideas, organizational agility, the willingness to take a risk and aspirations for rapid growth (weiblen & chesbrough, 2015). using external knowledge for product development might also mean using the input from customer so that the product can be developed and optimized according to user wishes. the customers’ feedback has been an important part of product innovation in recent years (bosch-sijtsema & bosch, 2014; schaarschmidt & kilian, 2014). 3. research methodology the paper reviews the literature on market trends in the telecommunication industry and analyses new business models mobile operators are implementing. to answer the research questions various studies, reports, reviews, books, white papers, articles were analysed. operators’ strategy was analysed based on annual reports published by leading mobile operators. statistical data were taken from respected institutions in telecommunication industry: international telecommunication unit (itu), european union statistical office (eurostat), republic of serbia regulatory agency for electronic communication and postal services (ratel) and reports from global leaders in ict solutions (cisco, ericsson). for every proposed business model, an example was given, and these were taken from mobile operator’s official press releases. 4. telecommunications market trend the demand for mobile data services to watch videos, browse the internet, and use applications have accelerated rapidly. one example of this trend is that at the end of the 1990s, the number of internet users in the eu was around 15% of the population and only a fraction thereof used online shopping. now, internet penetration in this region has reached 85%, and the number of online shoppers has increased to almost 60% (eurostat, 2017a; eurostat, 2017b). mobile broadband subscriptions have grown by more than 20% annually in the last five years and are expected to reach 4.3 billion globally by the end of 2017 (itu, 2017). global mobile data traffic grew by an estimated 63% in 2016 (cisco, 2017). according to ericsson (2017) traffic measurement for the period 2012-2017, in each quarter there was a strong growth in data traffic, while voice traffic was stagnating. it is anticipated that by the end of 2022 mobile broadband subscriptions will reach more than 90% of all mobile subscriptions. these data show that the telecommunication industry is shifting from an industry that was all about voice to one that is mostly about data. 75 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) today, almost half of global telecommunication revenue (48%) comes from data, compared to only 22% five years ago (vodafone, 2017). global telecommunication revenues declined by 4% between 2014 and 2015 (itu, 2017). mobile broadband prices, as a percentage of gross national income per capita, dropped by half between 2013 and 2016 (itu, 2017). the study from (2017) has calculated that the consumer migration to ott messaging services will cost network operators nearly $104 billion this year, equivalent to 12% of their service revenues. these statistics show that the demand for data services grew significantly in the past and will keep up with this trend. mobile operators are constantly challenged with price erosion and increasing capacity demands. to follow the market trend, operators are forced to keep on investing in network infrastructure. on the other hand, having just good quality network for all the digital solutions will not be enough. mobile operators nowadays are looking for ways to become the end to end service providers. percentage of providers offering services such as video, music, cloud storage, location based services and etc. grew from 35% in 2011 to 85% in 2014 (allot, 2014). annual reports published by leading telecommunications providers (telekom austria, 2017; vodafone, 2017; telenor, 2017) show that mobile operators have similar strategies: to be the best in the core business, to obtain network leadership, to expand their portfolio, to have the best customer experience and to offer digitalized services. operators are working on a machine to machine communication solutions that include automotive, fleet management, smart cities, health and manufacturing. cisco (2017) predicts that by 2021, m2m mobile connections will reach more than a quarter of total devices and connections. mobile operators are preparing for the fifth-generation network. the 5g will enable a wide range of use cases for the massive internet of things. in 2022, the number of 5g subscriptions is forecasted to reach more than 500 million (ericsson, 2017). digitalisation trend boosts tendency for infrastructure investment. it is extremely complex, and it requires operational, organizational and business changes (contreras et al., 2015). however, every technology progress so far required similar reorganisations and operators are familiar with these dynamic changes. by only improving the network infrastructure, the operator’s revenue will hardly grow. broadening product portfolio is a big challenge for mobile operators. to take advantage of digitalisation trend changes in business model are needed. in some cases operators are working on innovations on their own, but more frequently they create different development programmes through which they work with partners on creating new products. 5. mobile operators partnering with other organizations innovation and creativity in the workplace have become increasingly important determinants of organizational performance, success, and longer-term survival (anderson, potocnik & zhou, 2014). inbound open innovation or external knowledge sourcing refers to the practice of establishing relationships with external organisations or individuals with the purpose of accessing their technical or scientific competencies for improving internal innovation performance (chiaroni et al., 2010). by pooling intellect in a system architecture, open invention and open coordination can produce superior products and services relative to those produced by a smaller number of minds huddled together in a single company (chesbrough & appleyard, 2007). operators can access external knowledge sources by various means of agreements involving individuals, companies and other organisations that possess the relevant knowledge to complement the operator’s internal innovation. 5.1. mobile operators partnering with universities and r&d institutions almost every operator has some partnership with r&d institutions and universities. by being in contact with r&d institutions, they stay in touch with all the latest scientific achievements. in 2016, the telekom austria group had research partnerships with the vienna university of technology, the christian doppler laboratory for wireless technologies for sustainable mobility, the christian doppler laboratory for dependable wireless connectivity for the society in motion, and the josef ressel centre for user-friendly secure mobile environments (telekom austria, 2017). in collaboration with the norwegian university of science and technology, telenor will establish a lab within artificial intelligence and big data in trondheim (telenor, 2017). 5.2. mobile operators cooperating with startups mobile operators can connect with startups in many different ways, depending on the amount of invested money and the level of collaboration (bayen & ajadi, 2017). once collaboration is established, startups can be an important source of innovation and growth. companies create different development programmes 76 jovana mihailovic 2019/24(2) through which startups receive support, funding, coaching, and co-location. programmes allow operators to engage with a larger number of startups, to pursue multiple interesting approaches in parallel depending on the number of startups they work with. when working with operators, startups can get equipment, market access and industry expertise and can add a well-known brand name to their list of customer references after the completion of the joint project (weiblen & chesbrough, 2015). to maximise the chances of success, choosing which startup to work with and at what maturity stage is an important factor. to organise a competition is a common way for operators to start a collaboration with a startup. mobile operators organise the competition usually by defining the category for solutions. winners get short-term grant, but also a chance to continue working with the operator. some competitions are held for public relations reasons rather than a real desire to engage in long-term partnerships. also, startups sometimes focus only on seeking funding, not opportunities to collaborate (bayen & ajadi, 2017). on the other hand, operators organise competitions to find startups they want to work with through some development programmes, incubators, accelerators. a1 startup challenge is a competition that is held in vienna, in which a1 is looking for a startup to work on developing innovative digital solutions (a1, 2015). telefonica organised a competition to identify the innovative technological projects with the greatest potential in the world. it was a virtual race that could be joined by innovative projects and startups from around the world (telefonica, 2016). another way for operators to connect with startups and start working with them is to invest in a technical hub. and invested in the project started by the european commission, acceleration programme called the startup europe partnership and a think tank called the european digital forum (dawinderpal, 2014). once the startup or a partner is selected, operators can continue collaboration through different programmes and forms of partnerships. corporate incubation has become an established means to commercialise corporate innovation (weiblen & chesbrough, 2015). mobile operators create a tech hub that can help startups develop their ideas. operators give co-working space, financial investment, know-how and media relations. this is a way to offer internal operator knowledge and expertise and help the development of the invention. the program can last several months or a few years depending on the operator strategy. operators define co-working conditions, and usually get a certain amount of startup equity. telenor accelerate (hungary) is a short acceleration programme, lasting five months, which includes a series of workshops and mentoring sessions and access to telenor infrastructure for testing and marketing opportunities among customers (telenor, 2016a). a1 start up campus is a programme that can last up to three years. startups are given space to work on the campus and business consulting from dedicated a1 experts in the field of technics, marketing, sales, finance, pr, legal. a1 in return gets access to innovation and gets part of the equity share (a1, 2015). operators can invest in a startup directly, through their founds. for example, a1 has invested €600,000 in parkbob, a smart parking application. it combines real-time parking data with a database of parking regulations, linking these with geo-information to show where parking is allowed, how much it costs and where free parking spaces are in real time (european communications, 2016). the mobile operator can make an equity investment in the startup partner resulting in a joint venture run by both entities. the mtn, one of africa’s largest telecom operators, has partnered with rocket internet and millicom international cellular to develop internet businesses in africa through the africa internet holding (aih), a company dealing with e-commerce businesses across the african continent (mtn, millicom and rocket internet each became 33.3% shareholders in aih) (mtn, 2013). the mobile operator can make a deal with a startup to resell its product by putting it in the product portfolio. navvis has developed a method for surveying building interiors with centimetre accuracy (it surveys building interiors by scanning them with lasers and simultaneously taking 360-degree panoramic photographs), and deutsche telekom has integrated this new system within its product portfolio (deutsche telekom, 2017). the mobile operator can acquire a startup to integrate it with its operations. this way the mobile operator can broaden its area of expertise and take a position in the new market or secure competences within the markets where they are already present. in 2016, telenor group bought 95% of tapad company (telenor, 2016b). this startup tracks data points across multiple screens (mobile, pc, tv) to gain a better sense of where consumers are going and what they are doing online. it then packages and sells that information to media buyers, brands and other advertisers to create better-targeted advertising. from the operator’s point of view, this acquisition could improve understanding of customer behaviour and support building platform for other business areas. 77 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) one operator can make different collaboration agreements with different startups. startups can also collaborate with more than one operator. mobile operators can also change the model of cooperation with startups as the product develops. one example of this is the cooperation between parkbob and a1. parkbob firstly participated in a startup competition organised by a1. after being selected, the startup employees moved to a1 campus, where they worked together with a1 experts on developing the application. finally, after two years a1 decided to make the direct investment to support the further development of parkbob. weiblen & chesbrough (2015) discussed two different models of engaging with startups, a traditional one in which corporations have partial ownership over startup and an open business model in which there is no equity involved. the study showed that companies are evolving more lightweight models to engage with startups to accelerate their decision making and their ability to attract, support, and retain startups in large numbers. nevertheless, the equity-based model gives a better financial performance in the case of success, it is a way to get deeper insights into new technologies or the strategic market for which the corporation is not able to provide a satisfying offering. the characteristics of these two types are shown in table 1. table 1: characteristics of collaboration models for outside innovation between mobile operator and startup source: weiblen & chesbrough, 2015 6. serbian telecommunications market and operators business models there are three mobile operators in serbia: telekom serbia (46.8% market share in terms of number of subscribers), telenor (31.2%) and vip mobile (22%) (ratel, 2017). the telecommunication market in serbia is quite mature. from 2013 to 2016 the number of subscribers did not change much (9.2 million in 2013 and 9.09 million in 2016); 91.8% of inhabitants are using mobile phones; the percentage is a bit smaller for smartphones 71.2% of inhabitants (ratel, 2017). regarding the network coverage of 4g signal mobile operators in serbia are on track with the eu average. the average percentage of the 4g signal in the households in 2016 in eu was 84%, and in serbia, vip mobile had the strongest coverage with 94.3% (ratel, 2017). the mobile communication industry in serbia is getting to be data-centric, in the last five years, data traffic in average have grown by 46% yearly. the expansion of ott messaging services and social media is noticeable in the statistics for sms and mms traffic. from 2015 to 2016 the number of sent sms messages decreased by 12.8% and mms by 17.3% (ratel, 2017). statistical data show that the digitalisation trend has impacted the telecommunication market in serbia, and accordingly mobile operators in serbia are very active in innovation communities. vip mobile has a collaboration with ict hub. one of their joint projects was hackathon organised with topic digitization of agriculture (ict hub, 2017). vip mobile and ict hub also organised a competition ”vip iot challenge”. the task was to design and implement innovative internet of things (iot) solutions using narrowband technology (cord, 2018). telekom serbia sponsors the startit, an innovation center for it. additionally, they have created a programme, an mts startup accelerator, through which they invested in the startup academy (a programme that gathers and helps local startups) (mts, 2018a). telenor and mts are both part of digital serbia initiative (organization that stimulates digital innovation) (digital serbia initiative, 2017). mobile operators in serbia do not have their development centres. still, they are broadening product portfolio and are offering new end to end services that are beyond their initial scope of offering pure data and voice traffic. in order to analyse operators’ innovativeness in serbia their product portfolios were analysed. it appears that mobile operators offer different services of cloud storage, applications for listening to music and watching tv, as well as some ott services. the mts offers software, created by green soft, for automated agriculture production processes management (planning, tracking, maintaining agriculture processes, employee and 78 jovana mihailovic 2019/24(2) machinery control) (mts, 2018b). the “myki touch” is a solution offered in collaboration with alterco; it is a child watch designed to connect parents with a child, by allowing transmission of calls, text and voice messages as well as monitoring the exact position of a child (vip mobile, 2017a). the vip enterprise mobile management is a solution for business customers developed in collaboration with the ibm that enables accessing company applications and data on the move in an efficient and secure way (vip mobile, 2018). the “vip mastalica” is a result of collaboration between vip and kreativni centar, it is an online collection of children stories (vip mobile, 2017b). one very successful collaboration was between vip mobile and startup things solver; together they created a tool application that improved efficiency in radio network, it allowed a better radio capacity allocation and planning, optimization and foreseeing future user problems (milovanovic, 2018). some of the mobile operators in serbia are members of larger international groups (vip mobile of a1 telekom austria group and telenor serbia of telenor group) and as such can take advantage of all the innovation achievements created within the group inside their tech hub and in some cases to participate in them. 7. results and discussion the first question paper investigated was how telecommunication market is changing and how mobile operators respond to it. the mobile communication industry in the last twenty years has been characterized by constant technology development from lower-generation network connectivity (2g) to higher-generation network connectivity (3g, 3.5g, and 4g or lte) with each new technology resulting in faster, higher bandwidth and more intelligent networks. today, mobile operators are preparing for the fifth-generation network that will enable a wide range of use cases for massive internet of things (higher traffic volume; indoor or hotspot traffic; traffic asymmetry; and spectrum, energy, and cost efficiency). statistical data published by respected institutions in telecommunication industry such as itu (2017) and eurostat (2017a, 2017b) show that there is an increasing demand for data-centric services on one side (mobile broadband grows 20% annually) and operators revenue decline on the other (revenue declined 4% between 2014 and 2015, and broadband prices dropped by half between 2013-2016). results indicate that in order to respond to data traffic growth mobile operators need to invest in infrastructure and improve network capabilities. the need for data-centric services is rapidly growing and predictions by ericsson (2017) and cisco (2017) are that in the next five years data traffic will dominate mobile network. the revenue decline mobile operators are facing indicate that having a good quality network is not enough for generating satisfactory revenue and that mobile operators need to make changes in their respective portfolios and to offer more innovative data services. therefore, to ensure their position as content providers, mobile operators need to expand their offer, beyond pure voice and data; they need to offer end to end services. rarely do operators have enough knowledge, skills and finance to create new products internally which means they have to make some changes in the business model to empower innovation and generate new data services. these results have shown that, for mobile operators, innovation in the business model is as important as innovation in technology. the second research question was what kind of partnerships mobile operators form with external organizations. to keep up with the newest trends and achievements, it is important for operators to be well informed, which is why many of them partner with r&d institutes and universities. there are several benefits mobile operators can obtain when working with a startup: aachieve growth of core revenue, create or improve their image of innovative content provider, create a new revenue stream and reduce costs in some areas (weiblen & chesbrough, 2015; bayen & ajadi, 2017). one of the first and biggest challenges operators face is to choose the right startup to work with. innovation hubs gather startups from different fields and as such are attractive for operators, that is why many operators choose to invest in hubs. a competition is also a popular way to select a partner. competition and investment in local tech hub are collaboration programmes that do not require equity. others can vary depending on the company’s strategy and the depth, duration and success of collaboration between an operator and a startup. for instance, in the early stage on the inside development programme operators do not necessarily acquire equity, but as the product develops and the depth of cooperation increases, the operator usually acquires part of ownership over startup. this is the case in which the operator develops the product together with the startup; in case they notice a good business opportunity that is already developed and want to profit from it, they can sign a joint venture with the company, and resell the product. there is always a trade-off between these models; if collaboration is established at the early stage, the risk of product failure is higher but in case of success the profit is bigger; on the other hand, the probability of failure with already formed products is lower as well as profit margin. another compromise is between the number of startups an operator can work with – the more investment they make in one startup, the less funds is left for other startups, but in case of success the profit will be higher. if operators work with several startups and solutions, the probability that at least one will succeed is higher but also the profit might be smaller. the summary of all collaboration models between startups and operators with listed examples is presented in table 2 79 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) 80 jovana mihailovic 2019/24(2) table 2: collaboration models between mobile operator and startup source: a1, 2015; dawinderpal, 2014; deutsche telekom, 2017; european communications, 2016; mtn, 2013; telefonica, 2016; telenor, 2016a; telenor, 2016b reports published by leading mobile operators (telekom austria, 2017; telenor, 2017; vodafone, 2017;) demonstrate that mobile operators have awareness about the market trend that generate constant need for new services, and that they are trying to raise their innovation activities in collaboration with different partners, which confirms that open innovation is the way to enforce internal innovation and create new products. external knowledge and knowledge from other industries cannot only complement the existing expertise in the company but can also broaden the perspective for new ideas and approaches. working with dynamic, adoptive and fresh motivated experts like the ones working in a startup can lead to generating some new ideas and solutions that operators were not even aware of before the collaboration process. one of the examples for this is a very successful collaboration between things solver startup and vip mobile (milovanovic, 2018). data mining and radio access optimization know how was combined and as a result, a tool that allows a better radio capacity allocation and planning, optimization and foreseeing future user problems was created. this tool made financial savings for the company, but it was also the first product that was created inside the company and could be sold to other operators. the telecommunication market in serbia is characterized by constant growth of data traffic, reduced demand for sms/mms and broad operator’s portfolio with a range of innovative services they have created in collaboration with different partners (children’s watch, cloud storage, solution for data security, agriculture management tool). operators also tend to increase innovation activities by connecting with a local hub (vip mobile and ict hub, telekom and telenor with startit). these results answer the third research question that telecommunication market in serbia is changing in the same direction as in other developed countries. conslusion the paper shows the business models mobile operators are using to broaden their respective portfolios and remain competitive in the market and it highlights the importance of business model innovation in the telecommunication industry. mobile operators have a clear strategy for technical improvements. statistical data show growth of data traffic in the past years, and predictions are that this trend will continue. to respond to an increasing market need for data consumption, operators are focused on modifying their infrastructure and are working on goals such as network virtualisation, m2m and the fifth generation network. improving technical performances of the network is imperative since it is dictated by the market trend. nevertheless, if operators are offering only good quality network without ott services, financial achievements will not be satisfactory. the revenue of 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(2016). modeling and analysis for mobile application services: the perspective of mobile network operators. technological forecasting and social change, 111, 146-163. doi:10.1016/j.techfore.2016.06.020 [61] weiblen, t., & chesbrough, h. (2015). engaging with startups to enhance corporate innovation. california management review, 57(2), 66-90. doi:10.1525/cmr.2015.57.2. 83 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) 84 jovana mihailovic 2019/24(2) [62] xu, x., & chen, r. (2015). competition, cooperation, and pricing: how mobile operators respond to the challenge of over-the-top. international journal of marketing studies, 7(6), 1. doi:10.5539/ijms.v7n6p1 [63] yang, c., trimi, s., & lee, s. (2016). effects of telecom service providers’ strategic investments on business performance. industrial management & data systems, 116(5), 960-977. doi:10.1108/imds-082015-0350 received: 2018-01-03 revisions requested: 2018-03-18 revised: 2018-09-12 (3 revisions) accepted: 2018-09-19 jovana mihailovic vip mobile d.o.o., belgrade, serbia e-mail: j.mihailovic@vipmobile.rs jovana mihailovic, msc, works with the vip mobile and has more than five years of experience in the mobile communication industry. she finished a double degree master programme in telecommunications at karlsruhe institute of technology (karlsruhe, germany) and polytechnical university of catalonia (barcelona, spain). she obtained a bsc in electrical engineering at the university of belgrade, school of electrical engineering. jovana is a phd student at the at the university of belgrade, faculty of organizational sciences. her current research and area of interest include open innovation, open business models and agile 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 06_zohar laslo:tipska.qxd 53 zohar laslo1, gregory gurevich2 1sce — shamoon college of engineering 2sce — shamoon college of engineering enhancing project on time within budget performance by implementing proper control routines udc: 005.591.1:005.8 ; 658.14/.17 doi: 10.7595/management.fon.2014.0019 balcor 2013, 07 – 12 september, 2013, belgrade – zlatibor, serbia 1. introduction project management focuses on the technical specifications of a project and how those specifications can be met within the cost, profit, time, safety, and quality constraints that the contract with the client has imposed on the enterprise (clark & colling, 2005). large projects are often characterized by a combination of uncertainty and ambiguity related to goals and tasks, as well as the complexities that emanate from their size and the numerous dependencies between different activities and the environment. among the factors likely to change the existing plan are the revisions of work content estimates, changes in technical specifications, technical difficulties, delivery failures, weather conditions, and labor unrest. research has proved that routines, even if cost-effective, do not work well in situations of high uncertainty. for example, the studies of van de ven et al., (1976) and keller (1994) show that most routines work properly in low uncertainty situations, and kraut & streeter (1995) have clarified that under high uncertainty the control routine used in routine production environments may not suffice. turner (1993) and pinto (2007) clarify that risk management has a positive effect on project success in terms of delivery of contractual commitments on time and within budget. control and coordination are closely intertwined concepts in classic organization theory (parker, 1984). recent findings confirm that the implementation of a control routine and coordination system influences task completion competency and thus, project management performance (liu et al., 2010). a control routine involves: 1) monitoring that serves to establish the need to control the tendency to deviate from the planned trajectory while there is still time to take corrective actions (lock, 1987), 2) analyzing the situations at each inspection point using present views, and 3) deciding which corrective actions should be implemented if reestablishment of project targets is required. sacks et al., (2005) claimed that the control of time, cost, and quality is performed almost exclusively manually, with the result that it is expensive, approximate, and commonly delivered with a time lag that does not allow an effectively closed control loop. the chances of successfully achieving the time and cost objectives during the course of implementation of a project are slim indeed, unless an adequate level of control followed by coordination, if required, is exercised throughout its lifecycle. packendorf (1995), kerzner (1998), thiry (2004) and many others claimed that effective project management requires extensive inspection and internal coordination. management 2014/72 prevalent control routines are generally based on traditional deterministic models that in situations of short time float and scanty budgets are often unable to deliver complex projects “on time within budget.” because it does not take uncertainties into consideration, the deterministic approach grossly misleads management into thinking that the likelihood of delivery on time within budget is very good, when in reality it is very poor. we propose a stochastic control routine that enables the attainment of project deliveries “on time” and, as much as possible, “within budget,” in many situations where prevalent control routines cannot provide the same results. keywords: project management; control routines; time-cost tradeoffs; monte carlo methods. project management is a complex decision-making process that typically involves continuous budgeting and scheduling decisions under pressures of time and cost. a project with ample time and a generous budget, especially when supported by an appropriate control routine, can usually be accomplished on time and within budget. but, in a situation of a short time float and a scanty budget, simultaneously attaining both time and cost targets might be extremely difficult, because time and cost are in a tradeoff relationship. in practice, the prevalent choice is the attainment of the time target first, while the satisfaction of the cost target is secondary. thus, coordination should be mainly considered when the present view indicates missing the time target, or, when the indication is that the time target is attainable but the cost objective is not. the coordination for reestablishing the project time target can be obtained by possible pruning of activities, by detailing activities, by redistributing workloads in order to perform more activities in parallel (laslo et al., 2008), and mostly by regulating the activity execution modes (using, for example, the critical path method (cpm) proposed by kelley & walker (1959) and kelley (1961)). control systems must be flexible in accepting information, instantaneous in terms of response, comprehensive in terms of the range of functions they support, and intelligent in terms of analysis and overview of information throughout the project lifecycle. project managers seek control systems that can actually be used throughout the project lifecycle, making subsequent controls easier and cheaper. but, contrary to the deterministic models, using stochastic models may place onerous requirements on users because they require multiple duration estimates whose production may be time-consuming. nevertheless, the question is whether is it worthwhile to replace control routines that are based on a simplified deterministic approach with routines that are based on a complicated stochastic approach? this study was designed to compare control routines based on alternative procedures, all seeking to provide deliveries that are on time within budget. the on time target in the experiment was determined as a constraint, while the within budget target was determined as a desired goal, but this goal was subject to the satisfaction of the time constraint. for comparing the performance of the control routines based on the different approaches, we performed “what if?” analyses on a real project that had renewable resources. indeed, project control routines may deal with limited capacities of project resources that require solution of multi-mode resource-constrained scheduling optimization problems. but, the availability of some nonrenewable resources that are required within realistic execution-windows of project activities cannot be guaranteed when scheduling those execution-windows is subject to uncertainty. from the standpoint of practicality, it is worthwhile to convert the complicated multi-mode resource-constrained scheduling optimization problem into a problem with renewable resources and “earliest start” activity scheduling, which can be resolved as a time-cost tradeoff optimization problem. this article will first provide a survey of literature in the context of project inspection points with our proposal for their definition. this is followed by the description of a generalized model for a multi-mode execution of activities for supporting the solution of time-cost tradeoff optimization problems. then, the authors will provide the studied project on which the “what if”? analyses will be performed. next, deterministic and stochastic simulation procedures of control processes will be described and implemented. the empirical portion of the paper concludes with a set of insights. finally, a summary closes the article. 2. project inspection points intelligent determination of inspection points throughout the project lifecycle is crucial for its effective control. the literature of recent decades has been challenged by several unresolved issues that have traditionally precluded the installation of sophisticated control systems. one issue is the breadth of inspection (time only, cost only, time and cost, and so on). the earned value method implementations for large or complex projects include features such as indicators and forecasts of cost performance and schedule performance. however, the most basic requirement of an earned value system is that it quantifies progress using the present view and the earned value. lipke et al., (2009) proposed an application of statistical methods to earned value management and earned schedule performance indices. pajares & lópez–paredes (2011) proposed two metrics that combine earned value management and project risk management for a project’s control routine. naeni et al. (2011) proposed a 54 2014/72management fuzzy-based earned value model with the advantage of developing and analyzing the earned value indices, with completion uncertainty affecting time and cost estimates. the second issue is the determination of the inspection frequency. in the literature, the problem of proper inspection frequency is mostly avoided by considering a pre-established total number of inspection points. however, there is scant research addressing this issue, mostly in the context of possible reduction of the total number of the inspection points (friedman et al., 1989; golenko-ginzburg & gonik, 1997; golenko-ginzburg & laslo, 2001). for example, golenko-ginzburg & laslo (2001) proposed an optimization procedure that can be realized with different execution modes. at each inspection point the model faces a stochastic optimization problem where the objective is to minimize the number of inspection points, subject to a chanceconstrained completion deadline. decision-making on the activity execution modes and the next inspection point are determined through extensive simulation at each routine inspection point. tareghian & salari (2009) argued that the number of project inspection points has an upper bound beyond which no significant benefits can be attained, but they did not state how to determine an adequate number of inspection points. the third issue is the determination of inspection timing. the traditional optimal control models (lefkowitz, 1977; elsayed & boucher, 1985; linn & wysk, 1990) deal with fully automated systems where the output is continuously measured on line. the temporary nature of a project allows us to monitor its advancement only at pre-determined inspection points, as it is impossible to perform measures continuously. anyhow, the inability to continuously conduct inspection during the course of a project’s advancement is the crux of project management. partovi & burton (1993) carried out a simulation study to compare the effectiveness of five inspection timing policies: 1) no inspection; 2) completely random inspection; 3) inspection at equal intervals; 4) beginning with more frequent and ending with less frequent inspection (front loading); and 5) beginning with less frequent and ending with more frequent inspection (end loading). their results did not introduce significant differences. they recommended investigating the effects of density, network size, and other characteristics of the program evaluation and review technique (pert) network on the performance of different inspection mechanisms. de falco & macchiaroli (1998) argued that because projects can follow different patterns, this makes clear the need for different allocations of inspection points. they proposed a framework to make decisions concerning the timing and frequency of inspection actions based on the definition of an effort function, which incorporates activity intensity and schedule slack aspects, and the premise that inspection intensity is distributed according to a bell-shaped curve around the point of maximum effort. raz & erel (2000) presented an analytical framework for determining the inspection timing throughout the project lifecycle. the authors’ approach was based on maximizing the total amount of information generated by the inspection points, which depends on the intensity of the activities carried out since the last inspection point, and on the time elapsed since their execution. they compared the optimal amount of information to the amount of information obtained with two simpler policies—inspection at equal time intervals and inspection at equal activity intervals. the fourth issue is concerned with auditing techniques such as monitoring based on data collection, written reports, formal or informal sessions with the project team, and on-site visits. communication throughout the project lifecycle is hindered by the large amount and the wide variety of information that is involved in the project. however, in traditional control systems, manual data collection, improper data sharing, and the gap between inspection points usually result in late identification of deviations in project performance. this subsequently leads to late corrective actions, which often result in cost and schedule overruns. unlike common document-based systems, advanced systems that facilitate project information management and communication focus on demonstrating the potential of data-centric web databases to enhance the communication process during the project lifecycle (chassiakos & sakellaropoulos, 2008). azimi et al. (2011) presented an automated data acquisition system integrated with computer simulation. their system provides a reliable platform for an automated and integrated control framework that facilitates decision-making by enabling project managers to take corrective actions immediately after deviations occur. it seems that there is a wide consensus that the focus of inspection should be concentrated upon time and cost. it is also agreed upon that automated data acquisition systems integrated with computer simulations can provide control in real time with negligible cost. thus, the issue of inspection frequency becomes irrelevant. meredith & mantel (1995) argue that control points should be linked to the actual plans of the project and to the occurrence of events as reflected in the plan, and not only to the calendar. indeed, predetermined timing of inspection points is useless in situations with uncertainty. the timing of each 55 management 2014/72 inspection point should be triggered by an occurrence of a perceptible event when conclusive performance input is contributed. thus, we suggest that only perceptible events of accomplishing project activity, or events in which a consequent project activity becomes eligible for processing (i.e., all its precedence activities are accomplished), should be considered as adequate inspection triggers. it is obvious that any unfolding event such as technological failures and specification redefinitions should be inspection triggers as well, but the appearance of such events is impossible to foretell. because implementation of coordination in an ongoing activity is complicated and expensive, or even impossible, coordination should only involve non-started activities. because the coordination has an immediate effect only on the activities that are eligible for processing, events that do not release additional activities that are eligible for execution can be precluded from being inspection triggers. 3. generalized model for multi-mode execution of activities despite the fact that uncertainty is the crux of the problem in achieving the time and cost targets of projects, and especially research and development projects, practitioners are generally unaware of the inaccuracy inherent in implementing deterministic models in situations where projects are under the influence of significant uncertainty. pert (malcolm et al., 1959) was originally developed for planning and controlling projects where there is uncertainty. such uncertainty mainly concerns the time and the cost required by each activity. pert uses logic diagrams to analyze activity durations, focuses on the project events and estimates the probability of meeting specified completion dates, assuming that activity durations vary. the random activity durations obstruct the definition of critical paths. thus, pert determines the probability of meeting the contractual due date by way of a quantified risk assessment. the process of identification, analysis, and assessment of possible project risks greatly benefits the project manager in developing risk mitigation and contingency plans for complex projects (charette, 1996). pert provides less unbiased estimates of the project completion expectations than deterministic methods such as cpm (moder & rodgers, 1968). moreover, pert provides a greater level of information to be analyzed, which allows us to evaluate the risks of missing the project time and cost targets. but, an analysis based on random activity durations along a single path may skew the results if there are multiple critical paths on the project (ang et al., 1975). for this reason, pert requires mathematical calculations that are tremendously complex (moder et al., 1983). moreover, the analytical evaluation of project completion time and total cost under uncertainty must be based on assumptions that impair the authenticity of results. because it is infeasible or impossible to compute an exact result with a , monte carlo (mc) simulations can quantify the effects of risk and uncertainty in project schedules and budgets. dealing with activity durations in the context of pert, laslo (2003) and elmaghraby (2005) defined two types of duration uncertainty—the “internal uncertainty” and the “external uncertainty.” the first (internal uncertainty) type derives from revision of work content, changes in technical specifications, technical difficulties, and so on, and is typical for some types of tasks such as research and development. laslo (2003) showed that when the extreme dominance belongs to the internal uncertainty’s share, the coefficient of variation of the activity duration is kept. the second (external uncertainty) type derives from delivery failures, weather conditions, labor unrest, and so on, and is typical of other types of tasks such as production and construction. thus, when the external uncertainty has an extremely dominant share within the accumulative uncertainty of the activity duration, the standard deviation of the activity duration is kept during the crashing of the activity duration. furthermore, in the current environment of rapid change, costs are typically subject to fluctuations owing to project uncertainty (chou, 2011). laslo & gurevich (2013a) defined two types of cost uncertainty—the “duration-deviation-independent cost uncertainty” and the “duration-deviation-dependent cost uncertainty.” the former (duration-deviation-independent) cost uncertainty derives from an inaccurate estimate of prices, materials, and wages. the standard deviation of the duration-deviation-independent cost uncertainty is proportional to the budget allocated in order to provide the desired execution mode, i.e., its coefficient of variation is preserved. in cases of self-performed activities or outsourced activities under cost-price terms, the random deviation from the duration target has an impact on the activity cost (deviations of salaries paid for random effective hours caused by internal uncertainty and salaries paid for random idle periods caused by external uncertainty). therefore, the latter (duration-deviation-dependent) cost uncertainty should be 56 2014/72management considered for such cases. obviously, the duration-deviation-dependent cost uncertainty is not typical of a case of outsourced activity under fixed-cost terms because in such a case the activity cost is related to the target duration but is not affected by the actual duration. that is, there is no dependency between the activity cost uncertainty and the activity duration uncertainty. the random duration-deviation-dependent cost has mostly been considered as a linear function of the random activity duration (arisawa & elmaghraby, 1972; britney, 1976; tavares et al., 1998). thus, we assume that the standard deviation of the duration-deviationdependent cost distribution is equal to the standard deviation of the total duration distribution multiplied by the execution cost-per-time unit. the initial execution cost-per-time unit is mainly related to normal performance and varies during the crashing of the duration. the execution cost-per-time unit during the shortening of the activity duration is proportional to the change in the allocated budget, and inversely proportional to the change in the expected duration (in the case of outsourced activity under fixed price terms, duration randomness has no impact on the actual cost because the execution cost-per-time unit is considered to be zero). in a manner similar to that described by laslo & gurevich (2013a) we formulate a generalized activity timecost model that is applicable for any activity pattern with any execution mode. each possible activity execution mode, , with the target effective execution duration, , requires the allocation of budget . the random activity duration related to its execution mode is composed of the following random time components: 1. the random effective execution duration, , related to its execution mode and affected by the activity’s internal uncertainty: , (1) where: the duration-budget tradeoffs curve (allocated budget versus target effective execution duration, ) is considered as a pre-given continuous function, with its estimated edge points corresponding to the normal (minimal) and the crash (maximal) budgets, and respectively, related to the normal and crash execution modes, is a random component that reflects the internal uncertainty; this variable is related to the relevant execution mode, has zero expectation and a standard deviation proportional to the target effective execution duration, and is a known standard deviation of the effective execution duration related to the normal execution mode. 2. the random wasted time caused by disturbances, : ,(2) where: is considered as a known positive value, is a random component that reflects the external uncertainty; the distribution of this variable does not depend on the execution mode, has zero expectation, and a known standard deviation . thus, the random activity duration related to the execution mode is defined as: . (3) 57 management 2014/72 the random activity cost, , that is related to its execution mode, is composed of the following components: 1) the determined budget allocated to the activity, , that is associated with its execution mode, 2) a random variable that reflects the duration-deviation-independent cost uncertainty, . this variable is related to the execution mode, has zero expectation, and a standard deviation proportional to the allocated budget, is a known standard deviation of the duration–deviation–independent cost related to the normal execution mode, 3) a random component that reflects the duration-deviation-dependent cost uncertainty equal to the deviation from the target duration, multiplied by the activity execution cost-per-time unit related to , . the execution cost-per-time unit related to the execution mode is , where is a known execution cost-per-time unit that is related to the normal execution mode. thus, the random activity cost related to the execution mode is defined as: . (4) assuming some distributions for , , and , the generalized model for activity duration and cost allows for obtaining the simulated activity time and cost performances related to each execution mode. 4. the studied project the study is based on a project with renewable resources that was accomplished in an electronics company that develops and produces test and measurement equipment. the project network is described in figure 1. the project lead-time determined for this project was 260 work days and the budget allocated to this project was $1,840k. figure 1: the aoa pert-type project network a detailed evaluation of project activity duration and cost distribution characteristics corresponding to the time and cost uncertainty sources had been prepared beforehand (laslo & gurevich, 2013b). for each project activity the expected effective execution duration is assumed to be a continuous linear function of the allocated budget (time-cost tradeoffs curve). this function, which represents possible execution mode alternatives, had been estimated. the distribution characteristics of each project activity at the edge points of this function, which are the normal and the crash execution modes, are presented in table 1, where: the expected effective execution duration related to the normal mode (estimated), denoted by , 58 2014/72management 5 3 15 14 9 10 1 2 4 6 8 7 11 12 13 19 20 16 18 17 the standard deviation of the effective execution duration related to the normal mode (estimated), denoted by , the expected wasted time caused by disturbances (estimated), denoted by , the standard deviation of the wasted time caused by disturbances (estimated), denoted by , the expected duration of activity related to the normal mode, , the required budget for execution under the normal mode, denoted by , the standard deviation of the duration-deviation-independent cost related to the normal mode (estimated), denoted by , the execution cost-per-time unit related to the normal execution mode, denoted by , the expected effective execution duration related to the crash mode (estimated), denoted by , the expected activity duration related to the crash mode, , the required budget for the implementation of the crash execution mode, denoted by . table 1: initial estimation of duration and cost distribution characteristics related to normal and crash execution modes 59 management 2014/72 activity normal execution mode crash execution mode ( , )i j ( )e q ¥ ( )qσ ¥ ( )e r ( )rσ ( )e t ¥ b ¥ ( )sσ ∆ ¥ v ¥ ( )e q £ ( )e t £ b £ (1,2) 16 3.46 9 3.00 25 96 0.66 6.0 11 20 97 (2,3) 14 3.00 5 1.41 19 49 0.00 3.5 11 16 53 18 4.00 7 2.24 25 72 0.84 4.0 16 23 74 (2,4) (3,4) 4 0.00 1 0.00 5 12 0.67 3.0 3 4 14 (3,5) 11 2.24 1 0.00 12 33 0.94 3.0 11 12 33 (4,5) 5 1.00 1 0.00 6 15 0.74 3.0 5 6 15 (4,6) 22 4.80 4 1.00 26 77 0.91 3.5 18 22 80 (5,8) 49 10.86 3 1.00 52 147 0.97 3.0 44 47 165 (6,7) 4 0.00 1 0.00 5 6 0.69 1.5 4 5 6 (6,8) 26 5.74 1 0.00 27 130 1.10 5.0 21 22 134 (7,8) 21 4.58 2 0.00 23 21 0.73 1.0 21 23 21 (7,9) 28 6.16 1 0.00 29 70 0.68 2.5 28 29 70 (8,9) 6 1.00 5 1.41 11 18 0.77 3.0 5 10 23 (8,11) 29 6.40 3 1.00 32 116 0.96 4.0 23 26 121 (9,10) 10 2.00 2 0.00 12 30 0.75 3.0 9 11 37 (10,12) 14 3.00 5 1.41 19 35 0.82 2.5 14 19 35 (10,13) 37 8.19 3 1.00 40 111 1.04 3.0 33 36 116 (11,12) 7 1.41 2 0.00 9 21 0.00 3.0 6 8 24 (11,13) 18 4.00 6 2.00 24 90 0.99 5.0 18 24 90 (12,13) 16 3.46 1 0.00 17 48 0.00 3.0 13 14 50 (13,14) 6 1.00 1 0.00 7 12 0.00 2.0 4 5 13 (14,15) 18 4.00 3 1.00 21 63 0.82 3.5 14 17 64 (14,16) 22 4.80 2 0.00 24 55 0.76 2.5 20 22 67 (15,18) 24 5.29 1 0.00 25 60 0.75 2.5 19 20 62 (16,17) 13 2.83 2 0.00 15 65 0.86 5.0 13 15 65 (16,18) 24 5.29 3 0.00 27 72 0.00 3.0 22 25 80 (17,19) 26 5.74 1 0.00 27 65 0.00 2.5 26 27 65 (18,19) 18 4.00 2 0.00 20 45 0.00 2.5 16 18 48 (18,20) 17 3.74 5 1.41 22 68 0.77 4.0 14 19 69 (19,20) 4 0.00 1 0.00 5 12 0.00 3.0 4 5 12 because this project was an internal venture outside the framework of contractual commitments, the executive considered the cost target more important that the time target. the minimal budget for accomplishing the project was calculated as the expected sum of all project activity costs associated with the activity normal execution modes, and was found to be equal to $1,714k. the completion time according to activity’s normal execution modes was considered by the project manager as the time length of the critical path. the longest expected time length was found as 254 work days on the 1–2–4–5–8–9–10–13–14–16–18– 19–20 path, with a variance of 130. thus, the project manager argued that by performing each of the project activities according to its normal execution mode, the risk of not accomplishing the project on time (260 work days) was approximately 30% (here the normal distribution for the project’s completion time was assumed). despite this conspicuous level of tardiness risk, the executive confirmed the consistent policy of normal execution modes. according to this policy, inspection points were otiose because investment of additional budget for regulation of activity execution modes should not be on the agenda, even when deviations from the planned trajectory endanger the meeting of the planned due date. the project was performed according to the normal execution modes policy; work on the project started in march 2011 and was completed in may 2012. the project lasted 279 work days, and its actual total cost was $1,847.8k. a detailed analysis of the sources of time and cost deviations versus the initial planning was performed as described in table 2, where: is the actual activity duration (as executed under the normal mode) with deviation from the estimated duration that is composed of the actual estimated value of the deviation of the effective execution duration, denoted by and the actual estimated value of the deviation of the wasted time caused by disturbances, denoted by , is the actual activity cost (as executed under the normal mode) with deviation from the allocated budget that is composed of the actual value of the duration-deviation-dependent cost uncertainty, , and the actual value of the duration-deviation-independent cost uncertainty, denoted by . table 2: normal execution mode: the performace and the analyzed sources of time and cost deviations vs. the initial planning 60 2014/72management activity planning performance ( , )i j ( )e t ¥ b ¥ v ¥ t ¥ q∆ ¥ r∆ c ¥ s∆ ¥ (1,2) 25 96 6.0 33 4 4 144.5 0.47 (2,3) 19 49 3.5 25 4 2 70.0 0.00 25 72 4.0 17 -5 -3 39.0 -1.02 (2,4) (3,4) 5 12 3.0 5 0 0 12.5 0.51 (3,5) 12 33 3.0 15 3 0 43.3 1.32 (4,5) 6 15 3.0 5 -1 0 11.3 -0.71 (4,6) 26 77 3.5 32 5 1 99.2 1.22 (5,8) 52 147 3.0 40 -11 -1 112.4 1.41 (6,7) 5 6 1.5 5 0 0 6.6 0.58 (6,8) 27 130 5.0 33 6 0 158.2 -1.81 (7,8) 23 21 1.0 27 4 0 25.7 0.68 (7,9) 29 70 2.5 35 6 0 85.6 0.55 (8,9) 11 18 3.0 9 -1 -1 12.8 0.82 (8,11) 32 116 4.0 39 6 1 145.4 1.39 (9,10) 12 30 3.0 10 -2 0 23.2 -0.76 (10,12) 19 35 2.5 22 2 1 43.5 0.95 (10,13) 40 111 3.0 33 -6 -1 88.4 -1.62 (11,12) 9 21 3.0 10 1 0 24.0 0.00 (11,13) 24 90 5.0 28 3 1 111.5 1.47 (12,13) 17 48 3.0 19 2 0 54.0 0.00 the project was accomplished with an absence of unfolding events, and, as previously mentioned, its implementation was consistent according to normal activity execution modes policy, without carrying on any corrective actions. although the implementation of the project was not supported by any control system, the obtained time performance indicates that the accomplishment of the project on time within budget is a challenging mission. thus, a sophisticated decision-making procedure should be considered for the coordination routine throughout the implementation of this project. the availability of initial estimates and performance data makes this scenario appropriate for a “what if?” analysis that should be conducted for the purpose of evaluating stochastic versus deterministic reestablishment of time and cost project targets. because the presented scenario does not ensure that both the time and cost targets of the project can be attainable simultaneously, a determination of a hierarchy between these targets is required. as is customary with most practitioners, the time target in this study is defined as the primary target and the cost target as the secondary. 5. simulation of the control processes here we present in detail control processes, one based on the deterministic approach and the other with several pre-determined time probability levels on the stochastic approach, in order to demonstrate their implementation on our studied project. we presume that the project is considered before its actual realization, and simulate its execution accompanied by the control routines. we also assume the generalized model (3)-(4) for durations and costs of the project activities. because an implementation of a control process at each inspection point generally leads to reconsideration of execution modes of the non-started activities, we presume that the simulated time and cost deviations versus initial planning of these activities correspond to their real values, adjusted for the changed execution mode, i.e., , , .(5) . (6) 5.1 simulation of the control process with the deterministic procedure by considering the activity duration and cost means as deterministic parameters, the deterministic approach ostensibly allows one to define one or more of the project’s critical paths that seemingly determine the project completion time. the project cost can be easily calculated by summing up the costs of all the project activities. siemens (1971) proposed a simple iterative optimization procedure named the siemens approximation method (sam) for crashing pert projects which has been the most prevalent crashing procedure in practice during the last decades. additional budgets are economically allocated for shortening all critical paths by one unit of time at each iteration, until the length of each critical path satisfies the time target. the simulation of the deterministic approach is composed of the following steps as detailed in algorithm 1. 61 management 2014/72 activity planning performance ( , )i j ( )e t ¥ b ¥ v ¥ t ¥ q∆ ¥ r∆ c ¥ s∆ ¥ (13,14) 7 12 2.0 6 -1 0 10.0 0.00 (14,15) 21 63 3.5 24 2 1 72.5 -0.96 (14,16) 24 55 2.5 21 -3 0 48.3 0.79 (15,18) 25 60 2.5 28 3 0 68.2 0.74 (16,17) 15 65 5.0 16 1 0 71.1 1.07 (16,18) 27 72 3.0 24 -3 0 63.0 0.00 (17,19) 27 65 2.5 30 3 0 72.5 0.00 (18,19) 20 45 2.5 18 -2 0 40.0 0.00 (18,20) 22 68 4.0 25 2 1 79.2 -0.8 (19,20) 5 12 3.0 5 0 0 12.0 0.00 project 254 1714 279 1848 at each inspection point the actual cost is calculated by summing up the simulated costs of the accomplished activities and the partial simulated costs of the ongoing activities. partial simulated cost of each ongoing activity is calculated as its simulated cost multiplied by the ratio between its duration until the inspection point and its simulated duration. the initial naïve project’s expected completion time related to the most economic execution ($1,714k) was 254 work days and the project’s simulated performance as a result of implementing the control system with the deterministic procedure showed completion time of 272 work days with the cost of $1,875k. 5.2. simulation of control processes with stochastic procedures the evaluation of the project completion time under uncertainty is very complicated. moreover, project managers often erroneously consider the maximum of expected project path completion times as an expected project completion time. this handicap is troublesome in complex networks where there are many parallel paths with project activities lying on several of them. the implementation of mc methods for evaluating the realistic distribution of the project completion time and cost, heuristics that are not concerned with erroneous assumptions, has been recommended for preventing impaired accuracy of results. golenko– ginzburg (1993) proposed an iterative semi-stochastic optimization procedure where the additional budget required for shortening the activity duration by one unit of time is allocated according to the activity criticality, i.e., the activity with the highest probability of lying on critical paths. laslo & gurevich (2013a) introduced a 62 2014/72management step 1 identify the current set of all the paths by lexicographic scanning. step 2 start the procedure at the project’s source event which is the initial inspection point by considering a normal execution mode and the related expected activity duration for each of the project activities. step 3 identify the set of the project’s critical paths by taking into consideration: • the simulated durations (calculated according to equation (5)) as durations of the accomplished activities; • the expected durations related to the current execution modes as durations of the other activities. step 4 check if the project time target is attainable by considering the expected length of one or more critical paths as the project completion time; if the time target is attainable continue to step 5; otherwise, go to step 6. step 5 check whether the project cost target is attainable by taking into consideration: • the simulated costs (calculated according to equation (6)) as costs of the accomplished activities; • the expected costs related to the current execution modes as costs of the other activities; if the cost target is attainable continue to step 7; otherwise, go to step 6. 6.1 identify the set of the project’s critical paths by taking into consideration: • the simulated durations (calculated according to equation (5)) as durations of the accomplished activities; • the expected durations related to the current execution modes as durations of the ongoing activities; • the expected durations related to the normal execution modes as durations of the non-started activities. 6.2 regulate the execution modes so that each critical path being considered is shortened by one unit of time by allocating an economically additional budget to a set of non-started activities lying on that critical path (the cost of shortening the duration of each of these activities by one unit of time is the slope of its time-cost tradeoffs curve). 6.3 identify the current set of the project’s critical paths and calculate the current project cost after the last regulation of the execution modes (step 6.2); if the project’s time target is unattainable or the project cost is below the cost target continue to step 6.4; otherwise, go to step 7. step 6 6.4 check whether at least one of the current critical paths where the current execution mode of all its non-started activities is the crash mode; if any such critical path exists continue to step 7 (premature halt of the project crashing procedure); otherwise, return to step 6.2. step 7 convert the status of the activities that are eligible for processing into ongoing activities and then calculate their simulated durations (according to equation (5)). calculate their simulated completion time by summing up the timing of the current inspection point (their earliest common execution start) and the simulated duration of each of them. step 8 find the timing of the earliest coming event in which consequent project activity becomes eligible for processing, i.e., all its precedence activities are accomplished), and define it as the current inspection point. then, convert the status of each ongoing activity with a simulated completion time that precedes or meets the timing of this inspection point, into the status of accomplished activity. if all the activities are accomplished the simulation is accomplished, otherwise; return to step 3. algorithm 1: the simulation steps of the deterministic approach stochastic optimization procedure based on mc methods, with the purpose of minimizing a chanceconstrained cost under a chance-constrained completion time, and demonstrated its superiority using broad mc comparisons versus the deterministic and the semi-stochastic procedures for crashing the project completion time. assuming the known distributions for durations and costs of project activities, the stochastic approach allows for estimating the expected project completion time and cost as well as the fractile of the project completion time. these estimations are based on mc methods where samples of 10,000 observations are generated from the duration and cost distributions of the project activities. then, for each sample of observations from the duration distributions of the project activities, we calculate the observation from the distribution of the project’s completion time as the length of the project’s critical paths. thus, utilizing 10,000 observations from the project’s completion time distribution we define a mc expected project completion time as a mean of these 10,000 observations and a mc fractile of the project completion time as such value that 9,500 observations are less than or equal to it and 500 observations are greater than or equal to it. in a similar way, we calculate the observation from the project cost distribution by summing up the costs of all the project activities for each sample of observations from the cost distributions of the project activities. then, utilizing 10,000 observations from the project’s cost distribution we define a mc expected project cost as a mean of these 10,000 observations. assuming normal distributions for durations and costs of the project activities, the simulation of the stochastic approach is composed of the following steps as detailed in algorithm 2. algorithm 2: the simulation steps of the stochastic approach 63 management 2014/72 step 1 determine the desired probability confidence (chance constraint) of the project completion time, 0 1 1α< − < . step 2 start the procedure at the project’s source event, which is the initial inspection point, by considering a normal execution mode and related duration and cost distributions for each of the project activities. step 3 define the duration and cost of the accomplished activities as their simulated values (calculated according to equations (5)-(6)). then, from the duration and cost distributions of the other activities related to the normal execution modes, generate samples of 10,000 observations and, according to equations (3-4), calculate the mc 1 α− fractile of the project completion time and the mc expected project cost. step 4 check whether the project time target is attainable with the predetermined confidence level. if the time target is attainable with the predetermined confidence level continue to step 5; otherwise, go to step 6. step 5 check whether the project cost target is attainable (i.e., if the mc expected project cost is less than or equal to the allocated budget to the project). if the cost target is attainable continue to step 7; otherwise, go to step 6. 6.1 define the duration and cost of the accomplished activities as their simulated values (calculated according to equations (5)-(6)). adjust the duration and cost distributions of the ongoing activities related to the current execution modes by taking into consideration that these activities are executed during a known period of time since the previous inspection point, and are not yet accomplished (see laslo & gurevich (2013b) for details). consider the duration and cost distributions of the non-started activities as related to the normal execution modes. 6.2 allocate one unit of budget to any one of the non-started project’s activities that can be shortened (i.e., its current execution mode is not a crash mode), and update its duration distribution. then, from the duration and cost distributions of all project activities, generate samples of 10,000 observations and, according to equations (3-4), calculate both the mc 1 α− fractile of the project completion time as well as the mc expected project completion time and cost. 6.3 repeat step 6.2 for each of the non-started project’s remaining activities that can be shortened; then continue with step 6.4. 6.4 select the non-started activity to which the allocation of one unit of budget provides the minimal chanceconstrained project completion time (i.e., the minimal mc 1 α− fractile of the project completion time). in case of several minimal chance-constrained project completion times, choose the activity to which the allocation of one unit of cost also provides the minimal mc expected project completion time. in the case of several minimal mc expected project completion times, choose one of such activities at random. allocate one unit of budget to the chosen activity and update its duration distribution. 6.5 calculate the mc 1 α− fractile of the project completion time and the mc expected project cost, both being related to the current execution modes. if the project’s time target is unattainable or if the project cost is below the cost target, continue to step 6.6; otherwise, go to step 7. step 6 6.6 check whether at least one of the non-started project’s activities can be shortened (i.e., its current execution mode is not a crash mode). if such activity exists return to step 6.2; otherwise, go to step 7. step 7 convert the status of the activities that are eligible for processing, into ongoing activities and calculate their simulated durations (according to equation (5)). then calculate their simulated completion time by summing up the timing of the current inspection point (their earliest common execution start) and the simulated duration of each of them. step 8 find the timing of the earliest coming event in which consequent project activity becomes eligible for processing (that is, all its precedence activities are accomplished), and define it as the current inspection point. then, convert the status of each ongoing activity with a simulated completion time that precedes or meets the timing of this inspection point into the status of accomplished activity. if all the activities are accomplished, the simulation is accomplished; otherwise, return to step 3. at each inspection point the actual cost is calculated by summing up the simulated costs of the accomplished activities with the simulated cost of each of the ongoing activities, multiplied by the ratio between its duration until the inspection point and its simulated duration. the initial simulated project’s expected completion time related to the most economic execution ($1,714k) was 265 work days. the first simulation of the control process using the stochastic procedure was performed for a .50 time confidence level (what many may incorrectly assume as equivalent to a procedure that is based on expected activity durations). the project’s simulated performance as a result of implementing the control system with the stochastic procedure for a .50 time confidence level showed the completion time of 255 work days with the cost of $1,888k. because the simulation of the control process with the stochastic procedure for a .50 time confidence level showed earliness of the project’s completion time but cost overflow, a simulation with the stochastic procedure for a .40 time confidence level was performed with the expectation that this would reduce the cost overflow and still satisfy the project’s time target. the project’s simulated performance as a result of implementing the control system with the stochastic procedure for a .40 time confidence level showed the completion time of 257 work days with the cost of $1,889k. the cost overflow was slightly expanded by $700, which indicated that contrary to expectations, the cost overflow was not reduced. to ensure the project’s completion at or before the contractual due dates, project managers will be rarely satisfied with a .50 time confidence level (i.e., at a risk of 50% for not accomplishing the project on time), and will aim for higher confidence levels. therefore, simulations with the stochastic procedure for .60, .70, .80, and .90 time confidence levels were performed in order to learn about the possible effect of the time confidence level on the time and cost performances and on the control system’s evolution as well. for example, the project’s simulated performance as a result of implementing the control system with the stochastic procedure for a .90 time confidence level, which was chosen to represent the results of all the simulations with time confidence levels >.50, showed the completion time of 246 work days with the cost of $1,921k. we should note that the simulation results showed consistent trends of completion time reduction and cost overflow expansion in the course of raising the determined time confidence level. 6. insights the study is based on a single scenario. for this reason, the simulated performance results can mostly be considered only as indicators of possible outcomes of implementing each of the control routines. but, where the results are explainable they might be admissible as insights. these insights were exposed by tracing the evolution of the control process throughout the implementation of alternative control routines. the analysis of the simulation results indicates that risk management in which the decision-making routine considers predetermined time confidence levels, as shown in table 3, may allow the attainment of the on time target, while based on the deterministic approach does not. moreover, the analysis shows that when we are seeking to attain the on time target we cannot consider that deterministic procedures, which are erroneously interpreted as a procedure with a .50 confidence level, are superior to stochastic procedures with confidence levels that are lower than .50. we can conclude as well that the implementation of stochastic procedures may allow the attainment of the on time within budget target where the implementation of the deterministic approach can attain only the within budget target. this can be illustrated by considering a less strict cost target (i.e., a cost target which is equal to or greater than $1,888k). as can be seen from table 3, for the deterministic procedure, such a change of the cost target will not contribute to the attainment of the time target and will meet only the within budget target. however, for the stochastic procedure with a .50 completion time confidence level, such consideration will allow meeting both the “on time” and the “within budget” targets. initially, before any regulation of the activities’ execution mode is performed, the deterministic procedure, as shown in table 3, indicates early completion of the project, while the stochastic procedure with a .50 time confidence level indicates tardiness, which requires the reestablishment of the project’s time target. the 64 2014/72management difference between these indications should be ascribed to the erroneous consideration of the maximum expected project path completion times as an expected project completion time. a naïve definition of critical paths, without taking into account the random nature of activity durations, omits the chance of each of the project’s uncritical paths to be longer than the critical paths, and this acts to determine a later than expected completion of the project. thus, except in the case of a project with a single path (an ordinal set of activities), the deterministic procedure shows that an underestimated expectation of the project’s completion time acts to delay alerts; and these are alerts that should invoke coordination before the deviations from the planned trajectory endanger the meeting of the planned due date. table 3: comparison of the simulated performance of the alternative control routines underestimated presentation of the project’s completion time by the deterministic procedure in the first stages requires a more intensive effort in reestablishing the time target throughout the later stages. thus, although the deterministic procedure continues to present overly optimistic completion times that are shorter than the more realistic completion times presented by the stochastic procedure with a .50 time confidence level, in the advanced stages the deterministic procedure required a more intensive effort in reestablishing the project’s time target than did the stochastic procedure. notwithstanding the need for a more intensive effort in reestablishing the project’s time target in the advanced stages, the deterministic procedure may prematurely halt the crashing of the project completion time. such a premature halt comes about when at least one of the critical paths related to the current combination of the activity executions consists of only those activities the execution of which have been accelerated up to the crash execution mode. this mostly occurs before utilizing the crash execution mode of all project activities, which usually happens before attaining the desired expected or chance-constrained project completion time. that is, with the deterministic procedure, the rest of the available budget cannot be used for increasing the chance of accomplishing the project within the due date. the simulation results indicate, as expected, that by increasing the predetermined time probability confidence in control routines based on the stochastic approach, project completion time is shortened. on the other hand, the results indicate that the outcome of doing so usually increases project costs. however, at low levels of probability confidence (mostly not predetermined in practice), this outcome may be doubtful. this phenomenon, typical of low levels of time probability confidence, may derive from economic execution modes throughout the earlier stages of the project lifecycle. later in the lifecycle, they can cause significant tardiness, which requires intensive acceleration of execution modes, resulting in expenses that are greater than the budget savings attained throughout the earlier stages. 65 management 2014/72 completio n (days) cost ($k) project targets 260 1840 without control routine initial naïve expectation of performace related to the most economic execution 254 (-6) 1714 (-126) actual performance 279 (+19) 1848 (+8) control with naïve deteministic routine initial naïve expectation of performace related to the most economic execution 254 (-6) 1714 (-126) simulated performance 272 (+12) 1875 (+35) control with stochastic routine with a 0.40 completion time confidence level initial simulated expectation of performace related to the most economic execution 265 (+5) 1714 (-126) simulated performance 257 (-3) 1889 (+49) control with stochastic routine with a 0.50 completion time confidence level initial simulated expectation of performace related to the most economic execution 265 (+5) 1714 (-126) simulated performance 255 (-5) 1888 (+48) control with stochastic routine with a 0.90 completion time confidence level initial simulated expectation of performace related to the most economic execution 265 (+5) 1714 (-126) simulated performance 246 (-14) 1921 (+81) 66 2014/72management improvement in the organization of project control is a major challenge facing project organizations today. in response, executives, in general, are taking stock of approaches to improve the organization of the project control. as the project and its environment become complex, being ever more subject to uncertainty, time, and money pressures, there is a greater need for efficient and smart control systems to support decision-making and manage project information. among network techniques recently, and widely, employed in project management, the critical path method is implemented for management assessment of the possibility to complete a project on time. but, if the project’s network has multiple parallel paths with relatively equal means and large variances, the critical path method yields biased results. our “what if?” analyses conclude that unrealistic and over-optimistic time performances are found within those control routines where the project’s completion time is assumed to be the same as the length of the critical paths. by utilizing the deterministic approach in control routines the project manager will be grossly misled into thinking the chance to attain the time target is very good, when in reality it is very poor. thus, such a routine falsifies the present views, and those are the views that should alert management to deviations from the planned trajectory, while there is still time to take corrective actions. moreover, erroneous conclusions often result when the crashing of the project’s completion time does not take into consideration that accelerating the execution of activities that are outside critical paths may improve as well the project’s time performance. the acceleration of execution that is limited only to activities on critical paths may cause a premature halt of project completion time crashing, and thereby hinder utilization of the whole potential of the coordination. for these reasons, any control routine based on a deterministic approach is strongly discouraged. the stochastic approach based on mc methods can be utilized to estimate the distribution of the project’s completion time and guide the manager in appraising and controlling the chances of accomplishing the project on time. but, the supposition that a stochastic control routine with a higher predetermined time confidence level will always shorten the project’s completion time might be false in those cases where the project’s cost is constrained. an elevated time confidence level means speeding the execution modes of activities in the earlier stages of the project lifecycle although not all of them will later be found to be critical in the context of project’s time target. consequently, the wasted budget allocated for this purpose may hinder the budgeting of the speeded execution modes that are required for activities that will be found to be critical in the following stages. thus, under cost constraint, a lavish control routine with a high time confidence level that was established for the purpose of shortening the project’s completion time might miss the desired result and ultimately cause delayed completion, or sometimes even hinder the project’s accomplishment. we should note that the stochastic procedures allow for pre-determining different confidence levels for attaining both the time target and the cost target (laslo, 2003). by doing this, stochastic procedures provide a desired balance between the two targets. this possibility was not implemented in our experiment because we had anticipated in advance the lack of capability to simultaneously satisfy both time and cost targets. however, in our experiments the stochastic procedures were performed with varying time confidence levels and with a desired .50 cost confidence level, which is approximately equal to the expected cost. stochastic procedures introduce realistic time performances throughout the project lifecycle, while cpm introduces overly optimistic time performances. in view of this, in the context of time performance, the preference for the stochastic approach, when compared to the deterministic approach, is obvious. thus, we can conclude from our study that control routines based on stochastic procedures may allow delivery on time, whereas those based on a deterministic approach cannot. we can also conclude that control routines based on stochastic procedures may allow delivery not only on time, but within budget, whereas those based on a deterministic approach can deliver the project only within budget. these conclusions are not limited to control routines based on the stochastic approach in which the predetermined time probability confidence is at least .50, which is mistakenly considered as equal to the expected completion time in the deterministic approach. thus, a control routine based on the stochastic approach as implemented in our experiments can be very useful in project management. we recommend using the stochastic approach because we infer that such a routine, supported by computing resources available to everyone, is, throughout the project 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(1976). determinants of coordination modes within organizations. american sociological review 41(2), 322–338. receieved: september 2013. accepted: july 2014. zohar laslo sceshamoon college of engineering, industrial engineering and management department zohar@sce.ac.il zohar laslo is dean and professor of industrial engineering and management at sce – shamoon college of engineering. he received his b.sc. and m.sc. from the technion – israel institute of technology, and his ph.d. summa cum laude from ben-gurion university of the negev. he continued his education as a post-doctoral research fellow at the tel-aviv university. his academic career includes teaching and research at bezalel – academy of art, ben-gurion university of the negev, tel-aviv university, and sce – shamoon college of engineering. he has authored about 80 publications in the fields of operational research and industrial management. gregory gurevich sceshamoon college of engineering, industrial engineering and management department gregoryg@sce.ac.il gregory gurevich is a senior lecturer in statistics, department of industrial engineering and management, sce shamoon college of engineering. he received his bsc, msc and phd degrees from the hebrew university of jerusalem and continued as a postdoctoral research fellow at the technion israel institute of technology. his current research interests are statistics, operations research and project management. he has published over 40 publications in the statistical and engineering management literature. 69 management 2014/72 about the author 07_vojtek:tipska.qxd 63 nikola vojtek* university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2018/23(1) managing business processes using soft computing techniques – a literature review doi: 10.7595/management.fon.2017.0023 1. introduction development of computer technologies has allowed companies to process large amounts of data and real time decision making (huang, huang, song & you, 2015). today, companies use numerous techniques which are based on the application of mathematics. depending on the approach to the problem, there are conventional (hard computing) and soft computing techniques (sct). the conventional ones are based on the principles of precision and certainty, which, besides financial resources, often require substantial time for finding a solution. on the other hand, scts tolerate imprecision and uncertainty (lim & balas, 2013). they do not require a precisely formulated analytical model and often do not require a lot of time for computation. the term soft computing is related to the computational intelligence, and in some cases appears as bioinformatics because many ideas and concepts are built based on biological models. in order for one computer system to process information as a human mind, it must be flexible enough to support three characteristics: openness, robustness and real time processing. openness represents the ability of adaptation to the changes that occur in the environment. robustness is related to the stability and tolerance in case of processing incomplete and imprecise information. real time processing represents the ability to react to a specific event within a reasonable time.the basic and most commonly used sct are fuzzy logic (fl), neural networks (nn) and probabilistic reasoning (pr). as l. zadeh points out in his paper in 1994, fl is related to the vagueness, nn to the learning and pr to the uncertainty. the aim is to achieve traceability and robustness and find low cost solutions using the allowed tolerances for the imprecision and uncertainty (zadeh, 1994). soft computing techniques offer numerous possibilities for the company in the design of processes, products and services (saridakis & dentsoras, 2008); they can integrate with the existing models (zeleznikow abstract: soft computing technologies are widely used by companies for processing a large amount of data in order to make decisions, since they normally take into account both internal and external factors. due to their tolerance of imprecision and uncertainty, soft computing techniques (sct) are increasingly used in solving those problems. they are characterized by the ability to adapt quickly to the changes in the environment, by stability when processing large amounts of inaccurate data and by real time responsiveness. the basic and most commonly used soft computing techniques are fuzzy logic (fl) and neural networks (nn).this paper investigated the usage of soft computing techniques in managing business processes. the main goal was to collect and review papers that describe practical and theoretical application of sct in different business process domains, and to highlight applied models and methods. a total of 73 papers were selected based on the journals impact factor and year of publication (1965-2015), with the focus on the most recent papers. approximately, an equal number of both fuzzy logic and neural network techniques were tried to be captured and reviewed. although this review is not final, it can be considered as a valid guide to explore the opportunities and possibilities which fuzzy logic and neural networks offer to process owners in managing their business processes. in conclusion of this paper, fields for further research were identified. keywords: soft computing, fuzzy logic, neural networks, business process management jel classification: c45, c53, e17 * corresponding author: nikola vojtek, e-mail: vojtekn@gmail.com & nolan, 2001) and give them a new dimension. the results of neural networks are based on historical data of the process (walczak, 2001) and fuzzy logic finds its application in the treatment of linguistic variables through fuzzy numbers (jamshidi, 2003) and in determination of rules to approximate the outputs through fuzzy sets (lalla, facchinetti & mastroleo, 2008). also, the combined application of fl and nn is becoming more common in modelling organizational systems and predicting business results (kar, das & ghosh, 2014) as well as in the planning and allocation of the company’s resources (chang, kuo, wu & tzeng, 2015). this paper gives an overview of the literature concerning the use of fl and nn in the field of business process management and presents the summary of the analysis of a total of 73 papers. the next part identifies segments which are characterized by the use of imprecise, uncertain and incomplete data, which is one area of sct use. the third part gives an overview of the literature with the focus on the type of business processes, methods and variations the authors proposed to solve the problem. the fourth part contains a summary of all used papers, with an emphasis on the developed models, processes and methods. in the concluding remarks, in addition to a brief review of the analysed literature, fields for further research are identified and proposed. 2. problem identification processes, their activities and decisions are under the influence of people whose behavior is not deterministic. such behaviour cannot be adequately so through the crisp approach, but it is necessary to take into account the uncertainty and ambiguity whose presence is evident. depending on the subject of management, there is more or less incomplete and inaccurate information that the system has to process. when treating process inputs, it is possible to use fuzzy numbers to display non quantified elements, and for the prediction of output values (results) of the process, it is possible to use different structures of neural networks with different learning algorithms. in terms of the process activities and their execution, it is possible to use sct in different combinations to view, sort, and group and classify data as well as to determine the optimum values of the parameters and the process capability index. as highlighted in the introduction, these techniques can address a large number of data, and can be used to predict different types of costs, forecasting stock levels as well as support to other processes (planning, sales, design, procurement, negotiation...). 3. literature review 3.1 neural networks neural networks offer process owners technological advantages over conventional models for decision-making and management (hill & remus, 1994; aiken & bsat, 1999). nn can be used in unstructured areas where a clear model does not exist or it is poorly defined (dutta, shekhar & wong, 1994). in situations in which imprecise and nonlinear data are present, nn have proven to be more reliable (bansal, kauffman & weitz, 1994; zhang, patuwo & hu, 2001) and more suitable for use (kim, yang & kim, 2008; marques, lacerda, camargo & teixeira, 2014; schmidhuber, 2015) compared to the results of statistical models (joseph, larrain, turner, 2014). nn can simultaneously handle multiple types of data and therefore can be used in risk assessment and decision-making (calderon & cheh, 2002). seasonality and variations in the trend of certain data are present in planning and decision-making of almost all business processes and their modelling can also be achieved by using nn (zhang & qi, 2005). authors (smith & gupta, 2000) explained the three most popular models of nn for solving the above problems in business processes feedforward, hopfield and self-organizing. they emphasize the similarity of these models with traditional statistical and operational research techniques, and as the basic difference point out that nn do not make assumptions regarding the statistical distribution or characteristics of the treated data, which is why in practical situations they are more applicable. many processes in companies are of such a nature that it is not possible to carry out testing and experimentation using conventional methods without compromising their functioning. the advantage of nn is that they can simulate the results without interrupting or disrupting the regular functioning of the process and still take into account the nonlinear relationship between the parameters and results. the authors (ansuj, camargo & radharamanan, 1996), for predicting sales process, compare two models neural networks with backpropagation learning algorithm and arima model for time series analysis. based on gained results, the authors conclude that neural networks are more accurate. concerning a similar problem, (agrawal & schorling, 1996) compare forecasting results of sales process for the three brands using nn and multinomial logistic regression, where nn also provide more accurate predictions. (kuo & xue, 1998a) developed a system for predicting sales results that considers quantitative and non-quantitative factors. for learning on data from previous periods and predicting results for the period period to come, the authors use feedforward nn with error-backpropagation learning algorithm. for special activities that can affect sales results (e.g., promotion), 64 nikola vojtek 2018/23(1) they upgrade the model with fuzzy logic. based on the result comparison of the proposed model (fnn) and conventional statistics, the authors conclude that fnn results are more accurate. after that, the same authors (kuo & xue, 1998b) expand the existing fnn model with fuzzy if-then rules for pater recognition in prediction. considering different internal and external factors, many other authors use nn for forecasting sales process in order to better plan capacity, production and other activities (luxhøj, riis & stensballe, 1996; kuo, 2001; thomassey & happiette, 2007; sun, choi, au & yu, 2008; wong & guo, 2010). (corstena & may, 1996) and (feng, li, cen & huang, 2003) point out the possibility of using nn for managing the production process. when it comes to the production planning (cavalieri,maccarrone & pinto, 2004), for modelling cause and effect relation between design solutions and costs, traditional statistical model and nn are combined. based on the obtained results, nn are highlighted as a more valid option. (moosmayer,chong, liu & schuppar, 2013) examined the impact of annual price, the desired price and the initial offer as factors in negotiation and procurement process. to bypass nonlinear decisions that affect the process of negotiations and to determine factors with the greatest impact on the mentioned process, they used nn and compared results with the one obtained by regression analysis. for predicting demand in the supply chain (carbonneau, laframboise & vahidov, 2008) use nn and (aburto & weber, 2007) propose combination of nn with auto-regressive analysis. (mansur & kuncoro 2012), for predicting the level of product stock that needs to be kept in the retail store, suggest the use of neural networks with backpropagation learning algorithm.the results which nn provide to the process owners in the form of prediction are subject to uncertainty and are used together with a certain level of error. for bridging and reducing those errors (mazloumi, rose, currie & moridpour, 2011) grouped the obtained results into intervals, which opens space for further process planning. in addition to forecasts, nn can be used for determination the impact of input parameters on the process and verification of their optimal values (co, 2007; zobel & cook 2011). similarly, (tejedor, elola & tejedor, 2008) use nn for examination and determination of kpis correlation in balanced scorecard model on the model in the case of processes in the health sector and suggest the use of the developed model in other sectors. it is important to point out that the trained network can be used in the opposite direction. to optimize the process, it is possible to enter the desired value of results in the already trained neural network in order to obtain optimal values of process parameters (chiang, su, li & huang, 2001). 3.2 fuzzy logic a majority of the problems in the economy and organizational sciences often do not have a clearly defined structure, which is the main reason for the constant development of fl in order to overcome those problems (zadeh, 1965; skala, 1978). the main contribution of fl is reflected in the treatment of linguistic variables, the use of fuzzy rules and fuzzy graphs (sugeno & tanaka, 1991). by using these concepts and methods, fl represents a powerful tool in the decision making process in situations where it is not possible to accurately determine all the factors (grabisich, 1996; narukawa & torra, 2007; zhu & xu, 2014) and to display the company’s results based on qualitative indicators (muñoz, rivera & moneva, 2008). a very important field of fuzzy logic application refers to the determination of process efficiency (kao & liu, 2011; lozano, 2014) and capability (kaya & kahraman, 2011; wu & liao, 2014). (parchami & mashinchi, 2007) in their work use many intervals to calculate the process capability index via triangular fuzzy numbers. (wu, 2009) points out that some of the continual variables which are used for the calculation of the process capability index are not precise numbers and also propose the use of triangular fuzzy numbers for dealing with that problem. often, there are situations where quality characteristics of certain processes are unclear, incomplete or linguistically defined. for monitoring stability and capability of such processes with control charts, the use of fuzzy logic is inevitable (cheng, 2005; faraz & shapiro, 2010). to treat the input-output relationship of correlated processes within the supply chain, many authors identify areas and segments where uncertainty is present and suggest the use of fuzzy logic to overcome it (ko, tiwari & mehnen, 2010). (peidro,mula, poler & verdegay, 2009) propose the application of fuzzy logic and if-then rules for treating sources of uncertainty when determining supply and demand in the supply chain in automotive industry. (campuzano, mula & peidro, 2010) developed a model for production planning that treats demand and orders through fuzzy numbers. for hidden quality costs estimation, (martinez & selles, 2015) use fuzzy numbers and sets. for selecting the supplier (davis,shipley & stading, 2015) suggest a quantification of certain criteria using fuzzy numbers. a second most important field in which fuzzy logic is increasingly finding its application is qfd (quality function deployment). qfd represents the tool for translating customer requirements into the appropriate requirements of the company. as this method maps the customer requirements and translates them to project tasks, it opens up numerous possibilities for the use of fuzzy logic and numbers. (chen & ko, 2008) propose a fuzzy nonlinear model for the determination of the requirements fulfilment level in the second iteration of building the house of quality. (liu, 2009) expands fuzzy qfd approach from planning to the design of the product, and (hsu & lin, 2006) use fuzzy numbers to assess the value and intensity of customers. many authors used fuzzy numbers to upgrade existing models for business process management. (volkner & werners, 2002) upgrade the existing system gepsis for planning business processes with 65 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) a special component which treats language uncertainty of some process elements. they apply and test the new system in the case of general process “order taking“, and use fuzzy numbers for four process attributes (waiting time on the reception; time in system; processing priority; delivery time;). authors (torabi,ebadian & tanha, 2010) upgrade the existing framework for production planning with fuzzy logic to treat the problem of inaccurate data and unclear restrictions. adding necessary flexibility to an existing model, they enable the creation of a more reliable production plan. (yu & tzeng, 2006) improve the existing anp/ahp model for treating mcdm problem with decision maps which function based on fl. for risk assessment (kumru & kumru, 2013) join to widely use fmea fuzzy segment for bridging the irregularities when determining a risk priority number. (tseng, 2010) uses fl to evaluate uncertainty of 22 kpis in four balanced scorecard perspectives, and (jassbi, mohamadnejad & nasrollahzadeh, 2011) use fl to model their relationship in the strategic map. similarly, (el-mongy, hamouda, nounou & wahdan, 2013) join both fl and nn to the bsc model for predicting results of the kpis in bsc perspectives. 4. results this part gives the summary of the analysis results. papers are divided into three groups –fuzzy logic, neural networks, and neural networks & fuzzy logic. approximately, an equal share of both fl (44%) and nn (45%)papers were reviewed, with the significant amount of papers that cover the combination of techniques (12%). the following table represents the models developed and used to support business processes and their “owners”. for each of the models, numbers of analysed papers are given. table 1: used models in analysed papers based on the above table, it can be seen that the majority of the analysed models (28) are related to the feedforward neural networks with multiple layers and back propagation learning algorithm. when it comes to the analysed fuzzy models, both default model (7) and specific models (7) are equally used in the business processes management. the table below shows the processes on which sct and models are applied fuzzy logic (g1), neural networks (g2) and fuzzy logic & neural networks combinations (g3). 66 nikola vojtek 2018/23(1) models # control charts (cheng, 2005), (faraz & shapiro, 2010), (kaya & kahraman, 2011). 3 data envelopment analysis (kao & liu, 2011), (lozano, 2014). 2 decision support (zeleznikow & nolan, 2001), (yu & tzeng, 2006). 2 inference engine (el-mongy et all., 2013) . 1 linear programming (torabi et all., 2010), (zhu & xu, 2014) & nonlinear model (chen & ko, 2008). 3 f u zz y lo g ic logic-based default model (lalla et all., 2008), (grabisich, 1996), (narukawa & torra, 2007), (muñoz et all., 2008), (campuzano et all., 2010), (tseng, 2010), (skala, 1978). 7 probabilistic sets (wu & liao, 2014), (davis et all., 2015). 2 specific models dematel (jassbi et all., 2011); fmea (kumru & kumru, 2013); gepsis (volkner & werners, 2002); qfd (hsu & lin, 2006), (liu, 2009), (martinez & selles, 2015); takagi & sugeno (sugeno & tanaka, 1991); 7 literature review of application (ko et all., 2010). 1 triangular numbers (parchami & mashinchi, 2007), (wu, 2009), (peidro et all., 2009). 3 n e u ra l n e tw o rk s feedforward & back propag. learning algorithm & multiple layers, (bansal et all., 1994), (dutta et all., 1994), (hill & remus, 1994), (corstena & may, 1996), (agrawal & schorling, 1996), (ansuj et all., 1996), (kuo & xue, 1998a), (kuo & xue, 1998b), (walczak, 2001), (kuo, 2001), (zhang et all., 2001), (chiang et all., 2001), (calderon & cheh, 2002), (feng et all., 2003), (cavalieri et all., 2004), (zhang & qi, 2005), (co, 2007), (aburto & weber, 2007), (carbonneau et all., 2008), (kim et all., 2008), (sun et all., 2008), (tejedor et all., 2008), (wong & guo, 2010), (zobel & cook 2011), (mazloumi et all., 2011), (mansur & kuncoro 2012), (moosmayer et all., 2013), (marques et all., 2014). 28 feedforward & multiple learning algorithm & multiple layers (aiken & bsat, 1999), (schmidhuber, 2015). 2 literature review of application (smith & gupta, 2000). 1 specific model hybrid (luxhøj et all., 1996); levenberg-marquardt (joseph et all., 2014); probabilistic nets (thomassey & happiette, 2007). 3 n n & f l feedforward & back propag. learning algorithm & multiple layers (zadeh, 1965), (zadeh, 1994). 2 combined neural network and fuzzy logic model (jamshidi, 2003), (kar et all., 2014), (chang et all., 2015). 3 literature review of application (saridakis & dentsoras, 2008), (lim & balas, 2013), (huang et all., 2015). 3 table 2: business processes covered table 2 indicates that sct are used in various process domains, and especially in manufacturing and sales. the following table represents the methods applied in business processes management, also divided per above groups (g1, g2, g3). table 3: used methods in analysed papers table 3 indicates a significant usage of both evaluation and estimation methods for fuzzy logic, and in case of neural networks, forecasting method is mostly applied. from a total of 73 analysed papers, the largest number is published in the journal fuzzy sets and systems (15), in the applied soft computing (6) and decision support systems (6) and expert systems with applications (5) journals. the variety of journals in which papers were published indicate that the application of sct in the field of business process management has been recognized by the wider professional community. 67 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) process g1 g2 g3 manufacturing (hill & remus, 1994), (corstena & may, 1996), (chiang et all., 2001), (volkner & werners, 2002), (jamshidi, 2003), (feng et all., 2003), (cheng, 2005), (co, 2007), (parchami & mashinchi, 2007), (wu, 2009), (faraz & shapiro, 2010), (torabi et all., 2010), (zobel & cook 2011), (kao & liu, 2011), (kaya & kahraman, 2011), (kar et all., 2014), (huang et all., 2015), (martinez & selles, 2015). 9 6 3 new product development (cavalieri et all., 2004), (saridakis & dentsoras, 2008), (chen & ko, 2008), (liu, 2009). 2 1 1 overall theoretical and practical application (zadeh, 1965), (skala, 1978), (zadeh, 1994), (grabisich, 1996), (lim & balas, 2013), (schmidhuber, 2015). 2 1 3 procurement (yu & tzeng, 2006), (moosmayer et all., 2013), (kumru & kumru, 2013), (wu & liao, 2014), (davis et all., 2015). 4 1 0 performance measurement (zeleznikow & nolan, 2001), (lalla et all., 2008), (muñoz et all., 2008), (el-mongy et all., 2013), (lozano, 2014). 5 0 0 strategy management (sugeno & tanaka, 1991), (calderon & cheh, 2002), (narukawa & torra, 2007), (kim et all., 2008), (tejedor et all., 2008), (tseng, 2010), (jassbi et all., 2011), (zhu & xu, 2014), (chang et all., 2015). 5 3 1 sales (luxhøj et all., 1996), (agrawal & schorling, 1996), (ansuj et all., 1996), (kuo & xue, 1998a), (kuo & xue, 1998b), (kuo, 2001), (zhang et all., 2001), (zhang & qi, 2005), (hsu & lin, 2006), (thomassey & happiette, 2007), (sun et all., 2008), (wong & guo, 2010), (marques et all., 2014), (joseph et all., 2014). 1 13 0 supply chain (walczak, 2001), (aburto & weber, 2007), (carbonneau et all., 2008), (peidro et all., 2009), (ko et all., 2010), (campuzano et all., 2010), (mazloumi et all., 2011), (mansur & kuncoro 2012). 3 5 0 finance (bansal et all., 1994), (dutta et all., 1994), (aiken & bsat, 1999), (smith & gupta, 2000). 0 4 0 method g1 g2 g3 classification (dutta et all., 1994), (walczak, 2001), (zeleznikow & nolan, 2001), (chiang et all., 2001), (feng et all., 2003), (thomassey & happiette, 2007), (tejedor et all., 2008), (huang et all., 2015), (chang et all., 2015). 1 6 2 estimation (parchami & mashinchi, 2007), (chen & ko, 2008), (wu, 2009), (peidro et all., 2009), (liu, 2009), (faraz & shapiro, 2010), (torabi et all., 2010), (kaya & kahraman, 2011), (kumru & kumru, 2013), (zhu & xu, 2014), (wu & liao, 2014), (lozano, 2014), (martinez & selles, 2015). 13 0 0 evaluation (skala, 1978), (grabisich, 1996), (volkner & werners, 2002), (cheng, 2005), (yu & tzeng, 2006), (hsu & lin, 2006), (narukawa & torra, 2007), (lalla et all., 2008), (muñoz et all., 2008), (tseng, 2010), (jassbi et all., 2011), (kao & liu, 2011), (marques et all., 2014), (davis et all., 2015). 13 1 0 forecasting (sugeno & tanaka, 1991), (bansal et all., 1994), (hill & remus, 1994), (luxhøj et all., 1996), (corstena & may, 1996), (agrawal & schorling, 1996), (ansuj et all., 1996), (kuo & xue, 1998a), (kuo & xue, 1998b), (aiken & bsat, 1999), (kuo, 2001), (zhang et all., 2001), (calderon & cheh, 2002), (cavalieri et all., 2004), (zhang & qi, 2005), (co, 2007), (aburto & weber, 2007), (carbonneau et all., 2008), (kim et all., 2008), (sun et all., 2008), (wong & guo, 2010), (campuzano et all., 2010), (zobel & cook 2011), (mazloumi et all., 2011), (mansur & kuncoro 2012), (moosmayer et all., 2013), (el-mongy et all., 2013), (joseph et all., 2014). 3 25 0 multiple methods analyzed (zadeh, 1965), (zadeh, 1994), (smith & gupta, 2000), (jamshidi, 2003), (saridakis & dentsoras, 2008), (ko et all., 2010), (lim & balas, 2013), (kar et all., 2014), (schmidhuber, 2015). 1 2 6 references [1] aburto, l., &weber, r., (2007). improved supply chain management based on hybrid demand forecasts. applied soft computing,(7), 136-144. doi: 10.1016/j.asoc.2005.06.001 [2] agrawal, d., &schorling, c., (1996). market share forecasting: an empirical comparison of ann and multinomial logit model. journal of retailing, (72), 383–407. [3] aiken, m., &bsat, m., (1999). forecasting market trends with neural networks. information systems management, 42-48. [4] ansuj, a.p., camargo, m.e., radharamanan, r., &petty, d.g., (1996). sales forecasting using time series and neural networks. computers & industrial engineering, 31(1–2), 421–424. [5] bansal, a., kauffman, r.j., &weitz r.r., (1994). comparing the modelling performance of regression and neural networks as data quality varies: a business value approach. journal of management information system, 10(1), 11-32. [6] calderon, t.g., &cheh, j.j., (2002). a roadmap for future neural networks research in auditing and risk assessment. international journal of accounting information systems, 3, 203–236. [7] campuzano, f., mula, j., &peidro, d., (2010).fuzzy estimations and system dynamics for improving supply chains. fuzzy sets and systems, 161, 1530-1542. doi: 10.1016/j.fss.2009.12.002 [8] carbonneau, r., laframboise, k., &vahidov, r., (2008). application of machine learning techniques for supply chain demand forecasting. european journal of operational research, 184, 1140-1154. doi: 10.1016/j.ejor.2006.12.004 [9] cavalieri, s., maccarrone, p., &pinto, r., (2004). parametric vs. nn models for the estimation of production costs a case study in the automotive industry. international journal of production economics, 91, 165-177. doi: 10.1016/j.ijpe.2003.08.005 [10] chang, b., kuo, c., wu, c-h., &tzeng g-h., (2015). using fuzzy analytic network process to assess the risks in enterprise resource planning system implementation. applied soft computing, 28, 196-207. doi: https://doi.org/10.1016/j.asoc.2014.11.025 [11] chen, l-h., &ko, w-c., (2008). a fuzzy nonlinear model for quality function deployment considering kano’s concept. mathematical and computer modelling, 48, 581-593. doi: 10.1016/j.mcm.2007.06.029 [12] cheng, c-b., (2005). fuzzy process control: construction of control charts with fuzzy numbers. fuzzy sets and systems, 154, 287-303. doi: 10.1016/j.fss.2005.03.002 [13] chiang, t.-l., su, c.-t., li, t.-s., &huang, r.c.c., (2001). improvement of process capability through neural networks and robust design: a case study. quality engineering, 14(2), 313-318. [14] co, h. c., (2007). confirmation testing of the taguchi methods by artificial neural-networks simulation. international journal of production research, 1-15. doi: 10.1080/00207540701213502 [15] corstena, h., &may, c., (1996). artificial neural networks for supporting production planning and control. technovation, 16(2), 67-76. [16] davis, j., shipley, m. f., &stading, g., (2015). a fuzzy supplier selection application using large survey datasets of delivery performance. advances in fuzzy systems, vol. 2015. doi: http://dx.doi.org/10.1155/2015/841485 [17] dutta, s., shekhar, s., &wong, w.y., (1994). decision support in non-conservative domains: generalization with neural networks. decision support systems, 11, 527-544. 68 nikola vojtek 2018/23(1) the basic idea underlying the sct is related to the modelling of the behavior of the human mind. unlike conventional ones, these “soft” techniques tolerate imprecision, uncertainty and approximate values. based on the above conducted analysis of the relevant literature, the use of sct in various segments of business process management is presented in this paper. a total of 73 papers were analysed and divided into three groups. papers which provide a start of the development of sct (8), papers relating to the application of nn (34) and papers relating to the application of fl (31). taking into account the number and variety of journals, models and methods applied, it can be concluded that fl and nn are widely present as a tool for solving problems in business processes. further research can be referring to the definition of a model that will consolidate and use different combinations of existing, improved and new methods and variations of sct (neural networks and fuzzy logic) to overcome the problems of imprecision and uncertainty in specific segments of business processes management. conslusion [18] el-mongy, a.m.a., hamouda, a.el-d., nounou, n., &wahdan, a.l-m., a., (2013). design of prediction system for key performance indicators in balanced scorecard. international journal of computer applications (0975 – 8887),72(8), 10-14. 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[68] zadeh l. a., (1994). fuzzy logic, neural networks, and soft computing. communications of the acm, 37(3). 70 nikola vojtek 2018/23(1) 71 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) [69] zeleznikow, j., &nolan, j.r., (2001). using soft computing to build real world intelligent decision support systems in uncertain domains. decision support systems,(31), 263–285. [70] zhang, g.p., patuwo, b.e., &hu, m.y., (2001). a simulation study of artificial neural networks for nonlinear time-series forecasting. computers & operations research, 28, 381-396. [71] zhang, g.p., &qi, m., (2005). neural network forecasting for seasonal and trend time series. european journal of operational research, 160(2), 501-514. doi: 10.1016/j.ejor.2003.08.037 [72] zhu, b., &xu, z., (2014). a fuzzy linear programming method for group decision making with additive reciprocal fuzzy preference relations. fuzzy sets and systems,246, 19-33. doi: http://dx.doi.org/10.1016/j.fss.2014.01.001 [73] zobel, c.w., &cook, d.f., (2011). evaluation of neural network variable influence measures for process control. engineering applications of artificial intelligence, 24, 803-812. doi: 10.1016/j.engappai.2011.03.001 received: 2017-07-18 accepted: 2017-10-18 nikola vojtek university of belgrade, faculty of organizational sciences, serbia vojtekn@gmail.com nikola vojtek is a project manager and business process analyst currently employeed in airserbia and has more than 5 years of experience working on different kinds of projects within supply chain and airline industry. he obtained his b.sc. and m.sc. in quality management at the faculty of organizational sciences, university of belgrade. currently he is enrolled in ph.d. studies in the field of system control at the same faculty. so far, he has published papers at domestic and international conferences on various topics regarding business processes, quality and risk management. his focus is on airline industry. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 06_gasevic:tipska.qxd 63 dragana gašević1, dragana tomašević2, marija vranješ3 1,2,3 visoka poslovna škola strukovnih studija novi sad management: journal of sustainable business and management solutions in emerging economies 2017/22(3) abstract: ethnocentric behaviour of consumers is related to the attitude and intentions of consumers when deciding upon purchasing a product, i.e., it is such a kind of behaviour which implies giving priority to purchasing domestic rather than foreign products. the results of a large number of studies show that not all consumers are equally ethnocentric. therefore, it is of utmost significance to realize that consumers rely on various signals and make different decisions depending on their inclinations towards consumer ethnocentrism. the aim of this paper is to examine the influence and interaction of demographic characteristics of respondents in serbia on consumer ethnocentrism. several statistical techniques that provided support during the testing of research hypotheses have been applied in the preparation of this paper. we used nonparametric techniques (mann-whitney u test and kruskal-wallis test). the results indicate that men are more ethnocentric than women, as well as persons with lower level of education than those with higher level of education. also, the results have shown that respondents who achieve the highest level of income are not ethnocentric in the least. in addition, it has been established that there is no statistically significant impact of the criteria of the year on the level of consumer ethnocentrism. the research results provide useful information for marketers and managers of companies that currently operate or are planning to enter serbian market in the forthcoming period. another great benefit is reflected in the fact that these results draw the managers’ attention to the fact which consumer groups are the most ethnocentric and thus allow the creation of high quality strategies. keywords: ethnocentrism, consumer behaviour, demographic characteristics jel classification: m31, d12, j10 key factors determining the ethnocentric tendencies of consumers in serbia doi: 10.7595/management.fon.2017.0028 1. introduction contemporary market operations and conditions dictated by the market require companies to carry out permanent monitoring of all variables that are of interest to their normal functioning, survival, and development. companies are facing the task of monitoring changes taking place on the market with the most significant among them being those related to consumer behaviour. through their behaviour (purchases), consumers verify and confirm a company’s efforts so it is essential to devote close attention to their research. in the era of globalization and increasing competition, consumers around the world are provided with a large number of both domestic and imported products and services. therefore, it is of utmost importance to be familiar with their attitudes towards imported goods and services, i.e., it is an imperative for all companies to observe the level of consumer ethnocentrism. given that conceptualization and measurement of ethnocentrism (as observed from the aspect of sociology and psychology) are irrelevant to the measurement of ethnocentrism in the context of consumption, shimp and sharma (1987) introduced the construct of consumer ethnocentrism. the general definition of consumer ethnocentrism refers to the phenomenon according to which consumers prefer local products or are biased against imported ones (levine & campbell, 1972). consumer ethnocentrism can be interpreted through observing import as something bad, not only because it is unpatriotic, but because it is harmful to the economy and leads to job loss (kucukemiroglu, 1999). shimp and sharma (1987) noted that consumers tend to favor domestic products from their home country even when they do not perceive them as superior. in this way, ethnocentric consumers want to contribute to economic prosperity and thus the overall political, social, and economic development of the country. it is often recognized that during periods of economic crisis ethnocentric behaviour of consumers is recognized as socially acceptable and desirable (marinkovic et al., 2011). ethnocentric consumers do not need any interventions by the state to act in such a manner (veljkovic, 2009). ethnocentric consumers are also willing to ignore the amount of their expenditure in order to purchase a product of domestic origin (beslagic, 2015). for years, numerous studies have been conducted with the aim to better grasp the behaviour of ethnocentric consumers. an important contribution to the research of consumer behaviour lies in the development and application of cetscale (consumer ethnocentric tendency scale) (shimp & sharma, 1987), designed to measure the ethnocentric tendencies of consumers, i.e., the tendency of consumers to favour products from their own country over those supplied from other countries. this multi-item scale has been utilized to analyze why some consumers prefer domestically produced goods over imported goods, even when the latter are cheaper and their quality is evidently better (chendo, 2013). the scale consists of 17 items, where respondents mark their level of agreement via the seven-point likert scale. subsequent research carried out by netemeyer et al. (1991) firmly supported the psychometric characteristics and validity of the scale in 4 different countries: france, germany, japan and the usa. the cronbach’s alpha coefficients ranged from 0.91 to 0.95. this provided strong support to the unidimensionality of cetscale, together with the establishment of internal consistency. 2. theoretical framework of the research the success of a marketing model depends on the ability of researchers to identify the variables that cause people to behave differently in the market (kucukemiroglu, 1999). demographic dimensions are widely accepted, easily quantified and consumers are effortlessly classified on such basis (kucukemiroglu, 1999). despite the importance of consumer ethnocentrism on the one hand and demographic characteristics on the other hand, numerous researchers (caruana, 1996; pharr, 2005; shankarmahesh, 2006) have pointed out that the existing literature dealing with consumer ethnocentrism and the effect of age, gender, and income on consumer ethnocentrism is unclear and conflicting, and represents a research gap. earlier studies claimed that there was no consensus about how age, gender, and income affected consumer ethnocentrism (josiassen et al., 2011). based on theoretical conceptions of authors who have dealt with this topic in the past, this paper will include a formulation of an appropriate research hypothesis. the basic research hypothesis is: h0: socio-demographic characteristics of respondents are the key determinants of consumer ethnocentrism. the literature on consumer ethnocentrism and the impact of age on the level of consumer ethnocentrism actually shows that there are several various influences. shankarmahesh (2006) lists six studies showing that older consumers are more ethnocentric than the younger ones, together with two studies whose results showed that younger consumers are more ethnocentric than older ones. several additional studies (mittal & tsiros, 1995) also indicated that younger consumers were more ethnocentric. the results of a research conducted in india (garg & jain, 2016) implied that younger consumers (aged between 18 and 30) were more ethnocentric in comparison to other age groups. the student population (aged between 18 and 25) in the republic of serbia generally manifests a moderate level of consumer ethnocentrism, however, with a tendency of increasing in comparison to previous research (kragulj et al., 2017). on the other hand, bannister and saunders (1978) studied the case of consumers from great britain and concluded that the respondents’ attitudes towards products from their own country became more favorable as the age of respondents increased. that is, older respondents were more likely to prefer products from their home country in comparison to younger respondents. also, the results of a survey conducted in moldova demonstrated that older respondents (aged between 46 and 55) showed far more ethnocentric tendencies in comparison with respondents from the 18-25 age category (cazacu, 2016). research of this phenomenon on the territory of serbia in 2015 also showed that older consumers had more ethnocentric tendencies (gasevic et al., 2015). also, research results of the level of respondents’ consumer ethnocentrism, who are between 18 and 30 years old, on four markets in the western balkans (slovenia, croatia, and macedonia) and china have shown that these respondents, regardless of cultural differences, show a low level of consumer ethnocen64 dragana gašević, dragana tomašević, marija vranješ 2017/22(3) trism (raskovic et al., 2016). the assertion that older consumers tend to be more ethnocentric when purchasing products is confirmed by a positive relationship between age and conservatism (sharma et al., 1995), and age and dogmatism (anderson & cunningham, 1972) where both of the above sociological concepts are deemed as preconditions for consumer ethnocentrism. based on the aforementioned considerations, the first hypothesis of this research is defined: h1: older consumers are more ethnocentrically oriented in comparison to younger consumers. there are certain incompliances with regard to the impact of gender as a factor that determines consumer ethnocentrism. тhe studies that were conducted in malaysia revealed that malay married women tended to show higher ethnocentric tendencies in comparison to men (othman et al., 2008). women are more likely to manifest behaviour that is socially desirable and in line with expectations of a socially important group, and they are more conservative (han & terpstra, 1988) when compared to men. conservatism and conformity (sharma et al., 1995) are the predecessors of consumer ethnocentrism. other researchers who were involved in the research of consumer ethnocentrism confirmed that male consumers tended to be less ethnocentric compared to women (balabanis et al., 2001; good & huddleston, 1995; sharma et al., 1995). also there is a number of studies where no statistically significant effect of gender differences has been found (caruana, 1996) and, again, some other studies show that men are more ethnocentric than women (bannister & saunders, 1978). the research of this phenomenon in serbia in 2015 showed that men were more ethnocentric (marinkovic et al., 2011, gasevic et al., 2015, grubor & đokic, 2015). schooler (1971) and dornoff et al. (1974) stated that women had a more favourable assessment of products coming from abroad in comparison to men. based on the previous statements, and primarily relying on the results of the research in serbia, the following hypothesis is defined: h2: men are more ethnocentric in comparison to women. in literature, there is no consensus regarding whether an increase in income has a positive or a negative effect on consumer ethnocentrism. while several studies (caruana, 1996; sharma et al., 1995) indicated a negative relationship between income and consumer ethnocentrism, some studies (han & terpstra, 1988) suggested that income had no effect, while other (tan & farley, 1987) indicated a positive relationship between income and consumer ethnocentrism. citing the example of the czech republic, balabanis et al. (2001) indicated that consumers with higher income tended to be more ethnocentric than consumers with lower income. a conceptual argument in favor of the claim that consumers with higher income are less ethnocentric states that consumers earning higher income are more cosmopolitan and travel more. both of these constructs precede consumer ethnocentrism (balabanis et al., 2001). the research hypothesis regarding the impact of income on the level of consumer ethnocentrism has the following form: h3: consumers with lower income tend to be more ethnocentrically oriented in comparison with consumers with higher income. according to cutura (2006), gender and income of households did not turn out to be significant, as there is neither difference in the level of ethnocentric tendencies with subjects by gender nor level of income. however, age and education appeared as important characteristics affecting levels of ethnocentric tendencies. the results showed that older subjects, as well as those with lower levels of education, had significantly higher levels of ethnocentric tendencies. in terms of education level, certain authors (olsen et al., 1993) stated that persons who were more materialistic and less educated manifested a higher degree of consumer ethnocentrism (nishina, 1990). studies of consumer ethnocentrism generally have found that scores on the cetscale are related inversely to education and income (cicic et al., 2003). grubor and djokic (2015) state that respondents who graduated from college are less ethnocentric than those with secondary education. in addition, the research by gasevic et al. (2015) confirmed that the level of consumer ethnocentrism lowers with an increased level of education. based on aforementioned results, the h4 hypothesis states: consumers with higher education level tend to be less ethnocentrically oriented in comparison with consumers with lower education level. 3. other factors that determine the ethnocentric behaviour of consumers numerous studies have shown that not all consumers are equally ethnocentric. for example, those who tend to be more ethnocentric are people who are less open culturally (shimp & sharma, 1987) and less global minded (balabanis et al., 2001). also, consumers who are greater patriots and more conservative, as well as who are collectivist-oriented in comparison with individualists are more ethnocentric (sharma et al., 1995). 65 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) studying the phenomenon of consumer ethnocentrism frequently includes the analysis and effect of cosmopolitan behaviour. cosmopolitan individuals are not affected by prejudice regarding their own culture and their orientations “go beyond any individual cultural setting” (cannon & yaprak, 2002). consumers become motivated to be more cosmopolitan oriented with the increase in their social status and cultural capacity (thompson & tambyah, 1999). consumer ethnocentrism analyzes the impact of membership in a certain group on individual behaviour. for example, if a german consumer prefers cars from his/her own country due to the perception that the germans are meticulous, detailed, with high labor standards, or because he/she had had a satisfactory previous experience with using similar german products, then the main reason of giving preference to domestic products lies in the relationship between a product and country image. this in itself does not mean that the consumer is ethnocentric and it cannot be expected that the consumer will tend to prefer other unrelated german products in the future. on the other hand, when consumers prefer domestic products for moral reasons such as protection of domestic jobs against competition, then consumer ethnocentrism is considered as the main reason. in this case, it is expected that the consumer will tend to prefer other domestic products. from an ethnocentric consumer point of view, the product has the function of the classification criterion of domestic versus imported products. therefore, the country of origin data have a significant diagnostic value for ethnocentric consumers. consumer ethnocentrism launches a motivational process of seeking information about the country of origin (cutura & b. malic, 2016). while consumer ethnocentrism, national identity and economic nationalism jointly reflect the level of “discrimination against foreign products” (baughn & yaprak, 1996), the main reason for this discriminatory behaviour is the preference of domestic products rather than negativism towards any country individually. therefore, it is anticipated that such discrimination may affect all foreign products. consumer animosity, introduced by klein et al. (1998), on the other hand, refers to consumer negativism towards a particular country due to war, economic or political reasons. ethnocentrism, as well as associated constructs of animosity and affinity, have a strong impact on consumer attitudes and their purchase behaviour (auruskeviciene et al., 2012). nationalistic emotions influence attitudes towards products and intentions to purchase. consumer nationalism affects the cognitive evaluation of products and therefore the intention to purchase. this entails that those individuals who have nationalistic intentions perceive the quality of domestic products as higher in comparison to foreign ones (han, 1989). a significant effect of nationalism and national identity on the level of consumer ethnocentrism in bosnia and herzegovina was confirmed by vida et al. (2008). in the sample of 580 urban consumers, they found that ethnic affiliation has a direct effect on both consumer ethnocentrism and on domestic purchase bias. bosnians seem to be the most ethnocentric consumers in bosnia and herzegovina, followed by serbs and then croats. ethnic affiliation of consumers has a direct effect on both consumer ethnocentrism and on domestic purchase behaviour (dmitrovic & vida, 2009). research results from 2012 also confirmed that ethnicity is an important factor in the context of b&h society for overall consumer orientation, towards both the domestic and the imported products. bosnians are ethnocentric, with a tendency to purchase local products, and evaluate them better. the croats, on average, are non-ethnocentric and polycentric at the same time, showing a great tendency towards imported products. on the other hand, serbs have, on average, low ethnocentric tendencies without any signs of polycentrism, which is expected in the case of consumers with low ethnocentric tendencies, who are, in a way, unicentric or oriented towards serbian products (cutura, 2012). furthermore, regarding the influence of nationality on the level of consumer ethnocentrism, the results of a survey among students in sarajevo in 2016 indicate that, on average, bosnian students tend be more ethnocentric consumers than turkish students (becic, 2016). research has shown that non-ethnocentric consumers in turkey tend to express much more favourable beliefs, attitudes and intentions with regard to imported products than is the case with ethnocentric consumers (kucukemiroglu, 1999). ethnocentric tendencies among korean consumers play an important role in decision-making with regard to a certain product that is a significant source of workplaces and revenue for the local economy (sharma et al., 1992). also, when an imported product is perceived as less necessary, ethnocentric tendencies may play a more important role in making purchase decisions (kucukemiroglu, 1999). highly ethnocentric consumers often make biased judgments and over-evaluate domestic products unreasonably in comparison with foreign products (bećić, 2016). results of a research conducted in moldova indicated that consumers tended to sustain the local producers in order to help enhance the country’s 66 dragana gašević, dragana tomašević, marija vranješ 2017/22(3) economy. but if they could not find local products of good quality, they bought imported products. also, if the local products were more expensive, then many respondents preferred the imported goods (cazacu, 2016). 4. research methodology this paper emerged as the result of a research conducted between april 15th, 2016 and june 13th, 2016. the questionnaire method was used for data collection. the sampling method was random. a questionnaire was created and sent electronically to respondents for completion. the questionnaire was sent to 210 e-mail addresses. the response rate was 80%, i.e., 168 respondents sent their replies. primary data were collected from respondents who belong to various age and gender groups and with different levels of income and education. the sample characteristics are presented in table 1. the questionnaire consisted of two parts. the first part of the questionnaire included questions regarding the demographic and socioeconomic characteristics of respondents. these data were used for testing the research hypotheses. the mann-whitney u test provided an answer to the question whether men and women differ in the level of consumer ethnocentrism. also, this test was used to obtain an answer to the question whether there was a difference in the level of consumer ethnocentrism among the people of different age groups and levels of education. the kruskal-wallis test was applied to determine whether and how the level of the respondents’ income influences consumer ethnocentrism. the second part of the questionnaire was designed to measure respondents’ consumer ethnocentric tendencies. the original measurement of consumer ethnocentrism (cetscale) which contained 17 items developed by shimp and sharma (1987) was adopted and adapted to determine the level of consumer ethnocentrism in serbia. participants were requested to rate the items on a five-point likert scale (1 = strongly disagree and 5 = strongly agree). the structure of the questionnaire was particularly adapted from the works of teo, mohamad and ramayah (2011) in malaysia, mangnale, potluri and degufu (2011) in ethiopia and chendo (2013) in nigeria. the five-point likert scale was used during the implementation of the research conducted by garg and jain (2016) in india, with the exception that these authors applied an adapted cetscale with 10 statements. based on the above statements we formed a new dependent variable. the reliability and internal consistency of this scale were also measured using the cronbach’s alpha coefficient. table 1: sample characteristics (n=168) 67 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) gender number of respondents (n=168) percentage (%) men 58 34.5 women 110 66.5 age 19-28 years 62 36.9 29-48 years 92 54.8 49-58 years 8 4.8 over 58 years 6 3.6 professional qualifications secondary school 74 44.0 college education 12 7.1 university education 36 21.4 m.sc./phd 46 27.4 income level up to 25 000 rsd 54 32.1 between 25 000 and 40 000 rsd 28 16.7 between 40 000 and 60 000 rsd 50 29.8 between 60 000 and 85 000 rsd 26 15.5 more than 85 000 rsd 10 6.0 by analysing the data, it was found that females were the prevailing segment in the sample, in comparison with males. it was also evident that the largest number of respondents belonged to the 29-48 years of age category. when it comes to the level of education of the respondents, it was noted that the sample did not include any respondents with lower education level. the largest number of respondents are those who have completed secondary school. the data on income level showed that the majority of respondents realized income of up to 25 000 rsd. there was also a large number of respondents with a monthly income amounting to the average net salary in serbia. the average net salary per employee paid in august 2017 is 47220 rsd (http://www.stat.gov.rs, 2017). the smallest number of respondents were classified in the category that generated an income higher than rsd 85 000. 5. research results the scale of consumer ethnocentrism (cetscale) applied in this research has an internal consistency for measuring the ethnocentric tendencies of serbian consumers. the resulting value of cronbach’s alpha coefficient of 0.956 can be considered a reasonably high reliability coefficient which implies that the research results are representative and that a reliable research model was applied. based on this, it can be assumed that all 17 items used are measuring the same construct (ethnocentrism) and, therefore, a summative measure can be used to represent the ethnocentrism score of the respondents (chendo, 2013). in addition, the validity of the consumer ethnocentrism concept in the case of consumers in bosnia and herzegovina was proven through the high reliability of cetscale as a measurement instrument, with cronbach’s alpha coefficient of 0.95 (cutura, 2006). table 2: the adapted 17-item cetscale 68 dragana gašević, dragana tomašević, marija vranješ 2017/22(3) item cronbach's alpha if item deleted mean median 1. serbian people should always buy serbian-made products instead of imports. 0.954 3.761 4.000 2. only those products that are unavailable in serbia should be imported. 0.954 4.047 5.000 3. buy serbian-made products. keep serbia working. 0.954 4.238 5.000 4. serbian products first, last and foremost. 0.953 3.559 4.000 5. purchasing foreign-made products is un-serbian. 0.954 2.654 3.000 6. it is not right to purchase foreign products, because it puts serbians out of jobs. 0.952 3.381 3.000 7. a real serbian should always buy serbian-made products. 0.951 3.095 3.000 8. we should purchase products manufactured in serbia instead of letting other countries get rich off us. 0.953 3.654 4.000 9. it is always best to purchase serbian products. 0.953 3.357 3.500 10. there should be very little trading or purchasing of goods from other countries unless out of necessity. 0.953 3.142 3.000 11. serbians should not buy foreign products, because this hurts serbian business and causes unemployment. 0.952 3.321 3.000 12. curbs should be put on all imports. 0.954 3.500 4.000 13. it may cost me more in the long-run, but i prefer to support serbian products. 0.953 3.381 3.000 14. foreigners should not be allowed to put their products on our markets. 0.954 2.464 3.000 15. foreign products should be taxed by higher taxes heavily to reduce their entry in serbia. 0.955 3.119 3.000 16. we should buy from foreign countries only those products that we cannot obtain within our own country. 0.952 3.607 4.000 17. serbian consumers who purchase products made in other countries are responsible for putting their fellow serbians out of work. 0.952 2.940 3.000 as may be noted from table 2, the most pronounced level of consumer ethnocentrism of consumers in serbia is present in terms of the impact of ethnocentric behaviour on employment (arithmetic mean is 4.238), while the lowest level is present in the statement relating to behaviour regarding the restriction on the import of foreign products (arithmetic mean is 2.464). research results of this phenomenon in serbia from 2015, are almost identical. namely, the most favourable attitude of the respondents is for the item stating that by purchasing serbian products, serbian jobs are preserved (arithmetic mean 4.55) whereas the least favorable attitude was for the item stating that the entire import should be limited (arithmetic mean 1.60) (gasevic et al., 2015). the same results were obtained from a survey conducted in bosnia and herzegovina in early 2014 (beslagic, 2015). furthermore, results of a survey on consumer ethnocentrism in bosnia and herzegovina in 2003 revealed that the result at cetscale was, on average, 4.6 and therefore, we can conclude that bosnian consumers are highly ethnocentric (4.5 and more points at likert scale mean that the consumers are highly ethnocentrically oriented, while less than 4.5 at the same scale mean that they have low level of ethnocentricity) (čićić et al., 2003). although the total result of cetscale shows that bosnian consumers are highly ethnocentrically oriented, the above-mentioned results indicate that they, however, do not mind possessing foreign products, and that they have nothing against import in general (čićić et al., 2003). in addition, this table presents the values of cronbach’s alpha coefficients for each statement individually. this means that the table shows how the removal of each item from the scale may impact coefficient alpha. in case any of the numbers in column cronbach’s alpha is higher than the final value of alpha, this item should be removed from the scale. (pallant, 2011). nonparametric techniques are specific as their hypotheses are not as strict as those of parametric techniques, and they are more suitable for smaller samples or when the collected data have been measured only on ordinal scales (pallant, 2011). in accordance with the above reasons and given the nature of the available data, non-parametric techniques were applied in this research (mann-whitney test and kruskal wallis test). the mann-whitney test was used to obtain information on how the gender, age, and different levels of education characteristics of the respondents affected the level of consumer ethnocentrism. the kruskal wallis test was applied in order to answer the question whether there was a difference in the level of consumer ethnocentrism among people who have different income levels. when it comes to the impact of gender characteristics the results of the mw test show that p = 0.031< 0.05 we have concluded that the obtained result is statistically significant (not random) i.e., there are differences in the level of consumer ethnocentrism between men and women. male respondents express a higher level of consumer ethnocentrism (md = 3.7059, n = 58) compared to female respondents (md = 3.3529, n = 110). based on these results, it can be concluded that h2 hypothesis is confirmed. when it comes to the impact of age differences on the level of consumer ethnocentrism, the results of mw test show that p = 0.883>0.05, and we have concluded that the obtained results are not statistically significant, i.e., there are no differences in the level of consumer ethnocentrism between two groups of respondents that are the largest in the sample (group aged 29-48, n = 92 and group aged 19-28 years, n = 62). in that case, the calculation of the median is not performed (pallant, 2011). it is concluded that the h1 hypothesis does not confirm the statement that older consumers express more ethnocentric behaviour in comparison to younger age categories. the results of mw test concerning the influence of education level show that the level of significance is p = 0.012<0.05, so it can be concluded that the results obtained are not random, i.e., that they are statistically significant and that there is a difference in the level of consumer ethnocentrism among respondents with different education levels. the results of the comparison of the two groups of respondents show that a lower degree of consumer ethnocentrism is shown by respondents who have completed higher education levels (university education + master/ magister/doctoral: md = 3.2353, n = 82), and respondents with lower level of professional qualifications are more inclined to buy local products than foreign respondents (secondary school education + college education: md = 3.6471, n = 86). the obtained results indicate that h4 hypothesis is confirmed, i.e., that people with higher education level have a lower level of consumer ethnocentrism. in case of the influence of income level on consumer ethnocentric tendencies, the results of kw test show that p = 0.036<0.05, which leads to the conclusion that there is statistically significant difference among the groups, i.e., that there is a statistically significant influence of the income criterion on the level of consumer ethnocentrism of the respondents. however, the obtained results show that the highest level is reported by 69 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) respondents who earn an income between 25,000 and 40,000 dinars (md = 4.0882, n = 28), and the least ethnocentric respondents who earn an income from 40,000 to 60,000 dinars (md = 3.2353, n = 50). it is interesting that respondents who earn the highest income do not exhibit the lowest level of consumer ethnocentrism. what is more, they are the second category that exhibits the highest level of consumer ethnocentrism (respondents who earn an income between 60,000 and 85,000 dinars + respondents who earn an income of over 85,000 dinars: md = 3,5882, n = 36). also, consumers with the lowest incomes (up to 25,000 dinars) are not consumer ethnocentric the most (md = 3529, n = 54). based on the above, it can be concluded that the h3 hypothesis is not confirmed, which indicates that consumers with lower levels of income tend to be more ethnocentric compared to those who receive higher incomes. 70 dragana gašević, dragana tomašević, marija vranješ 2017/22(3) in this research, we have examined the differences in the level of consumer ethnocentrism among different demographic segments. conceptual hypotheses have been tested on a sample of 168 respondents in serbia. the results indicate that age differences are not a statistically significant factor of consumer ethnocentrism. this result is not in accordance with the defined h1 hypothesis. ethnocentric tendencies are more prevalent among men than women. this result is in accordance with the results of the research of consumer ethnocentrism in the republic of serbia (marinkovic et al., 2011, gasevic et al., 2015, grubor & djokic, 2015), which contributes to the confirmation of defined h2 hypothesis. it can be said that this research contributes to studies on consumer ethnocentrism that indicate that female and male consumers have different ethnocentric tendencies. the results have also demonstrated that income is a statistically significant factor that determines the ethnocentric behaviour of respondents. however, the highest level of consumer ethnocentrism is not in the group of respondents with the lowest incomes. in this way, hypothesis h3, according to which consumers with lower income are more ethnocentric, has been disproved. hypothesis h4, which refers to the level of education and the effect of this variable on the priority purchase of products of domestic origin has been proven. the highest level of consumer ethnocentrism is expressed among those respondents who have the lowest level of education. the obtained result is in accordance with research results of this phenomenon in the republic of serbia (grubor & djokic, 2015; gasevic et al., 2015). in general, the results indicate the importance of researching into the demographic characteristics of consumers. the key benefit of including the demographic variables lies in the fact that they are smoothly measurable and as such are easily used for marketing predictions. therefore, the inclusion of demographic characteristics in studies of consumer behaviour increases their managerial relevancy (homburg & giering, 2001). the results of this research have several managerial implications. first of all, they provide managers with a detailed understanding of which groups of consumers in serbia are the most ethnocentric. this market-related information is essential for companies and their segmentation, targeting and positioning strategies. marketing managers do not perform their tasks well if they do not take into account the tendency of domestic consumers to be ethnocentric. on the other hand, if they assume that all domestic consumers are ethnocentric, they will most certainly create an inappropriate strategy. in general, all results may assist in a better allocation of marketing resources. resources can be used to emphasize or diminish the origin, depending on whether the company is domestic or not. the limitation of this research is reflected in the fact that hypotheses are tested only within a certain context, i.e., they are related only to consumers in the city of novi sad in serbia. in addition, the sample size of respondents should be increased and the sample structure must be taken into account, in the sense of proportional representation of respondents from all categories. this limitation is also related to the manner of collecting the data on respondents. using an electronic questionnaire, we have eliminated the respondents who do not use computers, do not have an internet access or are simply 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(2009). uticaj etnocentrizma na potrošače u srbiji. marketing, 40 (2), 97-10 received: 2016-10-26 accepted: 2017-11-08 72 dragana gašević, dragana tomašević, marija vranješ 2017/22(3) 73 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) about the author dragana gašević visoka poslovna škola strukovnih studija novi sad draganag.vps@gmail.com dragana gasevic holds a m.sc. degree from the faculty of economics, university of novi sad. she is a ph.d. student at the faculty of economics, university of kragujevac. since 2012 she has worked as an assistant professor at the department of business economics at the novi sad business school. as author or coauthor, she published a number of papers in scientific journals and national and international conference. dragana tomašević visoka poslovna škola strukovnih studija novi sad dragana.vps@gmail.com dragana tomasevic holds a m.sc. degree from the faculty of economics, university of novi sad. she is a ph.d. student at the faculty of economics, university of kragujevac. since 2012 she has been engaged as an assistant professor at the department of business economics at the novi sad business school. as author or coauthor, she published a number of papers in scientific journals and national and international conference. marija vranješ visoka poslovna škola strukovnih studija novi sad vranjesmarija.vps@gmail.com marija vranjes holds a m.sc. degree from the faculty of economics, university of novi sad. she is a ph.d. student at the faculty of economics, university of kragujevac. since 2012 she has been employed as an assistant professor at the department of business economics at the novi sad business school. as author or coauthor, she published a number of papers in scientific journals and national and international conference. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false 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was born on september 6, 1943 in kragujevac where he completed his primary education and graduated from high school. between 1965 and 1973 he studied, graduated and earned an msc at the faculty of mechanical engineering. his thesis was titled: “contribution to the examination of the development of industrial organization”. from 1969 to 1983 he worked in autosaobraćaj kragujevac as the gm’s advisor for technical matters, then at the institute for planning and management systems; in 1976 he started working for the belgrade chamber of commerce, as the secretary to the council for the promotion of science and research. the year 1977 marks the start of his engagement at the faculty of organizational sciences (fos), at the course on organization and management of investments. he became a staff member, as a guest lecturer in 1983, and continued into a role of full professor until 2008, when he retired. he was a distinguished professor at fos, he headed the management department during several terms and was dean twice. during this period, he contributed enormously to the development of organizational sciences, development strategy and modern organization of the faculty. he was a renowned author in scientific circles, as his books were among the first ones in this region to discuss the phenomena of management and organization. he wrote numerous books on management, project management, investments, strategic management, change management, organizational development, etc. that helped generations of students understand and adopt these disciplines. the list of his scientific papers published in leading domestic and foreign journals, symposia and congress is much longer still. his biggest contribution is in the field of the development of various management disciplines, most prominent of which was project management. his book project management is the most commonly used and widely known in this country; it has had a significant influence on the development and application of project management concept in this region. in addition to this book, he authored or co-authored many other books, monographs and manuals from the field of project management, among them: methods and techniques of project management, program management, project manager, management and project management, managing project risks, directions of project management development, etc. professor jovanović also contributed to project management by founding the faculty for project and innovation management, one of the first institutions in the world to offer project management studies in bachelor, master and phd programmes. each year more and more students enroll into this faculty. he was the founder and the first president of the project management association in yugoslavia – yudrup, and subsequently in the republic of serbia – an institution that is a very successful member of the international project management association. by founding the serbian project management association, he wanted to promote and support professional activities of its members in order to encourage their work and improve their expert knowledge in the field of project management. simultaneously, his leadership at the association contributed to the national and international promotion and further development of project management. the association has been active for the past 32 years and is one of the rare non-profit organizations that managed to survive and develop, despite all the problems in recent history. professor jovanović provided important scientific and expert contribution in the field of preparation, implementation and evaluation of investment projects. he introduced an investment management course in undergraduate and postgraduate studies and founded the centre for investment management and direct cooperation with the private sector. a book that also presented an important milestone in his scientific and educational career, and whose impact on the enterprise sector was substantial, was investment management. he was the reviewer of joint methodology for evaluating social and financial investments and efficiency of investments in sfry, the first methodology for evaluating industrial investment projects in the ex-yugoslavia. he was one of the authors of the rulebook on contents and scope of the pre-feasibility and feasibility study as the accompanying bylaw to the law on construction from 1999. this rulebook was the first one to introduce cost-benefit analysis as part of social evaluation of projects. the contribution of professor jovanović transcends the development of individual scientific disciplines and extends to an entire scientific field. his scientific and expert papers in the field of management and organization are widely quoted and accepted by scientists, students and entrepreneurs. his books such as management – theory and practice, strategic management, change management, managing the development of a company, knowledge management, contemporary management, but also his papers in journals, monographs and his other works, contributed to the development of knowledge from the field of management which we, according to him, “urgently needed and obviously missed”. he constantly strived to offer systematized theoretical knowledge from the field of management and relevant practical experiences necessary for performing managerial roles. a very special place among his works belongs to the lexicon of management, published by the faculty of organizational sciences, where he worked as one of the editors. in 1996, at the faculty of organizational sciences, he founded the management journal, accepting the role of its first editor-in-chief. the goal of this journal has since been to enable the exchange of relevant information between scientists, researchers, managers, businessmen and all stakeholders from universities, institutes, companies and public institutions. today, the name of the journal is management: journal of sustainable business and management solutions in emerging economies. its local, regional and global reputation is impeccable, and this was confirmed by the ministry of education, science and technological development, that awarded it the highest possible rank to be obtained by a domestic journal. he founded and was the first editor-in-chief to serbian project management journal. the first issue was published in 2011 and numerous authors have published their papers in the journal so far. over the years, it has developed and grown beyond the national boundaries; therefore, in 2017, its name changed to the european project management journal. the journal has international recognition, papers published in it are quoted in papers published in numerous leading international magazines, while the ministry of education, science and technological development treats papers published in this journal as papers published in a renowned national journal. in addition to the mentioned journals, he was the editor-in-chief of produktivnost, a long-time member of editorial staff to the tehnika journal, as well as many others. he was a member of the council of delegates of the international project management association, lecturer at several national faculties, multiple-time president and member of programme board for international symposia and congresses. he led several strategic scientific and research projects in the field of management financed by the ministry of education, science and technological development. at the same time, he was involved in the development of the national business environment, as would be expected of a university professor. as an award for his work and contributions, he was awarded the plaque of the city of belgrade as well as multiple other recognitions. he was the dean of the faculty of organizational sciences during one of the hardest periods for this country. it is during this time that the faculty adopted some of the best decisions, such as the establishing of the undergraduate and graduate study programmes in management, issuing of the journal, founding of new centres, construction of the first amphitheatre, etc. his rich and successful career was a result of constant work and his need to achieve significant improvements in education, science and management as a profession. we often hear that one’s significance can be measured by the things they left behind. professor petar jovanović, phd, has left us with a treasure. prof. dejan petrović, phd 2 petar jovanović ivana berić 2018/23(3) analysis of the available project management methodologies doi: 10.7595/management.fon.2018.0027 1. introduction numerous complex problems that business and other organisations face on a daily basis require the implementation of modern management methods and disciplines for a more efficient functioning of these organizations. implementation of project management is necessary in an efficient execution of various projects and enterprises. an expansion in project management implementation is closely linked to the expansion of knowledge in project management and training of competent project managers. on the other hand, this knowledge expansion is in turn connected with available procedures and methodologies proposed and implemented in the project management practice. the project management theory and practice have provided us with a large number of practically applicable methodologies for an efficient management of a project. the project management methodology represents a set of methods, techniques, procedures, best practices, etc., used on a project. it is commonly based on a specific project management approach, one that defines a set of principles and guidelines which define the manner in which a project is managed (spundak, 2014). the best known project management methodologies are: pmi, ipma, apm, yupma, prince 2, etc. (apm, 2000; ipma, 2015; jovanovic, 2015; jovanovic&jovanovic, 2009; ogc, 2009; pmi, 2013). these are mainly process methodologies and they include certain subprocesses or phases in project management. a major problem with these methodologies is that they are usually proposed regardless of the type of project. it is evident, however, that differences 3 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) * corresponding author: ivana berić, e-mail: ivana.beric26@gmail.com petar jovanović ivana berić* university educons, faculty of project and innovation management, belgrade research question: this study aims to investigate an available project management methodologies from the standpoint of their applicability. motivation: authors are keen to present the specific characteristics of the nowdays available methodologies (pmi, ipma, prince2, yupma, apm, hbs, agile methodoligies etc.) that can ensure a realistic foundation upon which an adequate methodology for a certain group of similar projects can be defined.the usage of an adequate project management methodology brings numerous advantages and benefits to the project manager and project team and it shows them the right route towards project completion. idea: this paper gives a review of the most highly recognised methodologies, proposed and implemented in the project management practice. specific features of these methodologies were analysed bearing in mind the possibilities of their implementation. data: the reasearch of project management methodologies was provided using bibliometrics techniques. tools: the study provides the meta analysis of the most cited research papers in the filed of project management methodologies, provides comparative analysis and discuss the trends in project management methodologies application. findings: it has been found that general characteristics of traditional methodologies (pmi, ipma, apm,yupma) make them more adequate to be implemented in larger and more complex projects such as: investment, military, manufacturing, overhaul, etc. projects. on the other hand, general characteristics of agile methodologies lead to a conclusion that these methodologies are more suitable to use for it projects as well as for some smaller and less complex projects, such as devising various studies, project reports, etc. contribution: this study presents the meta analysis of the existing methodologies and provides the synthesis of key features of different applicable methodologies. this paper can be treated as a bottom line for further research oriented towards defining a specific methodology, adequate for certain groups of projects. keywords: project, project management, traditional methodologies, agile methodologies, analysis, implementation jel classification: h43, o22, m21 between the structures of certain groups of projects are rather big; hence, the methods of management of these projects have to differ as well (besner & hobbs, 2012). depending on the particularity and type of project, management philosophy and culture of the organization that runs the project, a certain methodology should be chosen (drob & zichil, 2013). this implies the need that specific methodologies should be defined for some groups of similar projects. this paper is meant to analyse the available methodologies and identify specific characteristics of these methodologies to serve as a basis for further work on defining acceptable methodologies for groups of similar projects. it presents only a small portion of an extensive research whose goal is to define and propose the method or a path to select a methodology suitable to some groups of similar projects. 2. project management methodologies the theory and practice of project management propose and apply a number of methodologies, with more or less success. these methodologies are mainly suggested by national or international project management associations as well as by certain organisations and institutions (jovanovic, 2017). some of the best known methodologies are the following: a) pmi methodology b) ipma methodology c) prince2 methodology d) yupma methodology e) apm methodology f) hbs methodology g) agile methodologies and others. apart from the above mentioned, there is a large number of other methodologies developed by different organisations and institutions and implemented in the execution thereof. here we will mention only some of them: the japan project management association methodology, the university of sydney methodology, the university of tasmania methodology, the university of south carolina methodology, etc. (mchugh & hogan, 2011). 2.1. pmi methodology the pmi methodology was developed by a big and powerful association of project managers – the project management institute (pmi) from the usa and presented in the project management body of knowledge pmbok handbook (pmi, 2013). this is a process methodology that proposes managing a project along ten knowledge areas (pmi, 2013): project integration management that includes processes and activities to identify, combine, unify and coordinate the various processes and project management activities within the project management process groups; project scope management – includes processes required to ensure that the project includes all the work necessary to complete the project successfully; time management – includes processes relating to defining the time aspects of the projects and processes required to manage the timely completion of the project; cost management – processes relating to project cost planning, budgeting, funding, controlling in order to complete the project within the approved budget; quality management – includes processes that enable the project to be completed in accordance with the quality required and to satisfy the needs for which it was undertaken; human resource management – processes that organise, manage and lead the project team; communication management –deals with collecting and using all information associated with the project execution; negotiation in procurement management – includes processes related to procurement and purchasing of materials and products necessary for the project execution; risk management – includes the processes of conducting risk management planning, identification, analysis, response planning and controlling risk on a project project stakeholder management – processes required to identifiy and analyse stakeholders, their expectations, as well as to develop appropriate management strategies for effectively engaging stakeholders in project decisions and execution. 4 petar jovanović ivana berić 2018/23(3) the pmi methodology also proposes five groups of project management processes that, together with the ten areas of knowledge, form the basic framework of this methodology. these groups of project management are the following (pmi, 2013): 1. group of initiation processes; 2. group of planning processes; 3. group of execution processes; 4. group of monitoring and controlling processes; 5. group of closing processes. proposed by the pmi methodology for each of the subprocesses, and in accordance with a unique scheme, are the input values, methods and techniques to be used, as well as output values. hence, the pmi methodology provides only the basic framework to enable the individual subprocesses to be worked out. the pmi methodology is a unique methodology, suitable to be implemented in any kinds of projects. at the same time this is the major weakness of the pmi methodology – it does not take into consideration the specific features of certain types of projects. 2.2. ipma methodology the ipma (international project management association) has no process methodology but rather directs project management towards building the project manager’s knowledge, skills and competencies thus empowering him/her to, together with the project team, manage the project in an effective manner. in order to efficiently manage the project, project managers should have competencies in 3 areas: technical competencies, behavioural competences and contextual competencies. it is on the basis of these competencies that the ipma issues international certifications to project managers, verifying their competence to manage projects. a detailed elaboration and explanations of the ipma approach are given in the handbook titled the ipma competence baseline (ipma, 2015). 2.3. prince2 methodology the prince2 methodology was developed in the united kingom for the purpose of managing informatics/computer projects. it was later amended and expanded so that it should be used for other projects as well. given that it is primarily oriented towards computer projects, this methodology insisted on good communication and on including clients into the project management process, on dividing the projects into phases and on the orientation towards the expected project outcomes. the prince 2 methodology consists of nine basic elements (ogc, 2009): organisation; planning; control; phases; risk management; quality in project environment; configuration management; change control. the project management process carried out using the prince2 methodology is most frequently observed over eight basic subprocesses: project startup; project initiation; phase control; outcome based management; phase constraint management; planning; project directing and project closure. in addition to this broad version a narrower version is proposed and this contains four basic subprocesses: project startup; project initiation; project implementation and project closure (ogc, 2009). given the complexity of this methodology, its implementation requires a comprehensive knowledge of project management in order that all basic elements and basic subprocesses should be included. 2.4. yupma methodology the yupma methodology was developed by the serbian project management association – yupma and, in its initial phase, it was defined for investment projects. the methodology is established on the analysis of three basic components: time, resources and costs as well as three basic subprocesses: planning, monitoring/tracking and project execution control. creating models from these three components and three subprocesses brings us to the basic framework of the yupma methodology into which risk management, project change management, etc. are later incorporated (jovanovic&jovanovic, 2009; jovanovic, 2015). the yupma methodology has been applied and tested in several dozens of projects conducted by the members of the yupma and the pmc (faculty of project and innovation management) both in the country 5 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) and abroad. these were larger investment projects; however, also a number of business and it projects were among them. the yupma methodology is based on the definition and elaboration of the project cycle which involves the following global phases or processes: project definition; project planning; project execution monitoring and control and project closure. 2.5. apm methodology the apm methodology is one developed by a uk association (association of project management) and is presented in the handbook under the title of apm body of knowledge (apm, 2000). the apm handbook is a comprehensive manual that covers a large number of areas and topics important in an effective project management implementation. the apm handbook covers seven basic chapters related to the areas of knowledge necessary in an efficient project management: introduction into the problem of effective project execution; strategic issues of the project; issues of project control; technical characteristics of the project; commercial characteristics; defining of organisational culture; personnel /hr issues (apm, 2000). the apm fund of project management knowledge also includes a detailed elaboration of the above cited chapters, giving a precise definition of elements to be dealt with within a specific chapter. 2.6. hbs methodology the hbs methodology is a project management methodology developed by the harvard business school and covers three main phases in the project management process. these are the following phases: project definition and organisation; project planning and project monitoring and management (hbs, 1997). each of the phases covers a set of activities characteristic of it. an accurate definition of project objectives and project organisation provides a solid basis for a valid project planning thereby affecting the final project outcomes. project planning covers the development of the wbs structure, timeline development, resource analysis and risk management plan creation. these steps enable the manager and the project team to set the main tasks necessary for the achievement of project objectives, to define the time cycle of each task as well as their sequence, to define the needs for resources and possible risks in the project. project monitoring and management refer to a systematic monitoring of project execution and comparison with the planned project outcomes. these steps provide the project manager with the information necessary for the correct project flow, inform the key participants in the project of the project progress and affects the project progress using lessons learned from the previous projects. 3. meta analysis of specific features of the available project management methodologies to obtain an acceptable project management methodology it is necessary to conduct a detailed analysis of the existing project management methodologies and their specific features, primarily in view of strengths and weaknesses when applied to certain projects. it is also necessary to analyse and classify some types of projects and examine their specific features in view of the possibilities that certain methodologies should be implemented (beric, 2013). this paper is meant to investigate only into the specific features of the available project management methodologies. a brief analysis shows that all the above described methodologies, with the exception of the ipma methodology are process oriented methodologies, i.e., methodologies involving some processes or phases of managing a certain project. to this group belong all the mentioned methodologies (pmi, apm, hbs, yupma, prince 2). with the exception of the ipma methodology, they differ only in the manner and the scope of defining and coverage of certain processes or phases. the ipma methodology is not a classical methodology; it is based on strengthening certain competencies any project manager has to have in order to manage a project in an effective manner. apart from the yupma methodology, all other classical or traditional methodologies, to which agile methodologies do not belong, are the so-called uniform methodologies that can be proposed for any types of projects.this is at the same time the major weakness of these methodologies since they do not take into consideration the specific features of certain groups of projects. traditional methodologies were developed in large military investment projects, hence they are characterised by this continuous, phase approach, suitable for this type of projects. consequently, traditional 6 petar jovanović ivana berić 2018/23(3) methodologies have a precise and strict procedure of execution, based on the project structure defined beforehand and presented in the project documentation, as well as on a precise technology of project execution (jovanovic, 2015; jovanovic&jovanovic, 2016). agile approaches were developed as a response to evident differences among certain kinds of projects, especially to the specificities of the it projects. agile methodologies were developed by a group of experts for the purpose of improving the it project management process, especially in case of software development projects. specific principles of the agile approach are written in the agile manifesto (fowler & highsmith, 2001) and in the declaration of interdependance (declaration of interdependance, 2005). the idea of the agile approach is to create a more flexible approach to the management of it projects, through an iterative approach and creation and delivery of the project in sections, with a possibility to easily introduce changes and repeat certain phases in the project execution. a flexible approach, it allows an analysis of the completed work following every phase, together with the client, as well as introduce change and amendments in order to meet the client’s desires, which is very important in software development projects where precise specifications are often missing and the client cannot be certain what outcome they can expect of the completed project (fernandez & fernandez, 2008; rasnacis & berzisa, 2017; serrador & pinto, 2015). agile methodologies are management methodologies used in software development projects and are based on the following principles: flexible work, continuous reconsiderations of the completed section or task and introduced alterations, active role of the client, a specific manner of project team organisation, continuous communication among all participants, regular meetings of the project team and the project team – client meetings (abrahamsson, salo, ronkainen,& warsta, 2002; jovanovic&jovanovic, 2016; kilibarda, sobajic, beric,& jovanovic,2016; kostic, 2017; pichler, 2010). further research is related to an analysis of basic characteriestics of the discussed methodologies having in mind that these are general characteristics, whereas a more precise analysis and identification of strengths and weaknesses may be possible only if the subject of study is a certain group of similar projects. having this in mind, we can say that the major characteristics of traditional methodologies (pmi, apm, yupma, prince2) are as follows (jovanovic&jovanovic, 2016; jovanovic, jovanovic, miletic,& beric, 2016): 1. firm and precise project structure; 2. it is difficult to halt the execution process and take a reverse direction; 3. it is difficult to introduce alterations, especially in the middle or in the end of the project; 4. the clients’ or stakeholders’ impact on project management is minimal; 5. clear management procedures and homogeneous project team. a similar consideration and analysis in case of agile methodologies have come to the following conclusions: 1. project structure is not firmly defined; 2. it is possible to stop the project and take a reverse direction; 3. it is possible to alter requirements in agreement with the client; 4. alterations are easily introduced; 5. firm relationship and permanent contact with the client (jovanovic&jovanovic, 2016; jovanovic et al., 2016). the table 1 (below) lists the basic differences between traditional and agile methodologies. table 1. comparison of traditional and agile methodologies 7 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) traditional methodologies: agile methodologies: 1. permanent process 1. sequential process 2. firm project structure 2. project structure subject to change 3. project documentation is precise and detailed 3. project documentation is provisional 4. project execution technology is clearly defined and most often changing 4. project execution technology is subject to change 5. possible changes 5. permanent changes 6. rare meetings with the client 6. regular meetings with the client 7. multifunctional team 7. self-organised team 8. high authority of project manager 8. not so high authority of the manager a partial analysis of the discussed methodologies shows that traditional methodologies are more suitable for larger and more complex projects, among which are: investment, military and overhaul projects as well as projects for manufacturing and installment of complex products. however, in case of it projects and in case of smaller scope studies and surveys the use of agile methodologies seem to be more appropriate (hobbs & petit, 2017). if we consider the projects of construction of a hydroelectric plant, a tunnel, a bridge, a manufacturing facility, it is obvious that additional changes in such projects are not realistic since they will result in an enormous delay in meeting deadlines and an increase in project execution costs. in case of such projects it is almost impossible or unacceptable to take reverse direction, change and improve the project. it is also impossible to execute and deliver the project in sections, as can be the case in some other projects, e.g., it projects. (elattar, 2009; fernandez-sanchez & rodriguez lopez, 2010; semolic, jovanovic, kovacev, & obradovic, 2007). when analysing the possibility of implementation of agile technologies or agile approach, a conclusion can be drawn that these methodologies are more suitable to the it projects. the basic features of the it projects and the basic characteristics and benefits offered by agile methodologies point to the realistic possibilities of agile methodology implementation in this type of projects. here we should primarily have in mind that agile methodologies offer a good opportunity for work in phases, reconsideration and change introduction, turning back to a previous phase, regular meetings and reaching agreements with the client and broader authorisation and freedom of the project team members, which is consistent with the characteristics of the it projects. (abrahamsson et al., 2002; hass, 2007; pichler, 2010; schwaber, 2004; sohi, hertogh, boschrekveldt, & blom, 2016) a more detailed analysis should be performed to determine the possibilities of the prince2 methodology, also proposed for it, as well as for more complex projects such as investment ones. it may be necessary to analyse the real opportunity for application of this methodology, both in it projects and in, e.g., investment projects, given the significant differences in the stuctures and specific features between these two groups of projects. the analysis can be conducted in two directions. one can be a presentation of the possibility to use the prince2 in case of larger and more complex projects, having in mind the possibility to use other traditional methodologies and stressing their advantages and disadvantages. the other direction can deal with the possibilities to use the prince2 in it projects and comparison with agile methodologies, where the advantages and disadvantages of the prince2 and agile technologies have to be emphasized. following the review of project management methodologies and the basic features of these methodologies, further research should be directed towards identification of elementary phases or subprocesses (planning, monitoring, control, etc.) these methodologies use as well as basic elements (time, resources, costs, etc.) important for the project, through which the project can be managed. in case this approach is adopted, it is possible to devise a number of tables that show relations and connections between phases and elements and enable a detailed analysis of the available methodologies. below are presented the shortened versions of tables interesting for further elaboration (table 2 and table 3). table 2. methodologies and project phases (a template) 8 petar jovanović ivana berić 2018/23(3) subprocess table 3. methodologies and project elements (a template) the analysis of these and similar tables can help in identifying the most important phases and elements that most frequently appear in analysed methodologies. this can help in finding a certain foundations for defining specific methodologies applicable to certain groups of similar projects, or for adapting the already available methodologies. for situations requiring the use of two or more methodologies the literature offers hybrid, mixed or collaborative approaches, i.e., methodologies (milosevic & patanakul, 2005; schwaber, 2004; spundak, 2014). such an approach can be used, as explained above, in larger investment projects, where agile methodologies are used in the first part of the project, whereas the other, remaining part, one that includes execution, requires the use of traditional methodologies. the hybrid approach in defining a methodology for a certain group of similar projects is based on the idea that there is no need to develop a new methodology; rather, the already available methodologies can be adapted and components of these methodologies can be used to achieve an innovative approach, adjusted to the characteristics of the projects under consideration (spundak, 2014; wells, 2012; wirkus, 2016). 4. selection of an adequate methodology the problem of selecting an adequate approach or methodology in management of a project or a group of similar projects (e.g., software development projects, larger investment projects, etc.) is a topic of numerous articles listed in literature (charvat, 2003; chin&spowage, 2010; cockburn, 2000; jovanovic, 2015; paulson, 2001; spundak, 2014). similarly, a large number of authors analyse the possibilities of adapting the already existing methodologies for some groups of similar projects. it is certain that the implementation of an inadequate methodology will not enhance, but will rather lessen the chances for an efficient project completion. hence the analyses and surveys oriented towards finding an adequate methodology for a certain project or a group of similar projects is an important but also a difficult research task. why is it really important to use an adequate project management approach or methodology? primarily because the use of an adequate methodology brings numerous benefits to the project manager and project team and it shows them the correct route towards project completion. is an efficient management possible without an adequate project management approach or methodology? numerous authors (charvat, 2003; chin & spowage, 2010; cockburn, 2000; joslin & muller, 2015; jovanovic, 2015; milosevic & patanakul, 2005; shenhar, 1996; spundak, 2014; wells, 2012) agree that an efficient project management is not possible without an appropriate methodology. according to chin & spowage (2010), the most important advantages are as follows: more clearly defined project goals; work processes are more efficient and more effective; higher flexibility and adaptation to lessons learned; increased accuracy in risk management planning, in challenge and complexity management planning; ensuring a higher degree of standardisation; clear identification of roles and responsibilities; improved communication; optimisation of delivery and outputs; integration of tools, techniques and knowledge for the purpose of improving the present and the future projects; value optimisation through lessons learned (chin & spowage, 2010). additional advantages include: a better control of project goals and scope, a shorter time of project execution, a more efficient decision making, a higher client satisfaction, prompt information exchange, improved knowledge management, etc. 9 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) elements the use of an adequate project management methodology brings the following major advantages: an easier and simpler project management; an easier project planning and control; a more efficient running of the project team; better communication within the project team; better communication with stakeholders; a more effective introduction of change; a more efficient project risk and project quality management; an easier and faster achievement of project outcomes, etc. simply having a project methodology and following it does not lead to success. (kerzner, 2004). we should bear in mind that the above listed benefits can be achieved only by a proper implementation of the methodology that is deemed adequate for the type of project under consideration. an incorrect implementation or implementation of an inadequate methodology may lead to confusion and disorientation and, consequently, to poor outcomes in the project execution. speaking in general about project management methodologies, it needs to be said that numerous definitions can be found in literature (charvat, 2003; chin & spowage, 2010; cockburn, 2000).the project management methodology is most frequently defined as a specific instruction, manual or a guide to help the project manager and the project team manage the project in a most effective manner and bring it to a desired completion. according to the pmi, methodology is defined as a set of methods, techniques, procedures, rules and good practices implemented in the project in order that project requirements should be satisfied. chin & spowage (2010) define the project management methodology as a specific approach to managing every aspect of the project in the form of general and specific procedures, rules, regulations and standards. they listed four components of the project management methodology: 1. project management processes such as initiation, planning, execution and monitoring of the project progress. 2. selection of tools and techniques for communication and delivery to stakeholders. 3. consolidated and aggregate set of appropriate best practices and values of project management. 4. reference list of terminology as common denominator and language of project management. when classifying project management methodologies chin & spowage (2010) suggest five different levels: level one: best practices, standards and guides; level two: specific sector methodology; level three: specific organisational methodology; level four: specific project methodology; level five: individual methodology. they explain that each methodology has its own specificities and rank pmi and prince2 methodologies into level one, while agile methodologies such as scrum, rad, etc., according to them, are specific sector methodologies (level two). when defining a methodology for a certain group of similar projects, it is important to note that numerous authors (chin & spowage, 2010; oellgaard, 2013; paulson, 2001; shenhar, 1996; spundak, 2014) suggest the use of a combination of traditional and agile approaches in order that advantages of these methodologies should be made a better use of when implemented in different projects. it was already said that agile methodologies can be used in the first part of investment projects and the traditional ones are more adequate to use in the execution phase. this basically means that a number of available methodologies should be used and that adaptations should be made to suit the project characteristics, environmental constraints and stakeholders’ requirements. the key word when selecting or creating an acceptable project management methodology should be adaptation, i.e., adjustment of available methodologies to a certain type of projects, rather than creation of entirely new methodologies. the company has to be capable of using a number of available methodologies and to observe a principle of amendment or remake and adjustment of some of the available methodologies to a certain type of project, or even to a certain individual project (chin & spowage, 2010). the development of a new methodology for every new project in the organisation is not practical; is it more convenient to adapt some of the available methodologies to a certain project executed in the organisation. 10 petar jovanović ivana berić 2018/23(3) 11 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) in conclusion, theory and practice offer a large number of project management methodologies and they can be a basis for innovation and adjustment to a certain type of project. it is obviously expensive and unnecessary to create an entirely new methodology. the basic methodological principles of project management are well known. numerous project management methodologies have already been developed following this principle. in concrete situations, it is necessary to find out which project management methodology is the most adequate to implement, then identify the basic features of a certain group of projects (or a project) and finally adjust the methodology to the requirements, i.e., characteristics of the given group of projects. references [1] abrahamsson, p., salo, o., ronkainen, j., & warsta, j. (2002). agile software development methods: review and analysis. vtt publications, 478. espoo. finland, 107p. [2] fowler, m., & highsmith, j. (2001). the agile manifesto. software development, 9(8), 28-35. [3] apm (2000). apm project management body of knowledge. the association for project management. uk [4] beric, i. (2013). the analysis of the implementation of quantitative and qualitative methods in the project portfolio selection and optimization, phd thesis, university of belgrade [5] besner, c., & hobbs, b. (2012). an empirical identification of project management toolsets and a comparison among project types. project management journal, 43(5), 24-46. doi: 10.1002/pmj.21292 [6] charvat, j. (2003). project management methodologies: selecting, implementing, and supporting methodologies and processes for projects. john wiley & sons. [7] chin, c. m. m., & spowage, a. c. (2010). defining & classifying project management methodologies. pm world today, 12(5), 1-9. [8] cockburn, a. (2000). selecting a project’s methodology. ieee software. volume 17, issue 4. 64-71. doi: 10.1109/52.854070 [9] declaration of interdependance. (2005). retrieved from http://pmdoi.org [10] drob, c., & zichil, v. (2013). overview regarding the main guidelines, standards and methodologies used in project management. journal of engineering studies and research, 19(3), 26. [11] elattar, s. m. s. (2009). towards developing an improved methodology for evaluating performance and achieving success in construction projects. scientific research and essays, 4(6), 549-554. [12] fernandez, d. j., & fernandez, j. d. (2008). agile project management—agilism versus traditional approaches. journal of computer information systems, 49(2), 10-17. [13] fernandez-sanchez, g., & rodriguez lopez, f. (2010). a methodology to identify sustainability indicators in construction project management: application to infrastructure projects in spain. ecological indicators, 10(6), 1193–1201. doi: 10.1016/j.ecolind.2010.04.009 [14] hass, k. b. (2007). the blending of traditional and agile project management. pm world today, 9(5), 1-8. [15] hbs. (1997). project management manual. harvard business school [16] hobbs, b., & petit, y. (2017). agile methods on large projects in large organizations. project management journal, 48(3), 3-19. doi: 10.1177/875697281704800301 conclusion the aim of this paper was to analyse and discuss the possibilities of implementation of already existing project management methodologies for different kinds of projects as well as to find the way to form groups of similar projects and define adequate methodologies for them. based on bibliometrics techniques, a short review of the methodologies, proposed and implemented in the project management practice (pmi, ipma, apm, yupma, and others) was provided. the specific features of these methodologies were analysed bearing in mind the possibilities of their implementation. the results of provided meta analysis showed that general characteristics of traditional methodologies (pmi,ipma, apm,yupma, prince 2) make them more adequate to be implemented in larger and more complex projects such as: investment, military, manufacturing, overhaul, etc. projects. on the other hand, general characteristics of agile methodologies lead to a conclusion that these methodologies are more suitable to use for it projects as well as for some smaller and less complex projects, such as devising various studies, project reports, etc. this study presents the meta analysis on existing methodologies and provides the synthesis of key features of different applicable methodologies. the conclusions and the entire paper should be understood primarily as a starting point for further research oriented towards defining specific methodologies adequate for certain groups of projects. [17] ipma. (2015). ipma competence baseline, version 4.0. international project management association. switzerland [18] joslin, r., & muller, r. (2015). relationships between a project management methodology and project success in different project governance contexts. international journal of project management, 33, 1377–1392. doi: 10.1016/j.ijproman.2015.03.005 [19] jovanovic, a., jovanovic, f., miletic, l., & beric, i. (2016). application of agile methodologies in software development, tehnika,71(6), 896-900, doi: 10.5937/tehnika1606896j [20] jovanovic, p. (2015). project management. faculty of project and innovation management. belgrade. serbia. [21] jovanovic, p. (2017). project management development contemporary tendencies and methodologies, yupma 2017, zlatibor [22] jovanovic, p., & jovanovic, f. (2009). yupma project management methodology, yupma 2009, zlatibor [23] jovanovic, p., & jovanovic, f. (2016). management of software and investment projects traditional and agile methodologies, proceedings of the faculty of project and innovation management, belgrade [24] kerzner, h. (2004). advanced project management: best practices on implementation, john wiley & sons, usa [25] kilibarda, g. d., sobajic, v. m., beric, i. m., & jovanovic, p. m. (2016). software project management. tehnika, 71(1), 145-152. doi: 10.5937/tehnika1601145k [26] kostic, m. (2017). challenges of agile practices implementation in the medical device software development methodologies. european project management journal, 7(2), 36-44 [27] mchugh, o., & hogan, m. (2011). investigating the rationale for adopting an internationally-recognised project management methodology in ireland: the view of the project manager. international journal of project management, 29(5), 637-646. doi: 10.1016/j.ijproman.2010.05.001 [28] milosevic, d., & patanakul, p. (2005). standardized project management may increase development projects success, international journal of project management, 23(3), 181-192. doi: 10.1016/j.ijproman.2004.11.002 [29] oellgaard, m. j. (2013). the performance of a project life cycle methodology in practice. project management journal,44(4), 65–83. doi: 10.1002/pmj.21357 [30] ogc. (2009), managing successful project with prince2, office of government commerce norwich, uk, the stationary office [31] paulson, l. d. (2001). adapting methodologies for doing software right. it professional, 3(4), 13-15. [32] pichler, r. (2010). agile project management with scrum, addison-wesley professional [33] pmi (2013). a guide to the project management body of knowledge (pmbok guide). project management institute. usa [34] rasnacis, a., & berzisa, s. (2017). method for adaptation and implementation of agile project management methodology. procedia computer science, 104, 43-50. doi: 10.1016/j.procs.2017.01.055 [35] schwaber, k. (2004). agile project management with scrum, microsoft press [36] semolic, b., jovanovic, p., kovacev, s., & obradovic, v. (2007). improving repair management of bucket wheel excavator srs1200 by application of project management concept. strojniski vestnik. 54. 565573. [37] serrador, p., & pinto, j. k. (2015). does agile work? — a quantitative analysis of agile project success. international journal of project management, 33(5), 1040-1051. doi: 10.1016/j.ijproman.2015.01.006 [38] shenhar, a. j. (1996). from theory to practice: toward a typology of project management styles, ieee transition on engineering management, 45 (1). 33 – 48. doi: 10.1109/17.658659 [39] sohi, a. j., hertogh, m., bosch-rekveldt, m., & blom, r. (2016). does lean & agile project management help coping with project complexity? procedia social and behavioral sciences, 226, 252-259. doi: 10.1016/j.sbspro.2016.06.186 [40] spundak, m. (2014). mixed agile/traditional project management methodology – reality or illusion? procedia – social and behavioral sciences 119. 939 – 948. doi: 10.1016/j.sbspro.2014.03.105 [41] wells, h. (2012). how effective are project management methodologies? an explorative evaluation of their benefits in practice. project management journal 43 (6). 43-58. doi: 10.1002/pmj.21302 [42] wirkus, m. (2016). adaptive management approach to an infrastructure project. procedia social and behavioral sciences, 226, 414-422 received: 2018-07-13 revisions requested: 2018-09-05 revised: 2018-10-02 accepted: 2018-10-30 12 petar jovanović ivana berić 2018/23(3) 13 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) about the author prof. dr petar jovanović, (emeritus) university educons, faculty of project and innovation management, belgrade drpetarj@gmail.com petar jovanović, ph.d., former dean of the faculty of organizational sciences, and head of the department of management at the faculty of organizational sciences as well as founder and former dean of the faculty of project and innovation management. he has been engaged in management and project management for more than thirty years. in 1986 he established the yugoslav project management association, and since then he was the president of this association, that became the serbian project management association (yupma). he was an individual member of the pmi (project management institute) from usa, bam (british academy of management), uk and a delegate of the ipma (international project management association). he wrote a large number of papers and books about project management, and generations of project managers have been trained and learned from his books. he defined, conducted and realized over 350 trainings and courses on management and project management, investment management etc., wrote over 70 books and 200 papers and also managed a large number of projects. he was founder and editor in chief in 2 international scientific journals. ivana berić university educons, faculty of project and innovation management, belgrade ivana.beric26@gmail.com ivana berić, phd, assistant professor and vice dean for education and international cooperation at the faculty of project and innovation management and vice president of the serbian project management association. she is actively involved in preparation of trainings, seminars, symposia, corespondence with foreign associations, and process of certification of project managers. with more than 45 published peer reviews and conference papers in management, project management, strategic management and project portfolio management area, she has also worked on numerous books, monographs and proceedings and provided more than 50 trainings and seminars for different target groups. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02 krstic:tipska.qxd 13 jelena krstić, marija reljić*, sanja filipović the economics institute, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(2) factors influencing electricity consumption: a review of research methods doi: 10.7595/management.fon.2018.0021 abstract: 1. introduction in the literature and in practice, there has been a growing interest in residential consumption, since it is considered to be at very high levels in many countries, even exceeding the industrial consumption. for this reason, many countries implement different policies to reduce electricity consumption by households, but the results are not always visible. researchers in the field of consumer behaviour also find this topic interesting and conduct research that has the goal to determine the influence of various factors on electricity consumption and behaviour in order to provide empirical evidence for better policy making. in the literature, there are several different concepts which have been proposed to classify the numerous interrelated factors influencing energy use. stern (1999) formulated a typology of the causes of environmentally significant behaviours: attitudinal factors (e.g., perceived costs and benefits of action), personal capabilities (e.g., social status, knowledge) and contextual factors (e.g., regulations, social norms, advertising), and habits and routines. kollmuss & agyeman (2002) proposed three categories: demographic, ex* corresponding author: marija reljić, e-mail:marija.reljic@ecinst.org.rs research question: this paper presents a review of empirical methods used by authors to determine the influence of different groups of factors that influence households’ electricity consumption. motivation: the question of what drives electricity consumption is very complex and requires a systematic approach in analysis of different theory frameworks and factors. in the literature there are a lot of attempts to classify a huge number of very different factors which can be heterogeneous. the review is built on the existing literature by distinguishing the appropriateness of the usage of different empirical methods for collecting the data on the influence of specific groups of factors. idea: based on significant literature review and analysis of different methods used in this field, the aim of this paper is to make a classification of the most important factors which have the highest impact on electricity consumption. the factors have been grouped into four groups by the authors of the paper. data: the analysis was conducted by reviewing papers dealing with households’ electricity consumption published in the international journals. tools: the systematisation of relevant literature was used for the purpose of determining the most common and proper methods that were used for determination of the influence of different groups of factors on electricity consumption. findings: as consumer behaviour in the area of electricity consumption often demands the examination of subjective views of consumers, methods such as interviewing, conduction of online/offline surveys, case study and field experiments are commonly used for analysing the influence of cognitive and affective factors, socio-demographic and behavioural. for the analysis of the impact of contextual factors that includes using the large amount of secondary data, statistical and econometric methods are used as the most appropriate ones. contribution: this paper provides an overview of most appropriate research methods when it comes to examination of the impact of different groups of factors whose influence needs to be empirically proven. keywords: electricity, consumption, empirical methods, review, classification, factors jel classification: e21, m31 ternal and internal factors. abrahamse et al. (2005) suggested a distinction between micro-level factors (e.g., attitudes, values, opportunities) and macro-level factors (e.g., economic situation, governmental policies, availability of new technologies). steg & vlek (2009) distinguish between motivational, contextual factors and habitual behaviour. it is widely accepted in the literature that socio-demographic factors, such as household income, ownership, and household size are closely associated with energy usage and demonstrate the highest impact on energy consumption, as well as psychological factors of energy usage (frederiks et al., 2015). one of them is the approach which highlights the importance of social norms (e.g., allcott, 2011; dolan & metcalfe, 2015). however, empirical research showed that the effects of certain psychological factors (such as values, attitudes and beliefs) on energy behaviour often showed to be weak, especially in comparison with the effects of socio-demographic factors (abrahamse & steg, 2009). considering economic drivers of electricity consumption, the literature is focused on the relationship between energy prices, non-market factors, and electricity consumption and consumer investment in energy efficient-technologies. burger et al. (2015) developed interdisciplinary approach, based on psychology, economy, consumer behaviour, business science, sociology and political science, which represents one of the most prominent approaches to energy consumption behaviour. within various theories, models and frameworks related to energy behaviour, different empirical methods for identifying the patterns of electricity consumption are being used. therefore, the focus of this paper is on different methods used in empirical research of different groups of factors that need to be systematised. 2. methodology the methodology implemented in this paper is based on a review of relevant empirical studies that examine the impact of different factors on the energy-related behaviour of the residential sector. this review is based on a two-fold classification, on the one hand, of empirical methods used by different authors in order to determine the factors that influence energy behaviour and, on the other hand, classification of those factors by using a four-group classification. by grouping previous research by empirical methods that have been used, it is possible to uncover connections among the most suitable research methods for delivering empirical findings related to the influence of different groups of electricity factors. the classification of previous research in order to perform a systematization of the existing knowledge on energy-related behaviour was also employed by abrahamse et al. (2005), krysiak & weigt (2015) and axon et al. (2018) and was shown to provide valuable information for further research in this area. for the purpose of the classification of energy factors, authors reviewed typologies previously given by stern (1999) and steg & vlek (2009) and provided a new classification by redefining the factors that belong to each of the groups. as a result, the following four groups are formed: • cognitive and affective factors value systems, norms, beliefs, attitudes, knowledge and skills, motivation and commitment; • socio-demographic factors demografic characteristics of households, social status, life style, living standard, income, place of residence; • behavioural factors habits, routines, behavioural patterns, previous experience; • contextual factors – incentives, policy instruments, community actions, electricity price changes, advertising campaigns, communication initiatives, available energy options, technological options. as the classification was developed for the purpose of grouping the most influential factors when it comes to the changes of electricity consumption, technical factors that may also have a certain impact are left out (such as dwelling size, insulation, characteristics of buildings, etc.) as they can be considered to be constant and, therefore, without changable impact. as regards research methods, it is notable that authors employed the following ones: interviews and surveys and experiments when conducting empirical research aimed at collecting and analysing primary data and econometric and statistical methods when dealing with secondary data. the case study was less used as a research method and was usually combined with surveys. papers that were taken into consideration for the purpose of the systematisation were selected based on the following criteria: (a) examination of the influence of factors on electricity consumption of households (residential sector) and (b) being published in well ranked peer-review international journals. the results of the classification can be seen in table 1. 14 jelena krstić, marija reljić, sanja filipović 2019/24(2) table 1: systematisation of research methods and examined factors note: +in in-depth interview, su – survey (online/offline), fe (field experiments), es – econometric/statistical methods, cs – case study source: authors 3. presentation and discussion of research methods and examined factors in-depth interviewing as seen from the provided classification, in-depth interviewing is dominantly used in case of the examination of the influence of cognitive and affective and behavioural factors in the area of electricity consumption, although it can be used in case of other two groups of factors to a significant degree. for example, strengers, nicholls & maller (2016) interviewed energy consumers with the goal of revealing their awareness of the role of non-traditional actants in energy consumtion and their usual behavioural patterns. gram-hanssen (2010) aimed to determine the ways energy-related practices can be modified as a result of communicative 15 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) author(s) research method(s)+ scope of the research groups of factors cognitive and affective sociodemographic contextual behavioural abrahamse et al. (2007) fe, su groningen, netherlands (314 households) x x allcott (2011) fe usa (600,000 households) x attari et al. (2010) su usa metropolitan areas (505 participants) x azaza & walin (2017) es sweden x barnicoat & danson, (2015) in scotland (19 households) x x borozan (2017) es croatia x belaid (2016) su france (36,000 households) x x burchell et al. (2016) fe london (400 households) x carrico & riemer, (2011) fe, su usa 2.300 participants x chen (2017) cs, es taiwan x x ding et al. (2017) es china x x ekholm et al. (2010) es india (rural area) x x ekins et al. (2011) es eu x frick et al. (2004) su switzerland (2736 participants) x gram-hanssen (2010) in denmark (30 households) x gram-hanssen (2011) cs copenhagen, denmark x x huebner et al. (2016) es uk (845 housholds) x x x jingchao & kotani (2012) su, es rural districts in beijing, china (756 households) x x lenzen et al. (2006) es australia, brazil, denmark, india and japan x martinez-espineira et al. (2014) es spain (13,382 households) x x x pablo-romero et al. (2017) es regional x x rahman et al. (2017) cs, su malaysia x x reiss & white (2008) es san diego, usa x romanach et al. (2017) su brisbane, australia (1647 households) x x shen et al. (2017) fe, es hangzhou, china (179 households) x x x strengers et al. (2016) in sydney, australia (80 households) x x sun et al. (2018) es jiangsu province, china x wallis et al. (2016) su dortmund, germany (763 households) x wang et al. (2018) in, es yuncheng, china (236 households) x initiatives aimed at educating household members on how to reduce consumption, which represents a contextual factor. the research results indicated that communication incentives may lead to the changes of everyday behavioural routines, level of knowledge and motivation to make behavioural changes. barnicoat & danson (2015) examined the attitudes of older household members towards electrical appliances usage and adoption of energy saving instruments, with special emphasis on the level of their acceptability of energy saving instruments (smart metering, external control of home appliances and heating). the results indicated that insufficient knowledge of energy efficiency of appliances and energy costs and the lack of willingness to adopt smart technologies of interviewees were the main causes of inappropriate electricity consumption patterns. wang et al. (2018) conducted an interview with the goal to examine the potential responses of chinese households to electricity price changes by assuming that real-time electricity pricing in the residential sector represents an effective factor to change consumption patterns and promote electricity conservation. in addition to interviews, the authors used agent-based modelling and showed that real-time pricing has the potential to impact households’ electricity consumprion by shifting the load from peak to off-peak periods of the day and reduce total consumption. jingchao and cotani (2012) combined interviewing with regression analysis in order to estimate the energy demands of rural households. the results showed that, among socio-economic characteristics, the per capita income represented the main factor of the energy consumption. also, certain contextual factors (changes of energy source prices and availability of environmentally friendly technologies) influence the consumption. in particular, the change of prices exhibited negative effects on the use of these energy resources, while availability of technologies was shown to improve energy efficiency. online/offline surveys as an alternative to interviewing, some authors conducted surveys where participants were polled by using online or offline questionnaires. this method is suitable for larger samples, and for all four groups of factors, although most often for cognitive and affective factors. this method was used by attari et al. (2010), who aimed to determine consumer attitudes regarding energy conservation and reduction of climate changes. the majority of participants noted activities related to energy use and savings (such as turning off lights and driving less) as more effective in terms of energy conservation than efficiency improvements (such as installation of more efficient light bulbs and home appliances). the authors also concluded that participants with more prominently expressed pro-environmental attitudes demonstrated more precise estimations. setting interest on the similar topic, frick et al. (2017) examined the role that environmental knowledge has in the sphere of promotion of conservation behaviour. the findings showed that action-related knowledge and effectiveness knowledge have a direct impact while system knowledge mediated influence on energy behaviour. belaid (2016) intended to determine the influence of socio-economic and contextual factors on household’s’ energy consumption within different population groups. among contextual factors taken into consideration, energy prices appeared to be the most important factor that affects domestic energy consumption. also, household characteristics (lifestyle and place of residence) were also found to be significant since the families living in rented dwellings showed to consume less energy than those who own their living places, and those who live in rural areas consume more energy than households in suburbs. wallis et al. (2016) examined the influence of socio-demographic factors (social status and income, number of residents, and number of adolescents within household) on electricity consumption. results indicated that the mentioned socio-demographic characteristics influence energy behaviour of the households. by using a survey-based data on a sample of households with older inhabitants, romanach et al. (2017) found out that socio-demographic factors (age, income, place of residence), as well as behavioural patterns in the household appliances use, influence energy consumption. field experiments field experiments, especially randomized control trials (rcts), have become a useful and commonly used method in consumer behaviour studies in different areas, consequently in the area of consumption as well. these usually include the existence of experimental and control groups and demand implementation of precise experimental design. rcts on household electricity consumption vary regarding the applied interventions, however, most commonly those interventions relate to the influence of contextual factors. burchell et al. (2016) implemented experimental design in exploration of the impact of two contextual factors (community action and communication initiatives) on the behaviour change in the area of energy consumption. participating households were exposed to experimental stimuli in the form of advice on seasonal energy saving 16 jelena krstić, marija reljić, sanja filipović 2019/24(2) and information about different local and national events and programmes dedicated to energy saving. as a result of this field experiment, statistically significant differences in knowledge between the consumption of the experimental and that of the control group were obtained. abrahamse et al. (2007) conducted a field experiment with the goal to determine the effectiveness of different experimental interventions (contextual factors) in the aspect of changes in direct and indirect energy use and energy-related behaviour. in order to determine the impact of these interventions, participants filled out online questionnaires three times in the course of the study. also, households in experimental groups accepted more energy-saving behaviours and demonstrated more knowledge of energy conservation during the study in comparison with the households in the control group. the impact of contextual factors is most often examined in rcts by providing energy saving tips and cost/consmption feedback (houde et al., 2013). allcott (2011) conducted randomized natural field experiment in order to determine the influence of sending feedback on households’ energy consumption and the comparison in relation to neighbouring households which were sent by energy supplying company. for this kind of interventions, large-scale field experiments only find modest electricity consumption reductions (allcott, 2011; allcott & rogers, 2014). carrico & riemer (2011) set a goal to determine the way and the extent to which peer education and feedback are significant factors in reducing energy consumption by conducting a cluster-randomized field experiment. the results indicated the decrease in the consumption in the experimental groups (by 7% and 8%), while, consumption during the intervention phase increased within the control group (by approximately 4%). shen et al. (2017) combined two methods in their research. first, they conducted an energy conservation experiment by using the tailored information with eco-feedback as the main intervention variable and then applied support vector regression (svr) model for consumption prediction, which was found to be influenced by 18 predicting factors (including energy behaviours, personality and demographic characteristics). furthermore, rcts are often used for testing the impact of dynamic pricing schemes and effects of different tariff schemes on the behaviour of the participating households, as was the case in the study conducted by wolak (2011). case study gram-hanssen‘s (2011) research consisted of three case studies with the goal of examining changes in household energy consumption by focusing on the impact of cognitive factors (existing knowledge) and behavioural factors (embodied habits, engagement and technology usage). it was shown that different types of changes occur as a consequence of different factors, especially behavioural ones. rahman et al. (2017) combined the case study method with surveying of households in three suburban areas in malysia in order to determine different behavioural consumption profiles of households and link them to the level of energy efficiency. also, household awareness (cognitive factor) and practice (behavioural factor) appeared to be important factors related to high electricity consumption. chen (2017) combined the case study method with statistical methods in order to examine the indirect impact of contextual factors (gross domestic product /gdp, employment rates, energy labeling schemes) on residential electricity consumption by their influence on the socio-economic factors (life-style, living standard of households) which stimulates an increased electricity demand, and, potentially, higher consumption. econometric and statistical methods in cases when there is a significant amount of existing data regarding the impact of certain factors (mainly contextual) on consumption, the authors decide to perform econometric or statistical analyses and to determine certain trends in energy consumption. also, such methods are commonly used when it is necessary to perform a cross-country or a cross-regional comparisons. such was the case of authors pablo-romero et al. (2017) who conducted an analysis of trends in residential energy consumption over the period of two decades, from the perspective of 11 main world regions and by per capita gross national income levels. they noted significant differences at regional levels among main regions worldwide. they concluded that the eu15, eastern and southern asian countries and other developed countries represent the regions that should invest the largest efforts possible to reduce energy consumption at the residential level. lenzen et al. (2006) conducted a five country analysis by using available national statistical data. as a result, significant differences in average energy requirements were discovered, even at the same residential income levels and consumer lifestyles (socioeconomic factors). ekins et al. (2011) assessed the distributional implications of environmental tax reform on households’ consumption at the level of the eu. they used the modelling of the influences of main environmental tax reforms as a methodological approach, which in17 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) cluded the use of an ex-ante scenario-based approach for estimation of future developments. modelling results showed that environmental tax reform will likely induce the changes in residential consumption, even though there are differences among countries and for different socio-economic groups. borozan (2017) implemented the panel unit tests with and without structural breaks in order to examine the impact of regional differences on electricity consumption in croatia during the period of twelve years. the author showed the existence of inter-country regional differences and emphasised the necessity to evaluate such differences when formulating energy policy measures aimed to decrease residential electricity consumption. earlier, reiss & white (2008) tried to determine behavioural reactions of large population to monetary and non-monetary contextual factors. the findings showed that an average household consumption decreased by 13% during two months as a reaction to an unannounced increase of energy price. also, the results indicated that an average energy consumption at the household level significantly decreased during public appeals for energy conservation performed by state, even though it did not include any changes in prices, which clearly pointed out to the effectiveness of non-monetary incentives. sun et al. (2018) aimed to discover the regional difference of household electricity consumption by dividing households into different groups according to behaviour factors such as consumption volatility and behavioural pattern similarity. in addition to cross-country or cross-regional research, econometric and statistical methods are also applied in national-scope research by some authors. martinez-espineira et al. (2014) focused on the impact of sociodemographic characteristics, environmental attitudes and beliefs and the impact of environmental awareness campaigns on a household’s behaviour and implemented a multivariate probit model. huebner et al. (2016) tested to what extent different types of factors (among them socio-demographics, attitudes and self-reported behaviours) explain electricity consumption of residents by comparing four separate regression models. the results indicated that socio-demographic factors caused 21% of the variability in electricity consumption, the usage of appliances caused 34% of variability, while the impact of self-reported energy-related behaviour and pro-environmental attitudes showed to be negligible. based on the input-output analysis, ding et al. (2017) examined the direct and indirect impacts of household consumption on the total energy consumption from the consumers’ lifestyle perspective. the authors found out that household energy consumption amounts to approximately one fourth of the total finial consumption, with the indirect consumption being 1.35 times higher than the direct one. azaza and walin (2017) implemented a mining approach on smart meter data with the goal of identifying consumer groups who are the most responsible for the electricity network peaks. also, authors applied two clustering approaches – hierarchical clustering and self-organizing map and determined five clusters of customers with different behavioural patterns. ekholm et al. (2010) applied the modelling approach to analyze the influence of different energy options and income distributions, as well as other factors such as preferences and discount rate on consumption. 18 jelena krstić, marija reljić, sanja filipović 2019/24(2) by analysing different empirical studies, it was found that different groups of factors influence electricity consumption. the majority of the factors that have an impact on electricity consumption are still insufficiently well understood and empirically tested even though the body of evidence is enlarging. in literature, many factors analysed separately or in combination could be found, while their impact on electricity consumption is more complex and requires the application of different research methods. however, the aim of this research is not to provide an answer or to create consensus on the most proper methods when it comes to the effects of certain factors, but rather to raise understanding of the possibilities for determination of the influence of different factors which have an impact on electricity consumption. it was shown that different factors, including contextual ones, as well as those related to households’ characteristics are significant determinants of energy consumption and, therefore, should be taken into consideration when designing campaigns for energy consumption reduction in order to achieve higher energy efficiency at the national level. in practice, the knowledge about drivers of households’ electricity consumption and conservation, alongside the nature and the scope of their impact, can provide a valuable foundation for development of the cost-effective public policies promoting energy efficiency. a precise definition of the impact of relevant factors and their empirical validation and better understanding of the relationship between them is the prerequisite for developing evidence-based policy approach. acknowledgements this research study has been supported by the european commission, under the project enable.eu: enabling the energy union through understanding the drivers of individual and collective energy choices in europe (program horizon 2020) conclusion references [1] abrahamse, w., steg, l., vlek, c. & rothengatter, t. 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(2011). do residential customers respond to hourly prices? evidence from a dynamic pricing experiment. american economic review, 101 (3), 83–87. doi: 10.1257/aer.101.3.83 received: 2018-05-04 revisions requested: 2018-06-15 revised: 2018-08-09 accepted: 2018-09-08 20 jelena krstić, marija reljić, sanja filipović 2019/24(2) jelena krstić economics institute, belgrade, serbia jelena.cvijovic@ecinst.org.rs jelena krstić holds a ph.d. in organizational sciences and works as a research associate and a member of the scientific board at the economics institute in belgrade, serbia. her research interests are related to scientific fields of marketing communications, public relations and consumer behaviour. she has participated in various research projects in different economic fields. she has so far published one monograph and more than 40 papers in international and national journals and conference proceedings. marija reljić economics institute, belgrade, serbia marija.reljic@ecinst.org.rs marija reljić works as a research associate and project manager at the economics institute in belgrade, serbia. her research interests are related to scientific fields of market research, renewable energy sources, consumer behaviour, human capital and entrepreneurship. during her professional carrier she has been involved as a project manager or as a team member on more than 20 research projects in different economic fields. she has so far published more than 20 papers in international and national journals and conference proceedings. sanja filipović economics institute, belgrade, serbia sanja.filipovic@ecinst.org.rs sanja filipovic is a senior research fellow at economics institute and full professor at the singidunum university. she has a broad experience and is highly familiar with economic policy and regulatory issues. during her professional carrier she has been involved in preparation of many national strategic documents and more than 70 different projects/studies mainly financed 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 02_85_1:tipska.qxd 13 milica perić* singidunum university, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(1) impact of fdi inflow on average wage and employment in serbia doi: 10.7595/management.fon.2019.0007 abstract: 1. introduction based on the definition by unctad (2007), “fdi inflow comprises capital provided by foreign direct investor to a foreign affiliate, or capital received by a foreign direct investor from a foreign affiliate.” in 2016, developing countries attracted one third of the global fdi inflow, while global fdi got down by 2 per cent (unctad, 2017a). according to the unctad (2013), the shapes of fdi are as follows: 1) horizontal (greenfield, acquisitions), 2) vertical (adaptation of production for domestic market, marketing) and 3) mixed (mix of different activities to decrease risks). the globalization strategy is expected to be a motivation for a wave of acquisitions and mergers of companies in the future in order to realize economic interests, such as economy of shape, rationalization of industries with over-capacities, etc. it is not a simple task for governments to attract fdi, let alone for those in developing countries. while it is difficult for many countries to attract foreign investments, brics is the leader in investing in developing countries (unctad, 2017b; peric, 2016), the fact that may send the message that unions may create a difference in fdi attraction performance. fdi have registered a significant fluctuation over the world in the last few decades. in all countries, fdi inflow corrects the life cycle of the business activities, especially bringing changes in technology and human capital, and vice versa, the level of education and labour skills are required to attract fdi. the benefits of fdi appear differ worldwide. what the empirical evidence suggests is that spillover effects of fdi are different, based on the level of development of a certain country: for developing countries these * corresponding author: milica perić, e-mail milicamip@gmail.com research question: this research comes to examine the impact of fdi inflow on average wage and on employment in serbia in the period 2005-2017. motivation: fdi tendentiously increases the economic growth rates, taking into consideration the fact that developed economies benefit from fdi because their local institutions are more productive, while developing countries benefit from “pieces“ of fdi, i.e., dissemination of technology and rarely evoke some relevant progress in economic growth. despite the growing research in the fdi field, the scientific literature on average wage and employment in relation to fdi inflow in serbia is limited, which is the motivation to conduct this research. idea: therefore, the aim of this research is to estimate the relationship between fdi inflow and average wage and employment. data: the data are obtained from the official sites of the national bank of serbia and from the statistical office of serbia. tools: the methodology used is the multiple linear regression model, applying the ibm spss software, in order to identify the impact of fdi inflow on average wage and on employment using time lags. findings: the results prove the absence of significant impact of fdi inflow on average wage and on employment within the country. the highest positive impact of fdi inflow appears to be in the year the inflow occurs for average wage, and in the second year of fdi inflow performance for employment. contribution: this paper contributes to the awareness of low impact of fdi inflow on average wage and on employment in serbia. moreover, this research covers the gap in the literature in the field of fdi inflow in relation to average wage and employment within the country. keywords: average wage, economic growth, employment rate, fdi inflow spillovers, regression jel classification: c10, f16, g10, y10 are technology and knowledge, while for developed countries these are an increase in average wage and in employment (javorcik, 2015). on the basis of this statement, in case of serbia, one could expect that the spillover effects of fdi by this research would be the common to ones in developing countries. fdi affect the increase in total investments of the country, which is difficult to attract because of their sensitivity to the investment climate of the country. domestic companies in serbia have to deal with bankruptcy and survival, and fdi inflow seems to be the best solution. for domestic companies, though, it is desirable to be financed from the national savings. for this reason, serbia needs to convince the potential investor by offering a good investment climate. even if the motive of the foreign investor is to achieve profits, usually the foreign investor does face risks, but not necessarily decides to invest in the risky environment which means a high level of corruption and undeveloped infrastructure, unless the investor wishes to reenable the industrial or town existing infrastructure. the serbian government is actually searching for the investor for building the underground railway system, as it was the case for savamala, zastava, telekom srbija, pivara zaječar, and many other investments (ministry of economy, 2018). the aims of both investor and user are the import substitution opportunities, avoidance of barriers (custom, bureaucracy), achieving economies of scale as well as economic dominance and strategic businesses. as far as the risks and benefits are concerned, there is to remind that the acquisition (privatization) of the mobtel company (local mobile phone operator) by the norwegian telenor for є1.5 billion in 2006 produced a high profit (telenor group, 2006). according to data provided by the national bank of serbia (2017) as regards the structure of fdi inflow in serbia by economic activities, the highest level of fdi inflow has been made in financial intermediation (banks mostly), manufacturing, commerce and real estate and renting (in regressive order). serbia has both advantages and disadvantages in the economic environment as regards attracting fdi. among advantages are identified: relative macroeconomic stability in the last 10-15 years with an increasing positive trend, human resources because of the high quality educated staff and low cost skilled labour, privatized banking sector with low interest rates, liberalized system of tariffs especially with the countries of the european union (eu), geographically favourable position, significant achievements in the fiscal accommodation, sustainable gdp growth, adjustments of the structure of employment for needs of foreign investors, etc. (bartels, 2009; radojevic, sarac, radovanovic, & stanisic, 2015). stankov, markov and milosevic (2015) stress that the most attractive economic sectors as investment destinations for foreign investors are manufacturing and wholesale and retail, emphasizing therefore the importance of corruption reduction. on the other hand, the disadvantages are: inadequate economic environment and structure, high level of corruption, administrative barriers, lack of transparency of the institutions and their procedures, poor market reputation, poor infrastructure, limited liquidity, poor profitability, poor functioning of the rule of law, low level of economic development and political stability, decrease in population, a country still in the transition process, delay in accessing the eu and the wto, etc. (bartels, 2009; peric & filipovic, 2018). the main scope of this research is to contribute to the awareness about the impact of the fdi inflow on average wage and on employment. the objective of this research is to investigate the impact of the fdi inflow on average wage and on employment in serbia in the period from 2005 to 2017. this paper is organized in 5 sections. the present section brings the definitions of fdi and their main characteristics. the second section has the literature review of fdi in relation to the topic based on empirical evidence from several countries. the third section provides the description of data and research methods, while the fourth section presents the estimated results and discussion. the final section comprises on conclusions and recommendations for further research and for decision makers. 2. literature review the inefficiency of institutions engaged in regulation activities may be connected with the level of corruption and inflow of fdi, hence the suspicious raise not only in insiders but also in the foreign investors (devine, 2007). several authors investigated the role of fdi inflow within the framework of macroeconomic stabilization, finding out that a country-cyclical fiscal policy associated with lower tax burden contributed to the fall of output volatility, i.e., positively influenced the macroeconomic stabilization, while fdi do not impact macroeconomic stabilization directly (albulescu & ianc, 2016). conditions for attracting fdi into developing economies appear to be similar for all developing countries. an extreme example may be india, in relation to the study of lokesha and leelavathy (2012) where the authors argue that fdi inflow is determined by the 14 milica perić 2020/25(1) market size, policy framework, economic stability and factors, and political factors. mateev and tsekov (2012) argue that the most important factor in attracting fdi in eastern european region and western eu countries is the quality of institutions, while goodspeed, martinez-vasquez, and zhang (2009) argue that in developing countries this factor is the improvement of the governmental institutions and the public infrastructure. from the growth point of view, an interesting statement is provided by nonnenberg and mendosa (2004) who argue that the gdp growth induces the fdi inflow, while fdi inflow does not necessarily induce the gdp growth. the statement explains that in developing economies fdi does not necessarily enhance the economic growth, a situation one could partially observe in serbia. similarly, in the presence of an adequate capital market model, the host country with weak currency attracts more fdi. the reason lies in the depreciation effects of the currency, which makes the assets of the host country less expensive than in the home country of the investor (froot & stein, 1991). alfaro (2003) claims that fdi are able to provide growth only if the country has sufficiently developed financial markets. alfaro and charlton (2007) claim that the type of fdi that have a most economically positive impact on the gdp is fdi in the industry. industries with higher value added have an advantage in attracting fdi, for example higher skill requirements. graham and wada (2002) analysed the relationship between fdi and chinese economic growth and thus found that fdi were able to increase the productivity of production factors only in case when these investments thrived. in presenting the opposite attitude, hanic, kalicanin and bodroza (2017), applying the keynesian model and consequently the multiple linear regression model, explained the relationship between economic growth and economic variables in the period 1999-2015, and proved that fdi in serbia were not statistically significant for the economic growth. even though, the exchange rate and inflation rate are statistically significant, i.e., these two factors contribute to predicting of the real gdp growth rate. the authors explain that fdi inflow has no influence on the gdp because serbia is a country in transition, as well as because of inefficient investments, external debt, and structure of fdi inflow. with respect to government policies, many authors, among them barro (1996), argue that the growth rate of the real gdp per capita is possible through the viable rule of law, lower government consumption and lower inflation. diaconu (2016) analysed several studies regarding the impact of fdi in the eu countries, and found out that the human capital (hc) belonged to the most important variables in determining the fdi inflow. examining the statistical information, diaconu (2016) also found that hc was the fast growing factor which investors look for, i.e., pearson correlation coefficient r=0.3 (2012) grew to almost r=0.5 (2014) for hci and fdi, confirming that education and skills and abilities of hc would become the most important variables for attracting fdi. addison and heshmati (2003) demonstrate that in the eu countries the factors of hc and efficiency of institutions have to be taken as determinants of fdi inflow, which is a partial confirmation of noorbakhsh, paloni, and youssef (2001). while chidlow, salciuviene and young (2009) added geographical and political implications to the previous authors, botric and skuflic (2006) stressed that the availability of skilled labour force, privatization process, infrastructure and agglomeration factor and trade regime are also important for attracting fdi inflow. according to unctad (1994), the liberalization of fdi regimes, privatization programs and rapid growth of developing countries have been the most important reasons to attract fdi, while according to unctad (2002), the level of hc and investments in human resources (hr) appear to be significant factors for attracting fdi. through the statistical methods, nunnenkamp and spatz (2002) confirms that investments in hr bring the higher value added and their effects grow over time. unctad (2010) claims that fdi inflow recorded a rapid decline worldwide from 2007 to 2009 due to the world financial crisis, i.e., it had the negative impact on inward fdi in all sectors and forms of fdi in all regions in the world. stojadinovic and todorovic (2014) affirm that positive effects of fdi inflow in serbia on employment are not significant. rakita and markovic (2013) partially agree with the above cited authors, claiming that the consequences of fdi in serbia are the increase in real wages and productivity as well as the fall in employment. similarly, according to zdravkovic, duric, and bradic (2017), the long term effect of fdi on employment in transition countries seems to be very low or even non existent. when measuring the correlation between fdi inflow and unemployment rate for 2000-2014, parezanin, jednak, and kragulj (2016) found out a very low positive correlation, but when splitting the period due to the effects of the global crises, two interesting results came out: in the period 2000-2007 there was a high positive correlation (r=0.755), while in 2008-2014 there was almost no correlation (r=-0.340). regarding the relationship between fdi inflow and employment in serbia, petrovic and cerovic (2011) stress out that when mergers and acquisitions occur, fdi inflow does not lead to the increase in the working force, on the contrary, it may lead to the decrease of employment in the initial period. the impact of fdi on wages and employment was also the subject of study of zhao (1998), affirming that fdi reduces the negotiated 15 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) wages as well as employment in a situation where dying unions take care of the management of labour and wages in the industry sector. although radojevic et al. (2015) stress the advantages of serbia for foreign investors and its real capabilities to attract fdi, it appears that fdi inflow does not have a significant impact on employment and average wage in this country, which corroborates the findings of this research. also, this paper is a partial confirmation of the recent findings of rapaic (2017), who studied the correlation between the indicators of economic growth and fdi inflow and confirmed that fdi inflow in serbia did not decrease the unemployment rate and did not have a significant impact on the employment growth. during the period under consideration, the unemployment rate in serbia followed the rising trend, with a decrease in value usually in the year in which some elections occurred. for example, the unemployment rate was 18.1 per cent in 2007 against 13.6 per cent in 2008, then increasing again up to 23.9 per cent in 2012 (statistical office of serbia, 2017). from 2013, the unemployment rate follows the decreasing trend. as far as the methodology is concerned, this paper’s methodology finds similar application in the worldwide literature. taylor and driffield (2005) applied the regression model with lagged dependent variable whose results suggest that technology, brought by multinational enterprises, and in particular trade (import), significantly impacts the wage dispersion in the uk. in other words, fdi inward affects the wage dispersion, especially because of the technology spillover in favour of skilled labour force, while in a previous study conducted by hubert and pain (2001), fdi inward only appears to increase the labour force, reducing the demand for unskilled labour force. analysing the relationship between fdi inward and wage inequality in developed and in developing countries, figini and gorg (2006), by imposing the lag structure to fdi variables in relationship to the gini index, have found that fdi inward stock decreases wage inequality in developed economies, while fdi inward increases wage inequality in developing economies. despite the growing research in the fdi field, the scientific literature on average wage and on employment is still limited in relation to fdi inflow in serbia. to conclude the literature review, one can see that fdi inflow is one of the crucial factors as regards changes in hc, but the question that arises is whether it brings any significant changes in average wage in serbia. despite the differences in outcomes, most of the empirical studies confirm that fdi tendentiously increases the economic growth rates, as for example alfaro and charlton (2007), but differently in developed and in developing countries. 3. research methodology this section presents the quantitative variables, the description of data used for analysis, the statement of hypothesis, and the specification of the chosen statistical models. the efficient application of the regression model is present in taylor and driffield (2005) who use lagged terms, and in hanic et al. (2017). the econometric model used in this paper is the linear regression model, chosen in order to estimate the relationship between dependent variables and the independent variable, given the short time period and annual data. the author’s intention is to estimate the dependency between the fdi inflow and average wage, and the dependency between the fdi inflow and employment, both in the period 2005-2017. the data for the quantitative analysis are obtained from the secondary sources, i.e., from the official site of the national bank of serbia (2017) for fdi inflow, and from the official site of the statistical office of serbia (2017) for average wage and for employment. table 1 brings the description of the variables used for this research. table 1: description of variables source: author’s calculation 16 milica perić 2020/25(1) the dependent variables are average wage (av.wage) and employment (employ_rate%) modelled in two separate models. the independent variables are the time effect (year) and fdi inflow (fdi_inflow) with its time lags 3 years for both models. the lagged terms are used because of the theoretical reasoning that the fdi inflow requires time to show the real effects on average wage (av.wage) and on employment (employ_rate%) in the country. table 2 shows the descriptive statistics of the variables used in this research. table 2: descriptive statistics source: author’s calculation table 2 presents the fundamental information about variables used for modelling. during the period 20052017, the highest amount of the inflow of fdi in serbia was є 4.3 billion, while the average wage for the country reached є 400, both in real value. with regard to employment, one can see both positive and negative variations during the period of 13 years. the changes in annual percentages (chng_%) are used instead of absolute values as units of measure. since this research aims to explain the rate of change of average wage (av.wage_chng%) and the rate of change in employment (employ_rate%_chng%) in relation to the changes in fdi inflow (fdi_inflow_chng%, fdi_inflow_chng%_lag1, fdi_inflow_chng%_lag2, fdi_inflow_chng%_lag3) and consequently compare the results, the multiple linear regression models have been used. the author predicts the rate of change in average wage (1) and the rate of change in employment (2), after taking into account the level of fdi inflow, intended to determine whether there is a quantitative relation between fdi inflow and average wage, in the first case, and between fdi inflow and employment in the second case. the null hypothesis is that there is no impact of fdi inflow on average wage nor on employment, while the alternative hypothesis is that there is an impact of fdi inflow on both average wage and employment. the specification of the empirical models is as follows: %δav.waget = α + β1yeart + β2%δfdi_inflowt + β3%δfdi_inflowt-1 + β4%δfdi_inflowt-2 + β5%δfdi_inflowt-3 + εt (1) %δemploy_ratet = α + β1yeart + β2%δfdi_inflowt + β3%δfdi_inflowt-1 + β4%δfdi_inflowt-2 + β5%δfdi_inflowt-3 +εt (2) where: α intercept of the equation, βn – coefficients with predictors of regression, εt – residuals of the models. for the estimation of the models, the ibm spss software version 23 has been applied. 17 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) 4. empirical results and discussion in order to be certain that fdi inflow with its time lags, one that the models understand as many different variables, will produce credible results, it is important to check the collinearity between them, before proceeding with the modelling and results interpretation. the collinearity diagnostics are presented in the table 3 and in the table 4. table 3: collinearity for average wage % change source: author’s calculation table 4: collinearity for employment rate % change source: author’s calculation the diagnostics of collinearity, according to tables 3 and 4, have shown low degrees of the condition index and variance proportions, therefore the research is to proceed with modelling and results interpretation. taking into account only the change in fdi inflow (fdi_inflow_chng%), the model fails to present reliable results for discussion. adding one by one lag, both models shave howed reliable results with the third lag (fdi_inflow_chng%_lag3). by adding more lags, the models get exhausted because of the lack of official national data, and also because they follow the logic that some primary results of fdi inflow would be felt after a few years. therefore, table 5 and table 6 present the models. table 5: estimated model 1 coefficients source: author’s calculation 18 milica perić 2020/25(1) table 6: estimated model 2 coefficients source: author’s calculation in observing the models, the dependent variables change in the time t by certain percentage points, after taking into consideration the level of fdi inflow in that year and in previous periods. according to model 1 in table 5, the double increase in fdi inflow tends to increase the rate of change in average wage (av.wage_chng_%) by only 7.6 percentage points in the year fdi inflow occurs (fdi_inflow_chng%); after a while there is a very low impact of fdi inflow on average wage in the country, with the work-shy increasing trend. according to model 2 in table 6, there will be a poor increase in the rate of change in employment (employ_rate%_chng%) after 2 years (fdi_inflow_chng%_lag2), namely, only 2 percentage points due to the double change in fdi inflow. therefore, the null hypotheses is rejected, with the emphases that the models do not show statistical significance in the fdi inflow impact on dependent variables. only the time effect (year) appears significant (p=0.027), which is in line with the theoretical assumption that fdi inflow needs time to present its first positive effects on employment. the highest (even if very low) positive spillover effect of the fdi inflow on dependent variables, starting from the moment the direct investments occur, is in the year t of fdi inflow for average wage and in the second year t-2 for employment. therefore, the increase in employment does not match the increase in average wage in the time. the results of the regression analysis confirmed the hypothesis that the fdi inflow does not contribute in a significant way to the increase in average wage and employment in the period under consideration. moreover, the fdi inflow appears responsible for the decrease in average wage and employment, after 3 years (t-3) and in the year (t) the fdi inflow occurs, respectively. additionally, according to this research, the fdi inflow produces some increase in average wage in the same year it occurs, mostly because the foreign investor brings its management into the country, thus adjusting the national accounts. as seen before, when mergers and acquisitions occur, in theory they lead to the decrease in employment in the initial period, while in the long-term period a positive effect of fdi inflow on employment is expected. moreover, the researchers’ investigation into foreign investors in serbia is limited, since information about subsidiaries and grants given to the foreign investors are not publicly available. 19 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) this research aimed to estimate the impact of fdi inflow on average wage and employment in serbia in the period 20052017. through multiple linear regression models, this research has confirmed that the fdi inflow gives a minimum contribution in increasing average wage and employment, while the time effect plays the main role in showing positive impact of fdi inflow on employment. with regard to the average wage, there is barely an increase, which is not statistically significant and which proves to be meaningless for families. the research has proven that fdi inflow has no significant impact on variables, as the main indicators of the welfare of the population. in observing the trends of indicators, one can see the common phenomenon for the countries in transition, i.e., a very slight decrease in unemployment, which in serbia officially was 14.7 per cent at the end of 2017, undoubtedly a high value and sign of a weak country’s economy (statistical office of serbia, 2017). the challenge for serbia is to improve the performance of fdi by knowing that fdi inflow could potentially become an efficient investment if policy-makers establish rules to benefit serbian market itself, if corruption is significantly reduced, if investments are more directed into the sector of industry, and if foreign investors respect the rules of the host country. in order for serbia to benefit more efficiently from fdi inflow, in particular in the field of average wage and employment growth, the author assumes that the transparent institutional environment and the rule of law is essential. conclusions and recommendations 20 milica perić 2020/25(1) the conclusion is that fdi inflow has a low and statistically not significant impact on average wage and employment in serbia during the period from 2005 to 2017, that is in line with the findings of stojadinovic and todorovic (2014), radojevic et al. (2015), and hanic et al. (2017). the awareness of limitations of this study is what the author has left for further research. the first limitation is the unavailability of fdi official national data. the second limitation is that only one country is taken into consideration. and the third limitation is the inclusion of just three macroeconomic indicators. references [1] addison, t. &heshmati, a. (2003). the new global determinants of fdi flows to developing countries: the importance of ict and democratization. research in banking and finance, 4, 151-186. doi:10.1016/s1567-7915(04)04007-8 [2] albulescu, c. t. &ianc, n. b. (2016). fiscal policy, fdi and macroeconomic stabilization. review of economic and business studies, 9(2), 131-146. doi:10.1515/rebs-2016-0038 [3] alfaro, l. (2003). foreign direct investment and growth: does the sector matter? harvard business school, 1-31. [4] alfaro, l. & charlton, a. 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[39] unctad (2010). world investment report, new york and geneva. [40] unctad (2013). world investment report, new york and geneva. [41] unctad (2017a). foreign direct investments. handbook of statistics, december 2017. [42] unctad (2017b). world investment report, new york and geneva (transition economies). [43] taylor, k. &driffield, n. (2005). wage inequality (dispersion) and the role of multinationals: evidence from uk panel data.labour economics, 12(2), 223-249. doi: 10.1016/j.labeco.2003.11.003 [44] zdravkovic, a., duric, m. and bradic, m. a. (2017). uticaj stranih direktnih investicija na nezaposlenost u tranzicionim zemljama – kointegraciona analiza panela. industrija, 45(1), 161-174. [45] zhao, l. (1998). the impact of foreign direct investment on wages and employment. oxford economic papers, 50(2), 284-301.doi:10.1093/oxfordjournals.oep.a028646 received: 2018-06-26 revisions requested: 2018-08-30 revised: 2018-12-19 (2 times) accepted: 2019-02-09 milica perić singidunum university, belgrade, serbia e-mail: milicamip@gmail.com milica perić is a phd student at the singidunum university enrolled in conteporary business decision making. milica’s area of research is finance and banking, with the focus on the national economic development and movement of foreign capital. graduated in economy and management, and international bussines and development, milica collaborated in numerous international projects in italy, portugal, cyprus and brazil. about the author annex 1 model summary table 1a. model summary for (1) table 1b. model summary for (2) annex 2 analysis of variance table 2a. analysis of variance for (1) table 2b. analysis of variance for (2) 22 milica perić 2020/25(1) << 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04_arsic:tipska.qxd 33 siniša arsić* telekom srbija ad, belgrade management: journal of sustainable business and management solutions in emerging economies 2018/23(1) key factors of project success in family small and medium-sized companies: the theoretical review doi: 10.7595/management.fon.2017.0013 1. introduction previous studies on the topic of project management in profit-oriented companies were based on a consideration of structure, a model of innovation, specific industry, as well as the possibilities of commercial exploitation of project results depending on the environment in which the project is performed. very little research has been devoted to the differences (and similarities as well) between family and non-family companies, in terms of success factors that are crucial for the project to satisfy its stakeholders. it is possible, therefore, to define the main research question, and the answer to that question lies within the systematization of reviewed literature: “is the nature of project management in family companies different when compared to non-family companies?” according to the results of previous research, the role of managers (the owner of the company, if it is a family company) is key to the success of the project, assuming delegated authority, optimal amount of resources available and the effects to be achieved by the implementation of the project. the theoretical overview is based on studies that are the product of current global trends, and it must be noted that a narrowing of focus is present, and referring to the eu, and then to serbia specifically. this is particularly reflected in the part of the paper dealing with institutional support for smes to do business in serbia and the eu, and in the comparative review and comparison of support for the family versus non-family companies. abstract: the paper proposes a systematization of the key success factors of projects, through the theoretical review of family-owned companies operating in the eu market. it is the small and medium companies that in their own way contribute to the overall success of the national economy in terms of economic activity, increased employment, development activities and defining better business environment. the theoretical review observed numerous studies of family businesses, and the contribution of this work is in the systematization of the results of previous research – over three horizons, i.e., over the role of managers in the creation of successful projects (or owner if it is a family enterprise), institutional support for companies in serbia and the eu, specific industries and the parent (regional) markets where a family company operates. project management, as a general representation of the concept of implementation of strategic and operational endeavors, contains many specifics in terms of critical success factors of projects depending on the environment in which they are implemented. the goal of the paper is reflected in the identification and presentation of critical success factors of projects implemented in family companies. the paper concludes with a discussion of the research results in relation to the existing, similar research studies, as well as with the announcement of future research, which will examine the conclusions drawn on a real sample. keywords: factor, project, family company, industry, manager, owner jel : m10, m20, l20, o52 * corresponding author: sinisa arsic, sinisaars@telekom.rs certainly, it should be noted, that the specifics of the industry and the domestic market are also a very important perspective, perveived from the standpoint of project success factors of business changes which are applied in these markets and across different industries. the discussion of results attempts to identify similar conclusions, while the conclusion part of the paper sums up and announces the future research of the author. 2. key aspects of project success depending on perspective on the basis of the defined research question, it is possible to set the overall goal of the paper. general goal: to define the specifics of csf (critical success factors) of projects through the analysis of the criteria present in the family and non-family companies while, for purposes of partial or complete closure of identified gaps in the existing literature, it is necessary to try to reach the specific objective of the paper: • to focus aspects of project management which are unique only for the family company and to present the influence of “family variables” on success of projects which are implemented within those companies. as previously announced, the systematization of the key aspects is determined by three perspectives (horizons), which follow below. 2.1 the role of manager/owner in the process of creating project success fortune and white (2006) state that the critical success factors of projects in general are the support of top management, the structure of defined objectives and the level of detail of project plans. next, kotlar et al. (2014) define that in the non-family companies the ability to bargain and to achieve compromise solutions is integrated into the objectives (criteria) of making profit, whereas in family companies this same ability represents a mechanism of control and power over individuals (usually the main authority is the owner himself). the key success factors of projects in family companies are under the direct control of the owner of the family business (in the majority of analyzed companies, the owner is also the director of the family company). the main challenges of achieving success are influenced by the number of family employees, which are related to the owner, (un)defined hierarchy among family members of the owner and those who are not, as well as transparency in the vision of goals and personal motivation of owners and employees (mihic et al., 2015). these conclusions have been supported by alias et al. (2014), who outline human resources as the key factors to project success. muller and turner (2010) conclude that leadership attitude and intellectual competences of the owner/manager predetermine the success of projects, which in some cases contributes to large variances between project success and business success. as critical factors / influences on the success of the projects (business activities) of the company, james (1999), anderson and reeb (2003), as well as carney et al. (2017), outline the stability of the family firm in terms of structure, but also complement their conclusions with listing the presence of succession plans, and maximum utilization of resources. the advantages that the family company itself provides can be defined as: • the stability of the workforce as a result of the stability of the family, • overlapping financial resources of the family and the company, • prevalence in a national economy which drives overall competitiveness, • longer time horizon for achieving the goals. in contrast to these conclusions, a study conducted by pwc (2014) points out the following key success factors of projects carried out by family companies profitability and projects that are prioritized according to whether they provide long-term business contracts, while the stability of workplace for family members, as well as creating of new jobs are at the bottom of the priority list. since the largest continuous internal challenge of preserving the family business is the need for constant innovation (products, processes, services), leading to shorter innovation cycles and shorter time for reaching the commercialization phase (time to market), are considered as the main criteria of success of the project. memili et al. (2010) conclude that the critical success factors of projects are planned in advance, according to the level of risk borne by the project itself, so as to ensure the target yield, as well as to maximize the potential of business that the project is implemented in. the main causes of low efficiency in the 34 siniša arsić 2018/23(1) implementation of the main ideas of the project are the result of a smaller share of human resources in the process of generating ideas for innovation, as well as a lower percentage of employees who are generally able to implement the project (liach & nordqvist, 2010). conflicts often overlap with the priorities in the successful implementation of the projects, and they are a result of the parameters of the family (family stability, interpersonal relationships, the structure of the labour force, which is a derivative of family structure), which often interferes with the implementation of projects and the foundation of successful project management lies within total understanding and knowledge of these terms (liu & low, 2010). 2.2 institutional support to smes in serbia and in the eu authors generally agree that the owners of family businesses are rather reluctant to take business risk when deciding on investments (resource allocation for a project), in cases where there is a large share of the family fortune invested in the company’s capital (sciascia et al., 2015). as a general conclusion, it can be noticed that family companies are looking for external sources of financing in order to successfully realize their ideas. financing of commercial projects in the eu is regulated within programmes and projects for innovative activities as well as programmes supporting the competitiveness of small and medium-sized companies. according to research by the european commission on improving the competitiveness of smes in the eu (european commission report, 2009), the findings are that 60% of all smes in the eu are family companies, producing 50% of all jobs. in serbia, the sme sector generates about 30% of the total country’s gdp (minovic et al., 2016). cruz and letamendia (2010) supplemented with the following facts which are necessary for the understanding of policies of the eu countries in terms of institutional support: • the largest share of family companies is present in italy, france and portugal; • the capital of family companies is smaller than that of non-family companies, but on an average, the number of employees is similar; • the life cycle length of family companies is on an average 60 years, while in non-family companies, the average life expectancy is 43 years (one-fifth of family-owned companies are older than a century); • investments in family projects provide better yields than those in non-family companies (since each euro invested in the family business is due to yield 3.5 euros, while in non-family companies it yields 2.4 euros); • th emarket risk within family businesses is lower than that in non-family businesses; • family companies create more jobs (employment growth rate is 3.4%, compared to non-family companies where it is 0.8%). it should be noted that there are numerous funding programmes for projects of small and medium-sized companies (family and non-family), naming only the most important: • short-term and long-term loans of commercial banks; • horizon 2020 program innovation (specific call sme instrument); • cosme program, etc. peters and westerheide (2011) outline that family businesses most often decide in favour of short term credit funding of projects, since it enables them to get the desired investment funds in the quickest manner.therefore, this presents the key precondition of project success which was originally imagined. serbia, as a candidate country for the eu membership, tends to cooperate with its european partners, to be able to reach the eu level of development. individual initiatives and projects of family and non-family enterprises are all directed towards securing grants from the eu funds, and they are still very ill-coordinated and very seldom (having in mind the activity of certain eu countries, for instance spain, italy and germany). it has to be noticed that the institutional support of the republic of serbia is still very inadequate (szabo, 2013). also, one must have in mind that the largest number of family companies in serbia are still owned by their founders, and that the structure of business activities (projects) is still poor and susceptible to significant change. 2.3 specifics of the home (regional) market and industry in the last 10 years in europe, the current trend is an increase in mergers and acquisitions, where the family businesses are increasingly directed to diversification of business activities (projects), unlike some previous times where the strategy was predominantly on the focus within a single industry (defrancq et al., 2016). erbetta et al. (2013) in their study state that there is a direct correlation between family ownership and company performance within specific industries and markets. mihajlovic et al. (2011) assume that systematic decision making and project portfolio management efficiency are key (in any industry) to utilization of designed results of the project. 35 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) other authors complement the definition of these correlations, stating: • corruption is a greater threat to the family business, than to non-family companies (impact on the competitiveness on the domestic market is critical and is weakening the potential for growth of company sales) (basetti et al., 2015); • the perspective of regional development and structure of the family company has been affected by the direct impact on the regional economy development of individual markets (stough et al., 2015); • the processes of succession in family companies have different influences on the performance of the company, according to a survey covering 190 previous papers (zahra & sharma, 2004; chrisman et al., 2003); • marketing identity and positioning of the company as a family company, undoubtedly brings greater effects on the market, better commercialization of ideas, than in the case of non-family companies, according to a study covering 26 markets (ernst & young, 2015); • innovation is in some cases directly sponsored and reciprocated by the top management of the family company, while within non-family companies that process is organized differently and realized within specific organizational units (kellermans et al., 2012). according to a research by matijas (2015), the first phase of the life cycle of the family company takes between 15 and 25 years and in that period, there is a very large degree of deterioration of family companies. in different markets across the eu, notable failure rate is recognized within family businesses. matijas argues that “in spain from 80 to 90 percent of family businesses fail within the first five years of operation. at the european level, the number is quite high 60 to 90 percent, while in the united states there is a slightly better situation.” special attention should be paid to it life cycle projects and related success factors, particularly in the area of family smes. bjelica et al. (2015) revealed some of the general critical success factors in that area: clear business objectives, expertise, agile processes and proper stakeholder management. it can be concluded that the phase of the life cycle of the family company is a very important if not the key factor in the success of projects, because all parameters and results depend primarily on that parameter. several studies have looked at the individual stages of the life cycle: • growth phase is limited by the level of openness for innovative projects, and it is influenced by the choice of the right technology, as well as with the ability for quick meeting of customer needs and demands (adebayo, 2014); • phase of success, stability, or maturity, is characterized by nine factors and those can be described as good infrastructure, optimal usage of resources, respect for legal regulations, adaptability to economic environment twists, international partnerships, social values, explorers’ attitude, quality of human resources, financial conditions and support (christen et al., 2013); • phase of decline is a direct result of the owner’s incompetence to prioritize projects, and to effectively predict which projects to undertake (ahmed & seet, 2009). rarely has any research integrally observed and clearly defined the life cycle stages of family smes, and what is more important, the purpose and application of understanding these phases, to achieve better business results. it certainly represents a gap which should be further explored. pwc (2014), banalieva et al. (2015), fernandez araoz et al. (2015), in their reports, discuss the main external challenges for family companies to succeed, outlining: • pricing competitiveness; • size of the market niche; • general economic trends (significant amount of post-wwii newly founded companies in europe are now facing their first change of generations); • poor talent management; • pro-market reforms of the transitioning economy. chaarani (2014) states that for the correct comparison of success criteria across different markets, it is necessary to bear in mind the cultural and economic situation of individual markets.professionals / employees in the countries of south east europe tend more easily to accept autocratic management styles, and are more willing to follow a project plan that has been developed by third parties. contryry to this, professionals / employees in the northern-european countries seek active participation in the planning of projects, and want a more active role in decision-making and planning of projects. their colleagues from sweden recognize the need for coordination, and are willing to follow a plan that has already been prepared, although they want to participate in its development. on the other hand, employees in irish companies are very reluctant to imposed control and predefined goals (success criteria) (turner et al., 2010). 36 siniša arsić 2018/23(1) 3. discussion of theoretical research results success factors of projects defined in this study differ from success criteria defined in some other studies (holt et al., 2016; merino et al., 2015; gallo et al., 2004). in these studies, major “outcomes” of family companies’ business activities are measured through: • the value of the portfolio of projects of a family business; • cohesion and emotional stability of the owner’s family with family members who are employed in his company; • continuation of the business “tradition”; • internationalization as a consequence of family experience and culture orientation; • image of the company and involvement in community activities. it must be noted that there is a clear difference in the success rates of projects in the current literature that looks exclusively at family business and entrepreneurial ventures, compared to non-family companies (corporations). in non-family companies, the success factors are: • the financial performance of the project, the increase in market presence (zellweger & sieger, 2012); • estimated attractiveness of innovation, which is estimated by the top management (collins & reutzel, 2017); • entrepreneurial leadership, promotion of human and social capital, the growth of all performances in the market (koryak et al., 2015); • the correct perception of the environment, controlled ambitions of top management for business growth, greater flexibility and innovation, extensive use of private network of contacts (hansen & hamilton, 2011); • “organic development”, the internal expansion of the business, good company reputation (jamieson et al., 2012), • appreciation of stakeholders, project personnel, contracting partners and main clients (westerweld, 2003), while, in family companies, project success is measured by: • appointment of a non-family professional to key management positions in the firm (minichilli et al., 2015); • contribution to the long-term preservation of the family company and business, as well as a successful balance between financial and non-financial dimensions of business. (zellweger & sieger, 2012); • owner’s actions, ownership structure, age of the owner, and a proper understanding of the objectives and importance of the company for the family (wallace, 2010); • quality relationships with other family companies, whether established by the owner of the family company as a “subsidiary” company (son of the owner is usually the owner of the subsidiary company) or are associated with another family company (szabo, 2013). it must be noted that some studies have dealt with the general review of the factors of success of small and medium-sized companies. so, meister (2006) cites several key factors, from a well-defined mission of the project, up to the ability to properly resolve unexpected situations and deviations from the plan. at the same time, in the statistical report of the enterprise europe network on a sample of 200 companies from eu countries, the following success factors can be distinguished: • 83% of projects led to the successful establishment of contacts that are the basis for further research, • 80% of companies have participated in more than one project and 76% of companies have performed projects related to the core business activities, • half of the projects funded by the eu have led to new business contracts (business expansion). (eu commission, 2016). in addition to this, todorovic et al. (2015) reveal the existence of correlation between knowledge transfer and more effective problem solving, as well as more efficient task schedule management. xi et al. (2015) concludes that the quality of succession plans affects the continuity of the family business activities, therefore ongoing projects as well. what is not deeply explored in the literature is the impact of the professionalization of staff upon the success of projects (a new model called the “family business”), and the extent to which non-family companies record better results as a consequence of a higher level of training and formal approach to work obligations. also, there was no further research on how to find factors of project success in companies which do not have the ambition to grow, or maximize profit, because they simply want to stabilize their activities and remain in the stability zone as long as possible. 37 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) 38 siniša arsić 2018/23(1) conslusion the theoretical review concerning family and non-family business studies examined the role of managers in the creation and execution of successful projects, institutional support for companies in serbia and the eu, and specific industries and the parent / regional markets in which a family company operates. the key contribution of this paper is the definition of key success factors of projects over these three horizons, whose specific combination and configuration requires a “light” model of project management, which should be organized around top management requirements as its primary purpose. the second most important precondition (for success) is to establish a proper support function in the process of realization of customer demands. the effectiveness and value of the model is crucial in assessing priorities among a number of projects, and this was noticed particularly in case of owners of family companies. without a direct support of top management (family business owner), any measure of success is unnecessary because the project is not of interest to the company. the paper clearly highlights the shortcomings of the existing literature, but there is also a fact that the business environment, in terms of family-owned companies, has not been explored fully in serbia, nor were specific recommendations to support the operations of family-owned companies in serbia initiated. specific focus should be defined for it industry projects, particularly in the family business segment, since there is a clear need for such a research. the main limitation of this paper is the fact that it does not involve a real sample of projects and opinion of experts. further expansion of this study concerns specific factors of success of projects in family companies in a particular market over the period of several years, including a real sample of companies and projects executed in serbia and the eu region. references [1] alias, z., zawawi, e., yusof, k., & aris, n.m. 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(2013). family business and smes in the black sea economic cooperation region, workshop report, organization of the black sea economic cooperation, istanbul, isbn: 978-605-4679-06-5 [45] todorovic, m., petrovic, d., mihic, m., obradovic, v., & bushuyev, s. (2015). project success analysis framework: a knowledge-based approach in project management.international journal of project management, 33(4), 772-783. doi: 10.1016/j.ijproman.2014.10.009 [46] turner, r., ledwith, a., & kelly, j. (2010). project management in small to medium-sized enterprises: matching processes to the nature of the firm. international journal of project management, 28, 744-755. doi:10.1016/j.ijproman.2010.06.005 [47] wallace, j.s. (2010). family owned businesses: determinants of business success and profitability, all graduate theses and dissertations, utah state university, 1-94. retrieved from: http://digitalcommons.usu.edu/cgi/viewcontent.cgi?article=1590&context=etd [48] westerweld, e. (2003). the project excellence model: linking success criteria and critical success factors. international journal of project management,21(6), 411-418. doi: 10.1016/s0263-7863(02)00112-6 [49] xi, j.m., kraus, s., filser, m., & kellermanns, f.w. (2015). mapping the field of family business research:past trends and future directions.international entrepreneurship and management journal, 11, 113-132, doi: 10.1007/s11365-013-0286-z [50] zahra, s.a., & sharma, p. (2014). family business research: a strategic reflection.international family enterprise research academy, 17(4), 331-346. doi: 10.1111/j.1741-6248.2004.00022.x [51] zellweger, t., & sieger, p. (2012). entrepreneurial orientation in long-lived family firms.small business economics, 38(1), 67-84. doi: 10.1007/s11187-010-9267-6 received: 2017-07-13 accepted: 2017-08-28 siniša arsić telekom srbija sinisaars@telekom.rs siniša arsić is currently employed at the telekom srbija (since 2015), where he works as a product porfolio management associate for private mobile users. also, he is a phd student at the faculty of organizational sciences, university of belgrade, studying quantitative management at his 1st year. his main research interests, and history of published papers, deal mainly with family businesses, project management and innovation management. in 2014 he took part in a research and innovation project, which applied for eu horizon 2020 funds under specific call named sme instrument. the project proposal dealt with research innovation involving a serbian sme, two italian smes and a slovenian research institute for quality and standardization. 40 siniša arsić 2018/23(1) 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05p_scarinci howell:tipska.qxd 49 janice lee scarinci1*, edward howell2 1 southern utah university in cedar city, utah, usa 2 keiser university west palm beach, florida, usa management: journal of sustainable business and management solutions in emerging economies 2018/23(2) increasing performance through english language proficiency: american cultural model doi: 10.7595/management.fon.2018.0014 1. introduction current research has shown how the increased level of educational exchange among newly globalized institutions of learning is creating the need for an increase in english-language proficiency (friedman & antal, 2005; institute of international education, 2010; mitry, 2008; person, 2007). in academia, cultural understanding of content delivered in the classroom has become a topic of research and application for an increasing number of prominent educational institutions (marshall university, 2011; university of southern california, 2010). in a study conducted by howell (2010), faculty members were surveyed to assess the international students’ classroom performance at the target university. the data demonstrated a language-proficiency problem. this study was designed to meet the current need by implementing a cultural component to the established english as a second language (esl) intensive-immersion program to increase international students’ language proficiency. the potential increase in language proficiency was measured by comparing students’ preand post-intervention toefl test scores. this study determined whether academic performance could be improved by adding a cultural component to the esl program to assist in the comprehension of the traditional elements of the toefl: (a) listening comprehension, (b) structure, and (c) writing comprehension. with this model, the researcher sought to expand on the newly researched and validated need for global competency for students currently seeking admission to american universities (person, 2007). the results of this study have worldwide implication in higher education and the improved competence of the local workforce in global emerging economies. * corresponding author: janice scarinci, e-mail: janscarinci@gmail.com abstract: research question: the purpose of this study was to determine whether the addition of an american cultural model to an existing english as a second language (esl) program improved the performance of international students. idea: the english language proficiency is essential for students in global emerging economies in order to be competitive, and our study can be generalized to learning other languages within the respective cultural model. motivation: the results of our study can be applied to higher education worldwide since currently the international business language is english. data: the data collected were analyzed and interpreted to determine whether cultural training improved scores on the test of english as a foreign language (toefl). tools: two groups of incoming students were compared as the treatment and control groups, using the t-test with appropriate statistical package. findings: data analysis showed a statistically significant difference in toefl scores between the control group and the experimental group benefiting from the implementation of the introduction of the american cultural model. contribution: the english language proficiency is essential for students in global emerging economies in order for them to be competitive, and our study can be generalized to learning other languages within a respective cultural model. keywords: communication, cultural model, instructional design, international education, language proficiency, emerging economies jel classification: d84, z10, i20 2. literature review this literature review contains three main sections: (a) the current quantitative measures of language proficiency, (b) current qualitative measures of language proficiency, and (c) alternative methods of measuring language proficiency to support the implementation of a cultural component to increase language proficiency of international college students. the literature review provided the basis of the research questions for this study. 2.1. quantitative measures of language proficiency currently, toefl scores are used in admitting students under the main assumption that complying with the requirements of the test would provide evidence of language competency. each test consists of three major parts administered in sections timed separately. in each section, questions are in the form of multiple choices with four answers or options. eighty-three percent of the total toefl score is provided by multiple-choice questions (roemer, 2008). roemer (2008) viewed the delivery of the test as too heavily dependent on one learning style, leaving out critical reasoning. de vita (2001) echoed the same criticism. his study centered on the problem of academic performance due to the mismatch of learning styles and cultural conditioning. de vita gathered data based on felder and soloman’s index of learning styles. over 75% of international students displayed a preference for visual rather than verbal inputs. de vita suggested that culture influenced the development of individual learning styles and strongly affected the sequential processing of individual thinking. first instituted in 1963, the toefl has traditionally represented the criteria to measure the language and assumed communication proficiency of students applying to colleges and universities throughout the united states. the toefl was deemed necessary and sufficient for students to gain admission and perform successfully in their academic studies. the test consists of three areas of traditional cognition of the language: (a) listening comprehension, (b) structure and written expression, and (c) reading comprehension. the current practices in the quantitative selection of international students for admission in the major american universities (institute of international education, 2010) show a wide range of requirements. requirements range from a minimum of 600 for the university of southern california to a toefl minimum of 525 for the ohio state university. the average minimum toefl score for the top 15 universities hosting international students in the united states is 550 (ets, 2010). the target university in this study requires a toefl score of 500. the toefl is designed to measure the communicative competence of nonnative speakers of english seeking admission to the u.s. and canadian colleges and universities (ets, 2010). however, duran, canale, penfield, stanfield, and liskin-gasparro (as cited in o’neill & theuri, 2007) first challenged the test in 1986 and showed deficiencies in the construction of the test due to the omission of cultural considerations. o’neill and theuri’s (2007) findings supported this study’s inquiry into the value of implementing a cultural component to increase international college students’ performance by showing the impact of language on content-based performance. increasingly, validation has been advocated (hofstede, 2003; mitry 2008; person, 2002) to demonstrate the linkage between native culture and the recognition of its expression in and through the native language. the implementation of the introduction to the american cultural model in this study was to test this aspect of language competency. 2.2. qualitative measures of language proficiency person’s (2002) study investigated the need to evaluate whether students admitted to the university through the completion of an esl program benefited from the experience. she compared the gpas of those students with international students not receiving a language-proficiency supplement. her data were gathered from 64 females and 62 males from 22 countries. person (2002) correlated esl students’ scores and toefl students’ scores with their first and last gpas. the conclusion reached by person (2002) was calling for qualitative research in validating the criteria in measuring the toefl for esl students. the cultural evidence uncovered by person (2002) led her to complete another study (person, 2007), which broadened her research into the internationalization of the educational field. person (2007) explained in simple terms two of hofstede’s (2003) cultural measurement 50 janice lee scarinci, edward howell 2018/23(2) indices, collectivism and individualism. the significance of person’s (2007) study was in the evidence of the language-culture problem in students’ performance needing a more qualitatively based analysis. numerous studies have been conducted using the comparison of tofel and gpa scores and duel language learners (dll) who have higher needs to be prepared for school (ginther & yan, 2017; ackerman & tazi, 2015; guzman-orth, lopez & tolentino, 2017). however, these studies do not take into account the cultural-social dimensions which make this study unique. the need for further research in the identification of critical variables influencing the language-proficiency topic of this study includes extending some current studies (person, 2002, 2007) and replicating others (mitry, 2008). the researcher sought to identify the critical variables to be tested to answer the main research question of whether international students’ proficiency could be improved through the addition of a cultural component (mitry, 2008; o’neill & theuri, 2007; roemer, 2002). 2.3. alternative methods of measuring language proficiency traditionally, research studies testing the validity of the toefl for admission have centered on quantitative correlations between toefl scores and the academic gpas of students. the assumption is that evidence of language proficiency as measured by the toefl will lead to successful academic achievement (person, 2002). chen and li (2008), among others, have challenged this assumption and demonstrated the deficiency present in the toefl. they showed why a high toefl score may not lead to success in many subject-specific academic programs that require a higher level of communicative competency. this has led to the need to explore alternative testing of language proficiency to include culture and language as separate variables. mitry (2008), a university professor in economics, conducted research with students to test the impact of including cultural-diversity measures in the teaching of his discipline, known for its strong emphasis on quantitative measurements, especially in the united states. his initial rationale for the investigation was that in economics, the general performance of students was lower than in other subjects as measured by standardized testing (ets, as cited in mitry, 2008). the purpose of the experiment was to measure the impact of discussing cultural attitudes when explaining the ceteris paribus assumption underlying the explanations of macroand microeconomic concepts. in gathering his data, mitry used hofstede’s (2003) scale of cultural values started and periodically updated since the 1980s. mitry (2008) designed his experiments to show that cultures perceive information differently when they exist in a different context. the cultural-value measures offered by hofstede’s (2003) model of cultural dimensions provided the basic design for data collection. the results showed an improvement in economic interpretations by students when taught cultural diversity as compared to students who were not taught diversity. mitry concluded that cultural factors affected the perception of information. the peer-reviewed publication of mitry’s experiments illustrated the vital importance of a student’s understanding of the cultural context needed to understand a content-based subject such as economics. two of the cultural dimensions of hofstede’s index, individualism and uncertainty avoidance, used by mitry were similarly used in the introduction to american cultural model in this study. his conclusion was that the students having received the cultural increase, the experimental group, scored much higher on standard economic tests. with some variation, this experiment was replicated in the implementation of the american cultural model of this study. as important as it is, assessing an individual’s command of english to meet expected criteria of success at university for international students is not a simple procedure. the most widely used instrument is still the toefl, an exam required for admission at over 7,200 colleges and universities in the united states and canada (international institute of education, 2010). researchers have recognized that despite its widespread acceptance, the test may not be an accurate measure of english-language proficiency (mestenhauser & ellingboe, 2005; person, 2002, 2007; roemer, 2002). this literature review has attempted to account for three major ways that language proficiency can be measured and performance assessed for international students who come to study at american universities. the review revealed the possible reason for a language-proficiency issue facing these students. traditional research focused on quantitative measures of language proficiency through the sole use of the toefl exam. however, more current research has shown that english-language proficiency can be increased by employing qualitative instruments based on cultural factors that can be measured. many researchers (e.g., de vita, 2001; friedman & antal, 2005; mitry, 2008; person, 2007; welch & welch, 2008) have recommended 51 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) the pursuit of alternative cultural-diversity methods to increase international students’ language proficiency along with the traditional method. there are worldwide implications of english-language proficiency for students in emerging economies. the results of this study can be applied to higher education and business worldwide as english is the universal language of modern business. in a study conducted by jin and cortazzi (2006) the authors outline the importance of english language teaching (elt) in the people’s republic of china (prc) as the bridge to the future. according to selmer’s (2006) study of language ability and adjustment to western expatriates in china, the findings indicated that “language ability had a positive association with their sociocultural adjustment” (para 1). enderwich and akoorie (1994) conducted a pilot study of the employment of foreign language specialists and export success. they found that the most successful companies employed more foreign language specialists and had a much deeper understanding of language proficiency. the results of these studies support the need for this research and further study of language and social cultural implications for higher education and international business. research questions 1. how will the esl program affect students’ toefl scores as measured by preand posttests in the control group? 2. how will the implementation of the introduction to american cultural model significantly affect students’ toefl scores as measured by preand posttests in the experimental group? 3. how will the implementation of the introduction to american cultural model significantly affect students’ toefl scores as measured by the difference in mean toefl scores between the control group and experimental group? 3. methodology the methodology used for this study partially borrowed from the educational research methods developed by gall et al. (2007). according to gall et al., “the most commonly used quasi-experimental design in educational research is the nonequivalent control-group design. in this design, research participants are not randomly assigned to the experimental and control groups and both groups take a pretest and a posttest” (p. 416). in this study, language proficiency was measured by comparing the toefl scores of two esl classes to determine whether there was a statistically significant increase in the toefl scores as measured by a preand posttest in (a) one class without a cultural addition to the language instruction and (b) another class with the cultural component added. the former, esl class, did not include the cultural component and was the control group, and the latter, esl class, included the cultural component as the experimental group. language proficiency was further measured by comparing the toefl scores of the two esl classes to determine whether any difference between the two groups was statistically significant. control group. the control group was composed of the esl students who did not receive a cultural component added to their class. the esl class eng 0980-1 had 24 multinational students, 9 female and 15 male, ages 19–23. the class was scheduled on tuesday and thursday from 8:00 a.m. to 9:20 a.m. these students were not given any additional cultural component to their class but were preand post-tested on the toefl. experimental group. the other sample also consisted of 24 multinational students, 13 female and 11 male, of the same age range as the control group. they were enrolled in eng 0980-2 of the esl class, scheduled tuesday nights from 6:00 p.m. to 9:00 p.m. the curriculum for this eng 0980-2 esl program included the introduction to american cultural model as a 5-week addition to its curriculum between april 19 and may 23, 2012. that group was tested prior to and subsequent to program exposure. the standardized toefl was the instrument administered to measure the international students’ language proficiency. data analysis. analysis of the data using the statistical package for the social sciences program (cronk, 1999) determined whether the students in the experimental group, who received the cultural component, showed a larger language increase in toefl scores than the students in the control group. within each sample, t tests were conducted to determine whether the preand posttest toefl scores were significantly different at a selected probability level (research questions 1 and 2). a paired-samples t test (gall et al., 2007) was used to identify any significant difference between control and experimental groups to determine whether the introduction to american cultural model had a significant impact (research question 3). mitry (2008) referred to this improvement as the cultural-diversity measure. 52 janice lee scarinci, edward howell 2018/23(2) for the purposes of this study “a paired t-test is used to compare two population means where you have two samples in which observations in one sample can be paired with observations in the other sample”. for the purposes of this study, we used a parametric test since we were comparing the mean tofel scores of 2 groups, the control group and the experimental group. secondly, each group shared a total population of 24 participants which is large enough for a parametric test. thirdly, the parametric test was used for there was a known variance in the two normal populations. the 2 sample t-test is used when the data come from two normal populations with the same variances. de winter, supports the use of t-tests with smaller sample sizes (pearson, 1931; barlett, 1935; geary, 1947; de winter, 2013). 4. results the quantitative evidence of the impact of the implementation of the introduction to american cultural model was collected in the form of preand post-intervention toefl scores of an experimental group (n = 24) and a control group (n = 24). in the experimental group, 11 students were male and 13 were female. in the control group, 15 students were male and 9 were female. the toefl scores of the experimental group were compared to those of the control group. the t test was applied to the data to determine whether the mean change in scores of the control group differed significantly from that of the experimental group. a 95% confidence interval was used to indicate statistically significant findings. research question 1 how will the esl program affect students’ toefl scores as measured by preand posttests in the control group? a t test was used to identify any significant differences between the preand posttest scores on the toefl for the control group, which did not receive the introduction to american cultural model. the t test revealed no statistically significant difference, p = 4.301. research question 2 how will the implementation of the introduction to american cultural model significantly affect students’ toefl scores as measured by preand posttests in the experimental group? a t test was used to identify any significant differences between the toefl preand post-intervention scores for the experimental group. the t test revealed no statistically significant difference, p = 1.254. research question 3 how will the implementation of the introduction to american cultural model significantly affect students’ toefl scores as measured by the difference in mean toefl scores between the control group and experimental group? the average mean score increase was 24.21 for the experimental group, compared to 17.83 for the control group. a paired-samples t test was performed on the mean change in toefl scores between preand posttest for both the control and experimental groups. this was to support more accurately the results for the change in the toefl scores. the result showed a statistically significant difference in the change in the toefl scores between the control group and the experimental group, t = 1.83, p = .04. in conclusion, the quantitative toefl scores significantly improved in the experimental group who were exposed to the introduction to american cultural model. the increase in the mean toefl score following the intervention for the experimental group was statistically significantly higher than that of the control group, with a 95% confidence interval. 53 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) conclusion the data for the quantitative analysis showed that the experimental group’s toefl scores following the intervention showed a statistically significant increase as compared to the control group. the implementation of the introduction to american cultural model increased the experimental group’s scores on the toefl by a percentage that was 36.8% more than the percentage the control group’s scores increased. the most consistently observed increases were in verbal and experiential communication, supporting the positive impact of the introduction to the american cultural model. the implementation of the american cultural model to increase english-language proficiency at an international college has shown positive results. the findings are encouraging and validate the positive impact of the teaching of culture on language proficiency. adding qualitative to quantitative research had been suggested by several previous studies (de vita, 2001; person, 2002, 2007; o’neill & theuri, 2007, mitry, 2008; welch & welch, 2008). specifically, in this study, the teaching of american values in the implementation of the introduction to the american cultural model successfully increased the english-language proficiency of a small, selected group of international students at a south florida university. references [1] ackerman, d., & tazi, z. (2015). enhancing young hispanic dual language learners’ achievement: exploring strategies and addressing challenges. ets research report series. retrieved at [2] american psychological association. (2010). publication manual of the american psychological association (6th ed.). washington, dc: author. [3] althen, g. (2003). american ways: a guide for foreigners in the united states (3rd ed.). yarmouth, me: intercultural press. [4] ball, d., mccullloch, w. jr., geringer, j., minor, m., & mcnett, j. (2008). international business: the challenge of global competition (11th ed.). new york, ny: mcgraw hill. [5] burns, a., & bush, r. (2006). marketing research (5th ed.). upper saddle river, nj: pearson prentice hall. [6] cateora, l., & graham, j. (2005). international marketing (12th ed.). new york, ny: mcgraw hill. [7] chaney, l., & martin, j. s. (2010). intercultural business communication (5th ed.). upper saddle river, nj: pearson prentice hall. [8] chawla, s., & renesch, j. (eds.). (1995). learning organizations: developing cultures for tomorrow’s workplace. portland, or: productivity press. [9] chen, x., & li, y., (2008). language proficiency and mathematics learning. school science and mathematics, 108(3), 90-93. doi:10.1111/j.1949-8594.2008 .tb17811.x [10] creswell, j. (1994). research design: qualitative and quantitative approaches. thousand oaks, ca: sage. [11] cronk, b., (1999). how to use spss. los angeles, ca: pyrczak. [12] daniels, j., & vanhouse, d. (2004). global economic issues and policies. mason, oh: south-western cengage learning. [13] datesman, m., crandall, j., & kearny, e. (2005). american ways: an introduction to american culture. white plains, ny: pearson education. [14] de vita, g. (2001). learning styles, culture and inclusive instruction in the multicultural classroom: a business and management perspective. innovations in education and teaching international, 38, 165-174. [15] de winter, j. c. (2013). using the student’s t-test with extremely small sample sizes. practical assessment, research & evaluation, 18(10), 1-12.). 54 janice lee scarinci, edward howell 2018/23(2) the wider positive implications of the use of the american cultural model in higher education in other countries includes the importance of english language proficiency for students in emerging economies and businesses. previous studies have shown a positive correlation in socio cultural adjustments in expatriates in china and the growing importance of the use of english in china (selmer, 2006; jin, cortazzi, 2006). additionally, in new zealand, those companies that used foreign language specialists, showed an increase in major exports in comparison with the previous three years. some of the possible negative implications of using the american cultural model inappropriately in a foreign culture could result in resistance from the host community.this could lead to the inability to integrate the host values and assumptions into the social cultural context and language. this could affect the behavior performance and expectations of the host community. limitations and recommendations some limitations of the study must be considered. this study was exploratory in nature due to the small total sample of 48 students. twenty-four students were in the control group, and 24 were in the experimental group. this suggests that the study can be repeated using larger class sizes and the results compared to these findings. another limitation of this study was related to the lack of random selection of the students due to its quasi-experimental design. only students enrolled in the esl course participated in the study. this study should be repeated for other content-based courses with random-based student selection. the findings in this study apply to the specific school selected and should be further tested in other institutions. the validity of the qualitative analysis of the data is dependent on the qualifications of the facilitator. therefore, the researcher recommends a comprehensive cultural training course for the facilitators of the any future program using the introduction to the american cultural model. this research should be conducted by qualified observers and should include meticulous use of the cross-cultural educator checklist to ensure the proper implementation and validation of future courses using the introduction to the american cultural model. 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(2006). effective tutoring in the multicultural business classroom. journal of teaching in international business, 17(4), 27-48. received: 2017-03-29 accepted: 2018-04-25 janice lee scarinci southern utah university in cedar city, utah janicescarinci@suu.edu dr. janice scarinci is a professor at southern utah university in cedar city, utah. she has earned her ph.d. in tourism at james cook university in north queensland, australia on a rotary ambassadorial scholarship. dr. scarinci has taught hospitality and tourism in 5 countries on 3 continents and has over 20 years of academic experience as a department chair and director of a hospitality and tourism institute. her research interests include guest satisfaction, motivation and marketing, sustainable tourism and lodging and the effects of international travel on employable skills and experiential learning. she has published in peer reviewed journals, presented at international conferences and has published book chapters on these topics. ed howell keiser university west palm beach, florida ehowell@keiseruniversity.edu dr. ed howell has always been fascinated by what makes people tick and the relationship between motivation and success in his students. following a 25-year career as a financial executive in banking and securities, as well as eight years as an elected official, ed is now a university professor and chair of the economics & finance in west palm beach, florida. he received his doctor of education degree in 2013. ed holds an experimental sciences degree from aix-en-provence, france, a b. a. from vanderbilt university, and a master’s in economics and finance. dr. howell co-authored the publication of a self-improvement workbook in 2017 under the title of what are you waiting for. he has authored other various short articles and essays; dr. howell’s wheel of motivation © emphasizes his teaching focus: motivation and application. “i want to see my students wanting to learn and feeling that they can confidently handle any new situation that comes their way after graduation,” he says. ed is married to jayne and they have five children together; two cats make up a family of seven. ed and jayne live in jupiter, florida. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 1048576 /lockdistillerparams 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01_shkliarevsky:tipska.qxd 1 gennady shkliarevsky1 bard college, usa management: journal of sustainable business and management solutions in emerging economies 2017/22(3) abstract: our contemporary civilization increasingly relies on creative approaches and solutions. this growing dependence makes issues of control, regulation and management of the process of creation ever more important.this article finds two major current theoretical perspectives on creativity and the process of creation to be vulnerable in one important respect: their explanation of the production of disequilibrium, which plays a singularly important role in the process of creation, does not pass the test of rational justification. this article suggests that the production of disequilibrium is intimately related to equilibration — the essential operation of rational thought processes. the emphasis on the role equilibration makes a rational justification of the production of disequilibrium possible. the new theoretical perspective opens the path toward a comprehensive and objective understanding of the process of creation, which is the main condition for regulating, controlling, and managing this process. key words: creativity, the process of creation, equilibration, the production of disequilibrium, margaret boden, computation. jel classification: b59,o31 understanding the process of creation: a new approach doi: 10.7595/management.fon.2017.0021 1. introduction every age has its defining characterization. if one had to choose a characterization for our age, the most likely candidate would be “the era of creativity” (kirstetter et al., 2013). creativity is at the center of public attention. it is the subject of discussions by politicians, scientists, business people, media and public figures, and by ordinary people. we expect creativity to bring enormous benefits to our economy, expand our horizons, solve our problems, and provide aesthetic enjoyment and gratification. there is hardly any sphere of life in our civilization today where creativity would not be regarded as an extremely important asset. the volume of literature that deals with creativity and the process of creation is enormous and constantly growing (machlup, 1980; nonaka, 1994; nonaka and takeuchi, 1995; wierzbicki and nakamori, n. d.; davenport, jarvenpaa, and beers, 1995; davenport, de long, and beers, 1998; nonaka, krogh, and voelpel, 2006; brocke and rosemann, 2010). given the importance and the amount of attention that is focused on the subject, this fact hardly comes as a surprise. we seek to gain a better understanding of creativity in order to control and enhance our capacity to create. there is certainly no shortage of theoretical perspectives that try to explain creativity and the process of creation. yet the sad fact remains that our understanding of the process of creation remains very rudimentary, to say nothing about controlling it. margaret boden, one of the pre-eminent researchers in artificial intelligence, draws the following conclusion in her very influential book on creativity: our ignorance of our own creativity is very great. we are not aware of all the structural constraints involved in particular domains, still less of the ways in which they can be creatively transformed. we use creative heuristics, but know very little about what they are or how 1 corresponding author: gennady shkliarevsky, e-mail: shkliare@bard.edu they work. if we do have any sense of these matters, it is very likely tacit rather than explicit: many people can be surprised by a novel harmony, but relatively few can explicitly predict even a plagal cadence (boden, 2004, pp. 145-46). and as to the thought processes involved in creative acts, boden thinks that it “will be many years, if ever, before we can identify them in scientific terms” (boden, 2004, pp. 145-46). not withstanding such pessimistic predictions, the interest in the process of creation hardly subsides. it continues to intrigue and attract new researchers who probe the mysteries of creativity in their studies. all signs suggest that the fascination with the subject will not diminish and is likely to grow. 2. critique of the current approaches toward the study of creativity so, what is creativity and what is this mysterious process that makes it possible? there is no shortage of definitions that try to capture the essence of creativity, but perhaps the simplest one will do best: creativity is the capacity to perform creative acts; and creative act is an instantiation of the general process of creation. the problem involved in explaining creativity appears to be deceptively simple. creation represents a radical break with the past and the emergence of something that has had no prior existence. creation disturbs balance and violates status quo. it is decidedly about disequilibrium. so, naturally, in order to explain creativity and the process of creation, we have to explain what produces disequilibrium. and that is where the problem arises. there are two principal theoretical approaches in creativity studies that explain the production of disequilibrium. one of them has its roots in biology and particularly in the neo-darwinian theory of natural selection. it sees randomness—random transformations or mutations—as the principal mechanism for producing changes that are then selected for fitness (deutsch, 2011a; deutsch, 2011b; sweller, 2009). for john sweller, there does not seem to be any alternative to randomness in explaining the production of creative disequilibrium. randomness, he concludes, “is not only required by evolution by natural selection to explain biological creativity, it may similarly be required for human creativity;” and more affirmatively, “randomness as genesis principle provides the basis for human creativity” (sweller, 2009, pp. 15-16). the other approach downplays the significance of randomness in producing disequilibrium and places more emphasis on controlled and disciplined procedures performed by humans. margaret boden, whose influential book creative mind is widely regarded as one of the most authoritative studies on creativity, sees play and exploration as having an important role in producing creative changes. she regards both as the type of disinterested activities that are performed for their own sake. it is in the course of play or exploration that individuals “tweak” the generative rules or styles that operate in a given conceptual space and produce new ones that radically change this space and create radical novelties. boden writes: the deepest cases of creativity involve someone’s thinking something which, with respect to the conceptual spaces in their minds, they couldn’t have thought before. the supposedly impossible idea can come about only if the creator changes the preexisting style in some way. it must be tweaked, or even radically transformed, so that thoughts are now possible which previously (within the untransformed space) were literally inconceivable (boden, 2004, p. 6). in play and exploration, creative individuals “think in a disciplined manner,” boden observes, . . . they may be playful, but they aren’t merely playing around. when something of potential interest turns up as a result of their playfulness, they focus on it—accepting, amending and developing it in disciplined ways. only when it fails, or when the limits of its potential are glimpsed, do they turn to other things—perhaps, by transforming the old space into a radically different one (boden, 2004, p. 319). in order to be considered valid, any theory must pass the muster of rational justification. in other words, it should provide a logical proof that what it asserts has no logical reasons for denial. logical justification is an assurance that we can trust the thinking that has resulted in creating a theory under consideration. in2 gennady shkliarevsky 2017/22(3) sufficient justification, justification that is logically flawed or is simply absent sends an important signal that there is no conscious control over the entire theoretical construct offered to us for consideration, which makes such construct vulnerable. let us see then whether the two perspectives on the production of disequilibrium in the process of creation can pass this test of such validation. the idea that randomness plays an important role in the process of creation owes its inspiration to quantum mechanics that views physical reality as ultimately uncertain and indeterminate. francis bailly and giuseppe longo (2007), for example, relate randomness to quantum non-separability and non-locality; they regard randomness as an intrinsic property of the phenomena that occur on the level of elementary particles—the level that they, among many others, consider the most fundamental to nature. geoffrey hellman in his piece “einstein and bell: strengthening the case for metaphysical randomness” (1982) makes a similar argument in support of the ultimately random behavior of quantum mechanical systems. others, like jean bricmont and hans primas, see ontic determinism lurking behind the appearance of quantum randomness (bricmont, n.d.; primas, 2002). despite the fact that the two positions are diametrically opposed to each other, they do share some unsettling questions: if you have some random or deterministic phenomena, how do you know that they are truly random or truly deterministic? can one demonstrate that the randomness or determinism of these phenomena is truly ontic? in his article ulvi yurtsever makes a strong argument that quantum mechanical probabilities are genuine, that is, that they are algorithmically random, or incompressible. however, he also emphasizes that “no algorithmically incompressible binary string can ever be constructed via a finitely-prescribed procedure (since, otherwise, such a procedure would present an obvious algorithm to compress the string thus obtained)” (yurtsever, 2000, p.1). this observation recognizes that although truly algorithmically random strings may indeed exist, their existence cannot be demonstrated. in the opposite camp, jean bricmont’s analysis yields a result that simply dismisses the entire issue of the intrinsic nature of determinism as ultimately irrelevant. bricmont examines two current definitions of determinism. he finds that one definition in which determinism is conflated with predictability renders determinism trivially false. with regard to another definition that avoids conflation, bricmont raises a question whether there is a function—in a platonic sense (that is, independent of our ignorance)—that determines a finite sequence of sets of numbers that never repeats itself in a unique way. his answer is that the existence of such function is simply impossible to disprove because one can always find a function or even many functions that map “each set into the next one”(bricmont, n.d., p.4). bricmont’s conclusion dismisses the whole issue of determinism as utterly irrelevant to science. in his view, “there is no notion of determinism that would make the question [of determinism] scientifically relevant . . . ontically it [determinism] is true but uninteresting [that is, impossible to disprove]” (bricmont, n.d., p.4). “i don’t know,” he adds, “how to formulate the issue of determinism so that the question becomes interesting” (bricmont, n.d., p.1). for hans primas, determinism refers strictly to ontic descriptions. like bricmont, he makes a very convincing argument against conflating, as is often done, determinism with predictability. even quantum interactions, he stresses, which are notoriously unpredictable, are “governed by strict statistical laws” (primas, 2002, p.1 [emphasis in the original]). primas follows the principle of scientific determinism as formulated by the french mathematician jacque hadamard. according to this principle, “in a well posed forward-deterministic dynamical system every initial state determines all future states uniquely” (primas, 2002, p.10). however, in contrast to others who subscribe to similar definitions of determinism (for example, laplace, 1995), primas follows hadamard in regarding the principle of determination as regulative, and not in some absolute sense; in other words, if in some cases this principle is not satisfied, “it can be enforced by choosing a larger state space” (primas, 2002, p.10). according to primas, such enforcement is perfectly compatible with mathematical probability theory because: every mathematically formulated dynamics of statistically reproducible events can be extended to a description in terms of a one-parameter group of automorphisms on an enlarged mathematical structure which describes a fictitious hidden determinism. consequently, randomness in the sense of mathematical probability theory is only a weak generalization of determinism (primas, 2002, p.1). 3 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) it is not difficult to see similarities in the way that bricmont and primas resolve the problem of determinism. both see that there is always a possibility to find a deterministic function for a sample or set by enlarging the state space. this solution resonates with the famous proof of consistency and completeness by the austrian logician and mathematician kurt gödel. as gödel has shown, any deductive system can have true sentences whose truth is indemonstrable. in order to demonstrate their truth, one should resort to meta-mathematical procedures and construct a new and broader axiomatic structure that would be powerful enough to make such proof possible. however, even the new and enlarged structure will not be able to escape the same paradox as it will also allow other true but unprovable sentences (nagel and newman, 1953). as one can see from the above, the three authors have essentially reformulated the whole problem of randomness vs. determinism. in the new formulation, the problem is no longer whether randomness or determinism objectively exist, but rather whether one can offer a proof of their existence. thus they transform the problem from ontological into epistemological, or from how reality is to how we know. the connection, whether explicit (bricmont) or implicit (yurtsever and primas), with gödel is also very indicative and significant insofar as gödel’s proof deals with how we know, not with what is. if the solution of the problem of randomness vs. determinism lies in epistemology, as the above interpretations suggest, it is logical to assume that its origin may also lie in how we know rather than in what is out there. one can also glean the connection of this problem to epistemology from another angle. there is a great deal of empirical evidence suggesting that nature does not give preference to either randomness or determinism. in fact, many natural phenomena point to a close relationship and complex interaction between random and deterministic processes. many processes in nature can be often classified as random and deterministic at the same time (berkowitz, et al., 2006, p. 661). the nobel laureate ilya prigogine noted a close relationship between random and deterministic processes in his book with a characteristic title order out of chaos (prigogine and stengers, 1984, pp. 292-95). in his book a new kind of science steven wolfram (2002) also shows that randomness can evolve into order and vice versa. adducing to the fractal geometrical patterns in nature, paul carr observes that many natural phenomena reveal “the complex interplay between randomness (symbolized by dice) and global determinism (which loads the dice)” (carr, 2003, p. 934). the neo-darwinist approach to evolution, carr points out, also emphasizes the interplay between random genetic mutations and the globally deterministic natural selection (carr, 2003, p. 934). summarizing the evidence related to such diverse phenomena as turbulent flows and neural interactions, tamas viscek in his article that appeared in nature stresses that: . . . in both these systems [turbulent flows and neural interactions] (and in many others), randomness and determinism are both relevant to the system’s overall behavior. such systems exist on the edge of chaos; they may exhibit almost regular behavior, but also can change dramatically and stochastically in time and/or space as a result of small changes in conditions (vicsek, 2002, p. 131). in another piece, also published in nature, kees wapenaar and roel snieder make a similar point, drawing on evidence from physics: our view of the universe may have shifted from the deterministic to the random, but since the turn of the last century physics itself has provided a less simplistic view. fields generated by random sources can be used for imaging and for monitoring of systems such as earth’s subsurface, or mechanical structures such as bridges. randomness is no longer at odds with determinism; it has instead become a new window on the deterministic response of the physical world (wapenaar and snieder, 2007, p. 643). as the physicist joseph ford succinctly put it, “god plays dice with the universe. but they are loaded dice” (as quoted in glieck, 1987, p. 314). there have also been challenges to the exclusive emphasis on randomness central to standard quantum mechanics. in the most recent one, the physicists sheldon goldstein, detlef dürr, and nino zhangi offer an interpretation of quantum mechanics that is, in goldstein’s words, “precise, objective—and deterministic” (quoted in buchanan, 2008). in their view, the observed randomness is merely apparent. in another challenge, the data obtained in the study of neutron resonances have led a group of physicists at oak ridge electron linear accelerator, headed by dr. paul koehler, to question the applicability of the random matrix theory 4 gennady shkliarevsky 2017/22(3) to movements of neutrons and protons in the nucleus. the data indicate that the particles in the nucleus are moving in a coordinated fashion, rather than randomly as suggested by the random matrix theory (reich, 2010, p. 1034). at the same time physicists also report observing quantum phenomena in macro events. a group of russian physicists, led by s. m. korotaev, have observed the phenomenon of non-locality, usually associated with the quantum domain, in dissipative geomagnetic macro processes (korotaev et al., 2005). empirical evidence also shows that nature does not favor either equilibrium (associated with randomness) or disequilibrium (associated with determinism). for example, in his interpretation of the current state of the universe, the astrophysicist manasse mbonye argues that “the universe is always in search of a dynamical equilibrium,” which suggests an interplay between the states of equilibrium and disequilibrium (mbonye, 2003, pp.1-2). although the currently dominant cosmological theory asserts that our universe originated in the state of primal disequilibrium, or the big bang, numerous critics of this theory point to its speculative nature and argue that since it is an extrapolation from the current conditions into the past, this theory is not justified and still lacks unambiguous empirical support. sean carroll, for example, observes that “. . . scenarios of this type are extremely speculative and may very well be wrong” (carroll, 2005, p.5). paul steinhardt and neil turok—two prominent critics of big bang—also point to the speculative nature of this theory and counter it with their own cyclical theory of the universe (steinhardt and turok, 2002). the above discussion shows that randomness, or chance, may indeed exist, but its existence is, to put it simply, indemonstrable. there is no rational justification that can demonstrate that a particular phenomenon is due to chance, rather than to some underlying order. therefore, one would be ill advised to use it as the fundamental principle on which to construct one’s theoretical explanation. thus the theoretical perspective that relies on randomness in its explanation of the production of disequilibrium in the process of creation is vulnerable because randomness is indemonstrable. in other words, this perspective essentially directs us to accept its fundamental proposition regarding randomness on faith. the second perspective—so eloquently presented, among others, by margaret boden—downplays the significance of randomness in the production of creative disequilibrium and emphasizes the role of play and exploration. this perspective is clearly trying to bridge the gap between the scylla of randomness and the charybdis of orderly thought processes. in boden’s view, play and exploration of possibilities involve mental processes that are different from those involved in rational thinking, as they are “open-ended, with no particular goal or aim.” however, these mental processes are not random either, as they are “disciplined and intelligible.” new and creative ideas are “neither random nor perverse (as it might have been had it arisen in the mind of an uneducated crossing-sweeper or a semi-educated crank), but arose while exploring the relevant conceptual space in an intelligible way” (boden, 2004, pp. 4, 58-59, 96). in addition, when creative ideas arise in the course of play or exploration, they are subject to the evaluative procedures employed by their creators. in a creative act, boden maintains, “[p]urposeful behaviour should be more common than random processes, and any randomness must be constrained by the general nature of the creative domain concerned” (boden, 2004, p. 163). as boden argues, creative individuals . . . think in a disciplined manner: they may be playful, but they aren’t merely playing around. when something of potential interest turns up as a result of their playfulness, they focus on it—accepting, amending and developing it in disciplined ways (boden, 2004, p. 319). since the second perspective on the production of creative disequilibrium downplays the role of chance and relies more on disciplined, orderly, and intelligible way of thinking, it is less susceptible to criticism that affect the perspective that relies on randomness. yet it also has problems with justification, even if the set of problems in this case is very different. boden constructs her perspective on creativity and the process of creation on the claim that play and explorations are “open-ended, with no particular goal or aim.” in other words, the processes involved in game or exploration are different from operations involved in our rational thinking that are about establishing correspondences and, hence, equilibration. she rests her theory on the claim that play and exploration can produce something unexpected, new, discontinuous, and yet not random. 5 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) however, are play and explorations so “open-ended” and have no particular goal or aim? indeed, the mental processes involved in play and exploration may be different from those involved in rational thinking, but they are not necessarily without aim or goal, except that these goals can be different in nature from those we set when thinking rationally. both play and exploration may not be about rational goals but our engagement in these pursuits is not devoid of purpose. they entertain us and give pleasure. therefore, our reasons for engaging in play and exploration have to do with pleasure and gratification, and are, consequently, aesthetic, rather than cognitive, in nature. boden says as much when she emphasizes the role of style and aesthetic sensibilities in tweaking generating rules that operate in conceptual spaces. the fact that the aim of play and exploration has to do with gratification leads to the conclusion that they are not purposeless but serve our deeply felt need of emotional gratification. if, however, the actions we perform when participating in play or exploration satisfy our deeply felt needs and are, consequently, guided by our sense of style and aesthetic sensibilities, we must conclude that they are also guided by our inner knowledge and inclinations, albeit emotional rather than rational; and if this is the case, then they are also about establishing correspondences and, hence equilibration. the fact that our actions in play and exploration are about equilibration raises a question: how can equilibration lead to the production of disequilibrium? boden does not raise this question explicitly, but her observation that we may never be creative enough to create a machine that can perform creative acts comparable to our own suggests that she may implicitly be sensitive to inconsistencies in her theory. there is also another and even more troubling paradox looming at the heart of boden’s theoretical perspective. boden argues that creative acts involve rational and evaluative procedures employed by their creators. these rational and conscious actions in many ways determine which creative idea will ultimately be chosen as the most fruitful (selected for fitness?). the only basis for making such selection is the knowledge possessed by the creator. but if in making these choices the creator relies on knowledge that he or she already has, then no creation is involved. boden certainly shows her awareness of this paradox when she makes the reference to the fact that religion, or more specifically the judeo-christian tradition, has already grappled with a similar paradox when addressing the issue of creation. central to the judeo-christian tradition is the acceptance of god the creator— the subject—as its primary ontological reality. the argument that creates the paradox goes something like this: in order to be able to create, the creator must be omnipotent. he must be capable of anything. however, in order to be omnipotent, the creator must be perfect and contain all possibilities. he must represent full plenitude of all possibilities. but this conclusion leads to a paradox. if the creator is perfect and contains everything, then the creator cannot create anything since everything already exists and is contained in the creator. if, however, the creator creates something—something radically new, something that has had no existence prior to the act of creation—then the creator is not perfect and hence is not omnipotent. the judeo-christian tradition does not resolve this paradox and does not explain the production of disequilibrium. but then it does not have to. its important advantage over secular rational discourse is that it can resort to faith when dealing with divine paradoxes. christianity directs the believers to accept divine paradoxes, including the paradox of creation, on faith as ones that objectively exist and are ultimately inaccessible to human understanding. not so in rational discourse that we value in our secular world. we demand that our theoretical constructs should be able to withstand the test of rational justification and both theoretical perspectives on the process of creation fail to provide such justification. why do they fail and what can we glean from this failure? 3. equilibration and the production of disequilibrium in the process of creation justification is essentially a logical operation. as any other logical operation, it establishes correspondences between our mental constructs. therefore, justification is essentially an equilibrating procedure. there is only one way that equilibration can work in justifying the production of disequilibrium: the two must be related. however, as the preceding discussion has shown, the current perspective on the process of creation does not see equilibration and the production of disequilibrium as in any way related to each other. there6 gennady shkliarevsky 2017/22(3) fore, they cannot possibly produce a rational justification for the production of disequilibrium. their efforts to provide such justification have to end up in a failure. as has been shown above, one of these perspectives simply does not provide any justification for its reliance on randomness; and the other perspective— one that emphasizes “orderly and disciplined” thought processes—results in paradoxes. if equilibration and the production of disequilibrium are not related, our mind that is capable to perform equilibration should not be able to create. yet the fact that our mind is capable of creation stares right into our face. we can create and, consequently, our mind is capable of producing disequilibrium. if our mind can do both—perform equilibration and produce disequilibrium—the two must be related. as sophisticated as boden’s thinking on creativity is, she does not recognize the relationship between equilibration and the production of disequilibrium—in fact, she even doubts if equilibration is even important (boden, 1982). perhaps this failure to recognize the relationship between equilibration and the production of disequilibrium is the main reason why her theory of creativity ends up in paradoxes. as many have argued and agreed, paradoxes are not intrinsic to reality; they originate in our thinking (shkliarevsky, 2010). paradoxes are about our views of reality, rather than the way reality is. in their uncertain light reality appears to be uncertain, ambivalent, and ambiguous—true and false at the same time. kurt gödel in his famous proof of consistency and completeness dealt with the nature of paradoxes. he has proven that any axiomatic system is bound to contain statements that are true—in the sense that they exist—but at the same time their truth is indemonstrable within this system. if indemonstrable, the truth of such statements cannot be verified; and if a statement cannot be verified, it can as well be false. gödel has also argued that the truth of these propositions can be demonstrated but such demonstration requires changing the assumptions of the axiomatic system. however, gödel also proves that such change does not resolve the problem of the existence of paradoxes since a new and modified axiomatic system will also contain possible statements that are true but ultimately indemonstrable. we may continue changing our axiomatic systems ad infinitum; but no matter how many times we modify them, we can never escape the paradox (nagel and newman, 1953). gödel’s proof demonstrates the connection between equilibration—which is involved in the construction of axiomatic systems—and the production of disequilibrium, i.e., creation of new axiomatic systems. this demonstration suggests that equilibration and the production of disequilibrium are not diametrically opposed to each other; on the contrary, they are closely related and complement each other in the process of creation. we know that our mind can execute logical operations and is, therefore, capable of performing equilibration. we also know that our mind can create. therefore, our mind is also capable of producing disequilibrium. since our mind can perform equilibration and also produce disequilibrium, the two must be related. as a result of her failure to recognize this relationship, boden has to deny that play and exploration involve equilibration since she sees them as the principal source of the production of disequilibrium. but how does equilibration lead to the production of disequilibrium? in order to answer this question, a closer look at the way the process of creation functions is in order. one example of this process in action is the emergence of intelligence in children discussed by jean piaget in his remarkable book the origins of intelligence in children (piaget, 1998). for piaget, the starting point in this development is reflex triggered by nerve signals. neural functions regulate and act recursively upon physiological functions (for example, muscle contraction). signals from neurons trigger physiological functions and thus help to conserve them. the more often this triggering occurs, the more often physiological functions are exercised; and the more often they are exercised, the more stable they are. thus the need to conserve physiological functions creates the regulatory mechanism of the neural networks that acts recursively on these functions. the result is the development of sensory-motor operations that, in turn, also need to be conserved. they conserve themselves in two ways. first, they become increasingly oriented toward external reality in search of stimulation. this process evolves from random groping to a more directed search for stimuli, which leads to a gradual construction of the object on the level of sensory-motor operations (but not yet on the representational level). as more objects are incorporated into sensory-motor schemes (the operation that piaget calls assimilation), the infant becomes increasingly orientated toward the exogenous sphere. sensory-motor operations—for example, tactile, audio, visual, gustatory, and other functions—also conserve themselves through mutual assimilation. one example of such mutual assimilation is activations of audio functions by visual ones, and vice versa (e.g. infants begin to turn their head to catch the sight of the mother when they hear her voice). mutual assimilations give rise to the construction of permanent mental 7 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) representations. this process is completed at the beginning of the second year when infants begin to look for objects that are hidden from their direct view. the search for a hidden object signifies that an infant has already constructed a permanent mental image of the object. mental representations regulate sensory-motor operations and act recursively on them. the stabilization and conservation of mental representations also requires a regulatory mechanism that is provided by symbolic operations. the construction of symbolic operations is also a two-pronged process that involves internal mental processes and social interactions. there is a strong dependence of the conservation of mental representations on social relations. the conservation of mental structures requires interaction among individuals on a much broader scale than was possible or necessary prior to their emergence. as many thinkers (including piaget and vygotsky) have argued, the development of mental structures is intimately related to the development of social relations (piaget, 1965; vygotskii, 1978; 1929). the creation of symbolic operations opens infinite possibilities in constructing symbolic systems (linguistic, political, economic, legal, moral and value systems etc.). piaget’s study shows that equilibration of differences leads to the emergence of new and more powerful levels of organization, i.e., to disequilibrium. the new and more powerful levels of organization offer more new possible ways of approaching reality and observe properties that have not been observed before. piaget’s study demonstrates that equilibration and the production of disequilibrium are closely interrelated aspects of the same process—the process that brings about radical novelties, which is how we understand creation. the perspectives that dissociate equilibration from the production of disequilibrium make the process of creation look incomprehensible. they simply cannot see the causal relationship between equilibration and the production of disequilibrium. as a result, in their description the production of disequilibrium—i.e., creation—appears uncaused as if a miracle that emerges out of nothing. since the two current perspectives on creativity discussed in this article do not recognize the connection between equilibration and the production of disequilibrium, they cannot understand how the process of creation works and, as a result, they fail to provide a justification for their approach. much work undoubtedly needs to be done to gain a comprehensive understanding of the process of creation. rational justification is essential for completing this work since it guarantees strict rational control. the fact that the theoretical perspective based on the recognition of the close and complementary relationship between equilibration and the production of disequilibrium has such rational justification is an assurance of the success of this approach. it opens the path toward a comprehensive and objective understanding of the process of creation, which is essential for regulating this process and thus controlling our creative capacity. objectivity requires taking into account all points of view. one can gain an objective view only from the position that does not privilege any point of view and particularly one’s own. but is it possible to take a position that does not privilege one’s own point of view with regard to the process of creation? after all, subjectivity is deeply embedded in this process. any claim of objectivity requires that the creator should take a position that would allow objective reflection on the creator’s own act of creation. but how can one who is deeply embedded in the process of creation be able to take an objective and reflective stance vis-àvis this process? where can one locate a position that would allow such reflection? is it at all possible to do without getting into what luhmann calls an “infinite reflective regression”? after all, in taking such position the creator has to rely on subjective choices and making such choices will necessarily reassert subjectivity. the above discussion of piaget’s study of the emergence of intelligence in children shows that this process is sustained by two internally generated operations—conservation and regulation—that are dynamically interrelated. all systems, including mental and symbolic systems, conserve themselves through reproduction. conservation requires stabilization; and stabilization, in turn, requires a mechanism of regulation that, as the above description shows, is generated internally. the better the regulatory mechanism performs its function, the better it handles perturbations, including potential perturbations, the more stable the system is and the better it is conserved. in order to perform its function, the regulatory mechanism also requires stabilization. the stabilization of regulatory operations, in turn, requires a regulatory mechanism that also needs to be stabilized. thus the system enters a new cycle of equilibration, disequilibrium and re-equilibration.thus the need to conserve the system results in constructing new levels of regulation. since there is no reason to suppose that at some level of stabilization the need for conservation will disappear, one must conclude that the construction of regulations will never cease. it is essential to the process of creation. 8 gennady shkliarevsky 2017/22(3) figure 1: schematic representation of the process of creation the above diagram is a schematic representation of the process of creation. diagram 1 represents each function and its operational capacity. diagram 2 represents the combination of these functions after their mutual assimilation. it is quite clear that the new level of organization that emerged after the two functions are combined offers more combinatorial possibilities and, consequently, is more powerful. regulation is a reflective operation. the mechanism of regulation is more powerful than each of the subsystems it regulates or their sum total. its power offers a possibility of reflection on the entire system. this perspective on the process of creation may appear to suggest, as it does to luhmann, that there is really no way to reflect on the process itself since for every reflective position there will always be a possibility of constructing another one. every point of reflection can and will be succeeded by new ones, no less embedded in the process of creation than its predecessors. should one conclude, then, that the problem of the embedded creator cannot be resolved and all that is left is to rely on palliatives, such as luhmann’s conditioning (luhmann, 1995, p. 479)? it is logically correct to view the process of creation as a system. just like any other system, it requires stabilization and, therefore, regulation that offers a possibility of reflection. if the process of creation requires regulation, then there must exist a position from which one should be able to reflect on the entire process of creation. as has been indicated earlier, conservation and regulation are at the heart of the process of creation. conservation of functional operations requires regulation. in the initial stages of their development the regulatory mechanism is unstable. in order to acquire stability, it needs a regulatory mechanism of its own. as the new mechanism stabilizes itself, the creative process enters a new cycle. thus the process of creation involves constant oscillation between equilibrium and disequilibrium—equilibration produces disequilibrium. both equilibrium and disequilibrium are dynamically related in the evolution of the process of creation. the repetition of the cycle eventually leads to the improvement of the function of regulation and the process of creation becomes increasingly more stable, despite constant changes. one can probably best describe this dynamic stability as homeorhesis—the term that was introduced by the biologist conrad waddington and used by piaget—rather than homeostasis (waddington, 1957; piaget, 1971; piaget, 1974). homeorhesis is not a static condition but a stable equilibrium between equilibrium and disequilibrium. this dynamic balance has a function of regulation and, as a regulatory operation, offers a possibility of objective reflection on the functioning of the process as a whole. 9 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) 1) [ a ] [ b ] (a) (not-a) (b) (not-b) 2) [ ab ] (a•b) (not-a•b) (a•not-b) (not-a•not-b) 10 gennady shkliarevsky 2017/22(3) our civilization increasingly relies on creativity to sustain itself. the demand for creative decisions, approaches, and ideas in all spheres of our life—economic, political, and social—is constantly on the rise. as this demand grows, so does the need to control and manage creativity. this need is particularly acute in the economic sphere where creativity is rapidly becoming one of the principal commodities (manzoni and volker, 2017). the commodification of creativity has attracted attention of many researchers as is evidenced by an extensive body of literature that brings into focus the issue of control and management of creative processes (machlup, 1980; nonaka, 1994; nonaka and takeuchi, 1995; wierzbicki and nakamori, n.d.; davenport, jarvenpaa, and beers, 1995; davenport, de long and beers, 1998; nonaka, krogh and voelpel, 2006; brocke and rosemann, 2010). yet, as many have noted (piffer, 2012), despite this interest and the growing urgency of the issue of management and control, our capacity to foster, assess, and measure creativity, which is essential if creativity is to become our major commodity, remains very limited. one important reason for the slow progress in this area is the fact that the process of creation still remains, to paraphrase winston churchill, “a riddle wrapped in a mystery inside an enigma.” margaret boden recognizes this fact when she observes: “it is difficult enough for a literary critic, or a poet, to give an intuitive indication of the sorts of thought processes involved. it will be many years, if ever, before we can identify them in scientific terms” (boden, 2004, pp. 145-46); and elsewhere: “a psychological explanation of creativity, it seems, is in principle unachievable. it is not even clear that there can possibly be anything for it to explain. and yet, undeniably, there is” (boden, 2004, p. 12). this strong proponent of artificial intelligence ends her long, well-informed and argued analysis of the creative process and creativity on a rather pessimistic note: no matter how far we learn to swim in the future, we can’t expect ever to know exactly how and why an individual person wrote a particular story, or chose a particular poetic or visual image. we may have some partial explanations, based on close personal knowledge or scholarship, like livingston-lowes’ detailed detective work on coleridge’s poetry. however, explaining (and predicting) such matters in full detail is out of the question . . . human minds are far too complex: too rich, too subtle, and above all too idiosyncratic. in a word, too marvelous (boden, 2004, p. 322). the lack of a clear understanding of the process of creation impedes the efforts to develop practical applications that would allow greater control over creativity. in his article “can creativity be measured?” davide piffer, for example, points out that a lack of clear definitions “hamper the progress of creativity research” and affects our capacity to measure creativity. piffer expresses serious doubts that a comprehensive methodology for direct assessment of creativity will ever be possible. as a palliative, piffer recommends resorting to indirect methods such as unstructured or semi-structured interviews, self-report questionnaires and official external recognition (piffer, 2012, p. 263). manzoni and volker—two other practitioners in creativity research—also bring attention to the problem of assessing creativity. they focus on the difficulties creative companies experience when they compete with each other for customers. manzoni and volker find the entire competition procedure beset by paradoxes and complexities that can only be managed and negotiated, not resolved (manzoni and volker, 2017). these are just some of the examples of the difficulties that practitioners of creativity research experience in developing applications for creativity research. the palliative approaches they recommend are certainly useful but they are not solutions to what is an obvious problem. only a clear understanding of the process of creation can lead to the development of applications that will provide guidance to those involved in economic practice. the reason why the process of creation remains an enigma is the fact that we still have no clear description of the mechanism for the production of disequilibrium. neither of the two perspectives that currently dominate the study of creativity offers such a description. one of them invokes random mutations as the mechanism that produces disequilibrium. this approach precludes any search for an orderly mechanism accessible to rational understanding. in addition, as this article has argued, this explanation cannot pass the test of rational justification—a critical requirement for any theory—since it does not establish the fact of randomness. the other perspective—one that margaret boden represents—offers a description of the mechanism of creation in which rational thinking plays a greater role. the key intuition of this perspective points to the connection between equilibrating processes and the production of disequilibrium. yet it fails to provide a clear explanation of how equilibration and the production of disequilibrium are related. as a result, the description it offers creates confusion and raises more questions than it provides answers. this article proposes a new approach in studying the process of creation and creativity. in contrast to the two currently dominant approaches that view equilibration and the production of disequilibrium as ontologically separate and 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(2010). of cats and quanta: paradoxes of knowing and knowability of reality. retrieved from: https://arxiv.org/abs/1012.0289 [35] shkliarevsky, g. (2017). the civilization at a crossroads: constructing the paradigm shift. raleigh, n.c.: glasstree academic publishing. [36] steinhardt p. j., & turok, n. (2002). a cyclic model of the universe. science, 296(5572), 1436-40.doi: 10.1126/science.1070462 [37] sweller, j. (2009). cognitive bases of human creativity. educational psychology review, 21(1), 11–19. doi:10.1007/s10648-008-9091-6 [38] vicsek, t. (2002). the bigger picture. nature, 418: 131. [39] waddington, c. h. (1957). the strategy of the genes. a discussion of some aspects of theoretical biology. london: george allen and unwin. [40] wapenaar, k., snieder, r. (2007). determinism: chaos tamed. nature, 447(7145), 643. doi:10.1038/447643a. [41] wierzbicki, a., yoshiteru nakamori, y. (n.d). the episteme of knowledge civilisation. retrieved from: https://www.researchgate.net/publication/29681579_the_episteme_of_knowledge_civilisation (accessed february 22, 2016) [42] wolfram, s. (2002). a new kind of science. champaign, il: wolfram media. [43] yurtsever, u. (2000). quantum mechanics and algorithmic randomness. retrieved from: arxiv:quantph/9806059v2 13 dec 2000 (accessed may 14, 2008). received: 2017-06-19 accepted: 2017-10-31 12 gennady shkliarevsky 2017/22(3) 13 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) gennady shkliarevsky bard college, annandale-on-hudson, ny 12504, usa. e-mail:shkliare@bard.edu b.a., m.a., kiev state university; m.a., ph.d., university of virginia. publications include the civilization at a crossroads: constructing the new paradigm (book) (raleigh, nc: glasstree publishing, 2017); “overcoming modernity and violence,” in robert e. tully and bruce chilton, eds., intolerance: political animals and their prey (lanham: hamilton books, 2017); labor in the russian revolution: factory committees and trade unions, 1917-1918 (new york: st. martin’s press, 1993). publications appeared in journal of international studies in management and organization, tikkun, systems research and behavioral science, cosmos and history: journal of natural and social philosophy, jahrb cher f r geschichte osteuropas, review of political economy, history/histoire russe, journal of modern history, and europe-asia studies. at bard college since 1985. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01_jasmina omerbegovic:tipska.qxd 1 jasmina omerbegović-bijelović1, zoran rakićević1, predrag mirković1 1faculty of organisational sciences, university of belgrade management 2016/81 udc: 005.342 005.32:331.101.32-053.81(497.11) elements for designing stakeholders’ programmes of encouraging young people to engage in entrepreneurship doi: 10.7595/management.fon.2016.0027 1. introduction since the second half of the 20th century there has been an increased “piling up” of young people in the unemployed category. the sudden world population growth (and therefore the number of young people too) as well as the growth of better equipped and more automated workplaces, ict and standardisation, have brought about a relative decrease in the number of available workplaces (especially in the area of production) – measured in percentage (as seen against the overall number of people in the world). the migration of capital (especially to asia) has caused, especially in the highly developed parts of the world, the “extinction” of a large number of industries (such as the automotive industry of the usa, for example). although the service sector has been developing quickly, it has not proven capable of absorbing the entire excess of the workforce so that, for decades now, the period of waiting for one’s first job is extended and there is a growing “army of unemployed”. serbia is also a part of this “trend” where the young, for decades now, increasingly have to wait to find a job and their numbers (those unemployed) in the employment centers just keeps – growing; that can be seen both in absolute terms and in relation to the overall population numbers. unemployement rate in serbia diminishes since 2012 (table 1). this paper proposes a way to help in solving the high levels of unemployment amongst the young (in serbia) – by designing and realising stakeholders’ programmes which would allow inclusion of the young in the entrepreneurial world (through either self-employment or employment of others). the idea is to identify and recommend to stakeholders the competencies and motives that drive the nowadays young entrepreneurs – as models for enabling and motivating unemployed youth to engage into the entrepreneurial world. on the basis of facts obtained by research – which pinpoint the competencies both practical and theoretical, on the basis of the motives of the young entrepreneurs in serbia, as well as on the basis of their beliefs/attitudes about the same aspects of starting and undertaking entrepreneurial projects, some recommendations for stakeholders have been generated for designing a programme to encourage those young people to join the ranks of entrepreneurs. what remains is for the relevant authorities in the legal and even family settings, i.e., all those who can recognise some self-interest, is to get started and dedicate themselves to the young and their entry into the world of entrepreneurship. the contribution of this paper is in the suggestions for the different types of stakeholders which would help them design programmes to bring the young generations into the entrepreneurial sphere. we also consider even the very fact of pointing out the different roles of the varied social subjects/stakeholders to be useful in bringing the younger generations into the world of entrepreneurship, as a form of care for the young generations. keywords: young entrepreneurs of serbia, competencies (knowledge and experience) for entrepreneurship, motives for entrepreneurship, stakeholders’ programmes for encouraging the young towards entrepreneurship. table 1. unemployment rate of serbia source: international monetary fund (http://www.imf.org/external/pubs/ft/weo/2016/01/weodata/index.aspx) it is for this reason that the subject of this paper is connected to the idea of solving the problem of youth unemployment in serbia – 49.4% of total labour force aged 15-24, according to the world bank indicator (2013). the idea is to encourage the youth to a larger inclusion in the world of work and business – through entrepreneurship – both by self-employment and the employment of others. namely, although it may be possible to solve the above stated problem in other ways, it may be worth bearing in mind that 2016 was declared to be the year of entrepreneurship in serbia. we attempt to contribute to the solving of youth unemployment problem through the use of “entrepreneurial climate support”. as the climate on its own is not enough, we point out in this paper that anyone who is truly interested (stakeholders) in solving the youth unemployment problem must begin with a serious, systemic and systematic work to address the problem. entrepreneurship is defined as the process by which individuals follow opportunities without regard to resources they currently control, and as “art of turning an idea into a business” (barringer&ireland, 2010). entrepreneurs recognize opportunities (i.e., discover market needs as opportunities) and turn them into successful businesses (launch new firms to meet those needs) (hsieh et al., 2007; moore et al., 2008). according to omerbegović-bijelović (2010), entrepreneurship can be defined as “a social function of creating new values through the creative combination of business resources”. zampetakis et al. (2013) claim that entrepreneurship is linked with the value creation, and has a significant impact on economic growth and employment. due to the fact that entrepreneurial activity is a key engine of economic growth, promoting youth entrepreneurship has become a priority for policymakers throughout the world (sobel & king, 2008). kasim et al. (2014) review global trends and practices from past research on regenerating youth development through entrepreneurship, list the existing youth empowerment programs, mark major stakeholders for this issue, and give some interesting proposals. sobel & king (2008) found positive influence of school voucher programs (government funds for school tuition and expenses) on a rate of youth entrepreneurship. solving the problem of youth unemployment in serbia has to involve the following “interested parties” (stakeholders): the state and the ministries (above all the ministry of education, science and technological development, the ministry or commerce, the ministry of labour, employment, veteran and social policy, the ministry of fouth and sports, the ministry of culture), local communities, businesses and institutions (at least the national ones), family businesses (owners and their progeny), media, other stakeholders (banks, youth organisations, employment centers…). all of them could give support by refraining from the “firing strategy” and starting the “strengthening internal/corporative entrepreneurship” instead (with the understanding that they have a lack of ideas and not an excess of employees) and an “everything that is not a core competency should be outsourced” strategy (which would in turn create a “business satellites orbit” for “excess”/seasonal labourers, as well as for young entrepreneurs/labourers). every one of them can generate a package of their own strategies for helping solve the unemployment problem (including youth unemployment which is the main focus of this paper) which would unfailingly include different ways of support for future youth entrepreneurs. in that way, for example, every stakeholder in the employment of the young through entrepreneurship area can create their own “package of requirements”, i.e., the programme for encouraging the young (in serbia) to take up entrepreneurship. (it would be especially good if their activities could be coordinated – which would avoid one-sidedness in allowing the young generations to truly utilise all their potential). in designing such programmes, every stakeholder, as a good manager, ought to start with defining the current status in the area of youth entrepreneurship: the number of young entrepreneurs, their competencies and motives etc. one should also bear in mind the circumstances for that particular entrepreneurial branch (the structure of needs, opportunities for including the young and their companies, availability of resources to those youths and their companies, available and required support to young entrepreneurs...). also, it would be useful to tie in projections of the social/state development with roles of young entrepreneurs. 2 2016/81management serbia years: 2012 2013 2014 2015 2016 (estimated) unemployment rate (% of total labour force) 24.6 23.0 20.123 18.51 18.692 the idea is to create a basis of programmes (meta-programme) to support youth entrepreneurship in serbia and elsewhere. it (the basis) can be seen as a meta-programme for creating programmes to support youth entrepreneurship which is applicable everywhere (in every country and for every stakeholder). the other aspect of this idea has to do with the uniqueness of stakeholders (especially bearing in mind national characteristics); they should be offered examples/suggestions of stakeholder programmes (or, at the very least, some ideas for their contents) to stimulate youth entrepreneurship. this idea is intended for “the group of stakeholders who support (would like) some change in the entrepreneurial spirit”: the state and its ministries (of: education, commerce, youth, as well as culture and others!), local and organisational communities (supply/value chains and networks, business incubators/hubs and parks, clusters etc.), companies and institutions, family businesses (especially the owners and their heirs!), media and other stakeholders (banks, youth organisations, job seeking institutions). the intention for the stakeholders is to be inspired to design their own programmes for encouraging the young to entrepreneurial efforts (for instance, through cooperation with a specific stakeholder). for that they – stakeholders – need a meta-programme, examples and/or ideas on how to design the programme as well as their own decision (if they can recognise their self interest). through the observed stakeholders it would be possible to obtain some sort of national consensus for the fight against youth unemployment and for their introduction to entrepreneurship and the world of work, i.e., it would be possible to promote and spread the entrepreneurial spirit/culture further. 2. the importance of including the youth in entrepreneurship long-term benefits of promoting entrepreneurship among the young (in serbia too) are presented in hutchinson et al. (2012): • creating employment opportunities for young entrepreneur and their future employees; • involvement of youth marginalized groups into economic flow; • helping youth develop new skills, knowledge and experiences that can be applied to various challenges in life; • promoting the recovery of the local communities especially those that are rural; • capitalizing on the fact that young entrepreneurs may be particularly responsive to new economic opportunities and trends. apart from the stakeholder side of solving unemployment, it is also important to become aware of the interests of the young. they, in the here and now, choose long term career plans, but also raise families (and the number of children in the future), deal with their housing situation (and enter into a long term debt for it!), “look after their parents” in their old age as well as further educate themselves, to name just a few. it is for this reason that it is important to understand what keeps them here, in serbia, and what they find discouraging (i.e., regarding jobs and entrepreneurship). it is important to understand how to best help them in making their dreams a reality, as well as to work out how to bring the societal needs for implementing the latest scientific findings into the field of vision of the young, in order to encourage those young for entrepreneurship in those creative, promising and profitable industries/fields. (in closest connection with that we see the educational-development perspective of the young generations and therefore some new demands to the educational system itself in which it is important to create curious, flexible, wise yet enterprising workers, entrepreneurs and managers). the young should be made to feel closer to the work culture as well as that of entrepreneurship. if we could alter the view of work as something that is compulsory, that must be done (“a fight against nature”, if you will) to a view of work as the normal state of healthy people (who work with and coexist with nature), it would increase the understanding of the need for adjusting work circumstances, it would strengthen the desire and readiness to “play” different roles in business systems and also for life long personal (and collective) development. such a community would surely “dream” of changes, improvement, development... it is to be expected that such a culture and such relationships could ensure a value system which would guarantee a permanent survival. it is for this reason that it is important, right now, for all subsystems of the state to start to work on their own, publically announced and transparent promotion of the value system and on their own contributions to that 3 management 2016/81 very system. entrepreneurial young people are, even as we speak, keenly following what goes on in their surroundings, where it all leads to and where there is a place for them; they are surely willing to share their observations with their environment and contribute to its promotion. 3. researching the competencies and motives of young entrepreneurs in serbia two main factors that may affect the launch of successful business venture are entrepreneurial opportunity and person’s tendency towards entrepreneurship. entrepreneurship opportunity is an prosperous set of circumstances that creates a need for new product, service or business (barringer&ireland, 2010). on the other hand, a person’s tendency towards entrepreneurship can be defined as entrepreneurial readiness (rakicevic, ljamić-ivanović, & omerbegović-bijelović, 2014). entrepreneurial readiness consists of a personal aspiration to start a new business at some point of time as a result of attractiveness for becoming an entrepreneur, and a person’s competency and ability which is result of obtained required education, knowledge and experience (de clercq et al., 2013; rakićević, ljamić-ivanović, & omerbegović-bijelović, 2014; zhang et al., 2013). motives for starting business and entrepreneurship might be influenced by many factors. papulová&papula (2015) have sumarized motives into four groups: 1) motives that are connected to profit – entrepreneurs’ interests in gaining an economic effect on the basic of their work; 2) professional self-realization and emotional motives (non-motivated by profit directly) people that are professionals in a certain area who want to gain a full satisfaction without a manager’s limitation; also, these motives can be linked with emotions and effort to achieve something; 3) social motives – in passive economic regions entrepreneurs can be motivated to create jobs for others, family, relatives, friends; 4) motives which are result of external stimulations through funding programmes of local authorities, states, the european union, a business agency. besides the motives for entrepreneurship, robles &zárraga-rodríguez (2015) used a delphi method to explore the next key individual competencies of entrepreneurs: risk assumption, initiative, responsibility, dynamism, troubleshooting, search and analysis of information, results orientation, change management and quality of work. in order to solve the problem of youth unemployment (of serbia), we suggest the young be directed towards entrepreneurship. youth entrepreneurship is a practical application of entrepreneurial characteristics of young people, such as initiative, innovation, creativity and risk taking in a work environment (either selfemployment or work in small enterprises), using appropriate skills (delgado, 2004). according to nabi et al. (2010), higher education reduces the likelihood of entrepreneurship. opposite to this, zhang et al. (2013) state that relationship between high education and entrepreneurship is positive. solesvik et al. (2013) have shown that there is positive relation between entrepreneurship education and entrepreneurial intention. both contradictory assertions are true, however, from different perspectives. entrepreneurship which is reserved for high technology is definitely the result of knowledge and experience from academia, i.e., higher education. on the contrary, common entrepreneurship is a result of experience and knowledge from market and business practice. due to that the authors decided to further investigate into the necessary competencies in detail. vilcov and dimitrescu (2015) analysed entrepreneurial education and the development of entrepreneurial competencies of young people in romania. they conclude that entrepreneurial education leads students to understand daily life problems, helping them identify and assess the consequences of personal decisions. farashah (2013) defines tree types of entrepreneurial education: learn to understand entrepreneurship, learn to act in an entrepreneurial way and learn to become an entrepreneur. according to the research presented in roberts (2008), the most common sources of different forms of support for young entrepreneurs come from the entrepreneur’s close environment. primarily, family of young entrepreneurs make the main source of support (71% of support comes from the family). after that, 20% comes 4 2016/81management from close friends. unfortunately, only a modest share comes from banks, the state and other organisations. creating a favourable entrepreneurial environment, raising the spirit of entrepreneurship require the above mentioned stakeholders (the state and its ministries, companies, institutions, etc.). the idea is that they should create their own programmes for encouraging the young to enter the world of entrepreneurship (bearing in mind their own interests too, of course). those programmes should be in accordance with the missions (and the visions) of stakeholders and be relevant in including the young into the world of entrepreneurship. bearing in mind the publicly proclaimed and available missions of all categories of stakeholders observed, what remains is to ask the young about their idea(s) of entrepreneurship. following on from there, it should be possible to start generating recommendations for programme designes and for generating the meta-basis for programme creation and the specifics for stakeholder programmes to encourage youth entrepreneurship. 3.1 research methodology for the purpose of testing the idea about the possibility of designing a programme for encouraging youth entrepreneurship, in addition to an overview of theoretical achievements, circumstances related to making the idea come true and the specific missions of individual stakeholder categories (all of which is not within the purview of this paper), it is also important to become acquainted with the experiences and views/motives of today’s young entrepreneurs. they need to show and evaluate their own experiences and motives, pointing out the acceptable and unacceptable aspects of stakeholders’ behaviour towards young entrepreneurs they have themselves experienced. information collected in this way can be presented to potential “support groups”, i.e., stakeholders. they could use the collected information and include it in their own programmes of support, i.e., encouraging young people to engage in entrepreneurship. this would enable massive and fast spreading of entrepreneurial culture, “entrepreneurial literacy“, entrepreneurial spirit. (this assumption needs to be tested in practice; because of the time needed to check it, it is not even considered as a hypothesis here, but rather as an opportunity to stakeholders, so that only some elements of stakeholders’ packages of support for young people to engage in entrepreneurship are generated here). this is the reason the “two-stage” research methodology is used: a) determination (by the field research) of the need of young entrepreneurs for knowledge, experience, and motivation, as well as a source of information for generating ways to attract them, but also for facilitating the (future) work, and achieving success of the next generation of young entrepreneurs; b) the initial generation of stakeholders’ support packages for young people to engage in entrepreneurship – in order to inspire the appropriate authorities of stakeholders (governments, ministries, local communities, businesses, parents owners of family businesses, etc.) to act in line with their missions and design profession-based forms of support to young people to engage in entrepreneurship. for this purpose we have generated the basic/general hypothesis h(0): it is possible for young entrepreneurs in serbia to learn about the competencies (knowledge/theory and experience/practise) and the motivation which the youth of serbia should require for self-employment (being included in entrepreneurship). from this, we have deduced two specific hypotheses, h(1) and h(2). the specific hypothesis h(1): it is possible for young entrepreneurs in serbia, to learn about the competencies for the youth (in serbia) which would make self-employment possible (and becoming entrepreneurs in the process). this specific hypothesis further divides into two individual hypotheses: h(1;1): it is possible for young entrepreneurs in serbia, to learn about knowledge/theory for the young (in serbia) which would make self-employment (and becoming entrepreneurs in the process) possible. 5 management 2016/81 h(1;2): it is possible for young entrepreneurs in serbia, to learn about experience/practise for the young (in serbia) which would make self-employment (and becoming entrepreneurs in the process) possible. specific hypothesis h(2): it is possible for young entrepreneurs in serbia to learn about motives which direct and drive the young (in serbia) towards entrepreneurship. therefore, the basic hypothesis h(0) was deconstructed into three individual ones (as in figure 1): h(1;1), h(1;2) and h(2). all three will be tested through field research, using questionnaires (with between 8-32 research based questions per individual hypothesis). the special hypothesis h(1) and the basic/general one h(0) will be induced – from the lower-stated hypotheses. for this occasion we have made a substantial questionnaire about the competencies (theoretical knowledge and experience from practice) as well as the motivation for embarking into the world of entrepreneurship. the questions were grouped by areas: about the subject (16 questions), the subject’s company (9 questions), experience with learning about and becoming enabled for entrepreneurship (32), attitudes in learning about entrepreneurship (11), experience in becoming motivated for entrepreneurship (9) and attitudes for becoming motivated for entrepreneurship (8 questions). the questionnaire contained 85 questions altogether. the sample group of participants who filled in the questionnaire consisted of 36 young entrepreneurs in serbia. the research was conducted during april and may of 2016, in serbia. responses to the questionnaire were sent electronically. in the process of conducting research in serbia, the authors were not in a position to affect the representativeness of the sample. the young entrepreneurs were individually involved in electronic surveys. this survey “without direct contact” made the research somewhat difficult because the respondents did not have the opportunity to obtain explanations of any ambiguities which led to the fact that some questionnaires were not fully completed (i.e., in some questionnaires some questions remained unanswered). the number of completed questionnaires could have been larger, but here it was more important to show how to get to the data, ideas, attitudes of young people to be applied in designing stakeholders’ packages of “support programmes”, rather than collect mere facts of the serbian youth – although they were used as examples to design parts of presented stakeholders’ “packages”). a certain limit for the evaluation of research results lies in the used method of frequency. as this method does not have sufficient confidence to confirm the hypothesis as 100% true, but rather to suggest based on the frequency of answers, the hypotheses cannot be said to have been fully proven. parametric and non-parametric tests would be better and more reliable for analysis of results; but at this level of research the authors decided to keep on using the methods of frequency, which is certainly a possibility and gives a chance for further development of this research. 3.2. research results and discussion the basic data on the (mostly young) entrepreneurs of serbia (table 1) show that males prevalil (58% of the sample), highly educated (86.2%), the founders of the companies (50%), with experience in entrepreneurship (80%), with no formal education for entrepreneurship (38.8 + 25 = 63.8%) or with a permanent (or nonformal) education (for entrepreneurship and management), a former high school students (58.3%), with the entrepreneurial tradition in the family (63.9%) and with entrepreneurs in the region (88.9%) . they are (table 2) aged 28.31 (mean (m) = 28.31; std. deviation (sd) = 5.89), with 0.75 based companies, average (m = 0.75; sd = 0.69). 6 2016/81management figure 1. the hypotheses structure table 2: the attribute structure of the survey sample with frequencies of categorical variables (part 1) table 3: the attribute structure of the survey sample with frequencies of categorical variables (part 2) information about companies in which respondents work (table 3) show that 91.7% of respondents work in their own or in a family business (others are in “apprenticeship” in other people’s businesses), and 66.7% of these enterprises are in belgrade; the most common type is “ltd“ (58.3%) and mainly engaged in the provision of services (13.9+36.1=50%). the majority (77.7%) are micro-enterprises including entrepreneurial activities, agencies and others, with an average of 11.34 employees (m=11:34; sd=8.15). they are mainly (table 4) older than 1 year (83.3%), with 52.8% in the phase of ascent/rising (table 3). table 4: the attributes structure of the survey respondents’ entreprises table 5: statistical data about the number of emloyees in the enterprise it can be seen that, since high school, they have got and they expect that other young people should also be taught discipline and work habits (which amount to 39% as one of the three most important areas of high school education, from a comprehensive list of authorities – according to respondents); the following are general knowledge/culture (25%), ict (25%), and then the knowledge of the business and others which indicates that from the (compulsory) high school practices they know about exploring business (18%) and manufacturing/service process (15%), learning about the proper attitude toward customers/clients (13%) 7 management 2016/81 no categorical variables about respondents percentage 1 male 58.0 % female 48.0 % 2 bachelor degree 55.6 % master degree & phd degree 30.6 % 3 position in company founder 50.0 % successor 36.1 % employee 13.9 % 4 entrepreneurial experience yes 80.0 % 5 entrepreneurial education without education 38.8 % courses and seminars 25.0 % 6 finished secondary school grammar school 58.3% schools of economics 13.9 % 7 family tradition for entrepreneurship yes 63.9 % 8 any entrepreneur in your surroundings? yes 88.9 % 9 do you continually learn while employed (for entrepreneurship and/or for management)? formally 42.4 % informally 51.5 % both 6.1 % scale variables mean (m) std. deviation (sd) 1 28.31 5.89 2 the number of established enterprises 0.75 0.69 no percentage 1 business owner respondent 50% respondent s parents 41.7 % 2 location belgrade 66.7 % 3 enterprise type limited liability company 58.3 % 4 activity services 36.1 % mostly services 13.9 % 5 entreprise size micro enterprise 44.4 % entrepreneur 33.3 % 6 entreprise life cycle climbing phase 52.8 % scale variables mean (m) std. deviation (sd) the number of enterprise employees 11.34 18.15 and others. young people are recommended a gradual entry into professional life through the general living and scientific knowledge and through practice that introduces them to the basic flow when it comes to high school education. as regards university institutions, what the young mostly appreciate and expect in the startup phase of entrepreneurial ventures (table 5), is training (theoretical knowledge) to engage in marketing (27%) and finance (24%), while from the practice at universities, as most important, they recognize and expect: the verification of theoretical knowledge (21%), introduction to their own preferences/interests (12%) and introduction to business processes (12%). when a company starts, young entrepreneurs realize that the competitiveness of the work depends on the knowledge and skills in all positions, but expect the competence to manage the operational function, operations management and resources management in manufacturing and service delivery (64%), followed by the human resource management hrm (50%), followed by the other functions table 6: relevant entrepreneurial knowledge types and practice the respondents support (91.2%) the idea of introducing the subject entrepreneurship in primary and high schools (table 6), where as a method of education for entrepreneurship they choose a combination of “school + practice + media + various informal methods of education” (37.1%); the first variant is the next “school + practice” (22.9%). when they were asked about the most important entrepreneurial knowledge and skills for starting to work, they choose: (table 6) identification of business opportunities (64%) preparation of the business plan (or, at least, co-operation in preparation) (50%), recognition/generating entrepreneurial ideas (42%), determination of market potential entrepreneurial ideas (42%), providing money for the founding costs (33%), planning security staff (31%) and the other in descending order. family support in preparing future entrepreneurs was approved of 94.4% of respondents, and 97.2% of respondents agreed that the help of young entrepreneurs for future entrepreneurs is welcome. tabela 7: respondents’ opinions about knowledge of entrepreneurship 8 2016/81management no frequencies of respondents percentage 1 important secondary school knowledge for entrepreneurship discipline and work habits 39 % general knowledge (from general culture) 25% information and communication technology 25% 2 the most useful knowledge from secondary school practice exploring business process 18% exploring production / service process 15% exploring customer/buyer relationship 13% 3 important academic knowledge for entrepreneurship marketing and sales 27% finance and accounting 24% 4 the most useful knowledge from faculty practice verification of theoretical knowledge 21% exploring the own preferences 12% exploring the business process 12% 5 the most important entrepreneurial knowledge and skills after starting business phase operations function (management of operations and resources in manufacturing and service delivery) 64% human resources 50% no frequencies of respondents percentage 1 entrepreneurship in theaching programmes of primary and secondary schools yes 91.2 % 2 method of education for entrepreneurship school + practice 22.9 % school + practice + media+ different informal ways of education + entrepreneurial culture in society 37.1 % 3 the most important entrepreneurial knowledge and skills in starting a business identifying business opportunities 64% creating a business plan 50% recognition / generate business ideas 42% determining market potential of entrepreneurial ideas (planning and price range) 42% providing money for the founding costs 33% planning of providing staff 31% 4 is there a need for training of future entrepreneurs? yes 94.4% no 5.6% 5 the cooperation with young entrepreneurs will be useful for future entrepreneurs yes 97.2% no 2.8% talking about their own experiences/characteristics, respondents from the sample show the status of youth entrepreneurship in serbia; their attitudes provide arguments for the design of educational programmes (both theoretical and in practice) for the introduction of entrepreneurship in the new generation of young people (not only in serbia). the possible use of information about the experiences and attitudes of the respondents (the theoretical training and in the practice) is to generate/design programmes that prepare young people for the introduction of entrepreneurship confirms individual hypotheses h(1;1) the theoretical knowledge and h(1,2) education through practice. this might suggest that the hypothesis h(1) – the possibility of obtaining data for future programmes for prepairing the young to enter entrepreneuership is proven. in order to test the h (2) about the motives and motivation for entrepreneurship of the young entrepreneurs from serbia, useful in planning / designing programs to prepare young people future entrepreneurs, some questions were asked and some replies were received, which is shown in table 7. from there, we can see that young people are mostly motivated to achieve / prove their own ideas (44%), and (in serbia in 2016!) to preserve the family tradition (31%) and more. they have “entrepreneurial idols” (82.4%), and most often successful entrepreneurs (47%) and family members (39%). the environment motivates the discovery of business opportunities and ways to take advantage of those (50%) and arouses interest in jobs, economic activities and practices (33.3%). they find that young people should be involved in entrepreneurship (97.2%) during their university studies (33.3%), high school (27.1%) and business studies (21.3%). they all (100%) agree that young people should be motivated for entrepreneurship: during high school (52.9%) during the university studies (32.3%), but also in other age groups. the most successful “tools for motivating” include: autonomy (53%), earnings/cash (50%), gaining experience/knowledge/competence (36%) and socializing (26%). they warn against the danger of discouraging (the reasons for their dissatisfaction with entrepreneur venture / enterprise), where the following is stressed: lack of support/assistance (30%), lack of preparedness/capability (25%) for entrepreneurship (and management in the later stages of the development of entrepreneurial ventures) and low profits (25%). table 8: the attribute structure of the survey sample about motives for entrepreneurship 9 management 2016/81 no categorical variables about motives for entrepreneurship percentage 1 motives for entering entrepreneurship realization / approving own ideas 44% inheritance (preservation of family tradition) 31% self-employment 28% earnings / money 19% 2 do you have any role models while you are engaging in entrepreneurship? yes 82.4% successful entrepreneurs 47% family members 39% 3 how did entrepreneur in your surroundings motivate you motivated me to start discovering business opportunities and ways to use them 50% aroused my interest in business, economic activities, practice 33,3% 4 do you think that young people should be involved in entrepreneurship? yes 97.2% no 2.8 % 5 if the previous answer is yes, tell the right time for it? during university studies (20-25 years of age) 33.2% during high school (16-20 years of age) 27.1% after studies (25-30 years of age) 21.3% 6 do you think that young people should be motivated to entrepreneurship? yes 100 % 7 if the previous answer is yes, tell the right time for it? during high school (16-20 years of age) 52.9% during university studies (20-25 years of age) 32.3% 8 what can motivate young people for entrepreneurship? independence (in work and / or living on their own 53% earning (money) 50% gaining experience / skills / competencies 36% companionship (expanding circle of acquaintances, enrichment intelligence ...) 36% 9 what do you consider to be the reasons for their entrepreneur dissatisfaction of their enterprise / company? lack of support / help 30% low profits 25% lack of preparedness / capability 25% based on the results (table 7), it is possible to recognize and use the arguments for designing programmes to encourage young people to get involved in entrepreneurship in terms of their motivation in ways that they consider most suitable or the most appropriate. in this regard, the hypothesis h(2) can be considered proven. due to the fact that the h(1) and h(2) are confirmed, the general hypothesis h(0) can be regarded as proven. 4. arguments for designing stakeholders’ programmes for encouraging the young to enter entrepreneurial path concluding on the basis of the provided responses (to the research questionnaire described in the text above), the general hypothesis h(0) was proven. however, as only practise can be considered the highest form of criterion when it comes to truth, we point out some examples of the application of the developed arguments from the given research for designing and constructing the programme for encouraging the young (in serbia) towards entrepreneurship; this, in a practical sense, proves the hypothesis h(0). as was claimed, it is possible to quote (only some of) the facts and recommendations for the programme (meta-programme): 1. the young should be enabled to enter the world of entrepreneurship through the development of their competencies (knowledge and skills); 2. entrepreneurial knowledge is to be transferred using both theory and practise (through developing skills and gaining experience); 3. family and the environment play a significant role in the fostering of and enabling one for the entrepreneurial approach; 4. the young expect the entire society (the state, enterprises, media) to be supportive of entrepreneurship... in addition to this, every one of the stakeholders can specify their own elements of the programme. below are given some examples of the programme elements they might want to generate: the state: on the level of the state it would be possible to (as expressed by the entrepreneurs who completed the questionnaire): 1. create a national programme for the creation of the “entrepreneurial climate” (promotion and support of entrepreneurship); 2. ensure a well planned-out, affordable support for smes, lasting the entire life cycle and support for entrepreneurs; 3. use the media at the state level (public media, the internet, distance learning tools etc.) for affordable dissemination of new and relevant knowledge to the sme and entrepreneur sectors (smee); 4. create a network of local centres for the support of smee – in which they could meet and exchange experiences. 5. create opportunities for young entrepreneurs to work with potential entrepreneurs (“peer support”) (table 6, item 4: “yes” was the response by 97.2% of the questionnaire participants!), creating opportunities for work and success; 6. create and make publicly available long term plans (and strategic) development of the state – as an orientation guide for entrepreneurs; 7. all the participants agree that the young people need to be motivated towards entrepreneurship (table 7, item 6)... the ministry of culture: since culture is, according to the “metamanagement” concept (omerbegović-bijelović, 1998), seen as the highest form of management, it is hereby given some very important tasks: 1. the promotion of the entrepreneurial culture, of work and the responsibility for one’s own position in society (tab.7; item:2); 10 2016/81management 11 management 2016/81 2. the awakening of interest among the young for work, commerce and practise... (tab.7; item:3); 3. showing entrepreneurship in the context of becoming self-reliant, of freedom of choice, gaining competencies (experience and knowledge), socialising (meeting others, enriching one’s intelligence...) – according to (tab. 7; item 8); 4. inform the young about the latest scientific findings and their implementation (tab. 7; item 3)... the ministry of education: since this ministry is in charge, together with the ministry of youth and sports, of solving the problems of the young, there are numerous possibilities for them to be involved with the promotion and support of entrepreneurship: 1. in the educational programmes – include curriculum for entrepreneurship – for all ages (from kindergarten to post doctoral studies) – according to tab. 6, i. 1; tab. 6, i. 5; tab 5, is. 1,3,5... 2. the theoretical education programmes for entrepreneurship should be geared to the age of the students, the overall climate, local communities, culture... (which can be seen in several tables: 1, 5, 6, 7); 3. entrepreneurship is also learned through school practise (dual education) with the proviso that it should be planned out (with a clear task for the student and with mentors in both the institution doing the teaching and the insitution in which the pratical experience takes place) – on which there is more information in both the tables and the original data; 4. from the exhibited tables it can be seen that there are different areas of knowledge that need to be taught to the young – depending on their age and life cycle phase of their company (it is interesting that, after the very first steps in entrepreneurship, the educational needs tend to focus on specific work-related functions: operations (64%), human resource management (50%) etc. tab. 5, i. 5); 5. in the area of entrepreneurship different themes have a different level of importantce (hence “recognising the business opportinuty” was seen as paramount by 64% of the participants, according to tab. 6, is. 2-9... media: they could (if they are at all entrepreneurial themselves and able to recognise a business opportinuty) aid the promotion of entrepreneurship to a large extent, either on their own of networks with other stakeholders or enouraging the young towards entrepreneurship in many ways: 1. by developing entrepreneurship induction programmes (for primary and secondary school pupils, for students and for already proven entrepreneurs), by leading entrepreneurial undertakings etc (tab. 6, i. 6); 2. together with the ministries of education, work, commerce and culture, they could help the spread of the entrepreneurial culture (and every other culture worth promoting) as well as pointing out the successful examples and lessons to be learnt from entrepreneurs who were less so, as well as spreading the knowledge and the drive to learn and work; 3. they can accept and maintain programmes (of life-long) long distance learning in the area of entrepreneurship – thus ensuring their own relevance, interactivity and availability... parents: the owners of the companies can also draw conclusions from the conducted reasearch and the available findings, which would enable them to: 1. prepare their own successors (in family-run businesses), especially bearing in mind the fact that the young in serbia care deeply about family tradition (tab. 7, is. 1,2); 2. define the contents and the ways of preparing the young through a combination of environment programmes and “family programmes”; 3. ensure the survival of the family business by directing the creativity and enthusiam of their heirs and successors towards the areas which are of significance to the family business; 4. find areas of entrepreneurship which are compatible with the personality of the (future) family business heirs... the remaining stakeholders in encouraging the young towards entrepreneurship have their own (and/or common) “packages of specific programme recommendations, which are deliberately left out here (for space and scope reasons). the above examples, again – in practise, confirm the general hypothesis h(0). 12 2016/81management conslusion the purpose of this paper is to point out to the possibility that all relevant social groups/stakeholders understand the “desired conditions” (in terms of knowledge, experience, and motive) for the involvement of young people in entrepreneurship, should accept and further develop professionally their own support programmes for young people to involve in entrepreneurship. at the same time, we have tested the idea that it is possible to provide (relatively fast and reliable) insight into the circumstances which are needed to involve young people in entrepreneurship, from today’s young entrepreneurs’ perspective. the authors believe that by activating a wide range of stakeholders to create and implement their own programs to support youth entrepreneurship the society would be inspired by the entrepreneurial spirit, entrepreneurial culture and literacy, as well as by work and generation of values. as a result, it is expected (not only in serbia) that youth unemployment (and other unemployed) will be significantly reduced, that a faster transfer of new technologies, a more rational management of resources, ecology and the like, and, consequently, a higher quality of life will be achieved. it has been shown that today’s young entrepreneurs (with their experience and their views) can contribute towards a better understanding of the needs of the young for entrepreneurial competencies (for theory/knowledge and experience/skills), as well as towards a better understanding of the motivation which drives the young towards entrepreneurship in the first place. some of the facts that are collected by the presented research reveal that young entrepreneurs believe that the most important thing for future entrepreneurs, even before coming to university, is to learn discipline and work culture (39% of respondents); followed by: general knowledge/culture (25%), ict (25%), and only then knowledge about doing business. from university education, young entrepreneurs expect knowledge about the functions in a company to successfully establish their own business (24% financing, 27% marketing), and then, in the period when the business stabilizes, they expect to be qualified for management of operational function (operations and resources for manufacturing and service delivery: 64%), followed by human resource management (50%). we have also shown the dynamics of the above needs (e.g., according to the life cycle phases of the entrepreneurial undertakings, but also according to the age of the ”entrepreneurial candidate”). the research established some general attitudes – common for all stakeholders’ programmes (as a meta-programme): 1. the young should be enabled entry into the world of entrepreneurship through the development of their competencies (knowledge and skills); 2. entrepreneurial knowledge to be transferred using both theory and practise (through developing skills and gaining experience); 3. family and environment play a significant role in the fostering of and enabling one for the entrepreneurial approach; 4. the young expect the entire society (the state, enterprise, media) to be supportive of entrepreneurship... we have also pointed out the different stakeholders that spread entrepreneurship culture (the state, ministries of culture and of education etc. and even entrepreneurs’ families and media), as well as the possibility for them to apply a programme (a meta-programme) for encouraging the young to become entrepreneurs; we also suggest that in the proces they further complete it by generating their own, specific, stakeholder requirement programmes – according to their own interests and circumstances. in the examples of some of the arguments for creating stakeholder programmes, it was shown that the experience and views of the young entrepreneurs (participants in the reasearch conducted) are useful in defining the programmes and encouraging the young (in serbia) towards entrepreneurship, by which the general hypothesis h(0) was confirmed in practise. naturally, the research resulted in many more and a much wider number of insights (applicable in practise), outside the scope of this paper, of which – for the sake of illustration – only a choice was presented (the authors hope enough to be understood and perhaps even adopted). (the remaining data and ideas will have to wait for another opportunity). the ideas for further research refer to the volume of the sample and its stratification, with the opportunity to compare the attitudes of different “strata” of the sample. they also refer to stakeholders and their mission, and therefore the degree of linkage/interests, and/or obligation of individual stakeholders to participate in spreading entrepreneurial spirit/culture and in fostering entrepreneurship. the idea of determining the intensity of the “obligation” of stakeholders to contribute to the 13 management 2016/81 strengthening of the entrepreneurial culture is in this line. it is also possible: a) to go into details (prerequisites, resources, perceptions, values, etc.) of necessary knowledge, experience, and motives for entering into entrepreneurship; b) to do the comparisons with authors from other research areas; c) to deal with matters of design, engineering and practical realization of the verified idea... but as this paper verifies the initial idea, other ideas are left for further study. decades of experience warn that this paper may, despite all its usability (and possibly even significance and modern day relevance), end up as merely ” a dead letter”. those of us in serbia who dwell in academia and research, still yearn for an environment where every kernel of knowledge will be greeted with enthusiasm (if only because it has been discovered marginally earlier than one’s competition) and an eagerness to be put into practise, to enable even a small increase in competativeness, of life, of progress. it is beatiful, and also sad at times, to be a scientist if there is no-one to understand and apply that science. references [1] barringer, b. r., & ireland, r. d. (2010). entrepreneurship: successfully launching new ventures. 3th edition, pearson education, upper saddle river, new yersey, isbn: 978-0-13-8155808-8. [2] de clercq, d., honig, b., & martin, b. (2013).the roles of learning orientation and passion for work in the formation of entrepreneurial intention.international small business journal, 31(6), 652-676. [3] delgado, m. (2004). social youth entrepreneurship: the potential for youth and community transformation. greenwood publishing group. [4] farashah, a. d. (2013). the process of impact of entrepreneurship education and training on entrepreneurship perception and intention: study of educational system of iran. education+ training, 55(8/9), 868-885. [5] hutchinson, j., guttentag, m., chen, y., mo, k. (2012).youth entrepreneurship in serbia: constraints and opportunities, the george washington university. [6] hsieh, c., nickerson, j. a., & zenger, t. r. (2007).opportunity discovery, problem solving and a theory of the entrepreneurial firm. journal of management studies, 44(7), 1255-1277. [7] international monetary fund, world economic outlook database, unemployment rate of serbia 20102015.retreived from: http://www.imf.org/external/pubs/ft/weo/2016/01/weodata/index.aspx (24.12.2016) [8] kasim, r. s. r., zulkharnain, a., hashim, z., ibrahim, w. n. w., &yusof, s. e. (2014). regenerating youth development through entrepreneurship.procedia-social and behavioral sciences, 129, 322-327. [9] labor force survey.(2014). statistical office of the republic of serbia. link: http://webrzs.stat.gov.rs/website/repository/documents/00/01/71/71/sb-593-bilten_ars_2014.pdf (accessed on april 15, 2015) [10] moore, c.v., petty, j.w., palich, l.e., &longenecker, j.g.(2008).managing small business: an entrepreneurial emphasis, international edition, 14th edition, cengage learning. [11] nabi, g., holden, r., &walmsley, a. (2010). entrepreneurial intentions among students: towards a refocused research agenda. journal of small business and enterprise development, 17(4), 537-551. [12] omerbegovic-bijelovic, j. (1998). metamanagement and quality of management (in serbian: metaupravljanje i kvalitetupravljanja), andrejevic foundation, belgrade (serbia). [13] omerbegović-bijelović, j. (2010). basics of operations management.university of belgrade faculty of organizational sciences. [14] papulová, z., &papula, j. (2015).entrepreneurship in the eyes of the young generation.procedia economics and finance, 34, 514-520. [15] rakicevic, z., ljamic-ivanovic, b., &omerbegovic-bijelovic, j. (2014) survey on entrepreneurial readiness: мanagementvs engineering students in serbia. in: markovic, a., &barjaktarovicrakočevic, s. (eds.) proceedings of the 14th international symposiumsymorg 2014, zlatibor, serbia, 6-10 јun 2014 (pp. 551-560). belgrade, faculty of organizational sciences. isbn: 978-86-7680-295-1. [16] roberts, k. (2008). the young self-employed in east-central europe, p. 81, chapter in book: blokker, p., &dallago, b. (eds.). (2008). [17] robles, l., &zárraga-rodríguez, m. (2015).key competencies for entrepreneurship.procedia economics and finance, 23, 828-832 [18] sobel, r. s., & king, k. a. (2008). does school choice increase the rate of youth entrepreneurship?.economics of education review, 27(4), 429-438. [19] solesvik, m., westhead, p., matlay, h., &parsyak, v. n. (2013). entrepreneurial assets and mindsets: benefit from university entrepreneurship education investment. education + training, 55(8/9), 748-762. 14 2016/81management [20] unemployment rate of serbia (2016).international monetary fund. link (accessed on december 21, 2016): [21] http://www.imf.org/external/pubs/ft/weo/2016/01/weodata/index.aspx [22] vilcov, n., &dimitrescu, m. (2015). management of entrepreneurship education: a challenge for a performant educational system in romania. procedia-social and behavioral sciences, 203, 173-179. [23] world bank indicator (2013).unemployement rate, unemployment youth total. link: http://data.worldbank.org/indicator (accessed april 15, 2016) [24] zampetakis, l. a., kafetsios, k., &moustakis, v. (2013). the role of students’ anticipated emotions in enterpreneurial intentions, ix symposium of business and academics – spin 2013, 5-6 november, belgrade, serbia, 179-188. [25] zhang, y., duijsters, g., &cloodt, m. (2013).the role of entrepreneurship education as a predictor of university students’ entrepreneurial intention.international entrepreneurship and management journal.doi: 10.1007/s11365-012-0246-z. receieved: october 2016. accepted: december 2016. jasmina omerbegović-bijelović faculty of organizational sciences, university of belgrade, omeja@fon.bg.ac.rs jasmina omerbegović-bijelović, ph.d., is a full time professor and head of chair of production and service management (department for operations management, faculty of organizational sciences, university of belgrade). her major areas of interest are: planning (of production, services and new business venture), entrepreneurship and management of small and medium enterprises, resource management, servicing management, tools for quality improvement and problem solving. she is an author of the metamanagement and metacybernetic system concepts and has published numerous papers in the fields mentioned above. zoran rakićević university of belgrade, faculty of organizational sciences, zrakicevic@fon.bg.ac.rs zoran rakićević, m.sc., works as a teaching assistant at the faculty of organizational sciences (fos), department for operations management (chair of production and service management). he completed two master study courses: entrepreneurship and management of smes (in 2012) and operational research and computational statistics (in 2013), and is currently enrolled in phd studies at the fos. his research and teaching areas of interest include entrepreneurship and management of smes, planning of production and servicing and operations management. predrag mirković university of belgrade, faculty of organizational sciences mirkovicpedja@yahoo.com predrag mirković, m.sc., works as a full time associate with the public notary office in belgrade. he also works part time in the family company called „stadium belgrade“. he completed his bachelor studies at the faculty of law (in 2013), and his master studies at the faculty of organizational sciences (fos): entrepreneurship and management of smes (in 2016). his area of interest includes entrepreneurship and management of smes. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 1048576 /lockdistillerparams false /maxsubsetpct 100 /optimize true /opm 1 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 01_85_1:tipska.qxd 1 raesah tinwala*, urmi nanda biswas the maharaja sayajirao university of baroda, department of psychology, india management: journal of sustainable business and management solutions in emerging economies 2020/25(1) perceived sustainability practices, turnover intentions, and organizational identification in hotel industries doi: 10.7595/management.fon.2019.0009 abstract: 1. introduction the hospitality industry is a servicing business contributing significantly to the economic growth of the country. the foundation of the hospitality sector is built upon three major segments – food and beverages, accommodation and travel and tourism. the hospitality and tourism industry are the fastest growing segments, revenue-wise and employment wise. they contribute 6.23 percent to the national gdp and 8.78 percent of the total employment in india. india is ranked third among 184 countries in terms of travel & tourism’s total contribution to gdp in 2016. as per the world travel & tourism council (wttc) report, in * corresponding author: raesah tinwala, e-mail: raesah.95@gmail.com research question: the present study intends to study the effect of employees’ perception of their hotel’s sustainability practices and motive to undertake those practices on their identification with the organization and their intentions to quit. motivation: over the past few years, the hotel industry has heeded to the need of sustainability, but its effect on human resource outcomes needs attention. earlier research reports that adopting sustainable practices enhances the reputation of the organisations, and positively impacts the employees’ organisational identification and intention to stay in the organisation. the bearings of such practices are seen in the expected cash flows and growth of the industry. idea: the core idea behind this research was to investigate the effect of perceived sustainability activities and motive attribution on human resource outcomes. in the study, perceived sustainability activities and motive attribution were the independent variables whose effect was seen in the human resource outcomes, namely, organizational identification and intentions to quit. data: the sample comprises 137 managers from star hotels of vadodara and ahmedabad. the data were collected over a period of 4 months. tools: the survey questionnaire adopted already established scales on environmental sustainability, turnover intentions, organisational identification and motive attribution. the researchers added a few questions on social and economic sustainability to capture the whole concept of sustainable development. findings: the findings of the study indicate employee welfare is a significant predictor of organizational identification and turnover intentions in hotel industries. moreover, intrinsic, as well as extrinsic motive attribution are necessary to encourage employees to take ownership and retain it. contribution: the study implies that hoteliers must channelize their resources to enhance employee welfare. utmost care and support will be reciprocated in terms of higher organisational identification and lower turnover rates. efforts must also be made to educate all the employees as regards the reasons for undertaking policies and actions. this will help them understand the organisational values and encourage them to align their values with the organisation. the way employees allocate reasons for conducting sustainability has implications for the judgement and actions of both managers and employees. it also plays a role in motivating them to involve themselves in sustainable activities. this research also suggests research areas for future studies. the researchers foresee the results of this research will be intriguing for policy makers and future researchers as knowledge of how employees inculcate sustainability in their actions proves the policy success rate. key words: sustainability practices, turnover intention, organizational identification, motive attribution jel classification: q01 raesah tinwala, urmi nanda biswas 2020/25(1) 2 2016 travel & tourism directly supported 25,394,500 jobs (5.8% of total employment). this number is expected to rise to 31,910,000 jobs (6.1% of total employment) in 2027 (world travel & tourism council, 2016). the hotel industry is based on the ideology of customer service and follows the philosophy of “customer first”. it aims at achieving effectiveness and satisfied customers through trained and skilled employees. however, due to the lack of professional training and skill development in the existing workforce in hotel industry, the industry is striving to sustain against employee turnover. employee turnover is the rotation of workers around the labour market; the number of workers who leave the organisations are replaced by new employees (abbasi & hollman, 2000). according to woods (2009), a high turnover rate means that existing employees are leaving the organization frequently and are being replaced by novice employees, which can have detrimental effects on the company performance and efficiency. the turnover intention, which is a good predictor of actual turnover, can be defined as the intention of a worker to leave the organization within a given period. the actual turnover increases as the intentions to leave the organization become stronger. a meta-analytic study conducted by steel and ovalle (1984) revealed that the intention to leave and employee turnover were significantly correlated, and the intention was a better predictor of turnover than job satisfaction, nature of the work and commitment. it is necessary that the industry should address the problem because it requires skilled and experienced manpower to ensure long term customer retention and loyalty towards their brand. park and shaw (2012) conducted a meta-analysis which validated the proposition that high turnover rates can substantially reduce the organization performance. it implies negative impact on the workforce as well as the financial performance. thus, organizations must strategize to minimise turnover rates to tackle the workforce and financial risks. one of the major challenges faced by the indian hospitality sector is a high turnover rate. the employee morale and service quality to the hotel guests are adversely affected by excessive turnover as it created difficulties in recruitment, and enhances training expenses. according to an article in the hindu, the attrition rate as found in the year 2011 was about 25-30% across different levels. this led to an increase in the employee cost by an average of 20 per cent (ravikumar, 2011) 1.1 conceptual framework the high attrition rate can be attributed to the job dissatisfaction of employees. plausibly, this problem arises due to laborious working hours and low pay scale. the hotel industry thrives on the satisfaction of the customer base of the organization. the hospitality sector must realize that the satisfactory service will be provided by satisfied employees. if the employees are not satisfied, they will not be motivated to deliver a quality service to the customers. if this problem is not dealt with, the industry will find itself investing large amounts in recruiting, training new employees at regular intervals (mukherjee & malhotra, 2004; yee, yeung &cheng, 2008). 1.1.1 organizational identification and intent to leave: how can hotels reduce turnover of employees? the social exchange theory (blau, 1964) propagates that perceived organizational care is reciprocated by developing a sense of identification that obligates employees to stay with the organization (jones, 2010) and make contributions to the organizations (aselage & eisenberger, 2003). organizational identification refers to “the perception of oneness with or belongingness to an organization, where the individuals define him or herself in terms of the organization(s) which he/ she is a member” (mael & ashforth, 1992, p. 104). this perception of oneness fosters behaviours congruent to the organization’s goals and values. the organization’s support and efforts to improve employee work-life quality induces a sense of identification and commitment which leads to high employee performance. further, research suggests that an individual’s need for uniqueness generates loyalty towards organizations categorised as distinct (brewer, 1991; mael & ashforth, 1989). one of the ways organizations may stand out and be distinct is by adopting sustainable practices following a global standard. thus, an organization which is perceived as an organization with sustainable practices may have more loyal employees as compared to their counterparts. the research in the area of organizational prestige and reputation suggest that, if employees believe that outsiders see the organization positively, they willingly want to identify with the organization and develop favourable performance such as citizenship behaviour and intra-organizational cooperation (dutton, duckerich & harquail, 1994), whereas, when employees think that the organization is negatively perceived by outsiders they might want to disassociate themselves from it. previous research reported that organization reputation is imperative in developing self-esteem and awareness of group membership, loyalty (dutton et al., 1994; carmeli, gilat, & waldman 2007; kim & kim, 2016). a contemporary study by riketta (2005) has emphasized the benefits of identification in the workplace. according to this meta-analysis, organizational identification has been found to correlate with intent to leave and with organizational prestige the reputation of the organization (mael & ashforth, 1989) and organizational policies (cheney, 1983) foster organizational identification amongst employees. the organization’s decision to engage in sustainable practices has implications for its success and the stakeholder’s judgement. this in turn impacts employees’ intentions to stay. 1.1.2 sustainable development practices and hotel industries: with the publication of ‘our common future”, otherwise known as brutland’s report, by world commission on environment and development in 1987, sustainable development made inroads to the management strategies and policies in different sectors. this report addressed the issues concerning long-term environmental, social and economic issues and exerting efforts required to successfully deal with it. bruntland defines sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” (pp. 37, 1987). sustainable development is about achieving environmental, economic, and social welfare for the present as well as the future generations (azapagic & perdan, 2000). hotels have learned the impacts of engaging in sustainable practices on the firm’s financial performance (ameer & othman, 2011; dembo, 2017). with increasing awareness, the demand of sustainable hotel operations by hotel industries is expanding. hotels that engage in sustainable activities reduce their costs of survival. sustainable practices appear altruistic to customers, creating a positive image of the hotel (uk essays, 2013). although investments in sustainable practices may not be beneficial in the short-term payback, sustainable practices contribute to great savings in the long-run. this also ensures additional revenue through cost-saving measures, enhanced brand image, positive guest experience and employee retention which in turn warrants the hotel's ability to stay in the market for a longer term (goldstein, 2012). 1.1.3 perceived sustainable practices and motive attribution: the top and middle management level employees are involved in aligning the strategies and practices of the organization with the vision, as well as the mission of the organization, thus having access to all background motives and purposes. the managerial level employees have more information about the intentions behind organizational actions than the external stakeholders. employees make judgements about the organization’s policies, decisions and strategies which guide their work place behaviour and performance (mcmurray, pirola-merlo, sarros, & islam, 2010; permarupan, saufi, kasim, & balakrishnan, 2013). these judgements can be understood to be framed on the basis of their understanding of organization’s motives to engage in sustainable practices. the motive attribution has been studied as intrinsic and extrinsic motives (vlachos, panagopoulos & rapp, 2013). intrinsic sustainable practices are sincere efforts of organizations to contribute to the sustainable development (lee & seo, 2017). when employees judge the organisation’s practices as positive, it reinforces identification; furthermore, it results in active engagement in the sustainable activities (as cited in froese, 2013). employee engagement and identification is more related to intrinsic motive attribution, rather than perception of the practices as an effort for brand building and image management. sustainable organizations create a reputation for being distinct from other organizations. extrinsic practices are those strategic plans meant to achieve a specific purpose. such practices are predominantly guided by the motivation of attracting stakeholders, improving the brand image and avoiding punishment from society (story & neves, 2015). studying the contribution of motive attribution to the employees’ organizational identification and turnover intention may help organizations to create a right kind of perception in the employees to influence their workplace behaviour. the research done in the hotel industry in the south and south-east asia in the last decade has focused on employee turnover and retention strategies. however, in spite of creative and innovative techniques to retain the employees, the turnover rate remains high. a study of taiwan hotel workers reported that 80% turnover, with 70% of them being given recruitment propositions, where the authors suggest managerial effort to understand the individual needs and expectations (yang, wan & fu, 2012). a large study (n=884) carried out on pan indian luxury hotels (mohsin, lengler, & kumar, 2013) suggest the effect of antecedents like organizational enthusiasm, and stimulating job conditions, job security and organizational loyalty on turnover intention. the results of the study supported the notion that the employees’ organisational loyalty has a negative effect on his/her intention to leave. the study findings contradicted earlier findings suggesting the employees’ intention to resign from the job being increased with job security and earnings. the study suggested implications for managers of luxury hotels that too much of a good thing may not be an assurance that employees will remain in the job (mohsin, lengler, & aguzzoli, 2015). another study in cyprus on employees of hotel industries report a negative relationship between affective organizational commitment, extrinsic job satisfaction and turnover intention. however, a negative association between intrinsic job satisfaction and turnover intention was not supported (zopiatis, constanti, & theocharous, 2014). most of the studies conducted in hotel and hospitality industry have used organizational commitment, loyalty, involvement to explain employee turnover intention. however, these studies together support the fact that organizational commitment, motivation and loyalty are not enough to explain employees' intention to leave the job. we need to further understand the process behind it. secondly, most of the research cited here and 3 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) other existing research carried out in hotel industries, mostly target employees, and not managers. thirdly, when the effect of perceived sustainability practices are being extensively studied on organizational performance in various sectors/industries (i.e.,, and yu, 2014); very few research works have attempted to study the effect of perceived sustainability practices on employees' commitment, identification and loyalty as well as on intent to leave in the hotel industry. on the back drop of the above-mentioned findings, the following hypotheses were conjectured h1: there will be a significant positive effect of perceived sustainable practices on organizational identification of employees h2: there will be a significant negative effect of perceived sustainable practices on turnover intention h3: there will be a significant effect of motive attribution on organizational identification of employees. h4: there will be a significant effect of motive attribution on intent to leave. 2. method 2.1 sample participants in this study were 137 first-line, middle, and senior managers from star hotels of vadodara and ahmedabad, two major cities of gujarat, a western state of india. most of the hotels are part of pan india hotel chains and thus the managers here are from different states, representing the diversity of indian culture. the sample comprised 122 male and 15 female participants from vadodara and ahmedabad. their experience in current organisation varied between 1 to over 10 years. on an average, these managers work for more than 8 hours a day. there were 78% of the managers that were locals, while 22% were transferred or moved to these cities for job opportunities. the research used a correlational design with a survey research method. the data was collected from november to february, which is the tourist season in gujarat, and thus it affected the random selection of the sample. the managers who were willing to participate in the study and could finally afford time to participate in the study comprised the final sample for the research. 2.2 procedure the hr managers and/or general managers were approached for permission. after seeking permission, if the managers were available, the questionnaires were distributed to the employees and data were collected. the respondents did not report any difficulties while answering the questionnaire as it was converted in hindi language. more than 50 hotels of vadodara and ahmedabad were approached for the permission, however, only 43 hotels gave permission to conduct the survey or returned the filled questionnaires. the data collection was conducted over a period of 4 months between november and february, which is the tourist season in gujarat, and thus it affected the random selection of the sample. the managers who were willing to participate in the study and could finally afford time to participate in the study comprised the final sample for the research. collecting data from managers was very difficult because of the work overload and, to some extent, unstable workforce in the hotel industry. the overall response rate was 75%. it was observed that many managers to whom the questionnaires were handed over left their jobs during the data collection. after the data collection process, the data were analysed using spss (version 23). to draw inferences from the data, the researchers used regression analysis to see the effect of perceived sustainability practices and motive attribution on the two outcome variables. 2.3 measures the questionnaire administered to the participants consisted of the following sections personal data sheet: where the participants gave information about age, gender, current experiences, permanent residency, working hours and star accreditation of the hotel the respondent worked in and the ownership of the hotel. organizational identification: items were adopted from mael & ashforth’s (1992) six-item scale. turnover intention: the items were adopted from giffen (2015) who used a roodt’s 6-item scale. a five-point likert scale was used to measure the intention of employees to quit the organization from “never” to “always”. the items on intent to leave were positively keyed, while the items on job satisfaction were negatively keyed. a high score on this scale would suggest that the individual has high intentions to leave the current organization and poor job satisfaction. 4 raesah tinwala, urmi nanda biswas 2020/25(1) sustainable practices: the scale included items adopted from sivika saenyanupap’s (2005) work on environmental sustainability practices. this scale was further strengthened by adding relevant items which could measure the sustainability practices not only in terms of environmental sustainability, but social and economic sustainability. these items were added to the questionnaire based on the literature. these items were validated by 8 experts managers from the hotel industry as well as from psychologists. a five-point likert scale was used for this measure. a high score on this scale indicated full participation in the sustainable practice by the hotel, while a low score would suggest no participation in that practice. motive attribution: items were adopted from su-yol lee & yong won seo (2017). further, the questionnaire was translated in hindi and then back into english by a comprehensive language service provider to establish transliteral equivalence. table 1 summarises the details of the tools used for this research. table 1: details of measures used in this research in order to contextualise the available questionnaire to the indian context and check the reliability, the questions adopted from different available questionnaires and questions prepared by the researchers were put for factorization by using the factor analysis. the detailed results of the factor analysis have been presented in the section below. 2.4 data analysis the variables in this study were sustainable practices of the hotel, motive attribution for conducting sustainable practices and human resource outcomes which included the turnover intention and organizational identification. the scales were adopted from western studies which made it necessary to see how the indian sample understands the variable under study. the factor analysis was conducted over 52 items grouped into 4 categories. further, linear regression analysis was used to understand the effects of perceived sustainability practices and motive attribution on human resource outcomes. the data was entered, coded and analysed using the statistical package for social science (spss). 3. results and discussion 3.1 factor analysis six items related to organizational identification, six items of turnover intention, 32 items of perceived sustainability practices and 8 items of motive attribution were factor analysed using the principal component analysis (pca) with varimax rotation. 5 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) �������� �� ������ ������ ����� ������ � ������ ��� ����� ���� �������� ����� � ���� ������������������ ������ �� ����� �������� ��������������� ����������� ������� ���� � � ������� ��� �� � !"���#��� � �� ���� � �� � �����#�� $%�&��� � ����� ������� '����� ����� ���� (�����#��� �"� �������� )� (��� ����� (�����#�����#���� �� ��� �"� �������� )�� ��#��������)��"*�*� ����� ������� (�����#�����������"� �������� )� � (�����#�������� ����"� �������� )� �� �#�� � ���" ����� � �������� �#��� ���" ���� �"�+���������+���� ,�������� ����� ������� ��������� �#��� ���" ���� table 2: psychometric properties of final factors resulting from principal component analysis organizational identification: the principal component analysis yielded organizational identification as one component explaining a total of (55.39%) of the total variance. turnover intention: the factor analysis extracted two components of turnover intention which explains a total of (54.95%) of the total variance. perceived sustainability practices: the pca of the perceived sustainability practices of the hotels indicated that 6 factors were required to explain the underlying structure, in contrast to the original 3 factors (environmental, social and economic sustainability). the factor structure was obtained depending on the nature of the responses given by the respondents. the structure reflects the perception of the hotel managers in the indian context. the first factor was identified as ecological responsive efforts comprising 5 items which relate to an organization’s initiatives towards sustainability. the second factor was labelled as employee welfare consisting of four items relating to practices to ensure the employee well-being. the third factor was labelled as optimal resource utilization which included 3 items describing resource management that best suits sustainability. the fourth factor made up of 3 items was identified as sustainable infrastructure within the hotel to promote sustainability. the fifth factor was identified as recycling activities of the hotels which comprised 2 items. the sixth factor, waste management is a 3-item factor which describes a hotel’s efforts to reduce the waste production and management of the same. all the factors together explain (69.24%) of the total variance. a total of 11 items were eliminated as they failed to meet the criteria of having a loading of 0.5 or more. motive attribution: the analysis yielded motive attribution as two components explaining a total of (62.07%) of the total variance. the first factor that emerged was labelled as external motive attribution for undertaking sustainability practices by the hotels. this factor comprised 5 items improvement of the firm’s reputation and image, improvement of customer awareness, cost reduction, reduction in potential danger and will of the ceo. the second factor was labelled as internal motive attribution comprising three items – voluntary responsibility and contribution, preserving resources and operating in a way that is beneficial to the future generations and improvement of the values of the stakeholders. 6 raesah tinwala, urmi nanda biswas 2020/25(1) �������� ������� ��������� �������� ���� � ����� �� ������ ����� ������ ����������� ���������� �� ������ � ������ ��� ����� ����� �������� ����� � ���� ��������� ����� ���� ������ ����� ������ � ������ ��� �� ������ ���� ���� �� ����� � ���� ����� ��� ������� ������ � � � !���"��� � �� ����� � �� � �����"�� � �� � �����"�� ����� ��#�� ������ ���$� � � � #���� ����� �� � ��� ����%� ���!���� �%��&� �� � ��� ����%� ���!���� �%��&� ���'� ��##� ���#�� ����� (�����"����! ����)��� *� (��� ��� �� (�����"�����"������� ��� ! ����)��� *� (�����"���������+� ��������� � ������ $�#$� $���$� � � � $��$� � � � ����� � � ���'� � � #���� � � #��'� � � #���� ���#� (�����"�����,��*���%������� � #��#�� ����� ������ ����� (�����"��� ������ ! ����)��� *� (�����"����, ������� �!���� ! ��� � ���� #����� ����� ���#$� ����� � (�����"���-��*�������� �"� �� � � ���$� � ����� � ���#�� ����� (�����"������������ ! ����)��� *� � (�����"����! ����)��� ����� �!� !��� � #����� � ���$� � ������ ���#� (�����"���.� �����!� ���� ##��#� ����� ���#$� ��$�� /� �"��� 0 ��)! ����� �1 �������� �"��� ��)! ����� �1 �������� �"��� ��)! ����� #'�#��� ����� $���$� ����� � #���� ���'� � �������� �"��� ��)! ���� � �������� �"��� ��)! ���� #����� ���'� ���#$� ����� 3.2 effects of sustainability practices and motive attribution on human resource outcomes a multiple linear regression was undertaken to examine variance in organizational identification, intent to leave and job satisfaction. table 3: perceived sustainability practices as predictors of organizational identification, intent to leave and job satisfaction **significant at 0.01 level; * significant at 0.05 level a multiple linear regression analysis was carried out to examine the effect of perceived sustainability practices and motive attribution to the variance in organizational identification, intent to leave and job satisfaction. the overall f-value predicts all the dependent variables. the results of regression indicate that three dimensions out of eight explain 22% of the variance in organizational identification, whereas two dimensions explain 6% of the variance in the intent to leave. three variables out of eight explain 16% of the variance in job satisfaction. table 2 shows that perceived employee welfare, perceived sustainable infrastructure and internal motive attribution significantly predict organizational identification. the perceived employee welfare and external motive attribution negatively and significantly predict the intention to leave. job satisfaction was significantly predicted by perceived employee welfare and internal motive attribution, as well as by perceived optimal resource utilization. perceived employee welfare consistently predicts all three outcome variables. 4. discussion the aim of the study was to understand the moderating effects of motive attribution for conducting sustainable practices in hotels on employees’ turnover intention and organizational identification. 4.1 effect of sustainable practices on organizational identification of employees the results indicate that there is a significant effect of perceived employee welfare and sustainable infrastructure on an employee’s identification with the hotel. this finding is congruent to the findings of dai and qin (2016) who specified that employees’ belief that their organization is making efforts to provide tangible and non-tangible amenities enhances organizational support and motivates him/her to be fully engaged in attaining the organization’s goals. most notably, investing in employees obligates them to return the favours to the organizations in terms of identification and organizational citizenship behaviour (newman, miao, hofman & zhu, 2015). such investments can include efforts to make life worth living for and provide an environment worth working in. 4.2 effect of sustainable practices on the turnover intention the results show that there is a significant negative effect of employee welfare on the intent to leave. it must be noted that the work in hotel industries require working in a high-pressure environment accompanied with high demands on psychological, emotional and mental resources of the employees. such over-demanding work exhausts energy, makes one resentful, reduces motivation and productivity leading to burnout and increased turnover intentions. thus, organizations are required to maximise their efforts towards their employees to retain them. these findings are in line with the conclusions from tett & meyer’s study (1993) that was conducted on 112 managers employed in a large organisation on the west coast of the united states. hussain& asif (2012), in their study on telecom employees of pakistan, have shown that an organization’s employee welfare efforts are a strong predictor of the turnover intention. bagri, babu, and 7 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) �������� ��� ����� ���������� ������������ ������ � �� !� �"���� ���#�� $%� ������� �� � � � �� � &'(()� � � ������� � �� ���� �� � � ���� &'(*+� � ���� �� � � � � � ������� ������� &'(�*� ������ ��� ����� ���������� ������������ ������ � �� !� �"���� ���#�� $%� ������� �� � ��� ���� &'(+� � ������� ���� ��� ���� ������ &'(�+ ���� ���� ��� ���� ������ � ����� &'(�, � kukreti (2011) have suggested in their study that employee welfare and development is necessary to reduce turnover intentions among hotel employees of kumoan region in india. the results also indicate that there is a significant effect of employee welfare activities on job satisfaction. the results reveal that if employees perceive that their employers do not provide amenities or facilities to improve their quality of work/ personal life, it will lower their job satisfaction. practices like corporate social responsibility and sustainability, which are self-regulatory business practices, help to ensure companies take accountability for their actions. these practices are directed towards the employees and have a positive effect on the identification, satisfaction and goodwill mediated via internal respect, that is, respect from the employees (hameed, riaz, arain, & farooq, 2016). 4.3 effect of motive attribution on organizational identification of employees the findings showed that there is a significant positive effect of internal motive attribution on organizational identification. thus, the hypothesis is proven. these results indicate that attributing pure motives for undertaking sustainability practices predicts employees’ identification with the hotel. the organizations must communicate their agenda for conducting these practices and foster participation in sustainability, to improve the identification of employees. 4.4 effect of motive attribution on turnover intention the results indicate that external motive attribution negatively impacts the intent to leave, while internal motivation affects the job satisfaction. thus, the hypothesis is proven. su-yol lee and yong won seo’s (2017) study reports that when employees perceive that certain activities of the organization do not lead to positive outcomes (like financial benefits and enhanced brand image) from the customers, they believe it poses threat to the organization’s performance and in turn creates job insecurity for them. further, a poor attribution to pure motives for undertaking sustainability practices will reduce the job satisfaction of the hotel employees. engaging in sustainable practices means going beyond the organization to do something for the environment, society, and at the same time remain economically viable. such practices become a criterion to evaluate the management’s ethics by both the external and internal stakeholders. hotels may engage in sustainability because the management is committed to the sustainability agenda or complying to the legislation to avoid risk and punishment. mere legal compliance is not effective in yielding positive effects of sustainability. hotels need to ‘go beyond mere compliance’ to enhance their brand image and satisfy their stakeholders (kleindienst, nüskel, raul & schmied, 2017). apart from judging the activities of the organisation, the social-economic situation of the country also affects the way employees attribute motives. in developed countries such as north america and europe, the population live a stable life leaving them enough time to engage and invest in sustainable activities. however, a developing country such as india is constantly dealing with scarcity of resources, unequal distribution of resources, social inequality and corruption (couret, n.d, adhikari, 2018). the organisation’s inability to boost its own performance and provide means to fulfil the employees’ survival needs discourages individuals from perceiving the organisations in the positive light. the high competition among the hotels under study and low pay scale are perceived as a threat to the social and economic well-being and affect their intention to leave. in sum, the perceived sustainability practices of employee welfare, sustainability infrastructure and optimal resource utilisation predict the organizational identification and turnover intention. also, the motive attribution by employees was found to have an impact on organizational identification and turnover intention. the major findings of this research report a significant effect of perceived employee welfare and sustainable infrastructure on hotel employees’ organisational identification. the perceived employee welfare has been found to have a significant negative effect on the intention to leave. employees’ attribution of motives for sustainable practices also impact the organizational identification and intention to leave by employees. specifically, external motive attribution has been found to negatively impact the intent to leave; while the results report positive effect of internal motive attribution on organizational identification of hotel employees. 8 raesah tinwala, urmi nanda biswas 2020/25(1) references [1] abbasi, s.m.; kenneth, h. w (2000) turnover: the real bottom line. public personnel management. retrieved from https://www.questia.com [2] adhikari, olga (august 2018). sustainable development and its challenges in developing countries. international young nature friends. retrieved from http://www.iynf.org [3] ameer, r. & othman, r. j (2012). sustainability practices and corporate financial performance: a study based on the top global corporation. journal of business ethics, 108 (1), 61-79. doi: 10.1007/s10551-011-1063-y 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[9] blau, p.m. (1964). exchange and power in social life. new brunswick, new jersey: transaction publications. 9 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) in conclusion, the study has contributed to exploring the predictors of organisational identification and turnover intention. employee welfare activities predict organizational identification and turnover intentions of managers in the hotel industries. hotel industries must channelise their resources to enhance employee welfare. utmost care and support will be reciprocated in terms of higher organizational identification and lower turnover rates. furthermore, intrinsic, as well as extrinsic motive attribution is necessary to encourage employees to take ownership and retain it. the moderating effect of motive attribution should be explored in similar research. the findings of the study suggest that creating awareness in the employees about the reasons for undertaking policies and actions will help them understand the organizational values and encourage them to align their values with the organization. however, sustainability practices and employees’ attributions of motives for that alone are not sufficient to discourage employees from quitting or identifying themselves with the organisation. in hotel industries, challenging working conditions and low pay scale are major reasons for high levels of job-hopping. hertzberg (1959) in his two-factor theory of motivation discussed the role of hygiene factors, the factors that lie outside the nature of the job context and, if lacking, can cause dissatisfaction thereby strengthening the employee’s intention to quit. in order to maximise the effect of sustainability practices and commitment to such practices, the hotels must first address the hygiene factors. this research has managerial implications which demonstrates that directing efforts to educate all the employees as regards the reasons for undertaking policies and actions will help them understand the organizational values and encourage them to align their values with the organization. the researchers see this study as useful since motive attribution has not been studied in india to understand its impact on employee work behaviour. the way employees allocate reasons for conducting sustainability has implications on the decisions and actions of both managers and employees. it also plays a role in motivating them to involve themselves in sustainable activities. the study has certain limitations. in spite of continued and repeated effort of the researchers, the response rate was 75% and mostly the managers of star hotels were not accessible. this rendered critical issues like making some scales less reliable. the present research could not address the moderating role of extrinsic/intrinsic motive attribution to perceived sustainability practices in its relationship with organizational identification and turnover intention because of the small sample size. these limitations have implications for future research that could provide deeper insights in the role of sustainability practices in human resource outcomes in emerging economies. the future research should investigate the role of motive attribution in moderating the relationship of sustainability practice with turnover intentions and organizational identification. this research also promotes further studies in sustainability motive attribution in different sectors to find out the effectiveness of sustainability policies at the grassroot level. it is also important to study how employees attribute reasons for the organization to undertake different activities like csr, employee engagement to mark its effectiveness. in addition, studies in sustainability motive attribution in different sectors will elucidate how employees inculcate sustainability in their actions and thus demonstrate the policy success rate. employees’ perception of sustainability practices as beneficial, socially responsible act of the organization will not only improve employee engagement and performance, but will also result in an overall sustainable growth and development of the wider society. conclusion [10] carmeli, a. 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[45] zopiatis,a. constanti,p; theocharous,a.l.(2014).job involvement, commitment, satisfaction and turnover: evidence from hotel employees in cyprus, tourism management, 41, 129140, doi: 10.1016/j.tourman.2013.09.013 received: 2018-08-17 revisions requested: 2018-10-19 revised: 2019-06-08 (3 times) accepted: 2019-06-19 raesah tinwala the maharaja sayajirao university of baroda, department of psychology, india raesah.95@gmail.com raesah tinwala is a master’s graduate from the maharaja sayajirao university of baroda. she received a bachelor’s degree in psychology, a master’s degree in industrial/organisational psychology from the maharaja sayajirao university of baroda, india. she is currently pursuing her career in industrial/ organisational psychology. she is interested in sustainable development, training and development. urmi nanda biswas the maharaja sayajirao university of baroda, department of psychology, india biswas.urminanada-psy@msubaroda.ac.in dr. urmi nanda biswas is a professor at the department of psychology, the m. s. university of baroda, gujarat (india). her research interests in the field of organizational behaviour include attractive work, employee retention strategies and workforce participation across sectors and national culture. she has published over 50 research articles in peer reviewed journals and book chapters. recently she has authored a book titled “understanding attractive work in a globalised world: studies from india and sweden” published by springer nature, singapore. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05_zivaljevic:tipska.qxd 49 aleksandra živaljević1, vuk bevanda1, dragana trifunović1 1faculty of business studies, john naisbitt university, serbia management: journal of sustainable business and management solutions in emerging economies 2017/22(3) life cycle of quality management system in organizations doi: 10.7595/management.fon.2017.0012 1. introduction the implementation of quality programs or models for quality improvement, which can be based on already existing and suggested models or can be developed for particular company often leads to major change within an organization (gokul & sarada, 2015; hahn, 2012; almaraz, 1994).many research works, studies and surveys have been conducted on the effects of most commonly used model for quality improvement, recommended by the iso 9001 standard, i.e.,the quality management system (qms) model (see:sampaioet al., 2009; fotopouloset al, 2010; cruciniand kipping, 2001; canet-gineret al., 2010; sroufeet al., 2008, franceschini et al., 2016).the iso 9001 registration efforts benefit a firm’s competitiveness, but achieving the iso 9001 certification alone will not lead to higher profitability (pires et al., 2013; sampaio, saraiva& monteiro, 2012). however, there are studies that claim that firms reported that some specific activities and relationships did not change after a qms adoption (fouayziet al., 2006; hadidi et al., 2017). the qms model is based on process approach (grochau & ten caten, 2012; nestic et al., 2015;yu, to& lee,2012) and sees an organization as a system of processes. therefore, it would be expected thatqms implementation would directly affect processes of company forcing them to change.furthermore, the logic abstract: considering that some organizations implemented the iso 9001 standard more than 25 years ago, while othersdid it a while ago, some quality management systems (qms) are older than others. this fact led authors to question whether there are differences between long and recently implemented quality management systems. is there a pattern that qms follows in its aging that could be considered as a life cycle of qms? from october 2013 to june 2014, authors have conducted a survey in 186 certified companies using structured questionnaire in order to learn whether there was a significant difference between long and recently implemented qmss.collected data were processed using the anova test with a confidence interval of 95%, i.e., α=0.05.results show that there is a difference between quality management systems in the mature stage and those recently implemented. however, research pointed out two facts. first,34.41% of all surveyed companies apply qms partially and have virtual qms that has no purpose of improving business performances but only the purpose ofmaintaining the company’s certificate. second, in companies that apply qms fully, the frequency of all processes (which are elements of qms) decreases in the first seven years of implementation, while after that period it begins to increase. also, the paper describes indicators for determining companies which partially apply qms. keywords: quality management system; process frequency; internal audit; corrective measures; preventive measures. jel classification: c11, d22, l25, m11, y10 1corresponding author:aleksandra živaljević, azivaljevic@naisbitt.edu.rs conclusion indicates that processes will change as long as qms is properly used in the company, becausecontinuous improvement isa major principle ofiso 9001.still, the nature of changes in the organization’s processes after qms implementation is not clear. the aim of this paper is to explain what happens to qms during its application period, from the moment the company is certified for the first time up to now. 2. background of research goetsh and davies (2005) indicated that the quality management system “consists of all the organization’s policies, procedures, plans, resources, processes, and delineation of responsibility and authority, all deliberately aimed at achieving product or service quality levels consistent with customer satisfaction and the organization’s objectives. when these policies, procedures, plans, etc., are taken together, they define how the firm works, and how quality is managed.” therefore, the qms consists of a number of interrelated processes (anttila & jussila, 2017; domingues, sampaio&arezes, 2015; zivaljevic, mitrovic & petkovic, 2013; phenget al., 2008), all described by the qms documentation. the qms is actually a set of documents but when applied, quality management system consists of the organizational structure and processes necessary to implement a quality policy (alper, 2013; davis et al., 2012; zelniket al., 2012). companies ofthe same business type,those that have the same processes, products and services, may have differently designed quality management systems. the difference originates from various approaches in designing and implementingthe qms.it is known that the same process, depending on the designer’s logic and on the required detailed level, can be designedin various ways and described differently by qms documents. the same record, part of the qms documentation, can have a completely different form and can require different information in two different companies. therefore, quality management systems can be designed better or worse, can to a lower or higher degree fit the company and therefore can be more or less implemented as an integral part of the company. it is expected that those quality management systems which are designed worse or integratedless in a real business systemwill reach optimal design or become fully integratedat some point in time by using continual improvements. an optimal quality management system conformed to iso 9001 can be understood as an integral part of the companywhich brings benefits. simply explained, it is a set of documents that describes processes of the company while those processes are conducted in reality exactly as they are described in documents. an optimal qms is a system that does not live a life parallel to the real business system’s life. on the contrary, a parallel qms is a formal system which is not implemented fully – it is set of documents which describes processes while those processesare conducted differently in reality. therefore,it is either a burden for the companyor is periodically applied only tomaintain the certificate. after some time followingapplication, parallel systemwilleither improve to become optimal andfully adopted,or it will becompletely rejected. the aims of iso 9001 are to facilitate the business (de oliveira, 2013; psomas, kafetzopoulos & fotopoulos, 2012; baldassarreet al., 2012)and to encourage the organization’s improvement (pellicer et al., 2012). those aims should be performed internally and externally. internal performance should be done by optimization and standardization of processes. the standardizationreducesthe cycle time of processes (duncan et al., 2015), thereforethe number of times of process’s performance would increase perperiod i.e., process frequency would increase. external performance should be done by ensuring successful development process which would perform constantly, ensuringthat the company can keep up with changes in the environment. the process of internal audit is one of the foundations of the iso 9001 standard and it is usually introduced in the company for the first time along with the qms implementation. the process of continual improvement of the qms is based on an internal audit process, while audits identify non-conformities in the organization and collect data on the state of quality management system in order to perform a management review which directs the system towards real and possible improvements. root causes of non-conformities are eliminated by the process of corrective actions control in order to disable reappearance of the same nonconformance. internal audits bring the qms and the real operating system closer to each other and improve them together (bernardo et al., 2012; biasini, 2012; karapetrovic et al., 2000; ni et al., 2003) while the internal audit process is inseparable from the process of corrective actions control. quantity and type of identified non-conformities in internal audit can be understood as indicators of full or partial implementation of a quality manage50 aleksandra živaljević, vuk bevanda, dragana trifunović 2017/22(3) ment system. if non-conformities relate mainly to incorrect filling of records, incorrect placing of the records or some other formal mistakes,the quality management system is either not understood as an integral part of the system or internal auditors are not doing their job properly. since the internal auditors are part of the organization, it can be concluded that such company is using procedures and records in order to maintain certificate, or that the qms and the real operating system are not integrated. the process of preventive action control is conducted to eliminate any possibility of potential non-conformance appearance by applying preventive measures on the causes of possiblenonconformities. a company that fully implements the qms understandsits business system well, therefore it is able to predict and avoid possible mistakes. as the company reduces nonconformities over time (see: karapetrovic et al., 2006), it is expected that the number of corrective actions should decrease. consequently, in such companies,the ratio between preventive and corrective measures would be higher than in those companies that implement the qms partially. it could be concluded that over the time of two systems of the qms application, the real business system and the qms will becomecloser until they integrate completely and continue with further changes as one inseparable system.thismerging is impossible without changes in processes which are basic elements of both systems, the real one and the qms. the main goal of any organization, besides surviving on market, is to develop; therefore it is expected that the process of development will become easier to conduct ,i.e., its cycle time will decrease and it would deliver more certain results. also, it is expected that merging of business and quality management system will cause changes in the type and number of nonconformities, as well as in the ratio betweenpreventive and corrective measures. 3. research method the authors conducted a survey in 186certified companies from october 2013 to june 2014. the aim of the research was to identify whether there is a difference between long and recently implemented quality management systems and,if so,to determine the pattern that the qms follows in its aging that can be considered as a life cycle of the qms. the research is based on the following hypothesis: h1: if the qms is fully implemented, then there will be a change in the frequency of processeswhich are required by the iso 9001 standard. h2: if the process frequency changes through time of the qms application, the change will pass different stages which will create a life cycle of the qms. the research useda questionnairestructured in three parts. the first part of the questionnaire focused on general information about the company, about the methodthe company used to design and implement the qms and about the year of its first certification. the year of the first certification indicates thecompany’s qms maturity. also, the first part of the questionnaire contained a question which enabled the classification of companies into two groups: those companies thatintegratedthe qms in their daily business life and those companies that have two parallel systems. this question related towhether the company applies the qms fully, i.e., all processes are performed according to the relevant valid qms documentation, whether the company applies some of processes according to valid qms documents and avoids applying some, or the company applies the qms documentation only before the external audit in order to maintain the certificate. the second part contained questions related to thetype of documentation which the company uses to describe and control the processes required by the iso 9001. the same part of questionnairecontained questions about the frequency of each processthat is required by the iso 9001 standard. the frequency of process relates to the number of the process conductions per year.those questions were meant toindicate whether there were differences between long and recently implemented quality management systems.the processes of production or service delivery were not taken into consideration, given that company performs those processes constantly in order to survive on the market. the third part of the questionnaire contained questions related to the number and type of nonconformities that were identified in the company by internal and external auditors, to the number of preventive and corrective measures. those questions were to give data on the ratio between preventive and corrective measures, as well as aninsight into the company’s understanding of the qms. 51 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) the questionnaire was sent to a management representative of each surveyed company. the sampled companies were classified into two groups according to their statement about the way they apply qms and according to their statement about the number of internal audits a company performs per year. in casethe company did not perform at least two internal audits per year, then it will not recognize the status and importance of the processes, as well as the results of previous audits (these are important requests of the iso 9001 standard (iso 9001, 2014, p.73)). the first group included those companies whichimplement the qms fully, while the second group included those which apply the qms partially or only for maintaining certification. all companies which did not apply the qms fully were excluded from further analysis of process frequency. the companies which implement the qms fully were classified according to the maturity of their quality management systems into 11 groups. each group consisted of companies which were certified for the first time in the same year and each group of companies was processed separately.the second part of the questionnaire contained questions about the process frequency where for each process the company could answer by choosing one of 16 offered answers. for the purpose of data processing, a value between 0 and 365 was assigned to each offered answer in the questionnaire. assigned valuesrepresent the number of the process beginnings in a single year and they are shown in table 1. table 1: assigned values for offered answers in questionnaire for process frequency the frequency of processes for each group of the sample was calculated as an average of assigned valuesrelated to the answer which each company had chosen as an answer about its process frequency.average was also used as a statistical method for processing the rest of the obtained data.in order to learn whether there was a significant difference between those eleven groups the anova test was applied on the processed data with a confidence interval for of 95%, i.e., α=0.05. 4. research results and analysis the qms is partially applied in 34.41% of all sampled companies. those companies were excluded from further analysis. the structure of the sample according to full or partial implementation of the qms and according to qms age is shown in table 2. table 2: the structure of the sample 52 aleksandra živaljević, vuk bevanda, dragana trifunović 2017/22(3) offered answer in questionnaire assigned value offered answer in questionnaire assigned value once a day 365 once in eight months 1.52 once a month 12 once in nine months 1.35 once in two months 6 once in ten months 1.22 once in three months 4 once in eleven months 1.11 once in four months 3 once a year 1 once in five months 2.4 once in two years 0.5 once in six months 2 once in three years 0.33 once in seven months 1.4 never 0 age of qms 1 year 2 years 3 years 4 years 5 years 6 years 7 years 8 years 9 years 10 years > 10 years total companies which apply qms fully [1] 12 9 10 10 12 14 9 10 12 10 14 122 [%] 57.1 56.3 50.0 71.4 75.0 77.8 60.0 66.7 75.0 66.7 70.0 65.6 companies which apply qms partially [1] 9 7 10 4 4 4 6 5 4 5 6 64 [%] 42.9 43.8 50.0 28.6 25.0 22.2 40.0 33.3 25.0 33.3 30.0 34.4 total no. of companies in maturity group [1] 21 16 20 14 16 18 15 15 16 15 20 186 the minimal time of the qms design is nine months in companies which stated to apply the qms fully, while all of those companies usedhelp of consultants. their reasons for the qms implementation are different, but they all state that benefits of the qms implementation are: better organization of work, costs reduction, higher percent of plan realization, better anticipation of customer needs, managers’ better understanding of company. the average frequencies of their processes, considering the age of their qms, are given in table 3. table 3: average frequencies of processes required by iso 9001 depending on qms maturity in companies that fully apply qms 53 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) age of qms process 1year 2years 3years 4years 5years 6years 7years 8years 9years 10years > 10 years control of documents 1.242 2.099 4.351 4.904 5.337 9.333 0.266 0.923 2.630 3.583 5.865 identification of custom.requirements 27.348 14.853 14.125 10.904 7.571 7.390 7.800 6.540 7.880 8.667 12.291 quality policy review 3.388 3.735 1.423 0.714 0.786 0.250 0.766 0.333 2.300 0.722 0.291 quality objectives setting 2.583 2.471 1.131 1.727 1.857 1.0773 1.0866 1.500 1.900 1.682 2.375 qms planning 4.500 2.853 1.495 1.584 0.857 0.523 0.900 0.526 0.665 1.432 2.188 management review 5.667 4.176 1.286 1.571 1.429 1.750 1.400 1.250 1.900 1.300 7.375 human resources training 26.348 6.412 1.305 1.189 0.071 0.105 0.018 10.458 23.165 26.070 29.729 evaluating the effect. of hr trainings 8.182 3.912 1.097 1.119 0.016 0.073 0.006 10.273 23.121 25.333 28.351 identification of requirem.for product 24.167 3.931 0.282 1.714 0.143 0.125 0.866 2.111 1.210 1.682 19.988 review of requirem. related to the product 23.167 3.206 0.114 0.357 0.286 0.273 0.67 0.523 0.415 2.403 18.886 customer communication 23.167 21.559 22.952 22.286 24.013 25.083 25.200 26.068 27.011 24.015 48.063 design and developm. planning 7.212 5.152 2.149 1.311 0.169 0.108 0.099 4.330 4.478 8.583 13.563 design and development review 6.737 2.716 2.649 1.299 0.584 0.833 0.900 4.750 4.500 6.167 13.590 design and developm.verification 6.598 2.623 3.013 1.299 0.357 0.750 1.100 4.500 4.665 6.250 13.660 design and developm.validation 6.432 1.912 1.448 1.370 1.941 0.375 1.140 2.398 6.315 6.348 13.125 control of design and developm.changes 2.682 1.814 1.435 1.013 1.441 3.440 1.118 0.498 4.210 8.265 12.900 design and devel.changes review 1.530 1.240 1.299 0.311 1.941 0.750 0.436 0.333 1.330 10.182 11.438 purchasing 276.120 69.176 68.988 61.156 54.571 52.023 39.200 53.023 53.045 53.515 199.125 verification of purchased product 259.167 77.941 64.441 64.013 66.857 44.770 39.999 62.25 62.545 62.265 243.488 control of monitoring and measuring equi. 7.417 1.854 0.429 2.026 0.156 0.375 0.400 1.300 2.430 8.722 15.910 monitoring & measuring cust.satis. 16.167 14.882 5.649 3.857 2.013 0.750 0.532 3.068 1.665 2.320 17.875 monitoring & meas. processes quality 19.167 12.471 8.305 12.429 12.143 10.500 10.600 10.887 13.500 14.555 24.375 monitoring & meas. product quality 61.182 59.957 57.370 48.740 48.286 34.150 29.932 31.645 48.045 49.515 53.938 internal audit control 5.250 5.941 3.143 3.214 3.857 3.500 3.340 3.750 3.500 3.750 4.938 corrective action control 14.033 14.188 11.107 10.514 8.76 7.867 6.947 4.191 4.143 4.182 3.700 preventive action control 1.917 1.059 1.1407 1.233 1.3538 1.167 1.286 4.333 5.375 7.5 12.188 frequency of all processes 841.37 342.133 282.127 261.854 246.796 207.341 176.008 251.761 311.943 349.008 829.215 as the aim of research was to find out whether there is any difference between eleven groups of companies, i.e.,whether the qms maturity influences the frequency of processes,the anova method was applied with confidence interval of 95%, i.e., α=0.05, andthe f-test was used.the results of the anova are given in table 4. table 4: results of anova as variance quotation is higher than statistics f(10;275;0,05) = 1.865224851, it can be concluded that there is a difference between different groups of qms maturity, meaning that qms maturity influences frequency of processes in the company. figure 1 shows the trend in change of processes frequency over the qms ageing. at the beginning of qms implementation, everything seemed to be slowing, due to the fact that the frequency of all processes is decreasing. one assumption could be that cause of frequency decreasinglies in the company’s tendency to conform newly implemented qms to the real operating system. at the beginning of qms implementation all procedures could be designed to fit ideal process flows, but those ideal flows could be far away from reality. therefore qms procedures and processes in reality are changing together, trying to meet each other in the optimum. figure 1: change of frequency of all company’s processes depending on qms maturity after the implementation, changes of the qms should be done by conducting a process of “control of documents”. figure 2 shows a trend of frequency of “control of documents” process depending on qms maturity. it is obvious that the frequency of all processes has an opposite trend regarding the frequency of “control of documents” until the sixth year of the qms application. this supports the assumption that the firm is finding the way to conform processes in reality and qms procedures. this fitting should not be taken as a real improvement of both systems: the qms and the business system. 54 aleksandra živaljević, vuk bevanda, dragana trifunović 2017/22(3) number of groups k 11 number of data in one group n 26 number of data in all groups n = k * n 286 intergroup variability degree of freedom k-1 10 internal variability degree of freedom n-k 275 total average __ 11 26 xt = xij/ n i=1 j=1 14.33410629 internal variability 11 26 __ ( (xi xij) 2) i=1 j=1 275708.99781 intergroup variability 11 __ __ ( xi xt) 2 * n i=1 21163.26061 variance of intergroup variability 11 __ __ g 2 = ( xi xt) 2 * n / (k-1) i=1 2116.326061 variance of internal variability 11 26 __ i 2 = ( (xi xij) 2) / n-k i=1 j=1 1002.578174 f value for sample f = g 2 / i 2 2.110883836 figure 2: change of frequency of process “control of documents” depending on qms maturity in the seventh year of qms application, the frequency of “control of documents” process rapidly decreases indicating that the company has conformedits qms to the business system, therefore processes described by procedures are conducted as they are designed. as there is no need any more for conformingthe qms to business system, the process of change almost stops. a concurrent increase in frequency of all processes and of the process of “control of documents” begins after the seventh year of qms application. this can be explained by the fact that the business system andthe qms integrated, causing the procedures improvement to be simultaneously adopted in reality after the seventh year. figure 3 shows changes in the frequency ofthe “design and development” process.the frequency of the “design and development” process decreases with the ageing of the qms, but after seven years of its maturity, the frequency of the “design and development” process begins to increase. compared to the life cycle of an organization, the frequency of the “design and development” process behaves in an opposite manner. it seems that in the first seven years the company focuses all its efforts on internal changes, but after that period it turns to external environment. figure 3: change of frequency of process “design and development” depending on qms maturity the frequency of corrective and preventive actions, shown in figure 4, ischanging in time with the qms aging, too. the relation between corrective and preventive actions declines with the qms ageing which indicates that the company is more anticipant over time, while it acquires the ability to prevent adverse eventsand understands the qms is better over time. 55 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) figure 4: change in quantity of corrective and preventive measures depending on qms maturity the number of nonconformities identified during the internal audit decreases with the ageing of the qmsand the share of nonconformities related to the formal mistakes that do not offer the potential forsubstantial qms and business improvement is being reduced (figure 5). it further means thatinternal audits are conducted better and thatmore attention is paid to the substantial improvements of qms in time. figure 5: change in number and type of nonconformities depending on qms maturity table 5 shows a year of maximal and minimal frequencies of each process, together withthe change rate which representsa quotient of the maximum and minimum frequencies of the same process. as the rate is higher, the change is larger. 56 aleksandra živaljević, vuk bevanda, dragana trifunović 2017/22(3) table 5: minimal and maximal frequencies and change rate the largest change in the process frequency occurs in two processes: in evaluating the effectiveness of the human resource trainings and in conducting human resource trainings.the data in table 3 show thata rapid increase in frequencies of those two processes starts after seven years of qms application. before the seventh year the frequency decreases. the seventh year of qms application is obviously a critical year;most processes have a minimal frequency in this year. furthermore,the number of corrective actions is larger than the number of preventive actions for the last time in the seventh year. 57 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) maximal frequency of process change year of qms maturity with maximal process frequency minimal frequency of process change year of qms maturity with minimal process frequency difference between maximal and minimal frequency change rate max / min evaluating the effectiveness of the human resource trainings 28.351 after 10th year 0.006 7th year 28.345 4725.167 human resources training 29.729 after 10th year 0.018 7th year 29.711 1651.611 review of requirements related to the product 23.167 1st year 0.114 3rd year 23.053 203.2193 identification of requirements related to the product 24.167 1st year 0.125 6th year 24.042 193.336 design and development planning 13.563 after 10th year 0.099 7th year 13.464 137 control of monitoring and measuring equipment 15.91 after 10th year 0.156 5th year 15.754 101.9872 design and development verification 13.66 after 10th year 0.357 5th year 13.303 38.26331 design and development changes review 11.438 after 10th year 0.311 4th year 11.127 36.77814 control of documents 9.333 6th year 0.266 7th year 9.067 35.08647 design and development validation 13.125 after 10th year 0.375 6th year 12.75 35 monitoring and measuring customer satisfaction 17.875 after 10th year 0.532 7th year 17.343 33.59962 control of design and development changes 12.9 after 10th year 0.498 8th year 12.402 25.90361 design and development review 13.59 after 10th year 0.584 5th year 13.006 23.27055 quality policy review 3.735 2nd year 0.25 6th year 3.485 14.94 preventive action control 12.188 after 10th year 1.059 1st year 11.129 11.50897 qms planning 4.5 1st year 0.523 6th year 3.977 8.604207 purchasing 276.12 1st year 39.2 7th year 236.92 7.043878 verification of purchased product 259.167 1st year 39.999 7th year 219.168 6.479337 management review 7.375 after 10th year 1.25 8th year 6.125 5.9 identification of customer requirements 27.348 1st year 6.54 8th year 20.808 4.181651 corrective action control 14.188 2nd year 3.7 after 10th year 10.488 3.834595 monitoring and measuring processes quality 24.375 after 10th year 8.305 3rd year 16.07 2.934979 quality objectives setting 2.583 1st year 1.0773 6th year 1.5057 2.397661 customer communication 48.063 after 10th year 21.559 2nd year 26.504 2.229371 monitoring and measuring product quality 61.182 1st year 29.932 7th year 31.25 2.044033 internal audit control 5.941 2nd year 3.143 3rd year 2.798 1.890232 average maximum maximal process frequency mostly appeared average minimum minimal process frequency mostly appeared in average difference average rate 37.445 after 10th year 6.153 7th year 31.292 281.316 58 aleksandra živaljević, vuk bevanda, dragana trifunović 2017/22(3) it can be concluded that the qms life cycle consists of two stages: the fitting stage and the beneficial stage. the fitting stage, characterized by the company’s tendency to conform the qms to the real business system, lasts for seven years. in this stage, theprocess of development is slowing, the frequency of all changes in processes is constantly increasing and corrective activities are much more frequent than preventive ones. the company learns how to use the qms and how to benefit from it. nonconformities are frequent and the company is fixing the already occurred errors. in time, the company understands the qms better, therefore the number of formal nonconformities is reduced, and the company begins to engage in substantive improvements. a beneficial stage occurs after seven years of qms application if the company did not reject its qms. it is expected in this period that development process constantly increases its frequency, while changes in the qms documentation starta new cycle of change. preventive actions are more frequent than corrective; the company anticipates adverse events and threats, tending to eliminate them before errors occur. almost all nonconformities are substantial but their occurrence is low. everything in the company wakes, all processes accelerate and the company finally starts to benefit from the qms implementation. nonconformities are related to the formal mistakes in 96.875% of companieswith a parallel qms and nonconformitiesare identified only by internal audits. in 100% of those companies customer complaints neverinitiate corrective actions and usually are not recorded anywhere. therefore, companies with a parallel qms are not able to analyze the results of complaints resolutions. in 93.75% of these companies internal audits have been conducted only once per year, a qms has been designed for three to four months by a consultant who is usually (in 68.75%) still maintaining a qms and conducting internal audits in the company. most of those companies (84.375%) claimed in the survey that the major problem in their qms is that procedures and records were too complicated or that the qms documentation did not describe real processes. those companies have parallel qms systemswhichare pulling them downhill. it is obvious that consultants play an important roleindesigning successful quality management systems and influence the future development of the qms and its integration into the business system. also, companies’ attitude towards the importance of the qms and its improvement depend on consultants (cruciniand kipping, 2001). conslusion the research has shown that quality management systems have a life cycle each which consists of two stages -each characterized by different trends in frequency of process required bythe iso 9001 standard, the development process, of preventive and of corrective actions. given that the development process has the least frequency aroundthe seventh year after the qms implementation, its flow should be recognized as the most important. in the same year of the qms age number of corrective actions is larger than the number of preventive actions per year for the last time, while the share of substantial nonconformities identified during internal audits rapidly grows. considering all previously elaborated,the seventh year afterthe qms implementation is a critical period for those companies whichtend to use the qms fully in order to improvetheirperformances. the research has also shown that companies with a parallel qms can be identified by following indicators: most of nonconformities relate to the formal mistakes; all nonconformities are identified only by internal audit; customer complaints never initiate corrective actions; qms was designed for three to four months before by a consultant who is usually still maintaining it; procedures and records are too complicated. therefore, for companies with parallel qms the only way for making things better is to start designing the qms from the beginning. finally, the esearch shows that the maturity of the quality management system affects the frequency of all processes in companies that apply the qms fully. it is expected for frequency of all processes to decline in the first seven years, while the frequency of “control of documents” process increases during that time. a reverse phenomenon will occur in the next five years of application. also, it is expected that a certain percentage of all qms is deliberately parallel. as companies with parallel qms continuously keep their certificates (see: finkle & shin, 2007), external 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(2009). an analysis of iso 9000 data in the world and the european union.total quality management and business excellence, 20(12),13031320.doi:10.1080/14783360903250597 [33] sroufe r. & curkovics. (2008). an examination of iso 9000:2000 and supply chain quality assurance.journal of operations management, 26, 503–520 doi:10.1016/j.jom.2007.06.006 [34] yu, b. t., to, w. m., & lee, p. k. (2012). quality management framework for public management decision making. management decision, 50(3), 420-438.doi:10.1108/00251741211216214 [35] zelnik, m., maletic, m., maletic, d., &gomiscek, b. (2012). quality management systems as a link between management and employees. total quality management & business excellence, 23(1), 4562.doi:10.1080/14783363.2011.637781 [36] zivaljevic, a., mitrovic, z.,& petkovic, m. (2013). conceptual and mathematical model for quality improvement in health care. the service industries journal, 33(5), 516541.doi:10.1080/02642069.2011.622368 received: 2016-01-29 accepted: 2017-10-23 61 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) about the author aleksandra živaljević azivaljevic@naisbitt.edu.rs aleksandra živaljević is an assistant professor at the faculty of business studies, john naisbitt university, where she teaches courses in quality management, operations management and logistics at the undergraduate level and management of r&d and quality management in health care at graduate academic level of studies. she was a vice-dean for scientific research of the faculty of business studies and quality manager of john naisbitt university. she is the president of the commission for impartiality assurance of certification body, ‘management systems certification’. she holds a phd from the department of quality management at the faculty of organizational sciences in belgrade. her academic career is devoted to the study of quality management and operations management in specific organizations and systems education and health care. she has published more than 30 scientific papers, some of those in sci journals. vuk bevanda vbevanda@naisbitt.edu.rs vuk bevanda is an assistant professor at the faculty of business studies, john naisbitt university. he has published a number of papers in various categories, including the best-ranked national and international conferences, journals, and thematic collections of papers. he also published a textbook and a practicum of microeconomics. he has lectured at the chamber of commerce, was the chairman of the scientific conference at the john naisbitt university, a member of the program committee of the regional conference. dragana trifunović dtrifunovic@naisbitt.edu.rs dragana trifunović is an assistant professor at the faculty of business studies , john naisbitt university, where she teaches courses in management of research and development and technology management. she is a vice dean for the first level studiesat the faculty of business studies. she has published a number of papers in various categories, including national and international conferences, journals, and thematic collections of papers. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03 ziga peljko:tipska.qxd 25 žiga peljko1, gašper jordan, mitja jeraj2, ivan todorović3, miha marič*4 1kd group d.d. 2gea college, faculty of entrepreneurship ljubljana 3university of belgrade, faculty of organizational sciences 4university of maribor, faculty of organizational sciences udc: 005.342:159.954-057.17 005.412:334.7 do entrepreneur’s creative abilities influence company’s growth? doi: 10.7595/management.fon.2017.0001 1. introduction the study of entrepreneurship in international context has been a topic of great significance in the last two decades (navarro-garcía, 2016) together with an increased awareness of importance to research different entrepreneurship related constructs (jeraj et al., 2015). entrepreneurship is a dynamic process where individuals create incremental wealth and bear the main risk in terms of providing value to the product or service (sulistyo, 2016) and it is a social phenomenon as well (thornton et al., 2011). entrepreneurship is of the utmost importance for having a healthy and wealthy economy (saiz-álvarez et al., 2014). the entrepreneur is a person who is capable of converting a new idea or invention into a successful business (schumpeter, 2012). entrepreneurs are creative at work because they are expected or required to be (antonio et al., 2014). creativity is a proactive approach toward the production of novel and useful ideas that address a predicament or opportunity (bai et al., 2016) and allows entrepreneurs to make the most of opportunities that allow their firms to be more competitive and innovative (fillis & rentschler, 2010). since creativity is a highly complex concept, one approach that has proven effective models creativity as a process (chen, chang & lo, 2015). entrepreneurs are role models for creativity and they continue to orchestrate opportunities (albort-morant & oghazi, 2016) for novel and unexpected behaviours (jaussi & dionne, 2003), which makes them successful (tee suan chin et al., 2012). entrepreneurs are a driving force (ismail, 2014) in that they createg possibilities (hjorth & holt, 2016), which gives them a leading role in economic development worldwide (de vitaa, mari & poggesi, 2014). our approach builds on the basadur approach (2004) of creative problem solving and recognizes the entrepreneur’s creativity as a continuous, circular process, beginning with problem finding, followed by problem conceptualization, problem solving, and solution implementation, which is especially present when it comes to entrepreneurs (baron & tang, 2011). the creative process is understood as a creative cognitive processing of problems which consists of analysing and articulating the exact nature of the problem to be solved, preparing to solve the problem by gathering information and improving required skills, generating management: journal of sustainable business and management solutions in emerging economies 2017/22(1) abstract: the main aim of our research was to empirically test how the independent constructs representing the entrepreneur’s creative abilities are connected to the construct of the company’s growth and to develop and empirically test a structural model linking these constructs. we tested two models with structural equation modelling. we compared two structural models, which were made based on the sample of entrepreneurs from slovenia and usa combined and serbia. the findings showed that the entrepreneur’s creative abilities are positively related to company’s growth in case of slovenia and usa combined; in the serbian context, we did not find connection between the entrepreneur’s creative abilities and the company’s growth. the results of this study can be used both for further research and in practice. keywords: company growth, creativity, entrepreneurship, hrm, sem jel classification: l26, l21, l25, c80 *corresponding author: miha marič, e-mail: miha.maric@fov.uni-mb.si ideas for solving the problem, testing the chosen solution, and communicating the solution to others (amabile & mueller, 2008). byrge and tang (2015) even put forward creativity training. creativity can be seen as generation of new ideas and innovation as commercialization of new ideas (harris, 2009; basadur, 2004), which fosters an entrepreneurial culture (edwards-schachter et al., 2015) and therefore we can expect it to lead to the company’s growth. for the purpose of this paper, we use the definition of creativity as a process (basadur, 2004) that involves continuously finding and solving problems and implementing new solutions. creativity is an individual’s exceptional knowledge element (audretsch & belitski, 2013). industrial psychology researchers find individual creativity in organizations as one of key elements in unleashing an organization’s creative and innovative potential (ahlin et al., 2014). 2. theoretical review 2.1. entrepreneur’s creative abilities creativity is the ability to discover new ideas which are surprising (de lucia et al., 2016) and involve individual’s spaces in mind, their possible transformations and thinking of something which may not have been thought before (ritchie, 2012). individuals who are creative in one area are presumed to be creative in other areas, just as individuals who are highly intelligent perform well in a wide range of cognitive tasks (silvia et al., 2009). entrepreneurship is indissoluble from creativity (rahman et al., 2015) and has a significant influence on the company’s growth (dayan et al., 2013). entrepreneurs are confronted with high uncertainty, which means more ill-defined and ambiguous problems that are characterized by multiple possible goals and multiple ways of solving a problem; also in the function of intermediation (peng et al., 2014). creativity involves generation of novel and useful ideas (sarooghi et al., 2015) and entrepreneurial minds for continuous improvement (kabukcu, 2015). a creative problem solver first constructs the problem to be solved, therefore, problem finding (basadur, 2004) or problem construction or problem definition is the first step in the creative process (lubart, 2001). the way the problem is constructed has an impact on solution generation (adelman et al., 1995) and is related to the quality and originality of solutions to real-life problems (reiter-palmon et al., 1998). cognitive processes associated with creativity are central to the generation of creative output (reiter-palmon & illies, 2004). the problem finding activity is intended to enable people to think in innovative ways, since discovered problems are more likely to be solved creatively than presented problems, and problem discovery itself is an important part of creativity. after problem-finding activities are finished, a diverse and large amount of information has to be gathered and integrated. problem solving integrates the thinking and behaviour we engage in to obtain the desired outcome we seek (treffinger et al., 2008). two main processes are used in the problem solving activity: (1) search and collection of existing concepts and (2) creation of new concepts through the connection and modification of the existing concepts (reiter-palmon & illies, 2004). the utility of convergent and divergent thinking styles (ashton-james & chartrand, 2009) varies with social demands. convergent thinking facilitates collaboration and coordination (bahar & hansell, 2000) while divergent thinking facilitates improvisation and innovation (nemeth & goncalo, 2005). butler and scherer (1997) found that the largest number of solutions are generated when goals are presented sequentially, one at a time to the problem solver and the highest quality solutions are generated when two conflicting goals are presented simultaneously to the problem solver. processes involved in the last phases have gained less attention than processes involved early in the creative cycle (mumford, 2001). the solution implementation activity involves mainly persuasion and social skills (reiter-pulmon & illies, 2004) and is subject to criticism, which involves fear of failure and of the unknown. a creative solution implementation is supported by domain-relevant skills (knowledge and expertise), creativity-relevant skills and task motivation (amabile, 1997). elements of the work environment affect individual creativity by influencing expertise, task motivation, and creative skills (amabile, 1997). some (chen et al., 2015) even use the term creative entrepreneurs. 26 žiga peljko, gašper jordan, mitja jeraj, ivan todorović, miha marič 2017/22(1) 2.2. company’s growth since lee (2010) argued that recently the study of the patterns and determinants of the company’s growth has re-emerged as one of the key research topics on firm dynamics in industrial economics (sleuwaegen & boiardi, 2014) and management strategy, this paper focused on the relations between the entrepreneur’s creative abilities and the company’s growth. there is also a term growth companies for those companies that generate significant positive flows, which grow faster than the overall economy (investopedia, 2016) and other companies. when analysing the company’s growth, a common starting point is to specify a company’s growth model that considers the impact of the size and age of the firm (cucculelli & ermini, 2012). the current study extends this area of research with following variables: average annual growth in number of employees in the last three years; average annual growth in sales in the last three years; and growth in market share in the last three years. companies must achieve sustainable growth (sidik, 2012). 3. research methodology 3.1. hypotheses creativity is a significant determinant of growth in modern economies (sokol et al., 2015); based on this and on the above stated, we formulated three hypotheses to determine relations between the proposed constructs in the proposed model. h1: problem finding activity is positively related to company’s growth. h2: problem solving activity is positively related to company’s growth. h3: solution implementation activity is positively related to company’s growth. at the beginning of the next chapter, we present the data gathering process and the sample properties and thereafter continue with the results of the current study, which we later discuss and interpret. 3.2. research setting and participants in this study, the questionnaire developed by peljko et al. (2016) was used. for the purpose of this research the questionnaires were made available to entrepreneurs (i.e., founders or owners who participated in the start-up process of their company) from slovenia, usa, and serbia. for the slovenian sample, the questionnaire was composed in the slovenian language, for the usa sample the questionnaire was composed in english, and for the serbian sample it was made in the serbian language. the primary form of the questionnaire was in the english language and translated into slovenian together with the serbian sample. emails with a link to the questionnaire and a specific token for each respondent were sent to 4,000 entrepreneurs in slovenia, to 5,000 entrepreneurs in the usa and in serbia they were handed out personally. email addresses and addresses were selected randomly from public registers in case of slovenia and usa; in serbia they were chosen personally. priot to completing the questionnaires, entrepreneurs were assured that all answers provided would be kept anonymous. the questionnaire included measures of the entrepreneur’s creative abilities and the company’s growth. of 529 questionnaires that were returned all were filled-in fully. at the beginning of the questionnaire entrepreneurs had to mark their gender, age and the country they reside in. the sample consisted of 379 (71.6%) male and 149 (28.1%) female respondents (one person did not state their gender, as it was not possible to provide an answer in that particular question). the average age of the respondents was 46.51 years. out of 529 respondents, 158 (47.73%) came from slovenia, 173 (52.27%) from the usa and 198 (37.43%) from serbia. the entrepreneurs’ level of education is presented in table 1. 27 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) table 1: sample structure by level of education in addition, entrepreneurs also had to indicate if they are founders or co-founders (table 2) of the firm to which the questionnaire had been sent, and if they own such a firm (table 3). table 2: is the respondent a founder or co-founder of the company to which the questionnaire was sent? table 3: is the respondent an owner in the company to which the questionnaire was sent? further on we present the sample structure in regard to the respondents’ companies by sector (table 4). table 4: sample structure in regard to the respondents’ companies by sector 28 žiga peljko, gašper jordan, mitja jeraj, ivan todorović, miha marič 2017/22(1) slovenia and usa (combined) serbia percent frequency percent frequency high school 4 1.2 4 2.0 high school graduate 9 2.7 43 21.7 college 33 10.0 31 15.7 associate`s degree 71 21.5 17 8.6 bachelor`s degree 60 18.1 53 26.8 master`s degree 59 17.8 42 21.2 doctoral degree 33 10.0 2 1.0 professional degree 48 14.5 6 3.0 other 14 4.2 0 0.0 total 331 100.0 198 100.0 slovenia and usa (combined) serbia frequency percent frequency percent yes 231 69.8 154 77.8 no 100 30.2 44 22.2 total 331 100.0 198 100.0 slovenia and usa (combined) serbia frequency percent frequency percent yes 254 76.7 158 79.8 no 77 23.3 40 20.2 total 331 100.0 198 100.0 slovenia and usa (combined) serbia frequency percent frequency percent banking, investment, insurance 29 8.8 10 5.1 manufacturing industrial goods 31 9.4 11 5.6 retail or wholesale trade 36 10.9 55 27.8 construction 38 11.5 19 9.6 engineering,research and development 17 5.1 18 9.1 transportation or public utilities 9 2.7 11 5.6 consumer services 25 7.6 14 7.1 mining, extraction, oil 7 2.1 0 0 tourism 21 6.3 5 2.5 manufacturing consumer goods 12 3.6 17 8.6 management, consulting & business services 41 12.4 3 1.5 other 65 19.6 35 17.7 total 331 100.0 198 100.0 4. results a combined analysis was performed for slovenia and usa, because slovenia and usa are relatively developed countries, with a relatively high gdp, a relatively low unemployment rate, with developed infrastructure, free market, peaceful development over decades, and high added value per employee. we performed the same analysis for serbia, which is a transition country with a high unemployment rate and is still recovering from war from the past in all aspects of business. the statistics for the variables included was conducted for both the slovenian sample and the us sample together along with serbia and is presented in table 5. the variables were divided into four researched constructs: problem finding, problem solving, implementing new solutions and company’s growth. table 5: statistics for the variables included in research (slovenia and usa combined and serbia) we continue by presenting a method to test two models by applying structural equation modelling. that operation was made by building a model in lisrel student edition 9.20, which is an analytical statistics program. the t-values and standardized solutions of the models are presented in figure 1 for slovenia and the usa combined and in figure 2 for serbia. 29 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) slovenia and usa (combined) serbia mean std. dev. mean std. dev. problem finding activity i can say that i like to "jump" into a new problem, without any previous analysing. 3.31 0.99 3.06 1.15 i am very comfortable in circumstances where it is always full of changes. 3.52 0.87 3.27 0.94 problem solving activity the best solutions come when i am working with others or when we talk about solutions. 3.68 0.94 3.78 1.00 i solve more tasks. if i work in a team. 3.61 0.99 3.70 1.06 solution implementation activity my proposals for the solution of work problems are routinely translated into action. 3.62 0.81 3.43 0.87 i like to carry out experiments in practice in the real world. i.e., the “business world”. 3.74 0.83 3.41 1.04 in my work i devote a lot of my time to improving work practices. 3.66 0.87 3.86 0.84 company’s growth average annual growth in the number of employees in the last three years 2.50 1.40 2.70 1.43 average annual growth in sales in the last three years 2.53 1.44 2.34 1.20 growth in market share in the last three years 2.75 1.15 2.81 1.20 figure 1: t-values (standardized solution) for tested model (slovenia and usa) figure 2: t-values (standardized solution) for tested model (serbia) 4. discussion our research intended to test the structural relations between the entrepreneur’s creative abilities and the company’s growth from the viewpoint of entrepreneurs from slovenia and usa combined and serbia. our main aim was to test three hypotheses and compare both models. therefore, we launched the diagrams and presented the course of the research model for slovenia and usa combined, which tested these relations, t-test values and standardized coefficient values (figure 1) and we used the same approach for the serbian model (figure 2). we used a combination of exploratory and confirmatory methods with the goal to develop a modelthat would complement the theoretical presumption and fit the data. the valid indices of the structural model for slovenia and usa combined (figure 1) present a good model fit for developed countries (slovenia and usa), which is indicated by the values of 2/df = 2.602 and rmsea=0.070, nfi = 0.900, cfi = 0.935, srmr = 0.0689, gfi = 0.957. using the defined hypotheses we aimed to test the relations between the constructs in this model; one of the three shows a statistical significance according to the t-test values whereas the whole model shows a statistical significance of pvalue=0.00001. 30 žiga peljko, gašper jordan, mitja jeraj, ivan todorović, miha marič 2017/22(1) the said indices of the structural model for serbia (figure 2) present an adequate model fit for serbia, which is indicated by the values of 2/df = 1.507 and rmsea=0.051, nfi = 0.833, cfi = 0.932, srmr = 0.0605, gfi = 0.959. with the defined hypotheses we wanted to test the relations between the constructs in this model; none of the three shows a statistical significance according to the t-test values whereas the whole model shows a statistical significance of p-value=0.03889. as seen in figure 1, in developed countries (slovenia and usa), a higher level of entrepreneur’s creative abilities is positively related to the company’s growth, whereas we cannot confirm it with statistical significance regarding the relations between the problem finding activity and the company’s growth (h1) and problem solving activity and company’s growth (h2) and we can confirm with statistical significance the positive relation between the solution implementation activity and the company’s growth (h3); the influence is low to moderate (0.22), positive and statistically significant (t=1.99). on the other hand, we cannot confirm any of three hypotheses for the serbian model. 31 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) conclusion in a world of business, being creative or having a high level of creativity has become essential for competitive advantage on crowded markets (bujor & avasilcai, 2016). entrepreneurs that are more creative (bredvold & skålén, 2016) are also more capable of evaluating solutions and identifying the most creative solutions (basadur et al., 2000). the company’s growth is what all companies strive for. the entrepreneur’s creative abilities are therefore important determinants of the company growth; as shown, the entrepreneur’s creative abilities lead to the company’s growth (groza et al., 2016), which is why we must enrich the entrepreneur’s creative processes (sigala & chalkiti, 2015). creativity is simply a requirement in the today’s competitive market (sönmez, 2013). the most important findings from the field of entrepreneurship research came from economics, psychology and sociology (frese & gielnik, 2014). according to this research, the entrepreneur’s creative abilities are definitely a promising research field which needs to be taken into consideration. the question that comes to mind instantly is how entrepreneurs can implement these results in practice. combining the different but intertwined constructs gives us better insights into the matter and enables practitioners to further improve their efficiency, effectiveness and their chances for success in the real and tough world of entrepreneurial ventures. one of the biggest stumbling blocks is financing which is very limited (djokovic, 2015) and is a consequence of the yugoslav war.the government of serbia, however, offers numerous strategies for providing support and incentive for entrepreneurship (djokovic, 2015). the barriers that prevent a faster growth of entrepreneurship are (cerovic & lipovina-bozovic, 2012) administrative procedures, work and coordination of inspections, lack of construction land, slow processes of real estate transfer, low level of insurance sector development, labour market inflexibility, the lack of financial assets (cerovic & lipovina-bozovic, 2014) cultural and political aspects which are specific for the balkan area. there is an increasing tendency for the government policy to promote entrepreneurship for its apparent economic benefit (o’connor, 2013; maric et. al, 2009); development of entrepreneurship can present a possible model for decreasing the unemployment rate (cudanov et al., 2012). based on that knowledge, the same effort should be investing into the scientific research related to this field. entrepreneurship should be presented not only as an alternative but also mainly as the first choice of professional engagement in order to make it more accessible and rewarding. the limitations of this study need to be taken into consoderation before the interpretations of the results can be explored. the whole research was focused mostly on how the entrepreneur’s creative abilities influence the company’s growth, whereas other determinants were not considered. as the mentioned entrepreneur’s creative abilities are not the only determinants of the company’s growth, we can only propose that the entrepreneur’s creative abilities do partly affect the company’s growth whereas there are also other factors involved in the process of success. it also does not mean that creative entrepreneurs succeed with their ideas (gicheva & link, 2016). for further research, we suggest that the effects of the determinants should be omitted or should not be included included in our study. these determinants could be divided into those that influencce the company’s growth and those that describe the entrepreneur’s creative abilities such as situational and other attributive determinants. acknowledgements parts of this paper have been presented at the xv international symposium symorg 2016 “reshaping the future through sustainable business development and entrepreneurship”, zlatibor, serbia, 2016. references [1] adelman, l., gualtieri, i., & stanford, s. 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(2012). relationship between emotional intelligence and spiritual intelligence in nurturing creativity and innovation among successful entrepreneurs: a conceptual framework. procedia social and behavioral sciences, 57(9), 261-267. doi:10.1016/j.sbspro.2012.09.1184 [63] thornton, p. h., ribeiro-soriano, d., & urbano, d. (2011). socio-cultural factors and entrepreneurial activity: an overview. international small business journal, 29(2), 105-118. doi: 10.1177/0266242610391930 [64] treffinger, d. j., selby, e. c., & isaksen, s.g. (2008). understanding individual problem-solving style: a key to learning and applying creative problem solving. learning and individual differences, 18(4), 390-401. doi:10.1016/j.lindif.2007.11.007 (received/accepted ) (november 2016/ january 2017) žiga peljko kd group d.d. žiga peljko, is a ph.d. student at the university of primorska, faculty of management, koper, slovenia, and a researcher on the field of management and entrepreneurship. he has authored, co-authored and presented papers at conferences and published papers in verious journals. his bibliography includes over 100 papers from the field of investments, stock exchange issues, mutual funds, and related fields. besides, he is a lecturer at the gea college, ljubljana, slovenia and univerzitet donja gorica in montenegro. he is the head of investments at the kd group d.d. for abroad and a member of different slovenian and regional management boards and supervisory boards. 34 žiga peljko, gašper jordan, mitja jeraj, ivan todorović, miha marič 2017/22(1) about the author 35 gašper jordan gašper jordan, m.sc., is an independent researcher who conducted studies in the field of human resource management at the university of maribor’s faculty of organizational sciences. his main interests are human resource management, organizational behaviour and organizational psychology. mitja jeraj gea college, faculty of entrepreneurship ljubljana mitja jeraj, ph.d., is a researcher in the field of entrepreneurship, management, and organizational sciences. his main research interests include entrepreneurship as a broad field of research, entrepreneurial curiosity and other entrepreneurship properties, relations between entrepreneurship and economic growth, relations between entrepreneurship and unemployment, connection between entrepreneurship and development of sports etc. his research also focuses on management of small and medium enterprises, on cost management and on the development of the organization over time. he has also authored, co-authored and presented papers on conferences and published papers in scientific journals. ivan todorović university of belgrade, faculty of organizational sciences ivan todorović works as a teaching assistant at the university of belgrade, faculty of organizational sciences. his research area includes organizational design, restructuring, business process management, business models and entrepreneurship. he has participated in more than 15 consulting projects in large serbian companies and in several research projects financed by international institutions such as the ebrd, the unido and the usaid. he is a co-author of 3 books and more than 40 articles in international monographs, journals and conference proceedings. from 2011 to 2013 he was a visiting lecturer at the university of maribor, faculty of organizational sciences, slovenia. he was a member of the team that won the hult global case challenge 2012 in london, and he won the balkan case challenge 2010 in vienna. as a mentor he has supported several start-up companies. miha marič university of maribor, faculty of organizational sciences miha marič, ph.d., is a researcher in the area of leadership, management, and organizational sciences. he is currently employed as an assistant professor at the university of maribor’s faculty of organizational sciences and has a ph.d. from the faculty of economics, university of ljubljana. his research interests are power, leadership, organizational behaviour, hrm, management, organization. as author or coauthor, he has published twenty original scientific articles, thirteen professional articles, thirty-five scientific conference contributions, two chapters in monographs, co-authored one scientific monograph, and has been an editor and reviewer. he has also participated in research projects and consulting work. management: journal of sustainable business and management solutions in emerging economies 2017/22(1) journal of sustainable business and 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/hrv (za stvaranje adobe pdf dokumenata najpogodnijih za visokokvalitetni ispis prije tiskanja koristite ove postavke. stvoreni pdf dokumenti mogu se otvoriti acrobat i adobe reader 5.0 i kasnijim verzijama.) /hun 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/pdfxoutputintentprofileselector /documentcmyk /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /usedocumentprofile /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [612.000 792.000] >> setpagedevice ##petrovic:tipska.qxd 1 marijana petrović 1*, nataša bojković1, mladen stamenković2, ivan anić3 1 university of belgrade, faculty of transport and traffic engineering, serbia 2 university of belgrade, faculty of economics, serbia 3 its-information technology school, belgrade,serbia management: journal of sustainable business and management solutions in emerging economies forthcoming abstract: research question: this paper introduces a new parameter for evaluating the sensitivity of development paths in electre (elimination et choix traduisant la realité) based stepwise benchmarking model. motivation: the aim of the research was to devise a ‘path sensitivity coefficient’ which measures the sensitivity of a development path depending on parameters set by the decision-maker (dm). the need for such a measure comes from the fact that the hierarchical preorder of benchmarking units is affected by the dm’s subjective decisions on the threshold for declaring outranking relations among them. consequently, this may disrupt the sequence of intermediate benchmarks transitional targets to be followed on the route to the ultimate policy goals. the proposed approach is an extension of a stepwise benchmarking procedure devised by petrovic et al. (2014) which evaluates development paths based on their gradualism. idea: in this paper, we propose to characterize development paths by considering both gradualism and sensitivity to outranking thresholds. the standpoint of our research is that in order to make a reliable final choice the dm should be aware that the most gradual path is not necessarily the most stable one. tools: the proposed ‘path sensitivity coefficient’ combines four levels of uncertainty coming from two threshold values set by the dm. the coefficient has a relative nature, it points to the “distance” from the theoretically ideal solution a path fully indifferent to threshold values. an approach to merge coefficients associated with gradualism and stability is also introduced. data: to illustrate the proposed approach we applied it in the field of digital transformation of the eu countries. we exploited indicators and data from digital agenda scoreboard regarding specific policy goals to be achieved until 2020. findings: the findings imply that the decision on the most gradual development path should be reconsidered in regards to the influence of model parameters. the final choice depends on whether the dm prefers the smoothness of the path or the overall stability in terms of underlying a partial preorder. contribution: this work contributes to the existing electre-based stepwise benchmarking by reducing the uncertainty coming from subjective parameterization and allows the dm to be more confident in the final path selection. keywords: stepwise benchmarking, electre, multiple criteria decision aiding, sensitivity analysis, digital agenda targets jel classification: c44, l96, l 98, o57 a sensitivity analysis of electre based stepwise benchmarking for policy: the case of eu digital agenda doi: 10.7595/management.fon.2018.0003 1. introduction traditionally, benchmarking is seen as a systematic and continuous process of comparing performances of similar organizations or processes, in order to learn from the best performers and thereby improve one’s own performance. as a tool for continuous improvement, it gained great popularity during the nineties of the last century, after the success of the xerox corporation (bogan and english, 1994). as explained in detail by * corresponding author: marijana petrović, e-mail: marijanatpetrovic@gmail.com bhutta and hug (1999) by their benchmarking the company’s performance against the practice of its japanese affiliates, the xerox company managed to lower its product unit manufacturing cost by 70 percent (by cutting its suppliers base, reducing the number of defective components, reassigning a number of inspectors to other jobs, cutting the component lead-time, reducing costs of purchased parts etc.) in time, benchmarking has expanded its possible fields of application. a major breakthrough was its migration from private to public sector and the increasing application in the field of public policy (bessant and rush, 1998; lundvall and tomlinson, 2001; bruno et al., 2006; friedewald et al. 2005). the reason underpinning the application of benchmarking in the policy domain is to inform, explain and justify actions of government institutions and organizations in the eyes of the public (bessant and rush, 1998; fagerber, 2001; papaioannou et. al, 2006; dominique et al., 2013). another, but no less important contribution to policy, is that benchmarking enables the transfer of knowledge through finding good practices and their transfer to the decision-making system. learning from each other is a principal aim of benchmarking that goes with a common conceptual framework for policy modelling known as policy transfer and related concepts (terms) cross-national learning and lesson-drawing (dolowitz and marsh, 1996, 2000; dolowitz, 2003; james & lodge, 2003; evans, 2004). in the core of all of them is a process of comparing one to the other and improving by learning from each other. that is why benchmarking is the best way to operationalize the policy transfer. perhaps the most valuable confirmation of this is the well-known concept of governance in the european union (eu) – the so called “open method of coordination-omc.” the omc concept was introduced by the european council of lisbon in march 2000, with the aim to stimulate member states to learn from sharing their experience of national policies in areas of common interest (radaelli, 2003). along with omc, benchmarking was promoted as a policy tool, as a way to underpin policy transfer based on cross-national learning. this has triggered a series of benchmarking studies in a policy context and opened a debate among scholars about the true contribution of the omc and benchmarking to policy making (porte et al., 2001; radaelli, 2003; arrowsmith, 2004, dominique et al., 2013 etc.). the first one is the decision on benchmarking partner-units (mostly countries) that will be engaged in the process. as argued by several authors (rose, 1991, bauer, 2009, petrovic et al., 2012), in order to exploit international benchmarking for policy learning and transfer the countries included should share common policy goals and have international organizational/institutional support (such as the eu countries addressed in this study). the other issue is setting a proper indicator set that reflects policy aspects that are to be benchmarked. for this reason, policy agendas are often followed by extensive work on indicators reflecting progress towards established policy goals (as digital agenda scoreboard exploited in the empirical example of this study). one of the concerns that are in the very essence of benchmarking is the question of a benchmark – the one to look up to i.e., the one whose performance should be emulated. as discussed by alstete (2008), many benchmarking studies focus solely on ranking leaving out the detection of a benchmark as a next legitimate step of a benchmarking process. a stream of research deals with this issue within a stepwise benchmarking concept (see petrovic et al., 2017 for a review). obtaining the development or benchmarking paths for each less successful benchmarking unit makes the essence of stepwise benchmarking. this path is represented by a set of intermediate benchmarks (performance targets) which mark the improvement steps along the route to the ultimate target (policy agenda goals). one idea to operationalize stepwise benchmarking is to use a multilevel outranking approach based on electre (elimination et choix traduisant la realité) as described and applied in public policy domain in petrovic et al. (2012, 2014, 2017) and stamenkovic et al. (2016). in the centre of this approach is the overcoming of certain negative aspects of common analytical tools like dea (data envelopment analysis) or cis (composite indices) approach (for comprehensive discussion see petrovic et al., 2013b). the main concern regarding the value of the model is the question of parameters defined by the decision-maker (dm) i.e., how sensitive the solution is to the dms’ preferences. the focus of this paper is to introduce a new measure – ‘path sensitivity coefficient’ that will help eliminate the uncertainty coming from subjective parameterization and make the decision-maker more confident in the results. the paper reads as follows. the next section is about benchmarking in the public policy context and stepwise approach. the methodological background is given in section 3. section 4 problematizes the sensitivity of the model output and introduces sensitivity parameters. this is followed by an empirical example – benchmarking eu countries towards key digital agenda goals. the paper ends with concluding remarks and future research directions. 2. benchmarking in public policy context and the need for stepwise approach the main reason that underpins using benchmarking in public policy context is to operationalize the policy transfer based on cross-national learning. the very essence of benchmarking enables a systematic comparison of performance with the aim to find the best practice exemplar and to learn from it. as elaborated by papaioannou et al.(2006), several classifications of benchmarking recognize policy as the field of 2 marijana petrović , nataša bojković, mladen stamenković, ivan anić forthcoming benchmarking application. for example, huggins (2010) points to policy benchmarking as a separate type along with performance and process benchmarking. once benchmarking was promoted as a policy tool at the eu level, a number of benchmarking studies, projects and initiatives have been conducted resulting in benchmarking being now more depicted by its practical use than by the management theory. this made establishing the relationship between benchmarking and policy an even more complex task. relying on the experience in sustainable transport policy domain gudmundsson et al. (2005) offered an approach to classify the ways in which benchmarking can be implemented in the policy domain. they singled out five basic types (illustrations in figure 1). the explanations and application examples from the telecommunications/ict policy is offered by petrovic et al. (2013a) and summarized in text boxes in figure 1 (acronyms in figure 1 are for major eu benchmarking projects: sibis statistical indicators benchmarking information society; biser benchmarking the information society in european regions; understand ‘european regions under way towards standard indicators for benchmarking information society’;transform benchmarking and fostering transformative use of ict in the eu regions; wsis-world summit on information society). although widely accepted as a public policy tool, the application of benchmarking itself is associated with many issues and challenges. by far the most elaborated concern is its prevailing quantitative nature (for comprehensive discussions see petrovic et al, 2013a). policy modelling based on quantitative data leads to simplification of complex policy phenomena. namely, policy creators often focus on data and numbers instead of on the reasons lying behind the differences (elmuti and kathawala, 1997; arrowsmith et al., 2004; codagnone et al., 2015). the consequence is that benchmarking loses its essence and becomes a tool for comparing (a kind of a “check list”) rather than a tool for learning. another and associated issue is the discussion on the term benchmark itself: does it represent an etalon for comparing (target performance to be achieved spendoliny, 1992; mcnair and leibreid, 1994; zairi, 1994) or is a benchmark a best practice exemplar – the one to look up to. in the policy context, benchmark is often related to the targets defined in policy agendas/action plans (as key performance targets defined in the eu digital agenda). as the one to look up to, the term benchmark refers to the standard of excellence, best practice exemplar, one whose performance is desired and a strategy that should be emulated. the issue of learning from the best is also extensively discussed in terms of policy. namely, as seen by some authors (see for example bauer, 2010; maheshwari et al., 2013; petrovic et al., 2013a, 2014, 2017), learning from the best may lead to setting unrealistic targets and unachievable policy goals. that is why decision-makers opt for the concept of learning from the similar, tracking corresponding benchmarks and/or some intermediate targets on the route to the ultimate goal. this refers to the process of stepwise benchmarking, i.e., gradual improvements towards performance targets (see estrada et al., 2009 park et al., 2012; petrovic et al., 2014, 2017; fang, 2015). the suitability of stepwise benchmarking approach for public policy created the need to define methods to operationalize it. in terms of analytical approach the concepts of corresponding benchmarks, benchmarking paths and stepwise improvements are usually addressed using the linear programming method, data envelopment analysis – dea, a method first proposed by charnes, cooper and rhodes (1978) (hong et al., 1999; seiford and zhu, 1999; park et., al, 2012; lim et al., 2011; estrada et al., 2009; ghahraman and prior, 2016). however, a number of limitations induced the need to define new tools based on multi-criteria decision aiding mcda. these limitations are associated with restricted scope of application imposed by dea application requirements – the need for input/output orientation of the data, selecting the best path on each level instead of overall path evaluation, infeasibility when working with theoretical maximum (like targets set by policy agendas), etc. (for further discussion see petrovic et al., 2013b, 2014, 2017). among mcda methods, the electre multi-level outranking (electre mlo) appears to be a promising tool for stepwise benchmarking operationalization, although it is not the only mcda method used in the context of benchmarking (see for example laise, 2004 who used electre i or jovanovic and delibasic, 2014 who exploited ahp). 3 management: journal of sustainable business and management solutions in emerging economies forthcoming figure 1: five different possible roles of benchmarking in relation to public policy with examples from the field of telecommunications/ict (according to gudmundsson et al., 2005 and petrovic et al., 2013a) 3. electre based model for stepwise benchmarking in public policy domain according to the progress regarding the desired policy targets, the electre mlo produces hierarchical levels of performance. it also provides the pairwise relations between benchmarking units, which reveals better performing ones, termed as “intermediate benchmarks”. the sequence of intermediate benchmarks constitutes the development path. the specific procedure of the model allows for the selection of the optimal path among the multiple choices. 4 marijana petrović , nataša bojković, mladen stamenković, ivan anić forthcoming as well as other methods of the electre family, the electre based multi-level outranking method – electre mlo is based on pairwise comparisons of units under observation (alternatives) for each criterion and the computation of concordance and discordance indices. the concordance index denotes the degree of dominance of one unit over another. to construct hierarchical levels of performance, the modified concordance index is defined in the following form (anic and larichev, 1996; bojkovic et al., 2010). (1) in equation (1), is the weight of criteria k, while the sets and are those where the performance score of the alternative is higher ( ) and lower ( ) than the score of the alternative . the discordance index prevents the declaration of dominance if an alternative is significantly bad against a certain criterion. it is expressed as (2) where and are the scores for alternatives and with respect to criterion , and is the scaled-score range of criterion . the assertion “alternative outperforms alternative ” (denoted as ) is valid if the values of the concordance and discordance indices and are above and below predefined threshold values p and q, respectively. the alternative appears at a certain performance level when the following equation holds: (3) this means that is at the level of performance if there is at least one alternative located at the level that outperforms . the hierarchical structure of the model (visualized in the form of a ‘relation tree’) allows the decision maker to have a number of development paths at disposal. these paths are labelled as evolutionary development paths and consist of a sequence of alternatives at the higher levels, called “intermediate benchmarks”. a procedure for paths’ evaluation according to their gradualism or smoothness is proposed in petrovic et al. (2014) and further explored in petrovic et al. (2017). it is based on coefficient named relative path variation which measures the distance of each possible path from the most gradual one where each step presumes equal performance gain (see petrovic et al., 2014, 2017 for detailed explanation and calculations). 4. path sensitivity analysis of the stepwise benchmarking model parameterization of mcda-based models is an ever-present issue, with many research directions. an emerging stream of research is based on indirect preference elicitation procedures where parameters of the model are defined without asking the decision maker to explicitly assign such values. this approach requires less cognitive effort and is more user-friendly given that the decision maker, although familiar with the problem, usually knows little about the mathematical formalization of the model (corrente et al., 2013). such approach yielded several methods, with robust ordinal regression being the most popular one (corrente et al., 2013; kadzinski et al., 2016; ciomek et al., 2018). this method sorts or ranks alternatives 5 management: journal of sustainable business and management solutions in emerging economies forthcoming in a learning by example sense (greco et al., 2010). it is within stepwise benchmarking modelling that indirect elicitation of parameters was introduced by petrovic et al. (2017). regardless of the way in which the parameters are obtained, many mcda based studies sought to investigate the sensitivity and robustness analysis of the proposed solution(s) (e.g., &, 1997; tervonen et al., 2009; roy, 2010). kadzinski et al. (2016) designed the methodology to evaluate the recommendation of the completed robust ordinal regression. they explained several potential directions to approach the robustness issue, such as defining the range for the possible rank of alternatives (beynon and barton, 2008) or by indicating various intensity measures of the dominance relation within the method (ahn and park, 2008). the importance of this line of research is not solely related to mcda methods and it can be seen as a state of the art question in academia recently (for example arwu ranking sensitivity analysis has been of interest in a number of studies such as dobrota & dobrota, 2016; maricic et al., 2017; zornic et al., 2014). the aim of this paper is to offer an approach in a similar fashion. we propose a methodological extension of the stepwise benchmarking model in order to present to the decision maker the level of robustness of the model output. our work is about threshold values p and q that are subjectively set by the dm and reflect his tolerance in declaring dominance relations. as such, they are subject to change, whereby it should be known to what extent these changes affect the model output, namely development paths. in this paper, we introduce a measure that will reflect how far the selected path from ideally insensitive one is. we label this measure as path sensitivity coefficient ( ). it combines four levels of uncertainty coming from concordance (p) and discordance (q) threshold values. an alternative can be pq insensitive, meaning that changes of both parameters p and q will not significantly affect the position of an alternative in the relation tree. on the other hand, the alternative can be p-sensitive if the change of parameter p creates a significant alteration of alternatives’ position in the relation tree, while parameter q does not have the same influence. we can describe the q-sensitivity in a similar way. finally, the alternative will be considered pq-sensitive if both threshold changes impose significant changes in the alternative’s position in the relation tree. with we will denote all alternatives on a given path that are only p-sensitive, and analogously we define as well as the set of alternatives that are both psensitive and q-sensitive. for further description, let the path contain alternatives where is an alternative from the top level (core alternative) and let be a set of alternatives from the path π and not in the core. in order to evaluate the sensitivity in the electre mlo, we depict a normalized coefficient representing the measure of path sensitivity. we define in the following manner: (4) ) path sensitivity coefficient ( ) can take values from 0 to 1. path sensitivity coefficient is also a relative measure meaning that the closer is to value 0, it is less sensitive to the dm’s preferences, i.e., the path is more robust and thus more preferable. by this equation, we measure the level of sensitivity in the model, whereas we give twice as much significance to the pq-sensitivity compared to p and q-sensitivity. the parameter for the measure of path sensitivity will take value 0 when there are no sensitive elements alongside the path while the value 1 will represent the path in which all alternatives in the path are pq-sensitive. now, the decision maker is provided with two coefficients that can assist the decision maker in making the final decision of a stepwise benchmarking path. he can consider both parameters independently or he can 6 marijana petrović , nataša bojković, mladen stamenković, ivan anić forthcoming weigh the importance of one relative to the other. in that case, the coefficients may be merged into a new one, in following way: (5) if the smoothness of the path is preferred over the stability, will be higher than 0.5 and vice versa. two coefficients offered address two important features of a development path, its ‘gradualism’, i.e., the balanced improvement steps along the whole path and ‘stability’, i.e., insensitivity to the parameters of the model. as demonstrated later in the paper (within the empirical example) the most gradual path is not necessarily the most stable one. given the fact, the output is affected by the way the model is calibrated, it is up to model designers to make the decision maker aware of this influence. namely, the standpoint of our approach is that the decision maker should be provided with both information in order to make a reliable choice. 5. empirical example – the case of eu digital agenda policy goals in this section, we illustrate how sensitivity coefficient improves the decision on optimal development path within a benchmarking exercise of eu countries according to digital agenda targets. digital agenda for europe (dae, 2010) is the first of seven flagships initiatives in , the eu’s strategy to bring smart sustainable and inclusive growth. the dae was launched in may 2010 and includes 101 actions, grouped around seven priority areas. besides, the digital agenda contains which are to be achieved. these are: 1. the entire eu to be covered by broadband; 2. the entire eu to be covered by broadband above 30 mbps; 3. 50 % of the eu to subscribe to broadband above100 mbps; 4. 50 % of the population to buy online; 5. 20 % of the population to buy online cross-border; 6. 33 % of smes to make online sales/purchases; 7. the difference between roaming and national tariffs to approach zero; 8. to increase regular internet usage from 60 % to 75 % by 2015, and from 41 % to 60 % among disadvantaged people; 9. to halve the proportion of the population that has never used the internet from 30 % to 15 %; 10. 50 % of citizens to use egovernment by 2015, with more than half returning completed forms; 11. all key cross-border public services, to be agreed by the member states in 2011, to be available online; 12. to double public investment in ict r&d to € 11bn; 13. to reduce energy use of lighting by 20%, all goals are quantitative by nature and summarize the so-called digital transformation of the eu ountries. progress against these targets is measured annually through the.2 this is a specific data base for public policy creators with different tools that can be used but without any signposts on intermediate targets that can support moving step-by-step to the target values. that is why there is a need for a model that will enable to consider all targets within one model and identify possible transitional goals. the relation tree as an outcome of specific and sophisticated ranking scheme and suggestion on development paths for each underperforming country can serve this purpose. the relation tree reflecting the progress of 27 eu countries towards the dae key specific goals in 2012 is presented in figure 2 (for details on benchmarking units, indicators, scores, and thresholds, see petrovic et al., 2014). note that 11 indicators reflecting 9 key performance targets are used to obtain the relation tree in figure 2. 7 management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: marijana petrović, e-mail: marijanatpetrovic@gmail.com figure 2: relation tree (adapted from petrovic et al., 2014) there are nine levels of performance (figure 2), whereby the first level represents the desired targets to be achieved by the eu as a whole as well as by individual countries. the countries from the neighboring levels are connected with arrows which represent the outranking relations and indicate corresponding benchmarks. countries that are positioned in an adjacent, higher level are potential policy benchmarks for those on the lower level if they are connected with the outranking/dominance relations. on the other hand, the lack of relation indicates a strong contrast between adjacent level countries and they are therefore not considered as suitable sources for cross-national (policy) learning. possible development paths are depicted for poland, a country on the seventh level of performance, and presented in table 1. we have opted for poland to be an illustrative example due to the largest possible number of development paths in the example. 8 marijana petrović , nataša bojković, mladen stamenković, ivan anić forthcoming 9 management: journal of sustainable business and management solutions in emerging economies forthcoming table 1: possible development paths for poland and associated measures the dm has gained 12 different development paths obtained from the electre mlo stepwise benchmarking procedure (table 1). a large number of possibilities invokes possible uncertainty for the decision maker and sensitivity analysis is fully observed in this case. according to the value of relative path variation that represents the level of gradualism of the improvement, the set of intermediate policy benchmarks to be followed consists of four countries – spain, the czech republic, the united kingdom, the netherlands, and sweden. at the same time, this path gained the highest value of the sensitivity coefficient in poland’s path selection, which calls for the dm’s further appraisal. the final decision will depend on the dm’s view of the importance of the path gradualism over stability (expressed by parameter in equation (5)). if he decides that gradualism is of three or more times higher importance than stability ( ), then the above mentioned path will be his final choice. if he, however, decides to give equal importance to both path characteristics (to set ), then parameter defined from the equation (5) will yield that the best path for poland is path number 3 consisting of hungary, france, austria, luxembourg and finland. conslusion this paper addresses the problem of development path’s stability within the existing stepwise benchmarking model. it introduces sensitivity coefficient as the measure of sensitivity analysis of the concordance and discordance threshold values. by mitigating fluctuations imposed by threshold values that are subject to change and errors, the decision-maker can make the final choice on intermediate targets towards ultimate policy goal. as illustrated in the empirical example of the digital agenda specific policy targets, the sensitivity coefficient can be considered in conjunction with relative path variation, thus allowing the policy creators to better understand the status of the solution. the weak point of the electre based stepwise benchmarking model is its full dependency on a partial preorder created by underlying outranking method electre mlo. in this paper, we have addressed this issue and introduced sensitivity parameter aimed at resolving the problem. the electre mlo provides a partial preorder as its final output based on synthesizing preference relations among alternatives observed through a concordance and discordance index. the decision maker is requested to define the cutting level p and veto threshold q to define the outranking relation. however, since the decision maker is not aware of the sensitivity of the output coming from these two parameters, in this study we have introduced sensitivity coefficient which helps the dm to evaluate the stability of each solution (proposed development path). namely, the decision maker now has two path features addressed – the relative path variation and the path sensitivity coefficient devoted now both to gradualism and stability. the dm can combine these two parameters into the final decision. we proposed an aggregate measure in the paper as a function of the dm’s preferences. the dm can decide, according to problem characteristics, whether he/she prefers smoothness of the path or the overall stability in terms of underlying a partial preorder. the important feature of the sensitivity coefficient is in its relative nature. it means that it does not only rank development paths but also points to the “distance” from the theoretically ideal solution a path fully indifferent to threshold values. it should be noted that the full scope of sensitivity analysis would include another condition that affect the results of the stepwise benchmarking model. development path i πρ πσ 1 pol-spa-cze-uk-ned-swe 0.48 0.40 2 pol-spa-fra-aut-lux-den 0.57 0.20 3 pol-hun-fra-aut-lux-fin 0.58 0.10 4 pol-spa-cze-uk-ned-den 0.58 0.40 5 pol-spa-fra-aut-lux-fin 0.60 0.20 6 pol-hun-fra-aut-lux-den 0.61 0.10 7 pol-spa-cze-uk-lux-den 0.62 0.40 8 pol-spa-cze-uk-lux-fin 0.62 0.40 9 pol-slo-fra-aut-lux-den 0.62 0.10 10 pol-slo-mlt-aut-lux-den 0.62 0.20 11 pol-slo-mlt-aut-lux-fin 0.66 0.20 12 pol-slo-fra-aut-lux-fin 0.66 0.10 references [1] ahn, b. s., & park, k. s. 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(2014). how the top 500 arwu can provide a misleading rank. journal of the association for information science and technology, 65(6), 1303-1304. doi: 10.1002/asi.23207 received: 2017-10-12 accepted: 2018-01-29 12 marijana petrović , nataša bojković, mladen stamenković, ivan anić forthcoming 13 management: journal of sustainable business and management solutions in emerging economies forthcoming about the author marijana petrović university of belgrade, faculty of transport and traffic engineering, serbia marijanatpetrovic@gmail.com dr marijana petrović is an associate professor at the faculty of transport and traffic engineering, university of belgrade, serbia. her research areas are engineering management and policy in transport and communications, with special interest in policy modelling and quality management with the application of mathematical models and software solutions. nataša bojković university of belgrade, faculty of transport and traffic engineering, serbia nbojkovic@yahoo.com dr nataša bojković is an associate professor at the faculty of transport and traffic engineering, university of belgrade, serbia. her field of interest includes transport sustainability, urban mobility, policy modelling, management methods and decision support systems in transport and communications. mladen stamenković university of belgrade, faculty of economics, serbia mladen@ekof.bg.ac.rs dr mladen stamenković is an assistant professor of economic and mathematical methods and models (operational research) at the faculty of economics, university of belgrade, serbia. his research area is multiple criteria decision aiding with applications in economic policy. ivan anić its-information technology school, belgrade,serbia ivan.anic@its.edu.rs dr ivan anić works at the its-information technology school, belgrade, serbia. his area of research is multi-criteria decision making with applications. he especially deals with outranking methods and supporting software 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 06 24_1 ivanovic:tipska.qxd 53 tatjana ivanović1*, sonja ivančević2 1university of belgrade, faculty of organizational sciences, serbia 2primaryschool ‘starina novak’, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(1) turnover intentions and job hopping among millennials in serbia doi: 10.7595/management.fon.2018.0023 abstract: 1. introduction modern workplace consists of a multigenerational workforce, while members of each generation resemble each other. influenced by various events that shaped their childhood and adolescence, they adopt the same system of beliefs, values, expectations and behavioral patterns that make them different from previous generations and form a recognizable generational identity (inglehart, 1997). the number of academics and practitioners aiming to explore the issues of generational diversity and intergenerational collaboration has increased significantly (zhezhu et al., 2010), in order to help organizations identify the profiles of their employees. this should serve them to align their employees’ needs and values with the organizational requirements (singh, raj and bhandaker, 2012) and thus prevent their dissatisfaction, absenteeism and increased turnover rates. the three generations comprise the current workplace/workforce: baby boomer generation, generation x and generation y or the millennial generation (ng & schweitzer, 2010). almost all the members of the silent generation have retired, and the generation z has just begun to enter the workplace. * corresponding author: tatjana ivanović, e-mail: tatjana.ivanovic@fon.bg.ac.rs research question: the purpose of this paper is to determine whether the number of jobs the millennial generation intend to change during their career is larger than that of previous generations; to compare the millennials’ intention to leave their current job to the previous generations’, and also to examine the relation between the millennials’ turnover intention and their job satisfaction. motivation: millennials keep their resumes updated and have a reputation to be job hoppers (shaw & fairhurst, 2008; meier & crocker, 2010). moreover, their job hopping has been an unprecedented problem for the employers (tulgan 2015) and they are reported to have a higher turnover intention rate than other generations (kowske, rasch & wiley 2013; deloitte, 2011; twenge, 2010; sujansky & ferri-reed, 2009). additionally, it is generally accepted that job satisfaction and employee turnover intention are negatively related (mobley 1977; susskind et al. 2000; schwepker 2001). having in mind a lack of relevant literature as well as research in eastern european countries, our goal was to explore whether the same can be concluded for the millennials in serbia. idea: the core idea of this paper was to empirically evaluate the relationship between the stated variables. data: the analysis was conducted during 2017 in serbia using a questionnaire which was made in the form of an online survey and distributed by email and posted on social networking websites. a total of 802 valid responses were received. tools: statistical analyses of all collected data were used to draw conclusions. findings: the results of the study confirmed that the intention of the respondents to change a larger number of jobs in their career increases as we move towards the youngest generation in the workplace. generation y was found to be the only generation that has a higher percentage of those who think that they will quit the current job in the next two years than those who expect the opposite. the analysis confirmed that turnover intention increases with job dissatisfaction – the greater their job satisfaction is, the fewer millennials will want to change their current employer in the next two years. contribution: this paper expands existing research related to the turnover intentions and job hopping of millennials and provides recommendations for organizations for retaining the members of generation y. keywords: millennials, turnover intention, job hopping, job satisfaction. jel classification: j24, j28, j63, m50 according to multiple research, unlike the other generations, organizations seem to be particularly challenged concerning retaining the millennials (deal, altman, & rogelberg, 2010; ng & schweitzer, 2010). they spend a lot of time and money for their recruitment, training and retention, but the millennials are leaving jobs earlier and more frequently than the previous generations (meier &crocker, 2010; twenge, 2010). their job hopping has been an unprecedented problem and their integration into the business culture created by the baby-boomer generation has proved to be a difficult thing to do (tulgan, 2015). for that reason, during the last two decades, numerous studies have been conducted to help organizations manage their unique characteristics (hammill, 2005) and identify the millennials’ systems of values, aspirations, goals, priorities in life and lifestyle, preventing them to leave jobs so frequently (singh, raj and bhandaker, 2012; deal, altman & rogelberg, 2010). the results of some studies indicate that the millennials in serbia are relatively similar to their peers in other countries (e.g., kovacevic & labrovic, 2018) as regards their general characteristics. however, there is still a lack of relevant literature as well as research on turnover intentions of the millennials in eastern european countries, particularly in serbia. with that in mind, the purpose of this study was to determine whether the number of jobs the millennial generation intend to change during their career is larger than that of previous generations; to compare the millennials’ intention to leave their current jobs to the previous generations’, and also to examine the relation between the millennials’ turnover intention and their job satisfaction/dissatisfaction. the hypotheses established in the study were tested in the specific environment of serbia – a country which is undergoing a transition process and the eu accession process as a candidate country. in general, a notable lack of relevant hrm literature and research is evident in developing countries, especially transition countries such as serbia. 2. literature review in order to grasp organisations’ biggest challenge with the millennial generation – retention (meier &crocker, 2010; twenge, 2010) – we need to understand both the characteristics and factors that shaped the millennials and the concepts of job hopping, turnover and turnover intentions, and finally the relation between job satisfaction and turnover intention. nevertheless, before describing the millennials, it is necessary to mention two older generations they share their workplace with: baby boomer generation and generation x. baby boomers (1946-1964) is the oldest generation in the workplace, comprised of the members born after the second world war in the era of extreme optimism, possibility and progress. this generation that created the workplace as it looks today is extremely committed to their work, disciplined and tries hard to reach their goals enjoying the rewards afterwards. they were not likely to change employers, sometimes staying with one company throughout their entire career (zemke et al., 2000). generation x (1965-1979) grew up in the shadow of the massive generation of baby boomers (zemke et al., 2000) and is twice smaller in number than the generations that came before and after them. they are selfsufficient, sceptical, well-educated and independent (zemke et al., 2000), but remarkably adaptable to diverse experiences. their communication is fast and direct; they do not like protocols, tend to have their work done and then commit to their families and private lives (olson & brescher, 2011). the work-life balance is very important to this generation (buzza, 2017), and so are flexible work arrangements (ciarniene & vienazindiene, 2018). 2.1 millennials in the workplace 2.1.1 name and the numbers of the millennial generation generation y or the millennial generation is the youngest generation active in the workplace today. most researchers and authors use a range between 1980 and 2000 to mark the birth years of the members of this generation. other names for this generation are also in use, such as ‘nexters ‘ or ‘nextus generation’ (barnard, 1998; zemke, raines, and filipczak, 2013), ‘trophy kids’, ‘internet generation’ or ‘txt generation’, or ‘boomerang ‘ or ‘peter pan’ generation, as they are called by the american sociologist kathleen shaputis (2004), because of the characteristics they have. according to the pew research centre, in 2015, the millennials made up 34 percent of the us labour force, and the same source anticipates that by 2020 they 54 tatjana ivanović, sonja ivančević 2019/24(1) will make almost half (46 percent) of the workforce. even more dramatic are the brookings’ numbers which claim that by 2025 millennials will make 75 percent of the global workforce. it is worth noting that the millennial population as a whole (not just its workforce) surpassed that of the baby boomer generation (1946-1965) in 2015. 2.1.2 factors that shaped the millennials in order to better understand this generation, we need to consider the main factors that shaped their childhood and growing up, namely: globalization, technology and digital environment, the uncertainty of institutions and diversity. also, two micro trends that have formed the millennials particularly stand out: helicopter parenting and virtual reality (tulgan, 2015). millennials are the first generation born in the internet age. they are called digital natives because they are native speakers of the digital language of computers, the internet and other virtual reality media (caraher, 2015). the advance of technology has made the world a ‘global village’. the quality of somebody’s work, not their geography, has become a many headhunters’ priority. meeting people virtually, travelling more internationally and connecting globally is what millennials expect in their workplace, making diversity a must in their professional lives (tulgan, 2015). being raised and praised by overprotective helicopter parents, they need their managers to be their mentors who will guide them patiently through the business world, giving them feedback on a daily basis (ivancevic & ratkovic, 2016). nevertheless, for this research, one last shaping factor is the most important – the uncertainty. the generation y is defined by uncertainty – the uncertainty of their safety, the uncertainty of their future, and the uncertainty of what is to come next. terrorism, the global economic crisis, recession, layoffs, the massacres that took place in schools, the kidnapping of children and similar events, have all been their reality, highlighting the unpredictability of tomorrow. the only certain thing is that everything can change and that the change is actually the only certainty in their lives. and they have learned to expect it (tulgan, 2015; caraher, 2015; dos reis, 2018). 2.1.3 how the millennials are perceived in the workplace bearing that in mind, the whole concept of their career perspective has changed in comparison with one of the former generations. lifelong learning, perpetual professional development and acquisition of new skills have strengthened and equipped them for the time of the utmost uncertainty. they have learned how to rely on themselves rather than on the institutions and not to have great expectations, but start from scratch easily every time the country or an institution lets them down. moreover, they are not prone to making permanent connections with companies, but rather voluntarily change them in search for a better job which will give them more satisfaction on a daily basis (caraher, 2015) or a job which offers higher level of work-life balance (buzza, 2017). 2.2 job hopping millennials have unique concerns about their career and tend to hold stronger career anchors than members of previous generations (gong et al., 2018). they keep their resumes updated consequently having a reputation for being job hoppers (shaw & fairhurst, 2008; meier & crocker, 2010). as mentioned, they move freely and frequently from company to company, not being attached to organizations and jobs. they consider it acceptable because they are trying to find out what they want to spend their career doing (becton, walker, & farmer, 2014; tulgan, 2009; smola & sutton, 2002), build networks to improve their careers, increase their salary, expand their skill set and expertise. meier & crocker (2010) found that 30% of millennials, in a study of 500, had three jobs in the first eight years of their career. in addition, according to the gallup report of 2016 on the millennial generation, 21% of millennials in the us say they changed jobs within the year 2015, which is more than three times the number of non-millennials who report the same (gallup, 2016). gallup estimates that millennial turnover costs the u.s. economy $30.5 billion annually. these data explain why it is so challenging for the companies to retain them. one of the aims of this paper is to determine whether the same may be concluded for the millennials in serbia. thus, the following hypothesis was defined: hypothesis 1: millennials intend to change more jobs during their working life than the previous generations. 2.3 employee turnover and turnover intentions turnover is defined as the termination of an individual’s employment with a company (tett & meyer, 1993; allen, bryant & vardaman, 2010). in other words, turnover can be described as the rate at which an organization has to replace employees. a high loss percentage should raise a red flag and be a cause for examination to find out why the turnover occurs. 55 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) the turnover intention is defined as an employee’s personal intent to leave the organization in the future (tett & meyer, 1993). although all turnover intentions may not result in actual turnover behaviour, employees’ intention to quit the current job represents an important outcome variable (chang et al., 2013). moreover, research has consistently shown that it is the most powerful predictor of actual turnover behaviour (e.g., firth, mellor, moore & loquet, 2004; griffeth, hom & gaertner, 2000). considering that turnover intention accounts for approximately nine to 25 percent of actual turnover (dalton, johnson & daily, 1999), it is imperative that employers are aware of relevant variables that encourage the growth of turnover intentions. numerous authors have researched turnover intentions among millennials (e.g. george & wallio, 2017). both ertas (2015) and kowske, rasch and wiley (2013) reported a higher turnover intention rate in the millennials than in other generations. also, the data collected by the talent edge 2020 survey (deloitte, 2011) revealed that 26 percent of millennials were planning to leave the current employer in the following 12 months. of all generational groups, they were the most likely to develop turnover intentions and look for a new employer in the labour market, while 21% of generation x and 17% of baby boomers were more likely to stay with their current company. furthermore, researchers have found that millennials also show less willingness to stay in their current jobs than other generations, with the intention to leave their current job within two years or less (twenge, 2010; sujansky & ferri-reed, 2009). only half of the millennials – in comparison with 60% of non-millennials – strongly agree that they plan to be working at their company one year from now; for businesses, this suggests that half of their millennial workforce does not see a future with them (adkins, 2106). this illustrates the current trend in turnover among millennials, which will leave gaps in the workforce as the older generations retire (sujansky & ferri-reed, 2009). in order to identify the trend among generation y in serbia, we have tested the following hypothesis: hypothesis 2: a millennial employee is more likely to leave the current employer in the next two years than baby boomer or generation x employees. 2.4 job satisfaction and turnover intention organizations have always been struggling to identify the reasons that make an employee leave or intend to leave the job. these issues have been of crucial importance for every company. job satisfaction has a direct association with the turnover intention (brayfield and crockett, 1955; vroom, 1964, spector, 1997). it is often perceived as the strongest indicator of the intention of turnover. several studies have examined the relationship between job satisfaction and employee turnover intentions (e.g., ghiselli et al., 2001; mcbey and karakowsky, 2001; knapp et al., 2017). job satisfaction is perceived as the ultimate feeling of people after performing a task. job satisfaction refers to the extent to which the work meets the basic needs of people, and is consistent with their expectations and values. the level of job satisfaction is often related to different aspects of working practices – e.g., productivity, workplace accidents, absenteeism and turnover. research shows that employee turnover can be predicted using comprehensive measures of job satisfaction (lambert et al., 2001). it is generally accepted that job satisfaction and employee turnover intention are negatively related (mobley 1977; susskind et al., 2000), i.e., higher job satisfaction is associated with low employee turnover. positive, statistically significant relationships have been reported in dozens of studies which compared employees’ intentions to leave and actual turnover behaviour (schwepker, 2001). however, the majority of these studies were conducted in the us and canada, and it may be expected that the strength of the relationship between job satisfaction and turnover intentions may vary in different settings. thus, the following hypothesis was tested in the specific context of serbia: hypothesis 3: millennials are more likely to leave their job if they are dissatisfied with it. 3. methodology 3.1 data collection and sample the data for this research were collected using a survey method. the research was conducted during 2017 in serbia. the questionnaire was developed after a comprehensive review of relevant literature related to employee turnover intentions and managing different generations in the modern workplace, mainly focusing 56 tatjana ivanović, sonja ivančević 2019/24(1) on the millennials. the questionnaire was made in the form of an online survey that was distributed by email and posted on social networking websites. the respondents completed the questionnaire without the presence of the authors. the respondents were asked to indicate the extent to which they agree/disagree along a five-point likert response scale (1 = strongly disagree, 5 = strongly agree). in order to provide a sample that will give reliable results a total of 830 responses were received. among these, the total of valid responses was 802 (which account for 96.6% of the sample). the sample included 454 women (56,6% of the sample) and 348 men (43.4% of the sample). viewed by gender, respondents were pretty evenly divided within the generational groups. the majority of the respondents were members of generation y (65.8%), followed by generation x (27.4%) and 6.7% were baby boomers1. 3.2 results and discussion the aim of hypothesis 1 was to determine whether millennials in serbia intend to change more jobs during their working life than the previous generation(s). we gathered and compared the responses of the members of different generations, and first tested whether there is a relation between the number of jobs and the generation the respondents belong to, and then compared the numbers. the statistical analysis has shown that there is a statistically significant correlation between the number of jobs they plan to change during their career and the generation which the respondent belongs to (χ²=18.423, df=3, p=0.000). the largest number of the members of both generation x and generation y expressed an intention to change between 3 and 5 jobs during their working life. however, this percentage declines with the increase of the age of the respondents, i.e., it is smaller for generation x than for millennials. chart 1: the number of jobs members of generation yand x expect to have during their career in each category, the higher percentage of those who would change 3 to 5 jobs, 6 to 9 jobs, or more than 10 jobs belongs to generation y. the only exception is the situation in which the respondents said that they would have one or two jobs in their career. the percentage is much higher for members of generation x – 21.8%, while only 10.2% of the members of the youngest generation y stated that they intended to have only one or two jobs during their whole working lives. this finding was to be expected, having in mind that it was common for the members of the previous generations in serbia to have one job for a lifetime. therefore, we can conclude that the millennials tend to change a larger number of jobs in their working life in comparison with members of generation x. the baby boomer generation has just a small percentage of respondents in the sample compared to two other generations. having this in mind, only descriptive statistics of their responses will be presented. it can be concluded from the chart that an almost equal number of respondents stated that they have changed 1 57 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) 1the reason for such a low number of baby boomer respondents can be explained by the fact that the research was conducted on-line, which resulted in difficulties to gather more responses from this generation. to 2 jobs (one third of respondents) or 3 to 5 jobs during their working lives (37%). this finding is not surprising given that baby boomer generation used to be professionally active in the period when changing a job was not considered an advantage in career development and advancement in terms of professional experience. having all stated in mind, we can conclude that the intention of the respondents to change a larger number of jobs in their career increases as we move towards the youngest generation in the workplace. therefore, it may be stated that hypothesis 1 is corroborated. in order to examine hypothesis 2, the respondents were asked about their intention to quit their current job in the next two years, where they were expected to choose an answer from a 5-point lickert scale (whereby 1=no, 5=yes). the obtained results were then grouped as presented in the following chart. chart 2: the intention of members of generations y and x to quit the current job in the next two years the respondents were asked to indicate their intention to quit the current job in the next two years on a fivepoint likert response scale (1 = strongly disagree, 5 = strongly agree). the data were then grouped into three categories. taking into account the categories of yes, no and maybe, and the generational categories (y, x), the chi-squared test was carried out. the chi-squared test results (χ² =17.134, df=2, p=0.000) indicate that the respondents’ intention to quit the current job depends on the generation they belong to. substantial differences are noticeable in the responses of the members of different generations. on the one hand, the percentage of those who think that they will quit the job over the next two years significantly increases with the decrease of the respondent’s age, from 48.6% in generation x to a significant 60.8% of respondents belonging to generation y. on the other hand, the number of those who think they will stay in their current job within the next two years decreases when going towards the youngest generation in the workplace – from 47.7% in generation x to 32.2% in generation y. the smallest percentage from both cathegories is of those who are indecisive. members of the babyboomer generation are not ready to leave the current employer (72.2% of respondents) and because of their small number they are not included in the statistics. therefore, it can be concluded that the youngest generation is more ready to change the current job in the next two years. these data confirm the previous results, both from this study and from the literature (caraher, 2015) that millennials, who grew up during the time of general uncertainty of institutions, are much more ready to change jobs, or, in other words, they have a higher turnover intention rate. therefore, managers must additionally motivate the members of this generation in order that they shoud prevent their fluctuation. the conclusion is that hypothesis 2 is supported. in order to test hypothesis 3, we examined the relationship between the overall job satisfaction and the intention to quit the job among the members of the millennial generation. therefore, we have compared the obtained values of overall job satisfaction with their intention or their plan to change their current job within the next two years. it was proposed that respondents scoring high on job satisfaction will have a lower turnover intention. 58 tatjana ivanović, sonja ivančević 2019/24(1) the respondents assessed their overall satisfaction with their current job on a 5-point lickert scale (1 = completely dissatisfied, 5 = completely satisfied). the results were then compared with their turnover intentions in the next two years. the results are as presented in chart 5. chart 3: millennials’ job satisfaction as a predictor of their turnover intention the chi-square test has confirmed that there is a statistically significant difference between the respondents’ job satisfaction and turnover intentions (χ² =67,370, df=4, p=0,000). looking at the chart, the first thing to notice is that the largest percentage of the millennials are satisfied with their current job and that the smallest percentage of them are dissatisfied. nevertheless, among those who are planning to change jobs, nearly a quarter (22.2%) of them are dissatisfied, while among those who are not planning to change the job, only 2.4% are dissatisfied. from these data it can be concluded that turnover intention increases with job dissatisfaction – the greater their job satisfaction is, the less likely will the millennials be to leave their current employer in next two years. finally, we can draw the conclusion that hypothesis 3 is supported. 59 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) this research has produced data that support current global trends regarding the connection between the millennials and the workplace (lancaster & stillman, 2010; singh, raj & bhandaker, 2012). more precisely, this research has confirmed that millennials in serbia plan to have more jobs during their careers than the generations before them. it has also proved that they are more likely to leave their current employers than the baby boomer or generation x employees and that there is a greater chance that they will change their job if they are dissatisfied with it. three important pieces of information prove that the same shift in attitude towards the workplace has taken place in serbia and that the youngest generation of employees demands companies to meet their needs and adjust to them and not vice versa. the misperception of the organizations that millennials will not impulsively leave their new, stable jobs (kowske, rasch & wiley, 2013) has proven to be the same in serbia. defined by uncertainty and more adapted to change than other generations, just as in other countries (lancaster & stillman, 2010; zemke, raines & filipczak, 2000), millennials will not hesitate much before replacing their job for the one that will give them more satisfaction. nevertheless, it should not be forgotten that certain job satisfaction factors are more important for employees in serbia than for employees in other countries, due to the specific context of this country (janicijevic et al., 2015). to sum up, companies should reconsider their traditional policies and management styles and find different, more constructive ways to work with generation y. by satisfying their needs, companies will be more successful at retaining soon to be the most numerous 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(2010). selecting communication media in a multigenerational workplace. international journal of business & public administration, 7(2), 134-150. received: 2018-05-12 revisions requested: 2018-06-04 revised: 2018-06-15 accepted: 2018-08-30 61 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) 62 tatjana ivanović, sonja ivančević 2019/24(1) tatjana ivanović university of belgrade, faculty of organizational sciences, serbia tatjana.ivanovic@fon.bg.ac.rs tatjana ivanovic is an assistant professor of human resource management at the faculty of organizational sciences. she holds a phd degree in human resource management as well as a msc degree in public management from the sda bocconi, italy. she has worked at the faculty of organizational sciences since 2007, teaching different subjects in the field of human resource management and international human resource management at undergraduate and master studies. sonja ivančević primary school ‘starina novak’, belgrade, serbia sonja.ivancevic@yahoo.com sonja ivančević has an m.a. in human resources management from the faculty of organizational sciences and a b.a. in english language and literature. she works as a teacher, but has also been engaged in a variety of hr activities, such as recruitment, selection, creating and conducting training programmes and so on. she does research in the fields of employee motivation, generational differences in the workplace and burnout syndrome. she is the author of the accredited professional development seminar ‘burnout syndrome – how to survive stress in the workplace’. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false 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sustainable business and management solutions in emerging economies 2020/25(1) sport management in emerging economy: squad size, expenses and results – case of the brazilian football league doi: 10.7595/management.fon.2019.0003 abstract: 1. introduction football has become a highly propulsive industry that counts with institutions which do not represent not only sport organizations, but also big companies with revenues generated by sponsors, transfer fees, marketing, broadcasting, shirts, tv rights, among others (see more in: lima et al., 2018; pavlovic et al., 2013; ribeiro & lima, 2012; tertuliano, lima, oliveira, pavlovic, machado, & fischer., 2018; tertuliano, oliveira, pavlovic, & machado, 2018). according to leoncini (2001), football clubs are undergoing social transformations in their respective environments that result in new ways of seeing the sport being one of them, through the operation of a generating source of financial resources. they are now seen as a business option which demands victories on and off the pitch, represented by having a good financial condition related to victories in the tournaments played, an essential connection to ensure the clubs survival (guzmán, 2006; haas, 2003; haas, kocher, & slitter, 2004). * corresponding author: ivan wallan tertuliano, e-mail: ivanwallan@gmail.com research question: the paper investigates the influence of the size of the squad and the club’s expenditures on football in the final classification in seasons 2008 to 2016 of the first division of the brazilian football league (serie a). motivation: considering soccer as the most important sport in brazil, representing a cultural symbol of the country, it is better to make it necessary. therefore, it is necessary to investigate the influence of the size of the squad on the performance of the teams and, in addition, how much the clubs invest in the formation of these squads. idea: in this perspective, the central hypothesis of this study is that clubs with the highest number of players will also present the best classifications, and the second central hypothesis is that clubs with more investments in football have the biggest squad. data: (the study was conducted with data collected over the internet, using data provided by clubs. only the clubs belonging to the first division were used, being a total of 34 clubs, divided into 2 groups, according to the investment value in football. tools: this study presents descriptive and inferential analyses, since the qualitative-quantitative approach was assumed as a way of understanding the data. assuming the number of clubs participating in the study, we chose non-parametric inferential analyses in the intraand inter-group evaluations, using the alpha value of 0,05 as criterion. findings: the results show that the size of the squad is not a determining factor in the ranking of clubs in the national league, but the clubs’ spending on football is crucial, since the clubs with the highest spent on football were the clubs with the best safety ratings in 4 of 6 championships. in addition, the results showed that the size of the squad and spending on football are not related, that is, it’s not the size of the squad what determines the cost of football and other factors, such as wages of athletes. contribution: one can conclude that to the first division of the brazilian championship of professional football, the number of athletes in the squad is not a determining factor for the position taken by the clubs in the competition, but the value invested in wages, corroborating only one of the hypotheses of study. however, this study has some limitations, such as sample size (only 34 teams), the use of clubs from a single country, and the lack of information from other clubs (not all clubs provide their financial statements through the club or federation website). therefore, we emphasize the need for new studies. keywords: football, brazilian football league, football clubs, classification of clubs, sports administration. jel classification: z23 in brazil, such generation of resources, in addition to the investments made through the football, is also present. in 2015, twenty largest brazilian clubs showed a turnover set of r $4.85 billion (somoggi, 2017c) and, in 2016, the expenditure of the football department of the club reached hit r $2,9 billion, 9.1% higher than the previous year (somoggi, 2017b). within the context described by these figures, the present study investigates if the number of athletes generally plays an important role in winning better positions on the leaderboard of the first division of the brazilian football, relating it to the investment in the football department of the club, since the literature points that football clubs investments influence the final positions obtained in the tournaments played, with large investments being needed to become champions (lima et al., 2018), added to the information that higher-revenue teams showed better final positions in the brazilian league table by collecting more resources. these facts suggests that they might have better conditions to keep increasing their revenues and compete for the title (tertuliano et al., 2018), signing the best players they can and paying higher salaries for the squad, for example, since wage issue can be important for athletes, even more than their own transfers between clubs. in view of the above, the central hypothesis of this study is that clubs with the highest number of players will also prove to be the best in classifications, and the second central hypothesis is that clubs with more investments in football have the biggest squad. however, rich clubs can make the most expensive transfers (pavlovic et al., 2014) in order to bring the most gifted players, what might bring higher revenues and a high likelihood of sporting success; they also invest more capital in databases, technology, structure, among others (anderson & sally, 2013), but they can also upgrade the squad wages, what is represented as a good investment option to maximize winning chances. the wages paid, good management, in addition to representing 50 to 65% of the income of the club, can assist in the conduct of a proper administration of resources and lead to better results in the medium and long terms (soriano, 2013), since rich clubs pay higher wages to get bonus players and to win trophies – the more is paid out in salaries, the better the standing taken in the table, no matter how much it is paid by these clubs on the transfer market. liverpool (english club) is a clear example: in six years that coach rafael benítez commanded the team, $220 million were invested more than the amount received in sales and no title was won, while manchester united (english club) has invested $49 million and won three titles (kuper & szymanski, 2014). however, this may be an isolated case, not reflecting what in fact occurs in other clubs and leagues, as little is found in the literature (lima et al., 2018; mijatovic, et al, 2015; pavlovic et al., 2013; pavlovic et al., 2014; tertuliano et al., 2018). thus, the objective of the present study was to investigate the influence of the size of the squad and the club's expenditures on football in the final classification in seasons 2008 to 2016 of the first division of the brazilian football league (serie a). 2. methodology to be able to respond to the purpose of this study, the search method called documentary research explanatory was used. this method seeks to identify, record, analyse and interpret the observable facts and their possible causes (lakatos & marconi, 2011). to investigate the influence of the size of the squad on the performance of clubs in the national league first division, we used the data depicting the position of the teams (ranking) in the brazilian football league table, series a, between 2008 and 2016 and the number of players that the clubs employed during the seasons mentioned above. this information was found on the website of the brazilian football confederation (cbf), which is the institution responsible for football in brazil (http://www.cbf.com.br/competicoes/). to investigate the influence of the expenditure on the football between 2011 and 2016, and the performance of clubs in the national league first division, data were used obtained from the following websites: lance (somoggi, 2017b, 2017a), slide share (somoggi, 2017c), in addition to the financial statements obtained from the websites of the state football federations and their clubs (associação atlética ponte preta, 2014; clube nautico capibaribe, 2014; criciúma esporte clube, 2015; diário oficial de minas gerais, 2012; federação catarinense de futebol, 2013; federação goiana de futebol, 2013; federação paulista de futebol, 2012, 2013). after all information was collected, the total number of clubs used was 34. in the first part of the analysis, the clubs were divided into 2 groups according to the classification of the clubs in the league: group g1, clubs that finished the season among the top 10; g2 clubs that finished the season between the 11th and 20th positions (table 1). 58 ivan wallan tertuliano, eric matheus rocha lima, vivian de oliveira, bruna alves santana, vladan pavlović, afonso antonio machado 2020/25(1) for the second part of the analysis, the groups were formed using other criteria for training, the years between 2011 and 2016 were taken into consideration as said above. in this step, the g1 group was formed by 10 clubs with the largest squads in the year evaluated and group g2 included 10 clubs with smaller squads in the year evaluated (table 2), regardless of rank or spending on football clubs showed in the year reviewed. such a criterion was adopted in all years. 3. analyses procedures in the present study, the qualitative-quantitative approach was adopted, therefore, descriptive and inferential analyses were used to meet the objectives of the study. in this sense, analyses between groups were taken over intra-group. inferential analyses were used because the descriptive statistics is not sufficient to give meaning to the results, since it does not have the "power" of comparison that mathematics has and therefore cannot give significance to its findings as well as the inferential statistics can. thus, it is necessary to use inferential statistics, since it can demonstrate if there is a significant difference, that is, a causal difference (p < 0.05) in the results found and not just a mere difference, which is otherwise not significant. according to torman, coster and riboldi (2012), in case of small samples (below 30 participants per group) it is recommended that nonparametric tests are used directly for the analysis, without the need to test normality and homogeneity of variance. upon such recommendations, the nonparametric tests for data analysis were used and the alpha value of 0.05 to significant differences (field, 2009; green, salkind, & akey, 2000; thomas, nelson, & silverman, 2012; torman et al., 2012). for cross-group analyses, mann whitney u test and intragroup analysis using pearson correlation were used. when significant differences were found between groups, as there were only 2 groups, there was no need for post hoc tests, for the values of rank were sufficient to reveal the difference. all analyses were performed with the assistance of ibm spss statistics, version 20. table 1: teams participating in the study (n = 34). source: the authors. 59 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) table 2: formation of groups for second analysis of the study (n = 34) source: the authors. 4. results first, the cross-group analyses were conducted for each year (2008 to 2016), verifying that there was a difference between groups in the size of the squad. in these analyses, it became evident that the group g2 had a higher quality squad in almost every event of the brazilian soccer championship evaluated, with the exception of the year 2016, when the g1 had a more numerous squad. these results suggest that the highest number of members on the team is not crucial for achieving the highest positions in the league (table 3). these observations have not been supported by inferential analysis, conducted with the mann whitney u, as in the majority of years there was no significant difference between groups in the size of the squad. the only year that showed significant differences between the groups, was the year 2016 (p < 0.05), demonstrating that the g1 group had the largest squad and, in addition, earned the best ratings in the league. these data suggest that the groups did not differ in the number of athletes in the squad, most of the issues assessed, i.e., the size of the squad is not a determining factor for the maintenance of the highest positions in the league. table 3: list of sample groups (n = 20) source: the authors. 60 ivan wallan tertuliano, eric matheus rocha lima, vivian de oliveira, bruna alves santana, vladan pavlović, afonso antonio machado 2020/25(1) hence, in order to investigate the influence of a football club spending between 2011 and 2016, the classification of clubs in the national league, the expenses of each club, whether in group g1 or group g2 (the same groups as in previous analysis re used) for the years 2011 to 2016 were analysed. in these analyses, we used this period because data prior to 2011 were incomplete, which could compromise the interpretation of results. the analysis between groups has demonstrated ( a qualitative analysis) that the group g1 spent more on every year assessed; calculated for the period of these years, this expense exceeded the double or triple sum the group g2 spent (table 4). these observations were supported by inferential analysis, since in a majority of years there was a statistically significant difference between the groups as regards their spending on football (p < 0.05). in just two years evaluated there were no significant differences (p = 0.058, 2013 and 2011 with p = 0.173). such results suggest that the clubs of the g1 group have invested more in football and won the best ratings in the brazilian soccer championship, since the g1 group was formed by the 10 best clubs that year, during classification in the national league. table 4: expenditures on football for each sample group (n = 34) source: the authors. finally, in order to investigate the relationship of the expenditure for football and the size of the clubs, led-if pearson correlations inter-group were employed. for this, another approach was implemented i.e., 2 sample groups were formed, but for training criteria used-if the size of the squad, namely, the g1 group was formed of 10 clubs with the largest squads for the year, and the group g2 included 10 clubs with smaller squads. as cited in table 2, such criterion was used for each year of the analysis (2011 to 2016). in qualitative analysis, it can be observed that group g1, which is the group with the largest squads, had higher expenditures of football, with the exception of the year of 2015, when group g2 reported higher expenditures related to football (table 5). this observation suggests that the squad size influences the football clubs' spending. in qualitative analysis, it can be observed that group g1, which is the group with the largest squads, had higher expenditure sof football, with the exception of the year of 2015. when group g2 reported higher expenditures regarding football (table 5). this observation suggests that the squad size influences the football clubs' spending. these results suggest that other factors can influence the expenditure of clubs associated with football, such as the wages of athletes. table 5: size of the squad and the expenditures for each group in the analysis phase of correlation (n = 34) source: the authors. 61 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) in summary, the above results show that the size of the squad is not a determining factor in the ranking of clubs in the national league, but the clubs' spending on football is crucial, since the clubs with the highest spendings on football were the clubs with the best safety ratings in 4 of 6 championships (66.66%). in addition, the results showed that the size of the squad and spending on football are not related, that is, it is not the size of the squad what determines the expenditure on football and other factors, such as wages of athletes. however, athletes' salaries have not been assessed in this study and are presented as subject to influence, a subject of future investigations. thus, according to the results, the research hypotheses is partially confirmed since the size of the squads did not influence the ranking of clubs in the national league. 5. discussion the fact that group g2 had the largest squads in almost every competition, in addition to the analysis of the study, further emphasises that the size of the squad is not a determining factor for the achievement and maintenance of the highest positions in the brazilian championship. this can be justified by the likelihood that a larger amount of money invested is not necessarily a guarantee of a superior quality. other factors, such as payroll and financial assessment of the teams, can act as parameters of performance verification that are more convenient, since they rely on the support of literature. according to the salary market in case of football players, the better the player, the more he earns, which is something that is consistent, since professional football contains one of the few markets in which there is a high number of buyers and sellers and, if an athlete receives less than he deserves, he can go to another club (kuper & szymanski. 2014). what can press club holders to value the quality of athletes is presented in this context. in addition, the financial reward to the athletes, the figure in the payroll for the players, can explain clearly the difference in positions in the leaderboard. in the case of england, 92% of this difference is evidenced through this parameter (payroll related) and, as much as i cannot firmly state that the team with the higher pay will finish the season at the top standing throughout the year, the long-term correlation is undeniable (anderson & sally. 2013). since the end of the season 2000/2001, until the year 2010, the top division of professional football had participants from england itself. it was only once that the squad who did not have a highly expensive squad, or the second most expensive, won (tomkins. riley. & fulcher. 2010). moreover. revenues can also have an impact on team performance. according to rohde & breuer (2016), the top 30 europe revenue-generating football clubs have grown by 7.9% per year, top ten clubs have grown by 9.5% per year and top five clubs have grown by 11.7% per year, while bottom 15 clubs have grown by 4.3% per year, bottom ten clubs have grown by 4% per year and bottom five clubs have grown by only 3.8% per year. still speaking of the revenues, the literature admits that the english football is an example of success that has revenues as a relevant aspect (dobson & goddard. 1998; szymanski & smith. 1997). with national success being, in majority, driven by investments (kuypers & szymanski. 1999; szymanski & smith. 1997). certain investments are made by private investors with fierce tendencies of becoming more important if they maintain the teams in the elite, since in this way they may collect more resources (kuper. 1999; rohde & breuer. 2016a; scelles. helleu. durand. & bonnal. 2016). in other words, financial resources have proven to be a relevant resource in amateur and professional football (gerrard. 2005; wicker & breuer. 2011). also, private investors have been argued to have superior conditions in investing in teams in comparison with clubs with dispersed ownership or owned by member associations (franck. 2010). group g1 reports greater spending on football, largely surpassing group g2, in addition to conquering the best positions on the leader table of the brazilian championship, which is connected with what was dealt with earlier in the paper. by investing more, there is a greater tendency for group g1 to pay higher salaries to their athletes, as in this way they have even greater possibilities of fundraising since they obtain greater visibility and remain regularly in the elite and, in many cases, compete in continental competitions, which will further enhance the prominence of the teams entered in this group (lima et al., 2018; tertuliano et al., 2018). the fall to the second division can reduce the sources of funding for these clubs, from one season to the next, by 25% (pinilla. 2017). in case of england, a club that leaves the first division results in a difference in terms of money and television rights, of approximately 45 million (anderson & sally. 2013). anderson and sally stress that the nominal probability of relegation in a season of the premier league (english first division) is 15% for each team. however, if the payroll is above the league average, this probability falls to 7.2%. for clubs who spend less, the chance of relegation drops to 21% and can reach 44%, in case investments are too low. as regards the advantages that the teams in group g1 may enjoy by contesting major compe62 ivan wallan tertuliano, eric matheus rocha lima, vivian de oliveira, bruna alves santana, vladan pavlović, afonso antonio machado 2020/25(1) titions, the sports director's considerations of sevilla (spanish club), monchi, are relevant since the spanish reinforces that a bigger competition is attractive to attract quality players, in addition to attracting sponsors and higher social repercussion best practices (pinilla. 2017). in this way it is obvious that clubs compete by investments into an overinvestment scenario, which results in a dissipation of overall league revenues (dietl. franck. & lang. 2008). from 2004 to 2013, 90% of national league titles in europe were won by top 30 elite football clubs; furthermore, 88% were half finalists in the uefa champions league (rohde & breuer. 2016b). also, a smaller amount of resources may result in reducing performance levels, considering that in the same period (2004 to 2013) by the same authors, the last uefa champions league winner non-top 30 club was fc porto in 2004 and the last semifinalist was the spanish villarreal in 2006, which shows how hard it can be to compete with the richest clubs. the fact that group g1 have larger squads can be related to the ability to collect more resources than group g2 (lima et al., 2018) allowing for hiring and keeping more athletes in the squad. it is assumed that this hypothesis was not supported by intra-group correlations because a large squad is not necessarily a skilled squad, while the wages paid to the athletes and financial condition seem to arise as more precise indicators in measuring the performance of the teams. the investment team salary is the main element for talk about a clear bet for a winning team, since in any season the correlation between wages and position on the leaderboard is increasingly evident (pinilla. 2017). in the english first division, the authors point out that wages explained 81% of the variation in final average position on the scoreboard (anderson & sally. 2013), while others claim that this percentage may reach 90%. it appears that high salaries help a club more than performing spectacular transfers, since the club with better paid players ends at the top and one with athletes with lower pay may end up at the bottom of the table (kuper & szymanski. 2014). besides the salaries, literature also gives some alternatives to collect financial resources, such as the use of strategies to accumulate resources based on owning a global brand powerful to generate revenues from broadcasting, ticketing and merchandising (gladden & milne. 1999; pawlowski & anders. 2012). furthermore, there are the “sugar dadies”, private investors attracted to invest money in the team (franck, 2010; kuper, 1999; rohde & breuer, 2016a). authors also say that richer clubs are peculiar due to their higher growth rates and revenues, once they tend to dominate performance in national and continental scenarios (rohde & breuer. 2016a), considering that team investments exceed profit-maximizing levels through evolutionary strategies to maintain themselves in the highest positions on the league scoreboard (grossmann. 2015). 63 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) the results above show that, as regards the first division of the brazilian championship of professional football, the number of athletes in the squad is not a determining factor for the position taken by the clubs in the competition, thus refuting the first hypothesis of study. however, since the clubs with larger investments in their football departments were the best placed at 66.66% of all evaluated, it corroborates with the second hypothesis of the study. it is understood, therefore, that investing in the football department is one important factor to maximize the chances of achieving top positions in the league. whereas there is no relationship between the number of athletes on the roster and the position occupied in the table, there is a relationship between the investments into football and the classification in the league. it is understandable, with subsidies also present in the literature (lima et al., 2018; mijatović et al., 2015; pavlovic et al., 2013; pavlović et al., 2014; tertuliano et al., 2018), that the investment in the wages of the athletes in the squad is an important aspect in the context of investment into the football department since it allows you to keep the best players for extended periods of time and thus be able to compete with a squad more qualified than those in the rival squad, corroborating partially with the hypotheses of the present paper. however, this study has some limitations, such as sample size (only 34 teams), the coverage of clubs from a single country, and the lack of information from other clubs (not all clubs provide their financial statements through the club or federation websites). the lack of information on the financial balance of the clubs can be interpreted as a lack of transparency of the clubs, thereby limiting the understanding of the management that the leaders adopt in the clubs. this occurrence is unclear, since there are rules which obligate clubs to present the annual balance sheet, however, they are not followed by all clubs. finally, it is suggested that new studies should be conducted in different professional leagues, arranged in other countries, in order to allow for comparative analysis to verify 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[45] torman. v. b. l., coster. r., & riboldi. j. (2012). normalidade de variáveis: métodos de verificação e comparação de alguns testes não-paramétricos por simulação. revista hcpa. 32(2). 227–234. [46] wicker. p., & breuer. c. (2011). scarcity of resources in german non-profit sport clubs. sport management review. 14(2). 188–201. doi: 10.1016/j.smr.2010.09.001 received: 2017-12-15 revisions requested: 2018-09-07 revised: 2018-11-09 (2 revisions) accepted: 2018-12-25 65 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) ivan wallan tertuliano adventist university center of são paulo (unasp) são paulo brazil e-mail: ivanwallan@gmail.com ivan wallan tertuliano was born on 12th september 1981 in são paulo. he graduated in physical education from university july 9 and obtained his master degree in physical education from the university of são paulo, brazil. he got his phd degree from the são paulo state university at rio claro, brazil, a post-doctoral degree from the são paulo state university at rio claro, brazil. he is an assistant professor at the adventist university center of são paulo, member of the laboratory of studies and research in sports psychology (são paulo state university at rio claro), coordinator of group of research and study in sports psychology (adventist university center of são paulo), member of the editorial board of the economic outlook magazine. eric matheus rocha lima laboratory of studies and research in sports psychology (lepespe) são paulo state university at rio claro (unesp) rio claro – brazil e-mail: ericmrl@hotmail.com eric matheus rocha lima was born on 17th october ,1991 in araras. he graduated and earned his msc degree from the são paulo state university at rio claro, brazil. he is a member of the laboratory of studies and research in sports psychology (são paulo state university at rio claro). vivian oliveira university center fieo – osasco – brazil e-mail: vivian_oliveira58@hotmail.com vivian de oliveira was born on 04th september, 1991 in vinhedo. she received her bsc and msc degrees from the são paulo state university at rio claro, brazil. she is a member of the laboratory of studies and research in sports psychology (são paulo state university at rio claro), member of the group of research and study in sports psychology (adventist university center of são paulo) and a lecturer at the university center fieo. bruna alves santana adventist university center of são paulo (unasp) são paulo brazil e-mail: brunnasantna@gmail.com bruna alves santana was born on 22th january ,1996 in são paulo. she is a student at the adventist university center of são paulo, at the faculty of physical education, brazil. she is a member of the group of research and study in sports psychology (adventist university center of são paulo). vladan pavlović university of pristina, faculty of economics, k. mitrovica, serbia e-mail: vladan.pavlovic@pr.ac.rs vladan pavlovic was born on 16th december, 1971 in belgrade. he received his bachelor and msc degrees from the faculty of economics in subotica and a phd from the faculty of business studies, megatrend university, where he was appointed assistant professor and associate professor in the field of accounting and auditing. he was appointed a full time professor in 2012 at the faculty of economics in kosovska mitrovica. he has published numerous papers in international and national journals. afonso antonio machado são paulo state university at rio claro (unesp) rio claro – brazil e-mail: afonsoa@gmail.com afonso antonio machado was born on 21th december, 1959 in lins. he is a post-doctor from the faculty form lisbon and university of minho, a master and doctor from the university of campinas. he graduated in physical education from the pontifical catholic university of são paulo, graduated in philosophy and pedagogy from the university of campinas. he is now a retired professor at the são paulo state university at rio claro, institute of biosciences, coordinator of the laboratory of studies and research in sports psychology (são paulo state university at rio claro). he has published numerous papers in international and national journals. 66 ivan wallan tertuliano, eric matheus rocha lima, vivian de oliveira, bruna alves santana, vladan pavlović, afonso antonio machado 2020/25(1) about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 1048576 /lockdistillerparams false /maxsubsetpct 100 /optimize true /opm 1 /parsedsccomments 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08_rajko tepavac:tipska.qxd 81 management 2014/71 corporate governance in insurance companies udc: 005.21:334.72.021 ; 658.1:368 doi: 10.7595/management.fon.2014.0010 1. introduction the emergence of corporate governance can be associated with the emergence of the first international companies in the 16th and 17th century, such as the east india company, the levant company or hudsons bay company.1 the east india company was the first company marked by the division between ownership and governance. the term ‘director’ was generally used for the first time at the end of the 17th century in the bank of england and the bank of scotland.2 from the historical perspective, the application of corporate governance in its initial stages of development is primarily linked to major companies, but in modern business, it necessarily refers to all forms of business organization. however, the analysis of historical development of corporate governance is associated with major companies, whereby two market crashes in france and great britain and adoption of the law in the 18th century in great britain which prohibits establishment of new companies3 are very important since they crippled the development of initial and earliest beginnings of modern corporate governance. also, up to the late 19th century, the entrepreneurial form of organization and partnership was predominant even though the concept of risk spreading through joint ownership has had its application since the 17th century. the stated factors conditioned the specific development of corporate governance even though the full development took place between the two world wars, especially after the second world war. the key initiator for the development of corporate governance was a dispersion of ownership and strengthening the role of professional management. however, the true development of corporate governance is linked to the end of the 20th century and the new millennium. it has become embedded in the regulations of insurance companies.4 in view of the fact that corporate governance in the usa became ‘’modern’’ in the 1970s while it gained its international dimension during the 1990s of the 20th century, cheffins emphasizes that the history of corporate governance is primarily american and then international.5 corporate governance is a set of rules and behaviour that determine the manner in which the companies are managed and controlled, strategically managing the relations between the managers, members of the sucorporate governance in all companies, including insurance companies, includes the rules, regulations and institutions that regulate the way in which the governance and control of these companies is performed and implement them in practice. the basic requirement of development and implementation of corporate governance is the improvement of all of the economic indicators, primarily the long-term sustainable development in the interests of the owners and all other stakeholders, including policyholders, creditors, employees, government and the wider community. the aim of the paper is to analyse the application of corporate governance in the insurance in the world and in serbia. since there is no generally accepted framework for standardisation of corporate governance, as it differs depending on the specifics of each individual insurance company, the subject of the research in the paper is a general framework of corporate governance applicable to all insurance companies with necessary calibration to the level of individual companies. in the paper we first point out the importance of the application of corporate governance in the insurance and specifics of the legal framework of corporate governance in insurance companies in serbia and then analyse the quality of corporate governance, reporting on the implementation of corporate governance and international principles. keywords: insurance, insurance companies, corporate governance, principles, serbia. vladimir njegomir 1, rajko tepavac2 1faculty of law and business studies dr lazar vrkatić, novi sad 2university business academy, novi sad and dunav insurance company, belgrade. pervisory authority and the board of directors, members / shareholders and other stakeholders.6 a relatively broad definition of corporate governance stated above implies the rules that enable an improvement of business which is beneficial for all stakeholders, and which is applied when functions of ownership and governance are set apart. the main goal is to provide a long-term sustainable maximization of stock value, i.e., a long-term sustainable profitable business. the document of the organisation for economic co-operation and development (oecd) that defines the principles of corporate governance states that corporate governance involves “a set of relationships between a company’s management, its board, its shareholders and other stakeholders“9. also, it is stated that corporate governance is a key element in improving economic efficiency and growth and in enhancing investor confidence. the development of corporate governance, conditioned by the division between the owners of capital and professional managers, has enabled the creation of a clear demarcation line between modern and traditional capitalistic economic and social systems. in addition, corporate governance suffered significant changes. namely, the traditional perception of corporate governance focused mainly on shareholders. the primary focus of modern corporate governance, however, is a regulation of the relation between the owner and management as well as the relation toward the employees, clients, competitors, the state and society at large, i.e., all stakeholders of legitimate interests. in 2012, much was done concerning the modernization of the existing framework of corporate governance in serbia. these changes determined the actuality of research analysed in this paper. through detailed examination of literature, it was concluded that, with the exception of a few scientific papers, the subject of corporate governance in serbia was not significantly presented, especially in the light of the latest changes in insurance industry. the above stated results as well as the significance of corporate governance in general, especially for insurance, as a specific activity, justify the necessity of analysis of corporate governance application in insurance industry. the goal of the research presented in the paper is to point at the key aspects of corporate governance in insurance companies in serbia with the analysis of the existing international consensus as regards corporate governance in the field of insurance and uniform future framework in the european union, which will, in the future, define the framework for corporate governance in insurance companies in serbia. this paper firstly points out the significance of corporate governance application in insurance and the specifics of legal framework of corporate governance in insurance companies in serbia. then, it deals with the analysis of corporate governance quality, reporting on the implementation of corporate governance and international principles. 2. importance of corporate governance in insurance industry traditionally different values, culture and history concerning economic development and business practice also produce differences in the corporate governance between particular countries. factors decisively influencing the differences in the development and characteristics of corporate governance between countries also include the differences between the structure and functioning of financial systems8, such as bankversus market-driven, governance role of owners versus stake holders and the political governance of the economy in terms of state-directed, associational or market-driven economies. in addition, specific differences in corporate governance practice can be observed between particular industries and individual subjects within such industries. however, the main principles and goals such as transparency and long-term sustainable profitability are generally applicable independently of the differences existing in different legal systems or industries. this is also where main benefits of corporate governance lie, including better performance, easier access to capital markets, more favourable conditions for capital raising, and better universal reputation9. the transformation of social and economic systems in serbia has taken place in the last twenty years. this was the period of corporate governance development which actually started from the scratch. at present, the role and quality of corporate governance in this country is not satisfactory. namely, according to the world economic forum 2012-201310, out of 144 countries included in the competitiveness index, serbia ranks relatively low, as the 95th country. however, according to particular single parameters, this is dramatically adverse (for example, in property rights protection serbia takes the 130th place, in corporate ethics it ranks 132nd, in the efficacy of corporate boards it ranks 141st and regarding the protection of minority shareholders’ interests, it ranks poorly, as 143rd).11 in addition to the transformation of social and economic systems which has occurred relatively lately, the reasons for corporate governance underdevelopment lie in numerous other factors, primarily in the current organisation of companies. namely, family companies management 2014/71 82 2014/71management 83 are predominant in serbia and account for more than 90% of the total number of companies.12 they are managed rather by intuition of their owners who are, at the same time, the directors. the aforementioned is supported by the fact that out of the total number of 389005 legal entities in serbia, including the non-commercial sector, 56.3% are entrepreneurs.13 such circumstances in economy are the result of inadequate corporate governance, since the lack of separation between ownership and governance was recorded in the majority of companies, and such separation is the major precondition for the corporate governance development. nevertheless, the newly adopted draft of corporate governance code enables the implementation of good corporate governance practices in family companies. global issues of corporate governance have particularly gained importance in the last twenty years, especially in view of the fact that poor governance and internal controls have been directly linked with big corporate affairs, one of them being the case of enron company which, in 2001, filed for bankruptcy despite being the seventh ranked company in the usa by its size. corporate governance relates to the system of financial and other governance rules and controls and it generally regulates relationships between the boards of directors, senior management and shareholders. despite the fact that the main goal of corporate governance is to protect shareholders from company mismanagement, in financial institutions, particularly in insurance industry, it has a big importance in the regulation of relationships and care for not only the shareholders but also the insureds, employees, creditors, government and other stakeholders. the application of generally accepted principles and standards from a good practice of corporate governance does not guarantee a complete business success, since the business success of insurance companies depends on numerous factors which are not only of internal character and which are beyond the direct control and influence of management bodies. however, the existence of good, high-quality corporate management in insurance companies is necessary to attract investors’ capital and the most qualified and most productive human resources. market mechanisms, particularly those of labour and capital markets, will evaluate the application of quality corporate governance creating two key preconditions for the business success of insurance companies. insurance is an industry of special social interest, having in mind its different functions in a society. the main aim of the modern insurance industry is to minimize the risk by association of the insured into the institutionalized risk communities, i.e., insurance companies, and to ensure direct economic protection against negative effects of risk actuation through indemnity. the aforementioned represents the main function of insurance. however, in addition to this primary function, insurance carries out other numerous functions both for individual insureds and the society at large, such as: credit improvement, exchange and trade, mobilization of funds, effective capital allocation and social function.14 successful conduct of insurance industry involves a continuous maintenance of public trust in the insurance institution which is achieved by maintaining solvency, adequate investment policy and prudent underwriting. analysing the said insurance functions it can be concluded that successful management of this industry is crucial for all stakeholders and entire community in which insurance companies operate. undeniably, the quality corporate management which enables successful, long-term, sustainable conduct of insurance industry is not only important for shareholders but also for all other stakeholders. however, having in mind the aforementioned, it was recorded that quality corporate governance, which creates the framework for a successful organisation and management of insurance companies, has a relatively higher importance than in other industries. the extreme importance of corporate governance in insurance companies is particularly pronounced when big insured events occur, such as natural and technological disasters that cause huge material losses and also when companies may suffer significant financial losses under the third party liability insurance for personal data theft or asbestos pollution. in addition, the importance of corporate governance in insurance industry is supported by the fact that insurance companies increasingly become the members of financial conglomerates and by the threat from negative effects that may result in the actuation of systemic risk. despite the fact that the danger of systemic risk is higher in case of banks while insurance industry is properly and legally regulated15, the problems of a usa company, the american international group, in 200816 have undoubtedly demonstrated that insurance companies are likely to cause problems in the entire financial system owing to inadequate corporate governance, notably in the aggregate risk management. management 2014/71 84 corporate governance largely relates to the rules and structure of company management. however, it also includes the rules for business supervision. the importance of supervision is particularly pronounced in case of financial institutions, including insurance companies. internal control or internal supervision of operations of insurance companies is carried out by internal auditors and actuaries, whereas external supervision is carried out by government bodies and external auditors. the actuarial science and audit are complementary approaches to the state supervision, whereby the internal and external audit reports and actuarial opinions should be the basis for state supervision.17 having in mind the great importance and benefits from corporate governance in insurance companies, supervisory bodies should encourage its application. one of the examples for improvement of corporate governance in banking was the basel committee on banking supervision which developed the guidelines to help banks and supervisory bodies assess the quality of corporate governance, highlighting, in the area of supervision, the role of supervisory authority, individuals not included in daily bank operations, direct supervisions of different business areas and independent functions of risk management, compliance and audit.18 in the insurance industry in serbia, the state supervisory body, the national bank of serbia, plays a significant role. it is perceived as extremely positive that the national bank of serbia has defined the guidelines for insurance supervision, including the guidance paper on corporate governance in insurance companies, which shall be analysed further in the text. 3. specifics of corporate governance framework in insurance companies in serbia the legal framework of corporate governance application is constituted of regulations adopted at different levels that define governance implementation. in serbia, in terms of insurance companies and all other companies, the key elements of the corporate governance legal framework are the law on companies, the corporate governance code issued by the serbian chamber of commerce, the guidance paper on corporate governance in insurance companies issued by the national bank of serbia, the instrument of incorporation, articles of association, the code of corporate governance and other acts of individual insurance companies. the law on companies is considered to be a framework of a highest level for the implementation of corporate governance. the law regulates the legal status of companies, that is, the issues concerning their incorporation, management, status changes, changes of legal forms, dissolution and other issues of relevance for their status. in serbia, an attempt was made to put corporate governance into the legal framework by the adoption of the law on companies in 2004.19 the key aspects that characterized the application of this law were the existence of managing boards as the fundamental elements of corporate governance and issues caused by privatization in terms of the relations between major and minor owners, i.e., shareholders, instead of the usual issue between the owner and the management. for the purpose of improvement of corporate governance efficiency, the increase of director’s responsibility as well as safeguarding of interests of minority shareholders, the national assembly of the republic of serbia adopted the new law on companies that shall relate to the entrepreneurs as well, save for the period up to march 2013 when it shall not relate to partnership companies. this law was promulgated in may though it came into effect in june 2011. however, its application was initially postponed until the following year. namely, in accordance with the article 600 of the law20, the same shall be applied as of february 1st 2012, though the article 344 paragraph 9 and article 586 paragraph 1 item 8) shall be applied as of january 1st 2014. the new law shall outlaw the old one save for the part that relates to the companies and management of companies in the privatization process and up to the finalization of that process. the law on insurance21 as a lex specialis law, defines all important issues concerning incorporation, business and dissolution of insurance companies in serbia. contrary to the banking sector where the law on banks22 to a large extent defines the specific aspects of corporate governance23, the insurance law, where it relates to the company bodies, considerably refers to the law that regulates the legal status of companies. however, the insurance law specifies the conditions that should be met by some members of management, including also the requirements in terms of educational qualification, qualifications and professional experience. the issues concerning the operation of insurance companies which is handled differently as compared to the other companies and which relate to company bodies are regulated by the articles 47-55 of the insurance law. according to the provisions hereof, the national bank of serbia is entitled to approve and withdraw a given approval for carrying out the function of a member of management and a member of 2014/71management 85 the supervisory authority. obligations and responsibilities of board members and the jurisdiction of the supervisory authority are determined as well. the current insurance law stipulates the existence of boards of directors while the draft of the insurance law by the national bank of serbia is in accordance with the new law on companies. namely, all companies which, in accordance with the previous law on companies, had a board of directors as the managing body in their organizational structure are obliged to abolish it and to choose one of the two models of corporate governance – a one-tier or a two-tier corporate governance systems. in accordance with the article 198 of the law on companies, the one-tier system of governance shall imply the existence of two bodies, i.e., the shareholders’ assembly and one or more directors, while the two-tier system shall mean the existence of three governing bodies, the shareholders’ assembly, the supervisory authority and one or more directors. the selection of a governing system shall be defined by the article of association. the law stipulates that up to the moment of harmonization of organizational structure, managing boards should function as, namely, should have the jurisdiction of the board of directors. the one-tier system of corporate governance is characteristical of small companies and the shareholders’ assembly should appoint and dismiss a director or directors, monitor their performance and adopt their reports. in the two-tier governance system, characteristic of big companies, the shareholders’ assembly appoints, and dismisses the supervisory authority members and determines their remuneration while the supervisory authority appoints and dismisses the director, i.e., directors. in this situation, directors have less authorization and responsibilities when compared to the one-tier system. even though the managing boards are abolished by the law, they still continue to exist in public companies on the basis of application of the law on public enterprises and the performance of activities of general interest.24 these changes have adjusted the regulation of corporate governance to the ruling trends in developed market economies. the law defines persons with special duties to a company: partners and general partners, members of a limited liability company or shareholders with a significant or controlling share capital, directors, supervisory authority members, representatives, procurators and liquidators. for the above mentioned persons, special duties and lawsuits are defined if they breach their duty. special duties of the aforementioned persons shall include: duty of care, duty to report transactions involving personal interest, duty to avoid conflict of interest, duty to keep trade secrets and duty of non-competition. in the one-tier or the two-tier governance systems, the work of the director may be supported by the work of committees. the law stipulates the obligatory formation of the audit committee by the board of directors while it is allowed that the nominating committee, the compensation committee as well as other committees be established according to the company needs, if provided by the company’s articles of association. also, a company may have a secretary. a company secretary shall be appointed and his/her remuneration and other entitlements shall be set by the board of directors, or the supervisory authority if a company has a two-tier management system. even though the law on companies refers to different forms of company’s organization, the provisions of law for insurance companies in serbia relating to a joint-stock company are of utmost importance, since all insurance companies in serbia are incorporated as shareholding companies. finally, the section of the law relating to internal and external monitoring, i.e.,, control of operations is very important. in public joint-stock companies, at least one person in charge of internal audit must comply with the eligibility requirements for internal auditors laid down by the law governing accounting and auditing. the law stipulates certain responsibilities of internal audit and obligatory annual external audit of financial statements. the key legal document that, together with the law, constitutes a legal framework for the application of corporate governance in insurance companies in serbia is the corporate governance code25 adopted by the serbian chamber of commerce in september 2012. the corporate governance code is compatible with the provisions of the new law on companies; it represents its supplement and it enables concretization of its own kind, i.e., the explanation and adjustment of dispositive rules of the law in the business practice of insurance companies. by adoption of this code, the code of chamber of commerce of 2005 became invalid. the main goal of the new corporate governance code of the serbian chamber of commerce is the improvement of corporate governance system in all companies in serbia. contrary to the previous one, the new code is intended for all companies, especially the ones where corporate governance has been neglected so far – family companies, small and medium enterprises and state-owned companies. the rules of the code are not binding but are highly recommended and can be applied directly, while all companies may apply the other corporate governance code, though they should inform the chamber of commerce about that. essentially, this document represents the starting point for making an individual code of corpomanagement 2014/71 86 rate governance suitable for a company, i.e., an insurance company. it consists of two sets of rules: recommendations that should be accepted and followed and suggestions that are considered to be a desirable practice in the field of corporate governance. the code structure is oriented towards determination of principles that should be the basis for work of the members and the shareholders’ assembly, the board of directors and the supervisory authority, internal auditing, reporting and relations with stakeholders. the rules for all companies were the first to be determined and they are divided into three parts that include all companies, additional principles and recommendations for big companies and public joint-stock companies and additional principles and recommendations for public joint-stock companies. then, additional principles and recommendations for family companies were defined and the third part includes additional principles and recommendations for companies in state ownership. given the importance of the insurance sector, one specific quality of insurance companies in relation to other companies is the supervision conducted by the national bank of serbia. considering the observed problems in corporate governance when supervising the insurance companies and with a view to „aligning the activities of insurers’ bodies with the complexity, volume and level of risk to which insurers are exposed”26, the national bank of serbia has drafted the guidance paper on corporate governance in insurance companies. abroad, it is usual for banking and insurance sectors to supplement legal provisions with guidelines which are not binding as a rule but present the best practice. also, it is usual, in spite of the fact that they are not binding, that regulatory bodies make their best efforts to accept guidelines in business practice of insurance companies, which is the case in serbia, as well. namely, the guidance paper states that its wording is not binding, that the national bank of serbia shall not control whether the guidance paper is applied in insurance companies or not, however, it is expected that insurance companies organize their corporate governance so that it does not affect adversely the overall risk exposure and risk profile in the long term and does not prevent or hamper the attainment of business goals, business strategy and operating plans. also, it is stated that the application of guidelines may significantly improve a company’s operations, competitiveness and reputation and prevent some monitoring measures. the guidance paper defines the shareholders’ rights in detail and it gives them the greatest responsibility in terms of governance and monitoring operation of insurance company. in addition, it gives recommendations to insurance companies on ensuring the equal treatment of shareholders, protection of interests of other stakeholders, above all, insureds, beneficiaries, claimants and the state. the guidance paper has specially stated the methods of adequate disclosure and transparency in order to comply with the international corporate governance principle, to determine the accurate market value and to protect the solvency and activity of the members of managing board and supervisory authority. this guidance paper was drafted in accordance with the insurance law and the previous law on companies which is why it is not completely harmonized with the new law, primarily concerning the prediction of managing board existence. taking this into account, it is possible to expect partial amendments to the guidance paper in the following period, so it can be completely harmonized with the economic reality of business operations in serbia, as well as amendments to the insurance law whose draft will be adopted in the future. apart from the above mentioned general documents for corporate governance, i.e., documents that are applicable to all insurance companies operating in a particular market, acts of individual insurance companies are of great importance as well. these acts primarily include articles of association, while the code of corporate governance is of special significance since it explicitly arranges specific and actual issues concerning corporate governance in relation to a specific insurance company. the instrument of incorporation of a company appeared because the practice needed to determine the difference between the legal status and the responsibility of the founder and of other shareholders. according to the article 11 of the law on companies, an instrument of incorporation shall be a constitutive act of a company made in the form of a decision on incorporation if a company is set up by one person or in the form of a memorandum of association if a company is started by more than one person. an instrument of incorporation may regulate numerous issues including the registered name and seat, business activity, share capital, data on shares, governance method and governance bodies and other issues according to the law on companies. regarding the issue of corporate governance, the instrument of incorporation may include a specific and selected system of corporate governance, a one-tier or a two-tier system, and governing bodies of insurance companies may be included as well. the same article of the law on companies regulates the articles of association, which is, together with the instrument of incorporation, characteristic of joint-stock companies. namely, the articles of association is a document that regulates the governance of a company and other issues according to the law on companies. the articles of association includes systematized rules of behaviour in governing and 2014/71management 87 rules and controlling methods of insurance companies’ operations. the law on companies regulates the general issues of structure and modifications of the instrument of incorporation and the articles of association as well as the nullity of the articles of association. however, the structure of these documents is defined by individual insurance companies which is why the structure is usually very similar to the aforementioned though the contents differ depending on the insurer. in the field of corporate governance, the articles of association usually define the rules and procedures relating to the representation and representatives, proxy i.e., business procurement, internal monitoring, internal audit, persons having special duties and their duties and governing with special and detailed elaboration of issues relating to particular governing bodies including the shareholders’ assembly (its constitution, participation in operations, competence, voting, method for establishment of quorum, decision making and the like), the supervisory authority (constitution, appointment of members, a member’s term, method for establishment of the quorum, competence and the like.), the method of the audit committee operation and other committees a company has a right to establish according to the law on companies, the executive board (competence and responsibilities, members’ term, method of operation and the like), the general manager and the company secretary. finally, the document which directly and to a large extent relates to the issue of corporate governance is the corporate governance code which usually and to a large extent regulates the issues of mutual relations of specific governing bodies in insurance companies and the transparency and publicity of their work. it is about a document which directs the activities of governance and control but which is to a large extent based on the articles of association of a specific company and the corporate governance code issued by the serbian chamber of commerce. this document elaborates the goals and basic principles of business, governing bodies and specifics concerning their work in a particular insurance company, the disclosure, issues regarding the auditing and the relation towards the stakeholders of a company, though it may as well include issues of managing and the method of acquisition of own shares and managing of classified information. 4. quality of corporate governance in insurance and reporting quality corporate governance includes organising and conducting management and control activities in insurance companies, which enables the implementation of the strategy and the business objectives, i.e., a high efficiency in daily operations, competitiveness, solvency, stable reputation and a long-term sustainable profitability. quality corporate governance will provide the insurance companies with the possibility to positively evaluate market mechanisms thus enabling them to attract capital under favourable conditions, notably in terms of acquisition price as the share prices tend to rise with the improvement of corporate governance whereas the interests on debt instruments issued by companies drop. they will also be able to attract and retain the employees with the best references, continuously attract new and retain the existing customers/insureds and achieve the satisfaction of all other stakeholders in their business. quality corporate governance is the basis of long-term sustainable business of all economic entities, including insurance companies. it gains the importance with the shift to market-driven business practice and owing to the changes in the legal framework which is the basis for its application. the application of quality corporate governance improves the business efficiency and competitiveness on the market of products and services that are the subject of core business of entities, which, observed at the level of the entire national economy, enables a strong economic growth. when ensuring a quality corporate governance it is crucial that the framework clearly defines the roles, responsibilities and authorisations of particular governance bodies as well as appropriate controls. quality corporate governance is undeniably important for business success and is determined by several factors. namely, compliance with the mentioned legal framework is the precondition for the application of quality corporate governance in actual business operations of insurance companies in serbia. it notably requires a high level of investor protection, full protection of their rights in the process of business management and supervision, and the provision of equal treatment of all investors as well as high protection level of all other stakeholders, primarily insureds, insurance beneficiaries, third parties and the state. in addition, a proper and transparent work of the supervisory authority is important in order to ensure the implementation and objective disclosure of key corporate governance objectives and transparency in the entire business process, which includes the disclosure of all relevant information on company business and performance. finally, the work of the board of directors and the general manager is of particular importance. management 2014/71 88 the entire business success will be largely dependant on the quality of work of the board of directors. quality corporate governance normally involves highly qualified managers, some of whom are independent from the business management and shareholders, which enables the improvement of decision-making quality since the decisions can be made after the interests of all shareholders and other stakeholders have been properly considered. this is of particular importance in insurance, having in mind the specific characteristics of this industry which is based on the trust of not only investors but also the insureds, insurance beneficiaries and third parties. therole of the board of directors is to “balance“ the interests of different stakeholders in an insurance company. the interests of, for example, shareholders and insureds, are largely balanced, since the profit from insurance business leads to the reduction of costs for the provision of original services, favourable conditions for ceding the risk into reinsurance or achievement of favourable results when investing, which is a win-win situation for all. however, there are situations where the conflicts of interest are obvious. for example, it is in the interest of capital owners that surplus of capital in the insurance company should be reduced to the minimum in order to avoid its unprofitable employment, whereas the insureds are interested in the safest possible business of insurance companies which, as a rule, involves capital surplus, i.e., the lowest ratio between the collected premiums and the available capital. despite the fact that it is necessary to have in place the procedures for the prevention of the conflicts of interest, the members of the board of directors must be capable of fulfilling their authorisations and responsibilities and effectively resolve potential conflicts of interest in accordance with the requirements of the profession and interests of all stakeholders. the members of the board of directors certainly need different knowledge in life and non-life insurance companies. the decision on acceptance of the so-called major risks, i.e., the risks the actuation of which may produce considerable damage to the insurer, to solvency, investments, coinsurance and reinsurance and mergers and acquisitions with other companies are but a few examples of the complexity of decision-making and the necessity to have highly qualified members of the board of directors in terms of their managerial skills, specific characteristics of insurance, and insurance market and capital market operations. finally, the board of directors must provide all preconditions for an efficient conduct of internal controls with the aim to improve the business efficiency and for an independent external audit which will provide its opinion on the capital and financial standing of an insurance company based on the analysis of financial statements. when assessing the quality of corporate governance it is necessary to analyse the definition of relationships of the board of directors, the supervisory authority and owners, i.e., the shareholders’ assembly in case of joint-stock companies, both within the legal framework and in reality. it is necessary to analyse numerous factors which include the method of decision-making, convening meetings, defining objectives, the daily business management, appointment of members, the members’ mandate, the scope of competences and responsibilities etc. it is particularly important to evaluate the extent to which insurance companies operate in accordance with regulations, particularly in the area of risk management and solvency provision. the conclusion on the quality of corporate management can be made based on the comparison between the actual state and the standard one. table 1 shows the criteria of standard and poor’s for the assessment of corporate governance quality in business entities and insurance companies. the criteria below are used by this agency for establishing the credit rating, whereby the impact of corporate governance quality can be neutral or negative, since the agency considers that the connection between quality corporate governance and higher rating cannot be precisely established, whereas it is possible to identify the negative impact. 2014/71management 89 table 1: criteria for the assessment of corporate governance quality in insurance companies source: general criteria: methodology: management and governance credit factors for corporate entities and insurers, standard and poor’s, new york, ny, 2012. neutral impact negative impact effectiveness of the board of directors the board of directors maintains sufficient independence from management and retains control as the final decisionmaking authority with respect to all risks, compensations and/or conflicts of interests. the board manifests a lack of independence from management and scrutiny of all risks, compensations and/or conflicts of interest. entrepreneurial or controlling ownership management and the board of directors have professional, independent members who are capably engaged in risk oversight on behalf of all stakeholders, including minority interests. the influence of controlling shareholders is offset by risk-aware professional management that effectively serves the interests of all stakeholders. controlling ownership negatively influences decisionmaking to promote the interests of the controlling owners above those of other stakeholders. management culture management is responsive to all stakeholders' interests, appropriately balances those interests, and acknowledges that the board of directors is the ultimate decision-making authority. management's own interests or those of a narrow group of stakeholders are its primary concern, where dissent in the executive suite is generally not tolerated or where management proves incapable of managing conflicts of interest arising between different stakeholder groups. excessive management turnover can be an indicator of a governance deficiency in management culture. alternatively, management dominates the board of directors. regulatory, tax or legal infractions the enterprise generally remains free of regulatory, tax or legal infractions and has stable relationships with regulatory authorities. the enterprise has a history of infractions beyond an isolated episode, representing a significant risk. communication of messages the enterprise generally communicates consistent messages to all constituencies. the enterprise communicates conflicting information to different stakeholders on significant issues. internal controls the enterprise's internal control environment is not viewed as deficient. the enterprise's internal control environment is viewed as deficient based on available evidence, such as restatements or delays in filings. financial reporting and transparency accounting choices are usually reflective of the economics of the business. financial statements obfuscate the true intent or the economic drivers of transactions or the financial statements are insufficient to allow typical users of the financial statements to understand the intent and the economic drivers. management 2014/71 90 transparency is one of the main preconditions of the quality corporate governance. disclosure of information, as the key mechanism of transparent business, mainly relates to financial business reporting. however, the idea to include the reporting on application i.e., quality of corporate governance in the annual operating reports is increasingly advocated. to that extent, amendments have been made to the new law on companies. namely, article 368 of this law27 stipulates that the statement of application of the corporate governance code is incorporated in annual operating reports of public joint-stock companies. in addition, the guidance paper no. 2 on corporate governance in insurance companies of the national bank of serbia contains the provision relating to the need of an insurance company to adopt adequate corporate management policies and practices and publish annual reports on corporate governance. the statement i.e., the report on corporate governance quality publishes the information on the implementation of corporate governance practices in a particular annual period. the statement on the application of corporate governance code i.e., the report on corporate governance quality mainly indicates the key aspects of corporate governance and reports on the comparison between the actual and the standardized conditions, identified deficiencies or confirmation if the corporate governance complies with the corporate governance code. it is customary that this statement of application of the corporate governance code contains reference to the application of code which is publicly available and the results of internal supervision regarding organisational compliance and actions in accordance with the corporate governance code as well as special segments relating to the work of the shareholders’ assembly, the supervisory authority, the executive board and the general director, own actions, public disclosure of information, privileged information, stakeholders and audit. in accordance with the law, this statement must contain the following: 1) a reference to the corporate governance code a company applies and the place where the text of that code is publicly available, 2) all relevant information concerning the corporate governance practice implemented by a company, including in particular any practices that are not specifically required under the law; 3) any deviations from corporate governance rules referred to in item 1) of this paragraph and justification for such deviations. 5. international principles of corporate governance in insurance even though the corporate governance appeared in the 16th and the 17th centuries while the first law on jointstock companies was drafted in 1844, the appearance of international standards, i.e., internationally aligned principles is more recent. namely, the first internationally aligned principles were adopted by the organisation for economic co-operation and development (oecd) in 1999 and they were revised in 2004. to the greatest extent, these principles were created due to the necessity to avoid a repetition of corporate scandals which appeared during the 1990s. the principles were revised when the same scandals appeared again in the new millennium. even though primarily intended for member countries, these principles are applied in other countries as well. the legal framework of corporate governance in serbia is mainly aligned with these principles that are the integral part of the law on companies and the corporate governance code issued by the serbian chamber of commerce. the principles are not binding standards and they are an example of good business practice. apart from the principles, the document contains implementation guidelines, which can be adjusted to specific characteristics of certain countries, of an economic sector and the companies within the sector. even though they primarily relate to the companies whose shares are traded on an organized stock exchange, these principles are equally applicable to all companies. the oecd principles of corporate governance include the following:28 1) ensuring the basis for an effective corporate governance framework (the corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities.), 2) the rights of shareholders and key ownership functions (the corporate governance framework should protect and facilitate the exercise of shareholders’ rights.), 3) an equitable treatment of shareholders (the corporate governance framework should ensure an equitable treatment of all shareholders, including minority and foreign shareholders. all shareholders should have the opportunity to obtain effective redress for violation of their rights.), 4) the role of stakeholders in corporate governance (the corporate governance framework should recognise the rights of stakeholders established by law or through mutual agreements and encourage an active cooperation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.), 2014/71management 91 5) disclosure and transparency (the corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company.) and 6) the responsibilities of the board (the corporate governance framework should ensure an strategic guidance of the company, an effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.). apart from the oecd principles, the principles of corporate governance adopted by the international association of insurance supervisors (iais) are of great importance for insurance companies. this association was established in 1994 and represents regulators and insurance monitoring bodies from more than 200 jurisdictions29 including the national bank of serbia. this association does not act as a regulatory body nor has a legal jurisdiction over the insurance companies but it still affects the national regulators and monitoring bodies by issuing principles, standards, guidelines; it provides training and organizes meetings and seminars. the first international insurance monitoring principles were issued by the iais in 2000 which were later revised and expanded to include 28 principles in 2003. modifications were done in 2011 while the last version of the document relating to key principles, standards, guidelines and methodology of insurance assessment consists of 26 principles and was issued in october 2012. these international principles relate to all insurance companies and every statement on a key principle is presented together with the standards and guidance materials for support in terms of hierarchical structure on three levels: a) statements – prescribe the essential elements that must be present in the supervisory regime, b) standards – set out high level requirements that should be met by a supervisory authority and c) guidance material – provides detail on how to implement a statement or standard. since the consideration of the governance and decision-making processes of insurance companies is a key component of insurance supervision,30 the iais made a core principle that addresses corporate governance specifically. even though it is not explicitly stated, apart from this core principle, other principles relate to corporate governance including:311) the principle relating to suitable persons (supervisory bodies require board members, senior management, key persons in control functions and significant owners of an insurer to be and remain suitable to fulfil their respective roles.), 2) the principle relating to changes in control and portfolio transfers (supervisory approval is required for proposals to acquire significant ownership or an interest in an insurer that results in that person, legal or natural, directly or indirectly, alone or with an associate, exercising control over the insurer. the same applies to portfolio transfers or mergers of insurers.), 3) the principle relating to risk management and internal controls (the supervisor requires an insurer to have, as part of its overall corporate governance framework, effective systems of risk management and internal controls, including effective functions for risk management, compliance, actuarial matters and internal audit.) and 4) the principle relating to public disclosure (the supervisor requires insurers to disclose relevant, comprehensive and adequate information on a timely basis in order to give policyholders and market participants a clear view of their business activities, performance and financial position). the basic principle of corporate governance relates strictly to corporate governance in insurance companies. it is the 7th principle that indicates that the supervisor requires insurers to establish and implement a corporate governance framework which provides for sound and prudent management and oversight of the insurer’s business and adequately recognises and protects the interests of shareholders.32 in accordance with the requirements of this principle, the corporate governance framework for insurance companies should: a) promote the development, implementation and effective oversight of policies that clearly define and support the objectives of the insurer, b) define the roles and responsibilities of persons accountable for the management and oversight of an insurer by clarifying who possesses legal duties and powers to act on behalf of the insurer and under which circumstances, c) set requirements relating to how decisions and actions are taken including documentation of significant or material decisions, along with their rationale, d) provide for communicating, as appropriate, matters relating to the management, conduct and oversight of the insurer to shareholders and e) provide for corrective actions to be taken for non-compliance or weak oversight, controls or management. the application of the principle sets differences between the one-tier and the two-tier forms of corporate governance, governance in joint-stock and mutual companies, governance in group structures and branch operations and it emphasizes the significance of remuneration policy and practices. in view of the fact that detailed analysis of this principle would require a separate research project, we shall point at the key issues management 2014/71 92 of corporate governance that relate to this principle and that include the following: 33 1) objectives and strategies of the insurer (the supervisor requires the board to set and oversee the implementation of the business objectives and strategies for achieving those objectives, including its risk strategy and risk appetite, in line with the insurer’s long term interests and viability.), 2) appropriate allocation of oversight and management responsibilities (the supervisor requires the board to ensure that the roles and responsibilities allocated to the board, senior management and key persons in control functions are clearly defined so as to promote an appropriate separation of the oversight function from the management responsibilities and provide adequate oversight of the senior management), 3) structure and governance of the board (the supervisor requires the insurer’s board to have, on an on-going basis: a) an appropriate number and mix of individuals to ensure that there is an overall adequate level of knowledge, skills and expertise at the board level commensurate with the governance structure and the nature, scale and complexity of the insurer’s business, b) appropriate internal governance practices and procedures to support the work of the board in a manner that promotes an efficient, objective and independent judgment and decision making by the board; and c) adequate powers and resources to be able to discharge its duties fully and effectively), 4) duties of individual board members (the supervisor requires the individual members of the board to: a) act in good faith, honestly and reasonably, b) exercise due care and diligence, c) act in the best interests of the insurer and policyholders, putting those interests of the insurer and policyholders ahead of his/her own interests, d) exercise independent judgement and objectivity in his/her decision making, taking due account of the interests of the insurer and policyholders; and e) not use his/her position to gain undue personal advantage or cause any detriment to the insurer), 5) risk management and internal control systems and functions (the supervisor requires the insurer’s board to provide oversight in respect of the design and implementation of sound risk management and internal control systems and functions), 6) remuneration policy and practices (the supervisor requires the insurer’s board to: a) adopt and oversee an effective implementation of a remuneration policy, which does not induce excessive or inappropriate risk taking, is in line with the identified risk appetite and long-term interests of the insurer, and has proper regard to the interests of its stakeholders; and b) ensure that such a remuneration policy, at a minimum, covers those individuals who are members of the board, senior management, key persons in control functions and other employees whose actions may have a material impact on the risk exposure of the insurer) 7) reliable and transparent financial reporting (the supervisor requires the insurer’s board to ensure there is a reliable financial reporting process for both public and supervisory purposes which is supported by clearly defined roles and responsibilities of the board, senior management and the external auditor), 8) transparency and communications (the supervisor requires the insurer’s board to have systems and controls to ensure the promotion of appropriate, timely and effective communications with the supervisor and relevant stakeholders on the governance of the insurer), 9) duties of senior management (the supervisor requires the insurer’s board to have appropriate policies and procedures to ensure that senior management: a) carries out the day-to-day operations of the insurer effectively and in accordance with the insurer’s strategies, policies and procedures, b) promotes a culture of sound risk management, compliance and fair treatment of customers, c) provides the board with adequate and timely information to enable the board to carry out its duties and functions including the monitoring and review of the performance and risk exposures of the insurer, and the performance of senior management; and d) provides to the relevant stakeholders and the supervisor the information required to satisfy the legal and other obligations applicable to the insurer or senior management and 10) supervisory review (the supervisor has the power to require the insurer to demonstrate the adequacy and effectiveness of its corporate governance framework). conclusion corporate governance includes the set of rules which enable long-term sustainable business operations. by definition, it involves separation of ownership and management and was originally applied with the aim to protect the interests of owners but lately it has been used to protect the interests of all stakeholders, i.e., owners of capital, managers, employees, suppliers, buyers, depositors, creditors, insureds and other persons interested in the operations of a company, state and a society at large. a long-term survival, growth and development are not possible without the application of quality corporate governance. with the aforementioned in mind, general economic development is not possible without a proper corporate governance incorporated in the organisation of business activities. bearing in mind that insurance is an industry of special social interest which provides financial security, reduces social costs when insured events occur and improves the entire level of capital accumulation directly influencing economic growth, the application of quality corporate governance in insurance companies gains a particular importance. namely, generally speaking, poor corporate governance means the incapability of company management to attain the set business objectives. market mechanisms are strict and, as a rule, tend to eliminate those business entities that are not able to achieve a continual growth i.e., to attract financial and human resources, maximize yield for shareholders or take care of employees, business partners and the society in general. the main requirement of quality corporate governance is continuous improvement of organisation of business activities, notably in the area of risk management, management and supervision activities aimed at improvement of operation efficiency, i.e., performance, and achievement of a long-term sustainable market positioning. it is necessary to develop a corporate governance framework, however, long-term sustainable success cannot be achieved without a proper application and control of actual vs. standardized conditions. at an international level, the oecd principles of corporate governance were adopted for the improvement of corporate governance. this represented the first internationally unified standard and the basis for improvement of corporate governance both in member countries and beyond. for insurance industry, in the context of international application, corporate governance principles adopted by the international association of insurance supervisors are of particular importance. in serbia, corporate governance is at quite a low level in comparison with other countries. the reason for this is of historical nature, i.e., the consequence of social and economic development to date. lately, however, lot of effort has been put into creation of the framework for improvements in the area of corporate governance in all companies, including insurance companies. a completely new institutional and regulatory framework was created to enable insurance companies in serbia to implement a one-tier or a two-tier system of corporate governance. it is highly likely that the majority of insurance companies will opt for the two-tier model which involves the participation of the following management bodies: the shareholders’ assembly, the supervisory authority and directors or the board of directors. the regulatory framework of corporate governance in the serbian insurance industry are the law on companies, the corporate governance code of the serbian chamber of commerce, the guidance paper on corporate governance in insurance companies of the national bank of serbia, the instruments of incorporation, the articles of association and the corporate governance codes of individual insurance companies. in the improvement of corporate governance transparency, the statement of application of the corporate governance code has a very important role. generally, it represents a report on the method of application of corporate governance which, it the past practice of insurance companies, has not been an integral part of annual operating reports. in view of the above, it is almost certain that insurance companies in serbia will follow the patterns of the insurance companies in developed countries and improve their own corporate governance, acting in the interest of all stakeholders. in addition, owing to the fact that quality corporate governance improves business and that business so improved is the foundation of economic growth, the application of quality corporate governance is of general interest and the basis of the future accelerated economic growth in serbia. 2014/71management 93 94 2014/71management references [1] basel (2006). komplajans i funkcija komplajansa u bankama i jačanje korporacionog upravljanja za bankarske organizacije, basel committee on banking supervision, association of serbian banks, belgrade. [2] cgc (2012). corporate governance code, serbian chamber of commerce, „official gazette of rs”, no. 99/2012. [3] economy (2012). business web portal, retrieved december 14, 2012 http://www.economy.rs/vesti/15016/porodicne-kompanije-cine-90-odsto-kompanija-u-srbiji.html [4] farrar, j.h. (1999). „a brief thematic history of corporate governance“, bond law review, vol. 11, no. 2, 1999. available on: http://epublications.bond.edu.au/blr/vol11/iss2/9 [5] gegenheimer, g.a. (2008). izveštaj i preporuke za pravni okvir korporativnog upravljanja u finansijskom sektoru srbije, bearingpoint. [6] herrigel, g. (2007). “corporate governance: history without historians” for geoffrey jones and jonathan zeitlin, eds. handbook of business history, oxford university press, oxford, uk. [7] iais (2012). the international association of insurance supervisors, basel, switzerland (retrieved december 19, 2012) http://www.iaisweb.org/about-the-iais-28 [8] icp (2012). insurance core principles, standards, guidance and assessment methodology, the international association of insurance supervisors, basel, switzerland, 2012. [9] icpcg (2004). insurance core principles on corporate governance, the international association of insurance supervisors, basel, switzerland. [10] insurance law (2011) insurance law, consolidated text of the law is drafted based on the original version of the law published in "the official gazette of rs ", nos. 55/04 and 70/04 – amendments and supplements published in "the official gazette of rs", no. 61/05, 61/05 – state law, 85/05 – state law , 101/07, 63/09 – decision of constitutional court, 107/09 and 99/11 law on contract and torts (2003). [11] law on contract and torts, "the official gazette of sfry", nos. 29/78, 39/85, 45/89, 57/89, "the official gazette of sry ", nos. 31/93, 22/99, 23/99, 35/99, 44/99 and "the official gazette of serbia and montenegro", no. 1/2003. [12] marovic, b, tepavac, r, njegomir, v. (2013). osiguranje ekonomski principi, službeni glasnik rs, beograd. [13] morck, r.k. (ed.) (2005). a history of corporate governance around the world: family business groups to professional managers, national bureau of economic research conference report, university of chicago press, chicago and london. [14] morck, r.k. and steier, l. (2005). „the global history of corporate governance – an introduction“, working paper 11062, national bureau of economic research, cambridge, ma. [15] njegomir, v. (2011). osiguranje, ortomedics book, novi sad. [16] njegomir, v. (2011a). “sistemski rizik i osiguranje”, računovodstvo, vol. 55, no. 1-2, pp. 89-114. [17] oecd (2004). oecd principles of corporate governance, organisation for economic co-operation and development, paris, france. [18] sp (2012). general criteria: methodology: management and governance credit factors for corporate entities and insurers, standard and poor’s, new york, ny, 2012. [19] syrs (2012). statistical yearbook of the republic of serbia 2012, structural business statistics, statistical office of the republic of serbia, belgrade, 2012. [20] the law on banks (2010). ''the official gazette'', nos. 107/2005 and 91/2010. [21] the law on companies (2004). ''the official gazette of rs'', no. 125/04. [22] the law on companies (2011). ''the official gazette of rs'', nos. 36/2011, 99/2011. [23] the law on public enterprises and activities of general interest, ''the official gazette of rs'', nos. 25/2000, 25/2002, 107/2005, 108/2005 – amendments and 123/2007 – state law. receieved: october 2013. accepted: april 2014. 95 management 2014/71 vladimir njegomir faculty of law and business studies dr lazar vrkatić, novi sad vnjegomir@eunet.rs vladimir njegomir, assistant professor, was born in novi sad in 1977. he graduated bechelor’s master’s and doctoral degrees in the field of risk management, insurance and reinsurance. he was awarded as the best student in the generation at the faculty of economics in subotica. after completion of graduate studies within the stipulated time, he worked as an economic analyst in a software company based in london focused on business analysis, especially the insurance business. he was appointed as assistant professor of „insurance“ at the faculty of law and business studies in novi sad in 2010 and since 2012 he also teaches “risk management in insurance”. he was adviser for strategic planning, corporate governance and business analysis in insurance company „dunav osiguranje“. he has been coauthor of four books „osnovi osiguranja i reosiguranja”, „reosiguranje”, „osiguranje: ekonomski principi“ and „osiguranje: ekonomsko-pravni principi“ and sole author of two books „osiguranje“ and „osiguranje i reosiguranje: tradicionalni i alternativni pristupi“. he has participated in projects, in scientific conferences at home and abroad, and published over 130 scientific papers in the field of risk management, insurance and reinsurance, both at home and abroad. he published in journals such as „the geneva papers on risk and insurance issues and practice“, „transformations in business & economics“, „economic thought and practice“, „economic research“, „economic annals“ and „economics of agriculture“. he speaks english. he lives and works in novi sad. rajko tepavac university business academy, novi sad and dunav insurance company, belgrade. ph. d. rajko tepavac (1957.), graduated from the faculty of economics, university of belgrade, certificate of title of authorized broker dealer acquires 2000th year, master’s degree in legal and economic sciences 2006th academy of commerce in novi sad, then after that, in 2008th, he defended his doctoral dissertation and earned his ph.d. in economics. he works as a member of the executive board of the company “dunav insurance‘’ in charge of corporate governance, strategy and product development. at the university of business academy, fimek in novi sad, in his capacity as assistant professor, he teaches “insurance”. he is the author of numerous books and papers, with special emphasis on different areas of security, regional development perspective, the insurance industry and legal regulation of same. about the author # 07_83(3) rakic:tipska.qxd 81 mira rakić1, beba rakić1*, ljiljana stanojević² 1 megatrend university, graduate school of business studies, serbia 2 university business academy, faculty of applied management, economics and finance, serbia management: journal of sustainable business and management solutions in emerging economies 2018/23(3) consumer ethnocentrism – marketing challenge for companies: the case of serbia doi: 10.7595/management.fon.2018.0019 1. introduction consumer ethnocentrism (ce) is an important issue for marketers (balabanis & siamagka, 2017; ding, 2017; fernandez-ferrin et al., 2015; josiassen, assaf & karpen, 2011; li & he, 2013; raskovic et al., 2016; seitz & roosen, 2015; shankarmahesh, 2006; shimp & sharma, 1987; upadhyay & singh, 2006; zeugner-roth, zabkar & diamantopoulos, 2015). the ce influences the attitudes and consumer behaviour toward domestic products and brands as better compared to foreign, and purchasing of domestic products and brands. by purchasing products/services of certain companies, consumers directly influence the survival of companies. ce can influence the consumers’ preferences and the decisions to purchase domestic products. “once consumer animosity and ethnocentrism levels have been measured, managers can then make decisions about whether to promote their country-of-origin (coo) or, alternatively, to create more powerful local con* corresponding author: beba rakić, e-mail: brakic@gmail.com research question: this paper examines consumer ethnocentrism (ce) as marketing challenge for companies. motivation: the purpose of the paper is to examine the antecedents and consequences of ce, who highethnocentric consumers are and whether ce can be used in marketing. data: results are derived from primary data collected from a consumer sample in serbia during 2016 in retail stores of different retail chains in belgrade. the sample included 200 examinees between 16 and 74 years of age. tools: ce is measured by cetscale (consumer ethnocentric tendencies scale, 17 statements) developed by shimp and sharma (1987). findings: the results indicate that ce can best be explained by a combination of national culture, the characteristics of consumers, product categories, the perceived value of companies and the integrated marketing communications of companies and countries. furthermore, the results show that significant differences in ce exist between different groups of consumers and product categories. the theoretical contribution and the managerial impacts based on the findings are provided. the conceptual frameworks (figure 1 and figure 2) represent the theoretical contribution. the frameworks can be used by marketers for their effective target marketing (market segmentation, market targeting and market positioning). this study underlines different practical implications of a high level of ce for domestic and foreign companies in the serbian market. domestic companies have the opportunity to encourage ce. this study provides marketers with useful marketing strategies and tactics for domestic and foreign companies with respect to ce. the high level of ce is a marketing opportunity for domestic companies. foreign companies face a bigger challenge with certain product categories which are directed towards certain groups – high-ethnocentric consumers. particular challenges for foreign companies are promotional campaigns of domestic companies and governments in countries that are directed towards domestic products purchasing. contribution: this study suggests the marketing strategies and tactics for the encouragement of ce for domestic companies. on the other hand, a high level of ce is a marketing threat to foreign companies. this study suggests the marketing strategies and tactics for decreasing the influence of ce for foreign companies. the results of this study can be used both for further research and in practice. keywords: consumers, consumer ethnocentrism (ce), marketing challenge, serbia jel classification: m31, m38, m20 nections for their products. thus, the consideration of ethnocentrism can be part of a firm’s international strategies” (fernandez-ferrin et al., 2015). the main objective of the paper is to examine the antecedents and consequences of ce, who high-ethnocentric consumers are, the effect of ethnocentrism on consumers’ buying behaviour in different product categories and how ethnocentrism can be used in marketing. the remainder of the paper is organized as follows. in section 2, theoretical foundations are presented and hypotheses are developed. section 3 describes the method of research. section 4 is devoted to the results of the research of ce in serbia. the conclusion is presented in section 5. 2. theoretical foundations of consumer ethnocentrism and development of hypothesis sumner (1906) was the first to define ethnocentrism in 1906 as: “... the view of things in which one’s own group is the centre of everything, and all others are scaled and rated with reference to it... each group nourishes its own pride and vanity, boasts itself superior, exalts its own divinities and looks with contempt on outsiders” (p. 13). shimp and sharma (1987, p. 280) have introduced the term “consumer ethnocentrism”, which they use to represent the beliefs held by consumers about the appropriateness, indeed morality, of purchasing foreign made products. ce is a uniquely economic form of ethnocentrism, it describes consumer behaviour and it has marketing implications (sharma et al., 1995). “the phenomenon of consumer preference for domestic products, or prejudice against imports, has been termed economic nationalism, cultural bias against imports, or consumer ethnocentrism” (sharma et al., 1995, p. 26). from the perspective of ethnocentric consumers, people should always buy domestic-made products instead of imports; only those products that are unavailable in domestic market should be imported. buying domestic-made products enables domestic business and employment. purchasing imported products is wrong because it hurts the domestic economy, causes loss of jobs, and is plainly unpatriotic. on the other hand, from the perspective of non-ethnocentric consumers, products should not be rated and decisions about buying should not be made on the basis of the country of origin – where they are produced (shimp & sharma, 1987). “in functional terms, consumer ethnocentrism gives the individual a sense of identity, feeling of belongingness, and, most important for our purposes, an understanding of what purchase behaviour is acceptable or unacceptable to the in-group” (shimp and sharma, 1987, p. 280). highly ethnocentric consumers generally favour domestic products over foreign alternatives (supphellen & grrnhaug, 2003, p. 212). the consequences of consumer ethnocentricity include overestimation of the quality and value of domestic products or underestimation of the virtues of imports, a moral obligation to buy domestic products, and preference for domestic products and/or services (kaynak & kara, 2001, p. 462). researchers have examined the impacts of numerous factors on ce. in the literature the following influences are analysed: national culture (he & wang, 2015; kaynak & kara, 2001); country of origin (coo) (bernabeu, prieto & diaz, 2013; de nisco et al., 2016; evanschitzky et al., 2008; fernandez-ferrin & bandevilela, 2013; huddleston, good & stoel, 2001; javalgi et al., 2005; jin et al., 2015; liu et al., 2006; liu & chang, 2011; moon & jain, 2002; wang & chen, 2004; watson & wright, 2000); demographic factors such as age, gender, income, education etc. (evanschitzky et al., 2008; fernandez-ferrin et al., 2015; haque & maheshwari, 2015; neese & hult, 1996; raskovic et al., 2016; seitz & roosen, 2015; sharma et al., 1995; smaiziene & vaitkiene, 2014; upadhyay & singh, 2006); product categories (garmatjuk & parts, 2015; sharma et al., 1995); perceived product quality (huddleston, good & stoel, 2001; liu et al., 2006; smaiziene & vaitkiene, 2014; wang & chen, 2004), etc. 2.1 national culture and characteristics of consumers when researching ce in a certain country, the starting point is national culture. members of a high-context culture (i.e., japan, china) are more ethnocentric than members of a low-context culture (i.e., usa and western european countries), though there might be some similarities between the two cultural groupings in terms of subgroups (i.e., teen market, upscale consumer market) (kaynak & kara, 2001, p. 461). the relationship between country similarity and the country-of-origin (coo) effect has been researched widely (balabanis & siamagka, 2017; bernabeu, prieto & diaz, 2013; de nisco et al., 2016; ding, 2017; evanschitzky et al., 2008; javalgi et al., 2005; jin et al., 2015; liu et al., 2006; liu & chang, 2011; moon & jain, 2002; wang & chen, 2004; watson & wright, 2000). the country-of-origin effect, also known as the “made in” concept, has been broadly defined as a positive or negative influence that a product’s country of manufacture may have on consumers’ decision-making processes or subsequent behaviour (watson & wright, 2000, p. 1151). watson and wright (2000) investigated the relationship between consumer ethnocentrism and consumer attitudes toward foreign-manufactured products in product categories in which domestic alternatives are not available. their results suggest that cultural similarity is an important consideration for highly ethnocentric con82 mira rakić, beba rakić, ljiljana stanojević forthcoming sumers in the evaluation of foreign products. individuals with high levels of ce have more favourable attitudes toward products from culturally similar countries in comparison to products from culturally dissimilar countries. in such situations, the use of country of origin information may be strategically advantageous for foreign companies from countries classified as culturally similar. in contrast, foreign companies from culturally dissimilar countries should reduce their emphasis on the country of origin of the product. it is better to promote other attributes and benefits of the product. in addition, strategic benefits may also be gained by establishing alliances with domestic distributors and other companies (watson & wright, 2000). important demographic characteristics of the customers that influence ce are: age, education, income, gender etc. age influences ce (ding, 2017; fernandez-ferrin et al., 2015; haque & maheshwari, 2015; javalgi et al., 2005; josiassen, assaf & karpen, 2011; seitz & roosen, 2015; sharma et al., 1995; upadhyay & singh, 2006). generally speaking, older people are more conservative, more patriotic and ethnocentric. attitudes toward domestic products become more favourable with increasing age. on the other hand, the younger generation may be more cosmopolitan (sharma et al., 1995). to explore this issue, the following hypothesis is tested: h1: older consumers are more ethnocentric consumers than younger consumers. education is another demographic variable (ding, 2017; fernandez-ferrin et al., 2015; javalgi et al., 2005; neese & hult, 1996; seitz & roosen, 2015; upadhyay & singh, 2006). less educated consumers are generally more negative towards imported products, and those with higher education show more positive attitudes towards the quality of foreign-made products (neese & hult, 1996). therefore, it is hypothesized: h2: less educated consumers are more ethnocentric consumers than more educated consumers. income also influences ce (javalgi et al., 2005; josiassen et al., 2011; sharma et al., 1995). the higher the income, the higher are the possibilities of travelling abroad, purchasing other countries’ products which can develop more cosmopolitan views and greater openness to foreign products (sharma et al., 1995). therefore, we propose: h3: lower-income consumers are more ethnocentric consumers than higher-income consumers. 2.2 product categories and perceived product value ce is not the same in all product categories (balabanis & siamagka, 2017; evanschitzky et al., 2008; garmatjuk & parts, 2015; sharma et al., 1995). thus: h4: ce is higher in the category of foodstuff than in some other product categories. consumers’ intention to purchase domestic/foreign products depends on perceived product quality (balabanis & siamagka, 2017; ding, 2017; evanschitzky et al., 2008; huddleston, good & stoel, 2001; liu et al., 2006; sharma & wu, 2015; smaiziene & vaitkiene, 2014; wang & chen, 2004). perceived product quality is influenced by numerous factors such as appearance, colour and design, durability, fashion, functionality, prestige, reliability, technical advancement, value for money, and workmanship. the impact of ethnocentrism on consumer willingness to buy domestic products is lower when consumers perceive these products as lower quality products (wang & chen, 2004). “foreign products have an advantage over domestic products, in terms of the famous brand name and fashionable image” (ding, 2017, p. 552). in the process of making decisions on buying, a consumer analyses numerous factors, among them: quality, price, total experience etc., which impact the perception of benefits (on the basis of buying and using products). a consumer determines perceived product value on the basis of perceived benefits. based on these discussions, the following hypothesis is derived: h5: ce is higher when the perceived product value is higher than when it is lower. 2.3 imc of companies and countries integrated marketing communications (imc) enables an exchange of messages with the target groups of the public (filipovic & kostic-stankovic , 2011; kitic et al., 2015; kostic-stankovic, 2011; kostic-stankovic & nedeljkovic, 2012; rakic & rakic, 2017a, 2017b). patriotic advertisements remind consumers of their duty to choose domestic-made goods over imports (sharma et al., 1995). companies and governments of countries can conduct promotional campaigns directed towards domestic products buying. for example, the government of the republic of serbia conducted a campaign called “let’s buy domestic”. furthermore, the domestic retail chain “dis” (in serbia) in 2012 started a campaign “buy domestic in a domestic store”. for their advertisements they engaged the world’s number one tennis player a proud serb novak djokovic who invites the consumers to buy domestic products in a domestic store. consequently, it can be hypothesized that: 83 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) h6: ce is positively related to the imc of domestic companies and the governments of countries. h7: ce is positively related to the education of consumers about the importance of buying domestic products and brands. 2.4 purchasing decision besides attitudes, consumer behaviour is also important in the process of making decisions about purchasing products/services. according to kaynak and kara (2001), input (country-of-origin, product class knowledge, consumer characteristics, country characteristics and other variables) moderated by ce affect the output which can be observed as attitudes (product brand perceptions, perceptions of price, purchase intentions) and behaviour (choice of brand, purchase of brand). thus, to evaluate the influence of attitudes on specific consumer behaviour, i.e., on purchase decision making, we propose the following hypothesis: h8: purchasing decision of domestic products and brands is positively related to highly ethnocentric consumers. 3. methodology in addition to secondary data, the gathering of primary data through a survey was also carried out. the survey was conducted on the serbian market in 2016. the biggest city/market in serbia – belgrade – was selected as the location for data collection. convenience sample included 200 individuals between 16 and 74 years of age. the questionnaires were randomly distributed to buyers in front of the retail stores of different retail chains in belgrade in 2016. a total of 200 questionnaires with complete data were collected. respondents, according to their age, were divided into the following groups: 16-34 (20%), 35-54 (32%), 5574 (48%). according to gender, the sample consisted of 51% of women and 49% of men. according to educational level, the respondents were grouped using eurostat classification: 0-2 basic, lower secondary education (preschool education; primary education or the first phase of the primary education – first to fifth grade; lower high education – 6th to 9th grade); 3-4 higher secondary education (high school; 1st to 4th grade; post secondary but not tertiary education – first degree studies); 5-6 tertiary education (higher education, master studies and phd studies). in the sample, 25% of the respondents had lower than secondary education, 50% had secondary education and 25% had tertiary education. according to the employment status, the respondents were divided into following groups: employed (30%), unemployed (25%), students (5%), other but unemployed (40%). according to income of the households where they live, the respondents were divided into following groups: up to 300 euro (65%), more that 300 euro (35%). a questionnaire consisted of three parts. the first part of the questionnaire included questions about ce. shimp & sharma (1987) developed a 17-item scale known as the cetscale (consumer ethnocentric tendencies scale) to measure cet. the starting point for the research in this paper represents the cetscale which has been adjusted to research on the serbian market as a domestic market. a 7-point likert-type scale has been used (strongly agree = 7, strongly disagree =1). the range of scores is from 17 to 119 (due to the use of the sevenpoint scale). in the second part the questions were being asked in order to research the interdependence of ce (on the one hand) and product categories, promotional campaigns and the education of consumers about the importance of purchasing domestic products (on the other hand). the third part of the questionnaire involves questions that are related to demographic consumer characteristics (e.g., age, gender, education, income). in order to research the differences in ce by product categories, the following question was put: rq1. in which product categories domestic products are better? provided answers were: food, beverages, health & health care, electronic products, household products, personal care & beauty, cleaning products, clothing and footwear products and automobiles. in order to research the impact of the perceived product value of domestic companies, the following questions were put: rq2.1. does the perceived high product value of domestic companies influence the positive attitude about the importance of domestic products purchasing? rq2.2. does the perceived low product value of domestic companies influence the negative attitude about the importance of domestic products purchasing? next, in order to research the relationship between promotional campaigns (of domestic companies and/or countries) and ce, the following question was asked: rq3. do promotional campaigns (of domestic companies and/or countries) affect the attitude about the importance of purchasing domestic products? 84 mira rakić, beba rakić, ljiljana stanojević forthcoming also, in order to research the relationship between the consumers’ education about the importance of domestic products purchasing and ce, the respondents were asked the following question: rq4. do you know what ce is? the respondents who did not know what ce was were briefly informed about the importance of domestic products purchasing. all respondents were asked the following question: rq5. would the consumers’ education affect the consumers’ decisions about larger purchase of domestic products compared to foreign products? finally, the question related to purchasing behaviour (and not only purchase attitudes) was asked: rq6. (to ethnocentric consumers): do positive attitudes about the domestic products purchase importance affect the decision about buying and buying itself of domestic products/services and brands? the collected data were analyzed using the statistical package for social science (spss). first, normal distribution was approved by kolmogorov-smirnov test. then, 10 items measured respondents’ perception of domestic products. for each subgroup the cronbach’s alpha were checked. the results are presented in table 1 for education subgroups, table 2 for emloyment subgroups and table 3 for income subgroups. then, the one-way analysis of variance (anova) was used to test the first research question and any mean difference in consumers’ ethnocentrism with regard to age group, education and income. the remaining research question, relationships among perceived product value and consumers attitude, the relationship between promotional campaigns and product value, consumers’ education and consumers’ decisions about purchase of domestic product, was tested by pearson correlation analysis. table 1: cronbach’s alpha for education subgroups table 2: cronbach’s alpha for employment status subgroups table 3: cronbach’s alpha for income subgroups as can be noted from table 1, table 2 and table 3, reliability and internal consistency of scale were proven. 4. results and discussion this study confirms the findings obtained in an earlier study conducted in serbia (gasevic, tomasevic & vranjes, 2017; kragulj, parezanin & miladinovic, 2017; marinkovic, stanisic & kostic, 2011). marinkovic, stanisic & kostic (2011) show that the level of ce is higher in rural than in urban population; it is higher in older than in younger people; it is higher in men than in women. a relatively high and important correlation between the level of ce was observed, on the one hand, and the buying preferences and buying behaviour, on the other hand. fernandez-ferrin et al. (2015) investigated ce and consumer animosity in belgrade (serbia) shortly after the us-led nato operations of 1999. the results obtained confirm that ce impacts one’s product judgments and willingness to buy with respect to all foreign products, whereas animosity impacts one’s willingness to buy, but does not have an impact on one’s product judgments. also, fernandez-ferrin et al. (2015) identified the correlates of the standard segmentation variables that affect the probability of a consumer holding animosity or possessing ethnocentric beliefs. the elderly people with the low levels of education who are very patriotic and not quite concerned about the national economy are more likely to demonstrate the high levels of ethnocentrism. ethnocentric consumers will be more critical of the quality of foreign products and will show less willingness to buy such products. 85 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) ������� � � ������������� �������� � ��� ���� ���� � ������ ������� � ��� ���� ���� � ������ ������� ���� ���� � ������ � �������� �� ��� ��� � ��������� � ������� �� � ��������� �� �� ��� ���� ����� ����� ��� ��������� �� �� ������� ����� ������ �� ���������� ��� �� ��� ����� ���� �� ��� � 4.1. the main results of the research to answer research question 1, one-way anova was used to determine whether there was any significant mean difference in consumers ethnocentrism as regards age, education and income. tukey’s post hoc was used to discover which age group, income and educational group showed the significant difference. table 4 represents the tukey’s post hoc test for age group. the results revealed that respondents who were between 55-74 years old had the highest mean score and showed much higher level of economic patriotism relative to the youngest age groups (16-34 and 35-54) (h1). it follows that h1 is proven, that older consumers are more ethnocentric consumers than younger consumers. table 4: one-way anova and post hoc comparisons for age groups presented below are the results of tukey’s post hoc test that was conducted in order to assess which educational group showed the significant difference (table 5). the stated data are in accordance with h2, according to which less educated consumers are more ethnocentric consumers than more educated consumers. table 5: one-way anova and post hoc comparisons for ceducation 86 mira rakić, beba rakić, ljiljana stanojević forthcoming �� �������� � �� � ���� � �� ��� �� � � �������� �� � � ���� � ������ � � �� ����� �� ����� �� ����� � �� ��� �� ��� �� ��� � � � � ����� ���� ������ ����� ���� � �� � �� ��� ������ ��� �� ������ ������ �� ������� ��� ��� �� ���� ������ ���� ������ ������ ��� �� ������ ������ ���������������� ���� ���� ������ ��� � ������ � ��� �� ������ ������ ������ ������ !�� ���"# � $���% ��� ����� ������ �� ������ ��� � ��� �� ������ ������ ������ ������ ��%������� $���% ��� �� ������ ���� ���� � �� � ���� � ������ ������ ������ ������ &����"��� ������ '��%�(� ����� ������ ����� ������ ���� ������ ������ ������ ������ ������ )���"#"��$���% ��� ����� ������ ���� ������ �� ������ ������ �� ��� ������ ������ )����#"���"�� *���+����$���% ��� ����� ��� �� ����� ������ �� � ������ ������ ������ ������ ������ ,%��-�'#���� �� ������ ��� � ������ �� �� ������ ��� � ������ ������ � �� ������ ��� ���� � � ���� ��� ��� � ��� � ������ �� � ��� � ��� ���� ����� ����� �� � ��� � ��� ���� � ���� ������� � ��� ���� � ���� � �������� �������� �������� � �� ��� �� ��� �� ��� �� �� �� �� ����� ����� ������ ��� � ��!""� ��� � �� ��� ������ ������ ������ ������ #��������� ��!�� ����!� ��!�� ������ !�"�� ���!�� ������ ����!� ������ ������ ���$���%����$��� ���� �� ��"��� !�"�� ������ !�&�� ��&��� ������ ������ ������ ������ '$� ��� � � (���� ��� �� �� ���!!� ����� ������ ��&�� ������ ������ ��!��� ������ ������ �������$�� (���� ��� ��!�� ������ ����� �� "�� �� ��"��� ������ ����!� ������ ������ )���� �$� ����%� *���� � ��"�� ���� � ��"�� ������ ��&�� ����!� ������ ����!� ������ ������ +$�� � �� (���� ��� ��"�� ���� � ��&�� ����"� ��&�� ����!� ������ ������ ������ ������ +$���� ��� �� ,�������� (���� ��� !��&� ����&� !��!� ���!�� ��&�� ����!� ������ ��!��� ������ ������ -���.�*�$��� ��" � �� ���&� ��!""� ��&�� ��!��� ������ ������ ������ ������ � table 6 represents the results of t-test that was used to discover whether there is a significant difference among different income group. the results revealed that the group of respondents with income up to 300 euro have a higher mean and that differences are significant (p<0.05). so we can conclude that respondents with income up to 300 euros are more ethnocentric than consumers with higher income (>300 euro) (h3). this is in accordance with h3 which states that lower-income consumers are more ethnocentric consumers than higher-income consumers. table 6: the results of independent t-test the one-way anova results also revealed that ce is higher in the category of foodstuff than in some other product categories (table 4, 5 and 6 h4). it follows that h4 has been proved according to which ce is higher in the categories of foodstuff than in other product categories. in order to answer the remaining research questions pearson correlation analysis was carried out. the results of pearson correlations are presented in table 7. table 7: pearson correlations for pairs of ce the perceived product value has a high and positive relationship with ce (r1=0.75, p=0.000). this result indicates that ce is in strong relationship with perceived product value (h5). it follows that ce is higher when the perceived product value of domestic companies is higher than when it is lower. this is in accordance with h5. integrated marketing communications (imc) of domestic companies and the governments of countriesis are also highly and positively correlated (r2=0.83, p=0.000) with ce. the high correlation shows that high imc leads to positive ce (h6). thus, it can be concluded that ce is positively related to the imc of domestic companies and the governments of countries. this is in accordance with h6. furthermore, education of consumers about the importance of buying domestic products and brands is highly and positively correlated (r3=0.71, p=0.000) with consumers` ethnocentrism. the high correlation show that the more consumers` education about importance of buying domestic products and brands leads to positive ce (h7). it can be concluded that ce is positively related to the education of consumers about the importance of purchasing domestic products and brands. this is in accordance with h7. in addition, consumers` attitudes about the domestic products purchase importance is strongly correlated (r4=0.80, p=0.000) with the decision about buying a domestic product. the findings imply that positive attitudes about the domestic products purchase importance help in making the decision about buying domestic products/services and brands (h8). it can be concluded that purchasing decision of domestic products and brands is positively related to the highly ethnocentric consumers. this is in accordance with h8. 87 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) � ������� � ���� �������� ��� � �� ��� �� ��� �� ��� � �� � ����� ���� ����� � �� ���������� ���� ����� �� ������ � �� ������� ��������!���� �� �� ����� ����� ������ � � "��!���#$!���� %!��� �� �� ������ ����� ������ � �� ��%����� ���� %!��� ����� ����� ����� ������ � ��� &����#���!���� �'��%�(� ����� ����� ����� ������ � � )���#$#����� %!��� ����� ������ ����� ������ � ��� )����$#���# �*���+������� %!��� ����� ������ ����� ������ � �� ,%��-�'$���� �� � ����� ��� � �� � ������ � ����� ��� �� �� ��������� ����� ����� � ��������� � � ��� ���� ���� ��� ����� �� ���� �� ����� ��� ��������� ���� ��� � � ���������! � "����� ���� ���� ��#$ ��� ����� %���� ��� �& ��������� � ���������! � "����� ���� ��$� ���� ��� ����� ��������' � � ���� �(�� "� ����� �� ����� � ���"��� �� �� ����� �������� �(�� (�)��� ����� �� ����� � ��*� ��#� ��� ����� 4.2 theoretical implications this paper expands the prior research (marinkovic, stanisic & kostic, 2011) by exploring ce with the conceptual frameworks (figure 1 and figure 2). the first conceptual framework was developed in order to enable a better understanding of ethnocentric consumers’ behavior (figure 1). the second conceptual framework was developed as a guide for domestic and foreign marketers facing ethnocentric consumers’ behaviour (figure 2). the previous sections have shown that the antecedents of the high level of ce are: national culture, characteristics of consumers, product categories, perceived value of products and integrated marketing communication (imc) of companies and countries (see figure 1). ce influences the attitudes toward domestic products and brands as better compared to foreign, and purchasing of domestic products and brands. figure 1: antecedents and consequences of the high level of ce source: authors different ce in different countries also affects various marketing challenges. high ce in a certain country represents a significant marketing opportunity for domestic companies, but marketing threat for foreign companies (figure 2). the marketing activities that influence the creation of an opportunity for and the encouragement of ce for domestic companies are as follows: • coo (“made in”), as the base for the positioning and differentiation strategy • an emphasis on the importance of domestic products purchase in imc • engaging reference individuals and groups in encouraging the purchase of domestic products • cooperation with the government in order to promote the purchase of domestic products. the activities of foreign companies aimed at decreasing the influence of ce and overcoming marketing threats are as follows: • an emphasis on the characteristics and benefits of products as the base for the positioning and differentiation strategy • the presentation of the characteristics and image of brands and a company (“made by the company”), instead of coo (“made in the country”) • alliances with local companies – producers and/or distributors • a socially responsible behaviour of the company and a more widely sustainability-oriented behaviour of the company. 88 mira rakić, beba rakić, ljiljana stanojević forthcoming figure 2: high level of ce and marketing challenges for companies source: authors 4.3 managerial implications our results have several important managerial implications. first, the results provide marketers with the knowledge of the market segments that are more consumer-ethnocentric. it is the base for effective target marketing (market segmentation, market targeting and market positioning). second, this study provides marketers with useful marketing strategies and tactics for domestic and foreign companies with respect to ce. 4.4 limitations and areas for further research the results of the study should be interpreted in view of a few limitations, which in turn create opportunities for future studies. the data were gathered from consumers in a particular national context: serbia, and in town – belgrade – as the biggest city/market in serbia. a wider geographic reach and study in other national contexts can provide a more comprehensive understanding of ce. the relatively small sample and the sample structure could have influenced the results. it may restrict the generalization of our findings. although ce has been the subject matter of investigation over many years, there is little research addressing companies and governments. consumers are the most important actors for marketers and it is logical why researchers focus on consumer research. in addition to consumer research, more attention can be paid to the activities of companies and governments facing ce. future research should examine how companies and governments react to ce. a further study of ce would be of interest for companies and governments. future research should concentrate on: ce in different national contexts/countries (the antecedents and the consequences of ce), ce in different product categories, the useful marketing strategies and tactics of domestic and foreign companies concerning ce in different countries, the impact of social media on ce, the behaviour of governments in the field of ce, etc. a further study of the antecedents and the consequences of the high level of ce (presented in figure 1) as the conceptual framework for ethnocentric consumer behaviour can be interesting. future research will be needed in order to prove marketing challenges, marketing strategies and tactics for domestic and foreign companies facing ce, which are shown in figure 2. the results of this study can be used both for further research and in practice. 89 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) 90 mira rakić, beba rakić, ljiljana stanojević forthcoming conclusion references [1] balabanis, g., & siamagka, nt. 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(2015).consumer ethnocentrism, national identity, and consumer cosmopolitanism as drivers of consumer behavior: a social identity theory perspective. journal of international marketing, 23(2), 25-54. received: 2017-07-26 revisions requested: 2018-01-12 revised: 2018-05-17 accepted: 2018-07-16 mira rakić megatrend university, graduate school of business studies, serbia rakic.mira@gmail.com mira rakić is a full professor of marketing, consumer behaviour, digital marketing and strategic marketing at graduate school of business. her areas of interest include marketing, global marketing, consumer behaviour, digital economy, sustainable development and sustainability. she is the author and co-author of papers in the area of marketing, of utwo textbooks (international marketing and consumer behavior), and monograph (digital marketing). her research profile is available at: https://www.researchgate.net/profile/mira_rakic beba rakić megatrend university, graduate school of business studies, serbia brakic@gmail.com beba rakić is a full professor of marketing, international marketing and digital marketing at graduate school of business studies. she is the author and co-author of papers in the area of marketing, of three textbooks (marketing, international marketing, and consumer behaviour), and monograph (digital marketing). her main research and publications are related to marketing, digitalization, and sustainability. her research profile is available at: https://www.researchgate.net/profile/beba_rakic ljiljana stanojević university business academy, faculty of applied management, economics and finance, serbia ljiljana.stanojevic@mef.edu.rs ljiljana stanojević is associate professor of information technology at the faculty of applied management, economics and finance. she is the author and co-author of papers in the area of applied information technology information systems and business intelligence, a textbook (introduction to geography information systems), a monograph (development of business intelligence methodology). her main research and publications are related to applied information technology and artificial neural networks for data analysis, business intelligence, and information systems. her research profile is available at: https://www.researchgate.net/profile/ljiljana_stanojevic about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 06_83(3) andjelkovic:tipska.qxd 67 jelena anđelković1*, jelena filipović2 1university of belgrade, faculty of organizational sciences, serbia 2university of belgrade, faculty of philology, serbia management: journal of sustainable business and management solutions in emerging economies 2018/23(3) management and leadership in serbian terminology work doi: 10.7595/management.fon.2018.0025 1. introduction scientific and technical terminology represents the most important component of the language for specific purposes and can be considered a strategic resource of key importance for professional communication, information, and knowledge transfer. that is why terminology today is a significant topic of scientific research in the fields of linguistics, translation theory, language and terminology policy and planning, know* corresponding author: jelena anđelković, e-mail: plecasj@fon.bg.ac.rs research question: this paper studies the roles of terminology leadership (filipovic 2012, 2015; filipovic & vuco, 2012; filipovic & djordan, 2018) and terminology management model (jernudd & neustupny, 1987, 1991; jernudd 1993, 1997 in antia, 2000, p.3; spolsky, 2004, 2009, 2012) in the implementation of terminology policy and planning in serbia, and the sustainable development of serbian scientific and technical terminology. motivation: as in almost all standard-language cultures (quirk,1990), the serbian language policy is top-down oriented, i.e., it follows the language management model. in this model, all decisions regarding the language, including terminology decisions, are made by linguists language planners, without taking into account the opinions of professional and academic communities, i.e., the primary creators and users of terminology. newer european terminology guidelines, especially the widely accepted unesco guidelines for terminological policies (2005, p.3), however, propose that terminology work should be approached both top-down, i.e., on the level of political decision-making (following the terminology management model), and bottom-up, i.e., on the level of professional associations and other terminology stakeholders (following the complementary model of terminology leadership). idea: the idea behind this paper is to investigate to what extent the terminology leadership model and the bottom-up orientation in the serbian terminology policy and planning are recognized and accepted by various groups of stakeholders in comparison with the dominant language management model. data: the data regarding the perspectives of two groups of terminology stakeholders (technical translators and professional / academic community) towards the state of the serbian subject-field terminology and terminology management were collected, analyzed, interpreted and compared. tools: the data were collected through two surveys on terminology work (andjelkovic, 2018). while the first survey focuses on translators’ perspective on terminology management, the second survey examines the attitude of the academic community towards the terminology state of their own subject field: management. findings: the surveys’ results confirm that both groups of terminology stakeholders recognise the importance of collaborative and cooperative work of linguists and subject field specialists in terminology policy making, planning and implementation, and thus do not regard linguists (i.e., language planners) as exclusive language and terminology decision-makers. the results also indicate, however, that there is still a very strong influence of standard-language ideology and the top-down oriented language policy. contribution: the paper suggests a change in the implementation of the serbian terminology policy and planning that is more in line with the european terminology guidelines (unesco, 2005). keywords: terminology management, terminology leadership, terminology policy and planning, adaptive leadership, enabling leadership, administrative leadership. jel classification: y8, o2, z0 ledge management, information science, computational linguistics, natural language processing, etc. bearing in mind the constructivism approach to science of the late 20th and early 21st centuries that erases boundaries between scientific disciplines and advocates a trans-disciplinary approach to the creation and use of academic resources in general, and terminology resources as well (filipovic, 2015), terminology is nowadays mostly studied within interdisciplinary and transdisciplinary studies. scientific and technical terminology development is closely related to the socio-economic situation in the modern world, i.e., to economic, financial, and cultural globalisation, the rapid development of information and communication technologies, the global status of english as the international lingua franca (clyne & sharifian, 2008), and the growing contrast between the developed and developing economies and markets. namely, economically and technologically developed, dominantly english-speaking, markets and economies have turned the english language into the dominant language of professional and scientific communication and the main provider of terminology worldwide, especially in rapidly growing subject-fields and disciplines. this resulted in the globalisation and internalisation of terminology, justified by the need for efficient and effortless international communication. this process, however, also created significant terminology and communication problems in non-english languages of developing countries, especially in languages of lesser diffusion (piper, 1998; bugarski, 2003) and their respective emerging economies and markets. as a countebalance to terminology globalisation, these countries and languages emphasize a need for localisation, i.e., translation, creation, and adaptation of terminology for the purpose of its maintenance in the language in question (schaffner, 1999). localisation is thus aimed at preserving the diversity, functionality and sustainable development of individual specialised languages for the dissemination and transfer of specialized knowledge and information. in order to preserve the functionality of a language in its professional domains of use and ensure its sustainability, a country requires a responsible and systematically implemented language policy and planning (lpp), and terminology policy and planning (tpp) as an integral part of corpus language policy in particular (filipovic & djordan, 2018; jakic, 2014). in this paper, the serbian language terminology is viewed from the perspective of terminology policy and planning, with the aim of establishing the roles of terminology management and terminology leadership models in tpp formulation and implementation. the following sections of this paper define the concepts of language policy and planning (lpp), terminology policy and planning (tpp), language and terminology management, as well as language and terminology leadership, with a particular focus on the ambiguity of the term terminology management in the strictest and in the widest sense. further in this paper, results of two questionnaires focusing on the serbian terminology work, authority and cooperation will be provided, with the aim of discovering to what extent the terminology management and terminology leadership models are represented in terminology policy and planning implementation in the republic of serbia. 2. management and leadership in language and terminology 2.1 language policy and planning (lpp), language management, and language leadership language policy and planning (hereinafter referred to as lpp) is often defined as “organized, targeted and long-term activity of state institutions on various aspects of the status, form, and domain of use of a particular language variant” (filipovic, 2009, p.54). lpp “is never independent of political, economic, and social theory” (ricento, 2006, p.19), i.e., it is always influenced by macro-sociopolitical processes and events, epistemological paradigms, and strategic goals (ricento, 2006, p.26; filipovic, 2009, p.55). the definitions stated above refer to the top-down oriented lpp, in which all the decisions regarding the selection of a linguistic variant to be standardized (status lpp), the language structures, forms and vocabulary to be processed (corpus lpp) and the varieties to be used in education (educational lpp) are made by authorized institutions and entities (filipovic, 2015, p. 44). the top-down orientation in language policy and planning is typical of standard-language cultures (milroy, 2001; filipovic, 2009; 2012; 2015), i.e., language communities in which the standard language is regarded as the main carrier of national and individual uniqueness (filipovic, 2015, p. 47). under the strong influence of the standard language culture, the serbian language and its terminology have been viewed as the responsibility of linguists, i.e., top-down oriented language planners (filipovic & djordan, 2018), indifferent to real life language practices and speakers’ communicative needs and any bottom-up oriented terminology and language policy and planning (filipovic, 2015, p. 47). 68 jelena anđelković, jelena filipović 2018/23(3) this traditional top-down lpp orientation is associated with a more contemporary language management paradigm (introduced by jernudd & neustupny, 1987, 1991; jernudd, 1993, 1997 in antia, 2000, p.3, and further elaborated by spolsky, 2004, 2009, 2012). this paradigm transferred the focus from the planning model to the management model (jernudd, 1993, p.134 in antia, 2000, p. 3), and applied management concepts and terms to linguistic research and language policy (spolsky, 2009 in filipovic, 2015, p. 44). in the language management model, the role of a language manager is of crucial importance. in standard-language cultures, the role of a language manager is performed by an authoritative national institution that imposes language rules and decisions, introduces prescriptive measures and publishes language manuals (spolsky, 2004, p. 8). filipovic and vuco (2012, p. 9) define language managers as individuals, institutions or countries whose activities directly correlate with certain sociopolitical, epistemological and strategic interests of political entities. in management science, a manager is superior to other members of the organization, and in case of language, a language manager is superior to other members of society, language or professional community (filipovic, 2015, p. 45). the top-down orientation advocated by the language management model is to some extent problematic since it fails to recognize the facts that language change is inseparable from social change, and that a language needs to adapt to communicative, social, psychological, cultural, and professional needs of certain social groups and communities (filipovic, 2015, p. 48-49). these facts imply that a language policy also needs to be implemented bottom-up, which leads to an alternative (and complementary) model of language leadership (filipovic, 2015). the concept of leadership has been adopted from the complexity theory (uhl-bien et al., 2007, wheatley, 2004, zenousi & dehghan, 2012; byrne, 2002), a comprehensive epistemological paradigm that opposes the hierarchical scientific methods of positivist and structuralist orientation. in linguistic research human organizations are also defined as complex systems, and the concept of language leadership, interpreted from a macro-complexity perspective, is successuflly applied to language policy and planning (filipovic, 2015, pp. 29-30). witin the language leadership model, the hierarchical relationship that managers have towards other members of the community (top-down orientation) is replaced by a heterarhic structure, partnership, teams, and networking (bottom-up orientation) (whitley, 2004, pp. 13-14). language leaders, unlike language managers, act as initiators or motivators who do not use their formal positions of power to impose certain language patterns and practices and pressure others to use them too (filipovic, 2015, p. 5) but still influence language behaviour of others because of the respect and positive attitude that other members of the community have towards them (filipovic, 2015, p. 46). those members of language communities and / or professional communities that introduce emergent language behaviour (new forms resulting from the fulfillment of communication needs) are regarded as adaptive language leaders. individuals who spread this language behaviour beyond their own language community, through interaction with external members, are enabling language leaders. since the emergent language practice sometimes does not follow the dominant language ideology, the introduction of such practices sometimes implies significant language and social changes, and often encounters disapproval of those outside the given community (eckert & mcconnellginet, 1992). in the event that the approval is nevertheless reached, language managers give way to administrative language leaders, who, unlike managers, work closely with enabling language leaders (filipovic, 2015, p. 40). the terminology policy and planning model that will be outlined in the sections below is based on the language leadership model. 2.2 terminology policy and planning (tpp), terminology management and terminology leadership terminology policy and planning (hereinafter referred to as tpp), as an integral part of a national language corpus policy and planning, is concerned with the strategies for development and regulation of terminology and terminology systems of professions and sciences in the given language, i.e., political decisions and interventions aimed at the conscious, systematic and sustainable development of the language for specific purposes and its terminology. the basic goal of terminology planning is the fulfillment of communication needs in scientific and professional domains and the provision of intra-lingual and inter-lingual communication in languages for specific purposes. terminology planning is, however, often done purposely, i.e., decisions regarding terminology planning can actually be a tool for achieving socioeconomic transformational policies (unesco, 2005, p. 6). although there is a general consensus that the tpp should be based on a predefined model, it seems that there is no single tpp model that would be fully applicable to all languages without adapting it to their respective socio-cultural and socio-political circumstances. a possible exception may be the unesco guidelines for terminological policies: designing and implementing terminology policy in language 69 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) communities, formulated in cooperation with the international terminology organization infoterm in 2005, as well as the international standard iso 29383:2010 terminology policies development and implementation. these two documents set out the general framework of the terminology policy and planning model, advocating a conscious, systematic, and controlled approach to the creation, maintenance, and use of terminology for the purpose of its sustainable development within a language community. the unesco guidelines state that strategic decisions on terminology policy should be made top-down, i.e., on the level of political decision-making (with a recommendation that this policy be multilingual and non-restrictive), but they also claim that the tpp is created and implemented bottom-up, i.e., on the local level: in private companies, nongovernmental organizations, professional associations etc. (unesco, 2005, p. 3). in other words, terminology policy is not the sole responsibility of language planners (as is the case in almost all standard-language cultures), but it should also be dealt with by those members of professionaland academic communities who, for the sake of adequate communication, continually upgrade and change the conceptual and terminological systems of their professions. the unesco guidelines may thus imply that terminology policy and planning should be imlemented in accordance with the language leadership, rather than with the language management model (explained above) to ensure sustainable development and maintenance of functionality of professional discourse and terminology in languages of lesser diffusion such as serbian. even though this paper observes terminology management as part of the language management model, it is important to note that terminology management is a somewhat problematic concept accross disciplines (in terminology science, terminology policy and planning, translation theory, computational linguistics and other disciplines, etc.). there are several reasons behind this. when first used, the terminology management term labelled “every deliberate manipulation of terminological information” (wright & budin, 1997, p. 1). by emphasizing the word management, these authors wished to highlight the importance of dealing with the quantity of information available to us in the modern world, and the importance of managing and controlling the information available (wright & budin, 1997, p. 2-3). the same authors drew a parallel between terminology management and information management, as both of them are, in fact, total quality management tools. terminology management activities, according to wright and budin (1997, p. 22-23), are as follows: • creating and naming new concepts, i.e., assigning terms to concepts in order to meet the need for a precise and unequivocal language for professional communication; • systematic recording of terminological information in dictionaries, terminology collections and databases; • use of terminology information for oral and written translation, technical writing and information management. over time, the range of activities, products, and resources attributed to terminology management has expanded to also include the following: • selection of terminological units for terminographic processing and / or standardization; • creation and exploitation of a wider range of primary and secondary terminological resources and products: language corpora for special purposes, printed and electronic terminology dictionaries, glossaries, lexicons, terminology databases and terminology knowledge bases (ontologies), terminology norms and other collections of terms; • development and exploitation of software tools and terminology management systems (tmss); • provision of terminological services; • organization of terminological trainings, etc. due to the diversity of terminology activities, the role of terminology managers is performed by various stakeholders, i.e., the representatives of professional and academic communities, translators, translation agencies and translation departments in public, private and international companies, computational linguists and natural language processing (nlp) experts, but also by language planners and national and international language and standardization institutions, and many others. terminology management is thus conducted on several levels: individual, local, national, and international, and is performed with diverse aims. having all the abovesaid in mind, we believe that terminology management can be observed in its strict and its wide senses. terminology management in its strict sense denotes the development and use of software solutions for terminology storage, i.e., terminology management systems (tmss) as integral parts of computer-assisted translation tools (cat) that contribute to the development of machine translation (mt) systems, all directed towards technical translation and terminology localization. 70 jelena anđelković, jelena filipović 2018/23(3) thus, terminology activities undertaken by technical translators, translation agencies, and translation departments within larger organizations, public or private enterprises belong to terminology management in the strict sense. translators employ various methods to collect and store terminology, create glossaries and internal termbases, lists of terms or terminology use, guidelines, and handbooks (bucher, 2007, p.44; fiser, 2008). these terminology storage methods not only accelerate and facilitate translation of technical texts, help with technical writing and assist in professional communication in general, but they also improve the consistency and quality of translation, at the same time keeping the price of translation lower. a number of commercially available software systems for terminology activities (terminology management systems -tmss) that can be used in translation and technical writing are available nowadays. these systems are most commonly integrated into cat tools (computer-assisted translation tools), along with translation memories (tms). the most popular cat tools are sdl trados, omegat, and memoq (gornostay, 2010). in order to promote their products, commercial software producers emphasize the benefits that terminology management systems bring to corporate users, particularly the fact that they contribute to a better understanding of relevant terminology by employees, prevent terminology errors in technical documentation, reduce the time of technical documents production, lower translation costs, and contribute to the consistency of translation (sdl software company). the fact is, however, that the number of organizations consistently and systematically engaged in terminology activities is still rather small, the most important reasons behind this being the lack of awareness of their importance, high costs of terminology manangement systems, and the fact that benefits are difficult to measure. the fact is, however, that the number of organizations consistently and systematically engaged in terminology activities is still rather small, the most important reasons behind this being the lack of awareness of their importance, high costs of terminology manangement systems, and the fact that benefits are difficult to measure. the department for communications, training and preparation of the serbian version of acquis communautaire within the ministry of european integration, government of the republic of serbia, has recognized the importance of using terminology management software tools and systems. in order to achieve terminological consistency and quality of translation of the massive documentation necessary for the eu integration process for the republic of serbia, the department has developed an electronic terminographic resource: the multilingual terminology database evronim, with over 18,000 terminology units in serbian and their english equivalents (sometimes along with equivalents in several other 15 european languages, including latin). along with evronim, the department is also in charge of evroteka, a bilingual, english-serbian collection of legal texts. the collection is aligned and represents a translation memory created using the sdl trados tool, currently containing more than 100,000 words. in its wide sense, terminology management is not an operational, but a sociolinguistic category that is a part of the top-down oriented language management (outlined above), concerned with strategic decisions and recommendations regarding terminology development, implementation of national terminology policies, and maintenance of national terminological infrastructures. in the wide sense, terminology management encompasses both both descriptive and prescriptive activities (wright & budin, 1997, p.18), aimed at documenting and standardizing terminology used in a particular domain. these activities are organized, coordinated and systematically implemented by national terminology centres, language and standardization institutions with the purpose of harmonizing and standardizing terminology, and formulating and implementing terminological language policy and planning. the term management within the phrase terminology management implies a hierarchical top-down relationship between national language and terminology institutions as the only strategic decision-makers regarding terminology, on the one hand, and the actual terminology users members of professional and academic communities, on the other hand. in other words, terminology management in its widest sense does not acknowledge the importance of networking, mutual cooperation and interdisciplinary collaboration between all the terminology stakeholders: terminology and language planners, domain / subjectfield specialists, computational linguists, technical translators, etc. lack of cooperation and partialised terminology activities would result in non-transparency and redundancy of terminology work. for this reason we believe that the concept of terminology management in its wider sense should be complemented by another concept, the one of terminology leadership. terminology leadership, in line with the concept of language leadership (outlined above), implies mutual cooperation, hierarchical relationship and interdisciplinary networking between all the terminology stakeholders, i.e., associations, institutions and individuals who create, edit, maintain, translate, use, and standardize terminology. 71 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) figure 1 represents the terminology leadership model, proposed by filipovic & djordan (2018), with all the terminology stakeholders classified into adaptable, enabling, and administrative terminology leaders. in this heterarchical relationship, adaptable terminological leaders are those members of professional or academic communities (i.e., subject field / domain experts) who introduce new terminology units into a language. a new terminology unit can be created either through the process of primary term formation, i.e., by designating a newly created concept in the source language, or through the process of secondary term formation, i.e., by translating or borrowing (with or without orthographic and morphosyntactic adaptation) the term created in the primary term formation process in the target language (humbley, 2003, p.197). this aspect of terminology leadership is not limited to members of professional and academic communities, but is also quite often done by technical translators, when a term with no available translation equivalent is encountered. enabling terminology leaders, on the other hand, are the ones who, through interdisciplinary dialogue and cooperation with members of other professional communities, verify the monosemy and adequacy of the given term or its translation into a target language. finally, administrative terminology leaders are institutions that consist of linguists, translators and terminology planners, as well as members of other disciplines and professions (domain specialists), who work together on the harmonization, systematization and standardization of terminology of individual scientific and professional disciplines. the final, administrative, level of terminology leadreship thus also includes the activities of terminology management in its strictest sense, i.e., the creation of terminology resources, such as dictionaries, termbases, terminology portals and national terminology banks, which are inevitably performed in close cooperation between all the abovementioned stakeholders. through networking and cooperation, the three types of terminology leaders jointly contribute to the effective terminology planning and responsible terminology policy implementation, while interdisciplinary cooperation and networking exist not only between, but also within all three levels of terminology leadership. figure 1: terminology leadership model (adapted from filipovic & djordan, 2018) 3. management and leadership in terminology work 3.1 terminology management in its strictest sense: translators’ perspective a number of studies and surveys regarding terminology management in translation have been carried out. most of the studies referred to the use of software tools and systems in translation, organizing and storing terminology by freelance translators, translation agencies and translation departments within large organizations (fulford & granell-zafra, 2005; lagoudaki, 2006; fischer, 2008; gornostay, 2010, etc.). some of the research (gornostay, 2010) identifies lists of terms in microsoft excel and microsoft word as still the most popular ways of storing terminology for further use in translation. none of the above surveys, however, included translators or translation agencies from serbia. in order to discover the terminology management habits of serbian translators, a small-scale study was conducted in the form of an online questionnaire (andjelkovic, 2018). fifty translators participated in the study: 22 (44%) full-time freelance translators, 4 (8%) translators working for translation agencies, 8 (16%) in-house translators employed by various companies, 10 (20%) foreign language teachers occasionally engaged in technical translation, 3 (6%) professional terminologists, and 3 (6%) respondents from other pro72 jelena anđelković, jelena filipović 2018/23(3) fessions and with no formal education in foreign languages, but with experience in technical translation. the majority of respondents (34, or 68%) had more than 10 years of translation experience, while only 5 respondents (10 %) had had been translating for less than three years. most respondents (46, or 92 %) translate from english. other languages that the respondents marked were german, french, italian, russian, slovene, albanian, etc. (respondents were allowed to mark one or more languages). when asked whether and how they store new terminology encountered in the translation process for further reference, only 11 out of 50 respondents (20.75%) claimed that they do not manage or store it in any way. most respondents, however, replied that they manage terminology by making lists of terms in ms word (18 or 33.96% of respondents) or ms excel (17 or 32.08% of respondents), while only 7 respondents (13.21%) use terminology management systems (figure 2). figure 2: terminology management habits of translators in serbia in order to discover to what extent terminology management is present in formal education of translators, the respondents were asked a closed question that referred to whether they had had a chance to learn about terminology management practice and tools during their formal education. almost two thirds (34, or 68%) of the respondents stated that they had not had any training in terminology management in schools and universities. a small number of respondents acquired this knowledge on their own through translation practice (11 or 22%), while only three respondents (6%) attended a seminar or a workshop on terminology management for translation purposes (figure 3). figure 3: terminology management in formal education of translators in serbia 73 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) 13.21% 20.75% 32.08% 33.96% i use tm tools i do not store information on new terms i make lists of terms in ms excel i make lists of terms in ms word 68% 6% 22% no, i have not had any training yes, i attended seminars, workshops and other kinds of training i learnt on my own, through translation practice in the next question, the respondents were asked how they resolved terminology translation dilemmas in case no available terminological resource provides an adequate translation equivalent. respondents were asked to mark one or more out of four offered responses. forty-one respondents (82%) claim that they consult translation contractors, while 32 respondents (64%) seek advice from other translators. only 7 respondents (14%) follow their own instinct when unsure of the appropriate translation of a term, while only two respondents (4%) claim that they resolve terminological dilemma by consulting subject field experts who are not contractors of the given translation (figure 4). figure 4: cooperation in terminology management: translators’ opinion 3.2 terminology management and leadership: professionals’ perspective another study (andjelkovic, 2018), aimed at examining the state of serbian terminology in the domain of management, provided some interesting results regarding the opinions of the academic community (about terminology activities and problems encountered in this domain, as well as the matter of terminological responsibility. a total of 48 respondents filled in the questionaire. all the respondents were members of the teaching staff at the study group of management and organization at the faculty of organizational sciences, university of belgrade, i.e., 4full professors, 6 associate professors, 6 assistant professors, and 34 teaching assistants. when asked whether they believe there are terminology problems in the subject domain of management in the serbian language, as many as 94 % of the respondents have confirmed that they do exist. figure 5: are there terminology problems in the subject field of management in serbian? in the following question, the respondents were offered several terminology problems and asked mark them on a scale from 1(most important) to 5 (least important). the most important problem, according to 42 respondents (or 87.5%), is the lack of serbian equivalents for foreign terms, followed by terminology depen74 jelena anđelković, jelena filipović 2018/23(3) 32 41 2 7 0 10 20 30 40 50 i consult other translators i consult translation contractors i consult subject field experts i follow personal instinct dence on the english language (38 respondents, or 79.17%), non-standardized terminology (31 respondents, or 64.58%), the lack of terminological resources (25 respondents, or 52.08%), and terminology synonymy (22 respondents, or 45,83%). figure 6: types of terminology problems in the subject field of management in a multiple choice question focusing on the responsibility for terminology management in its widest sense, the respondents were able to chose among three options: a) linguists, i.e., language planners, b) experts for the subject filed of management, and c) both. as many as 41 respondents (85.52%) stated that management experts and language experts should share this responsibilty and act cooperatively when solving terminology issues. only four respondents (8.33 %) claimed that terminology management (in the widest sense) was the sole responsibility of language experts, while only three of them (6.25 %) opted for subject field (i.e., management) experts. figure 7: cooperation in terminology work: subject field experts’ opinion the last question in the questionnaire focused on institutional foundations for terminology management in the serbian language. in response to the multiple choice question about which institution(s) should be in charge of scientific and technical terminology for this particular subject field, 15 respondents (34.09%) marked universities, i.e., faculties or departments which are parent to certain areas, while nine respondents (20.45%) claimed that this should be the institute for the serbian language within the serbian academy of sciences and arts. seven respondents (16%) marked several institutions, thus expressing their belief that cooperation between the aforementioned institutions is needed. an interesting fact is that as many as ten respondents (22.73%) replied that the institution in charge should be a newly established centre for terminology (figure 8). 75 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) 87.50% 79.17% 64.58% 52.08% 45.83% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% la ck o f s er bi an eq ui va le nt s fo r en gl is h te rm s te rm in ol og y de pe nd en ce o n th e en gl is h la ng ua ge n on -s ta nd ar di ze d te rm in ol og y la ck o f t er m in ol og ic al re so ur ce s te rm in ol og y sy no ny m y figure 8: serbian institutions responsible for tpp: subject field experts’ opinion 3.3. diverse or similar perspectives on management and leadership in terminology: a discussion sections 3.1. and 3.2. above provide an overview of the results of two questionnaires focusing on scientific and technical terminology in the serbian language. even though the two questionnaires share the overall topic and have a similar number of respondents, they differ in a number of ways. while the first questionairre targets translators and their perception of terminology management, i.e., terminology management in its strictest sense, the second questionairre is aimed at members of professional community (for the subject field of management) and their perception on how the terminology of their subject field should be managed, as well as on who should be in charge of this task. in other words, the second questionnaire observes terminology management in its widest sense. the results of the two surveys can be observed independently, but they are also, despite the differences, to a certain extent comparable, while their comparison can lead to interesting conclusions. the results of the first questionnaire indicate that terminology management trainings for translators (i.e., terminology management in its strictest sense) are lacking in serbian formal education. such statistics may indicate the need for organizing trainings and workshops in terminology work in order to raise awareness of its importance and the benefits it brings to quality and consistency of translation. in addition, the fact that most translators claim to consult subject field experts when faced with a terminology translation problem may indicate that they are very much aware of the importance of interdisciplinary networking and cooperation in terminology work. the results of the second questionnaire confirm that subject field experts (i.e., members of academic community and management experts) are very much aware of the existence of terminology problems in their subject field. the majority of the respondents believe that the most important among these problems is the existence of terminology gaps in serbian, as well as dependence on english and uncritical acceptance of english terms. another interesting finding is that the majority of the respondents to this questionnaire believe that language planners and subject field experts share the responsibility of managing terminology in their subject field. this may suggest that they are, similarly to translators, aware of the importance of transdisciplinary cooperation and teamwork on finding solutions to terminological problems in the field of management. in addition, the respondents in this questionnaire are rather divided regarding their view on which institution should be in charge of terminology planning (i.e., terminology management in its strictest sense); some of them also believe that this should be done cooperatively between several of the stated institutions. these findings indicate that the members of this academic community are fairly divided between accepting their own responsibility for terminology of their profesional domain and transfering the responsibility to (or sharing it with) an institution that exclusively employs linguists, and not experts in management, thus confirming the need for transdisciplinary cooperation discussed above. in other words, there seem to exist a mild opposition to the traditional top-down orientation in terminology planning (i.e., in terminology management in its 76 jelena anđelković, jelena filipović 2018/23(3) 77 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) widest sense) dominant in serbia (filipovic & djordan, 2018) in which terminology decisions are made by authorized language institutions and entities that employ solely linguists as language and terminology planners. another orientation, bottom-up oriented terminology planning (filipovic, 2015, p. 47) seems to be gaining pace, thus transferring serbian terminology planning away from the terminology management to the terminology leadership model. in line with the need for transdisciplinary cooperation and networking in terminology work, and following the model of some european terminology institutions (particularly the swedish terminology centreterminologicentrum tnc2), the faculty of philology, university of belgrade is in the process of founding the centre for terminology, translation and transdisciplinary studies. the idea behind the centre is to, following the terminology leadership model, develop and maintain a network of terminologists from different professions, and coordinate the existing and forthcoming terminology-related projects and activities in the serbian language through the activities of collecting, selecting, and harmonizing the terminology of individual fields, creating terminology resources (technical dictionaries, glossaries, lexicons, termbases, technical writing manuals, etc.), developing and using terminology management tools and systems, providing terminology services and support to organizations and individuals, providing training in terminology, technical writing, and professional translation, and cooperating with national and international language, terminology and standardization institutions. the terminology centre as such is expected to significantly contribute to the harmonization, systematization, and standardization of subject field terminologies and thus to the construction of a complete terminology infrastructure of the serbian language. conclusion the concept behind the term terminology management is not only ambiguous, but it also implies a hierarchical relationship between different actors and stakeholders. terminology leadership, in contrast to terminology management (in its widest sense), puts emphasis on interdisciplinary and transdisciplinary networking, heterarhical relations, cooperation, and teamwork. two groups of respondents in two separate surveys, members of an academic community (management experts) and representatives of translators (language experts), both confirmed the need for networking, interdisciplinary and transdisciplinary cooperation and exchange of experiences in terminology work, thus indicating a shift from the application of terminology management (in its widest sense) to terminology leadership model in serbian terminology planning for the subject field of management. some of the replies, however, still indicate the strong influence of the standard lanuage culture, with the dominant traditional top down orientation in language and terminology planning, in which linguists are seen as exclusive language and terminology planners in a language community. the results of the surveys thus indicate a growing need for revising and repositioning serbian terminology planning for this subject field towards a more flexible and democratic leadership model, which would recognize both linguists and subject field experts as terminology decision-makers for this subject field to ensure its sustainable development and maintenance of professional discourse functionality in the serbian language. in future, similar research should be carried out in subject fields to ensure that similar approach is acceptable across disciplines. if the results show similar tendencies, a step towards implementation of the terminology 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(2007). complexity leadership theory: shifting leadership from the industrial age to the knowledge era. the leadership quarterly, 18(4), 298-318. doi:10.1016/j.leaqua.2007.04.002 [34] whitley, m.j. (2004). leadership and the new science. discovering order in a chaotic world. san francisco, ca: berrett-koehler publishers inc. [35] wright, s. e., g. budin (1997). handbook of terminology management -volume 1: basic aspects of terminology management. philadelphia, usa: john benjamins publishing company received: 2018-02-07 revisions requested: 2018-03-11 revised: 2018-05-19 accepted: 2018-08-30 jelena anđelković university of belgrade, faculty of organizational sciences, serbia plecasj@fon.bg.ac.rs jelena anđelković is a teaching assistant at the faculty of organizational sciences, university of belgrade, with a phd in linguistics. her academic and research interests include languages for specific purposes, corpus linguistics, terminology language policy and planning, and terminology management. jelena filipović university of belgrade, faculty of philology, serbia jelenafbgd@gmail.com jelena filipović is a professor of the spanish language and sociolinguistics and the vice-dean for scientific development at the faculty of philology, university of belgrade. her academic interests include sociolinguistics, 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07_84_3 pamucar:tipska.qxd 81 dragan pamučar1, nikola knežević2, dragana macura2, boban đorović3 1university of defence in belgrade, military academy; serbia 2university of belgrade, faculty of transport and traffic engineering, serbia 3university of defence in belgrade, military academy; serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(3) a fuzzy model for organizational structure design with human resource allocation doi: 10.7595/management.fon.2019.0005 abstract: 1. introduction due to dynamical changing of a business environment and social changes throughout the world, human resources become a very significant resource for business and company development (thite, wilkinson & shah, 2012). along the changes in the business environment, there are also new requirements related to human resource management activities. companies around the world successfully respond to changes in a business environment, i.e., they are flexible toward changes thanks to employees’ knowledge, skills and creativity. companies are able to proactively respond or effectively adapt to changes in an environment thanks to employees, knowledge, skills and competences (ogc, 2011). human resources with their own knowledge, skills and competences become an important backbone for building the company’s competitiveness (boxall & purcell, 2008). therefore human resource management (hrm) has a crucial importance in the business efficiency of a company. only with proper strategic and tactical human resource allocation (hra), can a company be successful and progressive. managing the available human resources should be determined by the company’s strategic planning of resource allocation. adequate resource management allows for the future goals and objectives of the company to be achieved. on the other hand, 1 corresponding author: dragan pamučar, e-mail: dpamucar@gmail.com research question: the paper explores the problem of defining the number of required employees and their skills, as well as optimizing the work time. motivation: motivation for this paper arises from the fact that an organizational structure of business system has to be conceived and proportioned so as to justify the main company jobs and goals. almost every job set for the management must be performed properly and reliably in changeable environmental conditions. in order to maintain the efficiency of complex business systems with dynamic and stochastic changeable and unchangeable variables, it is essential that the organizational structure be flexible and constantly adjusted. idea: the idea of the paper was to develop a model for human resource allocation (hra) in fuzzy environment. data: the model is tested in realistic industrial environment the example of the logistics administrative bodies in the petroleum industry of serbia. tools: to solve the problem, the following approaches are used: fuzzy logic, neural network and simulated annealing. the model for hra is based on an adaptive neuro-fuzzy inference system (anfis) and fuzzy mathematical model (fmm) for treating uncertainty. anfis-fmm model enables the human resource strategy development based on the optimisation of the employees’ work time. in this anfis-fmm model the input variables are described using fuzzy sets represented by gaussian functions. using expert reasoning, an unique knowledge base is formed which enables the human resource strategy development based on the optimisation of the employees’ work time. findings: based on authors’ knowledge there is a lack of the fuzzy logic applications, adaptive neuro-fuzzy models, linear and dynamic programming, as well as heuristic and metaheuristic models related to hra. in most of the papers, the classical methods of strategic management have been used for hra. contribution: in this paper the model for hra is developed based on adaptive neuro-fuzzy technique application and fmm. the model has four main advantages over other hra methods: the system possesses adaptability, the model is efficient in conditions of uncertainty, the neuro-fuzzy based hra model allows dynamic decision making in hra management through the implementation of a computer-based system, it can be it-supported tool. keywords: organizational structure design, resource allocation, simulated annealing, neuro-fuzzy, fuzzy logic. jel classification: c61, c67, l1, l16 but not less important, dynamic hra becomes crucially important today when the business world is rapidly changing. in this paper the model for hra of a company, based on certain fuzzy logical production rules, is presented. the fuzzy rule base enables the management of human resource portfolio in fuzzy environment. the authors present a universal model for hra, based on the adaptive neuro-fuzzy inference system (anfis) and a fuzzy mathematical model (fmm) for hra. anfis-fmm model enables the human resource strategy development based on the optimisation of the employees’ work time. in changeable environment, the model helps decision makers in the process of evaluation and assessment of a company employees’ potential. the analysed problem is considered as a problem of nonlinear optimization with fuzzy inputs. to solve the problem, neuro-fuzzy logic is used. the final goal of the presented model is to make an efficient hra of a company with the optimisation of time that is required for performing certain activities. the model gives insight into existing human potential, and also it contributes to planning and improving the employees’ potential depending on the projected time for performing the activity. in the anfis-fmm model inputs (expertise, equipment of the workplace, motivation, and work experience) are described by fuzzy sets that are presented by gaussian membership functions. based on experts’ opinion, the unique knowledge base has been developed that enables the optimization of the time for performing the activity. the optimized time is the input for the fmm for hra. the output of the anfis-fmm model is the required time for activities by qualifications of the human resources of the company. the proposed approach allows researchers a flexible hra in accordance with environmental changes and it provides reasonable solutions in the context of intelligence systems. the presented model involves studying the existing organizational structure, organizational procedures and organizational means, and analyzing the data collected. practical work-related goals are an improvement of the methodology of designing the organizational structures, which provides a higher efficiency of the business system and the selection of adequate professional staff. this paper is designed as follows. in the next section, we introduced a literature review of organizational design. in the third part, a new anfis-fmm for designing organizational structure is defined. in section 4, the results of testing the model on the example of the organizational structure of the administrative bodies in the petroleum industry of serbia (pis) are presented. finally, in the fifth section concluding remarks are given. 2. brief review of relevant literature for organizational design, strategic and dynamic hrm in recent years, the methodological approaches of computational modelling and simulation are becoming increasingly popular among organizational researchers. simulation, unlike mathematical modelling, allows researchers to reflect the natural complexity of organizational systems as given. computational modelling facilitates studies of more complex systems to a higher degree in comparison with traditional mathematical approaches. many authors approached organizational design as an information-process problem (levitt et al., 1999; galbraith, 1977). this approach relies on the assumption that information transmission methods are relevant to consider and design organizational models. computational and mathematical models of organizational design may be found in the papers by carley (1995) and carley & lin (1995). kujacic & bojovic (2003) proposed the model for selecting the organizational structure using the fuzzy multi-criteria analysis. the developed fuzzy multi-criteria methodology takes into consideration the uncertainty and imprecision of the input data. researchers in the field of computational organization theory use computational analysis methods to study both humans and organizations as computational entities. human organizations can be viewed as intrinsically computational, as many of their activities involve sharing and transforming information from one form to another and also because organizational activity is often information-driven (simon, 1976; carley & gasser, 1999). for this reason, many researchers have developed simulation-based analysis tools for organizations during the past two decades primarily based on information processing theory (cyert & march, 1992; carley & lin, 1995). starting with computational modelling tools such as orgcon in the late 1980s (burton & obel, 2004), vdt in the early 90’s and orgahead in the mid-90’s, researchers and practitioners have begun using computational models of organizations for analyzing the existing organizations and designing better ones. 82 dragan pamučar, nikola knežević, dragana macura, boban đorović 2019/24(3) the virtual design team (vdt) is a project of organization modelling and the simulation tool that integrates organizational and process views of strategic time-critical projects (levitt et al., 1999). the vision behind vdt is to offer a methodology for designing an organization in the way that an engineer designs a bridge. khosraviani & levitt (2004) developed an organizational design optimization model using genetic programming. genetic programming is used as an evolutionary computational optimization approach, to help project managers in finding near optimal designs for their project organizations. organizational consultant or orgcon is another example of a computational model that is built based on the viewpoint that an organization is an information processing entity (cyert & march, 1992). other examples are: orgahead (canos & liern, 2004), an organizational learning model designed to test different forms of organizations under a common task representation; and orgmem (carley, ren & krackhardt, 2000), a multi-agent simulation programme that imitates the interpersonal communication, information processing and decision making processes in organizations. organizational design and choosing the organizational structure for a company is the problem which has been solved using different methods, considering numerous criteria, but still there is not one method suitable for all companies. soulsby & clark (2007) presented the post-socialist organizational research and the postsocialist transformation of the organization theory. kujacic & bojovic (2007) presented the process and relevant issues of the postal traffic organization design. bojovic, kujacic & macura (2010) applied the anp method for the selection among alternatives of organizational structure. an interesting approach to computational organizational modelling was used by inter alia, (hyatt & jones, 1997). in this paper, an object-oriented simulation environment using difference equations for organization network modlling was developed. both strategic and dynamic hrm are the research subjects of many international papers. otero et al., (2009) developed a methodology for hrm considering the existing capabilities of candidates, the required levels of expertise and the priorities of the required skills for the jobs. the authors used the best-fit methodology, in order to define the suitability between the set of candidates’ skills and required skills for the jobs. xu, song & chen (2005) presented a potential solution for hra under a dynamic organizational environment. its solution is based on fuzzy logic. canos & liern (2004) proposed an expert system based on fuzzy linear programming method for personnel selection and optimal staff design. to take into consideration the environmental factors and changeable market conditions, kwak, shi & jung (2003) developed a fuzzy set approach for an audit staff-planning model. kujacic & bojovic (2003) proposed the model for selecting the organizational structure by using the fuzzy multi-criteria analysis. developed fuzzy multi-criteria methodology takes into consideration the uncertainty and imprecision of input data. kwak & lee (1997) considered the problem of strategic human resource management when human resources are limited. using a goal programming the model is developed and applied to the health-care organization. over the years, a large number of scientists contributed to research related to hra models and presented various empirical research (liao & xu, 2015). in addition to the mentioned models, there are many others with various applied methods such as: grey and possibilistic regression models (ong, huang, & tzeng, 2015), non-outranked ant colony optimization method (eduardo fernandez et al., 2015), goal programming and multi criteria (liao & xu, 2015; kocadagli & keskin, 2016), dynamic optimization problem (gunasekaran & ramaswami, 2018), data envelopment analysis and integer programming (tavana et al., 2017) and possibility theory (li, guo & yu, 2017). salo, keisler & morton (2011) considered in detail the literature related to the portfolio decision analysis, which provided robust methodological basics for function in a complex environment, and allows for making decisions with the aim to optimize the resources allocation. reviewing the relevant literature that considers the organizational structure designing and hra in strategic management it can be concluded that there is a lack of the fuzzy logic applications, adaptive neuro-fuzzy models, linear and dynamic programming, as well as heuristic and metaheuristic models. in the majority of papers, the classical methods of strategic management have been used for hra (eltantawy, giunipero & fox, 2009; knight, tu & preston, 2014; lukovac & popovic, 2018). one of the goals of this paper is to overcome this gap through the adaptive neuro-fuzzy technique application and fmm for hra. the proposed model is of a general type, and with slight modifications of inputs, it can be applied for hra in other fields. in the following section of the paper, based on relevant theoretical approaches, a new model, based on fuzzy logic, is developed for the hra of the administrative bodies. the fuzzy model is tested on the example of the organizational structure of administrative bodies of logistic support of the petroleum industry of serbia in order to analyze the situation and optimize the existing organizational structure. 83 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) 3. proposed model for hra determining the time required to perform certain activities is based on the systematic approach to dimensioning of organizational structures. the systematic approach involves determining the functions, duties and qualifications of the organizational structure bodies and defining the model for determining the time of performing activities. to determine the time of performing the activities, an approach to evaluating and recording the time of work in the organizational structures is used. the obtained times are largely based on experience, intuition and subjective assessment. considering that there is a degree of uncertainty and fuzziness about the times obtained, the theory of fuzzy sets is the most suitable mathematical tool. since in the process of data collection there is a degree of uncertainty and fuzziness of the times obtained, the times are viewed as fuzzy numbers (badi & ballem, 2018). in this paper, the times required for the execution of the activities are obtained using the fuzzy-mathematical model derived on the basis of the resource allocation model (figure 1). the basic principles of this model are that, starting from the goals set, the complexity of business that must be done at different levels of organizational structure are defined, in order to achieve the goals set. by the development and analysis of these sets of jobs, the time required for the execution of a certain activity is determined. the procedure is carried out through the following stages: • defining the functions of organizational structure, • dividing functions into jobs, • decomposing the jobs into activities, as specific activities of direct employees, • defining required qualifications of employees and the levels at which the jobs are performed, and • variations of determining the time for the execution of activities by qualifications of employees. it is particularly important to decompose the jobs into partial tasks – activities, and define the employees and the time for carrying out each of these activities. in order to predict all relevant activities within a job, it is necessary to be well acquainted with the technology of their execution. for each activity, it should be defined who will or who can do it (profiles of workers), at what level and how many resources will be engaged (time, number of people, etc.). to establish the duties and activities of the organizational structure, as well as the time needed for their execution, it is possible to use the survey method, interviews, recording method and other methods. figure 1: model for designing the organizational structure 84 dragan pamučar, nikola knežević, dragana macura, boban đorović 2019/24(3) � using the rules of fuzzy arithmetic, a model was developed for determining the time required for performing a certain activity or job by qualifications which are represented as triangular fuzzy numbers. in terms of the time obtained by recording, there is a large degree of uncertainty, but we assume that it will not be longer than t1 or less than t2. in other words, we are sure that the time of performance belongs to the closed interval t=[t1,t2], which is called the confidence interval (petrovic & kankaras, 2018). in addition to confidence interval, triangular fuzzy number, in our case, fuzzy time, is also characterized by the degree of belief. the concept on the basis of which the fuzzy number is expressed using confidence interval and corresponding degrees of belief was proposed by sremac et al. (2018). the fuzzy model for designing the organizational structure of the allocation of resources includes the following steps: phase i step 1: the organizational structure is analyzed on the condition that the system has m functions: (1) step 2: the jobs the system has to perform are to be defined, or decomposed into n jobs: (2) step 3: decomposition of the jobs into activities so that each job can have q activities: (3) step 4: determining r levels of the system at which the activities are to be performed: (4) step 5: determining the required profile of employees in the system with s qualifications: (5) step 6:the activities are assigned to employees by levels and the time for performing specific activity for each employee is defined: where is the time spent by s qualification on the performance of q activity of n job of m function. step 7: summarizing the times by qualifications ( ) is determined by: (6) step 8: defining of the distribution of confidence interval of obtained fuzzy times ( ) for each of the observed degrees of certainty. fuzzy times ( ) represent the total time, in hours, necessary for the operator of sth qualifications to carry out all the activities planned for her/him for the year: ( ) ( ) ( ) ( ) ( ) ( ) 1 2 11111 11112 11113 11121 11122 11123 111 1 111 2 111 3 111 11211 111212 111213 11221 111222 111223 112 1 1112 2 1112 3112 113 11311 level ... , , , , ... , , , , , , ... , , , ... r s s s s s s s mnq k k k t t t t t t t t ta t t t t t t t t ta a t a α α α α α α α α α α α α α α α α α α α( ) ( ) ( ) ( ) ( ) ( ) 111312 111313 11321 111322 111323 113 1 1113 2 1113 3 11 12 13 21 22 23 1 2 3 , , , , ,... ... ... ... .... ..., , , , , , s s s mnq mnq mnq mnq mnq mnq mnqs mnqs mnqs t t t t t t t t t t t t t t t t t α α α α α α α α α α α α α α α α α 85 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) (7) phase ii step 9: optimization of the summarized times ( ) is done by the adaptive neuro-fuzzy inference system (anfis) modelled by means of fuzzy toolbox in the software package matlab. the architecture and functioning of the anfis is described in the next section. in the process of time optimization, for each qualification in the organizational structure, the fuzzy number is taken as confidence interval, which represents the total time the employee executor with n qualification spends on the implementation of all the activities envisaged in hours for a year. during the practical application of the model, the interval will be proportionally adjusted depending on the obtained time necessary to be optimized. step 10: determining the required number of employees with the given qualification is performed according to the expression: (8) where triangular fuzzy number that represents the time in hours per year a person spends in the workplace, and which is determined by assessment and fuzzy number that represents the required number of people with s qualification for the execution of all the activities envisaged for this qualification. step 11: the total number of employees in one system is a fuzzy number n=[ ] and is determined as the sum of employees by levels: (9) the concept of the described model for designing the organizational structure is shown in figure 1. step 12. defuzzification of values which represent the total number of operators ( ) by using the following equation: (10) where is the right limit value of the fuzzy number confidence interval ; represents the left limit value (threshold) of the fuzzy number confidence interval . the value , represents the preference of the decision-maker, while the value , represents the pessimistic index of the decision-maker. different values of the degree of certainty, as well as changes in the allocation of functions, tasks and activities in accordance with the qualifications of the operators, give a larger number of the organizational structure alternatives. 86 dragan pamučar, nikola knežević, dragana macura, boban đorović 2019/24(3) 3.1. configuration of the anfis the times obtained for each qualification are optimized by applying a fuzzy logic system. for the optimization of performance time, four criteria are defined that determine the value of time more accurately and that can contribute to reducing or increasing the total time spent on performing activities by each qualification. the mentioned criteria are: − expertise of the employee scheduled to perform certain activity, − equipment in the workplace, − the employee’s desire to work (motivation), and − experience the employee has in performing such or similar activities. expertise (x1) for the task performance is the level of qualification which the employee has for the performance of the task. the rating is mostly based on the expertise shown in practice, primarily if the employee has already performed the same or similar activities. equipment in the workplace (x2) is the result obtained by the analysis of the state of the equipment used for the performance of tasks in the workplace in relation to the equipment that would enable a faster and better performance. motivation (x3) is the engagement demonstrated, personal commitment in the performance of all the tasks performed so far, as well as the employee’s statement and interest in performing the observed activity. experience (x4) that the employee has largely depends on the number of years of service. the length of work experience that is necessary to have depends, above all, on the complexity of a given activity. the intervals of the input and output variables of the anfis are shown in table 1. table 1: domain intervals for x1, x2, x3, x4 and y these criteria directly influence the final time required to perform certain activities or its optimization. the criteria are, by certain logical-mathematical transformations, using the algorithm of approximate reasoning, connected and give a result expressed in hours required for the performance of activities. the structure of the model for the optimization of performance time and determining the required number of employees when designing the organizational structure is shown in figure 2. figure 2: a five layered feed-forward adaptive neural network for optimization of performance time (opt) 87 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) y � ����� ��� �� � as the link between the input and the output of the fuzzy system, linguistic rules are used. the knowledge of experts on the process is expressed by a number of linguistic rules. to determine the significance of each of the criteria presented and define the rule base of the fuzzy system, a questionnaire with the information required in connection with the above criteria is sent to the addresses of 15 experts who participated in the dimensioning of organizational structures. after the replies are submitted, the data are statistically processed. the input layer consists of 4 units: expertise (x1), equipment in the workplace (x2), motivation (x3) and experience (x4). it simply transfers inputs further via the interconnections to the hidden or first layer. all units in the input layer (x1, x2, x3 and x4) are connected with the 5 units in the first layer (pamucar & cirovic, 2018; stojcic, 2018). the strengths of connections between the units in the input layer and the units in the first layer are crisp numbers equal to 1. the first layer consists of 4+3 units representing the number of verbal descriptions quantified by fuzzy sets (“low”, “medium”, “high”) for each input variable. each unit in the first layer is an adaptive unit with its output being the membership value of the premise part (cirovic, pamucar & bozanic, 2014). the number of units in the second layer equals the number of fuzzy rules. each unit in this layer is a fixed unit that calculates the minimum value of the two incoming inputs (pamucar et al., 2016). the outputs from this layer fire strengths of rules. for example, the output from the first unit in the second layer is defined as (11) the third layer has five adaptive units representing the strength of the opt (“very weak”, “weak”, “medium”, “strong”, “very strong”). each unit in this layer calculates the intersection of a fuzzy set (consequent) with the maximum firing strength of incoming rules (cirovic & pamucar, 2013). for example, the fourth unit calculates the intersection of a fuzzy set “strong preference” with the maximum firing strengths of rules r5, r6, r7: , where . the single unit in the fourth layer is a fixed unit that computes the overall output of the anfis (stojic, sremac, vasiljkovic, 2018): (12) the obtained output is then defuzzified in the single unit in the fifth layer. selection of the final crisp value can be made in various ways (abdulshahed and badi, 2018). in this paper the action which is closest to the centre of gravity has been computed (center-of-gravity method). the output value is a real number that lies in the interval [0,1]: (13) 3.2. supervised learning the aim of learning is to set the membership functions of the input/output variables to some adequate functions. the neural network performances are measured as the deviation between the targeted output and the model output across all numerical examples (mukhametzyanov & pamucar, 2018; stojic et al., 2018). this discrepancy or the error measure is considered as the objective function, and heuristic simulated annealing is used to minimize it. since the application of simulated annealing (sa) requires a large number of experiments, the training process is very long. however, the tuned fis yields results superior to those obtained by the initial fuzzy controllers and can be used in real time (veskovic et al., 2018). in this paper, the objective function that has to be minimized is calculated as the sum of differences between the model output (maximum of the networks outputs) and the targeted output over all training pairs. heuristic sa is used to minimize the objective function. a statistical training method such as sa requires the definition of an energy function (objective function) depending upon the parameters of the neural network. whenever a new set of membership functions is generated randomly, the resulting energy is determined. if the obtained energy is improved, then a new set of membership functions is memorized, otherwise the acceptance or the rejection of the change is decided according to a given probability distribution. the possibility that a change that worsens (increases) the energy is retained implies that the algorithm would hardly be trapped in local 88 dragan pamučar, nikola knežević, dragana macura, boban đorović 2019/24(3) energy minima. detailed steps of the sa algorithm can be seen in lukovac et al. (2017) and haznedar & kalinli (2018). 4. application of the anfis-fmm model application of the described model will be presented through evaluation of the organization of the logistics administrative bodies in the petroleum industry of serbia. the logistics administrative bodies are organized on a functional principle and carry out their tasks through the following logistic functions: supply, maintenance, transportation, general logistics and security and safety at work. for each of the following logistic functions tasks have been identified. in the analysis of performance of the logistics administrative bodies in the petroleum industry of serbia, apart from nine characteristic process functions, there is also another process function, command and control, which is typical of military organization. according to normative organizational structure, six positions-assignments have been planned within the logistics administrative bodies (lab), figure 3. figure 3: existing organizational structure of the lab in designing the new organizational structure, the first step is to analyze the existing situation. it points out the need for changing and the approach in designing the organizational structure. the lab is an organizational structure primarily intended for transport support to other units of the petroleum industry of serbia. according to the defined goals of the lab, the lab directs available resources towards their implementation, by the accomplishment of a series of activities and tasks, which can be grouped into the appropriate functions of the lab. therefore, according to the tasks of the lab, defined functions in the society and the petroleum industry of serbia, as well as the existing regulations and interviews with the lab management, the basic functions of the lab can be described as follows: traffic and transport function, administrative function, security function, maintenance function, personnel function, control function, function of organizing, operational function and planning function. the phase of division of the established functions of the lab into partial assignments (tasks) is essential for determining the number of employees, because in this phase the content of features is determined. each job consists of a number of activities that are assigned to direct employees in order to be performed. a job can have a mixed character in relation to the function affiliation. in such a case, the job affiliation is determined by the function of most of the activities that make it belong to by their character. this means that the job is obtained as a result of the analysis, or parsing each function individually. decomposition of jobs into activities and defining the time required for their accomplishment is also important. by the methods of interview and recording, division of command jobs by employees and levels of performance has been determined, with the times needed to perform tasks. by the analysis assessment and in cooperation with the lab authorities, division of activities by employees was carried out and performance times by levels defined. the times are given in hours for a period of one year. the research found that the lab has nine functions, that there are 51 jobs, 194 activities and two performance levels (the first level lab manager and the second level lab authorities). table 2 presents 194 activities (some of them are not presented because of space limitation) and their fuzzy times, as well as summarized values of optimized times by qualifications, obtained by anfis-fmm optimization. 89 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) table 2: optimized fuzzy times by qualifications after summarizing the times by qualifications (from table 2), optimization of the obtained values was done using the presented fuzzy system. in figure 4 and 5, summarized performance times are shown by qualifications. figure 4: summarized performance times by qualifications for the employees with secondary education 90 dragan pamučar, nikola knežević, dragana macura, boban đorović 2019/24(3) figure 5: summarized performance times by qualifications for the employees with university degree the total annual working hours an employee spends on performing work activities has been determined on the basis of 40 working hours for one week. the total annual working hours for a particular employee has been determined so that the total number of weeks of the year is reduced by 10 weeks that are intended for annual leave, holidays, sick leave and other absences from the workplace. so, there are the data that an employee spends around 1680 hours annually on the performance of work activities, figure 6. figure 6: total annual time one employee spends on performing work activities the total number of employees in the lab is determined as the sum of employees by levels. with changes in the assignment of functions, tasks and activities according to qualifications and tolerable deviations for the performance times, more variants of the number of employees are obtained. for developing one of the variants of the organizational structure, the baseline criteria are as follows: − that the command can perform all the tasks by its own organization, − to ensure maximum number of employees within the lab so that all activities are performed without the engagement of additional employees (from the car companies, logistics platoon, etc.), and − that all the activities are professionally performed, that is, to do the proper redistribution of activities by professional qualifications of employees (that the jobs intended for those with the university degree are not given to the employees with the secondary education). this means that the input variables in the fuzzy system will have the values of linguistic descriptors shown in table 3. table 3: values of linguistic descriptors for one of the variants of the organizational structure in order to calculate the required number of employees by qualifications, the summarized fuzzy times by qualifications should be divided with the total annual working time (figure 6). this relation is expressed by the equation 8. the required number of employees with general secondary education (gse) is defined based on the equation 8. 91 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) ������� � � ��� ��������������� ���� � ������� � �� � ������� �� ��� ��������� �� ���������� �� ���������� �� the final number of required employees with gse qualification is determined by equation (10), table 4. table 4: required number of employees table 4 shows the required number of employees, and their distribution by levels, according to professional qualifications and specialties is shown in tables 5 and 6, respectively. table 5: number of employees by levels according to professional qualifications table 6: number of employees by levels according to specialties the proposed mathematical models allow for the application of fuzzy multi-criteria methodology, the method of multi-criteria decision-making for the selection of appropriate organizational structure and dimensioning of organizational structure using a fuzzy model for determining the required number of employees and optimization of the time spent on performing certain functions, tasks and activities. 92 dragan pamučar, nikola knežević, dragana macura, boban đorović 2019/24(3) level specialty number of employees lab manager transport 1 lab authorities transport 3 technical 1 general 2 discussion and conclusion a complex environment in which business systems operate requires planned and methodological organization design and its continuous modification and adaptation to market conditions. convoluted operational conditions of business systems require permanent research of the model for the selection of optimal organization, and dimensioning of the organization as a dynamic model. starting from the basic assumptions of systematic approach, a model for resource allocation based on fuzzy logic has been developed. in setting the problem, the main considerations are in dimensioning of organizational structures with the resource allocation in hierarchically structured business systems with special emphasis on the fuzziness and uncertainty of the times required for the execution of certain functions, tasks and activities. the fuzzy logic system based on the algorithm of approximate reasoning allows the time optimization and correlates the time needed for the execution of certain functions, duties and activities with the expertise, motivation, equipment in the workplace, necessary means and experience. this anfis-fmm model extends the framework of theoretical knowledge in the field of hra. the existing problem is discussed using new methodology which creates the basis for both a theoretical and a practical upgrade. also, the model indicates new criteria for evaluating existing human potential which have not been considered before, but are of importance for this issue. the introduction of these criteria (expertise, equipment of the workplace, motivation, and work experience) points to the need for their consideration in further analyses of this kind. the model presented allows for the reduction of subjective impact in designing organizational solutions, improving the methodology of designing organizational structures, as dynamic changes in the society require the systems to constantly references [1] abdulshahed, a.m. & badi, i. 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(2012). internationalization and hrm strategies across subsidiaries in multinational corporations from emerging economies – a conceptual framework. journal of world business, 47, 251–258. doi:10.1016/j.jwb.2011.04.012. [47] veskovic, s., stevic, z., stojic, g., vasiljevic, m., milinkovic, s. (2018). evaluation of the railway management model by using a new integrated model delphi-swara-mabac. decision making: applications in management and engineering, 1(2), 34-50. doi:10.31181/dmame1802034v. [48] xu, z., song, b., & chen, l. (2005), fuzzy logic experience model in human resource management. lecture notes in computer science, knowledge –based intelligent information and engineering systems, 1298-1304. doi: 10.1007/11552451_179. received: 2018-06-03 revisions requested: 2018-07-28 revised: 2018-01-18 (3 times) accepted: 2019-01-31 dragan pamučar university of defence in belgrade, military academy, department of logistics, serbia e-mail: dpamucar@gmail.com dragan pamucar is an assistant professor at the university of defence in belgrade, department of logistics, serbia. dr. pamucar received a phd in applied mathematics with specialization of multi-criteria modelling and soft computing techniques in logistics from the university of defence in belgrade, serbia in 2013 and an msc degree from the faculty of transport and traffic engineering in belgrade in 2009. his research interests lie in the fields of multi-criteria decision making problems, fuzzy logic, intuitionistic fuzzy set theory, rough and neutrosophic theory. dr. pamucar has authored/co-authored over 50 papers published in refereed international journals including experts systems with applications, computational intelligence, applied soft computing, sustainability, symmetry, water, asia-pacific journal of operational research, operational research, journal of intelligent and fuzzy systems, land use policy, environmental impact assessment review, neural computing and applications, economic computation and economic cybernetics studies and research and so on, and many more. about the authors 96 dragan pamučar, nikola knežević, dragana macura, boban đorović 2019/24(3) nikola knežević university of belgrade, faculty of transport and traffic engineering, serbia e-mail: n.knezevic@sf.bg.ac.rs nikola knežević, phd, is an assistant professor at the faculty of transport and traffic engineering, university of belgrade, serbia. his area of academic interests includes: project management, organizational design, performance management and application of quantitative methods in management. he is the author and co-author of one book and over 40 papers published in scientific journals and at scientific conferences. he was a reviewer of one book (monograph). in his previous career, he was engaged by the government of the republic of serbia in the development strategy of postal services, and by the government of montenegro in the development strategy of postal traffic. dragana macura university of belgrade, faculty of transport and traffic engineering, serbia e-mail: d.macura@sf.bg.ac.rs dragana macura is an associate professor at the university of belgrade, faculty of transport and traffic engineering, department for railway engineering. her main fields of interest are: railway transport, transport project management, transport economics, railway marketing, and application of operational research methods in transport industry. prof. dr. macura is the author and co-author of two monographs, and over 40 published scientific papers. boban đorović university of defence in belgrade, military academy; serbia e-mail: boban.djorovic@mod.gov.rs boban d. đorovic was born in kragujevac in 1969. he received his bs, ms and phd degrees from the technical military academy in belgrade. his main research interests include: organizational design, organization in transport, operations management, multicriteria decisions, etc. he is a full-time professor at the military academy in belgrade, teaching organization design and operations research in traffic. prof. dr. đorović has published papers in scientific journals such as yugoslav journal of operational research, experts systems with applications, economic computation and economic cybernetics studies and research and many more. prof. dr đorović is also the author of several professional books, in the area of management and organization science. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 05 24_1 janicijevic:tipska.qxd 43 nebojša janićijević1*, katarina ignjatović paunović2 1 university of belgrade, faculty of economics, serbia 2 porta de lux, d.o.o., serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(1) employee and the self-employed job satisfaction: similarities and differences doi: 10.7595/management.fon.2018.0024 abstract: 1. introduction job satisfaction is one of the most researched topics in the organizational behaviour and human resource management field (fila, paik, griffeth, & allen, 2014; haesevoets, folmer, de cremer, & van hiel, 2013; heneman & judge, 2000). the reason for this is certainly the assumption that a satisfied worker is also a productive worker, and that enhancing employees’ satisfaction also enhances the company performance (judge, thoresen, bono, & patton, 2001; wong, hiu, & law, 1998; staw, 1986). although it may sound reasonable, this assumption has not been empirically proven mostly due to the complexity of both job satisfaction and productivity (kovacevic & petrovic, 2006; vandenheuvel & wooden, 1997). nevertheless, it is still the main source of interest in the job satisfaction topic. * corresponding author: nebojša janićijević, e-mail: jnebojsa@eunet.rs research question: this paper investigates if there are differences between employees and the self-employed job satisfaction levels. motivation: the motive for this research was the desire to determine the validity of the assumption that the self-employed are more satisfied with their jobs than employees, and also to investigate for the first time in serbia the differences in the self-employed and employee job satisfaction. the paper relies on earlier research works that have all shown that the self-employed are more satisfied with their jobs than employees (blanchflower, 2004). this is due to the autonomy at work that the self-employed have, while employees experience it in a smaller degree. in addition, the selfemployed also have better opportunities to organize their work so that it can be interesting,a greater flexibility at work and larger income. idea: in this perspective, the central hypothesis of this study is that in serbia, and also other researched countries, the self-employed job satisfaction is higher than that of the employees in their firms. therefore, the research has been directed to determine whether job satisfaction, as a dependent variable, is systematically different depending on the respondents’ status (self-employed – employee), as an independent variable. data: the research included 127 employees in 15 different business firms run by the self-employed from different parts of serbia. of the total number of respondents, 52 were self-employed while 75 were employees. the respondents rated the importance of and their satisfaction with 12 job dimensions. tools: while calculating the average importance and satisfaction rates of the self-employed and employees, as well as the statistical significance of the differences in their ratings by means of independent sample t test, significant results have been obtained. findings: just like in the earlier research, it has been confirmed that the self-employed show a higher level of total job satisfaction in comparison with employees. statistically significant differences in the job dimensions’ importance exist only in the job dimension “work that does not require overtime”, which is significantly more important to employees than to the self-employed. with respect to job satisfaction, statistically significant differences exist in 6 out of 12 job dimensions, and in each of them the self-employed are more satisfied than the employees. unlike in earlier research, the main source of the self-employed satisfaction is not autonomy at work, but personal responsibility in task completion, safe working conditions and friendly atmosphere at work. contribution: the study has once again shown that the selfemployed are more satisfied with their job in comparison with the employees, and that this also applies in serbia. key words: job satisfaction, self-employment, small firm, job dimensions, autonomy at work, serbia jel: m10, m12 job satisfaction is the attitude that an employee has towards his/her work and it can be defined as “individual’s cognitive, affective, and evaluative reactions towards his or her job” (locke, 1969, pp312). job satisfaction is a complex attitude because it involves an employee’s reaction towards different job aspects or dimensions, such as: job per se, salary, working conditions, relationships with managers and colleagues, etc. (janicijevic, kovacevic & petrovic, 2015; filiz, 2014; nandan & krishna, 2013; kinicki, schriesheim, mckee-ryan & carson, 2002). according to locke (1976, 1969), job satisfaction is present to the extent to which people are satisfied with the outcome of the job itself. in addition, it is very important not only how much employees receive from their job, but also whether they get what they want and appreciate. the more an individual receives the outcome he/she values, the more satisfied the individual will be (kovacevic & petrovic, 2006). thus, in order to predict someone’s job satisfaction, one must consider not only the satisfaction with different aspects of the individual’s job, but also his/her expectations from the job. although job satisfaction is a highly researched field, the self-employed job satisfaction has to a far smaller extent been the focus of researchers (binder & coad, 2013; blanchflower, 2004) and in serbia there was no such research at all. the self-employed are the owners of firms who at the same time perform some job in their firms (jamal, 1997). the self-employed are very important for any country’s economy, and this is especially true for serbia, since this is one of the ways of dealing with high unemployment rate. job satisfaction is often marked as one of the motives for self-employment (yu & su, 2014). if this is true, it means that the self-employed job satisfaction is one of the factors of decreasing the country’s unemployment rate level. there is a reasonable assumption, lergely empirically proven in the world (blanchflower, 2004), that the self-employed are more satisfied with their jobs than the employees. higher autonomy at work, higher personal responsibility in task completion, an opportunity to select challenging and interesting work, a potentially higher salary and flexible working hours are just some of the reasons why a self-employed person is more satisfied with his/her job than an employee. this research has three objectives: first, to once again investigate if the self-employed are indeed more satisfied than their employees as the past research suggests. the second objective is to identify job dimensions that the self-employed are more/less satisfied with than their employees. the third objective is to investigate, for the first time in serbia, whether there are any differences in job satisfaction between the self-employed and employees. the research was conducted by surveying 127 self-employed and employees, whereby they rated importance and satisfaction with different job dimensions. the paper is structured as follows. first, the literature review on the self-employed job satisfaction will be presented, the research methodology will be described, and the research results will be presented. next, the results will be discussed in order to present the conclusion of the research. 2. literature review blanchflower is the most cited author when analyzing the relationship between self-employment and job satisfaction. the results of his research (blanchflower, 2004) confirmed that the self-employed showed higher job satisfaction in comparison with all other employees in the us as well as in the majority of the european countries. his research also showed that, in comparison with all other employees, the self-employed in europe were also more satisfied with the salary, type of work they do, but that they were less satisfied with the working hours. benz and frey (2008, 2003) proved that the self-employed are significantly more satisfied with their jobs than the employees. in order to prove their hypotheses, they used the data obtained from the international social survey program in 1997, conducted in 23 countries of western europe, north america, and eastern europe and which included 16,000 respondents. higher self-employed job satisfaction was confirmed in all countries except new zealand. also, the research has shown that higher autonomy at work is the job aspect which is the main cause of higher self-employed job satisfaction in all groups of countries. in addition, it has been proven that the self-employed consider their job as more interesting than employees do. in his research, hundley (2001) proved that the self-employed feel a higher job satisfaction than employees in organizations as well as that the self-employed have a slightly higher job satisfaction than higher-level employees (managers) and employees of certain professions (physicians, dentists, veterinarians, lawyers, architects, geodesists, and civil engineers) who enjoy greater autonomy and use of skills at work. the two main causes of higher job satisfaction of the self-employed are greater autonomy in tasks completion and larger task diversity. 44 nebojša janićijević, katarina ignjatović paunović 2019/24(1) parasumaran and simmers (2001) have shown that self-employed persons enjoy greater autonomy and schedule flexibility at work, and report higher levels of job involvement and job satisfaction than those employed in organizations, but that they also experience higher levels of work–family conflict and lower family satisfaction than organizational employees. prottas and thompson (2006) have also concluded that self-employed people feel higher satisfaction due to a higher degree of autonomy at work, but they have also shown that this also applies to independent contractors as a type of the self-employed people. millan, hessels, thurik, and aguado (2013) have shown that the self-employed are more satisfied with the type of work, but less satisfied with job security. the results further show that the self-employed who have employees feel higher job satisfaction than those who do not have employees. by using the data from the 2006 european social survey (ess), lange (2012) has confirmed the existence of a higher degree of job satisfaction among the self-employed in comparison with other employees. further data analysis led him to conclude that higher job satisfaction of the self-employed was the consequence of their greater autonomy and independence at work. several more authors, and among them arum and müller (2004), bradley and roberts’s (2004), vandenheuvel and wooden (1997) and hanglberger and merz (2015), have confirmed in their studies that the self-employed are more satisfied with their job than the employees. the summary of the research in the mentioned studies shows that job satisfaction is higher in the selfemployed than in the employees. research also shows that autonomy at work is one of the main reasons why the self-employed are more satisfied with their jobs. 3. research methodology the research into job satisfaction of the self-employed and employees included a total of 127 respondents from 15 firms. of the total number of respondents, 52 are self-employed – the owners of small firms who, besides managerial and owner’s duties, also perform certain work in their firms. the other 75 respondents are employees in the firms owned by the first group of respondents. the average number of employees in the firms included in the research is 10. over a quarter of the included firms are family businesses, that is, the co-owners are spouses or other family members (parents, siblings). the sample is highly heterogeneous with respect to the industries in which the included firms operate and includes the following businesses: pvcu and aluminium doors and windows manufacturing firms, internal and external safety doors manufacturing firms, restaurants, bookkeeping agencies, beauty parlours, grocery shops, private kindergartens, speech therapy centres, office supplies trading companies, bakeries, fast-food firms, secondary materials trade companies, foreign language learning schools. the sample contains 55.9% women and 44.1% men. most respondents are married (59.1%) while 30% of them are single. the rest are divorced or living with an unmarried partner. the majority of respondents belong in the group with 6 to 10 years of service within the firm, the group with 2 to 5 years of service within the firm contains 29.1% respondents, while the group with up to 2 years of service within the firm contains 16.5 % respondents. the largest number of respondents have a high-school education (41.7%), followed by 29.9% with university education, while 15.7% of respondents have a two-year college diploma. the research was conducted in the period april–july 2017 in the firms located in belgrade, novi sad, kragujevac and novi pazar. as we can see, besides belgrade, the sample covers large cities in vojvodina, and in central and southern serbia. the company selection was based on availability criterion – we have selected firms whose owners agreed to be included into the research. the respondents completed an online electronic questionnaire by means of google docs service. the research instrument was developed for this study following the model of questionnaires used in some previous studies of job satisfaction (janicijevic et al., 2015; petrovic, kovacevic & kutlesic, 2007; kovacevic & petrovic, 2006; kinicki, et al., 2002; judge & welbourne, 1993). the main feature of the questionnaire used in this study is that the respondents first rated the importance and then the satisfaction with different job dimensions on a 1 to 5 scale. the rated job dimensions were selected from the job satisfaction scales used in previous research mentioned in this study (janicijevic et al., 2015; millan, et al., 2013; lange, 2012; benz & frey, 2008). the selection criterion was relevance for small businesses, start up companies and family businesses. the second part of the instrument refers to the respondents’ general data: sex, age, marital status, employment status, years of service within the firm, education level, and salary. the instrument was highly reliable, both for the importance and satisfaction assessments. cronbach’s alpha coefficient was 0.961 for the importance assessments, and 0.968 for the satisfaction assessments. 45 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) the following statistical methods were applied in the research: arithmetic mean and standard deviation for expectations and different job dimensions satisfaction, as well as independent samples t-test used to determine statistical significance of the differences in the self-employed and employees’ answers. 4. the research results the aim of the research is to determine if there are differences in job satisfaction level between the selfemployed and the employees. also, the goal is to determine which job dimensions show statistically significant differences with respect to satisfaction of the self-employed and the employees. table 1 presents the results of testing statistical significance of the differences between the self-employed and employees in general job satisfaction. table 1: differences between the self-employed and employees in general job satisfaction source: author’s calculation significance level: 0.05 based on the results presented in table 1, it could be observed that there is a statistically significant difference between the two respondent groups in evaluation of general job satisfaction, evidenced by the tstatistic (2.392), which is statistically significant at the level of 0.05 (p<0.05). the validity of the hypothesis that the self-employed total job satisfaction is higher than the employees’ total job satisfaction is proven. the average score for the self-employed is 4.17, while the average score for employees is 3.81. according to locke’s theory (1976, 1969), satisfaction with individual job dimensions is not the product of satisfaction alone, but also of the importance that the different dimensions have for the self-employed and employees. therefore, the job expectations of the self-employed and of the employees and whether there are significant differences between the two groups will be presented first. table 2: differences between the self-employed and the employees in evaluation of the importance of job dimensions 46 nebojša janićijević, katarina ignjatović paunović 2019/24(1) � ������ �� �� ����� � ������ �� �� ��� ��� ��� ����� � �� �� � ���� ���� �� � �� ��� ����� ������� ������������ �� �� �� ���� ��� �������� � ��� �!"� #�$% � ��%&�� #�#!$'� (��������� "�� %�$!� #�$%%� � ������� ��� �� � � � � ��� ������ ���� � � � ��� ����� � ������ � ������������ ��� ����� � � ����� ������� � ��� � ��� �� ����� � !"� ���!# � ��" $� %� ��� �� ���#� �"!!� ���� ������������ � ��� � ��� �� ��&&� �$"�� �!���#� ��!#'� %� ��� �� ���#� �'#&� (��� ��� ��� ���� � ��� � ��� �� ����� �' "� !�!$$� ��#�!� %� ��� �� ��#$� � ��� ) ��� ���� � � ���������� � ���*���� � ��� � � ��� � ��� �� ��'�� ���'� !�#�"� ��#!!�%� ��� ������ � ������� ��� � �$ �� )���������� ������ ��� ���� ��� � � �� � �� � ��� � ��� �� ��&"� �$!"� ���#� � ��"&�� %� ��� �� ���!� �$ �� (���� �� ��� ��� � � ��� �� +��� � ��� � ��� �� ����� �$#!� !�#$ � ��#�&� %� ��� �� ��#&� �$ "� ,�� ��������� � � � � ��� � ��� �� ��'�� �'#&� !���!� ��!�#� %� ��� �� ����� �"� � (�� � �-�� ���������� �� �� � ������ � � ��� � ��� �� &� �� � "� ��"'!� ��& !� %� ��� �� &�$$� !�!�'� .��*�������� �� ���� /��� � �� ���� � � ��� � ��� �� &�#$� !�##&� �#�� #� ���&"0� %� ��� �� &�$&� !�#&�� ��� �1��*� ���� ����� �� � ��� � ��� �� ���'� �' "� ��$'&� ����$� %� ��� �� ����� � �"� ��� � ����� ��� �� �� � ���� ����1��*� � ��� � ��� �� ��'�� �''�� !��#'� ��!# � %� ��� �� ��& � �"#�� ���� �������1��*� � ��� � ��� �� &� �� !��&$� !�#&$� ��#!"� %� ��� �� &�$#� � ''� the results show that the self-employed in the sample consider personal responsibility in task completion to be the most important job dimension. friendly atmosphere and the related absence of tension and pressure at work immediately follow. the least important job dimensions for the self-employed are work that does not require overtime, company’s public image and reputation, and autonomy at work. for the employees from the sample, the most important job aspect is job security, followed by the amount of salary and personal responsibility in task completion. employees have the least expectations from autonomy at work, work that does not require overtime, and company’s public image and reputation. with respect to differences between the self-employed and employees regarding the importance of different job dimensions, the research has found statistically significant differences in only one dimension: work that does not require overtime. although this is a job dimension whose importance is relatively undervalued by both the selfemployed and employees, it can still be observed that absence of overtime work is still far less important to the self-employed than to the employees. next, we will analyze the levels of satisfaction with individual job dimensions of the self-employed and the employees and also if there are any differences in that respect. table 3: differences between the self-employed and employees in satisfaction with different job dimensions the results of the research have shown that the self-employed are most satisfied with the dimensions of safe working conditions, friendly atmosphere at work, and personal responsibility in job completion; while they are least satisfied with the aspects of work that does not require overtime, absence of tension and pressure at work, and an opportunity for professional development and growth. on the other hand, employees are most satisfied with the aspects of safe working conditions, personal responsibility in task completion, and employment security, while they are least satisfied with the aspects of opportunity for professional development and growth, absence of tension and pressure at work, and the amount of salary. when the differences in the level of satisfaction with individual job dimensions between the self-employed and employees are analysed, the results show that, statistically significant in comparison with employees, the self-employed are more satisfied with the aspects of autonomy at work, challenging and interesting job, amount of salary, colleague support, friendly atmosphere, company’s pubic image and reputation, and opportunities for professional development and growth. on the other hand, there is not a single job dimension in which employees are more satisfied than the self-employed that is statistically significant. 47 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) � ������� ��� �� � � � � ��� ������ ���� � � � ��� ����� � ������ � ������������ ��� ����� � � ����� ������� � ��� � ��� �� ����� �� �� ��! "� ��� � #� ��� �� $�%%� �� �$� ���� ������������ � ��� � ��� �� �� !� �"�!� $� ""� � &'� #� ��� �� $�(&� �""�� )��� ��� ��� ���� � ��� � ��� �� ��&$� �"�&� &�&&"� � &%'� #� ��� �� $�%�� �� ""� * ��� ���� � � ���������� ����+� ��� � ��� � � ��� � ��� �� ����� �!$"� ��%"&� � !�� #� ��� �� ����� �%�!� *���������� ������ ��� ���� ��� � � �� � �� � ��� � ��� �� $�"!� �%!&� $�%��� � '� #� ��� �� $�&(� ����!� )���� �� ��� ��� � � ��� ��,��� � ��� � ��� �� ���&� �%$"� &�%$ � � ('� #� ��� �� $�! � ����(� -�� ��������� � � � � ��� � ��� �� ���!� �!""� $�$("� � �'� #� ��� �� $�% � ��&"�� )�� � �.�� ���������� �� �� � ������ � � ��� � ��� �� ��&�� ���!� &��!!� � $&'� #� ��� �� $�%�� �"�"� /��+�������� �� ���� 0��� � �� ���� � � ��� � ��� �� $�(!� �""%� � �!$"� �(&�� #� ��� �� $�!"� ��&%�� ��� �1��+� ���� ����� �� � ��� � ��� �� ��(%� ��( � ����%� � �%� #� ��� �� ��$�� �" � ��� � ����� ��� �� �� � ���� ����1��+� � ��� � ��� �� $�" � ���"&� ��%�"� � !�� #� ��� �� $��"� ��&(!� ���� �������1��+� � ��� � ��� �� ��&�� �%�$� $�(&(� � �'� #� ��� �� $�!(� �� �!� 5. discussion the research objective has been to determine whether there are differences in the levels of job satisfaction between the self-employed and the employees, as it was determined in previous research. the survey results have shown that there is a statistically significant difference in the total job satisfaction level between the selfemployed and the employees, specifically to the advantage of the self-employed. this was expected, having in mind that the same result was obtained in almost all world countries where similar research was conducted (blanchflower, 2004; benz & frey, 2008, 2003; hundley, 2001; millan, hessels, thurik, & aguado, 2013). this research has shown that being “one’s own boss”, regardless of all the great self-sacrifices it implies, makes one much more satisfied with the job than being employed in someone else’s firm. with respect to differences in satisfaction with individual job dimensions, the results show that a statistically significant difference in job satisfaction level has been observed in as many as 6 job dimensions and that the self-employed are in all cases more satisfied with their jobs than the employees. on the other hand, no job dimensions were found in which the employees were more satisfied than the firm owners. the self-employed are more satisfied with the aspects of autonomy at work, challenging and interesting jobs, amount of salary, colleague support, friendly atmosphere, company’s pubic image and reputation, and opportunities for professional development and growth. the owners of firms have incomparably higher level of autonomy at work than any of the employees, regardless of how important this fact is to them. a large majority of previous studies have shown (benz & frey, 2008, 2003; hundley, 2001; prottas & thompson, 2006; parasumaran & simmers, 2001) that the selfemployed have higher autonomy at work than the employees do, which this study also confirms. thus it is completely understandable why the self-employed are more satisfied with this job aspect than the employees, although neither group puts a particular emphasis on this aspect. higher job satisfaction of the self-employed in comparison with that of the employees with the aspect of challenging and interesting job is, also, not surprising. the very fact that they have chosen to start a firm in a specific industry mostly points to the conclusion that they find that type of work interesting. also, the owner having a choice with respect to which tasks he/she will perform in the firm contributes to this as well. the reason for higher satisfaction of the self-employed in comparison to employees with the aspect of the amount of salary is quite obvious. higher satisfaction of the self-employed in the aspects of colleague support and friendly atmosphere at work could be explained by the nature of the relationships between firm owners and their employees. since the employees depend on the owner, they avoid conflicting with the owner as they would conflict with their colleagues if there were any disagreements between them. in addition, the conflicts between employees are most often kept hidden from the owner, so the owner therefore inaccurately perceives the atmosphere in his/her firm. finally, this result may also be explained by the finding of berglund, sevä & strandh (2016) that the self-employed, unlike the employees, show a positive correlation between ‘agreeableness’ and ‘conscientiousness’ as personal traits, on the one hand, and job satisfaction, on the other. the company’s public image and reputation is the job dimension in which the owners of firms work much harder than the employees, so good results in this field bring them more satisfaction than they bring to the employees. from a statistically significant point of view, the self-employed are also more satisfied with the aspect of opportunity for professional development and growth. it is still clear that the firm owners have somewhat greater possibilities and space for professional development than their employees do. in further text we will discuss the research results concerning the importance of and satisfaction with different job dimensions separately for the self-employed and the employees. personal responsibility in task completion is the most important job dimension for the self-employed, which is not surprising. it is certain that the self-employed are precisely the kind of people who find personal responsibility in task completion very important and that this was maybe the reason for starting their own businesses. it is interesting that for the self-employed in our research, unlike the self-employed in previous research (lange, 2012; prottas & thompson; 2006; parasumaran & simmers, 2001), autonomy at work is not one of the most important job dimensions. the research results show that the self-employed evaluate the autonomy aspect as second-to-last out of 12 aspects. this unusual result requires some clarification. the research was conducted in small firms with 10 employees on average. for the firms with few employees to operate well, it is necessary that, besides the owner, the employees also participate in decision-making, and the entire firm should actually function as one team. even though owners do have the possibility to independently make decisions about what, how much, when and how the firm will do business, they are aware that in order to be successful they must consider the opinions of other employees. having in mind that the self-employed rated the job aspects of friendly atmosphere and absence of tension and pressure at work as the second and third in importance, respectively, it is clear that the above stated could explain why they rated the aspect of autonomy at work as they did. another possible explanation for the low rating of importance of autonomy at work by the self-employed is high collectivism in serbian national culture (hofstede, 2002). in collectivistic cultures, autonomy is generally less valued than in individualist cultures. 48 nebojša janićijević, katarina ignjatović paunović 2019/24(1) 49 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) the most important job dimensions to the employees, with the same rating, are employment security and the amount of salary. favouring these job aspects could be explained by the impact of unfavourable economic situation in the country, in particular, more by the duration of such situation rather than by its mere existence. both employees and the self-employed are most satisfied with the job aspects of safe working conditions and personal responsibility in task completion. a high degree of satisfaction with the aspect of safe working conditions, especially having in mind that it occurs in both groups of respondents, leads to the conclusion that in small firms included in the sample, much attention is dedicated to safety at work. this could, to some extent, be explained by the fact that the owners themselves also work in the same working conditions as their employees, so they certainly strive to provide good working conditions for themselves. the research results have shown that the aspect of personal responsibility in task completion is one of the three job aspects that both groups are most satisfied with, which is very significant and good, since it is also the aspect that both groups of respondents consider as one of the three most important ones as well. while something similar is to be expected from the self-employed, since, as the owners of the firms, they are certainly personally responsible for their business, this result is somewhat surprising for the employees. the explanation for such a high level of satisfaction in personal responsibility in task completion lies in the nature of organization of the small firms included in the sample. specifically, due to a small number of employees in small organizations, it is impossible to reach a high specialization level as it is the case in large companies. the employees in small companies most often perform a task as a whole, rather than just one or several simple work operations, so it is only natural that they feel personally responsible to perform the task well. both groups of respondents are least satisfied with the job aspects of opportunity for professional development and growth and absence of tension and pressure at work. dissatisfaction with opportunities for professional development and growth could be explained, for both the owners and their employees, by the fact that small firms in serbia, including the ones from the sample, most often desperately fight to survive in the market, so they simply have neither time nor resources for the owners’ and even less for the employees’ professional development. since it occurs in both the owners and the employees, dissatisfaction with the aspect of absence of tension and pressure at work is the proof that working in small firms in serbia is stressful. this result also confirms the previous evidence that in the self-employed there is a negative relation between being exposed to excessive stress and work-life balance satisfaction (annink, dulk & amoros, 2016). small firms often do not have enough employees, because hiring new employees would bring the risk to the firm of not being profitable any more if it does not increase the business volume. for this reason, overloading of the existing employees with work, accepting several jobs at the same time, missing deadlines, and frequent project errors are very common problems, which brings stress into the work environment. conclusions and limitations of the research all earlier research indicates that the self-employed show higher level of job satisfaction in comparison with the employees (millan et al., 2013; benz&frey, 2008; blanchflower, 2004). the objective of this research has been to once again investigate if this is so and, especially, if this also applies to serbia. therefore, we have surveyed 127 self-employed and employees in 15 small businesses from different parts of serbia. the respondents rated 12 job dimensions, as well as their satisfaction with these dimensions. the results have shown that the self-employed enjoy a higher level of total job satisfaction than the employees do, which complies with the results of the research conducted so far. also, when observed by job dimensions, statistically significant differences in levels of satisfaction between the self-employed and the employees exist in 6 out of 12 job dimensions. in all of these job dimensions, the self-employed feel higher job satisfaction than the employees. this research has had significant limitations which, to some extent, reduce its reliability and possibilities for the generalization of its results. the limitations primarily relate to research methodology. above all, due to the manner of selection of the firms and respondents, the sample is representative by neither its size nor its structure; therefore, we cannot claim that the conclusions reached in the research apply generally to the entire serbia. secondly, the used questionnaire was especially designed for the purpose of this research, so its validity and reliability could not have been entirely proved. finally, the ratings of the importance of and satisfaction with individual aspects of job satisfaction by the self-employed and the employees have not been controlled based on the impact of independent variables, such as gender, age, education, and especially the amount of salary. therefore, it would be useful to repeat this research in future by using a larger and a more representative sample, with a reliable and already used questionnaire, and also by controlling of the impact of different independent variables that could modify the differences in job satisfaction between the self-employed and employees. 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(2007). correlates of general managers’ job satisfaction within a transition economy, apa (american psychological association) 115th annual convention, san francisco, california. [30] staw b. (1986). organizational psychology and the pursuit of the happy/productive worker. california management review, 28(4), 40–53. [31] vandenheuvel, a., & wooden, a. (1997). “self-employed contractors and job satisfaction, journal of small business management, 35(3), 11–20. [32] wong, c.s, hiu, c., & law, k., (1998) a longitudinal study of the job perceptions and job satisfaction relationship: a test of three alternative specifications, journal of occupational and organizational psychology, 71(2), pp.127-146. doi: 10.1111/j.2044-8325.1998.tb00667.x [33] yu, w., & su, k. (2014) on one’s own: self-employment activity in taiwan. in r. arum, w. muler, (eds.), the reemergence of self-employment: a comparative study of self-employment dynamics and social inequality, (pp. 388-426). princeton, nj: prinston university press. received: 2018-04-21 revisions requested: 2018-06-13 revised: 2018-09-03 accepted: 2018-09-11 nebojša janićijević university of belgrade, faculty of economics jnebojsa@eunet.rs nebojša janićijević is a full professor at the faculty of economics, university of belgrade, where he teaches courses in the field of organization, human resources management, and change management to students at undergraduate, graduate and doctoral studies. he has authored and co-authored several books, and a number of articles in foreign and domestic academic journals, and has participated in many international scientific conferences. he has been at three study stays at the u.s. universities as a receiver of fulbright program fellowships. nebojša janićijević is a consultant for leading domestic companies in the filed of organizational restructuring and human resource management. katarina ignjatović paunović porta de lux d.o.o. katarina ignjatović paunović is the co-owner of the porta de lux d.o.o. firm, which she manages since 2007. she earned her bachelor’s degree in journalism and communication from the faculty of political sciences, university of belgrade, in 2007, and her master’s degree in business management from the faculty of economics, university of belgrade, in 2017. katarina’s field of interest refers to researching job satisfaction in employees in small companies, as well as marketing and management focused on the consumers. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy 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<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> /enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03 petkovic:tipska.qxd 23 goran petković1, snežana konjikušić2, lidija barjaktarović3*, renata pindžo4 1university of belgrade, faculty of economics, serbia 2 fefa, metropolitan university, belgrade, serbia 3 singidunum university, belgrade, serbia 4 ministry of trade, tourism and telecommunication, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(2) what is the real state of financial management in companies in the republic of serbia? doi: 10.7595/management.fon.2018.0002 abstract: 1. introduction the contemporary work environment demands not only companies’ adjustment to it but the introduction of new functions and ways in the business operations as well. consequently, this paper focuses on the practices in the basic decision-making within the business finances framework, as well as the knowledge of the risk management (rm) concept in company operations in the republic of serbia (rs). chief financial officers (cfos) play a significant and dynamic role in the company’s development and contribute to achieving all the company’s objectives (van horne & wachowicz, 2007). also, the contemporary business prerequisites require that a cfo should gain new skills and knowledge in order to successfully live up to the challenges relating to business risk management (d’arcy, 2011), and lately, to the special issues of data security and protection (majdalawieh, 2014). the key responsibilities of the cfo are linked to the financial policy and corporate planning, that is, treasury management and controlling (brealey et al., 2007). financial management deals with procurement, placement and management of the financial means of the company with a view to reaching a higher goal of the company’s operations. three crucial fields of financial management are financing, investment and asset management (van horne & wachowicz, 2007). therefore, the basic groups of decisions in business finances are the following: the investment decisions, the financing decisions and the dividend payout decisions (barjaktarovic et al., 2013). on the other hand, the * corresponding author: lidija barjaktarović, e-mail: lbarjaktarovic@singidunum.ac.rs research question: this paper focuses on the basic financial decision making practices of domestic companies and their knowledge of the operational risk management concept. motivation: chief financial officers (cfos) play a significant role in the company’s development and achieving the company’s objectives (van horne & wachowicz, 2007). different authors carry out research based on one of the fields of finances-related decision making, such as graham & harvey, 2001. the goal of this research is to show that the difference in the decision making process concerning companies’ finances and risk management depends on the company’s ownership structure. idea: the paper is aimed at the recognition of differences found in corporate decision making, relating both to capital budgeting and capital structure, dividend payout policy and risk management concept, depending on the ownership structure. data: during the first half of 2016, a research consisting of 392-companies sample operating in the republic of serbia was conducted, including all four listed fields concerning their economic operations. nevertheless, only a total of 54 cfos completed and handed back the distributed questionnaires. tools: some basic descriptive statistics techniques, one-way analysis of variance (anova) and kruskal-wallis test were applied throughout the entire data analysis, while data processing involved the use of standard statistical package ibm spss 20.0. findings: as shown by research findings, there is a notable difference in decision making, both as regards dividend payout and as regards risk management concept, depending on the types of ownership, with companies operating in our domestic market. the future research will concentrate on practice of companies merging both domestic and foreign entities, in order to determine whether a similar pattern might be found. contribution: furthermore, the research is intended to be complemented by the data contained in the official financial reports of those companies, with a view to ascertaining whether the statements made by their cfos are actually applied in the corporate practice. keywords: cfo, capital budgeting, capital structure, dividend payout policy, risk management jel classification: g30, g31, g32, g35 world market trends induce a more institutionalized approach to risk management in the company’s operations and it is quite common for this group of activities to be placed under cfo’s jurisdiction. enterprise risk management (erm), initiated by the committee of sponsoring organizations (coso), is defined as the process (initiated by the board of directors, management and other employees) which represents an integral part of the company’s strategy aimed at the identification of the potential events affecting the very business operations for the sake of better rm within the existing level of the willingness to accept a certain risk (liebenberg & hoyt, 2003). what matters is the discipline of control assessment, financing and monitoring all the company’s risks with a view to increasing the value for its owners (coso, 2004). thus, all the risks are examined simultaneously and managed holistically (society of actuaries, 2001) within the coordinated and strategic framework. the contemporary business environment deems a holistic approach to rm as highly important. in addition, the results of the conducted research corroborates the fact that a properly established erm contributes to the making of better decisions within a company (gates et al., 2012) and to the achieving of better business performances (pagach & warr, 2007). this paper aims to establish whether there are differences in decision making concerning capital budgeting (cb) and capital structure (cs), dividend payout policy (dpp) and rm concept in companies, all depending on the ownership structure. four major auditing companies (deloitte, 2017; pwc, 2015; ey, 2016; kpmg, 2017) conduct research among cfos worldwide and regionally, every year focusing on the macroeconomic trends in the country and abroad and their impact on the company’s (present and future) operations, potential mergers and takeovers, the availability of financing source, an annual growth potential of the companies themselves and the role of cfos (including different operations performed by them and the future growth and development prospects). on the other hand, different authors carry out research based on one of the fields of finances-related decision making (capital budgeting practice in the research of: andor et al., 2011; dedi & orsag, 2007; danielson & scott, 2006; brounen et al., 2004; graham & harvey, 2001; vijay & ashwani, 1995; gitman & forrester, 1977; capital structure in the research of: atiyet, 2012; andor et al., 2011; hashi & toci, 2010; beck et al., 2004; dividend pay-out policy in the research of servaes & tufano, 2006) in different regions and continents (the usa– in the research of gitman & forrester, 1977, and danielson & scott, 2006; canada– in the research of vijay & ashwani, 1995; europe – /western in the research of brounen et al., 2004;/ central and eastern– in the research of andor et al., 2011; dedi & orsag, 2007; haas & peeters, 2006/, and rm in company’s operations /in terms of the significance, components, application, impact on the business performances and company value, the impact of the financial crisis on the future development of rm, the occurrence of new risks, etc./ (baxter et al., 2013; beasley et al., 2010; beasley et al., 2008; pagach & warr, 2011). this research will simultaneously encompass all four elements and be based on the practices in the rs, along with the application of the previous-research employed methodology. the main hypothesis is that the difference in the decision making process on companies’ finances and risk management depends on the company’s ownership structure. as a result, the paper consists of four parts. the introductory part concentrates on the definition of the subject, goal and hypothesis of the research. the second part features the research methodology. the research findings will be presented in part three. finally, the concluding considerations will pinpoint the future directions of the research. 2. methodology for the sake of this research, the authors have devised a questionnaire/survey of 53 questions which are subsumed under the following five categories: i – personal data, ii – cb, iii – cs, iv – dpp and v – rm with the company. all the questions in the questionnaire apart from the personal data questions have used the same ordinal five-level scale (1no, 2little, 3partially, 4 – much, 5 – very much). the subjects of the research are the cfos of the companies operating in the rs. the questionnaire is modelled after the questionnaire created by graham and harvey in 2001 (consisting of 15 questions) for the research carried out among 4,400 companies. the questionnaire draft had initially been distributed to numerous financial analysts for the revision before it was distributed to the subjects of this research. the questionnaires were emailed to the cfos, with the authors’ possibility to contact the subjects over the telephone in case of some unclear issues, for the purpose of clarifying them. the questionnaire was completed by 54 cfos out of 392 cfos who had been sent the questionnaire in the first part of 2016, so the response rate amounted to 13.77 per cent, which can be defined as “reasonable“ (sivo et al., 2006). furthermore, it can be defined as acceptable due to the announced results in the research of kilic et al. (2011), graca et al. (2015) and homburg et al. (2015) where response rates were 11%, 13.22%, and 18%, respectively. the basic criterion for forming the sample was the ownership of companies 24 goran petković, snežana konjikušić, lidija barjaktarović, renata pindžo 2019/24(2) grouped under 8 sectors (25% belonging to the manufacturing industry, 20% to the financial sector, 20% to the retail and wholesale sector, 15% to the tourism sector, 5% to the telecommunications, 5% of the it sector and 10% to the consulting sector of the overall sample). as a result, the sample comprised 7.41% of the state-owned (so) enterprises, 33.33% of the foreign-owned (fo) companies, 48.15% of the privately-owned (po) companies and 11.11% of the companies which do not belong to any of the above listed ownership structures, therefore, they are subsumed under the category of „other“ (o). a total of 54 subjects responded to nine questions relating to the cb concept (questions from 1 to 9) as well as to nine questions relating to the company’s cs concept (questions from 10 to 18). the questionnaire contains 15 questions relating to the dpp (questions from 19 to 33) and 12 questions referring to the rm system (questions from 34 to 45). a total of 50 cfos responded to these questions. a part of the data processing and a part of the questionnaire was presented in barjaktarovic et al. (2016) with the authors indicating that po tend to primarily use traditional cb techniques in comparison with the modern ones. the data analysis employed the use of descriptive statistics, one-way variance analysis and kruskal-wallis test. the data processing included the application of a statistics package ibm spss 20.0 3. research findings since the survey contains five question groups, the next part presents the results of four question groups, excluding the personal data question group. it was vital to investigate the (non)existence of difference in cb techniques, cs, dpp and rm systems in the companies with different ownership structures. in relation to the ownership structure, so, fo, po companies were under examination, including the companies classified under the category o. 3.1 capital budgeting the second part of the survey/questionnaire contained questions referring to the cb. the cb covers decisions on the allocation of the investments in new but also in the existing projects, as well as in m&a and similar processes (gervais, 2011). it was important to investigate whether there was a significant difference in the company’s cb concept compared to the type of their ownership. bearing this in mind, it was necessary to introduce a new variable, in such a manner that each subject was awarded an average value of all his/her responses relating to the company’s cb concept. the obtained variable had a regular distribution, which is indicated by the skewness/std.error = -1.43 ratio, as well as kurtosis/std.error = -0.83. therefore, in the process of determining the difference existence in the company’s cb concept in comparison with ownership structure, it was convenient to apply the one-way variance analysis, as a parameter technique. more precisely, by applying variance analysis, efforts were made to ascertain if companies of different ownership structure exhibited significant differences in cb techniques, according to different features used for describing the cb concept, which were evaluated in this research. table 1: the results of one-way variance analysis of different ownership structure companies source: authors’ calculations by this procedure, the nonexistence of a significant difference in the cb concept of different ownershipstructure companies was determined. however, it does not mean that there are no differences in the practice of appliance. according to the research results of andor et al. (2011), this is influenced by the firm size and multinational management culture. the cb concept was analysed based on the following: investment and development policy, business plan application, cash flow projections, investment criteria for project selection, capital cost calculation for investment decision making, discount rate correction for investment decision, cash flow for the stated differences, the difference between company risk and a specific investment risk on determining the discount rate and the most common investment type. the next part exhibits the overall findings of each component observed within the cb. 25 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) state-owned foreignowned privatelyowned other f p-value average average average average 3.8785 4.1034 3.4842 3.0748 2.551 0.066 � the obtained questionnaire results for the companies observed regardless of the ownership structure do not show any significant differences in attaching importance to the clearly defined investment and development policy. the fo companies attach the highest importance to the clearly defined investment and dividend policy, in comparison with the so, po and o companies. the business plan, as one of the planning instruments with a detailed plan of future investments, as well as cash flow projections before the investment decision making, are without difference frequently used in all the analysed companies, regardless of their ownership structure. during the project selection, the analysed companies predominantly use the investment criteria in the following order: return period, profitability index, net present value, internal rate of return, sensitivity analysis, accounting rate of return, discounted return period, and other. it is evident, regardless of the ownership structure, that each criterion is used within a never-to-always range.it is important to emphasize that retrieved results regarding the predominantly used investment criteria return period, are in line with the results of brounen et al. (2004), which stressed that european firms (located in western europe) were keeners of return period, in comparison to discounted cash flow techniques such as net present value and internal rate of return. moreover, it is in line with research results of andor et al. (2011) for 10 central-eastern european (cee) countries (a sample of 10 countries: bulgaria, croatia, the czech republic, hungary, latvia, lithuania, poland, romania, the slovak republic and slovenia), where the return period is preferable by companies. finally, dedi & orsag (2007) did a similar survey in croatia, which is the most similar to serbia (geographically, historically and culturally connected). the obtained results were as follows: 24% of analyzed companies often use internal rate of return and the return period, while 22% of monitored companies most frequently use the net present value and internal rate of return. this is similar to cee results. during the investment decision making, the investigated companies predominantly calculate the capital cost by applying the following methods: „other“, average historical return on previous investments, capm model, the rate assigned by the state, average historical return on common stocks of the company, dividend discounting model. this can be explained by a low level of development of the serbian financial market. according to dedi & orsag (2007), the analysed companies stated that: 76% of them estimated the cost of capital using some formal technique, 40% of them calculated the cost of capital according to the investors’ required return and 9% used the capm. the usage of capm was very low (which is in line with the cee region). furthermore, testing on croatian companies profitability indicators in the period of 2007 to 2010, confirmed that there was a high level of connection between cost of capital and profitability ratios of the company (orsag & mitar, 2014). moreover, it was in line with credit analysts’ opinion in romania (dragota et al., 2011). finally, it was in correlation with markovics (2016) (1) a considerable amount of european and us corporations calculated the indicator of the payback period; (2) the net present value and the internal rate of return were the two most frequently used discounted cash-flow methods; (3) companies in france and hungary used the profitability index more often than companies in other surveyed countries. during the investment decision making process, the risk adjusted discount rates are predominantly corrected by the following: inflation, foreign-exchange risk, raw material price change, business risk and the change of market interest rates. the obtained results are in line with the croatian market. according to dedi & orsag (2007), 81% of the companies regularly did project cash flows’ estimations, and 73% of the companies assessed the project risk; 42% of the companies used a risk adjusted discount rate. the companies under examination point out that there is a difference of sometimes-to-frequently range between the company-related risk and the investment-related risk when determining the discount rate. companies predominantly invest in production, new factories/plants, procurement of latest equipment, new product launch and market expansion. on the other hand, they are reluctant to make an investment in design changing, the changing of the existing product packaging as well as the employees. 3.2 capital structure the survey questionnaire contains the usual questions relating to cs. it was important to investigate if there was a significant difference in the companies’ cs concept in comparison to the type of their ownership. bearing this in mind, it was necessary to introduce a new variable, in such a manner that each subject was awarded an average value of all his/her responses relating to the company’s cs concept. the obtained variable has a regular distribution, which is indicated by the ratios skewness/std.error = 1.85, as well as kurtosis/std.error = -0.02. therefore, in the process of determining the difference existence in the company’s cs concept in comparison to ownership structure, it was convenient to apply the one-way variance analy26 goran petković, snežana konjikušić, lidija barjaktarović, renata pindžo 2019/24(2) sis, as a parameter technique. more precisely, by applying the variance analysis, efforts were to determine if companies having different ownership structure exhibited significant differences in cs concepts, according to different features used for describing the cs concept, which were evaluated in this research. table 2: the findings of one-way variance analysis for companies of different ownership structure source: authors’ calculations by this procedure, the nonexistence of the significant difference in the cs concept of different ownership structure companies was ascertained. the cs concept was analysed in the following terms: the use of internal and external financing sources, reasons for non-application of external financing sources, the most common forms of external financing sources, debt financing decisions, natural hedging application, obstacles for external capital procurement. the following part presents the overall results of each component which was examined within the cs framework. regardless of the company’s ownership structure, there are no significant differences in the use of internal and external finance sources: companies chiefly use internal funds, whereas the external sources are used to a smaller extent. this is in accordance with atiyet’s results (2012) regarding listed companies on the french stock exchange, in the period from 1999 to 2005. furthermore, it is in line with the survey of andor et al. (2011) who found that the most preferred source of funds were retained earnings (internal source of funds) followed by straight debt, i.e., companies’ preferences suggested by the pecking order theory. companies which never or very rarely use external sources indicated the following primary reasons for doing so: the bank offering unfavourable loan terms and conditions, the lack of adequate financing forms, precarious markets and lack of new investment opportunities. this is in line with the results obtained by hashi & toci (2010) and beck et al. (2004), in terms of interest rates, collaterals, paperwork and bureaucracies, and obtained credits’ terms and conditions by commercial banks. namely, so, po and o, in comparison to fo companies, are keen on using bank loans, and not so keen on using leasing and factoring. the issuing of bonds and common stocks is on a low level in the analysed companies. more accurately, bond and stock issuing is practically nonexistent in so, po and o companies, whereas in the fo companies a low level was recorded. we should have in mind that the serbian financial market is banco centric, and this has a direct impact on financing possibilities of companies’ business. furthermore, it is in relation with results of haas & peeters (2006) who found a relation between the banking system development and the companies’ capital structure targets in bulgaria, the czech republic, estonia, hungary, latvia, lithuania, poland, romania, the slovak republic and slovenia. the results obtained revealed that the development of the financial systems within this region enabled companies to reach higher levels of debt and to bring their actual capital structure closer to their own target structures. when determining the cs and making decisions on debt financing, the following parameters are important: interest rate, company’s credit rating, financial flexibility, cash flow volatility, transactional costs, bankruptcy possibility, tax shield and rival companies’ indebtedness levels. the cfos of po companies have stated that, during the company’s borrowing process, they very rarely tend to synchronize the income currency with the companies’ liabilities to their creditors. unlike them, so, fo and o companies attach more importance to natural hedging. the cfos have also maintained that, during the external capital procuring, regardless of the ownership structure, companies face average obstacles. during the capital procuring, the stated problems are in total deemed by the analysed companies as average with a tendency to high. problems ranging from the least to the biggest are the following: cfos knowledge and their insight into alternative financing sources, transactional costs, low use of hedging instruments, capital market underdevelopment, poor approach to long-term funding sources, and demand for high collateral and restrictive loaning policy of banks. 27 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) state-owned foreignowned privatelyowned other f p-value average average average average 2.5396 3.3246 3.0631 3.5018 1.445 0.241 � in addition, the cfos have also claimed that a company undergoing a financing process primarily takes into account the internal sources, then the debt, and finally uses the capital. the analysed companies assess the above mentioned statement on the range from partially to a lot. ultimately, the analysed companies’ cfos partially agree that during the financing process they first take into account the internal sources, then the capital and finally the use of the debt. 3.3 dividend payout policy in order to determine a potential significant difference in the dpp of the companies with different ownership structure, a new variable is introduced, that is, every subject is given the arithmetic mean value of his/her fifteen responses referring to it. the formed variable exhibits no regular distribution, according to the conclusion made by applying shapiro-wilk test (p-value=0.000), so for that reason we used the non-parameter kruskal-wallis test ( (3)=5.897, p-value=0.011) in the process of determining the significant difference. the above mentioned test ascertained the statistically significant difference in the dpp with regard to the company’s ownership structure. in order to ascertain the origin of the manifested difference, we used mannwhitney u test for each pair of the different ownership structure. table 3: the results of mann-whitney u test for the companies of different ownership structure source: authors’ calculations the results of the non-parameter mann-whitney u test indicate the existence of the difference in so and po companies (p-value=0.045), as well as between fo and po companies. thus, po companies pay the least attention to dpp. it is logical due to the fact that the serbian financial market is not developed and companies do not provide financing on the stock market. the majority of established companies in serbia are limited liability companies, not joint stock companies. however, relevant factors for dpp are the anticipated level of future earnings and the pattern of past dividends, accounting implications, tax efficiency of alternatives and attractiveness to different investors (servaes & tufano, 2006). the obtained results support the set hypothesis that there is a difference in decision making on dpp between companies depending on the ownership structure. po companies are less prone to dealing with dpp than so and fo companies, which requires a more profound understanding of po company owners’ interests which, based on the obtained findings, are not related to dividends. 3.4. risk management concept in company one of the aims was to investigate whether there was a significant difference in the companies’ rm system regarding the type of their ownership. thus, a new variable was introduced in such a manner that each subject was awarded an average value of all his/her responses relating to the company’s rm system. the obtained variable has a regular distribution, which is indicated by the ratios skewness/std.error = -1.05, as well as kurtosis/std.error = -0.79. therefore, in the process of determining the difference existence in a company’s rm concept regarding the ownership structure, it was convenient to apply the one-way variance analysis, as a parameter technique. more precisely, by applying variance analysis we tried to determine if companies having different ownership structure exhibited significant differences in rm systems, according to different features used for describing the rm system. one-way variance analysis compares variances of the values relating to the rm between companies with a different ownership structure with variances within each group, which is made up of companies with the same ownership structure. the initial stage of this method involves the use of levene’s test, which is used 28 goran petković, snežana konjikušić, lidija barjaktarović, renata pindžo 2019/24(2) ������� �� �� ��� ��� �� ���� ��� �������������� ���������� ���������� !�� "��#�� ��� ���������� � � ���$�������� �%����&� '�� "�" (� ��� ����������������� � ��������&#�� "�&! � ����� ���������� � � ���$�������� �%'� !���%"�(��� "�" �� ����� ����������������� #� !���&�'��� "�(�!� � � � ���$��������������� ���" ���%!�%��� "�%(!� � with one-way variance analysis to determine the homogenity of variances. the test has shown that the variances of the risk-related values are homogenous, that they are equated, in each of the four groups which are formed compared to the ownership structure. table 4: the results of levene’s test for the companies with different ownership structure source: authors’ calculations the results of the one-way variance analysis are the following: arithmetic mean and standard deviation for each of the observed groups, f-quotient, statistically significant index of f-quotient’s p-value as well as the amount of eta coefficient are presented in the following table. the high value of f-quotient shows a greater variability between companies with different ownership structure than within every single group of companies belonging to a certain ownership structure, which is corroborated by the obtained p-value with the significance level of 0.05. the obtained value of eta coefficient, which measures the scope of impact, indicates that the ascertained difference is significant enough, so it can have a practical importance. thus, the scope and significance of f-quotient as well as the scope of eta coefficient of the one-way variance analysis confirm that there are statistically significant differences in the rm values between companies with different ownership structures. table 5: the results of one-way variance analysis on companies of different ownership structure risk management source: authors’ calculations since the differences were ascertained, but not the differences between the types of ownership structures, it was necessary to apply a post hoc test. at this point tukey test was applied, with a view to determining whether the rm concepts were different in all companies with different ownership structure or whether it was a matter of differences between two or three groups of companies. the findings of this test are presented in table 6. table 6: the results of tukey test for companies with different ownership structure source: authors’ calculations 29 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) ��������� � �� � �� ���� ���� ���� ������ �� ��� ������ � stateowned foreignowned privatelyowned other f p-value eta average average average average 3.0031 3.6600 2.8531 2.7512 3.363 0.027 0.17986 � ������� �� ��� ������� �� �� � ���� �� �� ������� ������ � � � ��� ���� ���� �� ������� � ���� ������ ������ ���� ��������� � ���� ������ ������ ���� ������ ������ ������ ���� �� ������ ��� ���� � ���� ������ ������ ���� ��������� � ���� �����!� ������ ���� ������ ������ ������ ���� � ��� !���� �� ���� � ���� ������ ������ ���� ������� � ���� �����!� ������ ���� ������ ������ ������ ���� ��� � ���� � ���� ������ ������ ���� ������� � ���� ������ ������ ���� ��������� � ���� ������ ������ ���� � 30 goran petković, snežana konjikušić, lidija barjaktarović, renata pindžo 2019/24(2) the cb research findings were that a nonexistence of the significant difference in the cb concept of different ownership structure companies was determined. the fo companies attach the highest importance to the clearly defined investment and dividend policy, in comparison with the so, po and o companies. during the project selection, the analysed companies predominantly use the investment criteria in the following order: return period, profitability index, net present value, internal rate of return, sensitivity analysis, accounting rate of return, discounted return period, and other. companies predominantly invest in production, new factories/plants, provision of latest equipment, new product launch and market expansion. on the other hand, they are reluctant to make an investment in design changing, the changing of the existing product packaging as well as the employees. the cs research results revealed that a nonexistence of the significant difference in the cs concept of different ownership structure companies was ascertained. regardless of the company’s ownership structure, there are no significant differences in the use of internal and external finance sources: companies chiefly use internal funds, whereas the external sources are used to a smaller extent. namely, so, po and o, in comparison to fo companies, are keen on using bank loans, and not so keen on using leasing and factoring. the issuing of bonds and common stocks is on a low level in the analysed companies. more accurately, bond and stock issuing is practically non-existent in so, po and o companies, whereas in the fo companies a low level was recorded. when determining the cs and making decisions on debt financing, the following parameters are important: interest rate, company’s credit rating, financial flexibility, cash flow volatility, transactional costs, bankruptcy possibility, tax shield and rival companies’ indebtedness level. the cfos have also maintained that, during the external capital procuring, regardless of the ownership structure, companies face average obstacles. problems ranging from the least to the most serious are the following: cfos knowledge and their insight into alternative financing sources, transactional costs, low use of hedging instruments, capital market underdevelopment, poor approach to long-term funding sources, and demand for high collateral and restrictive loaning policy of banks. dpp research findings confirmed that there were significant differences in the dpp practice between companies with different ownership structures. it is logical due to the fact that the serbian financial market is not developed and companies do not provide financing on the stock market. a majority of established companies in serbia are limited liability companies, not joint stock companies. the obtained results support the proposed hypothesis that there is a difference in decision making on dpp between companies depending on the ownership structure. po companies are less prone to dealing with dpp that so and fo companies, which requires a more profound understanding of po company owners’ interests which, based on the obtained findings, are not related to dividends. the rm research findings were that there were differences in the rm concepts between companies with different ownership structures. based on the obtained values, a difference between the rm systems between po and fo companies is in the previous table the rm concept in companies with different ownership structure was evaluated. the first two columns (i, j) represent the ownership type, with column (i) listing all ownership types and column (j) listing all their combinations possible. thus, the interpretation requires the awareness of the pairs’ double repetition. column 3 contains the arithmetic mean differences relating to the risk management concept evaluation of certain pairs of different ownership structure companies. column 4 features standard errors regarding the previously mentioned arithmetic means. finally, the last column contains the p-value, that is, the probability that there is/ is not a difference in risk management between the companies of a certain pair with a different ownership structure. based on the obtained values, a difference in the rm system between po and fo companies is recorded. by this procedure, the existence of a significant difference in the rm concept with companies of different ownership structure is determined, with the difference originating from the significantly different rm concepts in po and fo companies. thus, the proposed hypothesis of this paper is confirmed.it is logical due to the fact that fo are led by foreign head-offices and they implement the best sharing practice in risk management practice, as well as in implementing international financial reporting standards. the obtained results are in accordance with the research results of barjaktarovic et al. (2017) with the sizeable percentage of fo companies being familiar with the erm system. in addition, this is in line with the presented results published in the annual reports of the top 100 companies operating in the rs which indicate that there is a better rm practice in fo companies than in po and so companies (barjaktarovic, 2017). also, the presented results are in line with the results obtained by jelenkovic & barjaktarovic (2016) who argue that an institutionalised approach to rm motivates economic entities to assert the rm function. eventually, the presented results coincide with the research results made by pagach & warr (2011), who support the claim that fo companies and large enterprises, in principle, are more successful in implementing the erm concept. it is interesting to note that there are no recorded differences in the rm between so and fo companies that could have been anticipated, and thus, can be the focus of some future investigations. conclusion references [1] andor, g., mohanty, s.,& toth, t. (2011).capital budgeting practices: a survey of central and eastern european firms. the world bank, january, 1 45. [2] atiyet b. (2012). the pecking order theory and the static trade off theory: comparison of the alternative explanatory power in french firms. journal of business studies quarterly, 4(1), 1-12. [3] barjaktarovic, l. (2017). osvrt na upravljanje rizicima u kompanijama koje posluju u republici srbiji. research presented on vi conference of internal auditors of serbia held on 05/18/17 in belgade. [4] barjaktarovic, l., pindzo, r., djulic, k.,& vjetov, a. (2017). analiza primene erm koncepta u srbiji: uporedna analiza finansijskog i realnog sektora. bankarstvo 2/2017, 51-67. doi: 10.5937/bankarstvo1702050b [5] barjaktarovic, l., djulic, k.,pindzo, r.,& vjetrov, a. (2016). analysis of the capital budgeting practices: serbian case, management 79/2016, 47-54. doi: 10.7595/management.fon.2016.0009 [6] barjaktarovic, l., jovic, z.,& milojevic, m. (2015). poslovne finansije, univerzitet singidunum: beograd [7] baxter, r., bedard, j., hoitash, r.,& yezegel, a. (2013).enterprise risk management program quality: determinants, value relevance and the financial crisis. contemporary accounting research, vol.30 no.4, 1264-1295. doi: 10.1111/j.1911-3846.2012.01194.x [8] beasley, m., branson, b.,& hancock, b. (2010).developing key risk indicators to strengthen enterprise risk management. retrieved fromhttp://www.coso.org/documents/cosokripaperfullfinalforwebpostingdec110_000.pdf [9] beasley, m., pagach, d.,& warr, r. (2008). information conveyed in hiring announcements of senior executives overseeing enterprise-wide risk management processes. journal of accounting, auditing and finance 23. 311-332.doi:10.1177/0148558x0802300303 [10] beck, t., demirguc k., & maksimovic, v. (2004). bank competition and access to finance: international evidence journal of money, credit, and banking, volume 36, issue 3 (part 2), 627-48. doi: 10.1353/mcb.2004.0039 [11] brealey, r., mayers, s.,& marcus, a. (2007). fundamentals of corporate finance. mcgraw-hill/irwin: new york [12] brounen, d., jong, a.,& koedijak, k. (2004). corporate finance in europe: confronting theory with practice. financial management, 33 (4), 71-101. [13] coso. (2004). enterprise risk management – integrated framework. retrieved from http: www.coso.org/documents/coso_erm_executivesummery.pdf [14] d’arcy, s. (2001). enterprise risk management forthcoming in the journal of risk management of korea. 12(1), 207-228. [15] danielson, m., & scott, j. (2006). the capital budgeting decisions of small businesses journal of applied finance, 16(2), 45-56. [16] dedi, l.,& orsag, s. (2007).capital budgeting practices: a survey of croatian firms. south east european journal of economics and business, 2(1), 59-67 31 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) recorded. this is logical due to the fact that fo are led by foreign head-offices and they implement the best sharing practice in risk management practice, as well as in implementing international financial reporting standards. the research findings have shown that, depending on the ownership structure, there is a difference in decision making process on dpp and applied rm systems in companies located in the rs. the respondents in the research have pointed out that the completion of the questionnaire required a significant amount of time. in addition, our research has motivated the cfos to take into consideration numerous company-related matters as well as the linguistic terminology which they use to define those matters. having in mind all the stated matters, it can be concluded that a further and permanent education of the employees is necessary. fo companies have a slight advantage over po companies owing to the possibility of knowledge transfer and the use of cutting edge technologies. po companies face greater challenges in adapting to the contemporary trends and business operation harmonisation. the future research will focus on the determination of both the relation (type and quality) and the practice of companies managing both domestic and foreign entities in order to investigate whether a similar pattern might be found. in addition, the research will be complemented by the data contained in the companies’ official financial reports in order to verify whether the words and ideas expressed by the cfos are actually put into the companies’ practice. acknowledgments this research paper was part of the project “advancing serbia’s competitiveness in the process of eu accession”, no. 47028, in the period 2011-2017, financed by the serbian ministry of science and technological development. 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(2003).the determinants of enterprise risk management: evidence from the appointment of chief risk officers. risk management and insurance review, 6, 37–52. doi:10.1111/1098-1616.00019 [34] majdalawieh, m. (2014). an integrated approach to enterprise risk building a collaborative risk strategy within the business processes of the enterprise. saca journal volume 1/2014. retrieved from https://www.isaca.org/journal/archives/2014/volume-1/pages/jonline-an-integrated-approach-toenterprise-risk.aspx [35] pagach, d., & warr, r. (2007). an empirical investigation of the characteristics of firms adopting enterprise risk management. north carolina state university working paper. retrieved from: https://mgt.ncsu.edu/documents/risk_officer_hazard_jbf.pdf [36] pagach d.,& warr r. (2011). the characteristics of firms that hire chief risk officers. the journal of risk and insurance, 78(1), 185-211. [37] servaes, h., & tufano, p. (2006). corporate dividend policy. deutsche bank ag. [38] pwc. 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(1995). capital budgeting practices in corporate canada. financial practice and education, 5(2), 37-43. received: 2017-08-07 revision requested: 2017-10-24 revised: 2018-01-25 accepted: 2018-01-25 32 goran petković, snežana konjikušić, lidija barjaktarović, renata pindžo 2019/24(2) 33 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) goran petković faculty of economics, university of belgrade e-mail: goranp@ekof.bg.ac.rs he graduated from the faculty of economics in belgrade, courses: a) foreign trade and b) internal trade. the areas of professional competences are: retail, wholesale, marketing channels, sales, customer relationship management. he participated in various projects such as: market position of trading companies, the managers’ market in serbia, the development strategies of serbia and belgrade trade, cost of doing business, competitiveness research, cooperative research, formulating marketing strategies for individual companies, organizational and organizational restructuring projects, projects of organization and education of sales operations companies, etc. in one period of research he dealt with issues of commodity exchange and stock exchange operations.he worked on professional training at the london school of economics, in mecca (summer university) and at hofstra university, new york state (fulbright scholarship). in the period 2007-2013 he was the state secretary in charge of tourism in the government of the republic of serbia (ministry of economy and regional development, i.e., ministry of finance and economy). snežana konjikušić fefa, metropolitan university, belgrade e-mail: skonjikusic@fefa.edu.rs snežana konjikušić, phd, is an associate professor at the fefa in belgrade for a scientific field quantitative methods and information systems. she lectures the courses in statistics, information systems and methodology of scientific research, at bba and master studies. she graduated at the faculty of mathematics, university of belgrade, in the field of numerical mathematics, cybernetics and optimization. she graduated from postgraduate studies at the faculty of economics in belgrade, department of operational research, where she also defended the master’s thesis entitled “preferences in the theory of rough sets”. ms konjikušić defended her doctoral thesis titled “statistical criteria of software comparison for the application of multivariate analysis methods” at the faculty of entrepreneurial management in novi sad. she worked as a high school teacher of mathematics, a programmer and programmer-designer at the ineks bank belgrade and a private computer company. in the period from 2001 to 2009 she was engaged at several faculties in the teaching of applied mathematics, statistics, quantitative methods in management, management theory, actuarial and financial mathematics. she is the author of several professional papers published in domestic and foreign journals, monographs and textbooks. she is engaged as a consultant for domestic and foreign companies for the application of statistical models in the development of applications for the automation of production processes. lidija barjaktarović singidunum university, belgrade e-mail: lbarjaktarovic@singidunum.ac.rs lidija barjaktarovic has a phd in economic sciences in the sectors of banking and finance. at the singidunum university in belgrade she teaches banking, risk management and corporate finances (from 2008). she has been head of master study programs of business economics and public sector management at the singidunum university since 2015. she pursued a banking career in the period from 1998 to 2008. she started in the jugobanka a.d. belgrade, after which she moved to the societe general yugoslav bank a.d. belgrade, and then to the raiffeisen bank a.d. belgrade in order to be promoted to the position of the head of the regional branch central serbia. in 2005 she moves to the erste bank a.d. novi sad to become the director of corporate division. at the end of 2007 the erste group appoints her member of the corporate board and corporate working group on the level of the erste holding vienna. about the authors renata pindžo republic of serbia ministry of trade, tourism and telecommunication e-mail: renata.pindzo@mtt.gov.rs renata pindžo, phd, is an associate professor of investment management and investment decision process at the fefa, belgrade. since august 2014, she has been in charge of the tourism sector while working as assistant minister in the ministry of trade, tourism and telecommunications. in the 2008-2014 period, she was employed as assistant minister at the ministry of economy and regional development and at the ministry of finance and economy. since 2013, she has been a member of the national council for the development of tourism in the republic of serbia. ms. pindžo graduated from the faculty of economics, university of belgrade, where she obtained a master’s degree in 2003. in may 2011, she obtained her phd degree. her experience includes more than 13 years in management consulting and financial advisory services. she has gained knowledge by providing consulting services to many domestic and international companies, including financial institutions and local municipalities during her employment at deloitte. also, as consultant, she was engaged in the world bank`s projects related to restructuring and improving competitiveness of the serbian economy. at the economics institute, ms. pindžo participated in research and market analysis projects. she has colaborated with many international institutions (usaid, ear, ebrd, dfid and giz) on complex projects of restructuring the serbian economy. she is the author more than 50 scientific papers. 34 goran petković, snežana konjikušić, lidija barjaktarović, renata pindžo 2019/24(2) << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04p_zekavica:tipska.qxd 39 ana zekavica1*, aleksandar djordjević2, aleksandra vukmirović1, jovanka vukmirović3, milica branković1 1belgrade business school higher education institution for applied studies 2university of belgrade, faculty of economics, serbia 3belgrade business school higher education institution for applied studies and university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2018/23(2) potential of the big data implementation in serbia in the context of marketing research doi: 10.7595/management.fon.2018.0017 1. introduction since business processes in real time require a change in the operation of many industries, managers are increasingly using analytics to see the value of investing in the internet of things (davenport, 2006; harvard business review analytic services, 2013). as business has become digitalized, with even cheaper new sources of information, we have reached a new era – a big data era (chen, chiang & storey, 2012; mcafee and brynjolfsson, 2012). managers today are also faced with the need to improve the business performance at a lower cost (rodriguez and da cunha, 2018) and precise modern business brings new tools that will enable managers to achieve their goals (brown-liburd and vasarhelyi, 2015). cloud based analytics, with the support of companies’ high power computers, in short time and at affordable prices, facilitate market information in real time (davenport, 2017). different managers (e.g., marketing research managers, brand managers) are aware of the benefits arising from the concept of big data (gillespie, otto & young, 2018). they have to define the tools, each in its field, which will bring benefits throughout the entire system (jacobs, 2009). it is possible that their opinions and attitudes will be different and controversial, but this can lead them to new ideas and solutions (ketter et al., 2016). * corresponding author: ana zekavica, e-mail: ana.zekavica@gmail.com abstract: research question: big data represents a true business revolution in many areas, and, as such, in marketing research, as well. the subject of this study is the analysis of the existing stage, as well as of the achieved results in the implementation of the big data technology in serbia. motivation: the success in managing the company depends on the ability to provide quality and comprehensive information by establishing personalized (1:1) communication with consumers on the global market in real or near real-time. this form of communication has become an imperative of the modern business decision-making process. advanced internet technologies, cloud computing (cloud technology), big data and artificial intelligence open a significant business potential for companies in serbia to emerge on global markets. idea: of this study is to perceive current business environment in serbia through the prism of research development based on the big data technologies. relevant hypotheses and conducted research have been set up with the aim of pointing to the potential of applying modern information-communication technologies, with an emphasis on artificial intelligence and the big data concept. data: the survey was conducted on 154 business entities from the serbian business register agency’s database. the applied sampling method was a random analysis (selection was made randomly from the total number of selected companies, with the same probability of choice). tools: an online survey was used, and respondents were contacted via e-mail. findings: research results, opinions and attitudes of managers, experts in the fields of marketing research and information technology, indicate a significant degree of justifiability of investments in new technologies in the republic of serbia and result in several proposals of certain measures and recommendations of incentives that should be conducted by the state. contribution: the solutions in this paper are based upon the implementation of standardized procedures and advanced tools that could be used to overcome a “bottleneck” in the existing it infrastructure, in order to enable a rapid collection and implementation of enabled data. key words: big data, marketing research, situation analysis, data decision making, marketing jel classification: m21, m31, o32 big data does not change only the production and service areas of company business it changes all aspects of people lives (papadopoulos et al., 2017). due to a large amount of data which come from different sources such as a web data, customer data or operational data, the company generally meets the demands of real-time data. therefore it is necessary to define the marketing strategy (juan, 2017) that will respond to the new demands of the market (regina and venkatraman, 2015). this paper primarily presents a detailed analysis of the potential of the big data implementation in the context of marketing research, from the serbian perspective. the goals of the research have been described in detail. the methodology used for conducting this research describes objectives set in research, as well as the sampling method. the research results were considered in the conclusion with recommendations for decision-makers in both the public and the private sectors in the republic of serbia. 2. big data big data is based on stockpiling of large amounts of multimedia data generated by different institutions and companies in real-time (observing some events important to their business). these data are not structured, they cannot be stored in columns and tables of relational databases (which are globally dominant at this stage of information technology development). they cannot be processed and analyzed by standard user software based on algebraic terms, and since they occupy large storage space, they cannot be stored on individual physical servers (davenport, 2014). in the mckinsey study, big data is defined as a set of data that overcome the capability of typical data management software for collection, storage, management and analysis (brown, sikes & willmott, 2013). the big data concept was firstly used in a 1997 by nasa scientists explaining the computer system challenges (cox and ellsworth, 1997). according to dumbill (2013), big data refers to information that cannot be processed and analyzed in a traditional way, using convective processes and tools, whereas apache hadoop (chen, mao & liu, 2014) defines it as “datasets which could not be captured, managed, and processed by general computers within an acceptable scope”. investment in artificial intelligence by cashrich digital native companies such as amazon, facebook and google increased three times a year in the period from 2013 to 2016 (bughin, et al., 2017). for those companies the collection of data has become a target in itself instead of a way of achieving other additional business goals (nunan and di domenico, 2017). historically, traders made decisions mainly on the basis of their own feelings and personal assessments (charlesworth, 2014). in the modern big data environment, there is an overwhelming amount of data generated in real time and as such they may represent different structures (magee, 2015). data can represent the indicators of events or outcomes that are important to business. numbers can reflect sales performance, but they can also represent customer satisfaction. the big data can become even larger and more sophisticated as time passes (simon, 2013), even if this is not a passing trend (whelan and duvernet, 2015) and will even become routine in the near future (malthouse, li, 2017). 3. marketing research thanks to facebook, youtube, linkedin and other social networks, customers increasingly share their opinions and directly affect demand, sales and financial performance of the companies (e.g., liu, burns 2018; chevalier and mayzlin 2006; onishi and manchanda, 2012; tirunillai and tellis, 2012). big data analytics helps companies use this massive unstructured data set to support business decisions (e.g., wang, kung & byrd, 2018; sharda, delen & turban, 2015). traditional market and marketing research were conducted actively through personal, direct interviews taking corporate time and money. published results were obsolete and managers did not use them for making decisions. with big data today we have efficiency by passive measurement (bosch, 2016). engineers in the field of information-communication technologies, mathematicians, physicists, economists, sociologists and experts from many other areas of science have been faced with a large amount of information available around the world as a result of business systems and their interactions (boyd and crawford, 2012). researchers accept the technological reality and apply highly sophisticated tools for collecting, processing and analyzing business-critical data accordingly, all in order to achieve competitive advantage. it is important to point out that marketing managers in companies bear the greatest responsibility for identifying significant market changes (kotler and keller, 2006) as well as for supporting decision-making in the company (amado et al., 2018). marketing experts are needed in order to help companies evaluate these measures by recognizing the nuances of different data sources, types of metrics, as well as what these data mean in solving specific problems (moro, cortez & rita 2015). 40 ana zekavica, aleksandar djordjević, aleksandra vukmirović, jovanka vukmirović, milica branković 2018/23(2) 4. research goal the term big data is not new but most companies are capturing only a fraction of the potential value from data and analytics (henke et al., 2016). the harvard business review analytics services (2017) conducted a survey about big data in the age of machine learning in april 2017, and more than a half of respondents (60%) believe the future success of their organizations depends on using machine learning and will distance themselves from competitors. the main research goal presented in this study was to explore the possibilities of applying the big data concept in serbia, as well as to notice its importance to the decision-making business process in the companies/organizations operating in our market. the results of the conducted research have shown the overall degree of modern information technology application in business, as well as the presence and development of the big data’s potential in marketing research. 5. hypotheses set in the research with the help of the internet technology, the global consumer is accessible to business systems worldwide and in real time. communication is personalized, thus, it is crucial to respond to a consumer’s demands. by ignoring the existence of the big data concept, the company may be exposed to a risk, and may allow the competition to be ahead of them (franks, 2012). different types of research, as well as numerous available data sources have been used by companies in serbia, but they find it very difficult to discover data essential for improvement of their businesses. with the expansion of the internet, a large amount of data have become available. by introducing the big data concept, a large amount of different structured data gathered from different sources can be aggregated, combined and analyzed in order to generate a real-time information that is of utmost importance for making sound business decisions. furthermore, more and more data became available through various state institutions and often they are completely free, and as such they are of interest to the business of companies. they mainly refer to a previous six-month or annual period, so their reliability for business decision-making is questionable. education of the top management team is a prerequisite in decision-making business of the company related to the improvement and development of the concept for collecting and processing data of importance. the technological evolvement of the top management is in a positive correlation with the level of technological development of the company; and the technological development of the company directly implies the existence, growth and development of the company on the modern market. the application of analytics in companies implies changes in the culture, processes, and even in the behaviour of employees. in the case of major transformations, the directors should play the key role, and they represent the bearers of change in companies. the big data concept is applicable to all areas of business, and represents the potential for achieving competitive advantage for companies that timely accept it. 6. methodology in the scientific literature and scientific studies, the concept of big data is fully defined, however, there remains some space for improving the methodology needed for accessing big data, as well as its application in the field of marketing research (vukmirovic et al., 2016). the research efforts in this study were focused on the acceptance and possibility of using the big data methodology in the business in the market of the republic of serbia. the survey included 154 business entities: 98 companies and 56 business entities from the public sector and state institutions with head offices in belgrade (a total of 154 respondents). the sample frame was consisted of business entities gathered from the serbian business register agency’s database, and they had to meet certain criteria: to operate positively and record revenue growth in each of the previous three years: 2014, 2015 and 2016 (reference year), to record an increase in the number of employees, and that the average salary of employees was equal to or higher than the average salary for the referents of the year at the level of the republic of serbia. the sample method was a random sample/ sampling: selection was made randomly from the total number of selected companies (with the same probability of choice), by using random sample of cases (ibm spss). 41 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) according to the defined methodology, the respondent had to be one of the managers / decision-makers, and/ or experts in the field of marketing and/ or information technology. for this original research conducted and presented in this paper, the web questionnaire was created with the cawi methodological procedure, which implied an automated order of asking questions with logical control of response consistency. the response rate was acceptable for this type of survey, and was 63%. and the sampling error was within 5%. the obtained results were processed in the ibm spss statistical package. while research cannot be considered representative for the entire serbian economy, the obtained results are representative regarding the most profitable companies with significant market potential, and regarding that those companies are covering the most significant market segments and it is expected from them to adopt the latest technological achievements. 7. results and discussion as the goal was to examine the business environment in belgrade (as the capital of the rs, as well as the business and university centre) through the context of the big data technology development; the public sector was involved in this research in terms of possible potential in implementing big data in the domain of e-government (manyika et al., 2011). the need for better business in real-time is also recognised by the public sector, since many governments recognize the importance of big data in order to create better services for citizens and solve numerous national challenges including the economy, health care, job creation, terrorism (vukmirovic at al., 2018), natural disasters and others (gang-hoon, trimi & chung, 2014). according to the conducted research in companies/ institutions, the owners/ directors were responsible for decision-making regarding structure, content and manner of collecting consumers’ information. although the marketing sector in the modern organizational structure should have the role of market research initiators, according to the results of this research, this method was least represented – the marketing sector made decisions regarding market research in only 18% of the companies/ institutions. in two previous years, market research has been carried out in most of the observed companies/ institutions (85.7%). the most common market research have been the analyzes of internal data sources (50.6%) and analyses of web sites (46.8%). online surveys almost reached the traditional field of research, and they were implemented in 28.6% of the observed business systems – significantly more in public companies (32%) and foreign companies (33%), than in domestically held ones (16%) (figure 1). figure 1: companies have initiated/ implemented some of the above-mentioned market research during 2015 and 2016 (independently or in cooperation with research agencies, etc.)(%) in 2015 and 2016, in the majority of observed business systems (92.9%) some of the secondary data sources were used. the most represented were data published by the sbra (serbian business register agency) (64.3%) and data published by research agencies (45.7%), such as omnibus, market share, media research, etc. nevertheless, less than half of business systems used the data published by the statistical office of the republic of serbia (44.3%) and the national bank of serbia (40.0%) (figure 2). 42 ana zekavica, aleksandar djordjević, aleksandra vukmirović, jovanka vukmirović, milica branković 2018/23(2) �� �� �� � �� � �� �� �������� ���������� ����� ������ ��������� ���������� ��������� ����������� ���������� ��!����"�� !#$ ��!���%���&� '���&(�������� ��������� )��������!(�(��������!����! �� figure 2: institutions or research agencies – use of data / reports in 2015 and 2016 data from official sources were used to a significantly higher extent in the public sector (especially data from the statistical office of the republic of serbia (82%), resident ministries (64%)) than in domestic and foreign companies. given that market research was directly in the function of reducing uncertainties in the decision-making process, it can be concluded from the results of this research that in the surveyed business systems an insufficient use of marketing significance of decision-making process was observed; therefore, every fourth/ fifth of these business systems used the results obtained in such research works. in terms of sector representation, the decision-making process was “basically / largely” based on market research data more often in foreign than in domestic companies or in the public sector (figure 3). figure 3: companies/ institutions made the above-mentioned decisions based upon data obtained from the market research (%) according to the results of this survey, 93.1% of public sector companies/ institutions had initiated/ implemented some of the above-mentioned market research during 2015 and 2016 (independently or in cooperation with the research agencies, etc.). given that the public sector had the least use of research results when deciding on creating marketing plans and marketing strategies, expanding the market, or introducing new technologies and changing products and services assortments, it can be concluded that there was a disparity between the amount of available data and their use. in this sense, especially in the public sector, there is a significant space for the application of new data processing technologies of different structures and from different sources, which will allow systematic access and reporting important in the decision-making process. 45.2% of our examinees considered that contemporary approaches to used data had a major impact on business rationalization (increasing effectiveness and efficiency, reducing costs, increasing productivity). observed sectorally, this attitude was significantly less present in the public administration system (27%) than in foreign (66%) and domestic companies (40%). modern access to data had a much greater impact on rationalization of business operations in larger systems (over 100 employees, 60%; 20 to 100 employees, 50%) compared to small businesses (up to 10 employees, only 6%). figure 4. 43 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) �� �� �� �� �� �� � � � � � ������������������ ��� ���� �� ������ ���������������� ����������� ���! �� !"��������� #�!������� $�%��!&�!���'�!���� ��� ����� � �� %��!������!����� figure 4: contemporary approaches to data use had a major impact on business rationalization (increasing effectiveness and efficiency, reducing costs, increasing productivity) (%) the fact that the extent and speed of transition to e-business technology was directly dependent on the business results and development of the company/ institution was contemplated by almost half of our examinees (45.7%). however, significant differences were obvious according to observed features (gender, age, degree of education, position, sector and the number of employees in the company/ institution). when it comes to innovations and technological improvements, half of the surveyed companies/ institutions (50%) stated that they had invested “significant resources” in improving the production process and/ or in the provision of services. these are followed by: electronic communications (42%), sales (32%), finance management (23%), advertising (22%) and administration (20%). regarding innovation and technological advancement of all the mentioned business processes, significantly more investments were made by foreign companies compared to domestic companies and the public sector. overall, almost half the number of our examinees believed that some of the big data solutions regarding data collection and processing would be of great benefit to their business. figure 5. figure 5: necessity of the above-mentioned big data solutions to the companies / institutions (%) the highest interest was noticed in software/ system for collecting and processing consumers’ data, as well as in connection to their behaviour gathered from online sources (50.8%). this is followed by advanced statistical data processing and data analysis (50%), as well as data regarding processing systems of different structures from different sources (50%). the interest in collecting and processing relevant consumers’ data in real time (43.8%) was slightly less represented. (figure6). 44 ana zekavica, aleksandar djordjević, aleksandra vukmirović, jovanka vukmirović, milica branković 2018/23(2) figure 6: big data tools/ solutions can be of great benefit to the companies/ institutions (%) 8. recommendations for decision-makers at company level in the republic of serbia in order to implement modern technologies in the day-to-day business, it is essential that companies should prepare strategic plans that will allow them to integrate big data into their business functions, primarily in marketing (vukmirovic, 2017). an initial step might be the development of a strategic study that would include a suggestion of data sources integration that traditionally has been presented in the form of internal and external data. the challenge is that available internal (company) data have been, in most cases, kept in a highly structured form, while external data are available in less structured formats, such as those collected. in order to successfully implement the marketing research process in the domain of electronic business, it is possible to integrate some of the existing non-traditional software solutions or introduce a new solution that enables processing, analysis and interpretation of company data to support a better business decision-making (oracle, white paper). 9. recommendations for decision-makers in the republic of serbia at the state level when implementing big data technologies in everyday business, not just in the domain of marketing research, one has to bear in mind that there are a number of open issues the challenges, posed by different researchers, including marketing researchers (vukmirovic, 2016): • methodological procedures • technology • legal basis • protection of personal data • data confidentiality • price • people / employees any and all of these steps is, by itself, a serious task to be processed. that does not mean that beneficiaries/ successful managers will have understanding and patience for the researchers. of the above, at least three: the legal basis, protection of personal data and data confidentiality should be regulated by legislation of the republic of serbia, following the example of the most developed countries (hajirahimova, aliyeva, 2015). in addition to legislative, it is also recommended that a strategic framework for the development of new icts be adopted through the elaboration of appropriate strategies (desai, nuño, 2015). furthermore, the state needs to continue with the support to educational institutions that create /educate appropriate professional staff in the domain of ict in the manner of the best world practice. 10. recommendations related to further research projects the findings from the presented research stressed a high potential of contemporary ict, in particular, the big data concept, business analytics and the artificial intelligence in the republic of serbia. further research in this area should be carried out both vertically and horizontally. vertical research implies further quantitative research based on deep interviews and focus groups, streaming to a more detailed analysis of the obtained results, through further exploration of attitudes and status in 45 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) �� �� �� �� �� � � � ���� �� �� ���� � �� �� ���� �� ����� ���� ����� ���� ������� �������� � � � ��� �� ���������� � � ����� � ��� �� ��� ��� � ������ �� � ����� ! ����������� �� ��� �� � � ����� �� ��� ��� ! �� " ! ����� ��"����������� � ���#��"����$��� ��#%�� � � ��� &�� � ���$��� ��#����� �' � �� (� �)*+ the relevant field of research, as well as the readiness of the companies to accept the big data concept in the domain of support to making day-to-day business decisions. horizontal research implies expanding of the target group, and conducting research in the field of business start-ups. experiences of the most successful start-up companies in the world, those whose business is based on the big data concept, gives impetus to this kind of thinking. future research should be also focused on further upgrading and application of the big data concept in the various fields where application of artificial intelligence in day-to-day business can be expected (lee, 2017). references [1] amado, a., cortez, p., paulo, r., & moro, s. 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(2015). the big duplicity of big data. industrial and organizational psychology, 8(4), 509–575. doi:10.1017/iop.2015.75 received: 2018-03-26 accepted: 2018-05-22 47 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) ana zekavica belgrade business school, serbia ana.zekavica@gmail.com ana zekavica, msc, is a teaching assistant at the belgrade business school, higher education institution for applied studies. she was born in belgrade where she completed her bachelor and master studies at the faculty of economics, university of belgrade. after graduating, she worked at simens as the head of corporate communications. she has successfully completed several world-class courses related to communications crisis, customer relations and internal communications, and participated in various marketing projects. in 2014 she started her new business engagement in the belgrade business school. since 2015, ana has been appointed as a director of fondation for young talents of the city of belgrade. she is married and mother of three children. aleksandar djordjevic university of belgrade, faculty of economics, serbia alexandar@ekof.bg.ac.rs aleksandar djordjevic, phd, is an assistant professor at the faculty of economics in belgrade, teaching courses at the department of business economics and management. he completed his master’s degree studies at the hec business school in paris (master economy et management, hec paris) which is one of the most prestigious and most eminent schools of business economics in europe. he earned his phd degree from the faculty of economics in belgrade. in 2008, as part of a summer research school, he attended the princeton university in the usa. he published numerous scientific papers both in international and national scientific journals, two scientific monographs and took part in a number of scientific and professional conferences in the country and abroad. he participated in the preparation of a number of development projects for the government of the republic of serbia and provided consulting services to several leading companies in serbia. his areas of interest are as follows: marketing and management focused on the consumers, marketing and management in tourism, strategic marketing. aleksandra vukmirovic belgrade business school, higher education institution for applied studies, serbia aleksandra.vukmirovic@bbs.edu.rs aleksandra vukmirovic, phd, is a professor at the belgrade business school, higher education institution for applied studies. she is the author of several scientific studies of national and international importance. she participated in and managed a number of projects in the fields of e-business and marketing research. jovanka vukmirovic university of belgrade, faculty of organizational sciences, serbia lola@fon.bg.ac.rs jovanka vukmirovic is an assistant professor at the university of belgrade, faculty of organizational sciences, as well as the professor at the belgrade business school, higher education institution for applied studies. she was the head of the department for policy of regional development in ministry of economy and regional development in serbia, mainly responsible for creating a policy of regional development founded on relevant statistical indicators from local and regional levels. she was a coordinator in more than one hundred projects, author of many papers of great scientific importance, including the book “marketing research” (2011). milica branković belgrade business school, higher education institution for applied studies, serbia milica.brankovic@bbs.edu.rs milica branković, msc, is a teaching assistant at the belgrade business school, higher education institution for applied studies. she completed her graduate studies at the faculty for management of small and medium enterprises and her master studies at the faculty of applied sciences management, economics and finance. currently she is a phd student at the european university in belgrade. she has a working experience as a collaborator on project development and coordinator for analysis and sales. she is the author of several scientific papers. 48 ana zekavica, aleksandar djordjević, aleksandra vukmirović, jovanka vukmirović, milica branković 2018/23(2) about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false 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tourism is one of the main users of ict. the existing articles in the travel and tourism literature have emphasized the importance of e-commerce and the internet in travel and tourism (law & wong, 2003; feshari, 2016). the application of ict makes a tourism destination and its stakeholders more competitive, because it satisfies the variable and sophisticated needs of contemporary tourists (petrovic, milicevic, & djeri, 2017). the internet has a significant impact on tourism in which case it significantly affects tourism supply and tourism demand. tourism demand can be analysed at either macroeconomic or microeconomic level (wang & davidson, 2010). at the macroeconomic level, the unit of analysis are aggregated data such as total arrivals, nights spent and tourism expenditure (crouch, 1994; disegna & osti, 2016). special attention in the paper is paid to the analysis of tourism demand at the macro level which was measured by tourism expenditure per capita. * corresponding author: jelena petrović, e-mail: jelena25@pmf.ni.ac.rs research question: this paper investigates whether a relationship exists between ict as well as between the internet and tourism demand (inbound and outbound) in the eu. motivation: our goal was to explore if there exists a strong link between the observed determinants. the paper draws on research of garin-munoz and perez-amaral (2011). their research indicates a positive relationship between the use of the internet and travels abroad. also, the paper is based on the research of ramos and rodrigues (2013), bethapudi (2013) and pulido-fernandez, cardenas-garcua, & carrukkihidalgo (2017). idea: because the ict has a significant impact on tourism demand the core idea of this paper was to explore if there exists a stronger relationship between the use of the internet and outbound tourism demand than is the relationship between the use of the internet and outbound tourism demand. data: research information base has included the itu 2016, measuring the information society report 2016, as well as the data about tourism expenditures and total population from eurostat database (european commission, 2017). tools: the following methods are used in the paper: regression and correlation analysis. the regression analysis has examined the impact of the ict on the tourism demand. the correlation analysis has examined the relationship between the use of the internet and tourism demand. findings: the results of the correlation analyses indicate that there is not a statistically significant correlation between the level of development of ict and tourism expenditure per capita, while that there is a statistically significant correlation between the application of the internet and tourism expenditures per capita. the regression analysis indicates that sub-indices of ict development index ( idi) influence tourism expenditure per capita. it can be concluded that the ict and the internet present one of the most important determinants of tourism demand. contribution: in the paper special attention was paid to the ict as well as to the internet as the most important determinants of tourism expenditure on the macro level. keywords: ict, internet, tourism demand, tourism expenditure, eu, idi. jel classification: o30, z30 in the above mentioned context, understanding tourism expenditure, as well as the influence the internet on tourism expenditure is critically important because tourism is an expenditure-driven economic activity (wang & davidson, 2010) and tourism consumption is “at the centre of the economic measurement of tourism” (mihalic, 2014, p. 81). tourism plays a very important role in the economic development and value creation of the european countries (krstic, radivojevic, & stanisic, 2016). tourism expenditure and its determinants at the macro level have been widely investigated in the literature (marrocu, paci, & zara, 2015), but the analysis of tourism expenditure at the micro level has received less attention (craggs & schofield, 2009). however, ict and the internet as the factors of tourism expenditure are paid due attention only at the micro level in literature. some authors (tsiotsou & vlachopoulou, 2011; neuts, romao, nijkamp, & leeuwen, 2012) pay special attention to the use of e-services on the tourism expenditure in the destination, however, at the micro level. having in mind that the use of the internet leads to differences in expenditure among tourists (mills & law, 2005), as well as that ict and the internet are not paid special attention in the literature on tourism expenditure, the main purpose of this paper is the analysis of the impact of ict, as well as the internet on domestic and outbound tourism demand on the macro level. tourism demand is measured by domestic and outbound tourism expenditure per capita. specific goals of the paper are: 1) indicating the difference in influence of development and application of ict in the eu countries on domestic and outbound tourism demand; 2) analysis of interdependence between the use of the internet in the eu, on the one hand, and their domestic and outbound tourism demand, on the other hand. in order to analyse the impact of ict and internet on tourism demand, the correlation method and the regression method are applied. the paper is structured as follows: section 2 outlines the brief literature which enlightens the factors of tourism demand and the impact of ict and the internet on tourism demand. section 3 elaborates the methodology used in the research. this section also includes hypotheses which are being tested in the paper. section 4 interprets the results of the research. section 5 ends the paper by concluding, stating the contribution of paper and recommending some future directions. 2. theoretical background the demand theory implies that the tourism demand is affected by determinants such as touristsʼ income, prices, exchange rates, transportation costs, dummy variables on various special events and deterministic trends (crouch, 1994; vanegas & croes, 2000; li, song, & witt, 2005; wong, song, witt, & wu, 2007; song & li, 2008), as well as political unrest, economic recession and mega events (lee, var, & blaine, 1996). comprehensively observed, factors that affect tourism demand can be divided into: social-psychological, economic and exogenous factors (uysal, 1998). however, the majority of econometric studies tend to examine the demand for tourism by focusing predominantly on economic factors (ryan, 2003). the studies have confirmed that as per capita incomes rise, more people are likely to travel, and tourism expenditures are a positive function of income (stronge & redman, 1982; lee, et al., 1996; chhorn, 2018). the price variables should include the prices of the goods and services related to both the destination and substitute destinations (song, li, witt, & fei, 2010). however, some studies (lee, et al., 1996) have pointed out that relative prices have a significant impact on tourism demand, while others (vanegas & croes, 2000) have shown that their impact is not significant. there is also the issue that visitors may incorrectly perceive relative prices, as such information is not readily available (greig & mcquaid, 2004). the role of information explains the importance of ict applications, especially the importance of the internet applications in tourism (steinbauer & werthner, 2007). „the permanent interaction between tourists and ict generates large volumes of crowdsourced data” (veloso, leal, malheiro, & burguillo, 2019, p. 2). new tendencies in the process of diffusion and collection of information on tourism destinations are the subject of study of many contemporary researches (chen, shang, & li, 2014; werthner, neidhardt, proll, ricci, scaglione, stangl, stock, & zanker, 2015; tribe & mkono, 2017; xiang, 2018; liu, zhang, zhang, sun, & qiu, 2019; tavakoli & wijesinghe, 2019). the analysis of new, internet-based technologies (social networks, geolocation systems, development of mobile phone apps, etc.) as an explanatory variable of tourist spending gains an increasing interest (pulido-fernandez, et al., 2017), because those technologies affects tourist behaviour. some authors have tried to contribute to a better knowledge of consumer behaviour by 48 jelena petrović, snežana milićević 2020/25(1) identifying the determinants that influence potential tourists to use the internet for travel planning. in recent years, viewing travel information online has become a necessary step before the tourists' decision-making (liu, yang, & pu, 2015). the application of the internet can contribute to a better availability of such information, as well as to possibility to reserve tourist services at lower prices. on the supply side, the internet helps tourism providers to make information and booking facilities available to large numbers of tourists at relatively low costs. it enables tourism providers to implement new pricing strategies and global market access. on the demand side, it is possible to reduce the uncertainty related to the products via forums, or to exert an instantaneous control over the quality of products supplied (garin-munoz & perez-amaral, 2011). the internet allows potential tourists to obtain information about the tourism offer, compare prices and quality of tourism services, book and pay for service. it has helped facilitate the flow of information at a faster pace and made business transactions instantaneous, reduced costs of travel and allowed for a more effective use of time of potential tourists (uysal, 1998; liu, et al., 2015). however, the internet provides tourists with opinion-based information (ratings, likes, reviews and shares about tourism destinations). the internet represents the “second most important source of information when researching a tourism destination” (pulido-fernandez, et al., 2017, p. 73). this information based on the opinion of predecessors have influenced the decisions of current and future tourists (book, tanford, & chen, 2016; zhang, wu, & mattila, 2016). having in mind the significance of the internet for collecting the information on tourism services and their prices, as well as the possibility of buying the same service at a lower price as a result of using the internet, it is required that special attention should be paid to the impact of ict and the internet on tourism demand, all of which belong to exogenous determinants of tourism demand. in the literature, special attention is paid to the impact of ict on tourism demand. ramos and rodrigues (2013) investigated the impact of ict on tourism demand in developing countries. bethapudi (2013) concluded that ict has a positive and significant impact on the number of tourists in india. wahab (2017) explored the importance of ict for tourism demand in india. bekteshi and bekteshi (2017) indicated from the empirical evidence that with an increase in the use of ict, the tourism demand increases. however, the literature about the impact of ict or the internet on domestic and outbound tourism demand is rare. garin-munoz and perez-amaral (2011) indicate that the use of the internet is much more intensive when planning a trip abroad than for domestic travel, as well as that there are positive relationships between the internet usage for travel and internet penetration rates and travels abroad. in this paper, special attention is paid to the analysis of influence of ict on the domestic and outbound tourism demand as well as the relationship between the internet usage and (outbound and domestic) tourism demand. 3. research methodology and hypothesis the research relies on the following methods: correlation and regression analyses. the correlation analysis has examined the relationship between the idi, on the one hand, and domestic and outbound demand, on the other hand in 2016. the regression analysis has examined the impact of the idi sub-indices on tourism (domestic and outbound) demand of the countries surveyed in 2016. the correlation analysis has examined the relationship between the use of the internet, on the one hand, and domestic and outbound demand, on the other hand. program spss statistics 19 is used for correlation and regression analyses. the research includes all members of the eu except the united kingdom due to the lack of data about tourism expenditure. the development and application of ict was measured by ict development index (idi) and its sub-indices. the idi is a unique benchmark of the level of ict development in countries across the world. the main objectives of the idi are to measure: the level and evolution over time of ict developments within countries and their experience relative to other countries; progress in ict development in both developed and developing countries; the digital divide, i.e., differences between countries in terms of their levels of ict development; and the development potential of icts and the extent to which countries can make use of them to enhance growth and development in the context of available capabilities and skills. the idi includes 11 indicators that are grouped into the following three sub-indices (itu, 2016): idi access, idi use and idi skills. the sub-index idi access is created based on the value of five following access indicators: landline telephone subscriptions, mobile-cellular telephone subscriptions, international internet bandwidth per internet user, households with a computer, and households with internet access. the sub-index idi use is created on the value of the following three indicators: individuals using the internet, fixed (wired)broadband subscriptions, and wireless-broadband subscriptions, while the sub-index idi skills is based on the value of three following proxy indicators: adult literacy, gross secondary enrolment, and gross tertiary enrolment. 49 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) in the paper, special attention was paid to the idi sub-indices as well as to the indicator “individuals using the internet”. the “individuals using the internet” indicator is one of indicators that determine the value of sub-index idi use. the hypotheses to be tested in the study are the following: h1 – there is the significant correlation between the level of ict development and domestic tourism demand; h2 – there is the significant correlation between the level of ict development and outbound tourism demand; h3 – the level of ict development has stronger influence on outbound tourism demand than on domestic tourism demand; h4 there is a stronger positive relationship between the use of the internet and outbound tourism demand than between the use of the internet and domestic tourism demand. 4. research results and discussion the results of the correlation analysis have shown that there is no statistically significant correlation between the development of ict in the eu and domestic tourism demand of their residents that was measured by domestic tourism expenditure per capita, not statistically significant correlation between the development of ict in member states of the eu and international tourism demand of their residents that was measured by outbound tourism expenditure per capita since the value of sig. is not lower than 0.01, as indicated in table 1. we can determine that hypotheses h1 and h2 are unsupported. table 1: pearson's correlation coefficient the interdependence between the idi and tourism expenditure per capita source: prepared by the authors (spss statistics 19) bearing in mind that statistically significant interdependence between the idi sub-indices could influence the results of regression analysis, i.e., the impact of idi sub-indices on domestic and outbound tourism demand, in table 2, special attention was paid to the correlation analysis between the idi sub-indices. the results of correlation analysis indicate that there is no statistically significant correlation between the idi sub-indices, because the value of sig. is not lower than 0.01. table 2: pearson's correlation coefficient the interdependence between the idi sub-indices source: prepared by the authors (spss statistics 19) 50 jelena petrović, snežana milićević 2020/25(1) � ���� ����� �� �� ��� ���� �� ������ �� ��� ���� ���� ���� ��� ��� ��� �� �� ������ ����� ����������� ���� � ����� ����� �� � � � � � � � !� ��"��#$�����%��� ���� ��� ��� ��� �� ������ �� ����� ����������� ���� ������ ��&&� �� � � � � � � '%�( %����#$�����%��� ���� ��� ��� ��� �� ����� ����� �� ����������� ���� ����� ��&&�� �� � � � � � � � ����������� ���� ��� ����� ����� ����������� �� ���� � �������� �� ����� ������ ���������������� � ����� ����� �� � � � � � � ����!��� �� ���� � �������� ����� �� ����� ���������������� ������ �"�"� �� � � � � � � �����#����� �� ���� � �������� ������ ����� �� ���������������� ����� �"�"�� �� � � � � � � in order to avoid the issue of multicollinearity when analysing the impact of idi sub-indices on domestic tourism expenditure per capita, as well as their impact on outbound tourism expenditure per capita, the backward method will be applied in the following regression analyses. table 3: the common impact of the idi sub-indices on domestic tourism expenditure per capita a. predictors: idi skills, idi access, idi use b. predictors: idi access, idi use d. dependent variable: domestic tourism expenditure per capita source: prepared by the authors (spss statistics 19) the results of the regression analysis, i.e., the common impact of idi sub-indices on domestic tourism expenditure per capita are given in table 3. the determination coefficient is 0.715. when we express the above mentioned ratio in percentages, it can be concluded that the impact of the common idi sub-indices on domestic tourism expenditure per capita is 71.5%. the value of the observed regression coefficient is statistically significant because the sig. value is lower than 0.01. the individual impact of the idi sub-indices on domestic tourism expenditure per capita is tested in table 4. based on the values of beta and sig. values, it can be concluded that a statistically significant impact on domestic tourism expenditure per capita is also made by idi use and idi access. table 4: the value of regression coefficients – influence of the idi sub-indices on domestic tourism expenditure per capita a. dependent variable: domestic tourism expenditure per capita source: prepared by the authors (spss statistics 19) the results of the research indicate that the level of networked infrastructure, access to ict and the level of use of ict represent the important factors of the domestic tourism demand. the level of education has no impact to the domestic tourism demand. the results of the regression analysis, i.e., the common impact of idi sub-indices on outbound or international tourism expenditure per capita are given in table 5. the determination coefficient is 0.798 when we observe the impact of all indicators and 0.785 when we observe only the impact of idi use and idi skills. when we express the above mentioned ratios in percentages, we can conclude that the impact of the common idi sub-indices on outbound tourism expenditure per capita is 79.8%, and when we observe only the impact of idi use and idi skills, it amounts to 78.5%. the value of the observed regression coefficient is statistically significant because the sig. value is lower than 0.01. table 5: the common impact of the idi sub-indices on outbound tourism expenditure per capita a. predictors: idi skills, idi access, idi use c. predictors: idi skills, idi use c. dependent variable: outbound tourism expenditure per capita source: prepared by the authors (spss statistics 19) 51 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) ������ �� �� �� ��� ����������� �� �� ����� � �������� ��������� �� ������ � ��� � �� � ��� ��� �� ������ � ��� � ��� � ����� �� ������ � �� �� ������ ��������� � �� ��� �� ������ ��������� � � �� ����� ����� �� ��������� ��� � �� ������ � � ����� ���� � ��� ���� �� �������� � ��� ��� ������� �� ��� ������ ����� ��� � ��� �� ����� �� ���� ��� ������� ������ ������ ����� ����� ������� ���� ���� � ����� ������� ����� ����� ����� ����� ������� �� �������� � ��� ��� ��� ��� �� ��� ������ ����� �� � ������� ����� �� ���� ��� � ����� ������ ������ ����� �� � ������� ������ �� �� �� ��� ����������� �� �� ����� � �������� ��������� �� ������ � ��� � �� � ������ � �� ��� �� � ��� � � � �� ���� the individual impact of the idi sub-indices on outbound tourism expenditure per capita is tested in table 6. based on the values of beta and sig. value, it can be concluded that idi use and idi skills have a statistically significant impact on outbound tourism expenditure per capita. the results of regression analysis have indicated that the level of ict development in the eu has a significant impact on domestic tourism expenditure per capita as well as on outbound tourism expenditure per capita. but the development of ict in the eu has a stronger influence on outbound tourism demand (79.5%) than on domestic tourism demand (71.5%). the hypothesis h3 is supported. table 6: the value of regression coefficients – influence of the idi sub-indices on outbound tourism expenditure per capita a. dependent variable: outbound tourism expenditure per capita source: prepared by the authors (spss statistics 19) the significant impact of idi sub-index depends on whether we observe its impact on domestic or outbound tourism expenditure per capita. if we observe domestic tourism expenditure per capita, then statistically significant impact is also achieved by the development and application of ict. however, if we observe outbound tourism expenditure per capita then statistically significant impact is a result of the application of ict and education level of population measured through idi skills. the level of the use of ict and the level of education have an effect on outbound tourism demand while the level of networked infrastructure and the access to ict do not have an effect on outbound tourism demand. it can be concluded that the level of use of ict represents the one of the most important factors of domestic tourism demand as well as of outbound tourism demand. the tourists that use the ict more often and have a higher level of education have spent more for travelling abroad. the results of correlation analysis have shown that there is a statistically significant strong positive correlation between the use of the internet in the eu, on the one hand, and their domestic and outbound tourism expenditure per capita, on the other hand since the value of sig. is lower than 0.01, as indicated in table 7. because the relationship between the use of the internet and outbound tourism demand is stronger than that between the use of the internet and domestic tourism demand, we can conclude that hypothesis h4 is supported. table 7: pearson's correlation coefficient the interdependence between the use of the internet and tourism expenditure per capita **. correlation is significant at the 0.01 level (2-tailed). source: prepared by the authors (spss statistics 19) 52 jelena petrović, snežana milićević 2020/25(1) ������ � �� �� ������ ��������� � � ��� �� ������ ��������� � � �� ����� ����� �� ��������� ��� � �� ����� � � � ����� ���� � ��� ���� �� �������� � �� ��� ����� � � ��� ���� � ����� ����� ������� ����� �� �� � ��� ������ ������ ��� � ����� ����� ������� ���� ���� � ��������� ��� ��� ���� �� ������� ����� ����� ������� �� ����� �� �������� ������ ��� �� ���� � ����� ����� ������� ���� ���� � ������� � ����� � ������� ������� ����� ����� ������� � � � � � �� �� � � � ��� �� � ������� � �� � � �� �� ��� ���� �� ���� �� ��� �� ���� �� ���� �������� �� � � �� ��� ������� �� � �� ������� ������� �������� ������ � � �� � � !� ��� ��� ��� "�#�� �$��%&� �� '��� �� ��� ������� �� � ������� �� ����� �������� ������ � �� � � ((� !� ��� ��� ��� )' *�' ���%&� �� '��� �� ��� ������� �� � ������� ����� �� �������� ������ � � � ((� � !� ��� ��� ��� the above results can be explained by the fact that people in developed countries in the eu use the internet more, as well as set aside more funds for tourism expenditure outside of their country. interdependence between tourism expenditure, per capita income and the use of the internet will be the subject of some future study. references [1] bekteshi, l., & bekteshi, j. (2017). use of ict and development of tourism sector in albania. european scientific journal, 13(25), 138-149. doi: 10.19044/esj.2017.v13n25p138 [2] bethapudi, a. (2013). the role of ict in tourism industry. journal of applied economics and business, 1(4), 67-79. [3] book, l. a., tanford, s., & chen, y. s. (2016). understanding the impact of negative and positive traveler reviews: social influence and price anchoring effects. journal of travel research, 55(8), 993-1007. doi: 10.1177/0047287515606810 [4] chen, y. c., shang, r. a., & li, m. j. (2014). the effects of perceived relevance of travel blogs content on the behavioural intention to visit a tourist destination. computers in human behaviour, 30, 787-799. doi: 10.1016/j.chb.2013.05.019 [5] chhorn, t. (2018). tourism demand and exogenous exchange rate in cambodia: a stochastic seasonal arimax approach. theoretical and practical research in the economic fields, 9(1), 5-16. [6] craggs, r., & schofield, p. (2009). expenditure-based segmentation and visitor profiling at the quays in salford, uk. tourism economics, 15(1), 243-260. doi: 10.5367/000000009787536753 [7] crouch, g. i. (1994). the study of international tourism demand: a survey of practice. journal of travel research, 32(4), 41-55. doi: 10.1177/004728759403200408. [8] disegna, m., & osti, l. (2016). tourists' expenditure behaviour: the influence of satisfaction and the dependence of spending categories. tourism economics, 22(1), 5-30. doi: 10.5367/te.2014.0410 [9] european commission. (2017). eurostat database. retrieved from http://ec.europa.eu/eurostat/data/database. [10] feshari, m. (2016). the role of ict indices in tourism demand of iran (the fmols co-integrating approach). iranian journal of economic studies, 5(2), 209-221. doi: 10.22099/ijes.2017.22823.1280 [11] garin-munoz, t., & perez-amaral, t. (2011). internet usage for travel and tourism: the case of spain. tourism economics, 17(5), 1071-1085. doi: 10.5367/te.2011.0080 53 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) conclusion one of the main users of ict as well as of the internet is tourism. the internet has brought forth new ways of communication between tourism providers and contemporary tourists. although ict and internet have influence on tourism demand, the literature has not paid special attention to the internet as determination of tourism demand on the macro level. the paper has paid special attention to quantifying and analysing the influence the level of ict development has on tourism demand in eu. the contribution of this paper is threefold. first, it shows that ict has significant impact on tourism demand. this indicates the need that special attention be paid to the influence of ict on tourism demand in the literature. second, the results of the regression analysis show that ict has stronger influence on outbound tourism demand than on domestic tourism demand. at the same time, the results of the regression analysis indicate that the development and application of ict in the eu have influenced their domestic tourism demand while the application of ict and the level of education in eu have influenced their outbound tourism demand. more important, empirical findings of the study show that the eu residents who are more educated and who use the ict to a larger extent spend more on travels abroad. third, the results of the correlation analysis indicate that there is a significant and positive relationship between the use of the internet and tourism demand (ramos & rodrigues, 2013; bekteshi & bekteshi, 2017). at the same time, the results indicate that there is a stronger relationship between the use of the internet and outbound tourism demand than between the use of the internet and domestic tourism demand. it can be concluded that the eu residents who use the internet to a larger extent spend more on travels abroad and there is a positive relationship between the internet usage and spending on travels abroad (garinmunoz & perez-amaral, 2011). as in any study, this research has limitations that can provide potential avenues for future research. as a eu-based research, the current measurement will need to be tested bearing in mind that the eu consists of developed and transition countries. therefore, future studies need to test the impact of ict as well as the impact of the internet on tourism demand in developed and transition countries in the eu. 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(2007). tourism forecasting: to combine or not to combine?. tourism management, 28(4), 1068-1078. doi: 10.1016/j.tourman.2006.08.003 [40] xiang, z. (2018). from digitization to the age of acceleration: on information technology and tourism. tourism management perspectives, 25, 147-150. doi: 10.1016/j.tmp.2017.11.023 [41] wahab, i. n. (2017). role of information technology in tourism industry: impact and growth. international journal of innovative research in computer and communication engineering,5(2), 260-263. [42] werthner, h., alzua-sorzabal, a., cantoni, l., dickinger, a., gretzel, u., jannach, d., neidhardt; j., pröll, b., ricci, f., scaglione, m., stangl, b., stock, o., & zanker, m. (2015). future research issues in it and tourism. information technology & tourism, 15(1), 1-15. doi: 10.1007/s40558-014-0021-9 [43] zhang, l., wu, l., & mattila, a. s. (2016). online reviews: the role of information load andperipheral factors. journal of travel research, 55(3), 299-310. doi: 10.1177/0047287514559032 received: 2018-12-02 revisions requested: 2019-02-22 revised: 2019-08-05 (2 times) accepted: 2019-09-04 jelena petrović university of niš, faculty of science and mathematics, serbia jelena25@pmf.ni.ac.rs jelena s. petrović (phd from faculty of economy in niš) is an associate professor at department of geography, faculty of science and mathematics (university of niš) in niš. her research interests include tourism marketing and management with a particular focus on destination competitiveness, tourist protection and service quality. she has published more than 70 scientific and research articles in journals and conference proceedings. snežana milićević university of kragujevac, faculty of hotel management and tourism in vrnjačka banja, serbia snezana.milicevic@kg.ac.rs snežana milićević, phd, is an associate professor at the faculty of hotel management and tourism in vrnjačka banja, university of kragujevac in serbia. the sphere of her narrow scientific and professional interest includes tourism management, management of tourism destinations, and current trends on the tourism market. she has published about 100 scientific papers. she is the associate editor of the scientific journal hotel and tourism management at the faculty of hotel management and tourism in vrnjačka banja. at the faculty she also performs the duties of the vice dean for professional practice of students. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05_jevtic:tipska.qxd 41 miloš jevtić*, milica jovanović, jovan krivokapić university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2018/23(1) abstract: research questions: this paper focuses on measuring the alignment of organizational elements. motivation: although several authors have analyzed this topic, there are few papers in which a concept for measuring the alignment of key elements of the organization is proposed (simons, 2005; sadeghi, 2011; trevor & varcoe, 2017). in previous research, the concept of alignment is usually defined through categorical variables and different organizational configurations are suggested (mintzberg, 1980). thus, this paper aims to propose a new approach to measuring organizational elements and their alignment. idea: based on the literature review we determined the organizational model for conducting the research in companies listed on the top 300 companies in serbia. data: on the sample of 57 respondents the results confirmed the defined hypothesis by which the alignment of the organizational elements has a positive correlation with the organizational performance. tools: in order to measure the organizational elements we defined the 7-level scale which enables measuring the alignment of organizational elements. findings: the research results confirm that it is necessary to look at the solutions based on some organizational elements simultaneously. however, in order to confirm the validity and reliability of the results, it is necessary to conduct a research on a larger sampling frame, since the sample from this research is relatively small in comparison to the total population. contribution: the defined scale can be used as a control tool for checking the proposed organizational design solutions in practice. also, the rules of alignment of organizational elements can be applied at different hierarchical levels in the organization, which will be the subject of future research of the authors. keywords: organizational elements measuring, organizational alignment, organizational structure, measuring performance system, behaviour formalization. jel classification: d02, l25, l22. a new approach to measuring the correlation of organizational alignment and performance doi: 10.7595/management.fon.2017.0029 1. introduction during the last three decades, the management of organizational systems has increasingly been based on quantitative methods, which gives objectivity to the process of management and proposed solutions. another area of management in which measurement methods are increasingly being used is the area of designing the organization. in previous years, the requested organizational design solutions were within defined organization configurations, which included predefined values of different elements of the organization (woodward, 1958; khandwalla, 1973; mintzberg, 1979). even then, the concept of fit or alignment of organizational elements is introduced as an important concept in research (miller, 1992; siggelkow, 2001; kathuria, joshi & porth, 2007; aleksic & rasic jelavic, 2017). the alignment of organizational elements implies internal alignment of elements and compliance of organizational solutions with external factors in the environment (lawrence & lorsch, 1967; mintzberg, 1979; siggelkow, 2001; sadeghi, 2011). khandawalla’s research related to this topic showed that even if there is no single organizational variable or the state of some organizational ele* corresponding author: miloš jevtić, e-mail: jevticm@fon.bg.ac.rs ment that is significantly related to the results of an organization, there are certain modalities of organizational elements intercorrelation which appear only in successful organizations (khandwalla,1973). in this study, we aimed to explore the correlation between alignment of organizational elements and the effectiveness of an organization. the variables values of the organizational elements are not defined by categorical measurement scales (i.e., centralized or decentralized structure), but by the ordinal scales and values. for this purpose, a survey was conducted. we collected the data on of the organizational elements and the performances that organizations achieved in the observed period. 2. literature review one of the main topics related to the strategy implementation and organizational design is the internal or horizontal alignment of elements of an organization (miller, 1992; siggelkow, 2001; kathuria, joshi, & porth, 2007). without fit or alignment of organizational elements, you cannot fully expect the realization of defined strategic objectives (sender, 1997; kaplan & norton, 2006). there are different research papers which also imply the significance of this topic (trevor &varcoe, 2017;walter, kellermanns, floyd, veiga&matherne 2013). kaplan and norton (2008) find that 60 to 80% of companies fail in achieving the objectives set in their strategic plans. in addition to the contingency approach and theories that deal with the alignment of organizational elements with the environment and strategy (woodward, 1958; lawrence & lorsch, 1967; thompson, 1967;mintzberg, 1979; sadeghi, 2011), some authors pointed out the importance of internal organizational elements alignment (khandwalla, 1973; mintzberg, 1979; galbraith, downey, & kates, 2002; daft, 2003; simons, 2005). similarly, siggelkow (2001) highlights the differences between the internal alignment of activities (whether there is a coherent activity configuration) and external alignment with the environment (whether there is an alignment with environmental conditions). usually, organizations are observed as systems composed of mutually dependent and supportive elements (miller & friesen, 1984), and as highly integrated systems whose performance is determined by the level of alignment of the main elements (nadler, tushman & nadler, 1997). one of the most recognizable research works related to this topic is mintzberg’s hypothesis by which the effectiveness of an organization is influenced by the internal consistency between the elements of an organization (mintzberg, 1980). his configuration hypothesis speaks of the necessity for coherence between elements of organization or “design parameters”. mintzberg assumes that there are “natural clusters” design parameters configuration and contingency factors. according to mintzberg (1980), there is no infinite set of permutations and combinations of elements of the organization. there are subgroups of elements‘ properties within which the elements are complementary, that is, aligned. mckinsey’s consultants formulated a new framework for a different perspective (waterman, peters & phillips, 1980). a model that should provide a better understanding of organization included 7 elements (7s): strategy, structure, system, shared values, style, staff and skills. the scheme of the model shows the importance of interconnection of the elements. the central premise is that it is difficult, or even impossible to make significant progress in one area without simultaneous changes in other areas. they conclude that the organizational changes that ignore all aspects of an organization and their connection have little chance to succeed. in addition to the importance of aligning the elements of an organization, richard daft provides some indicators for measuring the characteristics and quantification of elements (daft, 2003). he measures the level of formalization by the number of employees which are suitable for a particular position. the span of control can be quantified by a number of employees suitable for a particular position. employee qualification is shown as the average number of years of staff education; the number of employees measures the size of the organization, etc. according to simons (2005), the alignment of the organizational elements plays a crucial role in a successful strategy implementation. he defined the alignment of the elements through four spans: the span of control, the span of accountability, the span of influence, and the span of support. the four spans are defined by the design of these four organizational elements (respectively): unit structure, diagnostic control systems, interactive networks and shared responsibilities. according to simons, in order to have a successful strategy implementation it is essential to have defined spans for each position and organizational unit. alignment means that the sum of the control span and the span of support is equal to the sum of the accountability span and the range of influence. 42 miloš jevtić, milica jovanović, jovan krivokapić 2018/23(1) the following table is the summary of the listed research related to the internal alignment of organizational elements. table 1: basic organizational concepts related to internal alignment based on the previous literature review, we defined a model of three elements: organizational structure, performance measurement system and behaviour formalization. organizational structure is traditionally considered as a core element in an organization. the importance of this element stems from the influence that it has on the resource allocation and organizational activities, as well as in defining the positions of power and authority (král & králová, 2016; csaszar, 2012). the second component of the organization is the performance measurement system, which is a complement to the span of accountability created by defining the organizational structure. performance measurement as an element of the organization can be found in the models of several authors, but different terms are used: the award system (galbraith, downey, & kates, 2002), the diagnostic control system (simons, 2005), performance and rewards (kaufman, 1988; galbraith, downey, & kates, 2002). the last element in the organization’s model is behavior formalization, that is, the extent to which employee behaviour is guided and limited by rules and procedures (mintzberg, 1979; clavercortés, molina-azorín, & pertusa-ortega, 2012). this element is connected with the organizational culture, because, like culture, behaviour formalization through the definition of desirable actions has an impact on employees‘ control, their decisions and activities (o’reilly, 1989). figure 1: model of organization (source: authors) all of the above mentioned authors used some of the criteria of effectiveness in their research in order to confirm the assumptions about organizational solutions. there are also many other authors who have analyzed organizational design solutions and organizational performance (rivkin & siggelkow, 2003; yoo, boland jr. & lyytinen, 2006; kohlbacher & reijers, 2013; liozu, hinterhuber& somers, 2014). similarly, it is assumed in this article that the organizational effects are related to the internal consistency of the mentioned organizations elements, and that the greater alignment of the elements is related to the better organizational performance. thus, we set the following hypothesis: 43 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) author(s) organizational elements designing principles alignment of elements mintzberg(1980) basic elements of an organization basic mechanisms of coordination systems of planning and control congruence hypothesis, configuration hypothesis, and extended configuration hypothesis configuration hypothesis; structural configurations waterman et al. (1980) structure, strategy, system, skills, style, staff, shared values aligning organizational element with situational factors the change of one element implies the change in other elements richard daft (2003) organizational structure design based on principles of contiguous approach there is a dependence between elements; a proposal for the quantification of elements robert simons (2005) four levers of organizational design to align organizational elements with the four determinants of success span of control + span of support = span of accountability. + span of influence hypothesis: the alignment of an organization’s elements has a positive correlation with the organizational performance. in order to demonstrate the impact the alignment of elements has on the organizational efficiency, we conducted a research to collect data on the current state of the elements, as well as the results by the defined efficiency criteria that organizations have achieved. 3. methodology in order to achieve a higher level of reliability, before the research we conducted the training of the interviewers who were to do the examinations. the training was necessary due to the specificity of interpretation of the questions in the questionnaire and reducing the misunderstanding by the respondents. the technique used in the research was questionnaire with closed and open-ended questions, which were developed for of this research. 3.1 sample explanation the survey was conducted in the sampling frame of the first 300 companies in serbia ranked according to the level of their business income (annual list “top 300” companies in serbia published by the “ekonomist” magazine). the data are annually published in a special edition of the “ekonomist” magazine and represent the official data given to the agency for business register at the end of each year. in the sampling frame there are firms from 22 different sectors, whose business income is more than 20 million euro and where 95% of the firms come from the group of medium-sized and large enterprises. the research was possible in those companies which we had access to, so the sample was reduced to 63 companies. моre than half of the total capital of all companies is concentrated in this group of companies (53%), or almost half of the funds (43.6%). by the level of operating revenues, the top 300 companies have achieved almost half of all companies’ turnover (45.1%), that is, more than a third of net profits (37.6%), and net losses (34.6%). these companies employ 25% of the total number of employees in all companies in the republic of serbia. all questionnaires were distributed in person, by the trained interviewers. in total, 63 directors from the organizations filled in the questionnaires, 6 of which did not meet the criteria of the survey, so they were not taken into consideration for further analysis. a total of 57 questionnaires were analyzed. all the respondents were the representatives of top management that is, they were at the position of the first hierarchical level below ceo. within the sampling frame, the sample is a nationally representative, randomly unstated sample. to increase the reliability of the collected data and avoid possible mistakes, double entry of data from the questionnaire was conducted. in the research we calculated the variance as measure of organizational alignment as well as the correlation coefficients between the examined variables. as a support we used the spss software. 3.2 measuring the variables of the organizations’ elements the variable of the organizational structure which was measured was the span of control. under the term “control” we assume the influence, permissions, and resources of the organization, assigned to a position for execution and disposal, in order to achieve the objectives for which a position is defined (ouchi & dowling, 1974; meier & bohte, 2000). the span refers to the width or the distance between the two extreme values. thus, the span of control implies the size of the influence, permissions, and resources assigned to a particular position (wong et al., 2015). the variable span of control is operationalized with a seven-level scale which has been developed for this research. the scale has provided the tool for measuring the values of the element. the scale has 7 numerals (numbers in this case) and rules for assigning the proper number to each span of control variable. assigning numerals to each object in the research has been conducted based on the filled questionnaires. the assumed principle for determining the span of control for some position is that is the position has a span of control that depends on the resource allocation and responsibilities for that, as well as for all positions that are in the line chain directly or through other positions below the observed position. thus, managerial po44 miloš jevtić, milica jovanović, jovan krivokapić 2018/23(1) sitions will have the span of control which is the sum of all positions below that certain position in the hierarchical chain, including the resources, influence, and authorization directly assigned to the position. the respondents had the option to circle one or more activities in the questionnaire which, by the description, are suitable for their responsibilities in the organization. activities in the questionnaire are categorized and described according to the porter’s value chain (porter, 1980). based on the circled activities and rules for assigning the numeral to a certain position, the span of control was determined for each respondent. based on the theory related to the performance measurement system, the variable measured for this organizational element is the span of accountability. the span of accountability is defined as the range of potential for achieving the effects of measurable variables assigned to a particular position (simons, 2010; christensen & lægreid, 2015). if the result of the organizational design was the allocation of responsibilities, the result of performance measurement system design is the allocation of responsibilities to organizational units (sectors, offices, departments, etc.), working groups, teams, all the way to the level of a particular position. for measuring this variable, we also developed a 7-level scale, with the rules for assigning the numerals to the span of accountability variables for each organization. the scale was developed according to scales used by other researchers to measure the managerial responsibility (ferris, dulebohn, frink, george-falvy, mitchell & matthews, 1997; wood & winston, 2007).the allocation of the numerals to each object in the survey was done based on the filled questionnaires. for this variable there were 26 different statements related to the responsibilities of the respondents within the organization. all statements were divided into 4 groups: responsibility for efficiency and effectiveness of operations (6 statements), responsibility for financial results (6 statements), responsibility related to clients (7 statements), and responsibility related to learning and development of employees (7 statements). in order to determine the internal consistency of the statements within the group, that is, measure the scale reliability, we used the alpha coefficient for the all items within 4 categories, respectively: 0.722, 0.892, 0.871, and 0.834.the result for the alpha coefficient suggests that the reliability of scale in the first group is acceptable (>0.70), and in the remaining three groups is high (>0.80) (george & mallery, 2003). based on the values by the groups, we assigned one numeral from the 7-level scale as the span of control value. the defined variable for measuring behavior formalization was a span of limitation. we defined the span of limitation as a range of limitations in activities that are defined by procedures, rules, norms, and values shared by members of an organization or a part of an organization. behaviour formalization defines limitations in business behavior or rules of conduct that are related to organizational units (sectors, offices, departments, etc.), working groups, teams all the way to the level of the positions of the employees (walsh & dewar, 1987; michaels, cron, dubinsky, & joachimsthaler, 1988). for the span of limitations, we also defined a measuring method through an appropriate measuring scale. the scale was developed according to the surveys and questionnaires developed for measuring employees’ behaviour in organizations (berson, oreg, & dvir, 2008).the scale also contains 7 numerals to be comparable to scales that measure the span of control and the span of accountability. numeral assignment to each object in the survey was performed based on the defined rules for the scale and the questionnaire responses. for this variable, there were 8 statements related to procedures, rules, norms and values shared within an organization. the alpha coefficient for all items is 0.8337 which signifies that the reliability of scale is high (>0.8) (george & mallery, 2003). the author who proposed the quantification of the alignment of organizational elements is robert simons (simons, 2005). he defined the alignment by a mathematical formula as an equality between the sum of the values of the elements that represent the supply of resources, on the one hand, and the elements that represent the demand for resources, on the other. span of control + span of support = span of accountability + span of influence span of resources = demand for resources although this approach is intuitively desirable, because it is based on the ability to compile and compare the elements of an organization, there are numerous methodological preconditions that should be fulfilled for the proposed variables to be compiled and compared (hubbard, 2014). however, the proposed model is the closest solution to the problem of the quantification of the organizational elements and their alignment based on the measured values. 45 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) to determine the alignment of the organizational elements in this paper, we explicitly defined the variable organizational elements alignment. theoretical explanations of the organizational element variables were the basis for defining this variable (prado sousa & do prado leite, 2014). alignment of elements is defined so that the highest value is achieved when all of the observed elements have the same values (3 3 3, 5 5 5, etc.), and that the mismatch represents any other combination when the elements do not have the same values. it can also be said that a smaller mismatch is a deviation of one element for one place (e.g., 3 3 4) than when they differ in two places (3 3 5). figure 2: measuring the alignment of the organizational elements (source: authors) therefore, the compliance of all three elements is measured by the value of the standard deviation value, which is calculated according to the formula (kovacic, 1994): where n represents the number of organizational elements (3 in this case), x̄ (x-bar) – arithmetic mean of organizational elements values, x i – i-th organizational element (i = 1, 2, 3). also, the same results (the correlation coefficients) are obtained if the variance of the organizational elements is selected for the independent variable. the alignment of organizational elements will have a lower value when the elements are more aligned, and vice versa, a lower alignment will cause higher values of standard deviation, that is, the variable. 3.3. measuring the organizational performance for companies from the sampling frame, the annual reports were publicly available, containing various important data such as business revenue, business revenue growth, number of employees, ebitda, capital, as well as other data from the company profile–sector, type of organization, location, etc. the criteria of organizational performance were focused on productivity indicators, since they are the most objective and most common efficiency criteria used in research (carton, 2004). for productivity criteria we used: • business revenue / average number of employees. in business revenues, unlike total income, there are no data on financial revenues arising from the sale of shares, bonds, a sale of shares in other legal entities or by interest and dividends, as a result of long-term investment in financial assets (biddle, 2012). • ratio ebitda / average number of employees. this ratio is the data that allow comparing the realized profit without the effects of fixed assets (excluding depreciation costs), taxes and sources of funds (not including interest costs) (kale, ryan jr., & wang, 2016). for these two criteria, we also calculated the appropriate percentile ranks within the sector for each organization. the percentile rank is defined as the percentage of subjects in the observed group that has the 46 miloš jevtić, milica jovanović, jovan krivokapić 2018/23(1) value of the observed variable at or below a certain value (dixon & massey frank, 1950). percentiles are used in many studies as a dependent variable (zakari & poku, 2013; abramo & d’angelo, 2014). percentile ranks are calculated based on the data for all 300 organizations from the sampling frame because data on organizational effects are taken from the public reports, and not from the filled questionnaires. by using the percentile ranks of raw scores, we bypassed the influence of sectoral affiliation of the organizations and other factors that affect the performance indicators. 4. results and discussion the independent variable in the model is the alignment of organizational elements, while the dependent variables are the organizational performance variables (figure 3). in our model, lower values of variance signify higher organizational alignment. thus, when the alignment of organization’s elements has a positive correlation with the organizational performance (dependent variables), variance negatively correlates with the organizational performance. figure 3: research model the correlation between the alignment of organizational elements and the efficiency criteria is expressed by the spearman correlation coefficients. however, since the functional dependency between the tested variables does not have to be linear, and since the data are not normally distributed, in this study we used spearman’s correlation coefficient (kovacic, 1994). the results of the dependency examination are shown in table 2. table 2: correlation between alignment of organizational elements and efficiency criteria **. correlation is significant if the value of the test is lower than 0.01 (when a two-sided correlation test is conducted). *. correlation is significant if the value of the test is lower than 0.05 (when a two-sided correlation test is conducted). the table shows the correlation coefficients and other data used to interpret the correlation between the organization’s elements and the efficiency criteria. the following correlation coefficients were obtained for the most significant efficiency indicators: • business revenue/average number of employees (r0=-0.373, p<0.01), • sectoral percentile for business revenue/average number of employees (r0=-0.430, p<0.01), • ebitda/average number of employees (r0=-0.265, p<0.05) • sectoral percentile for ebitda/average number of employees (r0=-0.283, p<0.05) the obtained correlation coefficients (r0) have a negative value, which means that there is an inversely proportional correlation between the values for the independent (compliance of the elements) and the de47 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) efficiency criterion alignment of organizational elements r0 sig. revenue/average no. of employees -.373** 0.004 sectoral percentile revenue/avg no. of employees -.430** 0.001 ebitda/ average no. of employees -.265* 0.046 sectoral percentile ebitda/avg no. of employees -.283* 0.033 pendent variables, signifying that greater alignment of the elements is in correlation with the better performance of the organization. for the first two dependent variables, the obtained correlation coefficients (r0 = -0.373, r0 = -0.430) indicate the medium strength of the correlation, while the other two variables (r0 = 0.265, r0 = -0.283) have weak correlations with the organizational alignment (pallant, 2011). the calculated correlations are statistically significant for all variable values. a higher correlation between the variables in the model was determined when the percentile ranks of the sector of the economy were taken as efficiency criteria. using percentile ranges reduces the differences between the different sectors of the economy of the observed organizations because the range of these values is between 0 and 100. the obtained determination coefficients explain how much the total variance of the dependent variable is assigned to the value of the variance of the independent variable (alignment of the elements). for example, alignment of elements helps to explain about 14% of the variance in revenue/average number of employees. when interpreting the results of the performed analysis, we should take into consideration the fact that the sampling frame in the survey was the organizations that are on the list of the top 300 organizations in serbia. the selection of the sampling frame has influenced the limitation of the value of the dependent variables (the efficiency indicators) (trotter, 2012). although among the top 300 organizations there are differences in terms of efficiency, it is possible that companies that are not on this list have a different distribution of dependent variable values. the problem of the range of values of variables occurs in situations where all objects are not taken into consideration, but only those whose variable values belong to some narrower range (todorovic, 2008). figure 4: correlation diagram for the selected sampling frame (todorovic, 2008) figure 4 shows thea clear positive correlation between the independent and the dependent variable (elongated ellipse) when all cases are taken into account. however, limiting research to a narrower set of subjects (between two vertical lines) suggests a smaller correlation between the two variables. unlike previous research that used mostly categorical variables for the analysis of the organizational elements, in this paper we measured the values of the organizational elements by the mathematical calculation. for this research, we defined the measurement scales of organizational elements, according to which each element of the organization was assigned particular numerical values on a seven-level ordinal scale. the defined measurement scale represents a step forward in relation to the previous categorical measurements of the elements of the organization, which is one of the main contributions of this paper. also, the existing sample for which the survey was conducted represents a relatively small sample in comparison with the total population. better conclusions could be drawn for the research conducted on a larger sample, including organizations with a lower business income. one of the limitations of the research is measuring the variables of organizational elements, which has elements of subjectivity (meier & o’toole jr, 2013). although precise descriptions of the characteristics of variables have been made, there is a certain degree of subjectivity in assessing the value of the elements on the scale from 1 to 7. further, in future research, other parameters of the elements included in the presented model and other organizational elements, should be included in the model. in addition to the organizational structure, performance measurement system, and behaviour formalization, the organization consists of other 48 miloš jevtić, milica jovanović, jovan krivokapić 2018/23(1) elements such as strategy, processes, reward system, organizational culture, human resources, etc. also, the existing sample for which the survey was conducted represents a relatively small sample in relation to the total population. better conclusions could be drawn if the research was repeated on a larger sample, including organizations with a lower business income. 49 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) there are multiple practical implications of the results of the research. first, the alignment of the elements is defined which can be used in the process of organizational design for both macro-organizational structure and individual parts of the organization at lower levels. the suggestions of organizational solutions can be tested using the model suggested in this paper to check if there are greater deviations in organizational elements’ variables. second, the proposed model can be used in the existing organizations as a practical tool to check the alignment of organizational elements and define the appropriate programmes of change. this paper aimed to give a theoretical overview of the alignment of organizational elements and their connection with organizational effects. by defining the method of measuring the elements of the organization, we tried to contribute to solving the critical issue of organizational element alignment. the obtained results are in favour of the defined hypothesis according to which the compliance of organizational elements has a positive correlation with the organizational performance. accordingly, when designing an organization or its parts, the designed solutions should be defined in such way to have values on the scale as close as possible, that is, there should be a greater alignment of the elements. the scale defined in this paper for measuring the elements’ alignment can be used as a control tool for checking the proposed solutions in the process of organizational design. further, the research supports the postulate that it is necessary to simultaneously look at solutions by several elements of the organization, which is also the conclusion of other authors (khandwalla, 1973;mintzberg, 1980;galbraith, downey, & kates, 2002; simons, 2005). the paper gives a theoretical and empirical review of the alignment of organizational elements, and opens new issues that should be explored in future research. the future research directions should be oriented towards repetition of the research on a wider sampling frame to include the small and medium-sized organizations that are not included in the top 300 by the annual turnover. secondly, the research should be conducted for more positions within the same organization. in this way, it would be possible to determine the values of the observed variables for multiple positions in the structure and to examine if the alignment between the variables is consistent within the organization. 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(2013). organizational culture and organisational performance: empirical evidence from the banking industry in ghana. international journal of business, humanities and technology, 3 (1), 95-107. received: 2017-09-26 accepted: 2017-12-17 miloš jevtić university of belgrade, faculty of organizational sciences, serbia jevticm@fon.bg.ac.rs milos jevtic works as an assistant professor at the faculty of organizational sciences, university of belgrade. during the last 12 years, he has taught fundamentals of organization, organizational design and management of special events courses at undergraduate studies, as well as several subjects at master studies. his basic fields of interest are organizational design, management control systems and organizational culture. he is a consultant of human synergistics for organizational culture and effectiveness. he has published more than 50 papers in scientific and professional journals and conferences. during his work at the faculty of organizational sciences, he was engaged in more than 20 commercial and scientific projects. he is the president of “belgrade university rowing club”. 51 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) about the authors 52 miloš jevtić, milica jovanović, jovan krivokapić 2018/23(1) milica jovanović university of belgrade, faculty of organizational sciences, serbia jovanovic.milica@fon.bg.ac.rs milica jovanović, msc, works as a teaching assistant at the faculty of organizational sciences, department for technology, innovation and development management. she is completing her phd studies at the faculty of organizational sciences, university of belgrade information systems and management. she has been involved in 3 consulting projects and 1 strategic project funded by the ministry of education, science and technological development of the republic of serbia. she is the author and coauthor of more than 20 scientific papers. her main research interests include: technology and innovation management, quantitative management, sustainable development and performance management. jovan krivokapić university of belgrade, faculty of organizational sciences, serbia krivokapicj@fon.bg.ac.rs jovan krivokapić is an assistant professor at the faculty of organizational sciences in belgrade, at the department for business systems organization. he graduated at this faculty in 2007, in 2009 he became a master engineer of organizational sciences, and in 2016 he defended his doctoral dissertation. his areas of interest are business consulting, organizational design and restructuring, and special events management. as the author or co-author, he has published 4 books and more than 40 papers in scientific journals and conferences. he has participated in more than 15 consulting and research projects and some of them were of high social significance. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03 predstavljanje konferencije:tipska.qxd 25 thematic section of the journal management messages, conclusions and contributions from the spin’013 round table challenges of new industrialization udc: 050.432:330.34 doi: 10.7595/management.fon.2014.0003 in the period 5-6 november, 2013, the ninth symposium of academics and practitioners, spin’013, was organized by the faculty of organizational sciences, university of belgrade and the chamber of commerce of serbia in belgrade at the premises of the chamber of commerce of serbia. the center for operations management at the faculty of organizational sciences has been traditionally the initiator and bearer of the activities of spin’013 and significant results have been achieved by their full engagement. the general theme of the symposium «new industrialization, reengineering and sustainabilty» draws special attention to the theory and practice of new policy and strategy oriented towards new technology, operations and competitive innovative goods and services for sustainable development. the programme and organizing committees of spin’013 have put in efforts and energy to fulfill the goals of providing a unique international forum to facilitate an interdisciplinary disussion of current issues and an exchange of cuttingedge information, ideas and innovative solutions in view of urgent changes necessary in all the spheres of the economy and society. economic and financial crisis with the problems of unemployment, recession, productivity decline and slowing down of the overall economic activity, point towards new technology, entrepreneurship and industrial operations creating new value as a solution and strategic path leading to revitalization of industry and economy. comprehensive and radical reengineering is necessary in all domains and all the actors present within the economic and social environment are responsible for implementing change and finding sustainable solutions. the broad issues and themes have brought together scientists, researchers, policy makers and practitioners with more than 70 papers and contributions with presentations and discussions within different problem areas of operations management covered more specifically through the following themes: industrialization strategy and operations management, reeingineering and restructuring, production operations management, information systems and technology, ecology management, entrepreneurship and sme development, investement and project management, logistics and supply chain management, quality management, process reengineering, technology, innovation and sustainable development management, finance and marketing operations management, hr management, and management methods and models. the general theme «new industrialization, reengineering and sustainability» is of special significance in provoking the issues and themes which play a central role in economic development, focusing the problems on the level of the basic units of economic activities, i.e. organizations of different sizes, both public and private and in different sectors of economy, where new value is created in the form of goods and services with innovation and entrepreneurship as driving forces. the challenges of new industrialization demand urgent response, change and transformation of organizations, business environment, education with emphasis on higher education, the state, government insitutions, economic system, and society as a whole. having in mind the significance of the themes and interest that they provoked, the round table «challenges of new industrialization» had been organized within the symposium activities, with three moderators: prof. dr maja levi jakšić, faculty of organizational sciences, mrs vidosava džagić, the chamber of commerce of serbia, and mrs radojka nikolić, editor-in-chief of the leading journal for current economic issues, ekonometar. the starting point for discussion was based on the understanding that the strategy of sustainable management journal for theory and practice management 2014/70 development rests upon the fulfillment of economic, social and environmental goals, essentially dependent on innovation and new technologies. despite the problems of the global financial crises and a high rate of unemployment registered in different parts of the world, the key to revitalization and emerging of new prosperous economic cycles lies in larger investments in research and new technology development projects. the indicated priorities for serbia in the domain of industrial development underline a sustainable technological change and technology innovation as fundamental pillars of development. new industrialization is based on product, process and consumption reengineering. the round table brought together more than sixty participants, representatives from industry, university, and government who discussed the challenges of new industrialization pointing out the most urgent and acute problems. the introductory speeches were delivered by three eminent professors of the university of belgrade: prof. dr petar petrović, the faculty of mechanical engineering; prof. dr ljubodrag savic, the faculty of economics and prof. dr radivoj mitrović, the faculty of mechanical engineering. the introductory speeches were more specifically oriented towards themes of strategic industrial priorities and focus on new technologies, sustainable economic development strategy and new industrialization, the roles of state in research and development. the panelists and participants in the discussion focused on different areas and issues related to economic and business environment, industrialization policy, the european strategy of key enabling technology, technology transfer, new business models, information technology, entrepreneurship, small and medium enterprises, intellectual property rights, etc. the main conclusions and results of the discussions of the round table are summarized as follows: managing sustainable industrial development at different levels is the crucial goal: at societal, economic, regional, sector, and firm levels. the strategy of reindustrialization in serbia is part of the sustainable development strategy with priorities in sustainable industrial development based on new technology and innovation. industrialization is feasible and sustainable only within the conditions of well funded and developed system framework the crucial role in developing a supportive and innovative environment for realizing the new industrialization strategy points to different actors as bearers of the key roles: government, universities and higher education, science, technology and innovation systems, the finance sector, firms as econmic and industrial agents, special agencies and associations. industrialization is part of the eu integration processes of serbia and in harmony with the development policy and strategy of the eu states. the world experience, especially the experiences of new industrialization policies in the eu as well as the new technological platforms until 2020, represent a framework for a clear definition of national feasible and sustainable development paths and solutions. firms oriented at continuous innovation and improvement of products (goods and services) and all the processes and operations by which business results are achieved, survive on the markets and register competitive advantage. sustainability is the key and critical new dimension of modern business with fundamental contribution to growth and development with long-term competitiveness. both strategic and operational technology management tasks are equally important and critical to the development in serbia. strategic technology management determines a clear framework for technology transfer: scientific development areas, research and technological innovation and development, vertical and horizontal technology transfer distribution and share, types of adequate, new technologies for certain sectors and firms. operational technology management is necessary in realizing efficient operations with implemented technologies. the five papers presented in this thematic section contributions from the spin’013 round table «challenges of new industrialization», of the journal emphasize the main issues and challenges of new industrialization with special attention and focus on the situation in serbia. prof. dr maja levi jakšić, spin’013 programme committe chair and round table moderator 26 2014/70management journal for theory and practice management # 02_83(3) m pavlovic:tipska.qxd 15 marko pavlović1*, radica bojičić2, milijanka c. ratković3 1univerzitet union nikola tesla, faculty of business studies and law, belgrade, serbia 2 university of prishtina, faculty of economics, pristina 3 univerzitet union nikola tesla , faculty of business studies and law, belgrade, serbia and university of donja gorica, faculty of sport management, podgorica, montenegro management: journal of sustainable business and management solutions in emerging economies 2018/23(3) abstract: research question: this study examines users’ satisfaction with the postal service in serbia using a questionnaire measurement. motivation: the post of serbia operates both with private and business clients, with whom it has long-term relationships not only in terms of sending and receiving parcels, but also with new and modern services. due to the growing competition on the market, the question arises how to place the post of serbia on the market in the future. data: primary data of postal services, new postal services, as well as a custom questionnaire for examining users’ attitude towards postal services intended for private clients. tools: method of survey, descriptive statistics, method of analysis and content analysis. findings: the satisfaction of users of postal services is an important element of the perseverance and development of the post of serbia. contribution: quality review of postal services in the opinion of the private users. obtained gap between users satisfaction and needs and further directions in which the post of serbia should be developed according to the user’s opinion. key words: post, competitiveness, expectations of postal services users, perception of users of postal services, servqual model. jel classification: bm31, y1, c1 customer satisfaction with postal services in serbia doi: 10.7595/management.fon.2018.0005 1. introduction the market of postal services is constantly evolving and changing (sarac, kopic, mostarac, kujacic & jovanovic, 2016). following the example of europe after the end of its monopoly status, the post begins to pay attention to the needs of its users. postal operators are affected by the changes and the impact of globalization. in order to survive on the market, companies must observe the needs and demands of their users, analyze them regularly, and come up with quick and quality solutions (lee & yang, 2013). this situation raises the question of how to improve their business. increasing the quality of services inevitably leads to an increase in the value of services. measuring customer satisfaction is one of the important factors for determining the quality of services, and hence for improving the business results. the challenges of measuring the quality of services are usually related to the nature and meaning of services, and not only to the demands of change and pressure from the competition. the latter is based on the specific features of services. the quality of services is an important factor for the business success of the post today, as well as for the business success of other companies. there is a number of ways of defining services, the most commonly used ones being: the first which is based on activities and performance as the basis for defining services (hill & alexander, 2006), and the one based on the characteristics of services (berry & jams, 1995).the difficulty of defining the desirable quality of services lies primarily in the changing nature of user demands. namely, the requirements of the postal service users are constantly increasing, and in order for the post to expand its services and survive, it must constantly monitor the demands of the users in accordance with their needs. *corresponding author: marko pavlović, e-mail: markopavlovic82@mts.rs to that end, it is necessary to conduct continuous research and to implement the obtained information into business decisions. when analyzing the behavior of post service users, one should bear in mind that the basic elements that influence their expectations are: previous experience, environmental recommendations and promotional promises. the basic aspects that influence consumer expectations are user needs, previous experience, recommendations and promotional promises. also, the internal content, that is, the interior has a direct impact on the expectations of the users. scientific and technological research conducted by foreign authors indicate a growing interest in studying the quality of services and user satisfaction, not only in the field of postal services, but also in other organizations that provide services. unlike these foreign authors, domestic authors have rarely studied this issue and have taken only a few aspects into consideration. (kabene, orchard, howard, soriano & leduc, 2006). at the same time, the advancement of technology imposed new methods of doing business, as well as the reversal of the relationship between users and the companies themselves (kujacic, unterberger, sarac&jovanovic, 2014). taking this fact into consideration, the need to increase service efficiency and quality is a critical strategic focus, given the increasing technological competition, rising operating costs, and changing customers’ needs and expectations. (pitia et al., 2013). we can see that there is a theoretical and practical justification for the research presented in this paper. research results can help postal service operators take the necessary measures to fill the gaps between expected and perceived quality, in order to improve the performance of existing services. in accordance with the research objective, the following hypotheses have been defined: initial hypothesis: postal service users have higher expectations than those the quality of which is being provided. secondary hypotheses: h1 postal service users expect more from the dimension of the quality of “reliability” h2 postal service users expect more from dimension of the quality of “trust” h3 postal service users expect more from the dimension of the quality of “empathy” h4 postal service users expect more from the dimension of the quality of “responsibility” h5 postal service users expect more from the dimension of the quality of “tangibility” the research is based on the servqual model adapted to the post. the servqual model provides us with the opportunity to measure the quality of the service based on five dimensions, namely: tangibility, trust, reliability, responsibility and empathy (sokolov-mladenovic&cuzovic, 2015). the servqual methodology is based on gap number 5, i.e., comparing subsequent perceptions with preliminary expectations, of course, from the point of view of users (pindzo&loncar, 2013). a small number of scholarly research, to date, has been carried out to classify quality elements and full features of services and their associations with customer satisfaction (roopchund&boojhawon, 2014). servqual methodology is an implemented and tested methodology primarily within the commercial sector (kaye&dyason, 2013). bryaland and curry (2001) concluded that the literature clearly supported the use of servqual in the public sector. there are a number of researchers who have adopted servqual for measuring service quality in the banking sector (ladhari, ladhari&morales, 2011; rakesh, 2012; ilyas, 2013; panda & kondasani, 2014; roslan, nor & wahab 2015; garrard, francesca & narayan, 2013; kiumarsi, jayaraman&mohd-isa 2015). based on the insights into literature, the authors decided on this model of quality service measurement in the post of serbia. during the research, certain limitations emerged from the model itself, but also due to the fact that the expected number of responses was not obtained and due to the fact that the answers in some questionnaires were incomplete. more than 2,000 e-mails or questionnaires have been sent. in all, 430 responses were collected, 30 respondents did not give a complete answer, i.e., they did not complete the questionnaire to the end, so these answers were excluded from processing. it should be noted that this method of data collection has certain disadvantages, especially because we are talking about the available probabilistic pattern that does not meet strict criteria of representativeness regardless of size (evans & anil, 2005). on the other hand, there are various advantages of this method of collecting data that should be emphasized, such as cost reduction, inability to influence response and comfort of respondents (milosevic&rodic, 2015). 16 marko pavlović, radica bojičić, milijanka c. ratković 2018/23(3) 2. motivation for research postal services, i.e., the clearance, sorting, transportation and delivery of postal items, still remain an important part of the country’s economic and social development (pilinkiene, deltuvaite, daunoriene & gaidelys, 2017). the trend of continuous development of new services has been very popular in recent years in postal and other service-oriented companies and is conditioned by the demands and desires of the users (maricic, veljkovic&djordjevic 2012). the achievements of modern information technologies and their applications have significantly affected the service domain. the application of information technologies reduces operating costs and interest margins; improved quality of services, new services and products are being created, and risk management becomes more efficient (vunjak&kovacevic, 2011). the existence of a universal postal service means that the market cannot provide an adequate level of service or the full range of products, or at least not at an affordable price level for all users in its absence (ambrosini, boldron, & roz, 2014). one example of a service that positively affects the satisfaction of users in the post is providing information on the waiting time. waiting time information positively affects customer satisfaction when it comes to waiting time (bielen&demoulin, 2007). users are familiar with the time spent in waiting and use this experience to adjust their needs to the average waiting time in the facility after the service is performed (jovanovic, grbic, bojovic, kujacic&sarac, 2015). based on this, the degree of customer satisfaction can be presented as the ratio of the acceptable and expected waiting time according to previous experience (acker, haxholdt& larsen, 2013). the main intention of the post is to attract new users and to maintain good relations with the existing users, or to expand the value, especially when it comes to offering new products and services. the post of serbia is changing its business philosophy that was initially passive and is now slowly becoming proactive in seeking new ways of doing business (blagojevic, selmic, macura&sarac, 2013). innovation in business primarily relates to technologies related to the transfer of money and packages. the distribution network for the realization of information and business contacts that are available to banks and post offices includes atms, sms services, internet services and other. therefore, with an increasing importance of internationalization of the business and quality system, consumers are given a central place in business operations. at the same time, consumer awareness is enhanced with the process of technological development and globalization (grubor&milicevic, 2015). these changes imply a demand for constant improvement of customer satisfaction, which directly affects the life cycle of products and services. how long the product life cycle will be, whether it is a commercial repositioning of a stagnating brand or not, and what the level of consumption will be, depends on whether consumers are stimulated. one of the biggest challenges for carrying out academic research is customer dissatisfaction (mahapatra, 2014). successful marketing strategies and business success in the market depend on users, as well as success in the long run. established partnerships with customers are mutually beneficial, both for themselves and for the company (milisavljevic, 2009). in today’s business conditions, it is very difficult to attract new users. today’s business environment is radically different from that in the past in most aspects (ratkovic, krasulja&garaca, 2013). it is therefore necessary to work on discovering the motivation factors which are part of the psychological determinants of making decisions. companies that focus on customer satisfaction are focused on satisfying their needs, not on products. researching motivation is important in order to understand why users are looking for, buying and using certain types and brands of products and services. a motivated user is ready for action, i.e., purchasing of offered products and services. motivation is an internal force that cannot be seen, but it stimulates and guides consumer behaviour in the desired direction. consumer behavior in the purchasing process has its own purpose, i.e., the goal. the purpose and goal is to meet certain needs or desires. however, consumer behaviour changes over time under the influence of different factors, which indicates the need for continuous research of motivation. if you understand consumers’ motives, half of the work is done in order to adequately meet the needs and achieve sales and make profit (maricic, 2005). provision of basic postal financial services contributes to global economic development, and hence to social development, and plays a very important role in improving the living standard of the population. a large number of postal operators in the world direct a significant portion of their activities on providing e-services to their clients (sarac, kujacic&jovanovic, 2013). it is necessary to point out that the post of serbia is investing increasing efforts into finding, as well as into maintaining good business relations with their customers. post offices are changing their business philosophy, which was initially passive, and now they have become proactive in finding new jobs or users. innovations in the business of the post of serbia are primarily related to the implementation of new technologies, the transfer of money and shipments. the modern 17 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) marketing environment includes the use of innovations in the field of information and communication technologies and appropriate solutions in the form of software and other it solutions (grubic&ratkovic, 2012; grubic, ratkovic&paunovic, 2013). distribution networks used to create information and business contacts are made up of atms available to banks and post offices, sms services available to banks and post offices, internet services, with the requirements of the modern environment. having in mind the fact that the market consists of many different elements that have mutual impact and effect on the company’s operations, the ability to create strategic performance can include all options, from selecting a homogeneous segment and placement of products, to the selection a large number of different segments and presenting more products (ratkovic, grubic&tasic, 2011). the choice of strategy can limit the possibilities of improving the satisfaction of target groups or individual users, which implies the importance of creating flexible structures of relations between postal service users and the post. in order to increase user satisfaction it is necessary to implement new achievements of modern technologies, which affects the development of the entire economy. a modern society cannot be imagined without an efficient postal system (dobrodolac, ralevic, svadlenka&radojicic, 2016). postal services represent a support to the citizens. we are witnessing the fact that the post of serbia successfully cooperates with large institutions and facilities providing its basic and additional services. let us here just mention a number of them: sales of free shares to citizens lasting for more than ten years, activities related to restitution, cooperation with the ministry of trade and tourism, i.e., holiday vouchers for vacations in serbia, as well as the cooperation with the national health insurance fund. this kind of cooperation helps a lot of citizens, i.e., recipients of services. in the future, such services can become universal postal services. the very availability itself will allow this. universal postal service is a set of measures aimed at providing users with the same level of service at an affordable price in all places on a territory (dobrodolac, ralevic, svadlenka&radojicic, 2016). some authors have analyzed how a universal postal service can use its specifics and gain an advantage over other competitors (dobrodolac, lazarevic, svadlenka&zivanovic, 2016). the main characteristics of the environment are permanent changes, which pose risks, but also opportunities that can bring advantages over the competition (knezevic, macura & bojovic, 2014). therefore, it should be made clear that if the existing universal postal service provider is protected by monopoly, competition will not be sufficiently developed, nor the quality of the service provided (miletic, 2013). a universal postal service is a set of basic postal services that are continuously carried out on the territory of the republic of serbia, within a certain quality at favorable prices and under the same conditions for all users without discrimination (the regulation on general conditions for the provision of postal services, “official gazette of rs”, number 24/2010, 58/2010, 2/2011, 13/2011, 65/2011, 93/2013 and 97/2015). postal services include transfer of packages, marketing services, including announcements, advertisements, direct mail, mail, personalized postage stamps, marketing services of the post of serbia, telemarketing, telephone sales, commercial sms services, mailboxes, hybrid mail services etc. financial services include payment, money transfer, banking services, remittances, e-services; cash express services, atms, free shares, banking services and the exchange office of the post office of serbia. there are additional services such as logistics, including it services, philately, product sales and other services realized in cooperation with other organizations (for more information visit www.posta.rs). a market relationship that includes relationships with employees and relationships with customers, as well as other groups of participants in the supply chain that provide value to the end user, is, in fact, a concept that modern marketing places as a central task, and which is just what the post is doing. in the eighties, parasuraman, zeithaml, and berry (1988) noticed the need to measure the quality of the service and conducted extensive research and examined the significance of service quality (hill&alexander, 2006). measuring quality is important for the post to operate because it is an indicator of whether the service should be changed or not. service quality should be a priority for service providers. customer satisfaction is becoming one of the most important elements for long-term business. the essence of the new concept of the universal postal service lies in improvement of the final phase of the transfer, bearing in mind that the highest costs are related to the delivery phase (ralevic, dobrodolac&markovic 2016). bass’s diffusion model describes the process of accepting new services through the interaction between existing and potential users (bass, 1969). in developed countries, some post offices are privatized, but the post of serbia is not ready for this step yet. still, some postal services can go towards privatization, but in line with european standards and procedures. there is no clear mandate for the privatization of the posts at the time being (petrovic, 2016). in developed countries, the post undergoes an implamantation of a strategy of growth, and with this becomes a competitor. the model of a market-oriented state enterprise is the most promising for postal operators’ transformation into an entity capable of providing universal service at acceptable prices in the 21st century economy (petrovic, 2016). 18 marko pavlović, radica bojičić, milijanka c. ratković 2018/23(3) privatization is a process of transferring ownership of a postal service provider from the public sector (stateowned) into the private sector. the predecessor of privatization is corporatization which turns postal state agencies into corporations (jaag, 2014). at the moment, the post of serbia will not be privatized, although some economic analysts believe that this step will improve its business. the restrictions are derived from the defined way of providing universal services and their defined scope according to the directives of the european parliament and the council (1997, 2002, 2008), but also according to specific conditions in individual countries (matuskova & madlenakova, 2017). the economic theory generally considers privatization as a change of ownership, i.e., privatization of materials and does not include explicitly formal privatization, which is surprising (schuster, 2013). the changing environment of the postal sector over the last decade has increased the urgency for governments worldwide to re-examine regulations governing how their public postal administrations operate (pitia, singh & postal, 2013). the need to increase the efficiency of services and quality in the post of serbia is a key strategic focus together with that the services provided should be made better than competitors’. certainly the capacity of the postal network is a unique strategic advantage of any post, since it provides access to services in the internal market, while at the same time it supports expansion and global integration (blagojevic, selmic, macura &sarac, 2013). 3. the research sample the survey was conducted in the period from the beginning of november to the end of january 2017. the total sample consisted of 400 participants, citizens of the republic of serbia. in relation to gender, the majority of the sample (two-thirds) consists of female respondents (66.0%) and one-third of the respondents were male (34.0%). the sample was balanced by age: 20,0% of respondents is represented in all five age categories (from 17 to 24 years, 25 to 35 years, 36 to 55 years, 56 to 65 years of age and over 65 years of age). when it comes to professional qualification of the respondents (chart 1), most respondents in the sample have a university degree (33.3%). 32.8% of them completed their secondary school, and a quarter of the respondents (25.8%) has college education. 5.0% of respondents have a master’s degree, while 3.3% of respondents have a doctoral degree. respondents with a degree in elementary education are not represented in the sample. in addition, most respondents almost two-thirds reside in sumadija and western serbia (60.8%), in relation to the place of residence (chart 2). 17.8% of respondents are from vojvodina, slightly less (16.8%) from belgrade, while 4.8% of respondents are from south and east serbia. respondents from the region of kosovo were not included in the sample. chart 1: sample structure according to education source: authors’ calculations 19 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) 33.3% 32.8% 25.8% 5.0% 3.3% the level of professional education university secondary school college master phd chart 2. sample structure according to place of residence source: authors’ calculations in relation to the marital status of respondents, slightly more than half of respondents (53.8%) are single and the remaining 46.3% are married. in the sample there were no divorced or widowed respondents. when it comes to the height of monthly income (chart 3), the structure of the sample showed that most respondents, almost half of them (47.0%), do not want to disclose the amount of their monthly income. in addition, 13.0% of respondents have a rsd 40,001-50,000 monthly income, 12.0% of them have a rsd 26,001-40,000 monthly income and 11.5% of respondents have an income higher than rsd 60,000. in addition, 10.0% of respondents have a rsd 15,001-25,000 monthly income, and 6.5% of respondents have a rsd 50,001-60,000 monthly income. chart 3. sample structure according to monthly income source: authors’ calculations when it comes to the social status of the respondents (chart 4), nearly two-thirds of the respondents are employed (64.0%), 30.3% of them study, 3.8% are retired and 1.0% of the respondents are unemployed or farmers. 20 marko pavlović, radica bojičić, milijanka c. ratković 2018/23(3) 60.8% 17.8% 16.8% 4.8% place of residence region of sumadija and western serbia region of vojvodina belgrade region region of south and east serbia 47.0% 13.0% 12.0% 11.5% 10.0% 6.5% monthly income (rsd) do not want to disclose 40,001 50,000 26,001 40,000 over 60,000 15,001 25,000 50,001 60,000 chart 4: structure of the sample according to social status source: authors’ calculations 4. research results it is necessary first to check the reliability of the used instruments before we begin with the presentation of the research results. scales that measure the expected and perceived attributes of postal services and a mismatch between expected and perceived services (gap model) were used. each used scale has 27 questions grouped into 5 dimensions or attributes of services: tangibles, reliability, responsiveness, assurance and empathy. both scales are likert-type with a five-choice answers, from strongly disagree (1) to strongly agree (5). table 1: reliability of the expected attributes of service scale and perceived attributes of service scale source: authors’ calculations table 1 presents the reliability of the used instruments (scales). very high reliability coefficients for both scales were obtained: the scale of expected attributes α=0.813, and for the perceived attributes of service α=0.950. both used scales have acceptable reliability while obtained coefficients are considered to be very high. as already mentioned, the study examines the discrepancy between the expected and perceived attributes of postal services (servqual model). inconsistency is expressed by divergences obtained on the expected attributes of postal services in relation to the perceived attributes of postal services. table 2: prominence of expected and perceived attributes of postal services on the entire sample (servqual model) source: authors’ calculations 21 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) 64.0% 30.3% 3.8% 1.0% 1.0% social status employed student retiree farmer unemployed scale cronbach’s alpha ( ) number of items (n) expected attributes of service 0.813 27 perceived attributes of service 0.950 27 expected attributes perceived attributes divergence tangibles 4.60 0.319 tangibles 3.44 0.666 1.16 reliability 4.66 0.370 reliability 3.36 0.748 1.30 responsiveness 4.21 0.423 responsiveness 3.03 0.750 1.18 assurance 4.15 0.617 assurance 2.90 0.715 1.25 empathy 4.36 0.511 empathy 3.14 0.751 1.22 average 4.40 0.323 average 3.17 0.628 1.23 table 2 illustrates the severity of scores on subscales of expected and perceived attributes of postal services, as well as an aggregated average of both scales. the resulting scores show that the highest prominence on the subscales of the expected attributes was obtained for the expected reliability dimension (average score=4.66), and the lowest expression was obtained for the expected assurance dimension (average score=4.15). on the scale of perceived attributes of postal services, the highest score was obtained for the perceived tangibles dimension (average score=3.44), while the lowest score was obtained for the perceived assurance dimension (average score=2.90). divergences in all subscales of the expected attributes in relation to the perceived attributes of postal services were obtained using servqual model. the biggest divergence was perceived for the reliability dimension (1.30) and the lowest divergence is related to the tangibles dimension (1.16) (chart 5). chart 5: divergences in measured dimensions obtained by applying servqual model source: authors’ calculations the relevance of differences was tested in the subscales of result expression of expected and observed attributes of postal services using the non-parametric test, the wilcoxon signed-rank test, after presenting the severity scores and differences obtained by using the servqual model. the results show that there are statistically significant differences for all five dimensions of the scales of expected and observed attributes of postal services, as well as aggregated averages of the entire scales. all of the obtained severity differences have a negative sign, which is in accordance with the results of the previous table (table 2). the biggest difference between expected and observed attributes of postal services was obtained for the aggregate average scale, i.e., the reliability dimension, while the smallest difference was observed for the assurance dimension according to the z score height. in addition to testing the difference in expected and observed attributes of postal services, i.e., application of the servqual model, this study includes differences in the severity of the measured dimensions in relation to gender, age, residence, education level, marital status, monthly income level and social status of the respondents. table 3: the significance of divergences in the prominence of results on the expected and perceived attributes subscales depending on the gender of the respondents df = 400; p˂0.01 **; p˂0.05 *;source: authors’ calculations 22 marko pavlović, radica bojičić, milijanka c. ratković 2018/23(3) 1,30 1.25 1.23 1.22 1.18 1.16 reliability assurance average empathy responsiveness tangibles servqual model expected attributes scale perceived attribute scale tangibles -0.096 0.924 tangibles -1.020 0.308 reliability -2.969 0.003** reliability -0.067 0.946 responsiveness -1.587 0.113 responsiveness -2.860 0.004** assurance -0.867 0.386 assurance -2.070 0.038* empathy -0.427 0.669 empathy -5.250 0.000** average -0.131 0.896 average -1.297 0.195 table 3 shows the significance of divergences in the prominence of the results on measured subscales of expected and perceived attributes of postal services, as well as the significance of divergences in the cumulative averages of both used scales. significance was tested with the help of the man mann-whitney y test, and is presented as a height of z scores and the level of significance (p). statistically significant divergences with respect to gender were obtained for the expected reliability dimension (z = -2.969, p = 0.003). the resulting divergence is high and significant at p ˂ 0. 01 level. the subsequent analysis showed that male subjects had significantly higher averages than female respondents regarding the expected reliability dimension. significant divergences in scores are obtained for the perceived responsiveness dimension (z= -2.860, p=0.004) and perceived empathy (z=-5,2502,860; p=0.000), as well as the perceived assurance dimension (z=-2,070; p=0.038). the first two divergences were statistically significant at the high p˂0.01 level, while the third significant divergence exist at the p˂0.05 level. the subsequent analysis showed that male respondents recorded higher scores when it comes to perceived responsiveness and perceived assurance, while female respondents recorded significantly higher scores for the perceived empathy dimension. table 4: the significance of divergences in the prominence of results on the subscales of expected and perceived attributes of postal services depending on the age of respondents df = 400; p˂0.01 **; p˂0.05 *;source: authors’ calculations table 4 shows a significant divergence between the results obtained on the subscales of expected and perceived attributes of postal services, as well as divergences in the cumulative averages for both scales in relation to the age of respondents. significance was tested using kruskal-wallis test and expressed through χ2 coefficient and the significance (p). a statistically significant divergence was obtained for the expected reliability dimension (χ2=10.854, p=0.028). the resulting divergence in results is significant at p˂0.05 level, while a subsequent analysis showed that respondents from the age group 36 to 55 years had significantly higher scores than respondents in other age groups. on the dimensions of the scale of perceived attributes, statistically significant divergences in severity scores were obtained for subscales of perceived tangibles (χ2=13.225, p=0.010) and perceived reliability (χ2=11.178, p=0.025). the first obtained divergence is high and significant at p˂0.01 level and the other is significant at the p˂0.05 level. further analysis showed that significantly higher scores on both dimensions of the respondents from the age group of 25 to 35 years were obtained. table 5: the significance of divergences in the expression of results on the subscales of expected and perceived attributes of postal services, depending on the professional qualifications of the respondents df=367; p˂0.01**; p˂0.05*;source: authors’ calculations 23 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) expected attributes scale perceived attributes scale tangibles 3.116 0.539 tangibles 13.225 0.010** reliability 10.854 0.028* reliability 11.178 0.025* responsiveness 6.057 0.195 responsiveness 7.882 0.096 assurance 0.642 0.958 assurance 2.081 0.721 empathy 2.550 0.636 empathy 4.568 0.335 average 0.666 0.956 average 5.530 0.237 expected attributes scale perceived attributes scale tangibles 33.922 0.000** tangibles 5.416 0.067 reliability 17.617 0.000** reliability 0.149 0.928 responsiveness 13.867 0.000** responsiveness 8.710 0.013* assurance 31.739 0.000** assurance 0.520 0.771 empathy 37.805 0.000** empathy 7.023 0.030* average 39.804 0.000** average 1.259 0.533 χ2 χ2 χ2 χ2 given a great unevenness of the sample when it comes to the educational level (table 5), it was decided to consider only respondents from the following categories: high school (32.8%), college (25.8%) and subjects who have graduated from university (33.3%) in consideration of the existence of statistical differences in severity scores. the respondents that completed a master level of education (5.0%) as well as ph.d. respondents (3.3%) were excluded from this analysis. a revision of the relevance of differences showed that statistically significant differences (p˂0.01) exist in all dimensions of the scale of the expected attributes of services, as well as the cumulative average. according to the amount of statistics, the biggest difference is obtained on the aggregate average on the empathy dimension. a subsequent analysis showed that subjects who completed their high school education had significantly higher scores an all subscales except on the reliability scale where subjects with university education level had significantly higher scores in comparison with the other two groups. in addition, significant differences in severity scores according to the education level of respondents were obtained on a scale of perceived attributes, on the responsiveness and empathy sub-scales. the obtained differences were statistically significant at the level of p˂0.05 while a subsequent analysis has shown that subjects with university level of education have significantly higher scores on the responsiveness subscale. respondents with high-school education level have significantly higher scores on the empathy subscale. table 6: the severity of the expected attributes of postal services depending on the place of residence of the respondents source: authors’ calculations table 6 shows the severity scores on the dimensions of the scale of the expected attributes of postal services, depending on the residence of the respondents. the highest score on the tangibles dimension were observed in subjects from southern and eastern serbia while the lowest score was observed in the respondents from the belgrade region. as regards the reliability dimension, the highest score was recorded by subjects from the region of vojvodina and respondents from south and east serbia whereas the lowest score was recorded by the residents from sumadija. the responsiveness dimension records lower scores than the other dimensions of the scale and the most pronounced score is recorded among subjects who live in sumadija and western serbia. on the assurance dimension the best score was recorded by the respondents from the region of vojvodina while the lowest score was recorded by the respondents from the bel24 marko pavlović, radica bojičić, milijanka c. ratković 2018/23(3) expected attributes place of residence as sd tangibles belgrade region 4.54 0.315 region of vojvodina 4.59 0.322 sumadija and western serbia 4.62 0.323 southern and eastern serbia 4.72 0.226 reliability belgrade region 4.65 0.495 region of vojvodina 4.85 0.196 sumadija and western serbia 4.59 0.358 southern and eastern serbia 4.84 0.157 responsiveness belgrade region 4.10 0.272 region of vojvodina 4.10 0.391 sumadija and western serbia 4.27 0.463 southern and eastern serbia 4.14 0.252 assurance belgrade region 3.88 0.559 region of vojvodina 4.36 0.430 sumadija and western serbia 4.17 0.661 southern and eastern serbia 4.09 0.507 empathy belgrade region 4.32 0.408 region of vojvodina 4.39 0.460 sumadija and western serbia 4.36 0.559 southern and eastern serbia 4.39 0.391 average belgrade region 4.30 0.302 region of vojvodina 4.46 0.242 sumadija and western serbia 4.40 0.349 southern and eastern serbia 4.44 0.222 grade region. the highest score on the empathy dimension was recorded by the respondents from the region of vojvodina and respondents from the south and east serbia, while the lowest score was recorded among respondents from the belgrade region. on an average of the entire scale of the expected attributes of the postal service, the highest score was obtained by the respondents from the region of vojvodina while the lowest was recorded by the respondents from the belgrade region. given the fact that there is a large gap in the distribution of the sample according to the place of residence, the relevance of differences in the prominence of these scores was not checked. table 7: prominence of perceived attributes of postal services depending on the place of residence of the respondents source: authors’ calculations table 7 shows the severity of scores on a perceived attributes scale of postal services depending on the place of residence of the respondents. as regards the tangibles dimension, the highest score was obtained by the respondents from sumadija and western serbia while the lowest score was recorded among the respondents from southern and eastern serbia. in case of the reliability dimension, the most severe score was recorded by the respondents living in the belgrade region and the lowest score was recorded among the residents from southern and eastern serbia. in case of the responsiveness dimension, the highest score is once again obtained from the respondents from the belgrade region and the lowest one by the respondents from the region of vojvodina. when it comes to assurance dimension, the highest scores were recorded among the subjects from the southern and eastern serbia and the lowest was recorded among the respondents from sumadija and western serbia. regarding the empathy dimension, the highest score was obtained from the respondents from sumadija and western serbia and the lowest score was recorded among respondents from the region of vojvodina. when it comes to aggregate average of the entire scale of the observed attributes of the postal service, the highest score was obtained by the respondents from the belgrade region and the lowest score was obtained by the respondents from the region of vojvodina. the significance of differences in severity scores on scales of expected and observed attributes of postal services according to the place of residence of the respondents was not checked for the reasons stated in the explanation of the previous table. 25 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) expected attributes place of residence as sd tangibles belgrade region 3.32 0.682 region of vojvodina 3.27 0.565 sumadija and western serbia 3.54 0.696 southern and eastern serbia 3.26 0.173 reliability belgrade region 3.53 0.745 region of vojvodina 3.27 0.789 sumadija and western serbia 3.37 0.747 southern and eastern serbia 3.04 0.430 responsiveness belgrade region 3.44 0.514 region of vojvodina 2.91 0.612 sumadija and western serbia 2.95 0.824 southern and eastern serbia 2.97 0.386 assurance belgrade region 2.94 0.617 region of vojvodina 2.73 0.574 sumadija and western serbia 2.92 0.783 southern and eastern serbia 3.14 0.476 empathy belgrade region 3.04 0.620 region of vojvodina 2.73 0.657 sumadija and western serbia 3.31 0.778 southern and eastern serbia 2.87 0.366 average belgrade region 3.25 0.458 region of vojvodina 2.98 0.571 sumadija and western serbia 3.22 0.690 southern and eastern serbia 3.06 0.290 table 8: the significance of divergences in the prominence of results on the expected and perceived attributes subscales depending on the marital status of respondents df = 400; p˂0.01 ** * p˂0.05;source: authors’ calculations in relation to the marital status of respondents (table 8), statistically significant divergences were obtained on the following dimensions of the expected attributes scale of postal services: tangibles, reliability, responsiveness and assurance. all divergences were significant at the high p˂0.01 level, while a subsequent analysis showed significantly higher scores on the tangibles, responsiveness and assurance dimensions of the single respondents. significantly higher scores were obtained within married respondents regarding the reliability dimension. statistically significant divergences in relation to the marital status of respondents were obtained for responsiveness and empathy dimensions on a scale of perceived attributes (at p˂0.01 level), as well as on the tangibles dimension (at p˂0.05 level). it is also confirmed that single respondents have significantly higher scores when it comes to the tangibles and empathy dimensions, while the responsiveness dimension obtained higher scores among married respondents. table 9: significance of divergences in the prominence of results on the expected and perceived attribute subscales depending on the amount of monthly income of the respondents df=212; p˂0.01**; p˂0.05*;source: authors’ calculations when it comes to the amount of the monthly income of the respondents (table 9), due to the large discrepancies in the distribution of the sample according to this variable, in consideration of the existence of significant differences respondents who did not want to disclose the amount of their income were excluded from the analysis (47.0%) and the analysis was performed on the rest of the sample of 212 subjects (13.0 % rsd 40,001 – 50.000; 12.0% rsd 25.001 – 40,000; 11.5% more than rsd 60,000, 10.0% rsd 15,001 – 25,000; and 6.5% rsd 50,001 – 60,000). the results of the study have shown that there are statistically significant differences on the scale of the expected attributes on all dimensions except for the cumulative average of the entire scale. the difference obtained on the tangibles and assurance sub-scale is high and significant at the p˂0.01 level, while the other obtained differences are significant at the p˂0.05 level. the subsequent analysis showed that significantly higher scores on the tangibles and responsiveness dimensions are observed in respondents from the group whose monthly revenue is from rsd 25,000 to 40,000. when it comes to the reliability dimension, significantly higher scores were found in subjects having monthly incomes from rsd 50,000 to 60.000. on the assurance dimension, significantly higher scores are recorded among respondents having a monthly income from rsd 40,000 to 50,000, while in the empathy dimension significantly higher scores were recorded among respondents with the lowest income, from rsd 15,000 to 25,000. on the scale of perceived attributes of postal services, statistically most significant differences were obtained for all of the dimensions, as well asfor the cumulative average of the whole scale of perceived attributes. all of the obtained differences were high and significant at the p˂0. 01 level. the subsequent 26 marko pavlović, radica bojičić, milijanka c. ratković 2018/23(3) expected attributes scale perceived attributes scale tangibles -3.599 0.000** tangibles -2.023 0.043* reliability -7.332 0.000** reliability -0.130 0.897 responsiveness -2.869 0.004** responsiveness -3.480 0.001** assurance -2.870 0.004** assurance -1.786 0.074 empathy -1.414 0.157 empathy -5.436 0.000** average -1.833 0.067 average -0.985 0.325 expected attributes scale perceived attributes scale tangibles 29.679 0.000** tangibles 24.946 0.000** reliability 12.148 0.016* reliability 16.968 0.002** responsiveness 12.020 0.017* responsiveness 27.517 0.000** assurance 33.872 0.000** assurance 20.763 0.000** empathy 11.551 0.021* empathy 38.905 0.000** average 8.197 0.085 average 21.806 0.000** χ2 χ2 analysis showed that respondents with an income higher than rsd 60,000 had significantly higher scores on the tangibles and responsiveness dimensions and on the cumulative average scale of the perceived attributes. significantly higher scores on the reliability dimension were perceived in respondents with a monthly income from rsd 15,000 to 25,000. when we talk about the assurance dimension, significantly higher score was obtained among the respondents with a monthly income from rsd 50,000 to 60,000, while on the empathy dimension the higher score was obtained among the respondents with a monthly income from rsd 25,000 to 40,000. table 10: the significance of divergences in the prominence of results on the expected and perceived attribute subscales, depending on the social status of the respondents df = 400; p˂0.01**; p˂0.05*;source: authors’ calculations table 10 shows significant differences in severity scores on scales of expected and perceived attributes of postal services, depending on the social status of the respondents. due to the existence of large imbalances of the sample according to this variable, it was decided to carry out an analysis of the whole sample and that the number of categories should be reduced to two – employed respondents and all other respondents (students, pensioners, farmers and unemployed respondents) as well as to carry out analysis of the significance of differences using the mann-whitney test. the results showed that significant differences in the scale of the expected attributes existed in the dimensions of tangibles, reliability and empathy. the first two obtained differences were high and significant at p˂0.01 level, while the third one was significant at the p˂0.05 level. the severity scores confirmed that respondents from the other category (all other social categories) had higher scores on the tangibles and empathy dimensions while the employed respondents had higher scores on the reliability dimension. statistically significant differences in severity scores according to the social status of the respondents were obtained on the responsiveness and empathy dimensions on the scale of perceived attributes of postal services. both differences are high and significant at the p˂0.01 level. close to statistical significance, but also insignificant is the difference obtained for the tangibles dimension. in the examination of the severity scores, it was found that employed respondents had a significantly higher score on the responsiveness dimension while the respondents from the other category (all other social categories) have higher scores on the empathy dimensions. 27 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) expected attributes scale perceived attributes scale tangibles -3.008 0.003** tangibles -1.932 0.053 reliability -4.956 0.000** reliability -1.376 0.169 responsiveness -.455 0.649 responsiveness -2.910 0.004** assurance -1.184 0.236 assurance -1.349 0.177 empathy -2.361 0.018* empathy -6.059 0.000** average -1.239 0.215 average -1.275 0.202 the total sample consisted of 400 respondents from the territory of serbia. the survey was conducted in the period from the beginning of november 2016 to the end of january 2017. e-mail invitations and a questionnaire to participate in the study along with an explanation of the purpose for the experiments were sent to the respondents. as we know, the post had a rather conservative attitude on the market so it pointed out that marketing is not applicable in the postal sector. however, today the post completely changed its attitude. the competition had a great influence featured in the new market. it was necessary to invest in marketing activities, product differentiation, and in-house marketing, which has become the primary weapon in the fight against competitors in accordance with their capabilities, in order to cope with new circumstances. the post must meet the needs of its customers in order to achieve higher efficiency, productivity and the market share in the today’s competitive environment. the most important thing is to maintain high levels of customer satisfaction and long-term relationship with them. the research gives us an insight into the current level of perceived quality of postal services by the users, as well as the connection that is present between the post and its clients/users. conslusion 28 marko pavlović, radica bojičić, milijanka c. ratković 2018/23(3) based on research we can conclude that customers expect more from elements such as equipment, various brochures, leaflets, but also on working time. we can conclude that it is necessary to invest more in elements of visual aids and, of course, to adjust working time to users. the users are the most important segment, so the post has to improve the selection of employees. the management of post should constantly insist on improving compliance processes of all service dimensions in order to achieve a higher level of skills in terms of providing the promised services than expected. the most reliable method for measuring customer satisfaction is to perform research using questionnaires at least once a year. research was conducted in major serbian cities. these cities are the headquarters of financial and economic development and certainly have an impact on research results, particularly in terms of customer satisfaction. it should be noted that the purchasing power and the level of demand for most products and services is at the highest level in these cities, and that the most fierce competition exists among postal operators that are definitely aiming to get new customers. in subsequent research it is certainly necessary to examine the attitudes of employees at post offices. in addition, the demographic characteristics of the respondents and other consumer units should be taken as an important factor in conducting future research, in order to assess the quality and the level of postal services, as well as the satisfaction of employees. the results obtained through this kind of research cannot provide the post with tangible benefits if appropriate management is not willing to modify the existing marketing strategies according to the results of the research. it should be noted that modern post should be directed towards understanding the requirements of its customers and solving the potential problems, so their perception of the quality of service is positive to an as high as possible extent. in further researching into the quality of postal services it is necessary to carry out a survey in which respondents are also the employed, i.e., the manager, the incumbents in the various functions, such as treasurer, controller, sales services, branch manager and others. such research would provide a complete insight into the level of satisfaction in the postal sector. the contribution of this paper lies is in the field of the development of methodological procedures for research of user satisfaction with postal services. for the future use of the proposed research it is necessary to ensure that the representativeness of the sample or the obtained results can be considered as purely indicative and do not represent an impartial basis for decision-making. random samples of existing users and new users are the target groups that should be included in the future research because they can provide us with useful information that will give us the answer to the question of what determines the priority of one postal operator in relation to other and in which direction relationships with customers should develop. as a recommendation for subsequent research in the postal sector, it should be noted that there is a need for correction of the existing questionnaires, i.e., instruments for measuring the quality and the need for a new instrument for measuring the quality of services, but also their more frequent application and detailed analysis. the aim of this study was to evaluate the satisfaction of users of postal services by examining the divergences that exist in the perception of expected and perceived attributes of services. the divergence obtained in this way becomes a measure of the quality of services and guidance of how to perform changes in order to provide a greater satisfaction of users. the quality of service is measured through five dimensions, i.e., attributes (expected and perceived): tangibles, reliability, responsiveness, assurance and empathy. the results showed that the highest score for the expected attributes was obtained on the reliability dimension, while on a scale of perceived attribute the highest score was obtained for the tangibles dimension. the lowest score on both scales was obtained for the assurance dimension. the results showed that divergences exist on all five attributes of postal services when it comes to divergences in scores on the scales of expected and perceived attributes of postal services. the biggest divergence was obtained for the reliability dimension, while a minimum divergence exists on the tangibles dimension. the range of the obtained divergence is not large and ranges from 1.16 up to 1.30. checking divergences in severity scores on expected and perceived attributes subscales showed statistically significant divergences for all five measured dimensions, as well as for aggregated averages of the scales. according to the amount of obtained indicators, the highest divergence in expression exists regarding the reliability dimension. h1 users of postal services expect more from the “reliability” dimension of quality, which is confirmed by the above survey. h2 users of postal services expect more from the “assurance” dimension of quality, which is confirmed by the above survey. h3 users of postal services expect more from the “empathy” dimension of quality, which is confirmed by the above survey. h4 users of postal services expect more from the “responsiveness” dimension of quality, which is confirmed by the above survey. h5 users of postal services expect more from the “tangibles” dimension of quality, which is confirmed by the above survey. 29 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) references [1] ackere, v., haxholdt, r., & larsen v. 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(2011), “bankarstvo: bankarski menadžment“,subotica: ekonomski fakultet. received: 2017-05-26 accepted: 2018-01-09 marko pavlovic e-mail: markopavlovic82@mts.rs born in 1982 in belgrade. a ph.d. student at the “union nikola tesla” university of belgrade. he has participated in several international conferences and has published scientific papers in journals recognized by the ministry of education. so far, he has published more than twenty scientific papers. he was elected and worked as an assistant at the faculty of economics and engineering management in novi sad for the period of three school years. employee of posta srbije. his area of interests are: management, human resources management, banking and customer relations. radica bojicic e-mail: radica.bojicic@pr.ac.rs assistant professor at the faculty of economics, university of prishtina, kosovska mitrovica. she lectures at the courses of mathematics, statistics, operations research majors at the undergraduate člevel, econometrics at master and the methods and techniques of scientific research and analysis on doctoral level studies. she is the author of several papers on the sci list. she has participated in several international conferences in the country and abroad. her research interests include linear algebra, special array class, mathematical analysis and differential equations. milijanka c. ratkovic e-mail: milijanka.ratkovic@fpsp.edu.rs milijankaratkovic is an associate professor at the faculty of business studies and law, “union nikola tesla” university of belgrade and the faculty of sport management, university of donjagorica in podgorica. she teaches marketing, consumer behaviour and marketing in sport courses. she is the author of more than seventy articles published in national and international journals, conference papers, including chapters in monographs and monographic publications. 31 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) about the 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07_jelena andjelkovic labrovic:tipska.qxd 73 jelena anđelković labrović¹, aleksandar bijelić¹, gordana milosavljević¹ ¹university of belgrade, faculty of organizational sciences management 2014/71 mapping students’ informal learning using personal learning environment udc:159.953.5-057.875;37.018.4 doi: 10.7595/management.fon.2014.0009 xiii international symposium symorg 2012, 05 09 june 2012, zlatibor, serbia 1. introduction in the industrial age a person was educated to be able to work in one type of job, and was expected to work in the same conditions and in the same manner during their whole life. in the modern world, a person must continuously invest in acquiring new skills and knowledge, and constantly work on improving their value on today’s global market. to meet this requirement a person has to be able to learn, adapt and re-learn the things they learned just a couple of years ago. therefore, lifelong learning has become an integral part of our lives and our way of learning. in accordance with the requirements of the modern working environment, it is necessary that students be prepared to adapt to the usage of modern information and communication technologies (ict) in the workplace. therefore, students need to get used to using ict more during the studies. the aim of this research is to identify the elements of students’ personal learning environment and to identify the extent to which students use modern technologies for learning as part of their non-formal learning. 2. definition of lifelong learning marick and vatkins define learning as “the way in which individuals or groups acquire, interpret, reorganize, change or assimilate a related cluster of information, skills and feelings. it is also primary to the way in which people construct meaning in their personal and shared organizational lives”. according to rubenson, the european union, the oecd and the unesco proclaimed three fundamental attributes in 1976 that lifelong learning is based on: • it is lifelong and therefore concerns everything from cradle to grave, • it is life-wide recognizing that learning occurs in many different settings, and • it focuses on learning rather than limits itself to education. lifelong learning is mostly recognized as its one segment adult education. the contemporary literature does not mention the classification of education but rather the classification of learning, as a base of the educational process. the distinction has been made among three categories of settings where purposeful learning activity takes place (the european commission 2000): personal learning environments are a widely spared ways of learning, especially for the informal learning process. the aim of this research is to identify the elements of studens’ personal learning environment and to identify the extent to which students use modern technology for learning as part of their non-formal learning. a mapping system was used for gathering data and an analysis of percentages and frequency counts was used for data analysis in the spss. the results show that students’ personal learning environment includes the following elements: wikipedia, google, youtube and facebook in 75% of all cases, and an interesting fact is that all of them belong to a group of web 2.0 tools and applications. keywords: personal learning environment (ple), informal learning, lifelong learning, students 1. formal learning. this learning typically takes place in an education or training institution; formal learning is structured, institutionally sponsored, often classroom-based, with an instructor or trainer planning, implementing and evaluating the learning taking place; it is structured (in terms of learning objectives, learning time, or learning support) and leads to certification. from the learner’s perspective, formal learning is intentional. 2. non-formal learning. this is a learning that typically does not lead to certification and is not provided by an education or training institution. it is structured (in terms of learning objectives, learning time, or learning support). non-formal learning can take place in the working environment. from the learner’s perspective, non-formal learning is intentional. 3. informal learning. informal learning is learning resulting from daily life activities related to work, family or leisure. it is not structured (in terms of learning objectives, learning time, or learning support) and typically does not lead to certification. it may be intentional, but in most cases it is unintentional, incidental or random. other definitions of informal learning by marsick and volpe (1999) conclude it is an integration of work with daily routines, triggered by an internal or external jolt, not highly conscious, is often haphazard and influenced by chance, inductively occurs through action and reflection, and is linked to the learning of others. marsick and watson emphasize that there is a difference between informal and incidental learning. informal learning is mostly experiential and non-institutional. it differs from formal learning by degree of control exercised by the learner, location (not classroom-based), and predictability of outcomes. the examples of informal learning are self-directed learning, networking, coaching, mentoring, performance planning and trial-and-error. incidental learning is unintentional, a byproduct of another activity. it differs from formal because it is a subset of informal learning. the examples of incidental learning are: learning from mistakes, assumptions, beliefs, attributions, internalized meaning constructions about the actions of others, hidden curriculum in formal learning. different researchers use non-formal as informal learning, and informal as incidental learning. it is not possible to state with certainty that during the non-formal and informal learning, incidental learning does not happen. in this paper we address non-formal, informal and incidental, collectively as informal learning. we analyze informal learning as a type of learning that occurs in the learning process using personal learning environment (ple). within this paper we observed the informal learning using contemporary information and communication technologies (ict), in the web 2.0 environment. we wanted to assess to what extent particular web 2.0 learning tools are used in a student’s ple on the course e-learning at faculty of organizational sciences. 3. personal learning environment personal learning environments (ple) is the term used to define a new approach in a way in which learning is transformed through a range of new technologies and web 2.0 platforms which are currently available to us. it can be best described through the 3p learning model which encompasses three core elements: personalization, participation and knowledge-pull . we can try to define ple as a unique personal digital interface which integrates both personal and professional interests of an individual including formal and informal education. according to v. teemu and h. stina the main idea with ple “is to put students in the central position in the learning process by allowing them to design their own learning environments“. it is not considered as a software application or technical approach to learning “but rather as a philosophical, ethical and pedagogic approach“ , which should foster students to exercise their capacities as autonomous learners within a structured context. through personalization students should be able to handle a huge amount of information, while still keeping their “heads above the water“, to avoid information overload and efficiently adopt the required knowledge. starting from the definition of ple we gave at the beginning of this document, the concept of ple will define the environment through which an individual learner will be able to search for information and adopt knowledge, while at the same time contributing to the others in their own learning environment through sharing research and knowledge. 74 2014/71management web 2.0 platforms allow individual learners to gather information from different sources and choose to adopt it in the order they personally feel is the best way for them. a structured approach to this information gathering enables one to leave undesired or unnecessary information aside, and only focus on “quality sources“ which are preferred or desired. while individual ple can exist and be efficient at some point, the true value of ple comes from the existing interactions between individual learners who can form a network of readers and contributors with a highly loose network structure. one of the commonly accepted ways of representing the ple is through visual diagrams also called mappings. they enable the learner to easily “map” different areas of learning, segmented through different streams of information, that can be further dissolved to different sources of information, thus easily documenting the structure of data and information which are acquired by the learner. 3.1. characteristics and functions of ple avoiding a “holy” debate which is held around the ple regarding what the distinguishing characteristics of personal learning environments are that should uniquely define the ple, one of the first views on the ple model we consider today was created by scott wilson in 2005, followed by stephen downes. according to the work of i. buchem, g.attwell and r.torres we can easily define the necessary characteristics of the framework which can be considered as ple : • support to open interoperability standards of web 2.0 to receive and share materials from different data and sources • grouping tools to blocks and fundamental groups of elements • learner centered – supports establishing the rules and learning strategies, based on learners’ individual preferences and learning needs, • controllable and managed – the learner chooses the level of aggregation, different formal and informal sources, • establishing knowledge management – annotations, archiving, searching, filtering, • different roles with peers (learner, teacher, expert…) 3.2. advantages and disadvantages one of the key advantages that the ple offers is its fully open framework which enables one to connect to any source of information, and have the learner receive lots of quality information from all over the world quite quickly. the span of information sources is limited only by the learner’s desire to seek new sources, and his ability to fluently understand different languages. as stated by s. downes, in this manner the learning in the ple is about developing capacities (not competencies, skills, etc.) and the outcome of personal learning is engendered through empowerment (s. downes, 2010). the main issue that, however, remains is how to control the quality level in order to cut through the received information and distinguish only the quality one. while the learner can start just by googling the term and searching for authors in the field to gain quick results, it could easily turn into unstructured learning which in the end will fail to deliver the desired outcomes. because of this it is really important for a learner to approach to establishing the ple in a structured manner. 3.3. establishing the personal learning environment the only real requirement for a ple to function is full and constant access to the internet in order to acquire data and information defined inside the ple structure. while there are certain possibilities to establish a ple that uses the internet in a limited manner (timely limited access, dial up, and firewall closed access), the nature of web 2.0 with such vivid dynamics of information flow makes this almost impossible. in addition to the internet access, the next required thing is to prepare and document goals and areas of interest before the learner starts receiving information. 75 management 2014/71 simple steps to start an individual ple can be identified in three simple steps: 1. identify three things which you are required/would like to learn. in order to avoid information overload and efficiently gather the information, it is important for a learner to specify the areas or terms which he would like to learn. due to the danger of “walking off the path” in an information jungle it is of good advantage to have the learner identify maximum three items or areas for which he would like to develop a ple. 2. identify three sources which are acceptable for learner. based on technologies and the connection available, as well as on learning habits, the learner should identify up to three sources of information for each area. the decision is often influenced by the platforms already provided to the learner (company, university, closed club, etc.) or the learner is supposed to establish them on his own. in this step it is important that the learner should not make any concrete steps in establishing sources or access just to identify the sources (e.g. rss feed, facebook, twitter, slide share, netvibes, and wikipedia, etc.). 3. document defined ple. documenting the ple is one of the most crucial parts in establishing the ple, due to the fact that this will allow the learner to see the information flow in a structured manner, and easily decide if it should be redefined or adjusted. this can be written in hand, or done through sophisticated visual tools (mind manager, visio, powerpoint etc), and while the form itself is not so much important, detailing the flow of information is the key element. the lack of documenting could either establish a ple which would flood the learner with too much information, or it would reduce their chances to correctly add new sources of information, which would in the long run limit their knowledge environment. 4. research research objectives: 1. determining what tools that students use in their everyday life they perceive as learning tools. 2. identifying the key elements of a student’s personal learning environment and fundamental groups of elements that the student’s personal learning environment consists of. 3. determining the average student’s learning environment. main research questions: 1. what are the elements that students perceive as part of their ple? 2. what are the fundamental groups of elements of a student’s ple? 3. what are the key elements of a student’s ple? 4. what does an average student’s personal learning environment at the fos look like? 4.1. research method students were given an assignment as part of their “e-learning” module at the faculty of organizational sciences (fos). for the assignment, each student was required to design his personal learning environment in the form of a mapping activity. the students had to submit a document in which they had to draw their ple diagram. in other words, they had to map all elements they perceive as part of their learning environment according to examples that were given during the lectures and in the guidelines. one example of students’ ple is presented in figure 1. guidelines were developed to assist students in understanding the concepts of the personal learning environment and to provide examples of ple diagrams. in the examples of ple diagrams students were able to see what elements can constitute a ple. for example, some people identified the following as elements of their ple: web 2.0 tools such as wikipedia – for acquiring information, youtube and slideshare for sharing videos and presentations and facebook for social networking. other people identified colleagues or television as traditional sources for gathering information. 76 2014/71management a classical survey was not the first choice, we chose mapping because we wanted to find out not only what elements they actually use, but which ones they perceive as part of their learning environment. clark at al. cite that the mapping system has a lot of advantages because the phenomenographic approach “is about ‘variation in the ways people see, experience, think about, understand and conceptualize the phenomena they encounter’ and points to the ‘layering’ of the individual’s awareness as they are called to situate phenomena according to these different ‘ways of experiencing’ their technological world” . figure 1: example of students’ ple 4.2. data analysis for further analysis the spss statistical software was used. because of the diagram form, data had to be put in the form suitable for the spss. every element in the diagram was transformed into a yes/no question. the example of the question design: i use “particular ple element” for learning. yes/no. example: i use blogs for learning. yes/no the collected data were analyzed using percentages and frequency counts for determining the extent to which particular elements, tools or applications are used for learning. 4.3. results the research was conducted at the faculty of organizational sciences, during the “e-learning” module, in the winter semester 2011/2012. the participants were all students of the final (4) year of study at the information systems and technologies programme that elected the “e-learning” module. there were 52 students, 23 male students (44.2%) and 29 female students (55.8%). the identification of elements that students perceive as part of their ple is shown in table 1. some students already grouped elements according to their purpose, for example: for internet search i use…, for communication i use …, or traditional tools, internet tools, etc. according to their grouping system and literature review, we identified fundamental groups of elements. 77 management 2014/71 table 1: students’ ple: elements and groups of elements 78 2014/71management figure 2: students’ learning tools �� �� �� �� �� � � � �� � �� �� �� � � � �� ��� �� ��� ��� ��� ��� ��� �� ��� ���� � ��� after listing all the elements that students perceive as part of their learning environment, we used frequency counts to identify what are the elements that are mostly used among students (figure 2). as key elements we identified: blogs, wiki, shared media, social networking and microblogging services, web search engines, forums, online communication and books, because in more than 50% of the cases students identified them as elements they use for learning. more than 80% of students use: 1. wiki – 96.2% of students use wikipedia. 2. web search engines – 94.2% of students use web search engines: 88.5% use google, 25% use yahoo and 15.4% use google scholar. 3. shared media – 90.4% of students use shared media: 84.6% use youtube, 11.5% use slide share, 9.6% use flickr and 3.8% use podcasts. 4. social networking and microblogging services – 88.5% of students use social networking or microblogging services: 76.9% use facebook, 28.8% use twitter, 13.5% use google+, 7.7% use linkedin and 5.8% use myspace. regarding the question of an average students’ personal learning environment, we concluded that in 75% of cases a students’ ple include the following elements: wikipedia, google, youtube and facebook, and an interesting fact is that all of them belong to a group of web 2.0 tools and applications. references [1] attwell, g. (2007). personal learning environments the future of elearning? elearning papers , 2 (1). [2] bartolome, a. (2008). web 2.0 and new learning paradigms. elearning papers , volume 8. [3] buchem, i., attwell, g., & torres, r. (2011). understanding personal learning environments: literature review and synthesis through the activity theory lens. proceedings of the the ple conference 2011, (pp. 1-33). southampton. [4] chatti, m. a., jarke, m., & specht, m. (2010). the 3p learning model. educational technology & society , 74–85. [5] clara, p. c., & joão, b. b. (2010). from web to web 2.0 and e-learning 2.0. in h. y. harrison, & c.-y. y. steve, handbook of research on practices and outcomes in e-learning: issues and trends (pp. 1938). new york: information science reference. [6] clark, w., logan, k., luckin, r., mee, a., & oliver, m. (2009). beyondweb 2.0: mapping the technology landscapes of young learners. journal of computer assisted learning (25), 56-69. [7] conlon, t. j. (2004). a review of informal learning literature, theory and implications for practice in developing global professional competence. journal of european industrial training , 28 (2/3/4), 283-295. [8] downes, s. (2006, october 26). retrieved may 02, 2012, from stephen downes web site: http://www.downes.ca/post/38541 [9] eppler, m. j., & mengis, j. (2004). the concept of information overload: a review of literature from organization science, accounting, marketing, mis, and related disciplines. the information society: an international journal , 20 (5), 325-344. 79 management 2014/71 conclusion throughout this research we concluded that a majority of students have not utilised ple for achieving maximum results in their everyday life (informal learning process) even though they have somehow established a ple in certain unstructured form. after the concluded research we have received a positive feedback from students in that they plan to use the ple as a method of supporting their own learning, and that they recognise the value of structuring their ple. it would be interesting to conduct further research on faculties which do not have information technologies as a major subject area, in order to measure whether there is any impact on accepting and utilising a ple in the orientation of students towards technology subjects. it would be interesting to analyze the results if the use of ple and web 2.0 applications and tools is structured trough formal learning at the faculty. furthermore, it would be interesting to conduct this research at universities in other regions or countries to explore how the culture of students, either regional or national, influences the usage and utilisation of ple. [10] leslie, s. (2011, october 02). retrieved may 02, 2012, from scott leslie web site: http://edtechpost.wikispaces.com/ple+diagrams [11] marsick, v. j., & watkins, k. e. (1990). informal and incidental learning in the workplace. london: routledge. [12] marton, f. (1994). phenomenography. (t. hunsen, & t. postlethwaite, eds.) the international encyclopedia of education , 8, 4424-4429. [13] mavers, d., somekh, b., & restorick, j. (2001). interpreting the externalised images of pupils' conceptions of ict: methods for the analysis of concept maps. computer & education , 38, 187-207. [14] rubenson, k. (2011). adult learning and education. kidlington: elsevier. [15] tutty, j. i., & martin, f. (2009). user generated design: teaching and learning with web 2.0. in t. t. kidd, & i. l. chen, wired for learning: an educator’s guide to web 2.0 (pp. 43-58). information age publishing. [16] valtonen, t., hacklin, s., dillon, p., vesisenaho, m., kukkonen, j., & hietanen, a. (2012). perspectives on personal learning environments held by vocational students. computers & education , 58 (2), 732–739. [17] wilson, s. (2006). developing a reference model to describe the personal learning environment. proceedings of the first european conference on technology enhanced learning, lncs 4227, pp. 506511. heraklion. receieved: september 2013. accepted: march 2014. jelena anđelković labrović university of belgrade, faculty of organizational sciences jeca@fon.bg.ac.rs jelena anđelković labrović is teaching assistant at the faculty of organizational sciences, university of belgrade, human resource management department. she teaches the following courses: training and development, e-learning, human resource management and international human resource management. she is the author and/or co-author of more than 20 papers published in journals and conference proceedings. aleksandar bijelić phd candidate at university of belgrade, faculty of organizational sciences bijelic@fon.bg.ac.rs aleksandar bijelic is a partner of the prova – management consulting company. from 2004 to 2011, he was the head of organization and business process and it at merkur international d.o.o. serbia. he worked as an associate at a.t. kearney in 2011, and led the top it company in serbia through organizational transformation and restructuring in 2012. during 2013 he worked on restructuring and opening of gas transportation market in serbia on a project led by the boston consulting group. he received his b.s. and master degrees from the faculty of organizational sciences, university of belgrade. he completed his executive marketing education at london business school in 2008. he is currently a phd candidate at fos and a guest lecturer as sales management and key account management courses. gordana milosavljević, university of belgrade, faculty of organizational sciences, gordana@fon.bg.ac.rs prof.dr gordana milosavljević ph.d. is full professor at the faculty of organizational sciences, university of belgrade. her field of interest is education, e-learning and training management. she was an author or coauthor in more than 50 research papers and she published six books in field of training management. she is head of the center for human resource management at the faculty of organizational sciences. 80 2014/71management about the author 04_jovan djuraskovic:tipska.qxd 39 jovan đurašković university of montenegro, faculty of economics, podgorica, montenegro the global economic crisis through the prism of the great depression udc: 338.124.2(100) doi: 10.7595/management.fon.2014.0013 1. introduction the great depression of the 1930s and the global economic crisis at the end of the last decade were extremely important episodes in modern economic history. both crises occurred in the periods of unbalanced development of the global economy. before the great depression, the us took a leadership role in the world economy as the most important promoter of the free-market capitalism. the fascinating expansion of industry and the spectacular growth in the 1920s ended up miserably. the ensuing depression was a traumatic experience for all businesses, but, nevertheless, an inspiration for economic theory and policy. macroeconomics and the keynesian revolution developed along with innovative institutional mechanisms of roosevelt’s administration in economic policy. the beginning of the 21st century did not indicate that something similar to the great depression could ever happen again. the expansion of the world economy, with a chronic imbalance between the developed economies and the emerging economies of the bric countries occurred within a fairly unregulated financial infrastructure. the financial distress that originated in the united states quickly spread to the real sector and the global economy. the economic policy required substantial transformation. however, doubts about the concept of a self-regulating market suggest that the effects of the global economic crisis may bear much deeper and more complex implications than a mere change of the course of economic policy. therefore, bearing in mind the lessons of the great depression, the crucial question is to what extent the dominant neoliberal paradigm will change. is the creation of a new system of financial regulation a road toward a significant affirmation of interventionist economic policy? is there an important lesson of the great depression to be learned in this area as well? these are the essential dilemmas faced by contemporary economic authors and researchers. management 2014/71 this paper presents the main aspects of the 2008 global economic crisis through the prism of the great depression of the 1930s. the aim of this paper is to illustrate the importance of the lessons learned in the great depression in overcoming the modern global economy disorders by analyzing the causes of the crisis and the response from the us economic policy. the methods employed in the paper are the following: the method of analysis, the comparative method and the method of deduction. an analytical review of the us anti-crisis economic policy based on relevant statistical data has been presented. the survey results clearly indicate that the crisis has led to a sudden reaffirmation of keynesian economic policies. the monetary policy was extremely expansionary. the fed cut its key interest rates to a record low and through open market operations significantly expanded its assets. confidence in the banking system was preserved and the risk of deflation avoided. the fiscal policy was also counter-cyclical and a few fiscal stimulus packages confirmed a commitment to a strategy of stimulating aggregate demand. by selecting a coordinated and synchronized intervention policy through the g20, the mistakes of economic policy makers of the great depression were avoided and pre-conditions created for a structural reform on financial market and economic policy. keywords: global economic crisis, the great depression, financial system, financial regulation, counter-cyclical economic policy, the usa. the epicenter of both economic crises is the us economy. therefore, the intention of this paper is to review the main causes of the global economic crisis, economic policy responses and possible directions of reforms of financial regulation from the perspective of the us economy, with occasional comparisons with the economic conditions from the times of the great depression. 2. the causes of the global economic crisis the global economic crisis occurred in an unbalanced world economy as a result of a strong deregulation of financial markets. the new financial architecture meant a rapid development of financial innovations that had become complex and incomprehensible, and in the time of crisis – threatening and illiquid. the system is based on lenient regulation of commercial banks, even more lenient regulation of investment banks and very little and almost non-existent regulation of the shadow banking system. at the end of the 1990s the strict regulations implemented by adopting the 1933 glass-steagall act were formally abolished. namely, with the adoption of the 1999 financial services modernization act, barriers between commercial banking and securities business were removed. the glass-steagall act provisions which prohibit the use of deposits for the purpose of securities trading became inadequate. this made it possible to create a very intricate system of relations between entities in the financial market. in the spring of 2004 the securities and exchange commission (sec) decided to grant solvency exemption to investment banks and other financial institutions. they were allowed to use their own mathematical models for assessing portfolio risk and thus determine on their own the appropriate level of regulatory capital (štiblar, 2009). deregulation of financial business is closely linked with the credit explosion of the us mortgage market and the process of securitization of subprime mortgage. conservative banking business became a mere tradition. lenders no longer had to wait for the mortgage borrower to repay the loan. they converted it in mortgagebacked securities (mbs) and passed them to the final investors. the ability to transfer risk significantly weakened the interest of banks in secure investment and strong credit worthiness of a client. the financial system generated growth in real estate prices as well as overproduction in the construction sector. the availability of mortgage credit to customers who were not able to finance them increased the credit risk and rendered all the criteria of the banking business ineffectual. issuance of mortgage loans without a certificate of income, job or assets (ninja loans) became a common practice in the era of expansion in the us mortgage market. one important trend supports the unsustainability of this model. it is the movement of wages. while housing prices soared, the real income of many americans was in decline. in 2008, the average household income was 4% lower in comparison with the one in 2000 (stiglitz, 2008). however, a large number of entities in the financial sector (from mortgage brokers, commercial and investment banks, credit rating agencies to special investment units) were well motivated to create risky and destructive model of moral hazard. generally speaking, it is possible to identify some structural weaknesses of the pre-crisis model of financial operations. these include: • unregulated derivatives in the otc market; • risky financial innovations (always a step ahead of the regulators); • a pronounced asymmetric information in mortgages with variable interest rates; • lack of understanding of risk that is inherent in complex financial products; • poor risk management; • inadequate evaluation of risk by credit rating agencies; • inappropriate model of regulation through the basel ii; • risky business model of banks in the securitization process (originate-to-distribute model). on the other hand, it is necessary to point out some more serious problems in the functioning of the market. these are: the model of corporate management with wrong incentives (bonus payments even in situations where a company makes losses), the moral hazard of top management (personal interests in conflict with the interests of the organization, the principal-agent problem), lack of transparency in the process of securitization (the shadow banking system) and misallocation of capital (cheap capital ended up in the real estate sector instead of manufacturing companies). 40 2014/71management lack of regulation, inadequate control of the financial system and creative financial engineering were not the only causes of the global economic disorder a few years ago. the economic policy deserves some criticism as well. during much of the last decade the us monetary policy was quite expansive. the fed only cared about inflation trends. however, as in most of the pre-crisis period, the rate of inflation and the output gap were fairly stable, the monetary authorities ignored other important trends, first of all the following: fluctuations in asset prices, excessive growth of investment in the housing sector, consumption growth and a negative trend in the current account deficit. a continuous reduction in interest rates only fueled the mortgage bubble. the increase in key interest rates from mid 2004 to july 2006, which indicated a somewhat restrictive fed monetary policy, is very reminiscent of the policy before the great depression. we should not forget that the fed’s actions during the expansion of the 1920s and on the eve of the great depression were deemed irresponsible and inadequate, while monetarists found them to be the fundamental cause of the forthcoming collapse. the fed allowed the rise of money supply by 61% over 8 years. an increase in interest rates on the eve of 1929 came late and did not reduce speculation but investment in the real economy instead (friedman & schwartz, 1971). 3. lessons learned from the great depression modern state intervention, with the lessons of the great depression taken into account, was globally coordinated and synchronized. after the collapse of lehman brothers in september 2008, the g20 member countries affirmed the application of counter-cyclical economic policy at the first summit in washington. a coordinated implementation of expansionary fiscal policy measures was agreed upon to stimulate domestic demand and so was expansionary monetary policy in order to stabilize the financial system and ensure the necessary liquidity. all international financial institutions (the imf, the world bank and other multilateral development banks) were recognized as key actors of global interventionism, which required financial support by the g20 countries. the first to react was the japanese government which responded with a $ 100 billion loan to the imf. an important conclusion of the first summit was the agreement that no country should use any kind of protectionist measures in the next 12 months. this leads to the conclusion that the leaders of the largest economies in the world understood the lessons of the great depression, when the increase in tariffs in the united states (1930) caused a chain reaction and protectionist policies in 60 countries. in modern terms, the decision on the acceptance of free trade has a special dimension if one takes into account that the economy of the g20 countries accounts for almost 90% of the world gdp and 80% of global trade. the idea of state intervention, which was proclaimed as part of the g20 anti-crisis actions was adopted by almost all the world’s economies. nobody wanted to repeat the mistakes of hoover’s administration from the period of the great depression. counter-cyclical strategies became a common denominator in the anticrisis policies of developed economies and developing countries. the us authorities were the first to react to the negative effects of the crisis that emerged in their backyard. when it comes to monetary policy, there was a general consensus to avoid deflation and mass bankruptcy of banks of the great depression (alcide & gross, 2011). in august 2007 the federal open market committee (fomc) launched a reduction of the targeted discount rate, and then the federal funds rate, with a mission to provide liquidity for orderly functioning of financial markets. after a series of reductions, as shown in the following diagram, the fed reduced the target federal funds rate to 3% by february 2008. by may of the same year, the rate was 2%, and in december 2008, it reached a record low value of 0-0.25%.this record low value has been maintained up to the present day, while the discount rate, as opposed to the period of crisis, now usually deviates from the federal funds rate. the decision to reduce the usual gap between the discount rate and the federal funds rate (from 100 to 25 basis points), with the extension of time for repayment of the loan from the fed lending overnight to 90 days, speaks in favour of a more flexible credit policy. as a result of these decisions, the amount of lending to depository institutions by the central bank, through a “discount window” reached a record high of 403.5 billion dollars in october 2008. 41 management 2014/71 figure 1: fed funds rate and the discount rate source: federal reserve system, www.federalreserve.gov (accessed – 01. 08. 2013). the reduction in interest rates is not a sufficient condition for expansionary monetary and credit policies in crisis. suffice it to recall the fed’s policy in the great depression, when the nominal discount rate during 1932 was 2.5%, but due to the deflation rate of 10%, the ex-post real discount rate rose to 12.5%. the insensitivity of investment to the decrease of interest rates was a confirmation to keynesians who later concluded in their model that the is curve was fairly inelastic, and the monetary policy impotent in the fight against economic depression. on the other hand, monetarists believed that the problem of the fed’s strategy was the insufficient use of open market operations as the most essential instrument of monetary policy (brunner & meltzer, 1968). in the modern crisis, the monetary authorities decided to reinforce expansionary measures, which quickly reflected on the balance of the central bank. thus, the total value of the fed’s assets increased from 894 billion dollars at the end of 2007 to 2,237 billion dollars in december 2009 (thomas, 2011). the initial growth of the monetary base in 2008 was the result of extreme lending to financial industry by the fed. at the end of 2007, next to the loans section in the fed’s balance sheet there was the figure of 4.5 billion dollars and a year later, the value of loans granted on various grounds amounted to 1,700 billion dollars (lawrence, 2009). furthermore, during 2009, the fed conducted a mass purchase of mortgage-backed securities which previously had not been part of the assets of the bank’s balance. by the end of the year, the value of purchased mortgage-backed securities reached a figure of over $ 900 billion. in addition, the usual buying of long-term government bonds was intensified, as well as bonds of federal agencies, which further increased the money supply. it is interesting that the bonds of federal agencies, for nearly five years, were not part of the us central bank’s balance and their value in april 2010 amounted to 169 billion dollars. the total value of purchased government bonds (together with federal agencies’ bonds) amounted to 936.5 billion us dollars on december 30th, 2009, which was 60% more than in april of the same year. the pronounced activity of the central bank in purchasing government and mortgage-backed securities until the mid 2013 is clearly shown in the following diagram. this is an illustration of the application of unconventional policy of quantitative and qualitative easing. 0 1 2 3 4 5 6 7 2005 2006 2007 2008 2009 2010 2011 2012 2013 fed funds rate discount rate 42 2014/71management figure 2: government bonds and mbs owned by the fed (in billion $) source: federal reserve economic data (fred), http://research.stlouisfed.org/fred2/ (accessed – 31. 05. 2013). complementary to the fed’s measures the confidence of depositors in the banking system was secured by the intervention of the federal deposit insurance corporation (fdic), which in autumn 2008 announced their decision that the state would guarantee for all deposits up to $ 250,000 (compared to the previous limit of $ 100,000). without a deposit insurance mechanism, any effective intervention in a contemporary crisis is unthinkable. therefore, one should not ignore the fact that the fdic was established in 1933 as an institutional contribution to the glass-steagall act. at the time it was established, the fdic received the financial support from the us treasury and the fed in the amount of 289 million dollars. after six months of the corporation business operations, only two banks were liquidated. the largest number of suspended banks were recorded in the 1937 crisis. 82 banks were liquidated then, compared to 4,000 banks in 1933. the federal insurance of bank deposits was the most important structural change that has become a prerequisite for monetary stability (wallace, 1934). it is important to note that the banking system in the early 1930s was doomed to fail due to the lack of the institution for deposit insurance and the lender of last resort (in today’s conditions these are central banks). an analysis of the anti-crisis measures by monetary authorities leads to the conclusion that the central bank used all the instruments at its disposal, thereby acting also unconventionally, in the struggle for the liquidity of financial institutions and the recovery of the economic system. however, the monetary policy measures were not a sufficient condition for overcoming the global economic crisis. the fiscal policy also operated counter-cyclically, which was in line with the recommendations of keynesian economics. the strategy of balancing the budget from the great depression was not an acceptable solution. hoover’s destructive tax policy was avoided, when in the midst of the crisis there was an unusual turnaround in the fiscal policy and a mild expansionary strategy was replaced by a very painful restrictive and pro-cyclic policy. hoover vetoed public works in 1932 and, with the new revenue act, he brought in the largest tax increase in the peacetime us history. the rate of taxation of annual income over a million dollars increased from 23.1% to 57%. the new rate of 6% was applied on an individual annual income of $ 10,000 to $15,000, as opposed to the previous 0.9%. the taxation rate of annual income between 2000 and 3000 dollars rose from 0.1% to 2%. taxes on corporate profits rose from 12% to 13.75% (fishback, 2010). however, at the beginning of 21st century, economic policy makers did not allow themselves such a luxury. the united states implemented three fiscal stimulus packages: • the economic stimulus act of february 2008. the fiscal package had a value of $ 168 billion, which is slightly more than 1% of the gdp. a refund to low-and middle-income households was provided as well as tax breaks for business; up to july 1st, 2008, more than 70 million us households received a tax refund of $ 950 on average. studies have shown that the refund had a stimulating effect on the consumption of non-durable goods, with an average increase of 3.5% on weekly basis. unlike typical 0 500 1000 1500 2000 2500 2009 2010 2011 2012 2013 government bonds mortgage-backed securities 43 management 2014/71 households, families with an annual income of less than $ 15,000 increased their consumption of nondurable goods by 6% (broda & parker, 2008); • the troubled asset relief program tarp came into force in october 2008. its value amounted to $ 700 billion. capital injections to banks were provided. in return, the state received a certain share in the ownership of banks (preferred shares). in this way, $ 205 billion were invested in nearly 700 banks. however, as much as $ 125 billion went to nine largest us banks (blinder, 2013). in addition to these $ 205 billion, the single largest beneficiary of tarp was the (nationalized) american investment group (aig) with 67.8 billion dollars; • in the second half of february 2009, the american recovery and reinvestment act – arra was adopted which provided a fiscal stimulus of $ 787 billion. according to the us government data from 2013, this amount was later corrected and the final stimulus amounted to 840 billion dollars. of the total, 290.7 billion went to tax incentives, 255.6 billion were allocated to education, infrastructure and transportation projects and 251.3 billion to health care, unemployment insurance, etc. the fiscal policy met with much criticism. while some felt that the fiscal measures were ineffective and inefficient, the proof of which was the rise of the unemployment rate from 8.3% in february to 10% in october 2009, others were convinced that the stimulus was too small to solve the problems that were measured in billions of dollars. however, the intervention came at a cost – the growth of public debt and budget deficit. the public debt in the last quarter of 2007 amounted to 64.7% of the gdp, and five years later reached the level of 103.5% of the gdp. federal expenditures had, ever since 2002, been above budget revenues. the crisis made this deviation increase significantly. thus, the 2009 budget deficit reached 1.4 billion dollars (figure 3). figure 3: the us federal budget over the 2000−2012 period (in billion $) source: federal reserve economic data (fred), http://research.stlouisfed.org/fred2/ (accessed – 31. 05. 2013). without dwelling now on anti-crisis effects of the fiscal policy, the federal expenditures and deficits trends suggest an important commitment to the keynesian counter-cyclical policy. however, at the fourth g20 summit in toronto in june 2010, there was a split in the concepts of interventionist policies between the united states and the european union. while the us administration still supported stimulating spending in order to maintain and ensure the necessary jobs and economic growth, the eu opted for a strategy of balancing the budget. the effects of the choices are clearly visible today. the eu re-entering the recession only reminded of an important event in the second half of the 1930s when the change of course in economic policy (increase in the reserve requirement ratio and tax increase) during the roosevelt administration led to a severe recession and precipitated the need for a new counter-cyclic intervention. -2000 -1000 0 1000 2000 3000 4000 5000 2000 2002 2004 2006 2008 2010 2012 expenditures of the federal government revenues of the federal government deficit/surplus of the federal budget 44 2014/71management 4. old lessons – new requirements the global economic crisis, just as the great depression, raised the question of stronger regulation of the financial system. the capitalist economy needs a comprehensive (supra)national institutional framework that will act towards stabilization of economic activity – something similar to major reforms of roosevelt’s new deal. after all, a valuable depository of mechanisms from this period had an undisputed importance in overcoming the contemporary crisis. accepting the recommendations of keynesian economics, with the lessons of the great depression learned, leads to the implementation of new measures of financial regulation. in this sense, it is necessary to point out the started reforms and the inevitable demands of the new financial and economic infrastructure of the capitalist model of economy: • global implementation of the third basel accord. in addition to the reasonable intentions for tighter regulation, the new agreement is insufficient to solve the structural problems of the banking sector; • the reform of financial regulation at the national level. with an important global framework, financial regulation must be reviewed in each individual economy according to the specific needs of the national economy; • affirmation of financial transaction tax. this is the internalization of negative externalities. tax is countercyclical, it reduces volatility in financial markets and brings revenue to the government which it can use as an anti-crisis fund, when economic trends become negative; • change of the current paradigm of corporate governance. compensation system must be redesigned in such a way that managers focus on long-term objectives of the company, rather than short-term speculative activities. one of the proposals is that compensation is paid through reserved shares that can be “cashed in” only after certain conditions are met (e.g. long-term profit). compensation policy should be adjusted in such a way that it equally rewards (bonuses) and punishes (penalties) managers depending on the results they achieved for the company; • the abolition of the practice of rescuing too big to fail companies. the new us bill on financial regulation from june 2010 (dodd-frank act) makes it clear that there will be no socialization of private losses of “big players” using taxpayers money; • greater transparency of depository institutions. the regulatory reform in the united states included a novelty – the volcker rule, which implied abandoning the practice by which banks used deposits of their customers to trade derivatives for their own account. also, banks were prohibited ownership in hedge funds and private equity funds; • prevention of systemic risk. in this regard, the work of the financial stability board, founded in april 2009, is of global importance, as well as the activity of similar institutions at national and regional levels; the global economic crisis has, as has been stated, actualized the policy of state intervention. when it comes to the future anti-crisis interventions, it is necessary to take into account the following assumptions and instructions: • a high degree of coordination and synchronization of anti-crisis measures is needed. therefore, it is necessary to strengthen the institutions of coordination of monetary and fiscal policy (councils, commissions, etc.) so that disagreement between them would not be a limiting factor in their effectiveness; • discretion has an advantage over fixed rules in an anti-crisis economic policy. rules limit the operation and success of monetary and fiscal authorities. discretion rights provide flexibility, which can significantly affect the efficiency of economic policy instruments; • the focus of economic policy must be the real sector. we should not forget that the financial crisis of the 2008 quickly turned into a credit collapse, and then the crisis in the real sector. the concept of targeted lending is a link between monetary and fiscal policy (akerlof and shiller, 2010). the essence of intervention is the support for small and medium-sized enterprises as generators of economic growth and employment. it is expected that the key role in this process is taken by organizations that are owned by the state or their business is partly financed from the budget (banks, development funds, etc.); • the priority of economic policy during a crisis must be to stimulate economic growth. the developers of stimulus in particular should promote the public consumption and public investment, whereas tax cuts are a second-rate measure when it comes to importance; 45 management 2014/71 • in times of recession, the focus of fiscal authorities must be the structural rather than the current budget deficit. when it comes to the structural deficit, an important recommendation of fiscalists is that it is necessary to determine what value the budget (i.e. the structural deficit) would have in “normal” circumstances, i.e. at full employment. then the government would, during the crisis, adjust the policy in line with this reference point, instead of the growing current deficit, which implies that measures have to be restrictive; • establishing and/or strengthening of the fiscal stabilization fund. regardless of whether it is developed or developing economies, policy makers must continuously prepare a better starting basis of a potential anti-crisis fiscal policy. the period of expansion is the best time to secure funding for future anti-crisis policy. references [1] akerlof, dž., i šiler, r. (2010). životni duh. beograd. službeniglasnik. [2] alcidi, c., &gros, d. (2011).great recession versus great depression: monetary, fiscal and banking policies. journal of economic studies, 38(6), 673-690. doi:10.1108/01443581111177385. [3] blinder, a. (2013). after the music stopped: the financial crisis, the response, and the work ahead, the penguin press, new york, 2013. [4] broda, c., & parker, j. (2008, july). the impact of the 2008 tax rebates on consumer spending: preliminary evidence, university of chicago.: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.188.9572&rep=rep1&type=pdf. [5] brunner, k., & meltzer, a. h. (1968, may). what did we learn from the monetary experience of the united states in the great depression?. the canadian journal of economics, 1(2), 334-348. [6] fishback, p. (2010). us monetary and fiscal policy in the 1930s. oxford review of economic policy, 26(3), 385−413.doi: 10.1093/oxrep/grq029. [7] friedman, m., & schwartz, a. (1971). a monetary history of the united states, 1867−1960. princeton. princeton university press. [8] lawrence, h.w. (2009). federal reserve policy and the housing bubble. cato journal, 29(1), 115-125. 46 2014/71management conclusion economic crises are periods in which the leading intellectual and theoretical framework of a government economic policy is reviewed. the dominance of the ideas of new classical economists in the economic policy of the capitalist countries was disrupted by the emergence of the global economic crisis at the end of the previous decade. the crisis confirmed the unsustainability of the concept of unregulated markets. the anglo-saxon model of neoliberal capitalism has been shaken and the economic concepts based on the premise of self-regulation of the market mechanism showed systemic weaknesses. there was a sudden reaffirmation of keynesian economic policies. lessons from the great depression had an undisputed importance for overcoming the contemporary economic crisis. a synchronized implementation of measures of counter-cyclical economic policy, through the work of the g20, has shown that there exists a clear consensus as to avoid coordination failures and harmful protectionist international trade policies from the 1930s. the monetary policy of the united states was quite expansionary. in addition to cutting key interest rates to a record low, the fed conducted a policy of quantitative and qualitative easing. by increasing the money supply and the provision of liquidity for institutions, the possibility of deflation and mass bankruptcies of banks, which monetary authorities faced during the great depression, was neutralized. the monetary policy measures were accompanied by a complementary strategy of the fiscal authorities. the adoption of several fiscal stimulus packages was aimed at stimulating aggregate demand, output and employment. with certain justified criticism for the socialization of private losses of too big to fail companies, it seems that the lessons of the great depression, at least when it comes to anti-crisis policy, have been learned. however, in addition to the interventionist economic policy, the question of reform of financial regulation is still open, which should lead to greater business transparency and lower systemic risk. we should abandon the assumption of self-regulation of the market and create a reliable and rigorous system of control and regulation. however, with hindsight, it appears that some changes in macroeconomic policy paradigm are certainly to come, but there is no indication that the neoliberal concept will be completely abandoned. 47 management 2014/71 [9] stiglitz, j. e. (2010). lessons from the global financial crisis of 2008. seoul journal of economics, 23(3), 321−339. [10] štiblar, f. (2009). uticaj globalne krize na crnu goru i zapadni balkan. podgorica. centralna banka crne gore. [11] thomas, l.b. (2011). the financial crisis and federal reserve policy. new york. palgrave macmillan. [12] wallace, s. c. (1934). the new deal in action. new york. harper & brothers publishers. receieved: february 2014. accepted: may 2014. jovan đurašković, ma university of montenegro, faculty of economics, podgorica since 2008 jovan đurašković has been working as a teaching assistant at the faculty of economics teaching the courses in the field of macroeconomics. he is a doctoral candidate at the same faculty and is currently working on his doctoral dissertation. about the author 03p_novcic:tipska.qxd 27 branka novčić korać1*, branislav miletić2 1university of belgrade, faculty of organizational sciences, serbia 2horwath htl, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2018/23(2) differential advantages of serbia – internal and external perspectives doi: 10.7595/management.fon.2018.0007 1. introduction one can often see promotional ads calling you to visit, study, and invest in a place. so how is one place unique and different from another? sometimes you are probably wondering how the sky is a bit bluer in australia. or how food is tasting so delicious in italy. or why is someone dreaming of studying in the uk? and what makes the silicon valley soo fruitful for young entrepreneurs? in most cases, places like this have invested great effort, knowledge and resources to find differential advantage which will make them thrive by applying what we today call place branding practice. traces of place branding can be observed in examples of almost all big empires who played an important role in the history of humankind. from ancient greece and rome, major european kingdoms in the middle ages, to bourgeois france, nazi germany, the soviet union – almost every country went through some kind of branding or image changing in its past. one of the main reasons why brands have an important integrative role in making places unique is because “the core of the brand is culture and the people who live and create it”. sometimes it is easy and obvious to find one or several features that will differentiate a place, but other times attributes or associations to a place are already given. most commonly associations to a place are inherited from generations before and influenced by major events in a nation’s/country’s history. in the case like this brand perception is already created through years of good or bad business, and you cannot do much. the process of developing a geo brand, closer nation, region, city or a tourism destination brands, is even more complicated due to the question of perception ownership. when it comes to place brands, the ownership is waste and every person that is born, lived or travelled to a place, becomes a partial perception owner. hence it is not up to branding consultancy or a group of experts/investors to decide on their own what makes a place unique. most often the place already possesses differential advantages, which makes *corresponding author: branka novčić korać, e-mail: branka.novcic@fon.bg.ac.rs abstract: research question: this study examines differences and similarities in internal and external perception of differential advantages of serbia, seen through the eyes of internal (serbian nationals) and the most important external stakeholders – business class in italy, austria and slovenia. motivation: the purpose of the paper is to discuss the concept of place and nation brand, and to analyse attributes which make the place unique and differentiate it from rivals. idea: the core idea is thus to gain, from internal and external perception, the list of unique attributes that distinguish serbia from other countries in the region. tools: qualitative and quantitative research combined with semantic and sentiment analysis revealed the existence of certain similarities and differences in both perceptions. findings: people and unique serbian mentality were recognized as the greatest differential advantage of serbia, but also some negative attributes appeared such as war legacy in external perception and internal problems in internal perception. contribution: empirical evidence proved the presence of matching differential advantages in both perceptions and pointed to the necessity of applying a strategic approach in managing perception of serbia. keywords: differential advantages, nation branding, external and internal perception, stakeholders, serbia jel classification: m3, m39, z18, c83 it unique for years, decades or centuries and you need to dig deep, analyse different perceptions in search for unique features of a place. in order to provide better understanding of depth and complexity of branding practice application to a geographical location, this paper will focus on two concepts: place and nation branding. by presenting these concepts, authors will attempt to clarify differences and relationships among them. but the main aim of the paper is to explore and analyse key attributes – differential advantages which make a place, in this case nation stand out among rivals. it is in the case of serbia that authors wish to present research insights regarding the current internal and external perception of a nation’s differential advantages. 2. place branding: overview and link to nation branding it follows from the above that place branding is present in the history of almost all states throughout the world. when compared to the practice back then, the only thing that has changed in today’s place branding is the way it is implemented and the terms that are used, but the approach has, in fact, remained the same. creating, managing and improving a place image, identity and reputation have remained to be the imperative of every place. for the last 30 years the topics of place marketing and place branding have sparked the interest of many researchers and practitioners. similarly to companies searching for ways to gain control over limited resources and secure their position in an increasingly globalised market, places are fighting the same battle. place branding is defined as an umbrella concept ranging from nation, region, cities to tourism destination. the application of branding was found to be very successful in case of: nations/countries such as new zealand, spain or poland; regions like wales, montana and tuscany or cities like london, madrid or san francisco. in order to understand the relationship between place and nation branding, it is essential to explain the process and the effects. zenker and braun (2010) define the process of place branding through creation of network associations in the minds of target groups “based on the visual, verbal, and behavioural expression of a place, which is embodied through the aims, communication, values, and the general culture of the place’s stakeholders and the overall place design”. the effects of place and nation are different and often misunderstood. in order to clarify the difference, novcic korac and segota (2017) summarized that place branding is focusing on improving the image of a place in general, while nation branding focuses on „creating a positive image of a nation investment-wise, export-wise, employment-wise, and tourist-wise“. therefore, it could be said that place branding encompasses nation branding. 2.1 conceptualizing nation branding the most intriguing and complex part of place branding is the application of the practice to nations. today, more and more governments are turning to marketing and branding techniques to highlight differential advantages of their countries and nations over their closest rivals. as a result of the fierce competition and fight for investment, tourists, exports and talents, there has emerged the concept of nations as brands. the field of nation branding is very dynamic and attractive for academic researchers, practitioners and politicians alike. in contrast to the practice where there are many activities and initiatives for nation brand development and management, there is a small number of research works and insufficient literature on the topic, which makes the field even more interesting. one of the main reasons for insufficient academic literature in the field of nation branding is the complexity of the concept: a large number of engaged stakeholders, the inability to implement conventional branding and marketing strategies, and the fact that this is a highly politicised topic. another reason lies in the fact that nation and country (re)branding is most often caused by major social and political changes such as the collapse of previous states, wars, emergence of new ideologies and the rise of new rulers. the origin of nation branding can be found within four fields: export branding, place branding, political branding and culture branding. nation branding is described as a comprehensive branding strategy for creating the so-called umbrella brand stretching over several sectors (tourism or export) and building up a nation’s competitiveness (anholt, 2007; fan, 2006; hanna and rowley, 2010). various authors hold different views on manifestations of nation branding, and this is mostly the reason why the wider public does not quite grasp the concept. fan (2006) states that nation brand does not present product in a traditional form and does not offer tangible products and services, but rather consists of many associations such as: place, natural resources, people, history, culture, language, political and economic system, social institutions, infrastructure, celebrities, design, etc. 28 branka novčić korać, branislav miletić 2018/23(2) essentially, the nation branding strategy is directed at all levels of society, mainly citizens, with an idea of harmonising and communicating a unique nation-brand identity. the author further notes that the key aim of nation branding is to create a clear, simple and differentiating idea, based on emotional values, which can be symbolised visually or verbally, in communication with various target audiences in different situations. the leading authors in the field agree that one of the main goals of nation branding is to promote and improve the image, which requires a long-term and consistent strategy. the aspect of the long-term is a particularly important aspect, as it can take 10-20 years to implement a nation branding strategy and see its first effects. the concept of nation branding is today primarily applied to improve a nation’s image, through communication of unique elements and advantages of its national identity. the author highlights nation branding as a simple way of communicating national interests by creating a unique nation branding platform aimed at internal and external stakeholders alike. although nation branding can seem to be a concept aimed at improving the image externally, the most significant dimension of this concept is national identity and the communication of the concept internally. external audiences cannot create an image of a nation as they would like to. the image of a nation is built around perceived national identity that its domestic public – nationals – the nation, communicate externally. however, for a nation to change its image, it first needs to change its behaviour and to inform people across the globe about the changes, because the image will not change straight after the changes in reality. the only way for the nation to achieve a better reputation is to search for and communicate its positive and affirmative characteristics (differential advantages) to both internal and external public. 2.2 the history of branding serbia since the middle ages serbia was mostly part of some larger state entity. first it was part of two large empires: the ottoman and the austro-hungarian (hall, 2002), afterwards it was part of the kingdom of yugoslavia (the kingdom of serbs, croats and slovenes) and various forms of the republic of yugoslavia (popesku et al., 2010). as a consequence of the turbulent political and social past, over the course of almost a century, serbia changed its name several times until in 2006 it declared independence and became known as the republic of serbia. as novcic and stavljanin (2015) state, “the newly-formed state of serbia restored the name last time used during the time of the kingdom of serbia and simultaneously launched the process of seeking the identity of the nation”. it is the identity of the nation which was subordinate to the identity of the bigger community in the time of yugoslavia or even forgotten during ottoman and austro-hungarian rule. but like many ex-yugoslav countries who became independent, serbia was faced with a serious challenge: how to alter a negative perception, position the country, and find differentiating attributes which make a nation unique. namely, serbia was facing a rough road toward improved international image and position. the main problem was poor recognisability worldwide and negative perception of the nation. this was mainly caused by the legacy of the past which was marked by dynamic, historical, political and economic changes, the civil war during the 1990s, international sanctions and nato bombing (hall, 2002; popesku et al., 2010; kanaeva, 2012: 213). all this resulted in the creation of an external perception of serbia as “a bad guy” (novcic and stavljanin, 2015). popesku et al. (2010) pointed out that serbia was troubled with another, greater problem internally: “its citizens had unclear, inconsistent and somewhat confusing perceptions of serbia’s identity”. therefore, dealing with the national identity internally and finding differentiating attributes which present serbia as unique externally, became some of the most important issues of the young state. seeking and recognising a somewhat forgotten identity of the nation meant a departure from the legacy of the past, yugoslavia and a return to the roots, history and tradition. it is in exactly this period that nation branding began to be recognised as a way to improve the tarnished image and forgotten identity of serbia. hall (2002) notes that in the 1990s, the ethnic identity was used in serbia as a tool for seeking a national identity, and often with a political purpose. further on, novcic korac and segota (2017) sumarize all branding initiatives that were initialized by serbian state entities in the period from the late 90s till today. authors highlight that for a very long period of time all branding initiatives relied on presenting serbia as a desirable tourist destination and were focused on destination branding rather than nation branding. in this period the national tourism organization of serbia (ntos) was in charge of every branding project in the country. but the first initiatives concerning the topic of nation branding emerged after 2006 when serbia became independent (kanaeva, 2012). this year was a milestone for serbian government who, for the first time, approached nation branding on a strategic level. as a result, the council for the branding of serbia (hereinafter the council) was formed with the main goal to develop a nation branding platform. by initializing the council, the serbian government recognized nation branding as a more important tool than destination branding in improving international position of the country. however, the work of the council was brief and did not result in desired outcomes. thus, all following branding initiatives have returned to presenting serbia as a tourist destination 29 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) and fall back on ntos (novcic korac and segota, 2017). what is even more important, none of the initiatives focued on nation or destination branding produced any tangable evidence nor market research results on what makes the brand of serbia unique internally or externally and what are serbia’s differential advantages. therefore the main research question in this paper will be: are there differences and similarities in internal and external perception of differential advantages of serbia? 3. research methodology the inspiration for theoretical bases of the study were found in the works of risitano (2005) who offered a comprehensive destination branding model and popesku et. al (2010) who proposed tools for analysing differential advantages of a destination brand. for the purpose of investigating external and internal perceptions of serbia’s differential advantages, a combination of qualitative and quantitative research techniques was applied. outlines that the greatest benefit of the results obtained by qualitative research can be observed on large samples where the plenitude of data can fully be grasped. on the other hand, points out qualitative research as particularly suitable for discovering different types of brand associations. the author continues by stating that one of the ways to determine the uniqueness of brand associations is by asking respondents to name associations by which one brand is different from other brands and/or competition. therefore, qualitative data were grouped in accordance to corresponding association and transformed to quantitative data. the quantitative research method has enabled precise and consistent data interpretation. the question which was analysed in the paper was an open-end question where participants were asked to state three things that differentiate serbia from the countries in the region. the question related to differential advantages of serbia is part of a bigger, ongoing research that investigates internal and external perceptions of serbia as a brand. the focus of the external part of the research was on the most important external stakeholder of serbia, business class in italy, austria and slovenia, whilst the internal part targeted members of the serbian nation. the basic criteria for the selection of the three countries mentioned above were: the number of foreign direct investments in serbia, economic relations (value of exports and imports), business cooperation (number of foreign companies operating in serbia), frequency of visits, historical, cultural and social connections (konecnik, 2010). according to the official data obtained from the chamber of commerce and industry of serbia (casopis/magazine korak, 2013), around 500 italian companies operate in serbia. only in the first half of 2014 italy was serbia’s number one trading partner, first by exports ($ 1,432 million) and second in terms of import ($ 1,233 million) (pks milano info, 2014). on the other hand, austria is the largest single foreign investor and the second by the number of companies (about 400) that directly or through the representative office operate in serbia (siepa, 2014; pks, 2015). italy, austria and slovenia are the three leading partners of serbia by the number of projects as well as by value of investments (siepa, 2014; chamber of italian-serbian businessmen, 2015). external and internal research on perception of the brand of serbia was carried out in four countries, during three and a half years from october 2011 until april 2015. for conducting the study a uniform, online questionnaire was created and, in italy, austria and slovenia, questionnaire was translated to official language of each country, respectively. the total number of collected responses was 4,656 out of which 4,350 valid (93.4%): external research 2,700 (italy n=322; austria n=314 and slovenia n=2063) and internal research 1,650 (see table 1 for demographic profile of all samples). the combination of convenient and snowball sample was used in the study. table 1: demographic profile of samples in italy, austria, slovenia and serbia 30 branka novčić korać, branislav miletić 2018/23(2) � ������ �� � ��� � ��� ���� � ���� � �� ������� ��� � �� ������� ��� � �� �������� �� � �� �������� �� �������� � � � � � � � � � � � ����� �� �� ��� � � �� ���� � � �� � ��� � �� � � �� ������� � �� ��� � �� �� � � � �� �� � �� � � �� �� �� �������� �� � � � � � � � � � � !� ��������� �� �� � � � �� �� ��� � �� �� �� �� � �� �� �� � ������������� � �� � � � �� ��� � �� �� ���� � � �� ��� ����������� �� � ��� � � �� ��� � � �� ���� � � �� � � external research participants in italy, austria and slovenia were informed about the survey via social media and mailing lists. the survey was advertised on professional networks such as linkedin and within professional business groups. of great importance in conducting the research in italy, austria and slovenia were the contact lists obtained from the consulates and economic attachés of the embassy of the republic of serbia in these countries. as a result, the research was supported by the embassy of the republic of serbia in italy and austria, which gave significance to the research and contributed to greater response rate. contact lists provided by the embassy of the republic of serbia in italy and austria were made up mostly of companies that are already cooperating with serbia, companies that have opened offices in serbia and companies which are planning to relocate or expand to serbian market. the research was also supported by the chamber of commerce and industry of serbia, the austrian chamber of commerce in serbia, as well as by the austrian and italian chambers of commerce. the research among internal stakeholders was carried out via the internet and the call for participation in the survey was advertised through social media. potential participants were also informed about the survey through companies’ mailing lists and professional associations, whilst the call for participation was advertised on influential blogs and forums. the research sparked a lot of interest and positive comments from general public because it was exploring the topic of branding serbia. 4. findings and discussion based on the foregoing, the main goal of the paper is to identify unique, affirmative differential advantages of serbia which are matching in external and internal stakeholders’ perception. in the first step of qualitative analysis, responses from internal and external stakeholders on the differential advantage of serbia were separately analyzed. by applying descriptive statistics it was possible to group raw, open-end answers according to related topics as well as to conduct a semantic analysis of obtained answers. after grouping, responses were categorized in relation to the frequency of appearance and a corresponding rank was assigned to each category (see table 2 and 3). in the part of external perception analysis the procedure was repeated in the same manner for samples in italy, austria and slovenia. in the next step of external analysis matching differential advantages were identified within all three samples and based on average values of aggregated, matching, individual ranks, new ranks were assigned to each category (see table 3). in this way a unique list of serbia’s differential advantages perceived by external stakeholders was obtained. within the final step, the obtained external and internal differential advantages of serbia and corresponding ranks were compared and a final rank list of serbia’s differential advantages was made (see table 4 for more detail). 4.1 differences in perception the analysis of gained results pointed to the existence of certain differential advantages of serbia which are recognized and highly ranked only by external stakeholders – such as “language and alphabet” and “war legacy”. highlight that the legacy of the conflicting past that the country was involved in most often brings negative associations to a place for a long period of time. further on, a sentiment analysis was applyed in order to understand the meaning and emotions behind differential advantages and it was concluded that 31 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) � ������ �� � ��� � ��� ���� � ���� � �� ������� ��� � �� ������� ��� � �� �������� �� � �� �������� �� ���" #���� � � � � � � � � � � � �������� �!���� �� �� � � �� �� � � �� � �� � "��������� �!���� �� �� � � �� � � � ���� � �� �� �� #� ��� � �!���� $�%������ &� � �� �� � �� � ��� � � �� �� � � � �� ���� '����(�������� �� �� ���� � � �� ��� � �� �� ����� � �� � �� � �� �(�������� $�� ���)�!*&� � �� �� � � �� �� � �� � �� � ��� � �� �� � �$��� � � � � � � � � � ��+�� ,� ����+�� �,� ���� + �,� �+�� �,��-���+ � -��.+��� � ��+�� ��,� ����+��,� ���� +��,� �+�� � ,�� -���+ ,� -��.+��� � ��+�� �,� ����+��,� ���� +��,� �+�� �,�� -���+ �,� -��.+��� � ��+�� �,� ����+ �,� ���� +��,�+�� � ,��� -���+��,� -��.+� � “war legacy” is perceived as differential advantage with strong negative sentiment among external stakeholders, whereas sentiment analysis has shown that the serbian language and alphabet are perceived neutrally or positively as different, interesting and strong. the serbian alphabet was presented through dual alphabets that are in use – cyrillic and latin. on the other hand, internally, serbia is recognized as unique by some other differential advantages that do not appear in external perception, such as: “geographical location”, “good fun” “hospitality” and “belgrade”. when it comes to “geographical location”, serbia is described as favourable, central (in regards to the balkans), between the east and west, bridge of the balkans, regional centre and traffic crossroads, all with a strong positive sentiment. serbian nationals also emphasised serbia as a place where one can have “good fun”. great night life, good but affordable fun and celebrations are just some of the strong associations with a positive sentiment picturing good fun. and lastly, the analysis of internal perception referred to “hospitality” as another differential advantage of serbia which did also appear in responses from slovenia. in both samples (serbia and slovenia), the hospitality of the serbian people was emphasised as one of key advantages and some additional attributes were added, such as openness, kindness and homely place. although “belgrade” is the lowest ranked advantage, it is the only specific place association in the list and is exclusively associated to serbia. the main attributes of belgrade are capital of serbia and metropolis of the balkans, but also some landmarks are highlighted, for example, kalemegdan, confluence of the sava and danube and the avala tower. in addition to positive differential advantages, internal stakeholders also underlined some negative associations by which serbia stands out in the region – “internal problems” and “bad politics and governance”. it is not surprising that these associations are present only in internal perception, because serbian nationals are the ones living the daily reality and facing day to day problems so they know the situation from the first hand. therefore, they stress out many “internal problems” as unique only for serbia: backwardness, collapsed value system, underdevelopment, unemployment, poverty, corruption, etc. serbian nationals have a strong negative sentiment toward “bad politics and governance” describing it through bad and rotten politicians, strong political polarization of the society, theft, bad image, poor governance and public policies. table 2: serbia’s differential advantages by country – external perception 32 branka novčić korać, branislav miletić 2018/23(2) ������ � �� � ��� � ��� ���� �������� � �� �� � �� �� � ��� � �������� � �� �� � �� �� � ��� � �������� � �� �� � �� �� � ��� ���������������������� ����� �� � ��������������������� ��� � �� � ���������!�"�#�$�%� �&��� �� '(%���%%����������� )� �� � ���������!�"�#�$�%� *�+� �� � ��������������������� �,��� �� -(��(#�������#�������� *��� �� � .��#�%� +�&� �� � /�%��������� �&�,� �� ����$���� +�,� 0� � '(%���%%����������� ,��� 0� � /�����%�� ,�,� 0� ���$(�$���������1�!��� ,�+� ,� � ���(#���#�%�(#2�%�� ,�&� ,� � .��#�%� ,�&� ,� ���(#���#�%�(#2�%�� ,�&� +� � -(��(#�������#�������� 0�*� +� � �#���� ,�&� ,� ��$#��1�2�����%������ 0�&� *� � ������2%� 0�0� *� � -(��(#�������#�������� 0�)� +� /�%��#�� ��*� )� � '��$#���� ��,� )� � 3(%�2� ��+� *� .��#�%� ��0� � � /�%��������� ��)� � � ������������ ���� )� ���������!�"�#�$�%� ���� �&� � 4�#���$�2�� ���� �&� � ���$(�$���������1�!��� ���� � 4�#���$�2�� ��,� ��� � /�%��#�� ���� ��� � /�%��#�� �� � �&� .�2�����#�!���%� ���� ��� � ��$#��1�2�����%������ �� � ��� � .�2�����#�!���%� �� � ��� ��(2��������%�%���� ���� ��� � ���$(�$���������1�!��� ��+� ��� � ���(#���#�%�(#2�%� ��*� ��� � ��5#�%�#(2�(#�� ��+� �0� � ����$���� ��*� ��� � ��(2��������%�%���� ���� �,� � '��$#���� ��+� �0� � � � � � 4�#���$�2�� ��+� �,� � � � � � '(%���%%����������� ��+� �+� � � � � � �#��(2�%� ��0� �*� � � � � � � � � � � � 33 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) external perception internal perception differential advantage average rank differential advantage % rank people and mentality 1.3 1 people and mentality 16.7 1 food and beverages 4.3 2 geographical position 11.9 2 culture and tradition 5.3 3 historical & cultural heritage 9.2 3 sports 5.7 4 good fun 8.5 4 business potential 6 5 internal problems 8.3 5 natural resources 7.6 6 natural resources 7.9 6 language and alphabet 9 7 hospitality 7.0 7 history 9.7 8 gastronomy 6.1 8 war legacy 12 9 bad politics and governance 4.5 9 sports 3.7 10 business potential 3.5 11 belgrade 1.6 12 table 3: external and internal perception comparison of serbia’s differential advantages 4.2 similarities in perception in the first part the evidence of convergent perception was presented with the focus only on those differential advantages which appear either only in internal or only in external perception. further comparison of internal and external stakeholders’ perception of serbia’s differential advantages revealed also some similarities. the analysis of table 3 pointed to certain matching differential advantages which do exist in the perceptions of internal and external stakeholders (see table 4). the average values of matching differential advantages in table 4 are obtained based on average values of aggregated matching individual ranks from table 3. table 4: external and internal perception matching differential advantages of serbia people and mentality are indicated by both groups of stakeholders as the most dominant differential advantage of serbia. among other balkan countries serbs distinguish themselves as people with spirit and soul, people who love and enjoy life in fullest. especially, serbs are highlighted as resourceful, capable, talented, beautiful, good, smart, warm, and people with a good sense of humour. through the analysis it was discovered that some personal characteristics are perceived as dominant for the serbian nation: pride, honesty, dignity, generosity and immediacy. it is not only positive characteristics which arose from the research, some negative characteristics like disunity and stubbornness were also found. history & culture serbia is perceived internally and externally as a country of great, rich, but turbulent history. when it comes to history, rebellion against the occupiers, initiation of wars (especially world war i) are the most common historical associations, while kosovo and tito are pointed as historical symbols. it was very interesting that slovenian respondents possess extensive knowledge of the serbian history and culture and outlined living in the past as one of key points of difference for serbs (battle of kosovo as a highlight). on the other hand, culture is described above all as mix of east and west, multiethnic, traditional and as hidden treasure of europe. ethno music, folklore with folk dance “kolo” and national costume, orthodox religion, and art are found to be key manifestation of the serbian culture. again slovenians showed deeper understanding of serbian culture by stressing film and literature as key differentiations. rank serbia differential advantages average 1. people and mentality 1 2. history & culture 3 3. gastronomy 5 4. natural resources 6 5. sports 7 6. business potential 8 gastronomy, more specifically national food and beverages are the third differential advantage. national cuisine is characterized by heavy meats and barbeque (roasted pork and lamb, cevap, pljeskavica); cold starters like kajmak and ajvar; cooked meals lead by prebranac; vegetables with paprika; fruits, especially raspberry and plum; sweets with original serbian slatko and spirits with rakija (sljivovica and quince) on its throne. although many countries have a blue sky, green forests and beautiful nature, serbia differentiates from competition with natural resources as well. most dominantly serbia is perceived as a place of untouched, beautiful nature, mostly a mountain landscape with the great rivers sava and danube, lakes, the vojvodina plain, rural countryside and national parks. sports, success and world class athletes contribute greatly in differentiating and making serbia more visible in the world. with novak đoković being for quite some time a no. 1 player in the world, it does not come as a surprise that tennis is recognized as a major sport in serbia. respondents also outlined basketball, water polo and football as successful sports, whilst serbs in generally are perceived as talented for spots and characterized as a sporty nation. lastly, serbia is seen as a desirable business destination with lots of business opportunities. some of the reasons for choosing serbia for relocating or setting up the business are driven by profits and induced by government’s activities. as a business destination, serbia is recognized for low labor costs/ high quality manpower, tax reliefs, location, attracting foreign direct investments and as a stable, secure and open market. a relatively developed industry with the focus on agriculture, manufacturing and tourism is pointed out as core business of foreign companies. 34 branka novčić korać, branislav miletić 2018/23(2) in this paper, certain differences and similarities in the perception of internal and externals stakeholders’ perception regarding differential advantages of serbia are discovered. firstly, evidence of convergent positive and negative differential advantage is presented. onwards, matching, affirmative differential advantages are summarized and analysed in the contexts of meaning, symbolism and sentiment. with this said, the research hypothesis set up at the beginning of the paper is confirmed. bearing in mind that both internal and external stakeholders, in addition to affirmative associations, point out the negative associations to serbia (war legacy and internal problems), it is of utmost importance to take into account both positive and negative differential advantages while creating nation branding strategy. although countries most commonly focus on matching differential advantages, discovered divergent advantages of serbia must not be neglected in the process of creating the nation brand. in fact, associations perceived as important (either positive or negative) by one group of stakeholders can make a crucial difference in the market positioning of serbia in the long run. for the purpose of qualitative research semantic and sentiment analysis were conducted and the most important insight revealed that internal stakeholders hold greater knowledge and more complex understanding of the investigated phenomenon. furthermore, it was found that stakeholders in italy, austria and slovenia hold a different level of knowledge about serbia. stakeholders in italy have the lowest level of knowledge which is manifested in the number of differential advantages (see table 2) as well as in the simplicity of given answers (without many details). austrian respondents showed a moderate level of knowledge about serbia which is mostly influenced by historical, cultural, social and economic ties between the two countries and a large diaspora. lastly, slovenians have the broadest knowledge of serbia, which is reflected in the rich descriptions of outstanding issues, knowledge of the various segments of serbian society, music, art, literature and sports. further on, the results obtained imply that the perception of serbia among respondents in italy and austria is matching, while the slovenians’ perception is the closest to the perception of the serbian nation in regards to differential advantages. the explanation of the observed similarities can be found in decades of coexistence between the two nations in yugoslavia, which left a deep mark primarily on the personal relations between people, strong social and cultural ties. therefore, one of the practical implications of the paper which can be useful to serbian state entities dealing with nation branding is a proposal to divide external stakeholders in two lines (circles) of serbia’s brand ambassadors. the first line will be made of slovenians, while the second will consist of italians and austrians, who are shown to be the most important stakeholders of serbia. the reinforcement of the claim could be found in the work of who suggest that it is necessary for the success of nation branding that common interests and similar perceptions should be established when choosing external stakeholders for brand 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(2010). “branding a city – a conceptual approach forplace branding and place brand management”, 39th european marketing academy conference, copenhagen, denmark. retrieved from april 17. http://www.placebrand.eu/publications. received: 2017-06-12 accepted: 2018-02-25 36 branka novčić korać, branislav miletić 2018/23(2) 37 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) about the author branka novčić korać university of belgrade, faculty of organizational sciences, serbia branka.novcic@fon.bg.ac.rs branka novčić is a lecturer with the phd in place branding. for more than nine years she has been employed at the department for marketing and public relations at the faculty of organizational sciences. branka’s area of expertise is brand management, with the focus on the development of brand identity and brand image of places, more specifically nations. in the field of place branding she specialized in italy, austria and slovenia. branislav miletić horwath htl, belgrade, serbia bmiletic@horwathhtl.com branislav miletić is director and partner at horwath htl belgrade. he joined the company in 2012 and participated in numerous tourism and hotel development projects at international, regional, national and destination levels. he gained significant experience in tourism policy, strategy and planning, destination management, destination marketing and other tourism and hospitality projects. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04 ivana milinkovic:tipska.qxd 37 ivana milinković, ivana kovačević, dobrivoje mihailović faculty of organizational sciences, belgrade university udc: 005.966-057.875 159.923.2.072 what do freshmen want? career path preferences among students doi: 10.7595/management.fon.2017.0006 1. introduction while the paper presented at the symorg conference gives some insight into the idea how intrinsic motivation is connected to and very likely a base of the entrepreneurship tendencies, this paper goes further in exploring the relation between those two concepts. some theoretical analogies given in the previously presented paper (milinkovic et al., 2016) were corroborated with a qualitative analysis of the interviews from successful entrepreneurs and their motivation (goals and motives that guided them toward their success in the domain). in this paper, there is a shift of methodology as we try to find some quantitative evidence on entrepreneurship motivation and not remain on mere analogy and individual cases. however, the results obtained by quantitative research gave unexpected results and pointed to the difference in career plans between students in terms of intrinsic motivation as well as indicated that future research may give insights of a possibility to create entrepreneurs through the process of appropriate education. 2. research problem according to researchers it still remains unclear what motivation factors influence entrepreneurial versus managerial goals (culbertson et al., 2011). several studies and authors underline that the key role in the development of entrepreneurship is that of the entrepreneurial education of young people, developing their entrepreneurial skills (marques & albuquerque, 2012). in our educational practice the entrepreneurship spirit is not systematically encouraged and students are denied theoretical and practical knowledge in the domain. in the environment of this kind their motivation to start their own business after finishing faculty is questionable. 2.1. theoretical considerations: goal-setting and self-determination theory the locke`s goal setting theory predicts that people will channel their efforts towards accomplishing their goals and that there is a direct linear relationship between goal challenge, level of performance and effort involved. this relationship will stay positive as long as the person is committed to the goal, has the requisite ability to attain it and does not have conflicting goals (locke & latham, 2006). management: journal of sustainable business and management solutions in emerging economies 2017/22(1) abstract. this study assessed the possible relation between life goal aspiration/orientation, department affiliation, gender and career path preferences. for this study we used data from 364 freshmen from the faculty of organizational sciences (fos), university of belgrade, with the intention to find out what their aspirations and career plans are. studying at the fos gives them opportunity to become entrepreneurs, as well as managers, so we wanted to examine whether their general life aspirations are related to their desired career plans. while results indicate that there is no substantial link between career preferences and life aspirations in this specific point of their life, we found that gender and department of study may have some impact on the career preferences. key words: lifegoal aspiration, intrinsic goal contents, extrinsic goal contents, career path jel classification: i23, c80, c83, l26 corresponding author: ivana milinković, e-mail: milinkovic.ivana@fon.bg.ac.rs regarding this theory we can notice some differences in setting goals for managers and entrepreneurs. many of them share some characteristics, but some differences do exist; when it comes to the basic traits of each and their goals, they are conceptually distinct (malach-pineset al., 2002). definitions of managers focus primarily on their goals to manage people and oversee change through financial, marketing, and strategic planning (bateman et al., 2002) and they are part of controlled work environment which diminishes their experiences of autonomy, competence, and relatedness. entrepreneurial goals are aimed at innovation, growth, uniqueness and the creation of value through new ventures or services (matlay, 2005) but also at individual satisfaction and opportunity to create a new environment, meet new people, build a team and create jobs. on the other hand, there is a self-determination theory (sdt) which suggests that people are motivated by a need to grow and gain fulfillment and that their activities are directed towards personal development, life goals and aspirations (deci & ryan, 2008). authors who had studied the sdt have focused on the distinction between intrinsic goal contents and extrinsic goal contents (kasser & ryan, 2001). intrinsic goals directly satisfy innate psychological needs such as those for personal growth, emotional intimacy and community involvement (kasser & ryan, 1996) or what sdt refers to as relatedness, competence and autonomy (deci & ryan, 2000). also, there are extrinsic goals which less directly satisfy the psychological needs such as those for financial success, image, and fame (sheldon et al., 2004). as it was found in the research of petrovic et al. (2015), goals focused toward personal development and those of social value had different impact on the professional choice of young people. nevertheless, they found that there were a link between goal importance and expectations to achieve them by choosing the appropriate faculty. for respondents in their research, personal goals were more emphasized compared to abstract social values. nevertheless, all correlations, even those significant, were not strong due to the fact that the level of preference has a restricted level of variation. our goals are differently articulated, more concrete and less defined by the value system of a person. they are categorized into intrinsic and extrinsic goals, from which some of them have social and others have highly internal connotation. through research among freshmen we wanted to determine which goals, intrinsic or extrinsic, are more frequent, as well as whether they affect their desired career development plan in managerial or entrepreneurial directions. for that purpose we use the questionnaire with 6 categories that explain the 2 factors: extrinsic motivation (wealth, fame, self-image) and intrinsic motivation (personal development, relationships and society). because of managers’/entrepreneurs’ life goals characteristics many authors make a connection between managers and extrinsic life values/aspiration/goals and between entrepreneurs and intrinsic life values/aspiration/goals. from that point we have started our research, with the intention to make a connection between freshmen’s life goals,on the one hand, and life aspiration, on the other hand. 2.2. research objectives the main question to consider is whether students of the first year of studying associate their life aspirations with concrete perception of their future career. although the faculty from which our respondents are recruited offers through its curriculum the possibility to get acquainted with the concept of entrepreneurship and to acquire required skills, we believe that in their freshmen years of studying they have only a vague notion of the concept and possible opportunities. the main objective of the research was focused on considering whether there is a correlation between students’ life goals and their preferences for future career. in addition to the two differently oriented goals (intrinsic and extrinsic), there are, roughly, three different directions for future profession: managing in large companies, managing in medium and small companies and starting their own business guided by their own entrepreneurship idea. while the first career concept of employment considers being directed toward advancing in the organizational hierarchy and the “middle path” implies being partially accountable for some ideas in the firm, the entrepreneurship preference means being responsible not only for the process but also for the idea of the business in question. the applied objective of this empirical research is inspired by the fact that there are some endeavors of making the possibilities for entrepreneurship as a future vocation be more transparent in the educational context. 38 ivana milinković, ivana kovačević, dobrivoje mihailović 2017/22(1) 2.3. research hypotheses in this paper, the implicit idea is to explore what has an impact on an individual’s decision to develop entrepreneurial career; whether it is the direction of a person studying at university, gender or intrinsic/extrinsic life values/aspiration/goals. it is addressed in the first hypothesis that postulate that: hyp. 1. there is a difference in life goals between students with various career path plans: students with intrinsic life goal choose entrepreneurship career path plan more often than students with extrinsic life goal. this hypothesis is partially based on the theoretical explanation of the concept of intrinsic motives according to the self-determination theory. deci and ryan (2008) defined the content of intrinsic goals believing that personal growth, meaningful relationships and community contributions might be seen as goals that bring direct fulfillment while satisfying the basic needs, opposite to the extrinsic aspirations such as wealth, social recognition and self-image. many authors describe entrepreneurial motivation basis in this direction. as some departments and specific subjects prepare students better for different challenges, there might be a tendency to enroll to the different departments with the idea that they offer more mobility toward actualizing the own entrepreneurship conceptions. analyzing the statistical data about students starting their own business, we have found evidence that students with knowledge in information and communication technology more often chose the entrepreneurial career path. also, it is possible that some personal preferences and life aspirations could determine the enrollment at the specific department (petrovic et al., 2015). so we assumed that: hyp. 2. there are differences between students of isit and management hyp 2.1.: in desired career path: students of isit are more prone towards entrepreneurship than students of management. hyp. 2.2. in life goals: students of isit are more prone towards intrinsic life goals in comparison with students of management. there has been a trend of starting a new business in the domain of computer science in the past few years. as it was presented in the world economic forum we are living in a digital world, with massive amounts of technology-driven change, huge innovation and significant evolution in the ways people use technology (dutta et al., 2015). important contributors to entrepreneurship are the high-tech sector and the information and communications technology segment (hathaway, 2013) and every day we read about new successful it start-up companies, about a young entrepreneur who launched a new application, about digital revolution. the main problem that arises is that entrepreneurship is not all about it problems and solutions as media and digital world present. also, there is a myth that men are more capable to start their own business which is unfair and discourages women to try. thus it is possible that: hyp. 3. there are differences between male and female students: hyp 3.1. in desired career path: male students are more prone towards entrepreneurship than students of management. hyp 3.2. in life goals: female students are more prone towards intrinsic goals. women have made significant progress in entrepreneurship (kickul et al., 2008) and it became an important source of employment for women across many countries. the number of female entrepreneurs has increased significantly in recent years but still it is more than obvious that the number of businesses owned by women is remarkably lower than the number of businesses owned by men (guptaa et al., 2014; pines et al., 2010). 3. research methodology the research is conducted with the aim to explore possible relations between freshmen’s life goals and their desired future career path that stands on the point that there might be a positive correlation between intrinsic goals and entrepreneurship preference. with the quantitative approach to the matter, we apply a survey method using an adjusted questionnaire based on theoretical conceptions of deci and ryan (2008) on targeted respondents. 39 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) 3.1. research variables the independent variable in our research was assigned to the concept of career path preferences. although each and every career path is different, there are some general directions. in this research we divided it into a three possible drifts: manager in large company (iv_1), manager in small family business (iv_2) and manager in his/her own business (iv_3). dependent variables refer to the two different life goals: intrinsic (dv1) and extrinsic (dv2). aspirations are considered to be the specific contents of people`s targets (deci &ryan, 2000) and they are used to guide activities of persons toward the goals. they are explanatory concepts of, as grouset says (grouset et al., 2005), how people organize their lives and the types of aims to which an individual strives. although aspirations are high level goals, i.e., life goals, they are more concrete than values, and they are proven to have more impact on behaviour (there is a higher correlation between goal and action then action and value) (vansteenkiste et. al, 2007). due to the fact that the decision about the department of study might be relevant for choosing the future career direction toward or contrary to entrepreneurship, we included, as possible intervene variable, the students` chosen department (iv_1), as well as their gender that might interfere with both career path and enrollment decision (iv_2). 3.2. sample every year over 700 candidates enroll in two departments at the faculty of organizational sciences. in the academic year 2016/17 a total of 800 students were accepted at the first year of study (including those studying as distant learning students of informatics and technology). from the population of about 720 students at two departments (about half of them at one department), we gathered valid data from the sample of 364 freshmen (first time enrolling into the faculty). the structure of our sample is given in figure 1, where it can be seen that about 48% of the targeted population is included in the sample. as a matter of fact, the level of responsiveness was higher than in some other studies because data collecting was conducted before classes and almost every student that comes regularly to lectures had an opportunity to answer the questionnaire (students studying by the distant learning program were excluded). yet, some of those questionnaires were dismissed due to the fact that some students do not take this seriously, providing the answers of no validity. the percentage of rejected questionnaires was slightly higher than 7%. as all the students are about the same age, we did not include this potential variable into consideration. nevertheless, the gender might be of importance due to the fact that there is a slightly different gender structure in two departments. 3.3. research procedure and data analysis the dependent variable of aspirations, i.e., life goal of the students of the first year of study at the faculty of organizational sciences is measured by intrinsic and extrinsic aspirations scale that provided the score for the strength of those two factors indicating the direction of freshmen motivation. the score was computed based on an average obtained by summing the associated item. independent variable was evaluated according to the category that a respondent selects, deciding among three possible options. the statistical analysis consisted of descriptive and inference statistics (anova, t test and c coefficient). also, we used linear regression analysis to understand the correlation between multiple variables. finally, we wanted to see if there was a particular profile of fos`s freshmen future entrepreneur, so we implemented a cluster analysis. the research is conducted during the first semester of 2016/17 academic year at the faculty of organizational sciences. 40 ivana milinković, ivana kovačević, dobrivoje mihailović 2017/22(1) 3.4. instruments we started the questionnaire with two preliminary questions considering the gender and the department of study (information technology and management departments). it was followed by a very direct question about their career aspirations, offering three potential scenarios. finally, respondents were given a set of eighteen items considering six particular goals, out of which, according to deci and ryan (2008), three of them referred to intrinsic (personal growth, community contribution and meaningful relations) and three of them referred to extrinsic goals (wealth, fame and self-image). this instrument is derived from one part of the kasser and ryan`s scale (kasser & ryan, 1996) about how important one’s life goal is to a person. the original scale has two more parts and five indicators for each goal instead of three in our version. this scale measures the strength of particular goals on a five degree likert`s scale, with three items per each goal. based on nine items, the extrinsic aspiration scale was formed, while the sum of other nine items define the intrinsic aspiration scale. it was shown that original scale has good metric characteristics (test-retest reliability, factorial structure, construct validity and internal reliability) (kasser et al. 1995)) and that it can be used in different cultural contexts indicating differences (grouset et al., 2005).comparing the original scale with the translated, shortened and adapted version, we gain similar internal reliability. while the authors report the index of reliability from crombach`s alpha=..70 to crombach’s alpha=.84, depending on the subscale and particular study in question (støen utvær et al., 2011), our scales have crombach`s alpha=.79; n=9 for extrinsic aspiration scale and crombach`s alpha=.74; n=9 for intrinsic aspiration scale. 4. research results the results given in this research consider differences between gender and department in life goal aspirations and career path plans as well as correlation between goals and potential career. 4.1. department, gender and the career path preferences of the sample as we can see from figure 1, there are more students of isit department in the sample, but there is no significant difference (n(isit)=189 and n(man)=175). also, there are more female students in sample than males in the subsample of students regardless the department. female students make 64.84% of all respondents, where 55.08% of them are female students of management while of 64.84% males are from informatics. figure 1: career path plan of students from different departments (informatics and management) and gender 41 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) the results showed that there is a difference between students of two departments according to their entrepreneurship plans (c=.23; p<.01; n=364). according to figure 1, students of isit are more prone towards it, while future managers prefer career in multinational companies. similarly, the coefficient of contingency (c=.21; p<.01; n=364) for differences between males and females showed that multinational company was preferred by female students while entrepreneurship was favored by male students. also, there is a correlation between gender and study option (c=.19; p<.001; n=364). it implies that male candidates are more inclined towards isit while the number of female students enrolled at management department in our sample is larger. it is similar to the real situation. we can conclude that entrepreneurship is more associated with male students at the department of isit and manager’s career in multinational company is more often a choice among female management students. 4.2. students` life goals: relation with desired career path the first step was to search is there any relation between a desired career path and life goals. we found that, in the case of freshmen, there was no relation between their plans as to what direction they would develop their career during the studying and their life goals/aspirations (table 1). table 1: descriptive statistics (mean and standard deviations) for intrinsic and extrinsic life goals and statistical significances of difference based on chosen career path the results show that intrinsic life goals are more popular among freshmen then extrinsic ones. observing the means for each concrete goal, we can conclude that it is due to the fact that meaningful relationships are highly valued among students, while society is neglected as the aspiration, indicating a more individualistic orientation in the domain of intrinsic goals. in that context, it is not unexpected to see that the only difference between students might be seen in the domain of the life goal of acquiring wealth, where those striving toward the career in small family business show the least interest in it. 4.3. differences in life goals and career path based on department and gender when differences in departments are considered, students of management have more intrinsic goals emphasizing whether their career choice is toward the multinational companies (t=-3.5; p<.001; df=182). it is interesting that students of management have a stronger expression of goals, whether they are intrinsic or extrinsic, when they see their future career in small family business (for intrinsic: t=-2.96; p<.001; df=82 and for extrinsic: t=-2.68; p<.001; df=78). the explanation for that can be found in case that they already have some family business, so they have clear ideas of their future goals and are more aware of this. the unexpected data was obtained for those interested in entrepreneurship career and their goals, with no differences between departments. that also can be an opportunity to create the environment for the acquisition of entrepreneurial skills unrelated to department, rather than trying to identify or select potential entrepreneurs. 42 ivana milinković, ivana kovačević, dobrivoje mihailović 2017/22(1) career path life goals manager in large, multinational company manager in small family business entrepreneur f sig. df as sd n as sd n as sd n intrinsic goals 4.32 0.39 184 4.37 0.39 84 4.33 0.52 89 .43 .65 2 extrinsic goals 3.15 0.65 182 2.98 0.57 80 3.12 0.55 88 2.33 .10 2 wealth 4.36 0.5 184 4.15 0.55 80 4.31 0.62 91 4.26 .01 2 personal development 4.55 0.47 186 4.54 0.5 84 4.48 0.63 90 .54 .58 2 relationships 4.73 0.43 187 4.79 0.35 84 4.73 0.54 91 .58 .56 2 self-image 2.63 0.87 188 2.47 0.82 84 2,64 0.8 89 1.19 .31 2 society 3.69 0.76 186 3.8 0.66 84 3.75 0.73 92 .75 .47 2 fame 2.43 0.98 186 2.3 0.81 84 2.42 0.87 92 .61 .55 2 there are no differences between male and female students and their intrinsic and extrinsic life goal orientation when they are choosing multinational companies as their future careers. the only differences are seen in a subsample of students preferring small family companies, where females are more inclined toward intrinsic goals (t=-.2,74; p<.01; df=82), thanks to personal development and social goals that are more preferred among female students. the regression equation shows us that we could predict a career path (cp) of students by department (d) and gender (g), with the very low probability of 8% (r2=,08; p<.01, df=4) but not based on specific life goals, at least in the sample of freshmen. it may imply that entrepreneurs are not born but created. cp=2.3-0.32g-0.32d (1) if grouped into clusters of respondents, we get two clusters with profiles of those who strive towards career in large companies are female managers (cluster 1) while the future entrepreneurs are male students who study it (cluster 2), while centroids of life goals do not indicate differences between them. references [1] bateman, t. s., o’neill, h., &kenworthy-u’ren, a. 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(2004). the independent effects of goal contents and motives on wellbeing: it’s both what you pursue and why you pursue it. personality and social psychology bulletin. society for personality and social psychology. 30 (4), 475-486doi: 10.1177/0146167203261883 [22] støen utvær. b.k., hammervold, r., & haugan, g. (2014). aspiration index in vocational students – dimensionality, reliability, and construct validity. education inquiry, 5(3), 359–383. doi: 10.3402/edui.v5.24612 [23] vansteenkiste, m., neyrinck, b., niemiec, c. p., soenens, b., de witte, h., & van den broeck, a. (2007). on the relations among work value orientations, psychological need satisfaction and job outcomes: a self-determination theory approach. journal of occupational and organizational psychology, 80(2), 251–277. doi: 10.1348/096317906x111024 (received/accepted ) (september 2016 / april 2017) ivana milinković, ivana kovačević, dobrivoje mihailović 2017/22(1) ivana milinković university of belgrade, faculty of organizational sciences, serbia milinkovic.ivana@fon.bg.ac.rs ivana milinković is a teaching associate at the faculty of organizational sciences, university of belgrade, human resource management department. she graduated at the faculty of organizational sciences, and now she is a student of master studies at the same faculty, in the study group human resource management. ivana is the author and co-author of a few papers and conference proceedings. ivana kovačević university of belgrade, faculty of organizational sciences,serbia kivana@fon.bg.ac.rs ivana kovačević is an assistant professor at the faculty of organizational sciences, university of belgrade, human resource management department. she graduated in psychology at the faculty of philosophy, belgrade university, where she obtained an phd in the domain of work psychology. she is the author and co-author of numerous papers and conference proceedings, some of them published in leading scientific journals. dobrivoje mihailović university of belgrade, faculty of organizational sciences, serbia mihailovic.dobrivoje@fon.bg.ac.rs dobrivoje mihailović is full professor at faculty of organizational sciences, university of belgrade, human resource management department, where he teaches the following courses: psychology, business psychology, team work, human relations in the organization, leadership and methodology. he is the author and co-author of numerous monographs and text books in the area of organizational psychology and methodology. he published over 100 articles and papers in national and international scientific journals and professional magazines, some of them presented at relevant conferences. he participated in the realization of about 20 strategic scientific and research projects. 45 about the author management: journal of sustainable business and management solutions in emerging economies 2017/22(1) journal of sustainable business and management solutions in emerging economies 46 << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /none /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /error /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /cmyk /dothumbnails false /embedallfonts true 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can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /converttocmyk /destinationprofilename () /destinationprofileselector /documentcmyk /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure false /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles false /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /documentcmyk /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /usedocumentprofile /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [612.000 792.000] >> setpagedevice 05_miha maric:tipska.qxd 45 miha marič1, mitja jeraj2 1university of maribor, faculty of organizational sciences 2jpo d.o.o.maribor educational achievements as a determinant of an individual’s formal power udc; 005.96 ; 005336.4 doi: 10.7595/management.fon.2014.0022 xiv international symposium symorg 2014, 06 10 june 2014, zlatibor, serbia 1. introduction the basic definition of power can be: “power is the ability to implement one’s will.” the study of power in an organization has been an interesting topic for many researchers. power is consider by many as one of the most important factors in an organization. some authors suggest that power lies in the potential, and others suggest that power is only present in its use. there is also an ongoing debate what makes an individual powerful (marič & ferjan, 2011). despite the importance of an individual’s formal and informal power in an organization, there is very little research on what gives power, formal or informal combined, to an individual in an organization. in this article, we will explore the effect of an individual’s education on one’s formal power in an organization. we suppose that the education one receives leads to principal differences in one’s power later on in the organization that one works in. we can also say that the duration of schooling determines one’s formal power in an organization. those who have higher education usually gain more formal power and amenities depending on their working positions in some cases even regardless of their abilities. in his book “organization, power and change” (1995) borum finn states that there is reason to believe that the close connection between educational and professional competence and pyramidal location plays an important role. it creates the impression that there is a connection between the length of education and the ability to make decisions also in relation to non-professional issues. the inflexibility of the educational system widens the individual pyramidal strata and thus reinforces the authoritarian nature of the system. education is one of the identified factors that contribute to one’s personal power (rees, 1999). one can argue that the shift from a capital-based to a knowledge-based economy represents a fundamental shift in power dynamics (lynn, 2000). 2. an individual’s education the educational process offers individuals knowledge, skills and habits. some describe it as the last level of education that one has achieved so far in their life (faq | ministry of higher education, science and techmanagement 2014/72 the scope of this study is to define how educational achievements of individuals in slovenia define their “formal power” in the organizations where they work. the study is based on theoretical definitions of the concepts of formal power and education. a total of 509 people from slovenia over 30 years of age participated in the study. we recognized a certain influence of educational achievement on the formal position in the organizational hierarchy. the main predictor of an individual’s formal power in an organization is the individual’s last achieved level of formal education. the average grade for the final achieved level of formal education and the initiative regarding the search for additional education has much less of an impact on power than the highest level of education obtained. one of the most important practical implications is that education is one of the basic predispositions to having formal power but not necessarily always and not in every case. keywords: education, formal power, work, employees, hrm nology, 8.6.2009). the number of years of education one has and what their average grade was during the last level of their education may also be important. knowledge is the capacity to act on information… it implies learning (lynn, 2000). we can say that education is one of the predispositions to attaining knowledge, but not in everyone’s case. being included in the educational process does not necessarily mean that the individual has really gained that knowledge. organizations employ the most educated workforce in the history of the world (burke & ng, 2006) because they do not need more people willing to blindly follow orders or do repetitive work; they need people of courage and initiative (pinchot, 1992). different styles of upbringing have their effect on children’s will and capacity to learn, and on their adaptability to the requirements of the school (ferjan & jereb, 2008). bowles and gintis (2002) found that parental economic status is passed on to children in part by means of unequal opportunity, but that the economic advantages of the offspring of higher status families go considerably beyond the superior education they receive. educational transformation also influences the social justice and the social status of the people (unterhalter & dutt, 2001). there are also various factors that influence the study progress (jereb et al., 2009). by the day, more and more importance is given to lifelong learning (european commission education & training lifelong learning programme a single umbrella for education and training programmes, 2009) in which the formal education is in a way perceived as a foundation for further lifelong work and education. it can easily be said that the higher level of formal education one has, the more involved in lifelong learning one has to be to keep up with everyday requirements of one’s work (ferjan & jereb, 2005). lifelong learning (european commission education & training lifelong learning programme a single umbrella for education and training programmes, 2009) is in a way defined by additional learning per year, search for appropriate forms of additional education and of course, not to forget, the training that is required by the employers or the organization in which one works. the learning process accompanies individuals in every phase of their life. the levels of education in the eu are also increasing with the generations that follow (the levels of education in the eu are increasing with the following generations: evropa.gov.si, 8.6.2009). 3. an individual’s formal power power is part of our lives, both private and organizational. power is basically the ability to influence the desired outcomes. power can be broadly defined as the ability to influence different outcomes, by pooling resources (human and material) to achieve the realization of certain things within the network of relationships (rees, 1999) and at the same time to resist unwanted influence from others (wagner & hollenbeck, 2010). individuals who have power in the organizational environment often have power in their private lives and vice versa. an individual’s power in an organization can be best assessed with observations (finn, 1995). however, on the other hand, that is a long process, sometimes even subjective and would take a lot of man-hours to implement on a larger sample. that is why the power evaluating process takes part only on smaller samples at a time; for instance, one company or one branch of a company at a time. robbins (quoted in: senior, 2002) argues: “power has been described as the last dirty word... people who have it deny it, people who want it try not to appear to be seeking it, and those who are good at getting it are secretive about how they got it.” an individual’s power is also very relative; one could have it one day and lose it on another (mintzberg, 1983). or one could have power in one group, and have none in another group of people simultaneously. power is difficult to measure, since it can only be perceived (marič & ferjan, 2011). from the social-psychological perspective, a person’s behaviour is affected by his or her behavioural intentions, which are in turn influenced by an attitude and set of perceptions. behavioural intention is regarded as a key antecedent in determining one’s future behaviour (wu et al., 2008). we can argue that power concerns the capacity of individuals to exert their will over others. in a company or in an organization there are basically two kinds of power: formal and informal power (mintzberg, 1983). while formal power is defined, the informal power that is in many cases even more important is not so well defined. here we will focus on individual’s formal power within organizations. 46 2014/72management the formal power comes from one’s place in the hierarchy, one’s duties and their position and is well defined. hierarchical levels are adjusted to convey the relative authority of employees (rosenbaum, 1980). power resides in the position no matter who has it (moorhead & griffin, 2010) so it is similar to authority. when constructing a position in an organization the power of this position is determined. the person in this position has all the power and all the limitations that the position holds. the formal power on an individual level consists of: legitimate power, reward power, coercive power and information power (george & jones, 2008). the formal power basically comes from placement in the organizational hierarchy. 4. research questions below we will explore the influence of one’s formal level of education with respect to an individual’s formal power in an organization. a higher level of formal education is considered to be a way of getting everything that one wants in life (often climbing the hierarchical ladder) and the thing that many consider as the cover of it all is power. there are several ways to gain power, and one of the most commonly perceived ways is education. for instance, when one introduces himself as a phd, all, or at least a vast majority of people around him think that he knows everything. hogan (2005) claims that people respect someone who has a higher position (m.d. vs. orderly), more extensive education (ph.d. vs. high school), and more experience (20 years of work experience vs. just out of school). that brings us to our research questions. • r1: what kind of effect does individual’s higher level of formal education have on individual’s formal power in the organization? • r2: what kind of positions do individuals achieve in the hierarchy of an organization compared to their achieved level of formal education? 5. methodology participants in this study were selected randomly. the sample consisted of 232 men and 277 women (n=509). the age range of the respondents was between 30 and 61 years. the average age of the respondents was 41.35 years, the average level of education was 5.26 (a little above completed high school), and the average place in the organization’s hierarchy was 3.50 (middle administrative staff). the questionnaire contained closed questions referring to: (i) general data (age, gender), (ii) education, (iii) an individual’s formal power within an organization. an individual’s formal power was measured through their place in the hierarchy of the organization. individuals were asked about their place in the hierarchy of the organization that they work in. we have developed and used the following hierarchical scale: (1) manual worker, (2) head of the shift, (3) routine administrative staff, (4) non-routine administrative staff, (5) expert, (6) lower management, (7) middle management, (8) top management. the final “hierarchical” structure of the sample is shown in table 1. we have developed a concept to classify the placements in the hierarchy ourselves and created eight degrees of hierarchical placement of individuals in the organization’s hierarchy which relate to their formal power. table 1: placement in the organization’s hierarchy (n=509) mean = 3.50; median = 3.00; std. deviation = 2.303; 47 management 2014/72 h ie ra rc h ic a l p o si ti o n 1 . m a n u a l w o rk e r 2 . h e a d o f s h if t 3 . r o u ti n e a d m in . s ta ff 4 . n o n r o u ti n e a d m in . s ta ff 5 .e xp e rt 6 . l o w e r m a n a g . 7 . m id d le m a n a g . 8 . t o p m a n a g . t o ta l n 164 43 76 38 84 32 38 34 509 % 32.2 8.4 14.9 7.5 16.5 6.3 7.5 6.7 100 the individual’s final level of formal education was measured through the achieved degree of education. the following scale was used: (1) did not finish elementary school, (2) finished elementary school (8 years), (3) secondary school (2 years), (4) secondary school (3 years), (5) secondary school (4 years), (6) two year study, (7) higher education, and (8) master’s degree, doctorate degree. the final formal educational structure of the sample is shown in table 2. in slovenia, the education classification from 1980 is used and has eight degrees (ferjan & jereb, 2008). table 2: formal educational structure (n=509) mean = 5.26; median = 5.00; std. deviation = 1.67; the educational success at the last level of formal education was measured on a grading scale from 6 to 10, where: (6) = sufficient, (7) = good, (8) = very good, (9) = almost excellent and (10) = excellent which is in use by slovenian universities. primary and secondary schools in slovenia use a grade scale from 1 to 5, because of which the grades from 1 to 5 were converted into grades ranging from 1 to 10 as follows: 1 converted into 5; 2 converted into 6; 3 converted into 7; 4 4,5 converted into 8; 4,5 4,75 converted into 9; 4,75 – 5 converted into 10. table 3: average grade at the last educational level (n=509) mean = 7.7055; median = 8.00; std. deviation = 0.96477; self-initiative regarding the search for additional training was measured through surveying the respondents as to how often they search for appropriate additional forms of education and training. a grading scale from 1 to 5 was used, where: (1) = never, (2) 0= very rarely, (3) = occasionally, (4) = often and (5) = permanently. table 4: self-initiative regarding the search of appropriate education or training contents (n=509) mean = 2.51; median = 2.00; std. deviation = 1.173; 6. results and discussion we can see that there are positive correlations between all of the variables. all the variables were measured on an increasing scale. as seen in the table above there is a positive correlation between the achieved level of education and all of the positions in the hierarchical structure that we used as a measure of formal power in an organization are above 0,304 and are all statistically significant. table 5 gives the correlation coefficients between the previously described variables. 48 2014/72management education degree 1 2 3 4 5 6 7 8 total n 6 41 20 74 159 60 112 37 509 % 1.2 8.1 3.9 14.5 31.2 11.8 22.0 7.3 100 average grade 6 – sufficient (6,00-6,99) 7 – good (7,00-7,99) 8 – very good (8,00-8,99) 9 – almost excellent (9,00-9,49) 10 – excellent (9,50-10,00) total frequency 48 199 181 53 28 509 percent 9.43 39.10 35.56 10.41 5.50 100 self-initiative regarding education 1 never 2 very rarely 3 occasionally 4 often 5 permanently total frequency 126 130 149 76 28 509 percent 24.8 25.5 29.3 14.9 5.5 100 table 5: pearson r correlation coefficients (n=509) * correlation is significant at the 0.01 level (2-tailed). to continue, a regression analysis between the independent variables (achieved level of formal education, average grade at the last level of formal education and self-initiative regarding the search for additional education or training) and the dependent variable (place in the hierarchical structure) has been made and is shown in table 6 below. table 6: regression analysis for the dependent variable “place in the hierarchical structure” (n=509) dependent variable: place in the hierarchical structure with the predictors “achieved level of formal education”, “average grade at the final level of formal education”, “self-initiative regarding the search for additional education and training” the 43.3% variance of “place in the hierarchical structure” is explained. the achieved level of formal education (�=0.498) has the most influence. individuals educated differently have different abilities of reaching higher positions in the hierarchical structure which answers r1. the answer to r2 lies in table 7 where we can see that not even one individual who has not completed primary school achieved a position in the hierarchy higher than the position of manual worker. on the other hand, 35.15% of the individuals who achieved the highest level of formal education also achieved the top management positions in organizations and 94.6% of the achieved positions in the hierarchy that are at the level of experts or management (r=0.628 at p=0.01). 49 management 2014/72 achieved level of education average grade at the last level of education self-initiative regarding the search for additional education or training average grade at the last level of education 0.332* self-initiative regarding the search for additional education or training 0.488* 0.235* place in the hierarchical structure 0.628* 0.304* 0.469* unstandardized coefficients standardized coefficients predicators b std. error beta t sig. (constant) -2.790 .621 -4.495 .000 achieved level of education .684 .054 .498 12.564 .000 average grade at the last level of education .218 .085 .091 2.567 .011 self-initiative regarding education .402 .075 .205 5.323 .000 table 7: an individual’s position in the hierarchy compared to an individual’s achieved level of formal education (n=509) 1 did not finish primary school. 2 finished primary school. 3 secondary school (2 years). 4 secondary school (3 years). 5 secondary school (4 years). 6two year study. 7 higher education. 8 master’s degree. doctorate degree of course, characteristics do not fit every single individual but we still think that people who have achieved higher levels of formal education also have higher tendencies toward the top of the hierarchical structure and also have better possibilities of achieving higher positions. 50 2014/72management position in the hierarchy total manual worker head of shift routine admin. staff nonroutine admin. staff expert lower manag. middle manag. top manag. 1 100.0% 100.0% 2 85.4% 2.4% 2.4% 7.4% 2.4% 100.0% 3 75.0% 15.0% 5.0% 5.0% 100.0% 4 62.2% 16.1% 4.1% 10.8% 4.1% 1.4% 1.4% 100.0% 5 28.3% 13.8% 27.0% 10.2% 8.8% 5.0% 3.1% 3.8% 100.0% 6 20.0% 3.3% 16.7% 6.7% 25.0% 15.0% 10.0% 3.3% 100.0% 7 4.5% 2.7% 14.3% 8.0% 32.1% 10.7% 17.9% 9.8% 100.0% a c h ie ve d l e ve l o f e d u c a ti o n 8 5.4% 35.15% 5.4% 18.9% 35.15% 100.0% total 32,2% 8.4% 14.9% 7.5% 16.5% 6.3% 7.5% 6.7% 100.0% conslusion an individual’s power is an ever-important factor in one’s personal as well as one’s business life. education is a factor in one’s power yet the mere presence of formal education will not give you power as many believe. this study provides basic insights into the connection between one’s formal education and power and it can be summarized as follows: an individual’s formal education is one of many things that are components of an individual’s formal power. however, this does not explain the whole concept of power because there is an infinite number of variables that influence one’s power and we can only explain them in parts. several limitations of this study need to be considered before interpretations of the results can be explored. first, the discussed findings and implications were obtained from a single study; generalizing the results should be done with caution. second, the whole research was focused mostly on how an individual’s education affects their formal power. we have had that in mind already in the beginning when we were to define the goal of the study so that it is relatively simple with a concept that is influenced by many other variables that are not included in this study. we can all agree that there is a lot more to power that just these variables that we used in our study to determine it, however, even this simple study shows that there are some basic predispositions to having formal power and that one of them is formal education. maybe in a way the findings are a specific area because formal education is so emphasized in this study. however, it is still an interesting way for evaluating (in a simplified way) one’s potential power depending on formal education. references [1] bowles, s., & gintis, h. (2002). schooling in capitalist america revisited.sociology of education, 75(1), 1-18. [2] burke, r. j.,& ng, e. (2006). the changing nature of work and organizations: implications for human resource management.human resource management review, 16, 86–94. [3] european commission – education & training – lifelong learning programme – a single umbrella for education and training programmes. found on june 8th 2009 on web address http://ec.europa.eu/education/lifelong-learning-programme/doc78_en.htm (8.6.2009) [4] ferjan, m., & jereb, e. (2008). social class position as a determinant of educational achievement.društvena istraživanja, 17(4-5), 869-886. doi: 316.342.2(497.4):37 [5] jereb, e., ferjan, m., & jesenko, j. (2009). conceptual model of study progress in higher education.didactica slovenica – pedagoška obzorja, 24(1), 168-184. doi: 37.091.212.7 [6] finn, b. (1995). organization. power and change. handelshøjskolens forlag, copenhagen, isbn 9788716132482. [7] george, j. m.,& jones, g. r. (2008). understanding and managing organizational behavior. (5th ed.). upper saddle river: pearson education, inc. [8] hogan, k. (2005).the science of influence: how to get anyone to say »yes« in 8 minutes or less! hoboken, new jersey, john wiley & sons. inc. [9] lynn, i. (2000). knowledge, labour and education.compare, 30(3), 275-282. [10] marič, m.,& ferjan, m. (2011). managing with power in the organisation to achieve common progress. t. kern & v. rajkovič (eds), people and sustainable organization, frankfurt am main, peter lang, isbn 978-3-631-62113-4. [11] mintzberg, h. (1983).power in and around organizations. englewood cliffs, prentice hall. [12] moorhead, g.,& griffin, r. w. (2010). organizational behavior: managing people and organizations. (9th ed.). south-western: cengage learning. [13] pinchot, e. s. (1992). balance the power.executive excellence, 9(9), 3-5. [14] rees, r. (1999). power: an example of its changing nature.the canadian journal of higher education, 29(1), 27-46. [15] rosenbaum, j. e. (1980). hierarchical and individual effects on earnings.industrial relations, 19(1), 114. [16] senior, b. (2002). organisational change, harlow, prentice hall. [17] unterhalter, e., & dutt, s. (2001). gender, education and women’s power: indian state and civil society intersections in dpep (district primary education programme) and mahila samakhya.compare, 31(1), 57-73. [18] wagner, j. a. iii,& hollenbeck, j. r. (2010). organizational behavior: securing competitive advantage.routhledge, new york, isbn 0-203-87353-x. [19] wu, w., chang, h. p., &guo, c. j. (2008). an empirical assessment of science teachers’ intentions toward technology integration.the journal of computers in mathematics and science teaching, 27(4), 499-520. receieved: june 2014. accepted: september 2014. 51 management 2014/72 one of the factors that influence an individual’s power could also be the power of their parents and their social position. a similar study regarding the influence of the social class position as a determinant of educational achievements has already been done (ferjan & jereb, 2008) and the results could also be used to determine power and its sources. according to the findings, the perceptions and the “size” of an individual’s formal power in an organization depend on one’s level of formal education. one man once said that all people are divided into two groups: the leaders and the followers. most people are simple followers but those who want to be leaders need power to achieve so that someone will follow them. leadership facilitates quality relationships and balances power (pinchot, 1992). 52 2014/72management about the author miha marič university of maribor, faculty of organizational sciences miha.maric@fov.uni-mb.si miha marič, ph.d., is a researcher in the area of leadership, management, and organizational sciences. he is currently employed as a teaching assistant at the university of maribor’s faculty of organizational sciences and has a ph.d. from the faculty of economics, university of ljubljana. his research interests are power, leadership, organizational behavior, hrm, management, organization. mitja jeraj 2 jpo d.o.o.maribor mitja.jeraj@hotmail.com mitja jeraj, ph.d., is a researcher in the area of entrepreneurship, management, and organizational sciences. his main research interests include entrepreneurship as a broad field of research, entrepreneurial personalities, relations between entrepreneurship and economic growth, relations between entrepreneurship and unemployment, connection between entrepreneurship and development of different sectors (e.g. sport) etc. his research also focuses on management in small and medium enterprises, on cost management, on development of the organization over time and on the educational system. 07 jovanka vukmirovic:tipska.qxd 75 jovanka vukmirović1, aleksandra vukmirović2, dragan vukmirović3 1university of belgrade, faculty of organizational sciences 2stata.rs ltd belgrade, milutina milankovića 132/9 belgrade 3statistical office of the republic of serbia, milana rakića 5 belgrade mapping of the business infrastructure in serbia with a special view at brownfield and greenfield udc: udc: 332.122:338.45(497.11) doi: 10.7595/management.fon.2014.0008 spin´ 13, belgrade, 05-06. november 2013. 1. introduction – basic definitions and methodological foundation “the registration of the first clusters and incubators in 2005 marked the beginning of the development of business infrastructure in serbia, with the goal to increase the competitiveness of the domestic economy, attract foreign investments and stimulate a more balanced regional development through the founding of industrial and technological parks, as well as industrial zones. (http://bif.rs/2012/05/biznis-i-finansije-87-poslovnainfrastruktura-srbije/) business infrastructure represents an institutionalized logistical support to enterprises and entrepreneurs that are located at one site, with the goal that their individual development should render positive effects on the overall socio-economic position of the community. from the aspect of the local and regional development, it is very important that the development of business infrastructure is adjusted to the needs and development potentials (geopolitical, natural, human, technological, etc.) of the given area. in this way, comparative advantages are stimulated and the local and regional competitiveness is directly increased. types of business infrastructure. business infrastructure includes: • cooperatives and logistical centres (business support centre) • clusters • business incubators • technological parks • industrial parks • industrial zones • free zones, and • from the aspect of the current state of economy, brownfield facilities and sites certainly must also be added to this category. management journal for theory and practice management 2014/70 contemporary business dictionaries lack a precise definition of the notion of business infrastructure. also, there is an open question as to what are all the things that comprise a business infrastructure. in serbia, there is not a legislative framework yet which recognizes and stimulates its development by categories and geographic position. parallel to the lack of notional and legislative frameworks, we can also observe numerous activities in the field of creation of development policies and project investments in concrete facilities and sites. during the previous several mandates (since 2007), the government of serbia has stimulated the development of business infrastructure throughout the country using the budget funds. during the same period, significant donor funds have been spent precisely for the projects in the sphere of enhancement of business infrastructure in serbia. in addition to the definitions provided for a set of important notions, the paper also presents a structural analysis based on the results of the survey / mapping of business infrastructure. it also shows the methodological procedure with a special view at the socalled brownfield and greenfield potentials. also, the results of the survey have been considered within a general socio-economic context with a critical view at the effects of the implemented development policies. keywords: business infrastructure, mapping, industrial zones, brownfield, greenfield. cooperatives and logistical centres (business support centre) are independent business subjects or departments within some existing structure which deals with rural development. they directly participate in the process of creating a new value by providing support to primary agricultural producers in the form of: enhancing the knowledge and adopting new technologies, quality control, sorting, gauging, warehousing, packaging, protection of the geographic origin, branding, promotion, placement and collection. they are of particular importance for rural development and the lack of this kind of support directly causes demographic depletion and destruction of the already week economy of rural areas. business incubators are business companies which primarily provide office space for newly-founded enterprises and entrepreneurial stores thus minimizing the initial costs of starting up a business. the “tenants” of business incubators share costs of administration, technical and other services which also significantly relaxes them in financial terms over the period of 3-5 years after which it is purported that they should leave the incubator and continue their independent operations. technological park (or science park) is a specific type of business incubator intended for encouraging innovations through linking scientific work with operations of enterprises and entrepreneurial stores, especially in the fields of advanced technologies (electronic communications, electronics, software creation, etc.). science parks exist next to universities, that is, technical and technological faculties. innovation clusters are groups of innovative small, medium and large enterprises and research organizations that operate in a certain sector and are regionally concentrated. clusters are founded with an intention to stimulate innovative activities of enterprises and a technological transfer within the cluster through a process of knowledge and experience exchange (european commission 2006, p. 9). according to porter’s definition, clusters are geographic concentrations of interconnected companies of related and different activities that compete in the given field of operations, but also cooperate. a cluster is interconnected on the basis of joint interests and needs in the sphere of procurement, sale, specialized services, work force and other resources. free zone is a part of the territory of the republic of serbia which is specifically bounded and marked, and where activities are performed under the conditions stipulated by the law on free zones which purport business operations in a duty-free regime when exporting products manufactured within the free zone. (law on free zones, art. 2, para. 1). industrial park is an enterprise founded with a goal to manage an industrial zone in terms of planning its expansion and infrastructural equipping. an industrial park may provide information and services (obtaining building permits, etc.) of interest for potential users of the land within the industrial zone. industrial zone is a plotted construction land equipped with the necessary utility infrastructure, including an inner network of roads, water supply, sewerage, electricity and telecommunications, which is intended for sale or renting with the aim to instigate industrial development (draft law on industrial parks, 2006). a major advantage of zones and parks from the ecological aspect is that they concentrate industrial production at sites which are equipped for that in utility and infrastructural terms, and which are sufficiently distanced from urban areas. brownfield signifies abandoned business facilities and sites, which burden the environment in an economic, ecological and aesthetic sense. a revitalization of brownfield most frequently surpasses the economic powers of the local communities which are essentially those that are most hit by its negative effects. army brownfield is a term compounded by establishing the fund for the defence system reform in 2004, that is, by enacting the master plan for disposing of army real estate from 2006. since then, a new category of brownfield has appeared in many municipalities comprising facilities and sites that previously had a military purpose. these are most frequently land complexes (former training fields, airports, etc.) and facilities (military barracks, warehouses, army social centres, etc.). it is estimated that the total value of the army assets offered in the market amounts to four billion euros. local self-governments on the territories of which these facilities are located have a priority in their purchase. 76 2014/70management journal for theory and practice management 2. methodology for mapping the business infrastructure the basic goal of mapping the business infrastructure is to create a unique register of business incubators, cooperatives and logistical centres, clusters, technological parks, industrial zones and brownfield sites in the republic of serbia. the methodology for mapping the business infrastructure entails the following phases: • analysis of the legal framework (laws, by-laws and strategic documents) • snap-shot of the current state (mapping) • analysis of the results with a special view at brownfield and greenfield 2.1. legal framework for the establishment of the business infrastructure a legal framework that would completely regulate the sphere of business infrastructure and define competencies and development priorities does not exist in serbia. the following documents are of importance for the mapping of the business infrastructure: regional development strategy of the republic of serbia for the period 2007 – 2012 considers business infrastructure development projects (industrial zones, business parks, business incubators, innovation centres, information and advisory centres) in a context of achieving a uniformed regional development. the 2008 regional development law recognizes the national agency for regional development, and regional and district development agencies as institutions that follow and implement measures and carry out development projects for the enhancement of economic infrastructure. laws on cooperatives from the previous period (the official gazette of the sfry 13/65, 7/67, the official gazette of the srs 57/89, the official gazette of the rs 46/95, the official gazette of the fry 41/96 and 12/98), regardless of whether abolished or not, are practically not applicable in today’s business environment. the draft law on cooperatives that should regulate this area and give a strong impetus to cooperatives’ members was put up for public debate back in 2011, but is still far from being adopted. the law on the spatial plan of the republic of serbia for the period 2010 – 2020 provides a description of the notions and a list by categories of the existing facilities of business infrastructure. the spatial plan provides for a creation of a cadastre of brownfield sites and a strategy for reviving industrial brownfield. also, according to the spatial plan an increase in the competitiveness of a certain area is achieved by founding industrial and technological parks, and industrial zones. concentrating complementary business activities in one area enables a dynamic development of those activities, as well as development of accompanying service activities. 2.2. snap-shot of the current state (mapping) map of the business infrastructure. it is not known exactly how many cooperatives there are in serbia or how they function. according to the latest available data of 2009 (source: satellite accounts for cooperative economy of the republic of serbia 2009, (2011), andra miloic et al.), the cooperative sector in serbia comprised 2124 cooperatives and 16 cooperative associations, which accounts for a total of 2140 businesses. out of that number, 67.1% are agricultural cooperatives. (youth and student cooperatives have a share of 17.8%, housing cooperatives 6.9%, the share of crafts ones amounts to 4.1%, while the share of all other cooperatives is 4.2%). in 2009, the gross added value (gav) in the cooperative sector (total) was rsd 4256.2 million, which accounted for a 0.27% share in the economy of the country. at the same time, the gav of cooperatives and cooperative associations was on a continuous decline in the period 2007–2009. to interpret this freely, the aggregate values of the cooperative sector point at a long period of institutional lack of care, as well as at the negative effects of the transitional restructuring of the national economy on the business operations of the cooperative sector. 77 management journal for theory and practice management 2014/70 there are 23 incubators in serbia: novi sad, subotica, zrenjanin, bački petrovac, pancevo, senta, kanjiza, beočin, niš, vranje, zajecar, bor, knjaževac, prokuplje, medvedja, kragujevac, rača, kruševac, užice, valjevo and kraljevo, zvezdara and rakovica, out of which only few operate with full capacity. the business incubators have been created on an assumption that comfortable and free business premises and almost free logistical support (bookkeeping, legal affairs, insight into new technologies, etc.) will be a sufficiently strong incentive for founding micro and small-size enterprises. it remains unclear why even with such attractive incentives the incubators remained without “tenants.” the survival of the incubators is considered within the context of financial unsustainability – the funds obtained from collections for the services rendered are not sufficient, while the donors’ projects from which they were financed are exhausted. clusters provide different services to their members – most frequently these are organizations of seminars and conferences, visits and joint promotions at fairs, as well as public advocacy. the main advantage for the members of a cluster is reflected in the possibilities of joint market approach, which opens up opportunities for small enterprises to take a part in “big” business operations. it is not known exactly how many clusters there are in serbia. there are 58 of them registered at the business registers agency, while a study of clusters in serbia from 2011 (analysis of the state of business infrastructure in the republic of serbia, d.mijacic) gives a short description and contact data for a total of 85 clusters. similarly to business incubators, one of the biggest problems for the future of the clusters is financial sustainability. taking into account that the majority of them have remained without donors’ funds, the survival of the clusters directly depends on the ability of their employees to provide financing through project activities. there are 11 free zones in serbia (subotica, novi sad, šabac, užice, zrenjanin, smederevo, svilajnac, kragujevac, niš and pirot), and there is also a free zone in apatin currently being founded (source: http://www.mrrls.gov.rs/sites/default/files/attachment/industrijskezoneusrbiji.pdf). there are two technological parks, in vršac and subotica, and there is a plan to found three more technological parks, in niš, indjija and novi sad. the number of industrial zones in serbia is not precisely established, but it is known that there are only two enterprises that deal with the managing of industrial zones, that is, that function as industrial parks – in subotica and vršac. 3. mapping of the brownfield most of the brownfield sites in serbia represent an inglorious inheritance from the period of the socialist economy, the past work of numerous generations that built this society during the second half of 20th century. ruined, abandoned factories, heating plants, business buildings, warehouses, pavilions, training fields, etc. are scattered throughout serbia, from the biggest cities to the smallest towns and nobody can, not even approximately, say how many of such facilities and sites there are, what their original intended use used to be, what their capacities and floor space are, etc. the seriousness of the brownfield problem in serbia is inversely proportionate to the activities related to its solving. during the past decade, there was a lack of systematic and organized approach to any reactivation of the brownfield from the state level, while occasional examples of good practice were more a result of some ad hoc activity in some towns and municipalities, linked mostly to concrete investment projects (reactivation of the brownfield in serbia, systematic approach or ad hoc solutions, sctm beograd, 2011). this paper shows the results of mapping the brownfield – a survey that was conducted during october and november 2013 by the standing conference of towns and municipalities (sctm) within the project “support to local self-governments in serbia within the european integrations process” – component iv: enhancement of the business climate at the local level. the basic activities were aimed at collecting data from the local administrations (local self-government units, lsgu) which are not unified within any system and which are of exceptional importance for the creation of development policies at the local, regional and national levels. the survey included all lsgu except belgrade, which, due to its specificity and size, is not comparable with other lsgu, that is, it must be the subject of a separate study. out of 144 lsgu, 81 lsgu (56%) responded and submitted data on 397 brownfield facilities and sites, which represents a significant basis for drawing conclusions. the results of this survey are reliable to the degree to which the data submitted by the lsgu are reliable. 78 2014/70management journal for theory and practice management the total area of the mapped bf facilities amounts to 2,337,304 m2, while the area on which these facilities are located amounts to approximately 9742 hectares. taking into account that most of the sites we do not use today and treat as brownfield were created in the period of responsible socio-economic thinking-through from the second half of 20th century, their geo-strategic position is perhaps even today their greatest value. the average distance from a major road is 2.6 km, but if the extremes (kneževac 40 km, petrovac na mlavi 25.3 km and trgovište 27.2 km) are excluded, the average distance of the mapped brownfield sites from the major roads is 1.2 km. the average distance of a motorway is 41.4 km and if we exclude from the general average the lsgu from the zlatibor and raška districts (užice 133 km, čajetina 150 km, kosjerić 109 km, nova varoš 196 km, novi pazar 175 km), the average distance of the mapped brownfield sites from a motorway is 31.6 km. the average distance from a railway track amounts to 10.8 km, while the average distance from the closest airport (surčin or niš) is 110km. in addition to the good position in relation to main traffic lines, a particular value of the brownfield facilities and sites is reflected in their infrastructural equipment. almost all of them are equipped with high-voltage network (91.1%) and land telephone lines (92.4%). the broadband internet has reached 75% of the bf facilities, with the possibility of gas connection existing in 48% of the bf facilities, while in the case of 25% of the mapped brownfield facilities there is a possibility of enlarging the plot. from the aspect of the local, regional and national economies, the brownfield simultaneously represents both a large developmental potential and a large socio-economic burden. there are good results that have been achieved in the developed eu countries by using a policy based on two foundations: 1. the state and/or local community separately stimulate project activities/investments if they also contain a component of brownfield revitalization; 2. the lsgu uses fiscal measures to demotivate owners of the brownfield – by using high taxes for a lack of use or not intended use of the facilities and sites, the local community discourages the owners of the brownfield and practically forces them to come up with a solution in the shortest possible period of time. the brownfield revitalization purports one of the three possible outcomes: bringing it back to the original intended use, change of the intended use or removal of the existing facilities and ecological cleaning of the terrain. everything points at a lack of central strategy and earmarked funds, since it is completely clear that the brownfield revitalization surpasses the budget potentials of the local self-governments and sporadic initiatives of the owners of the capital. 3.1. mapping of the army brownfield a special place in the analysis of the brownfield in serbia is held by the so-called army brownfield. by looking into the data of the master plan of the ministry of defence for the facilities intended for conversion (24/01/2014, ), it can be seen that there are 456 complexes currently offered on the market with a total area of 3,814.16 hectares, that is, 2185 facilities with the total floor space of 440,928 square meters. most frequently these are representative facilities in downtown zones or facilities that are fully equipped in infrastructural terms (telephone lines, electricity, water, road, railway…), such as military barracks, training fields, airports, warehouses – and as such ideal for being transformed into business infrastructure. the disposal of this real estate is carried out by the republic directorate for assets of the republic of serbia in collaboration with the ministry of defence, with particular favouring of the local self-government units. according to a decree of the serbian government in 2010, the ministry of defence cedes to towns and municipalities its assets against a four/five year credit with no interest and banking guarantees, with a special provision that the lsgu may enter into possession as soon as the agreement has been achieved. at the same time, the prices are significantly lower than the market ones. even with all these incentives, only 66 complexes (~15% of the total fund) were sold in the period from the adoption of the plan in 2006 until the end of 2012. around two thirds of these assets (65%) were bought by local self-governments, while 35% were sold through a tender. the poor response and a very slow process go to show that even with all the incentives, the conversion of the army assets completely surpasses the developmental and financial potentials of the local self-governments, which particularly refers to the smaller and undeveloped municipalities. the total floor space of the bf facilities for which the lsgu (81 out of 144, belgrade excluded) submitted the data amounts to 2,337,304 m2, while the area of the plots on which these facilities are located amounts to approximately 9,742 hectares. if we add these amounts to the floor space/areas that come out of the analysis of the army brownfield, we will not get a complete picture of the brownfield potentials in serbia (it is almost certain that the data from the 81 lsgu are not comprehensive, while 63 lsgu have not submit79 management journal for theory and practice management 2014/70 ted their data at all, and belgrade has not been included in the survey), but we can establish with certainty that on 13,556 ha of land there are mapped brownfield facilities with the floor space of 2,778,232 m2. 4. mapping of industrial zones the only way to establish the number and structure of the business infrastructure facilities and sites is to set up a unique register within the national cadastre of real estate. the ministry of economy and regional development in cooperation with the republic geodetic authority initiated in 2011 a project of preliminary design for setting up such register / cadastre, but the implementation of that solution is still far away. until then, we deal with quite contradictory estimates as to how much of it there is and what the capacity of the business infrastructure facilities and sites in the country is. figure 1: number of mapped industrial zones using the example of industrial zones, even in the official sources we come across very diverse data. according to the law on spatial planning of the republic of serbia 2010 – 2020 (page 221), on the territory of the republic of serbia (in 81 municipalities and the city of belgrade) there are 250 existing and planned industrial and investment sites with the area of 13,136 ha, while the site of the line ministry states that in serbia there are 92 industrial zones. ((http://www.mrrls.gov.rs/sites/default/files/attachment/industrijskezoneusrbijimrrls.pdf)) in the survey conducted in october and november 2013 by the sctm in cooperation with the local administrations, 91 (63%) lsgu responded and submitted the data on the total of 245 industrial zones. in addition to the very number of industrial zones, the data were also collected on the areas, degree of equipment with infrastructure, and position in relation to the main traffic lines. also, the data were collected on the occupied areas and areas that are available for renting out. 80 2014/70management journal for theory and practice management figure 2: areas of the mapped iz / total, equipped in infrastructural terms, and rented out according to the results of the survey / mapping of industrial zones, the total recorded area amounts to 19,557 ha, with 6,235 ha or 32% being equipped in infrastructural terms. from the summed up data, it can be seen that so far 4,200 ha have been rented out / occupied, which is 21% of the total area, that is, 67% of the areas equipped in infrastructural terms (figure 2). when it comes to the position of the industrial zones in relation to the main traffic lines, the average distance from a major road is 1.6 km, 51.6 km from a motorway and 11.2 km from a railway. the average distance from the closest airport (surčin or niš) is 81.8 km and from the nearest port it is 153.5 km. out of the total number of the mapped industrial zones, in 79.6% of them there is high-voltage network, while 82.9% have a possibility of connection to the land telephone line. the broadband internet has reached 69.4%, while the gas connection is available in 49% of the mapped industrial zones. the possibility for enlargement exists in 49% of the zones. 5. analysis of the results with a special view at the brownfield and greenfield even with a very large number of abandoned industrial complexes in serbia, the majority of the industrial zones have been created as a greenfield investment on agricultural plots which had their intended use changed for that need into industrial land. only two industrial zones in serbia have been created through the revitalization of the brownfield – the old industrial zone in smederevo and “zastava” plants in kragujevac. thus, there are thousands of hectares of agricultural land that were turned in the municipal development documents into industrial zones which are reached by roads, electricity, water, gas, broadband internet, etc. there are no adopted expenditure standards for equipping industrial zones, given the big differences that are present depending on the location and the existing resources, but on the basis of examples from practice (in zrenjanin, €5,300,000 have been spent for equipping 72 ha with infrastructure) the amount for standard equipping of a hectare of industrial zone is €80,000 ± 20%. during the previous several mandates, the serbian government used its budget funds to strongly stimulate the creation and equipping of industrial zones throughout the country. in the period from 2007 to 2010, only from the national investment plan, around 20 million euros were invested (table 4) for equipping a number of industrial zones with infrastructure. in the previous year, i.e., in 2013, another 300 million were allocated, while another 450 million dinars are planned for 2014 for equipping a number of industrial zones. (http://akter.co.rs/26-ekonomija/25571-vienovca-za-industrijske-zone.html). the industrial zones, built in the vicinity of many towns throughout serbia, were expected to become an engine of the regional development and renewal of the ailing local economy, but it seems that these desires have not been fulfilled completely (industrial zones – an opportunity or a delusion. stefan despotovic, the politika online 29.09.2013). there are good examples where 2,500 employees have been reached from a barren land over a short period of time (the niš iz), but there are also numerous failed cases. over a million euros have been invested in the bač industrial zone which spreads over 16 hectares (~€65,000/ha). the zone has roads, water, sewerage, electricity and a possibility of gas connection. in order to attract investors, the municipality yielded equipped land for only 60 cents per m2 (€6,000/ha). most of the 16 lessees got hold of attractive locations next to the major road for little money without any intention of investing into production capacities. according to tomislav bogunović, president of the municipality of bač, some natural persons bought two locations in the industrial zone each which they now use as grazing grounds for their cattle. 81 management journal for theory and practice management 2014/70 according to the naled study on the local economic development (jelena bojović, local economic development in serbia, handbook for practitioners. 2013), unless the dynamics of filling out the industrial zones in serbia is sped up (600 ha every 10 years), the current offer of land will be sufficient for the next eighty years. it is completely clear that many more areas in the industrial zones in serbia have been allocated for the socalled greenfield investments than it is realistically possible to have such investments in the foreseeable future. in addition to the mapping of the land which can always have its intended use changed into agricultural or construction land, much more funds have been spent into this type of attracting investors than it was necessary. also, it is not realistic that the spent funds will be returned in any foreseeable future through the positive effects of initiating production, employment, creation of new value, etc. figure 3: areas of the mapped brownfield and industrial zones according to the data collected in the process of the survey carried out by the sctm, 245 industrial zones (from 91 lsgu) have been mapped with the total area of 19,557 ha out of which 6,235 ha are equipped with infrastructure (picture 3). also, 9,742 ha of brownfield areas have been mapped with 2,337,304 m2 of existing facilities which are equipped with infrastructure almost to the same degree as the industrial zones, taking into consideration that this concerns the infrastructure that is already found there. by all relevant criteria, the brownfield sites are on an average better equipped with infrastructure (electricity, water, gas, telephone, internet connection), while the industrial zones have a significant advantage only when it comes to the possibility of enlarging the plot (figure 3). in the observed period of the industrial zone expansion (and even subsidies of up to € 10,000 for each job post within certain zones), there is a total lack of policies concerning the solving of the issue of the brownfield in serbia. the stimulation programmes from the central or regional levels with projects that also contain a component of the brownfield facility or site revitalization are very rare. with this lack of plans, programmes and funds, there are very rare examples when investors opted for the brownfield (such as, for instance, when pompea initiated manufacturing of tights and underwear in the manufacturing units of the former factory “brusjanka” from brus), while many towns in serbia remain captives with depressing views of extinguished factories, crumbling warehouses, manufacturing halls and business buildings. figure 4: infrastructural / utility equipment of the mapped brownfield sites and industrial zones (%) the data from the sctm survey referenced in this paper show a major redundancy of the industrial zones and the existing brownfield sites when it comes to the most important investment criterion – distance from the major traffic lines. it may be seen from the summary data on the position in relation to the main traffic lines that most of the industrial zones have been created in the vicinity of the existing brownfield sites. the average distances from a major road or a railway almost coincide, with the industrial zones being on an average slightly closer to a motorway (9.6 km) and an airport (28.2 km) in comparison to the brownfield sites. 82 2014/70management journal for theory and practice management figure 5: distance of the mapped brownfield and industrial zones from the major traffic lines 6. summary, proposals and recommendations the regional development strategy of the republic of serbia for the period from 2007 to 2012 puts together the notions of polycentric regional development and stimulation of the sme sector through mapping and construction of business infrastructure. the development of clusters, industrials zones, technological parks, business incubators, logistical and business centres ought to enable a faster and more efficient socio-economic transition which is based on the concept of transposing large enterprises into smalland medium-size ones. it remains unclear why the creators of the economic development in the country accepted that concept and implemented it to the letter, although it was already, in the previous decade, quite clear that the globalization is the main economic stream and that only the “big players” may compete on the global scene. also, the experience of the countries from the region unquestionably shows that a favourable climate for the development of smalland medium-sized entrepreneurship purports a presence of “big” companies in the close proximity. as of recently, it is possible to hear more frequently the critical tones regarding the implemented strategies and arguments that point at bad effects of the transposition. the development of the individual elements of business infrastructure has not taken into consideration the real needs and requirements of the smalland mediumsize enterprises and the areas in which they operate, which resulted in an insufficient efficiency in the work, poor effects of raising competitiveness of the enterprises and a lack of long-term stable sources of financing. the author of the text “started off and then turned off” emphasizes that the basic goal of founding industrial and technological zones and parks was to increase the competitiveness of the domestic economy and attracting foreign investments. however, owing to the lack of systemic policy in this area, out of 23 registered incubators, only a dozen operate with full capacity and the destiny of the cluster initiatives is almost identical (the business and finance magazine, no. 87, may 2012, source: ). the data from the survey conducted by the sctm in collaboration with local administrations is a reliable foundation for drawing conclusions in terms of the set goals of the survey and its methodological framework. the main shortcoming of the implemented methodology is reflected in the missing data from the towns and municipalities that have not responded and therefore it is not possible to get a complete picture of the business infrastructure in serbia. taking into account that the records of the total business infrastructure are of essential importance for the institutions that create the local, regional and national development policies, it is to be expected that these issues will earn a systematic and comprehensive approach, that is, that the survey will be continued. at the same time, the collected data and the results that ensue represent a reliable information basis for drawing essential conclusions and for formulating proposals and recommendations, especially for the sphere of the brownfield and industrial zones: the main conclusions: • there are much more potentials intended for investors than it is realistic to have investors in the foreseeable future. • much more funds have been invested in the industrial zones than it was optimal. • industrial zones have been favoured in comparison to the brownfield sites. • expansion of the brownfield coincides with the period of transition from the socialist economy to the market one, especially through numerous unsuccessful privatizations. 83 management journal for theory and practice management 2014/70 • revitalization of the brownfield completely surpasses the potentials of those most hit by the brownfield – the local self-governments. • current legal framework does not hinder the brownfield revitalization in serbia, but neither does it stimulate it. • incentives for investors apply to the brownfield as well, but the brownfield revitalization also entails high costs of the land development and rehabilitation, which significantly increases the cost of the investment. according to the current privatization law, the rehabilitation costs should be borne by the state, but this mechanism mostly does not function. proposals and recommendations: • set up a unique register of business infrastructure as a necessary condition for creating an accountable development policy • establish the definition of the brownfield and introduce it into the current legal framework. • develop mechanisms for assessing the justifiability of investments and on the basis of the drawn conclusions revise the development policy for certain business infrastructure segments. • develop tax, planning and promotional instruments at the central level and allocate funds for stimulating revitalization of the brownfield facilities and sites. • towns and municipalities ought to have bigger authorities in the process of the brownfield revitalization, such as, for instance, fiscal mechanisms for the demotivation of the owners of the brownfield. references: [1] belkić, v. & hrnjaz, m. local economic development – the european sign-post towards modern local self-government [2] bojović, j. (2013). local economic development in serbia, handbook for practitioners. naled. [3] bringing the brownfield to life in serbia. manual for decision-makers and professionals, the palgo centre. [4] despotović, s. (2013, september). industrial zones – an opportunity or a delusion. the politika online. [5] initiative for solving the issue of the army brownfield assets in undeveloped municipalities, march 2013 [6] law on spatial plan of the republic of serbia from 2010 to 2020. [7] mijačić, d. (2011), analysis of the state of business infrastructure in the republic of serbia, belgrade: national agency for regional development. [8] reactivation of the brownfield in serbia, systematic approach or ad hoc solutions. sctm belgrade (2011) [9] regional development law. the official gazette of the rs no. 51-09 [10] regional development strategy of the republic of serbia for the period from 2007. to 2012. [11] serbian industry development strategy and policy from 2011 to 2020. belgrade [12] stošković, m., nikolić m. & djukić, g. (2012). business infrastructure as a factor of development and competitiveness of small and medium-sized enterprises. ekonomski vidici, vol. 17, no. 2, pp. 283-293. [13] vukmirović, j.(2013, january). regional development as a precondition for exiting the crisis. macroeconomic analyses and trends. [14] vuković, d. (2009) low competitiveness of undeveloped areas – the 'bottleneck' of the serbian economy. collection of papers of the geographic institute “jovan cvijic”, serbian academy of sciences and arts vol. 59, no. 2, pp. 189-204. receieved: november 2013. accepted: march 2014. 84 2014/70management journal for theory and practice management 85 management journal for theory and practice management 2014/70 jovanka vukmirovic university of belgrade, faculty of organizational sciences lola@fon.rs jovanka is assistant professor at the university of belgrade, faculty of organizational sciences, and professor at belgrade business school, higher education institution for applied studies. she was the head of the department for policy of regional development at the ministry of economy and regional development in serbia, mainly responsible for creating the policy of regional development founded on relevant statistical indicators from local and regional levels. she was a coordinator in more than one hundred papers, author of many papers of great scientific importance, including the book “marketing research” (2011). aleksandra vukmirovic msc stata,rs ltd belgrade aleksandra.vukmirovic@stata.rs aleksandra is a master engineer of organizational sciences and the general manager & owner of the market research agency stata.rs. she is the author of several scientific papers of national and international importance, and is currently preparing her phd dissertation in the field of electronic business and internet marketing at the university of belgrade, faculty of organizational sciences. dragan vukmirović belgrade university, faculty of organizational sciences dragan.vukmirovic@stat.gov.rs dragan is a full professor at the faculty of organizational sciences, belgrade university and director of the statistical office of the republic of serbia. he has published more than one hundred scientific and professional papers in the field of research, statistics, information sciences, marketing, electronic trading and internet marketing. he participated in and managed a number of empirical studies of the application of quantitative methods in economics and e-commerce. and also participated in the design and implementation of research projects related to these fields of study. about the author 01 milica maricic:tipska.qxd 1 milica maričić1, nikola zornić2, ivan pilčević3, aleksandra dačić-pilević4 1university of belgrade, faculty of organizational sciences, serbia, 2 south stream b.v., the netherlands, 3 british american tobacco, the netherlands management: journal of sustainable business and management solutions in emerging economies 2017/22(1) udc: 378.014:005.6(100) 378.014:006(100) arwu vs. alternative arwu ranking: what are the consequences for lower ranked universities? doi: 10.7595/management.fon.2017.0002 1. introduction decision makers and government representatives use numbers in the process of policy making in various spheres of life (porter, 1995). higher education is just one of thoe that saw the introduction of scores into its assessment methods through university rankings (daraio & bonaccorsi, 2017). since 2003 and the first global university ranking, the university rankings have proliferated. the three world-acknowledged and most often analysed rankings are the academic ranking of world universities (arwu), the times higher education (the), and the quacquarelli symonds world university ranking (qs). however, these rankings led to the creation of dozens separate rankings and subrankings: by region, by subject, by field and so on (hazelkorn & gibson, 2016). this information goes to show several facts: that there is a need for university rankings, that their scope is changing, and that university rankings have become a serious industry (hazelkorn & gibson, 2016). therefore, the conclusion can be made that university rankings are here to stay (nature news, 2007). throughout the years, institutions that publish university rankings aimed to answer the needs of students, on one hand, and the needs of universities, on the other hand. one such case is the case of the alternative arwu ranking. namely, the arwu ranking tends to take into account the prestige of the institution by including indicators such as the number of alumni and staff who received the nobel prize or the fields medal. however, it is tough for an institution to receive any of them. on the other hand, if a university receives one of the two prestigious awards, its rank skyrockets in the next edition of the ranking. for example, the toulouse school of economics received its first nobel prize in 2014 in economic sciences and entered the arwu ranking straight into group 201-300 in 2015. similarly, the london school of economics received its first nobel prize in 2010 and went from group 201–302 to group 102–150. also, once a university has received the nobel prize or fields medal its rank position improves and stays constant for a certain period of time (piro & sivertsen, 2016). many universities worldwide pointed such situations out to the shanghai ranking consultancy and suggested an alternative ranking without the award factor (alumni and award indicators) (arwu, 2014). their valuable observation led to the creation of the alternative arwu ranking. abstract: the arwu ranking has been a source of academic debate since its development in 2003, but the same does not account for the alternative arwu ranking. namely, the alternative arwu ranking attempts to reduce the influence of the prestigious indicators alumni and award which are based on the number of received nobel prizes and fields medals by alumni or university staff. however, the consequences of the reduction of the two indicators have not been scrutinized in detail. therefore, we propose a statistical approach to the comparison of the two rankings and an in-depth analysis of the alternative arwu groups. the obtained results, which are based on the official data, can provide new insights into the nature of the alternative arwu ranking. the presented approach might initiate further research on the alternative arwu ranking and on the impact of university ranking’s list length. keywords: arwu ranking, alternative arwu ranking, award factor, university ranking jel classification: c10, c38, i23 1corresponding author: milica maričić, e-mail: milica.maricic@fon.bg.ac.rs it is important to create a university ranking as reliable and as accurate as possible (radojicic & jeremic, 2012). therefore, an in-depth analysis of ranking methodologies is needed. one of the major research which aimed to tackle the structure of world acknowledged university rankings was done by aguillo et al. (2010). they attempted to measure the similarity between arwu, qs-the, webometrics ranking, and the higher education and accreditation council of the taiwan ranking (heeact). the important contribution of their research is that they analysed universities by groups: top 10, top 100, and top 200. similar research was recently conducted by shehatta & mahmood (2016) who performed a detailed correlation analysis of six global rankings by groups top 50, top 100, and top 200. both of these papers indicate that, besides the overall analysis of university rankings, analysis by groups is also desirable. although the methodology of the alternative arwu ranking resembles the official arwu ranking with smaller alterations, since its publication in 2014, there has not been, to our knowledge, an in-depth analysis of its results and the consequences of the removal of the two indicators related to prestigious awards. herein we provide analysis of the observed differences alongside with the thorough study on the alternative arwu ranking by groups. the following section gives a literature review of the methodological issues the rankings encounter. both ranking methodologies and the research methodology are presented in the following section, while the research results are given in section 4. some of the possible future directions of the study are provided in the next section, while the concluding remarks are given in the final chapter. 2. methodological issues of the arwu and alternative arwu rankings when it first appeared, the arwu ranking attracted both a positive feedback and rigorous critique. since 2003, academics specialized in statistics, bibliometrics, and composite indicators have tried to point out some of the methodological flaws this widely recognized university ranking faces. one of the first papers which aimed to tackle the arwu methodology was the work by florian (2007) who pointed out the problem of result irreproducibility. namely, he attempted to recreate the 2005 arwu ranking using the official methodology but without success. he encountered discrepancies in the ranking, as well as in the processed data. although the values of some of the indicators were hard to reproduce, especially the ones obtained directly from the universities, the same should not account for objective bibliometric indicators. several years later dehon et al. (2010) employed the principal component analysis (pca) to inspect whether the factors measured by the arwu should be integrated into a single measure. their analysis showed that there are two different and uncorrelated aspects of research performance: one related to high level research, and the second related to research output. their result raised the question on whetehr various aspects of university performance should be aggregated at the cost of information loss. the presented research clearly initiated further debate on university rankings and their methodologies which are often presented as “black boxes” (longden, 2011). shortly after jeremic et al. (2011) suggested an application of a multivariate approach based on the i-distance to analyse the arwu weighting scheme. namely, they created an alternative arwu ranking by proposing new weights. the result of their research provided insights that the university rankings are sensitive to indicator weight alterations. in the following year, jovanovic et al. (2012) examined the influence of normalization on the results of the arwu ranking. namely, they again employed the i-distance method, this time on raw data, and normalized values of indicators. they showed that the normalization significantly alters the rankings meaning that additional research on the type of normalization should be conducted. another publication that should be mentioned is the one by zornic et al. (2014). the main aspect of their research was to scrutinize the indicator pub. since the indicator is calculated as the simple sum of published papers without taking into account the impact factor (if) of the journal, two universities with the same number of published papers will have the same indicator value regardless of the quality of the journals they published their paper in. they unveiled the example of two brazilian universities who had the same value of pub that the differences in the if of the top five journals are staggering. they ranged from 0.301 (sao paulo state university, journal semina-ciencias agrarias) to 3.730 (federal university of rio de janeiro, journal plos one). one of the suggested directions to overcome the observed issue of inequality is to include the aspects of journal quality into the pub indicator. 2 milica maričić, nikola zornić, ivan pilčević, aleksandra dačić-pilević 2017/22(1) the most recent article which at the same time acts as an inspiration for our research is dobrota & dobrota (2016). in their interesting paper they conducted the uncertainty and sensitivity analysis of both arwu and alternative arwu rankings. the results clearly showed that the alternative arwu ranking is more stable, meaning that the award factor distorts the ranking and makes it more volatile. their result could act as an impetus for further analysis of the alternative arwu ranking and the rationale for its creation. it can be concluded from the selected papers that the contemporary literature on the arwu ranking is impressive. the arwu and the alternative arwu rankings are composite indicators and, as such, they face some methodological issues (nardo et al., 2005). so far some drawbacks of the arwu ranking have been observed and constructive solutions have been recommended. however, the alternative arwu ranking has not yet received the attention it deserves. therefore, we herein propose a statistical approach to scrutinize and explore what the consequences of the exclusion of the alumni and award indicators on the university ranks are, with a special overview of the lower ranked universities and the impact of the university ranking list length. 3. methodology 3.1 arwu and alternative arwu ranking methodologies the academic ranking of world universities (arwu) or the shanghai ranking is published yearly by the institute of higher education of the jiao tong university in shanghai since 2003. the arwu aims to rank the world’s top 500 universities and to better present its results the universities are devided into groups of 100 by the achieved result. the ranking itself consists of six indicators which aim to rank institutions according to academic and research performance (liu & cheng, 2005). table 1 presents six indicators, their codes and weights which are assigned to them before aggregation. table 1: arwu indicators, their codes and weights source: arwu, 2016 the first indicator, alumni, is related to the number of alumni of an institution who won the nobel prize and/or fields medal. alumni are defined as those who obtained bachelor’s, master’s, or doctor’s degrees from the observed institution (liu & cheng, 2005). similarly, the award indicator is related to the number of staff of an institution who won the nobel prize and/or fields medal. in the case of both indicators different weights are set, according to the periods of obtaining degrees (alumni) or prizes (award) (liu & cheng, 2005). the following indicator, hici, aims to measure the number of staff who are classified as highly cited researchers by the isi web of knowledge published by thomson reuters corporation. however, an interesting research by bornmann and bauer (2015) showed that the ranking of the highly cited researchers depends on the number of institutions named by the authors. they pointed out that the discrepancies are clearly visible when comparing ranking lists of universities based on the firstly named institution and on all the named institutions. therefore, in the official methodology, it should be clearly stated which counting approach has been used. the next two indicators are bibliometric indicators aiming to measure the research output. the n&s, on one hand, indicates the number of papers published in the nature and science in the last five years, while the pub indicates the total number of articles indexed by the science citation index-expanded (scie) and the social science citation index (social sci) in the previous year. both indicators take into account only articles (liu & cheng, 2005). however, two things are not clear when it comes to these two indicators. first, why does the counting window differ for n&s and pub, and second, why is the number of published papers used instead of citations count? finally, the pcp attempts to measure the academic performance of an institution by the full-time equivalent academic staff. it is calculated as the weighted score of the five indicators divided by the number of full-time employed academic staff (arwu, 2015a). 3 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) indicator code weight alumni of an institution winning nobel prizes and field medals alumni 10% staff of an institution winning nobel prizes and fields medals award 20% highly cited researchers in 21 broad subject categories hici 20% papers published in nature and science n&s 20% papers indexed in scie and social sci pub 20% per capita academic performance of an institution pcp 10% to calculate the arwu scores the raw indicator values are normalized first. within each indicator, the best performing university is given a score of 100 and becomes the benchmark against which the scores of all other universities are measured. in the next step, the normalized scores are weighted accordingly and aggregated using sum (dehon et al., 2010). the methodology of the alternative arwu ranking slightly differs from the official arwu ranking methodology. firstly, indicators alumni and award are excluded from the framework. secondly, the pcp indicator is recalculated based on the remaining three indicators (arwu, 2014). in our paper, we will use the apcp as the code for the rescaled pcp used in the alternative arwu ranking methodology. finally, the weights assigned to the remaining four indicators are 70%; they have not been rescaled to 100%. besides these three, there are no more methodological differences between the two rankings. 3.2 research methodology the research methodology is based on the descriptive statistics, parametric, non-parametric tests, and multivariate analysis, specifically principal component analysis (pca) conducted on the ranking indicators, scores, ranks, and rank differences depending on the analysis. the descriptive statistics, namely means and measures of variability have been used to analyse the rank and the absolute rank differences between the arwu and alternative arwu rank. also, cross-tabulation has been performed to observe whether the universities qualified for a higher or a lower ranked group of universities after the award factor was removed. such an approach should provide more information on how the rank of universities changed, both on the overall ranking and per group. more detail on these approaches could be found in holcomb (1997). in our research, we aimed to explore both rank and score differences. parametric tests used to analyse the score differences and indicator values were the pearson’s correlation coefficient, student’s t-test, analysis of variance (anova) and its post hoc test, tamhane’s test, and fisher’s z transformation. these tests should unveil whether there is a statistically significant difference between the arwu and the alternative arwu score. on the other hand, non-parametric tests were employed to analyse the rank differences: spearman’s rho, kruskal-wallis test and its post hoc test, dunn’s test. similarly, these tests are to unveil whether there is a statistically significant difference between the arwu and the alternative arwu, but this time when it comes to university ranks. more information on the performed analysis could be found in, for example, tabachnick and fidell (2001) and hair et al. (2009). to obtain an in-depth analysis of the alternative arwu structure, we performed the pca to see whether the indicators should be aggregated in a single metrics. namely, the pca is used to extract the important information from the dataset and to represent it as a set of new orthogonal variables, thus reducing the dimensionality of the observed phenomenon (abdi & williams, 2010). a detailed overview of the pca is also given in tabachnick and fidell (2001). 4. results the dataset on which the analysis was performed contained all six arwu indicator values and the alternative pcp (apcp) for 500 ranked universities for the year 2014. the normalized data are publicly available on the official arwu website (arwu, 2014). the alumni and award indicators are both related to the number of the prestigious nobel prize and fields medal winners who are currently employed on or are alumni of a university. however, only a few universities can win any of these prizes per year and many universities have never won any of them. therefore, a significant percent of the observed universities has been assigned the value of 0 for both of these indicators. namely, 293 universities (58.6%) have the value of 0 for the indicator alumni, 359 (71.8%) have the same value for the indicator award, whereas there are 264 (52.8%) universities that have values of 0 for both indicators. excluding the award factor this is one way the shanghai ranking consultancy attempts to provide a more comprehensive and trustworthy ranking. 4 milica maričić, nikola zornić, ivan pilčević, aleksandra dačić-pilević 2017/22(1) as explained above, the alternative arwu ranking is created when the award factor is removed from the ranking framework. the first conducted analysis was the correlation analysis between the two rankings. correlation based on rank order, measured through spearman’s rho and correlation based on scores, measured through pearson’s correlation coefficients on the whole sample were rs=0.955 (p<0.01) and r=0.959 (p<0.01). the high correlation means that the scores and ranks are highly consistent when observing all universities. however, the same does not account if the scores and ranks are analysed by arwu groups (table 2). taking a closer look at the pearson’s correlation coefficient, it can be observed that its values are decreasing going down the ranking. this means that, although the two indicators have been removed and that the pcp has been altered, the scores of the top 100 universities have not changed significantly. the reduction of the pearson’s correlation coefficient in the latter groups shows that the new methodology had an effect, especially in the last group in which the correlation was the least, 0.421 (p<0.01). on the other hand, spearman’s rho shows a different pattern. again, the correlation is the highest in the first group, 0.827 (p<0.01), meaning that the ranks within the group are highly stable. correlation is moderate in the other four groups whereas it is the least in the group 401-500, closely followed by group 101-200, meaning their ranks changed the most. table 2: correlation analysis between arwu and alternative arwu per official arwu group ** the correlation is statistically significant at the level 0.01 shehatta & mahmood (2016) state that when analysing and comparing university rankings, it is important to take into account the ranking scores. following their idea of analysing the university ranking scores, an interesting insight can be provided by table 3 which summarizes the scores of universities ranked 1, 100, 200, 300, 400, and 500. the difference between the arwu and alternative arwu is the highest for the first place. namely, the two removed indicators mean that the maximum alternative arwu score is 70. nevertheless, going down the ranks, their values are closer. in the case of the values for the 400th their difference is just 0.1. although the award factor has been removed and the pcp has been recalculated, the values of lower ranked universities remained very close. table 3: scores of universities ranked 1, 100, 200, 300, 400, and 500 by arwu and alternative arwu table 4 presents five universities whose rank improved the most and five universities whose rank deteriorated the most by the alternative arwu ranking. in the case of universities that improved their rank the most, we can see that the difference between the arwu and the alternative arwu values is up to 2 points. although the two indicators were excluded, these universities improved their score. on the other hand, the universities whose rank significantly declined had the difference between the arwu and the alternative arwu values up to 6.57 points. for example, let’s take a closer look at the george mason university. namely, it received two nobel prizes for economy; in 1986 and in 2002 (nobel prize, 2016). on the other hand, its results of hici and n&s are not that impressive, 5.3 and 9.3 respectably. therefore, it was quite affected by the exclusion of the award factor. a similar situation was with the university of buenos aires (4 nobel prizes), university of lorraine (3 fields medals), ecole normale superieure – lyon (notable alumni winners of fields medals), and the london school of economics and political science (16 nobel prizes and notable alumni). 5 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) group pearson’s correlation coefficient spearman’s rho 1-100 0.918** 0.827** 101-200 0.621** 0.620** 201-300 0.583** 0.651** 301-400 0.485** 0.698** 401-500 0.421** 0.659** 1 100 200 300 400 500 arwu 97.53 23.38 16.46 13.07 10.79 7.74 alternative arwu 68 21.42 15.86 13.11 10.89 2.88 table 4: five universities whose rank improved the most and five universities whose rank declined the most by the alternative arwu ranking although it is obvious that there is difference between the arwu and the alternative arwu rankings, the wilcoxon signed ranks test was performed. it showed that the observed difference is statistically significant (z=4.184, p<0.01). namely, 327 universities improved their rank, six remained at the same position, while the remaining 167 universities worsened their position. a descriptive analysis of the absolute rank difference showed that the mean absolute difference is 30.78 ranks, with a standard deviation of 30.48, median 24, and ranges through 269 ranks. the absolute difference is positively skewed (β1=3.392) and leptokurtic (β2=16.018). another interesting insight is to graphically present and analyse the arwu rank and the absolute rank difference (figure 1). as we can see, the first 50 ranked universities are highly stable, without large rank changes. however, the same does not account for the universities up to 250th position whose differences range up to 270 position. although the rank difference is higher than in the top 50 group, the last 200 show more stability when it comes to an absolute rank change. figure 1: scatter plot of the arwu rank and the absolute rank difference 6 milica maričić, nikola zornić, ivan pilčević, aleksandra dačić-pilević 2017/22(1) university arwu arwu rank alternative arwu alternative arwu rank score difference rank difference highest rank improvement scuola normale superiore pisa 12.35 335 14.12 255 +1.77 +80 catholic university of korea 9.84 471 10.89 400 +1.05 +71 capital university of medical sciences 9.53 487 10.4 438 +0.87 +49 university of pompeu fabra 12.82 316 13.77 268 +0.95 +48 university of wageningen 20.11 148 21.08 102 +0.97 +46 highest rank decline george mason university 16.65 195 10.08 464 -6.57 -269 university of buenos aires 17.47 183 11.13 388 -6.34 -205 university of lorraine 14.58 254 10.23 450 -4.35 -196 ecole normale superieure lyon 14.1 264 10.13 460 -3.97 -196 london school of economics and political science 17.24 150 12.46 331 -4.78 -181 additionally, the absolute rank difference is observed in each group (table 5). the mean difference is, as expected, the largest in the 101-200 (39.37) group and the smallest is in the first group (21.45). the least stable group is the 101-200 group whose standard deviation is 39.051. the difference of the following 250 universities proves to be more stable, whereas the ranks in the last group are the most stable according to the standard deviation of 16.541. the median also provides interesting insights. according to the median, the second group is the most volatile. for example, the first and the second groups are wide range groups, but their medians show that the volatility of the first group was not as high as the volatility of the latter group although they both have high standard deviations. table 5: descriptive statistics of the absolute rank difference per each arwu group what would also be of value to explore is whether there is a statistically significant difference in the absolute rank differences between the five official arwu groups. kruskal-wallis test confirmed that there are differences (χ2=75.656, df=4, p<0.01). as differences were observed, dunn’s test, as a post hoc test was performed with a bonferroni correction to find out which differences were statistically significant. the test showed that differences between groups 101-200 and 201-300, 101-200 and 301-400, and 201-300 and 301-400 are not statistically significant (p>0.05), which means that those universities oscillated in a similar way. the same accounts for groups 1-100 and 401-500 (p>0.05). this result means that the first and the fifth group oscillated differently than the other three groups, and by looking at the median, we can conclude that they oscillated less. finally, the rank difference is observed in each group (table 6). taking a closer look at the mean rank difference, we can conclude that the universities from the group 401-500 improved their ranks the most. the group 201-300 has the highest median, meaning 50% of universities improved its position for more than 21.5 places. standard deviation pointed group 101-200 as the most volatile. the minimum and maximum showed that a university in the group 301-400 improved its place for the most, 80 places, and also that a university in the group 401-500 worsened its rank the least, for 77 places. table 6: descriptive statistics of the rank difference per each arwu group after excluding the award factor, we were able to calculate the alternative arwu ranks. based on the obtained ranks we created the alternative arwu groups. by cross-tabulating the arwu and alternative awru groups valuable insights can be provided (table 7). the most sensitive arwu group of universities is the group from 101st to 200th positon. namely, 17% of the group improved their ranking groups, while 14% declined, whereas one of them, george mason university went from 195th to 464th place. compared to other groups, universities from the group 401-500 improved their ranks the least, 16% of them advanced into the better-ranked group. however, that result should not be undermined. namely, up to 21% of universities per group advanced into a better-ranked group. this result enforces the fact that the removal of award factor and the alternative pcp had a positive impact on the rank of lower ranked universities. interestingly, no university managed to improve its position for more than one group. 7 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) group mean median std min max 1-100 21.45 10 29.634 0 167 101-200 39.37 31 39.051 0 269 201-300 35.20 29 31.209 1 196 301-400 34.52 26.5 27.950 1 173 401-500 23.40 20 16.541 0 77 group mean median std min max 1-100 -9.79 -1.0 35.300 -168 43 101-200 -4.59 20.5 55.401 -269 46 201-300 0.10 21.5 47.175 -197 46 301-400 3.62 21.0 44.398 -173 80 401-500 10.66 17.0 26.681 -77 71 table 7: cross-tabulation of the arwu and alternative awru groups the universities that dropped from top 100 to the 201-300 group are the ecole normale superieure – paris (68th – 208th), the technion-israel institute of technology (78th – 202nd), the moscow state university (84th – 251st), and the university of strasbourg (95th – 209th). for example, the moscow state university had high values of award and alumni, 42.4, 33.0 respectively, but an unexpectedly low hici, 0. three universities that significantly worsened their position and entered the 401-500 group are george mason university (195th – 464th), university of lorraine (254th – 450th), and the ecole normale superieure lyon (264th – 460th). the next step in our analysis was to explore whether there are statistically significant differences between the indicator values within groups formed by the arwu and the alternative arwu. we aimed to see how and whether the indicator values within the same group rank changed. the suggested analysis could be performed for indicators hici, n&s, and pub as these indicators are used in both methodologies. namely, 15 student’s t-tests were performed, three per ranking group, and all of them showed that there was no statistically significant difference between the group values (p<0.01 for all conducted tests). this is an important result as it indicates that the values of these indicators do not differ between the two grouping systems. therefore, attention should be placed on indicators pcp and apcp per groups, as they are the ones which make the difference. table 8 gives basic descriptive statistics of the pcp and the apcp per groups. the first thing that attracts attention is that the mean values of the apcp are higher than the pcp. also, the standard deviation of the apcp is higher, especially when comparing groups 201-300. table 8: descriptive statistics of indicators pcp and apcp per groups to additionally explore the alternative groups and their indicator values, we conducted a one-way analysis of variance (anova) which showed that there is a statistically significant difference between the groups of each of the indicators (fhici=232.335, fn&s=199.476, fpub=218.020, fapcp=77.073, p<0.01). this result means that the indicator values within groups differentiates. however, another question arises: are there any two groups where the differences are not statistically significant? to answer the question, we performed a post hoc analysis, the tamhane’s test. it showed that there is a difference between all groups for all indicators except for the indicator apcp. the post hoc test revealed that there is no statistically significant difference between groups 101-200 and 201-300 (p>0.05). another aspect of the alternative arwu ranking should be inspected. namely, should the four indicators be aggregated into one single measure and are they in a positive correlation by each group? the correlation analysis (table 9) between the indicators on the entire sample reveals that the correlations between the four 8 milica maričić, nikola zornić, ivan pilčević, aleksandra dačić-pilević 2017/22(1) alternative arwu groups 1-100 101-200 201-300 301-400 401-500 total arwu groups 1-100 83 13 4 0 0 100 101-200 17 69 10 3 1 100 201-300 0 18 65 15 2 100 301-400 0 0 21 66 13 100 401-500 0 0 0 16 84 100 total 100 100 100 100 100 500 pcp apcp arwu group mean std min max alternative arwu group mean std min max 1-100 31.662 12.605 17.5 100 1-100 35.953 11.649 20.0 100 101-200 21.909 3.934 12.2 32.2 101-200 27.073 4.822 15.9 41.8 201-300 19.000 3.180 1.5 28.8 201-300 25.276 7.222 16.7 76.6 301-400 18.428 5.813 12 58.9 301-400 22.482 4.839 15.0 45.3 401-500 16.347 4.310 10.3 37.9 401-500 19.306 4.644 5.0 37.8 indicators are positive, medium to strong, and statistically significant. the highest correlation is between indicators n&s and hici, 0.869, while the lowest correlation is between apcp and pub, 0.482. however, when the correlation analysis is performed by the alternative arwu groups, the results attract attention. to compare two correlations coefficients and examine whether the observed difference was statistically significant, we used the test proposed by cohen and cohen (1983) which is based on the fisher’s z-transformation. in the first group, the correlation between the pub and the hici significantly declined, from 0.649 to 0.444 (z=2.67, p<0.01) and the correlation between the apcp and the pub declined from 0.482 to a statistically insignificant correlation of 0.151 (z=3.364, p<0.01). still, all correlations are positive. on the other hand, some of the correlations in the remaining four groups are negative and statistically insignificant. the negative coefficient of correlation means that the two observed measures are not of the same direction, meaning that the increase of one measure will decrease the values of the other. therefore, before aggregation, all measures should be transformed so that their direction is the same (nardo et al., 2005). accordingly, the question arises whether the results of the alternative arwu ranking below 100th position are valid. table 9: correlation analysis of the four alternative arwu indicators per alternative arwu group ** correlation is significant at the level 0.01; * correlation is significant at the level 0.05 one of the ways to determine whether indicators should be aggregated in a single dimension is to perform the principal component analysis (pca). the pca was performed on each five groups and the entire sample. the kaiser-meyer-olkin (kmo) measure varied from 0.801 (entire sample) to 0.257 (group 201-300). the bartlett’s test of sphericity is statistically significant in all cases (p<0.01). the obtained results of the pca with varimax rotation are presented in table 10. analysing the whole sample, all four indicators should be aggregated in one dimension. namely, the pca retained one component which describes 75.212% of variance. the same accounts for group 1-100, whereas its retained component explains 65.962% of variance. however, in the next four groups, the pca suggested retaining two components. the structure of components for groups 101-200 and 401-500 is the same, while the components of the other two groups differ. the conducted pca per group indicates that although on the overall sample it is justified to aggregate the indicators in one dimension, the same does not account on the group level. 9 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) all 500 group 1-100 hici n&s pub apcp hici n&s pub apcp hici 1 hici 1 n&s 0.869** 1 n&s 0.874** 1 pub 0.649** 0.659** 1 pub 0.444** 0.445** 1 apcp 0.640** 0.682** 0.482** 1 apcp 0.575** 0.647** 0.151 1 group 101-200 group 201-300 hici n&s pub apcp hici n&s pub apcp hici 1 hici 1 n&s 0.115 1 n&s -0.03 1 pub -0.431** -0.426** 1 pub -0.527** -0.368** 1 apcp 0.056 0.171 -0.107 1 apcp -0.124 0.017 -0.412** 1 group 301-400 group 401-500 hici n&s pub apcp hici n&s pub apcp hici 1 hici 1 n&s 0.109 1 n&s -0.104 1 pub -0.674** -.507** 1 pub -0.340** -0.148 1 apcp -0.082 -0.081 -0.238** 1 apcp -0.180 -0.160* 0.150 1 table 10: number of retained components, the % of variance they explain, and indicators which make each component on the entire sample and by alternative arwu groups 4.1 results of the universities of the balkan peninsula out of ten countries of the balkan peninsula, three countries had their representatives in the awru 2014 ranking: slovenia, serbia, and greece. it would be of interest to explore how their ranks changed in the alternative arwu ranking (table 11). the only university that advanced into a highly ranked group is the national and kapodistrian university of athens; it is in the group 201-300 by the alternative arwu ranking. the rest of the universities improved their ranks but remained in the same group. it can be concluded that the alternative arwu ranking had a positive effect on the lower ranked universities. however, those universities mostly did not advance in the better-ranked group. table 11: results of arwu and alternative arwu ranks of the universities of the balkan peninsula additionally, to better represent the position of the universities of the balkan peninsula we examined the new arwu 2016 ranking list and compared it to the last year’s arwu 2015. the data are publicly available on the official arwu website (awru, 2016; 2015b). comparing the results, another balkan university entered the list in 2016, the university of zagreb. the university of zagreb went in and out of the list in the last several years. its results for 2016 show that in the observed group it has a very good hici and n&s, 10.3 and 5.3, respectively. table 12 gives the comparison of the 2016 and 2015 results of the four balkan universities that remained on the list. table 12: 2015 and 2016 arwu groups of the selected universities, the improvement of their indicator values and the score difference * the values present the improvement from 2015 10 milica maričić, nikola zornić, ivan pilčević, aleksandra dačić-pilević 2017/22(1) all group 1-100 component % of variance indicators component % of variance indicators 1 75.212 hici, n&s, pub, apcp 1 65.962 hici, n&s, pub, apcp group 101-200 group 201-300 component % of variance indicators component % of variance indicators 1 38.781 hici, pub 1 36.184 n&s, pub 2 29.239 n&s, apcp 2 34.988 hici, apcp group 301-400 group 401-500 component % of variance indicators component % of variance indicators 1 47.413 hici, n&s, pub 1 36.484 hici, pub 2 27.306 apcp 2 31.112 n&s, apcp university country arwu arwu rank alternative arwu rank difference national and kapodistrian university of athens greece 12.76 321 299 22 university of belgrade serbia 11.51 369 353 16 university of ljubljana slovenia 9.68 482 461 21 aristotle university of thessaloniki greece 9.78 476 463 13 university 2015 group 2016 group hici* n&s* pub* pcp* overall difference university of belgrade 301-400 201-300 10.3 1.9 0.4 1.3 2.65 national and kapodistrian university of athens 301-400 301-400 3.9 1 -1.5 0.3 0.71 university of ljubljana 401-500 401-500 0 0.4 0.9 1.1 0.37 aristotle university of thessaloniki 401-500 401-500 5.4 0.6 -0.4 0.6 1.18 the university of belgrade improved its position the most and entered the 201-300 group. the main reason for such a sharp increase is the hici indicator. namely, it improved by 10.3 points. the main reason for such a good result is that mathematics professor stojan radenovic has become a highly cited researcher according to thomson reuters (thomson reuters, 2016). what should also be noted is that the n&s indicator increased by 1.9 points, meaning that the number of papers published in the two respectable journals increased. the overall difference in the arwu score for the university of belgrade is 2.65. the two greek universities improved their hici, but both saw their pub decline. they remained in their respective groups, the same as the university of ljubljana who minimally improved its score. 5. further directions of the study one of the possible future directions of study is to integrate more advanced bibliometric indicators such as percentile-based indicators which are based on citation count (bornmann & mutz, 2014; zornic et al., 2015). recent bibliometric research labelled percentiles as a new method suitable for the normalization of citation counts of publications in terms of subject category (bornmann, 2013). if percentiles are to be used, the citation window should be at least five years. currently, the observed bibliometric window by the arwu is just one year. adding a more complex bibliometric indicator such as a percentile-based indicator would differentiate universities more and would also take into account the scientific contribution of the published paper measured through citations. also, differences in citing behaviour between sciences could be taken into account according to bornmann, de moya anegón, and mutz (2013) who showed that certain subjectspecific types of institutions are in an advantageous position when it comes to ranking regarding the citation impact. the correlation analysis has clearly showed that on the overall level and in the first group the correlations between the four indicators are positive and statistically significant. however, the same does not account for the remaining groups. according to the joint research centre guide for composite indicator development (saisana, 2012), if “there are negative correlations among indicators, it means that either the desired direction of the indicator is wrong or that there are trade-offs between indicators”. more attention should be paid to the observed negative correlation and its impacts on the overall metrics. as jovanovic et al. (2012) pointed out, the normalization has a detrimental effect on the rankings. however, they did not examine the effects of various normalization methods. the currently employed normalization method, the percentage of the highest scoring institution, might not be the best solution. namely, taking a closer look at the normalized data, it can be observed that there is a big difference in indicator values between the best and the second best universities (table 13). the largest difference is for the indicator n&s, 26.9 points, whereas the smallest difference is for the indicator awards, 3.4. therefore, another type of normalization could be utilized or the dataset should be checked for the presence of outliers. table 13: the values of the first and the second best universities of each arwu and alternative arwu indicator 11 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) indicator rank university value alumni 1 harvard university 100 2 university of cambridge 77.1 awards 1 harvard university 100 2 university of cambridge 96.6 hici 1 harvard university 100 2 stanford university 80.1 n&s 1 harvard university 100 2 massachusetts institute of technology (mit) 73.1 pub 1 harvard university 100 2 university of toronto 79.1 pcp 1 california institute of technology 100 2 harvard university 76.6 apcp 1 california institute of technology 100 2 harvard university 80.0 12 milica maričić, nikola zornić, ivan pilčević, aleksandra dačić-pilević 2017/22(1) discussion and conclusion although statisticians, experts in higher education assessment, and bibliometricians raised their concern regarding the university rankings (for example, saisana et al., 2011; marginson, 2014), various stakeholders still believe university rankings are vital for the development of higher education (kauppi, 2016). therefore, university ranking creators should place even more effort in creating reliable composite measurements of universities’ performance. one university ranking that has attracted the attention of politicians, students, academics, and universities since its development is the academic ranking of world universities, published yearly by the institute of higher education of the jiao tong university in shanghai. putting aside a vast number of critiques this ranking received (for example zornic et al., 2014), arwu ranking should be accounted for being the pioneer in the creation of world university rankings. the arwu ranking itself is quite specific. at the same time, it measures the quality of education (alumni), quality of faculty (awards), research output (hici, n&s, and pub), and per capita performance (pcp) (liu & cheng, 2005). therefore, it aims to integrate teaching, research and efficiency of the institution. however, the two indicators related to teaching are highly prestigious and difficult to achieve. therefore, to create a ranking with a less rigorous methodology without the prestigious indicators the alternative arwu ranking was published for the year 2014. herein we attempt to provide an in-depth analysis of the alternative arwu ranking on two aspects: first, on the consequences of the removal of award factor on the scores and ranks of universities, and secondly, on the impact of the list length. the observed correlation of scores and ranks between the overall arwu and alternative arwu is very high and positive. nonetheless, the correlation analysis by official arwu groups showed that the pearson’s correlation coefficient declines to 0.421 in the group 401-500 and that the spearman’s rho declines to 0.620 in the group 101-200. this means that there are differences which are not visible when the results are analysed on the overall level. to confirm what the correlation analysis showed, the wilcoxon test was conducted which showed that there was a statistically significant difference between the two ranks. namely, 65.4% of universities improved their positions in comparison with the arwu and alternative arwu rankings. the analysis of the absolute rank difference points out the 101-200 group as the most volatile, and the 401-500 group as the most stable. the analysis of the rank difference showed that the mean rank difference of the first two groups is negative. in the first group, 36% of universities deteriorated their positions, while in the second group that percent goes to 39%. it can be concluded that the new methodology had an adverse impact on universities ranked from 1-200, while it had a positive impact on the universities ranked from 301-500. as rank differences were observed, it was of interest to find out whether there are differences in the absolute rank differences between the five groups. the kruskal-wallis test has confirmed that there is a difference among the groups; the dunn’s post hoc test has showed that groups 1-100 and 401-500 have similar absolute rank differences which differed from the three remaining groups. the comparison of the arwu with the alternative arwu group showed that the most volatile was the latter group as some of its universities were ranked in the group 401-500. the universities that significantly worsened their position are the universities that recently received or have nobel prizes or fields medals, but have low research output. after the creation of the alternative arwu groups, their results were compared with the arwu group results for the three same indicators. no statistically significant difference was observed meaning that although the two indicators were removed and the pcp was altered, the mean group values do not differ. therefore, the pcp and apcp were compared, and the apcp shows more volatility per group than the pcp. to explore whether it is reasonable to aggregate the four indicators in one overall score, the correlation analysis of the four alternative arwu indicators has been performed alongside with the pca. both analyses have justified that on the overall level and on the level of group 1-100, indicators should be aggregated. however, the same does not account for the later four groups: the correlation coefficients are negative and not significant, and the pca suggested to retain two components. although 65.4% of universities improved their rank, the group which most improved its ranks is the group 401-500, 71% of universities. however, this amazing result is not visible. the conclusion can be made that although the award factor was removed and although it had a positive impact on the lower ranked universities, their achievement remained the same. this can be seen in the example of universities from the balkan peninsula. on the other hand, the universities in the prospective group 101-200 suffered the most after the exclusion of the alumni and the award. it seems that the new reduced methodology did not have the desired impact as just several universities significantly benefited. the presented paper delivers a thorough analysis of the awru and the alternative arwu rankings for the year 2014. we believe our research may trigger further academic research on the topic of the alternative arwu ranking and the impact of the list length upon the university ranking methodologies. acknowledgements parts of this paper have been presented at the xv international symposium symorg 2016 “reshaping the future through sustainable business development and entrepreneurship”, zlatibor, serbia, 2016. references [1] abdi, h., & williams, l. j. 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(2015). ranking institutions within a university based on their scientific performance: a percentile-based approach. el profesional de la información, 24(5). doi: 10.3145/epi.2015.sep.05 [37] zornic, n., markovic, a., & jeremic, v. (2014). how the top 500 arwu can provide a misleading rank. journal of the association for information science and technology, 65(6), 1303-1304. doi: 10.1002/asi.23207 (received/accepted ) (september 2016 / january 2017) milica maričić milica.maricic@fon.bg.ac.rs milica maričić is a teaching associate at the department of operations research and statistics at the faculty of organizational sciences, university of belgrade (ub). after graduation in 2014 at the faculty of organizational sciences, she got her msc at the same faculty, where she specialized in business analytics and statistics. currently, she is on her phd studies at the faculty of organizational sciences, where she is studying quantitative management with special interest in computational and applied statistics. nikola zornić nikola.zornic@fon.bg.ac.rs nikola zornić is a teaching associate at the department of management at the faculty of organizational sciences, university of belgrade. after graduation in 2013 at the faculty of organizational sciences, he got his msc at the same faculty, where he specialized in business intelligence and decision making. currently, he is on his phd studies at the faculty of organizational sciences, where he is studying quantitative management with special interest in simulation models. ivan pilčević ivan.pilcevic@gmail.com ivan pilčević works in south stream b.v. company for gas pipeline design and construction. ivan is it professional with more than 10 years of experience in managing erp (sap), crm, wms implementation, tm&d systems integration and it services. his current professional interests are related to it services and business processes and design and it systems implementation. aleksandra dačić-pilčević aleksandra.dacic@gmail.com aleksandra dačić-pilčević is senior it manager with 11 years of information technology management experience in british american tobacco international world's second-biggest tobacco company. her current professional interests are: 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/hrv (za stvaranje adobe pdf dokumenata najpogodnijih za visokokvalitetni ispis prije tiskanja koristite ove postavke. stvoreni pdf dokumenti mogu se otvoriti acrobat i adobe reader 5.0 i kasnijim verzijama.) /hun 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can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /converttocmyk /destinationprofilename () /destinationprofileselector /documentcmyk /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure false /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles false /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /documentcmyk /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /usedocumentprofile /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [612.000 792.000] >> setpagedevice 04_ivana mijatovic:tipska.qxd 35 ivana mijatovic1 1university of belgrade, faculty of organizational sciences the need for standardization in smes networks udc: 005.575:334.012.63/.64; 006.85 doi: 10.7595/management.fon.2014.0028 1. some experiences in smes networking development the existence and growth of small and medium sized enterprises (smes), as well as development of entrepreneurship, has become increasingly important because of their potential to generate growth and create employment. of the existing 20 399 291 companies in europe in 2012, all but 43 454 were smes, and 66.5% of the people employed in the private sector in europe work in an sme (european commission, 2013). smes account for more than 95% of all firms in many countries; they play a major role not only in developed economies, causing smes to seek to expand into international markets (gankema et al., 2000, chiao et al., 2006). developing countries provide a socio-economic and cultural context for the development of entrepreneurship which is in many ways different from one in the developed countries. sme exporters in the transition economies encountered export problems related to product quality acceptance and logistics management and, in comparison, sme exporters in the developed economy faced issues such as country differences and general business risk (neupert, christopher and lam dao t.t., 2006). however, practice and business environment of smes differs even among european transition societies. survey results of hashi and krasniqi (2011), compared three advanced transition economies (poland, hungary and czech republic) and laggard countries (albania, fyrom, serbia and montenegro), and showed that in terms of employment the smes sector has contributed significantly more to the economies of the laggard countries (38% compared to 14%). some of disadvantages that may influence the market success of smes are: size, inability to benefit from economies of scale and scope, informational asymmetry and local focus. the solution to these common problems can be supported by combining smes strengths through cooperation and networking. different modalities of inter-enterprise and enterprise/institutions collaboration can be defined as: horizontal networking (among smes), vertical networking (among smes and larger enterprises) and clustering where larger concentrations of enterprises operating in the same locality and belonging to the same or complementary sectors (unido, 2001). some evidence of successful inter-enterprise and enterprise/institutions collaboration management 2014/73 many smes networking initiatives failed because of the absence of trust among companies and between companies and government, leadership and management approaches as well as absence of entrepreneurial skills in managing business networks. even though local governments or regional agencies have a capacity to mobilize actors from the public and private sectors, generic public initiatives are proved not to be enough. the private sector should also be supported in gathering around joint interests and solving their mutual problems, thus improving business and competitiveness. research, management and policy instruments to support smes will need to have some other directions. can standardization be one of the directions? the main objective of this paper is to present some aspects of need for standardization in smes networking initiatives. the solution to actual or potential matching problems (intended and expected to be used repeatedly or continuously, during a certain period, by a substantial number of parties for whom they are meant) can be formalized as standard. the standard development process can serve as basis for building connections and trust among cluster members. even though some researche emphasizes the role of ad hoc de facto standards as well as standardization in the contexts of achievement of the optimum degree of order in smes networks, specific experience is evident in all cases, but experience in design of ad hoc de facto standards and standardization management are still missing. keywords: smes networking, standardization, ad hoc de facto standardization can be found in europe. the main attributes of successful industrial networks in europe (third italy, badenwürttemberg in south-west germany, west jutland in denmark) were: geographical proximity, sectoral specialization, predominance of small and medium sized firms, close inter-firm collaboration, inter-firm competition based on innovation, a socio-cultural identity which facilitates trust, active self-help organizations and supportive regional and municipal government (humphrey and schmitz, 1995). the research of idc (2007) enabled an insight into another context – the context of dynamic and flexible enterprises, with a strong orientation to growth and an optimistic view of their target markets – ict clusters as local concentrations of ict smes linked with research labs, universities and other knowledge actors. according to this study, the networking environment of the observed ict smes can be aggregated as: the “research networking” environment (including universities, technology parks, research centers); the “business networking” environment (including customers, competitors and other enterprises) and the “services networking” environment (including public agencies, consultants and industry associations). these three groups of actors identify different parts of the value chain, where cooperation usually responds to different goals: in the research environment it is to gain knowledge and develop innovation, in the business environment its purpose is to develop products and services, in the services networking the environment receives services and access to funding. in the conclusions of this study it is mentioned that standards, public procurement, intellectual property rights may significantly help the access to market of smes. the developing of smes networking initiatives in transition economies are quite specific. the role of local governments and their regional agencies in smes networks developments is dominant. however, many smes networking initiatives are initiated by donors governments or ngos from the developed countries. the research of ketels, lindqvist and sölvell (2007) pointed at some differences between cluster initiatives in developed and transition economies in europe: • there is usually less trust among companies and between companies and government than in advanced economies and donor-initiated cluster initiatives take place where the level of trust among participants in the economy is the lowest; • while advanced economies tend to focus more on innovation and business environment improvement, developing and transition economy cluster initiatives usually place more emphasis on increasing value added, export promotion and supply chain development and • in transition economies, donor-initiated cluster initiatives have a narrower range of objectives, focusing mostly on export promotion and increasing value-added. an example which supports those claims can be found in the case of development of clusters in serbia. according to the data of the national agency for regional development (study of mijačić, 2011), smes clusters in serbia were mostly established through the initiative of local governments, supported by financial donations from the government of the republic of serbia and numerous donors. the development of clusters in serbia started in 2004; in 2011, there were 85 clusters in serbia, the total number of companies involved in the work of clusters amounted to 917, and they employ around 36 thousand people in total (mijačić, 2011). clusters provide different services to their members, general business services prevailing (organization of seminars, trainings and conferences, joint marketing, visits to fairs) and conclusion of the study (mijačić, 2011) can be systematized as: • clusters in serbia are still in the development stage, and their operation capacities are on a quite low level, • clusters still lack the most basic joint condition, the definition of interest that gathers cluster members, • companies are usually not active in a cluster’s work, and rarely willing to invest their time in cluster activities and • a majority of cluster initiatives in serbia have not managed to build trust and close links with their members. 2. public initiatives related to networking of smes the policy makers in developing countries wanted to enable domestic smes to compete in national and international markets without continuing support from governments. however, due to the diversity of smes structures, the product and market conditions and leadership and management approaches, generic support policies are unlikely to be effective (macpherson and jayawarna, 2007). one example which supports this claim can be found in the case of business incubators development in serbia. 36 2014/73management according to the data of the national agency for regional development (study of mijačić, 2011) the first business incubator in serbia, as a business entity which provides physical space for business operations, administrative, technical and other services, mostly to the newly established businesses, potential entrepreneurs or innovative organizations, was established in 2004 (today it is in the restructuring stage with 17% of occupancy). apart from physical incubation, most incubators provide other business services: general administrative and financial services, joint marketing and participation at fairs, organization of trainings, conferences and seminars, study visits, etc. the conclusion reached in this study is that there is a general impression that the interest of tenants in these services is low. mijačić (2011) proposed the following recommendations for quality improvement of business incubators: • define a unique system of criteria and measures of results and quality (fitness for that purpose) of services of different incubators on the national level. • define the national standard for incubators’ business operations as institutions for support to sme development. standardization will lead to organized business operations of incubators, and furthermore, it will be possible to measure effects achieved by incubators, and easier to compare the success of different incubators. • improve the work business incubators by standardizing their operations; implementation of standards will use formal procedures and instructions to improve internal processes, such as selection and continuous evaluation of tenants. in addition to a clear definition of interests that gathers network members together, public initiatives related to networking of smes should take into account the local (regional or state) economic interests. plummer and taylor (2004) systematized theories on which a “clustering” model is based, in which “clusters” coupled with competitive advantage and productivity are seen as the keys to unlocking a local economic potential. when the drivers of local economic growth have been identified, validated and prioritized, then it might be possible to design effective and appropriate policies and initiatives to promote and sustain that growth (plummer and taylor, 2004). the first step in designing the public initiatives in network developing should be a research to find and prioritize the drivers of local economic development as well as find interest groups for their realization. the problem of absence of trust among companies and between companies and government resulted in the failure of many donor-initiated smes network initiatives. even though local governments or regional agencies have a capacity to mobilize actors from the public and private sectors, generic public initiatives are not enough. the private sector should also be supported in gathering around joint interests and solving their own mutual (matching) problems, thus improving business and competitiveness. in its effort to be successful, a starting point is the company’s own interest to be part of the network. the clear definition of interest that gathers together the cluster members should be the basis for establishing network. the cluster or network formed in order to solve real matching problems of their members as well as other parties can build trust among cluster members. in the area of smes as well as in the area of immature entrepreneurial venture in socio-economical situational frame of the transition countries some general policy initiatives failed; networks do not work because of the absence of trust among smes; smes are not interested in general business services provided by clusters. research, management and policy instruments to support smes will need to follow some other directions. however, calls for standardization are evident. can standardization be one of the directions? 3. standardization in smes networks need for standardization standards are a significant factor in who wins and who loses in the global marketplace and it is hard to win if you do not know the game (bhatia, 2011). according to choung, ji and tahir (2011), the standardization strategy for developing countries is to “adopt standards first and improve capabilities”. the majority of studies on standards and standardization are based on experience and practice of the developed countries. little explanation has been provided regarding standardization for latecomer countries: “it is quite clear that the international standardization regime has remained an enclave for advanced countries and that the voices and interests of latecomer countries cannot be fully heard in this sphere, due to insufficient capabilities for standardization processes” (choung, ji and tahir, 2011). 37 management 2014/73 the rapid progression of the globalized and increasingly complex knowledge economy not only demands new standards, but also challenges the form of standardization (blind, 2004). a standard is an approved specification of a limited set of solutions to actual or potential matching problems, prepared for the benefits of the party or parties involved, balancing their needs, and intended and expected to be used repeatedly or continuously, during a certain period, by a substantial number of the parties for whom they are meant (de vries, 1999). the matching problem is the problem “of interrelated entities that do not harmonize with one another and solving it means determining one of more features of their entities in a way that they harmonize with one another, or of determining one or more features of an entity because of its relation(s) with one or more other entities“ (de vries, 1999). in a transition phase to more sophisticated tools for enhancing overall organizational effectiveness, smes tend to rely on the implementation and adoption of external available standards such as standards of the international organization for standardization (iso) (zhou, 2012). however, it is clear that the term of standardization is not related to only institutional or formal standardization (e.g., standardization in formal organizations for standardization such as iso, iec, cen, cenelec, etsi,…). if a company needs a standard and a satisfactory standard does not exist, this companies has a number options available in the area of standardization. the company can decide whether to co-operate with other companies and interested parties or not, in order to develop the standard it needs. the next important issue is the usage of standard development infrastructure of standardization development organizations (sdos). the sdos include formal standardization organizations, fso (e.g. international, regional or national), sectoral, professional or specialized standardization organizations (sso) and governmental standardization organizations (gso). a de facto standardization is a standardization carried out by non-governmental parties other than fsos (de vries, 1999). a growing importance of “de facto” standardization can be seen in many areas because companies cannot operate in isolation, matching problems have to be solved and the process of formal standardization is time consuming. in many cases fsos or ssos are not interested in developing the needed standard. developing the needed standards can be done without support of any sdos or government – that kind of standardization is called “ad hoc de facto standardization”. in the context of smes two issues need to be addressed: their ability adopt or implement international and regional standards and their ability to initiate and take part in the standards development. while smes in advanced economies tend to focus more on innovation and business environment improvement, smes in the developing and transition economies usually place more emphasis on areas in which compliance with requirements of international or regional standards is common (export or supply chain development) (see more in ketels, lindqvist and sölvell, 2007; choudrie and culkin, 2013). however, certain knowledge and experience is needed in adoption or implementation of external standards. can knowledge about implementation standards be diffused by joint efforts of smes in the network? the attempt to provide the joint consulting services in the implementation of requirements of the generic management systems standards iso 9001 and iso 14001, for the group of smes in serbia, in 2008th, organized and founded by regional chamber of commerce of pančevo, had a mixed success. a majority of smes have got valuable information needed for a decision to proceed (or not) with the implementation and hire a consultant, however, no single sme has succeeded in establishing their own quality or environmental management system based on joint consulting services. the majority of owners and managers of smes claimed that they have to focus on core activities and have no time nor resources to accomplish such a demanding task. managers of smes were very interested in the implementation of management system standards which, by their own opinion, can provide benefits on the market. however, this experience showed that if the focus of sme is on the local market, and if the local market does not recognize the value of standards implementation, managers will lose their interest in standards implementation. a majority of smes from the developing countries belong to the group of passive standard adopters with no capabilities (basically technological) or experience to really contribute in developing formal international standard. however, the network of smes can be a valuable initiator and an active party in developing solutions to their own matching problems. the solving of matching problems can be the basic interest that gathers the cluster members together. the network of smes formed in order to solve some of the real matching problems of their members can build trust among cluster members. more clearly, involving a member of smes network in a meaningful process of specific standards development is the basis for enhancing an active self-help membership, a close inter-firm collaboration and a sectoral specialization. 38 2014/73management 39 management 2014/73 however, is standardization a possible solution? the needs for cooperation in creating a solution to matching problems in a form of ad hoc de facto standards are evident. right now, there are several projects and initiatives to develop ad hoc de facto standards in areas of systematization of job positions in the public companies in serbia (čudanov, mijatović, s�voiu, 2013), in real estate business as well as in loss prevention management. however, in all cases specific experience is evident, but experience how to design ad hoc de facto standard and how to manage standardization is missing. how can a smes network benefit from involvement in the de facto standardization? if the smes can see their interest in solving their problems, if the solution to the problem can support drivers of local economic development and if there are interest groups in finding solution creating a standard can be one solution. the national organizations for standardization can support those initiatives and provide support services on commercial basis. however, the experience and the know-how are missing. references [1] bhatia, j., (2011). summary report of 2011 joint meeting of the apec sub-committee on standards and conformance (scsc)‘s in apec sub committee on standards and conformance (scsc) apec committee on trade and investment. apec scsc education guideline 4 case book teaching standardization in universities: lessons learned from trial program [2] blind, k., (2004). the economic of standards – theory, evidence, policy. edward elgar publishing limited. [3] chiao y. c., yang k.p., yu c. ju., (2006). performance, internationalization and firm-specific advantages of smes in a newly-industrialized economy, small business economics 26: 475–492 _ springer 2006 doi 10.1007/s11187-005-5604-6 [4] choudrie j., culkin n., (2013),"a qualitative study of innovation diffusion: the novel case of a small firm and ktp",journal of small business and enterprise development, vol. 20 iss 4 pp. 889 – 912, http://dx.doi.org/10.1108/jsbed-03-2012-0047 [5] choung, y.j., ji i. & tahir h., (2011). international standardization strategies of latecomers: the cases of korean tpeg, t-dmb, and binary cdma. world development vol. 39, no. 5, 824–838 [6] čudanov m., mijatović i, săvoiu g.,(2013). multidisciplinary approach to ad hoc de facto standardization: standards and organizational design, econophysics, sociophysics & other multidisciplinary sciences journal esmsj, vol iii, issue 1 / 2013, pp 46-52 issn: 2247 – 2479 [7] de vries, h., (1999). standardization – a business approach to the role of national standardization organizations. kluwer academic publishing [8] european commision, (2013). a recovery on the horizon – annual report on european smes 2012/2013. conslusion many smes networking initiatives failed due to the absence of trust among companies and between companies and government, product and market conditions, leadership and management approaches as well as the absence of entrepreneurial skills in managing business networks. the role of local governments and their regional agencies in smes network initiatives is still dominant. even though local governments or regional agencies have a capacity to mobilize actors from the public and private sectors, generic public initiatives are not enough. the private sector should also be supported in gathering around joint interests and solving their mutual problems, thus improving business and competitiveness. in the company’s effort to be successful, its own interest to be part of the network is a prerequisite. the clear definition of interest that gathers network members together should be the basis for establishing smes network. the cluster or network formed in order to solve real matching problems of their members as well as of other parties can build trust among cluster members. a solution to actual or potential matching problems (intended and expected to be used repeatedly or continuously, during a certain period, by a substantial number of the parties for whom they are meant) can be formalized as a standard. a standard development process can be the basis for building connections and trust among cluster members. even though some researchers emphasize the role of ad hoc de facto standards as well as standardization in the context of achievement of the optimum degree of order in networks, specific experience is evident in all cases, but experiences in design of ad hoc de facto standard and standardization management are missing. 40 2014/73management [9] erixon f., (2009). smes in europe: taking stock and looking forward, european view (2009) 8:293–300, doi 10.1007/s12290-009-0093-7 [10] gankema, g. j., snuif h. r. & zwart p. s., (2000). the internationalization process of small and mediumsized enterprises: an evaluation of stage theory, journal of small business management 38(4), 15– 27. [11] hashi i., krasniqi b.a.,(2011). entrepreneurship and sme growth: evidence from advanced and laggard transition economies, international journal of entrepreneurial behaviour &research, vol. 17 no. 5, pp. 456-487 [12] hesser w., feilzer a & de vries h. (ed.) (2007). standardization in companies and markets (pp. 621). hamburg: usa: helmut schmidt university [13] humphrey j., schmitz h.,(1995) principles for promoting clusters & networks of smes, number 1, unido small and medium enterprises programme [14] idc european competitiveness and innovation expertise centre (idc italy), (2007). study on innovative ict smes in europe (eu 25), final study report d 5.3, idc emea, 2007 [15] ketels c., lindqvist g., sölvell ö., (2006).cluster initiatives in developing and transition economies, center for strategy and competitiveness, stockholm, [16] macpherson a., jayawarna d., (2007). training approaches in manufacturing smes -measuring the influence of ownership,structure and markets, education and training vol. 49 no. 8/9, pp. 698-719 emerald group publishing limited, doi 10.1108/00400910710834102 [17] mijačić d. (2011). analysis of business support infrastructure in the republic of serbia, national agency for regional development, 2011 [18] neupert k. e., christopher c., lam dao t.t.,(2006). sme exporting challenges in transitional and developed economies, matlay, harry (editor). critical perspectives on the internationalisation of smes, bradford, gbr: emerald group publishing ltd, 2006. p 535., http://site.ebrary.com/lib/belgrade/doc?id=10156477&ppg=68 [19] plummer p.,taylor m.,(2004). entrepreneurship and human capital: distilling models of local economic growth to inform policy, journal of small business and enterprise development volume 11 • number 4, 2004, pp. 427-43, emerald group publishing ltd, 2004. p 7., http://site.ebrary.com/lib/belgrade/doc?id=10073881&ppgivate sector development [20] unido (united nations industrial development organization) (2001). development of clusters and networks of smes, the unido programme, vienna, 2001 [21] zhou b., (2012). lean principles, practices, and impacts: a study on small and medium-sized enterprises (smes), annals of operations research, doi 10.1007/s10479-012-1177-3, published online: 06 july 2012. receieved: march 2014. accepted: september 2014. ivana mijatovic university of belgrade, faculty of organizational sciences ivanamt@fon.bg.ac.rs http://www.linkedin.com/pub/ivana-mijatovic/2a/a64/227 ivana mijatovic is assistant professor at the faculty of organizational sciences, university of belgrade – department of quality management and standardization. she earned a b.sc degree in mechanical engineering at the faculty of mechanical engineering (university of belgrade), and m.sc and phd degrees at the faculty of organizational sciences, university of belgrade. in her academic career, she has primarily focused on quality planning and engineering and standardization. she serves on the boards of the european academy for standardization (euras). her current research interest addresses the issue of standardization and education about standardization (how to teach about standards), teaching quality and quality aspects of technology enhanced learning. about the author 06_tamara lukic:tipska.qxd 49 tamara lukić1, vladimir džamić2, goranka knežević3, slavko alčaković4, valentina bošković5, 1,2,3,4,5singidunum university the influence of organizational culture on business creativity, innovation and satisfaction udc: 005.332:005.73(479.11) doi: 10.7595/management.fon.2014.0027 1. introduction the significance of organizational culture comes from its influence on business and a company’s business results. however, organizational culture can affect a company’s business both in a positive and in a negative way. understanding the issue of the impact of organizational culture on the ability of a company to react will have an immense significance in realizing its influence on encouraging innovations in a company. organizational culture which provides good atmosphere where creativity and creation and exchange of ideas are shared and where both collective and individual knowledge are used appropriately is the culture of an innovative organization which ensures positive atmosphere in an organization regarding the generation of innovation and its full support. in order to be successful in changing organizational culture which supports and enhances innovation, companies need to have enough resources and opportunities in the creation of an organization which will be characterised by strong team work, communication, trust, autonomy, transfer of knowledge, creative personnel, risk tolerance, as well as other elements which are of great significance for development, nurturing and support of innovation. the coordination of employees in an organization is prompted and made easier by strong and unique organizational culture. organizational culture is a good motivator. the employees want to satisfy all their needs in an organization not only material ones, but also the need to belong to a certain group and this is accomplished if individuals identify themselves with their organization. the employees are motivated when the business they do has a significance and meaning to them. organizational culture has a strong influence on the motivation of its members, but this influence can be both positive and negative. the culture can be a great motivator which mobilizes and directs the energy of the employees, but it can also be a demotivator, the reason for which the employees give less than they actually are able to. if the content of the culture is in compliance with the system of needs and motives of an employee, then the culture will have a positive effect, and vice versa. strong organizational culture creates an intense sense of belonging so that the employees identify themselves with the organization, which leads to better motivation to work and contribute, and also to better productivity and job satisfaction. 2. literature review 2.1 organisational culture organizational culture is defined 1. as a system of assumptions, beliefs, values and behavioural norms which have been developed and adopted by members of one organization through their mutual experience; which are manifested through symbols and which direct their thoughts and behaviour (janićijević, 1997). however, management 2014/73 organizational culture is underdeveloped in business environment in the countries in transition in south-east europe, such as is the republic of serbia. only several economic institutions have developed the standards of organizational culture, which has an immense impact on their business and recruitment. in this paper we will try and discover whether organizational culture has both direct and indirect influence on creativity and innovation and on employees’ satisfaction at work as well. also, the authors will try to assess whether creativity, innovation and job satisfaction are more dependent on the position inside the organization and on the employees’ education than on organizational culture. keywords: organizational culture, creativity, innovation, management, the republic of serbia. organizational culture has more definitions, i.e., various interpretations based on diverse theoretical and methodological approaches. in that sense, gonzalez (1987) defines 2. organizational culture as a cluster of meanings and symbols which are used for the organization of ideas, interpretation of experience, decision making and undertaking of certain actions. o’ reilly (1989) defines 3. organizational culture as an example of social control which is based on norms or expectations concerning the issue about which attitudes in an organization are acceptable, or are not acceptable. as schein (1985) states, organizational culture is developed exactly through mutual experience of organization members, which is gained by solving everyday problems. this author tries to surpass a number of definitions and concepts of organizational culture by suggesting various models of organizational culture which are based on three different levels: the surface level, which is made of visible expressions of organizational culture (such as examples, anecdotes, rituals, stories, heroes, etc); the middle level, which is based on organization values, and the level of profound assumptions, which is the least visible from the outside, but which is based on fundamental and undeniable convictions which motivate members of an organization to ‘think, feel and act’ (schein, 1990). as we have already noticed, almost all definitions of organizational culture mention values and norms. values refer to imagined ideas about what is considered good, valuable and decent acting and behaviour in one society, social group or organization, and what is not. therefore, values are classified both as material and immaterial, depending on whether they are used to refer to the acquisition of material or of spiritual (immaterial) wealth. for example, in one work organization, the increase in capital, i.e., money acquisition, can be depicted as a value, so we could define this organization as materialistic. on the other hand, if the key organizational value is the creativity of its employees, their loyalty to the organization, fair attitude towards work, preciseness etc., then we can define such organization as immaterial. as certain authors claim in their research, organizational culture lies in the very centre of organizational innovation. in the contemporary research (martins, terblanche, 2003), there are four key determinants of organizational culture that support creativity and innovation. these are: appropriate organizational structure, strategy for introducing innovation, organizational behaviour which supports introducing of innovation, and support mechanisms. however, other research show the significance of transformational leadership as a key factor which contributes to greater creativity and innovation in an organization, and which is connected to the organizational culture (sarros, cooper, santora, 2008). 2.2 the strength of organizational culture organizations differ by the level on which their organizational cultures influence people in organizations. in some organizations, there is a vast mutual agreement about the six elements of organizational culture: sensitivity to the clients’ and employees’ needs, empoloyees’ interest in creation of new ideas, readiness to take risks, value directed to people, openness of available options for communication and courtesy and the intimacy of employees (gonzalez, 1987). the above mentioned fact has provided these factors with a wider influence on the way people behave. the organization of this type could be seen as the organization with a strong culture. on the other hand, other organizations can be characterised as organizations with milder agreement about various elements of organizational culture. in this way, these factors give limited influence on the type of human behaviour. the organization described in such a way can be described as an organization with a weak culture. in an organization characterised by a strong culture, the main values are constantly maintained and spread. if more members accept main values and show more devotion to these values, the culture will be stronger. more precisely, organizations with strong culture are characterised in the following way: there is a clear philosophy about how the task should be done; a lot of time is spent in conversations about values and convictions; there are explicit statements in order to describe organizational values; the cluster of values and norms in existence are widespread and deep-rooted; new employees are carefully selected in order to adapt to the culture. 50 2014/73management organizations with weak and strong cultures have very interesting differences. for example, stronger organizational cultures can be found in organizations which are newer and have fewer employees. this might imply that as a company grows and spreads, the effects of culture become diffused. this could be correct in the case of the company whose manager’s influence grows slowlier as that influence is felt less in a more mature organization, for example. together, these results imply that strong cultures shape the priorities and acts of people in an organization. even though all organizations have their culture, not all organizational cultures have the same impact on the behaviour and acts of employees. strong organizational cultures where the key values are deeply respected and are visibly present have stronger influence on employees than weak organizational cultures. the more employees accept the key values of an organization and the more devoted they are to these values, the stronger the culture will be (stephen/coulter 2005). whether organizational culture is strong, weak or middle depends on factors of the organizational size, longevity of its existence, the level of circulation between employees and the beginning level of specified organizational culture. some organizations do not state clearly what is important and what is not, and this neglect of priority is characteristic of weak organizational culture. in such organizations, culture will not have an immense impact on managers. most organizations have middle or high level of organizational culture. organizational cultures considerably differ by their strength. the strength of organizational culture has become interesting to researchers and managers due to the assumption which has not been proved, but is widely accepted the assumption that strong organizational culture leads to success and higher business efficiency. almost every successful organization which is known in the public has specific atmosphere, philosophy or relationship system stemming from its culture (e.g. mcdonalds, ibm, toyota). strong culture has a positive influence on motivation and dedication of employees, eases coordination and control of organizations’ functioning, reduces conflicts and mobilises an enormous amount of creative energy of employees (janićijević 1998). all mentioned effects are significant factors impacting business effectiveness and efficiency. it is considered that some organizations have organizational culture and some do not, i.e., that strong organizations have culture, while the weak ones do not. however, all things considered, there is no organization without organizational culture. the organizations without any system of mutual beliefs and values are very rare. even though it might be weak, organizational culture is present in all organizations. the influence of culture on business success depends on culture content, i.e. its values and beliefs and on its surroundings. organizations usually fall into crisis when their system of beliefs is not in accordance with requirements of the surroundings. each organization has a business theory and it consists of three groups of values and beliefs: about surroundings, about the organization’s mission in the surroundings, and about a specific competitive advantage of the organization in the surroundings (janićijević 1998). the success of an organization depends on the compatibility of these three groups of beliefs with reality with which organizations are faced. constant changes in the surroundings can lead to the obsolescence of business theory of an organization, which causes a strong organizational culture to become the weakness of an organization. strong organizational culture which is not compatible with reality of the surroundings has a strong negative effect on the organization’s business. in such cases, the management of a company oversees opportunities and threats and makes wrong decisions. in such situations, a strong culture increases the level of its negativity on business success far more than a weak culture. the generation of creative working environment is possible if there is a balance between skills and work place challenge. when skills and workplace challenge are balanced, all conditions for creativity are fulfilled. creative working environment demands three types of support: the support of an organization towards creativity is manifested when management stimulates risk-taking and new ideas, supports and righteously assesses new ideas, rewards and recognizes creativity and encourages the exchange of new ideas in various departments of a company; the support of the supervisors focused on creativity is reflected in the fact that supervisors demand clear goals, encourage open dialogue with subordinates and actively support the work and ideas of developing teams; the support of working group is demonstrated when team members have different experiences, education and biographies and when the team influences all members to be open for 51 management 2014/73 the ideas of others and encourages positive and constructive consideration of ideas and mutual devotion to ideas (williams, 2010). in order to instigate creativity, organizations should remove all obstacles to creativity that exist in the work environment. the emphasis on the inner motivation in management is reflected on the theory of creativity. if we take into consideration the importance of inner motivation in a creative process, we can easily conclude that the best a manager can do for creativity is not to do anything. creativity cannot be deliberately produced or controlled, it should be set free. in reality, setting creativity free is not easy, and we cannot be sure that an individual will be more creative if he or she is left alone. innovation is born by great ideas. the starting point for innovation management is to manage the sources of innovations, i.e., sources which create new ideas. therefore, innovation comes from creativity. creativity refers to defining new and useful ideas (williams, 2010). even though they cannot order their employees to be creative, companies can encourage innovation by generating creative work environment in which employees notice that creative thoughts and ideas are appreciated and welcomed. 3. research metodology there are two main approaches or ways to measure the strength of organizational culture. the measurement of strength of organizational culture is of huge relevance as well. the symbolic approach measures the strength of culture based on the presence or absence of its manifestations symbols. this implies that there are many rituals, ceremonies, stories, myths, heroes, material symbols, etc. in strong culture. in order to establish the strength of culture, it is necessary to consider the wealth of symbols in an organization. this approach has some limitations as it relies only on the perception of the organization members and their ability to recognize the symbols of their culture. moreover, this method is restricted merely to the outer aspects of culture without studying its content more thoroughly. another method aims to remove the limitations of the previous method. the cognitive approach to determination of strength of organizational culture directly measures the width, depth and coverage of organizational culture. it also uses questionnaire to examine the number of mutual beliefs and values, the intensity of their influence on organization members, and the level of consensus which has been achieved in an organization. in the process of research, the main method of primary data gathering was closed-ended questionnaire. the questions are divided into areas which are related to various situational factors and they are directed towards the provision of answers relevant to the research. the major facts in the paper are based on statistical data and on the study of scientific papers in the field of management, leadership and creative industries. the research is multidisciplinary and it covers management, sociology and psychology, using analytical and synthetic methods on which certain conclusions are made. the research uses primary sources, i.e., data and findings of authors’ research. this paper will try to prove or refute the following two hypotheses: h1: there is a connection between the strength of organizational culture, employees’ creativity and innovation and their job satisfaction. h2: the position and education of employees’ are positively corelated with creativity, innovation and job satisfaction. participants the questionnaire which was used in the process of research that we have conducted as the main method of collecting primary data is closed-ended. the questions are divided according to the fields they refer to, according to various situational factors, and they are directed towards feedback regarding the research. the research is multidisciplinary and it comprises management, sociology and psychology. it also encompasses main analytic and synthetic methods based on which there are certain conclusions. primary sources, i.e., primary data and authors’ findings have been used in this research. according to the research that we have conducted, 90 employees from different business fields served as respondents. seven questionnaires were not included in the analysis as they were not adequately filled in. respondents came from various 52 2014/73management fields: production, finance/ banking/ accounting, education, marketing, trade, public sector, it/ software, telecommunications, health/ pharmacy, transport, shipping, insurance, construction, hotel management, tourism, real estate-services. design and procedure the analysis questions were divided into three different segments which refer to certain instruments. the instruments were: job satisfaction, creativity and innovation and the strength of organizational culture. the first instrument which refers to job satisfaction consisted of 10 questions, the second instrument, one that took into consideartion creativity and innovation comprised 15 question, while the third instrument which referred to the strength of organizational culture had 11 questions. the likert scale was used for the instruments’ questions and it comprised a number of statements regarding various aspects of a certain attitude. respondents were obliged to express the level of their agreement or disagreement to each of these statements on a scale from 1 to 5. each respondent’s answer was marked in a certain way, and by summing up marks for all statements, we obtained the final score which shows a respondent’s attitude, which is positive or negative to a certain level. having in mind that this type of analysis is suitable for interpretation, we used it as an advantage of this type of scale for the research that we have conducted. instruments when analyzing the three instruments: job satisfaction, creativity and innovation, and the strength of organizational culture, we used the cronbach’s alpha in order to prove the reliability of the instruments used. the alpha coefficients for scale for measuring positive and negative emotions were 0.90 and 0.94. respectively, indicating a high degree of internal consistency. (nunnally, 1978) the instrument of job satisfaction consists of 10 questions which refer to examinees’ attitudes regarding their job satisfaction, education level, workplace, knowledge-sharing, awarding creativity and innovation, paying attention to constant progress and specialization, the freedom of employees to present new ideas, having necessary information for completing their tasks and solving problems, employee’s commitment, their motivation and commitment to the company’s goals, as well as the support and respect which employees show or do not show to one another. the instrument of creativity and innovation consists of 15 questions which refer to examinees’ attitudes regarding accepting differences, complexities and discrepancies, creative thinking, encouraging creativity and innovation in organizations, encouraging cooperation, image of the work environment, attitudes regarding time pressure and problem solving, control and coercion, attitudes about managerial and creative processes and whether they should be separated, as well as the openness of an organization towards new ideas. the instrument of the strength of organizational culture contains 11 questions which refer to examinees’ attitudes regarding stories from the past, jokes and anecdotes about the history of an organization, rituals, ceremonies, history, mission, manners of doing business, tradition and philosophy of an organization. 4. research results and discussion the results of these three instruments are presented in table 1 (see page 8). in table 2 (see page 8) we can see that there is a positive correlation between job satisfaction and creativity and innovation of employees, i.e., if they are more satisfied with their jobs, they will be more creative and innovative; if they are less satisfied with their jobs, they will be less creative and innovative. based on all data from table 2 (see page 8), we can also see that there is no statistical correlation between the strength of organizational culture and creativity and innovation of employees in an organization. all things considered, we can conclude that the strength of organizational culture does not have any influence on creativity and innovation of employees in organizations in the republic of serbia. data processing for table 3 was done according to manova (multivariate analysis of variance). the influence of education level (education) and position (place) in a company were independent variables in the 53 management 2014/73 analysis, while job satisfaction and creativity and innovation were dependent variables. what is visible in the same table 3 (see page 8) is that there is a significant statistical influence of an employee’s position in a company on the variable which presents the combination of job satisfaction and creativity and innovation (λ = 0,624; f=2,504; df=10,94; p=0,01). in table 4 (see page 9) which presents the analysis of the influence on single variables it is noticed that the position in a company statistically has the biggest influence on job satisfaction (ε²= 0,332; f=4,77; df=5; p<0,01), and immediately afterwards on creativity and innovation (ε²= 0,205; f=2.472; df=5; p=0,05). we can conclude that an empolyee’s job position in a company has a significant influence on job satisfaction and creativity and innovation. table 1: reliability statistics instrument: job satisfaction, creativity and innovation and the strength of organizational culture table 2: pearson correlation table 3 : manova – multivariate tests 54 2014/73management ����������� ��������� ��������� ����� � �� ����� ����������� ��� ������������ ���� !� ����������� �����"��� ��# ����"����� ����$ !% ����������� &�� �����'�� �� ��'���(������� ������� ��)�% !! 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(2010). menadžment i kreativnost. beograd: clio. [2] gonzalez, r. (1987). corporate culture modification: a guide for managers. nationa: book inc, manila. http://www.usheproduction.com/design/8020/downloads/5.pdf (visited: october, 2013). [3] janićijević, n. (1997). organizaciona kultura, ekonomski fakultet. ekonomski fakultet beograd: uliks, novi sad. [4] janićijević, n. (1998). organizaciona kultura: kolektivni um preduzeća. ekonomski fakultet beograd: ulixes, novi sad. [5] maslow, a. (1943). a theory of human motivation. psychological revew: 50, 370-96. [6] o reilly, c. (1989). corporations, culture and commitment: motivation and social control in organizations. california: management review 31. [7] robbins, p. s. / coulter, m. (2005). menadžment. beograd: data status. [8] schein, e. h. (1985). organizational culture and leadership. san francisko: jossey-bass. [9] schein, e. h. (1990). organizational culture and adaptive organizations. journal of development administration: sri lanka, vol.7, 9-39. [10] williams, c. (2010). principi menadžmenta. beograd: datastatus. [11] sarros, j. c., cooper, b.k., santora, j.c. (2008). building a climate for innovation through transformational leadership and organizational culture. journal of leadership & organizational studies 15(2), 145-158. [12] martins, e.c., terblanche, f. (2003). building organizational culture that stimulates innovation and creativity. european journal of innovation management 6(1), 64-74. receieved: march 2014. accepted: november 2014. tamara lukic university singidunum tlukic@singidunum.ac.rs tamara lukic graduated at the college of tourism where she earned a degree in tourism. afterwards, she entered the faculty of tourism and hospitality management at the singidunum university where she earned a bachelor degree manager for tourism. after graduating, she started postgraduate studies at teh singidunum university and, after successful defense of her master’s thesis, she was awarded the title of master of economics. she works at the singidunum university as a teaching assistant. she has recently defended her phd thesis at the same university. she is the author of several scientific papers. she speaks english, spanish, italian and german. 56 2014/73management uncertain. innovation of an organization is measured by its efforts to discover new opportunities and innovative solutions. it comprises creativity and experiments. nowadays, in conditions of intense global changes, efficient creation and exploitation of innovation can be an essential path to gaining competitive advantage. based on all the above-mentioned facts, we suggest the following guidelines. firstly, development of abilities of managers to support innovation and creativity. secondly, creation of organizational culture devoted to employees and their permanent learning, encouraging creativity, innovation and team work, as well as improving team work and creation of triangle of knowledge which will result in a better connection of research, education and innovation. the first point will improve the number of innovative organizations and entrance to the new markets, as well as development of effective continuous programmes of professional development. we can conclude that innovation implies great risks as investing in innovation might never pay off, even though it is an important means of internal organizational undertakings. however, successfully adopted innovation can create competitive advantage and become the source of growth of an organization. about the author vladimir džamic university singidunum vladimir džamic is assistant professor at singidunum university for humanities and social sciences. he graduated at the faculty of political sciences, university of belgrade, department of international studies, with an average score of 9.46. he continued his master’s and doctoral studies in the field of globalization and earned his master’s and phd degrees at the singidunum university with the highest average marks. he is a member of the european association of political science and a deputy president of the research forum of the european movement in serbia. the author has published several monographs and scientific papers. he speaks english and french. goranka knezevic university singidunum goranka knezevic – graduated at the faculty of economics, university of belgrade in 1995. goranka knezevic received her master’s degree in accounting at the faculty of economics, university of begrade, in 2000. in 2007, she acquired a phd in the field of financial instruments reporting at the faculty of economics, niš. she has taught several courses in the field of accounting and financial statement analysis and she is currently employed at the singidunum university as an associate professor. goranka knezevic is the author of numerous scientific papers and she attended several international scientific conferences where she presented her research results. goranka knezevic has conducted research in the following areas: financial instruments accounting, financial reporting, accounting policies, environmental accounting and financial statement analysis. slavko alčaković university singidunum slavko alčaković graduated at the faculty of business in belgrade, singidunum university. he earned his mba degree at lincoln university and got his phd in the field of marketing at the singidunum university. he is the owner and chief editor of the advertising portal lumiere.rs. he is also a lecturer of erp sap module sales and distribution. he is the author of many scientific articles. he speaks english, spanish, german and french. valentina bošković university singidunum valentina bošković completed her undergraduate and master studies at the english language department at the faculty of philology, university of belgrade. currently, she is pursues her phd studies at the same faculty (in the field of gender and language). miss bošković started her professional career as an english language teacher at the singidunum university in 2010. at the moment, miss bošković is doing research in the field of sociolinguistics, business communication, discourse analysis, applied linguistics, cognitive linguistics and language and education. she has published several scientific papers about gender equality in the english and serbian languages and about the social impacts on language changes. 57 management 2014/73 02_ana aleksic miric:tipska.qxd 17 mirjana petković1, ana aleksić mirić1, mladen čudanov2 1 university of belgrade, faculty of economics 2 university of belgrade, faculty of organizational sciences designing a learning network organization udc: 005.53:005.94; 005.575 doi: 10.7595/management.fon.2014.0029 1. introduction organizational learning and organizational networks are in the research focus of the contemporary organizational theory, as well as common buzzwords of practice in the field. this article will try to relate two concepts based on empirical evidence. organizational learning has been studied by two branches, one mainly theoretical and the other more practical in nature. the first branch focuses on different ways to explain the learning process, holding a common premise that organizational learning leads to organizational changes: argyris and schon (1978) insist on including both behavioral and cognitive dimension, crosanne et al (1999) connect learning to the exploration-exploitation paradigm; huber (1991) takes the information processing approach, etc. within the second branch, senge defined the learning organization as an “…organization where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning to learn together“ (senge, 1994), and march (1991) explores organizational learning through exploration and exploitation concepts. after senge’s book the fifth discipline, the concept of a learning organization experienced tremendous growth and popularity. literature review summarizes in following: the learning organization is a lean, organic structure. it glorifies creativity, innovation and experimentation. it also cultivates information exchange through a dialogue, interaction between individual ideas and a collective evaluation, and interplay of utilization and experimentation. it is proactive towards changes within external environment, and builds internal environment which supports various learning processes. consequently, the analyses that recognize the existing theories of organizational learning and the recommendations of how to built the learning organization as ‘‘far too abstract, and too many questions remained unanswered’’ (garvin, 2000: 79) have also appeared. garvin (2000) argues that the existing theory did not succeed in addressing the ‘‘three (crucial) ms’’ of building the learning organization: meaning, management and measurement. james (2003) goes deeper into the question of organizational design of learning organizations, trying to find more a concrete answer to the question on the architecture of the l-form and its contextual design. nevertheless, questions still opened for empirical research and an academic discussion are: • how to design learning organization? • which mechanisms of organizational design should be used in order to create learning organizations? • is there a unique organizational design of a learning organization? management 2014/73 this paper aims to contribute to filling the knowledge gap on practical, non-vague recommendations how to design a learning organization, usingthe analysis of organizational network structure in the context of organizational learning. we draw on the importance of organizational design as an enabler of organizational learning. we usea research case study approach as an empirical background. we apply organizational network analysis in order to describe how network density, reciprocity, reachability, blocks and cut-points as well as design efficiency – effectiveness balance can promote support and enable learning. we define practical implications for managers on how to manage work and knowledge flows in their organizations. keywords: organizational network, organizational learning, organizational knowledge, organizational design, inter-organizational design we recognize this gap in the literature, and the need to offer more applicable instruments for managers to use in order to design a learning organization. however, this issue becomes even more complicated when it comes to inter-organizational cooperation. organizational learning and knowledge transfer represent one of the key reasons for inter-organizational linking in the modern environment. thus, as inkpen and ramaswamy note (2006: 108) ‘‘…even though many studies have argued that the ability to transfer knowledge is a primary source of a firm’s competitive advantage and growth, we know relatively little about how to transfer knowledge within and across organizational boundaries’’. the aim of this paper is to draw on the importance of organizational design as an enabler of organizational learning, and to point to some learning obstacles which are built-in organizations in the process of their design, which, unfortunately, organizational leaders are often not even aware of. we use data from an alliance created between the two renowned media companies as to evidence our argumentation. for the sake of companies’ privacy, we changed the names and use x and y marks. we apply organizational network analysis in order to identify work-flows and knowledge-flows (borgatti et al, 2002; krackhardt, 1992, 1994; burt, 1982) and to explain that traditional understanding of organizational design does not have adequate analytical potentials to answer the questions of how to create intra and inter-organizational design that promotes support and enables learning. we define practical implications for managers on how to manage work and knowledge flows in their organizations. 2. theoretical background the contemporary theory makes a clear distinction between the concepts of organizational learning and organizational knowledge. organizational knowledge is the result of the process of learning, as well as the basis for further learning. burton et al. define knowledge as “information that corresponds to a particular context” (burton et al., 2006: 92). together with information which is a constitutive part of knowledge, transferability of knowledge is often cited as one of its most important characteristics (cummings, 2001). argote an ingram (2000) argue that the ability of an organization to transfer knowledge becomes increasingly important as organizations which are able to undertake this process effectively have higher productivity and higher chances to survive in comparison with those less capable of effective knowledge transfer. knowledge transfer can be defined from different approaches, such as “sharing ideas across boundaries both within and outside of an organization” (yeung et al., 1999). on the other hand, knowledge diffusion is the movement of knowledge within organization, between its parts and units. therefore, as cummings notes (2001: 15) “knowledge transfer is not simply a diffusion of knowledge, but the planned sharing of it across organizational boundaries”. in that sense, knowledge transfer is unconnectedly related to knowledge exchange, which assumes sharing of information that requires interpretation, or intelligence to fully understand and apply. the view on organizational learning as a process is mutual to all the authors that have ever dealt with this issue. also, one of the integrative elements of all perspectives of learning is that learning is seen to be unconnectedly attached to changes: when organizations learn this eventually leads to changes in the behavior of their members, or in the changes in their cognitive repertoire. in order to explain the learning process, authors have taken different perspectives: argyris and schon (1978) insist on including both behavioral and cognitive dimension, crosanne et al (1999) connect learning to exploration-exploitation paradigm, huber (1991) takes an information processing approach. child and faulkner (1998) recognize three types of learning the first and the lowest level of learning is purely technical in nature and is based on optimization of performances within existing boundaries of an organization. the second level assumes questioning of the existing organizational potentials, changes in existing organizational systems with an intention to integrate organizational activities. the third, and at the same time the highest level of learning is achieved if the organization learns how to learn, and in that way increases its learning abilities. burton and obel (2004: 11) relate the change learning process produces to organizational knowledge. according to them, organizational learning is the improvement in the knowledge base of the organization: the continuing update of what we know and how to apply it in the organization. further, they suggest that organizational learning involves four constructs: knowledge acquisition, information distribution, information interpretation and organizational memory. a model of connecting individual, group and organizational learning can be found in crossane et al. (1999:523). they state that the three levels of analysis are mutually connected by means of social and psychological processes within an organization: perception, interpretation, integration and institutionalization. 18 2014/73management nonaka and takeuchi (1995) also consider learning as a process through which individual knowledge becomes available to the organization. they recognize four ways in which knowledge converts within an organization: (1) socialization, (2) externalization, (3) combination, and (4) internalization. nonaka (1991) explains that explicit and tacit knowledge are not necessarily mutually exclusive categories, but that conversion of one into the other is possible. the importance of the analysis of nonaka (1994) and later nonaka and takeuchi (1995) is in that it shows how different learning theories do explain how knowledge is accumulated within an organization, but do not explain how new knowledge is created. nonaka describes this process through the development of the spiral of knowledge creation. furthermore, relying on the the japanese philosophy, nonaka, toyoma and byosiere (2001: 498) introduce the concept of ba, and define it as a ”place where knowledge is shared, created and utilized”, ”a framework in which knowledge is activated as a resource”. they explain that ba does not necessarily mean space in physical terms, but covers a virtual space (e-mail, teleconferences) and mental space (shared experience, ideas, etc.) as well, and the combination of those. organizational learning and knowledge transfer represent one of the key reasons for forming strategic alliances in the modern environment. even in such cases when companies have not initially entered a strategic partnership with the clear aim of organizational learning and transfer of knowledge, the very environment of cooperation among companies possessing different knowledge and skills, different competencies and ways of applying them in practice, opens new possibilities for learning, gaining knowledge and acquiring new skills (inkpen, 1998). on the other hand, strategic alliances sometimes do not result in the flow of knowledge and learning to the expected extent, even when they are formed with the aim to be incubators of new knowledge and a device for the dissemination of the existing knowledge (muthusamy, white, 2005; grant, baden-fuller, 2004; inkpen, 1998). different authors have offered different explanations why an absence of learning occurs in strategic alliances and what the factors limiting alliances to become learning networks are: opportunist behavior of the partners (zolo et al, 2002, svejenova et al, 2006), absence of social exchange and social integration of the partners (inkpen, tsung, 2005), or the lack of commitment, trust and consultation when it comes to reaching decisions relevant to both partners (muthusamy, white, 2005; inkpen, ramaswamy, 2006), inadequate absorptive capacity (inkpen, 2006; child, 2003; lyles, 2003). however, the role of organizational design in an inter-organizational context is not directly investigated. 3. methods and results our data was gathered in the leading media company, y world service (yws). the company broadcasts on a global scale, having regional sections, which cooperate with local, national radio stations by broadcasting the yws shows. the company faced a decline in radio listening rates worldwide, and the yws’s serbian section was facing the danger of being closed due to lesser global focus on our region after the year 2000 and the decline of the station’s popularity in serbia. after a detailed strategic analysis, an idea was proposed for a joint project with x, a growing serbian media company which has already cooperated with yws for a long period, and six former x employees who had to leave serbia were now working on yws, securing both informal and formal contacts and positive stance. the joint project was to create a broadcast covering both domestic and world news; it brought complete change in the working processes and proved to be very successful. the market research showed that the show hit the target and completely met the need of the audience because publicity of the yws in serbia increased by 10-15 times. on the wings of its success, similar broadcasts were started in ukraine, russia and turkey. our quantitative analysis was not only based on a network perspective of the organization design properties, an important part in inter-organizational design (popović et al, 2012). the network analysis gave us an opportunity to view organizations from the perspective of connections among the organization’s members. the analysis has two basic functions: (1) it represents relationships between actors by quantifying and presenting with scheme information flow channels, that are in fact carriers of learning, and (2) it gives us the possibility to construct a flow-chart, which is an advanced form of the traditional organizational chart, applied on an inter-organizational level. this analysis also enabled for us to represent and observe what nonaka et al. marked as ba and define as ‘‘a place where knowledge is shared, created and utilized’’ every network can basically be defined by its nodes (subjects) and the relationships existing between these nodes. the very first thing we should pay attention to when analyzing one network is the number of nodes, number of potential connections between these nodes and the number of existing connections. connections are represented with a binary variable taking value 1 if the connection exists and 0 if the connection does 19 management 2014/73 not exist. what should particularly be handled with care is the interpretation, because the interpretation depends on the question we asked and in accordance with which network was coded. if, for example, we want to investigate the information-flow structure, each position is analyzed from the aspect of its role as information giver and receiver. in our research we observed the following network measures: descriptive statistics, network density, connectedness, reachability, reciprocity, ego-network analysis, structural holes and blocks and cut-points. the application of the network analysis has huge analytical potentials when we analyze an organization as a “learning system”, structured from communication channels (formal and informal communications), procedures and routines, organizational environment which influences communication patterns and information systems. figure 1 organizational network graph actors positions of the editor in both partners’ organizations are, as expected at the information hubs. the egonet analysis reports considerably strong values of the total number of participants in this partnership. up to three positions gain networks larger than 5 (the editor of informative program the x, the editor of the serbian section in the yws and the producer the y world service), while other positions report somewhat lower values. flows the analysis of information flows on the basis of network connections shows 42 potential observations of connections. from that number, 27 observations are present. having in mind that the relationship between positions is represented with dummy variable taking value 1 if the relationship exists, and 0 if it does not, the mean value (=0.643) represents at the same time the percentage of the present to the possible relationships within the network, implying that only 65% of all possible connections are present. these parameters describe a dense organizational network, a feature important for organizational learning. structure the graph representing a joint project organization shows that the network does not contain cut points, so we can speculate on its high connectedness and positions being deeply embedded into its structure. the structure is connected, but relatively uniform distribution of network densities among different nodes implies a democratic structure without much hierarchy. table 1: organizational network measures *1-chief yws; 2-editor x; 3-editor yws; 4-producer yws; 5-producer x; 6-journalist y; 7-journalist x. 20 2014/73management 1* 2* 3* 4* 5* 6* 7* mean 0.667 0.667 0.833 0.833 0.667 0.500 0.333 std dev 0.471 0.471 0.373 0.373 0.471 0.500 0.471 ego network density 4 5 5 5 4 3 2 variance 0.222 0.222 0.139 0.139 0.222 0.250 0.222 mcssq 1,333 1,333 0.833 0.833 1,333 1,500 1,333 euc norm 2,000 2,000 2,236 2,236 2,000 1,732 1,414 n of obs 6 6 6 6 6 6 6 4. discussion: design and learning analysis the analysis of this organizational network, which delivered good results in the serbian context, and was replicated in a similar form in several different countries provides a basis for multiple-case analysis of organizational network design and organizational learning. this structure was aimed to solve a strategic problem of market share decrease through innovativeness. both strategic and operative goals of two organizations were fit, expressed through the mission of the company x and the partnership code of y world service. on the other hand, there were differences in perceptions and symbols. interviewed during a brainstorming session, employees both the on managerial and non-managerial positions personified the yws as a middle-aged man in a suit, with a hat, holding a stick in his hand. contrary to this, the x was seen as a young man in casual clothes with a rucksack in his back. however, it was accepted that such bureaucratic image was unfit for changing environment and it dominated world of media. as a new “product”, a joint broadcast show was created; it has delivered a high level of innovation needed to improve such stern image. in the context of organizational learning innovation is based on a high level of explorative orientation and interaction between partners. the broadcast show itself demanded intensive contacts during its realization, kindling the interaction between individual and organizational learning. the relations of employees from two different organizations in this joint program, as well as the flow of information and knowledge in an interactive organizational network environment directly influenced the level of knowledge and learning on the individual level. according to hamel (1991), individual learning becomes collective when there are mechanisms for summing up individual knowledge and when the sum up of the knowledge affects all those who can benefit from that knowledge transfer. the practice of giving regular feedback after the show enabled continuous instrumental learning by summing up important observations. it also bolstered organizational change, where structures, relations and practices related to activities proven inadequate were suppressed. changes included the introduction of a new position – producer, and further, the existing job descriptions were modified. the overall structure was made leaner, virtually without a middle level. the partnership between the two organizations brought a number of benefits to both sides. the x company pursued its basic principles: explorative orientation and innovative program, expanding its offer of popular shows and increasing its popularity further. secondly, in case of the x this cooperation created an opportunity to learn from the y world service, which is known for the affirmation of an analytical way of reporting and a higher level of the reporters’ independence. the x company benefited from other inputs from the y world service: the code of behavior, standardization and formalization, unbiased reporting and training on legal matters. on the other hand, the yws gained in the speed and dynamics totally untypical of their working conditions. all this was enabled by a vivid learning activity in accordance with nonaka’s view. everyday virtual contacts, telephone communication and interactive adjustments of partners during the show enabled continuous exchange of implicit knowledge. this knowledge was further coded through instructions, guidelines and operating procedures. communication technology played a very important role in the functioning of this alliance, virtual meetings were held before, during and after the show, but the dominant technology for communication between network members was still by telephone. we will use one practice to illustrate organizational learning and knowledge transfer within the organization, as well as de facto internalization of knowledge. a specific way of introducing the journalists, one of the yws trademark features became also a common practice of the company x journalists on radio and tv shows that were not covered by the joint program. other, more technical organizational departments also accepted practices related to the joint program. according to the interview with on of the producers: ”the execution of this show initiated changes in the existing operating procedures, and caused introductions of some new standards in the radio shows of the x, so now technicians ask for a show-outline plan in other informative shows as well.” 21 management 2014/73 conclusion: how to design organization to learn in our article we attempted to describe a learning organization’s design, going beyond a traditional understanding of intraorganizational design, its dimensions and features. both theoretic and empirical analysis showed us that the traditional understanding of organizational design does not have sufficient analytical potentials to answer the questions of how to design organizations to learn. if we extend it with the application of an organizational network analysis exploration of organizational inter-relations, communication channels and information exchange processes, our analysis potential increases. based on the analysis, we propose several rules for designing organizations that learn, describing: 22 2014/73management references [1] argote, l., ingram, p., (2000). knowledge transfer: a basis for competitive advantage in firms, organizational behavior and human decision processes, 82 (1): 150-169. 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(1994). the fifth discipline: the art and practice of the learning organization, doubleday: new york receieved: april 2014. accepted: september 2014. 23 management 2014/73 24 2014/73management about the author mirjana petković belgrade university, faculty of economics mirjana petković, ph.d., is professor at the faculty of economics, the belgrade university (the courses of enterprise organization and human resource management). she is the author of organizational behaviour with human resource management (3rd edition), the book published by cid faculty of economics in 2011, and a co-author of organizationdesign, behavior, human resources, and changes (6th edition), published by cid faculty of economics in 2009. she is also the author and co-author of several monographs and numerous articles in the fields of organizational theory, organizational structure, organizational behavior, organizational design, culture and changes; and took part in many projects as a consultant or project manager. ana aleksić mirić university of belgrade, faculty of economics anaa@ekof.bg.ac.rs dr ana aleksić mirić is assistant professor at the faculty of economics, university of belgrade. she holds msci and phd degrees from the faculty of economics, university of belgrade (phd in 2009 “organizational learning and knowledge management in strategic alliances: organizational design perspective”). during her phd education in mladen čudanov university of belgrade, faculty of organizational sciences mladen čudanov works as assistant professor at the faculty of organizational sciences, university of belgrade. as an assistant professor, he was a visiting lesturer in the joint programs of the ivwa from germany and jiangsu college of information technologies at wuxi and zhuhai city polytechnic colleges in china. his major research interests are ict and organizational design, restructuring of business systems and organizational change. he has published more than 70 articles in scientific journals and at conferences, and works as reviewer in several scientific journals, some on thomson-reuters sci. #06_84_3 stevanovic:tipska.qxd research question: this paper examines the impact of liquidity on the profitability of the serbian polluting medium sized enterprises. motivation: we study the impact of traditional liquidity indicators and indicators based on the cash flow on profitability. in domestic literature, a contribution in the field of financial stability analysis based on cash-flow is rare, consequently we use cash flow indicators as a liquidity measure. the focus of this paper is on the medium sized enterprises in serbia being the major sources of environmental pollution. medium-sized enterprises are the main drivers of economic growth. for improving environmental performance and applying technologies and processes that meet environmental requirements, it is necessary that the liquidity and profitability positions should be improved. the progress in the area of environmental protection is a relevant part of the accession process of serbia to the eu. idea: the idea of this paper was to empirically examine the liquidity profitability trade-off of selected enterprises. the research was conducted using return on assets as the dependent variable, three liquidity ratios and three cash flow based indicators as independent variables. data: the financial analysis is based on the sample of 48 polluting medium-sized enterprises for the period 2010-2015. the official financial statements were taken from the serbian business registers agency. the data are used on an annual basis. tools: we tested the panel regression model of profitability with the total number of observations being 288. we estimated the unbalanced panel because our dataset had missing values. we used the standard pooled ols estimator. before we estimated panel regression model, we did a stationarity and cointegration analysis of sample data. findings: the results show a significant impact of quick liquidity ratio, cash flow operating margin and cash flow investing margin on profitability measured by return on assets. however, there are no significant effects of the current liquidity ratio, the operating cash flow liquidity ratio and the cash flow financing margin on profitability. the conclusions of our paper refer to the selected enterprises in the observed periods. contribution: this paper contributes to the literature concerning liquidity and profitability analysis, since we use cash flow indicators as a liquidity measure. key words: liquidity, profitability, cash flow, financial analysis, polluting medium enterprises jel classification: m20, l25, g32 71 slavica stevanović1, jelena minović, isidora ljumović institute of economic sciences, belgrade management: journal of sustainable business and management solutions in emerging economies 2019/24(3) liquidity profitability trade-off: evidence from medium enterprises doi: 10.7595/management.fon.2019.0004 abstract: 1. introduction enterprise managers pay a lot of attention to measuring and management of corporate liquidity and profitability and tend to achieve and maintain the optimal relation between these two concepts. the most useful analytical tools for assessing profitability and liquidity are financial statement ratios. they express relationships between various items from the financial statements. researchers and practitioners have found that such ratios serve as effective indicators of various dimensions of profitability and liquidity. managers primarily use financial performance measures, if they prefer to achieve financial goals and be successful (milosavljevic et al., 2016). profitable enterprises that generate positive net cash flow from operating activities might be viewed as employing legal cash printing presses and the press generates cash as long as the enterprises continue to operate (mulford and comiskey, 2010, 7). a successful company is one achieving a positive financial result that 1 corresponding author: slavica stevanović, e-mail: slavica.stevanovic@ien.bg.ac.rs actively manages cash flows, since the achieved profit is a reliable measure of the company’s performance, and cash flows are considered to be the “bloodstream” of a company (kieso et al., 2010). for the same reason, checkley (1999) sees cash as “fuel“ without which company cannot run its operations. the aim of this paper is to examine the influence of liquidity on the profitability on a set of selected serbian companies. our research focuses on the impact of traditional liquidity indicators and indicators based on cash flow on the profitability measured by assets return rate. the impact of an enterprise’s ability to service its matured liabilities on assets return is analysed on a sample of polluting medium enterprises in serbia using the panel regression analysis for the period from 2010 to 2015. the key research question refers to the extent to which the selected liquidity indicators affect the profitability of the analysed enterprises. we designed our first research question in order to determine the impact of traditional liquidity ratios on profitability measured by roa (return on assets). the second question considers the influence of cash flow based indicators on profitability measured by roa. this paper deals with the following hypotheses: the traditional liquidity indicators are associated with assets return rate and the cash flow based indicators are associated with assets return rate. a special contribution of this paper lies in the fact that the analysis is focused on medium sized enterprises in serbia being the major sources of environmental pollution in this country. unlike other studies that usually use traditional liquidity indicators, we decided to use cash-flow indicators as a measure of liquidity. cash flows information, with the other information provided in financial statements of enterprises are useful to stakeholders and other decision makers. this paper contributes to the literature concerning liquidity and profitability analysis, since it covers the impact of liquidity on roa. although we manged to find a positive statistically significant impact on the profitability for the quick liquidity ratio, we were not able to find statistical significance for current liquidity ratio, which coincides with findings by pervan and visic (2012) regarding croatian enterprises. our estimation results show that cash flow operating margin and cash flow investing margin have a statistically significant impact on profitability. apart from the introductory (first section) and the conclusion (sixth section) sections, the paper consists of four parts. a literature review is presented in the second section. the third section explains the empirical data used. the fourth section explains the methodology. the fifth section contains empirical results and discussions. 2. literature review profitability analysis focuses on the business and becomes a valuable tool for management planning, strategy analysis, decision making, as well as valuation, since higher profitability generates value (penman, 2007). the assessment of profitability is usually done through the roa and roe (return on equity). vieira (2010) highlights that roa is not the best indicator to compare the enterprises’ performance in different industries and, on the other hand, roe will not provide a good comparison because small and negative equity levels can generate distorted indicators of profitability. since most of the analysed polluting enterprises operate in the same industry, we can use roa in this research. financial analysts use traditional liquidity ratios as key indicators of liquidity position of enterprises, but liquidity ratios are a mixture of ratios calculated on the basis of accounting flows, indirect cash flows and balance sheets. accounting flows do not provide adequate information about the liquidity of a firm (duhovnik, 2008). cash flow as a measure of short-term financial stability does not have a long tradition of usage in the research literature. some of the pioneers that used cash flow indicators to measure exposure to financial risks based on cash flows are figlewicz and zeller (1991), carslaw and mills (1991), giacomino and mielke (1993). cash-flow indicators of financial stability can be useful in anticipating financial difficulties of enterprises (rujoub et al., 1995), which is an assumption of successful business. charitou et al. (2000) studied the association of earnings and cash flows with security returns using data from japanese firms. they provided empirical evidence that cash flows have information content beyond earnings in explaining security returns. analysing the cash flow sensitivity of investment, and (2009) conclude that accessibility of external capital is positively correlated with cash flows. cash flow to liabilities ratio belongs to a group of most important ratios in the sense of financial instability prediction. in domestic literature, contributions in the field of financial stability analysis based on cash-flow are rare. we discuss three ratios for assessing a short-term liquidity position of the enterprise: current liquidity ratio, quick liquidity ratio and operating cash flow liquidity ratio. saleem and rehman (2011) reveal the relationship between liquidity and profitability indicators. the results of their study show that there is a significant impact of only liquid ratio on roa. there is no significant effect of current ratio and quick ratio. khidmat and rehman (2014) conclude that liquidity has a high positive ef72 slavica stevanović, jelena minović, isidora ljumović 2019/24(3) fect over return on assets of listed chemical companies of pakistan. eljelly (2004) does an empirical study in an emerging market considering a trade-off between liquidity and profitability. vieira (2010) analyses the relationship between liquidity and profitability of the main airline companies in the world and shows a significant positive correlation between liquidity and profitability in the short and medium terms. rehman et al. (2015) investigated the relationship between liquidity and profitability of companies listed in the saudi stock exchange tadawul from 2008 to 2012. the overall results revealed that there was only one positive significant relationship between roa and current ratio, while other investigated relationships those between roa and quick and cash ratio, as well as between roe and 3 mentioned liquidity variables were not statistically significant. the same type of relationship was investigated by alagathurai (2013) who finds a significant relationship between liquidity and profitability among listed trading companies in sri lanka. in the case of listed manufacturing companies in sri lanka, the study for the period 2008-2012 also revealed a significant relationship between liquidity and profitability (priya and nimalathasan, 2013). priya and nimalathasan (2013) used operating cash flow ratio as a liquidity measure the results of the study showed that operating cash flow ratio was significantly correlated with return on equity. huang and mazouz (2018) investigated the impact of excess cash on the liquidity risk and liquidity premium using data for nyse/amex/nasdaq common stocks of us industrial firms. they showed that excess cash improved trading continuity and reduced both liquidity risk and the cost of equity capital. however, the direct effect of excess cash on firm value was negative, but the indirect effect through liquidity was significantly positive. a similar result could be found in (2010) who claims that high excess cash companies invest considerably more in the future than their low cash peers, but do not experience a higher future profitability. ben-caleb et al. (2013) studied the relationship between liquidity management and profitability of manufacturing companies listed on the nigeria stock exchange for the period 2006-2010. the results revealed that current ratio and liquid ratio were positively associated with profitability, while cash conversion period was negatively related with profitability. the association in all cases was, however, statistically insignificant, indicating a low degree of influence of liquidity on the profitability of manufacturing companies. zygmunt’s (2013) empirical research for polish listed it companies proved the existence of a statistically significant relationship between liquidity and profitability. zygmunt (2013) measured liquidity by current ratio, quick ratio, receivable conversion period, inventory conversion period, accounts payables conversion period and cash conversion period. since liquidity, however, can also be described by cash flow indicators, zygmunt (2013) considers the aforementioned indicators in his research of liquidity-profitability relationship. bolek and wili’nski (2012) analysed the influence of liquidity on profitability of polish construction sector companies. their study revealed that the financial liquidity influenced profitability for the period 2000-2010, but only quick liquidity ratio had a statistically significant influence on roa. zainudin (2006) examined the trade-off between liquidity and profitability on a sample of small and mediumsized enterprises in the malaysian manufacturing sector for the period 1999-2003. their analysis revealed that there was a statistically significant moderate positive association between liquidity (measured by current ratio and working capital to total assets ratio) and profitability. liquidity-profitability trade-off is also investigated for non-financial companies in the sugar industry of pakistan (safdar et al. 2016). the results of this study, one that covers the period between 2007 and 2011, articulated that liquidity (measured by traditional indicators) of sampled companies is positively linked to their profitability. liquidity can be observed in line with market returns. rad et al. (2016) analysed the relationship between the liquidity factor and all strategies’ returns, also between the liquidity factor and market excess returns. pervan and visic (2012) evaluated the influence of the enterprise’s size on the business success of croatian companies and showed that current ratio did not prove to be an important explanatory variable of an enterprise’s profitability. zenzerovic (2009), analysing the croatian experience in the business′s financial problems prediction uses the multiple discriminant analysis that includes, inter alia, solvency and liquidity ratios. he emphasizes the importance of liquidity, solvency, profitability ratios and cash flow-based ratios as representative ratios. pervan et al. (2012) focus on the relationship between ownership structure and performance of croatian listed firms, and they show that firm liquidity positively affects the firm’s profitability. research about the relation between profitability and liquidity in serbia is rare, methodologies are limited, they often use simple correlation analysis. more advanced research can be found in dencic-mihajlov (2015). she used current liquidity ratio and roa to investigate how large and medium-sized companies listed on the belgrade stock exchange manage their profitability during periods of recession. the results show that bigger and more liquid companies demonstrate higher profitability. in order to evaluate this relationship on the wholesale and retail trade market in serbia, lukic (2012) shows that the wholesale and retail trade liq73 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) uidity in serbia is unsatisfactory for the period 2006 2010 and that an appropriate balance between profitability and liquidity is needed for improving business and financial performance in that sector. jovanovic et al. (2017) developed a model for predicting illiquidity, with a focus on large companies in serbia. analysing financial indicators as predictors of illiquidity of large companies in serbia, they have shown that return on total assets and return on equity, inter alia, are significant in the prediction of illiquidity. andjelic et al. (2016) promote modern methods of financial management. these methods allow them to identify and monitor the needs for financial resources and their sources. there is some literature connecting liquidity, profitability and pollution. this is especially relevant for china and other rapidly developed economies that are paying high environmental and pollution costs. wu et al. (2018) investigated the relations among the air pollution, stock returns, and trading activity using daily stock returns, turnover, illiquidity and volatility for each firm as dependent variables. they have found that air pollution affects stock prices in chinese stock markets mainly through home bias and has significant negative effects on local returns by decreasing volatility and trading. hussain et al. (2018) explored the linkage between companies’ sustainability performance, sustainability disclosure and financial performance using data from us companies belonging to the global fortune 100 best-performing companies list. they conclude that firms that invest more in sustainability achieve greater profitability. vastola et al. (2017) contributed to the discussion on the relationship between environmental and financial performance. by using a sample of 954 companies, they provided evidence that specific cultural orientations significantly affected the extent to which the financial performance (i.e., roa and roe) as well as market value of firms were influenced by improvements in corporate environmental performance, in both the short-term and the medium-term. 3. empirical data we tested the panel regression model of profitability on the sample that includes the medium-sized polluting enterprises. it is a group of 48 medium-sized enterprises operating in serbia, whose plants are major sources of environmental pollution. according to key development indicators, medium-sized enterprises in serbia are the main drivers of economic growth. we opt for medium-sized enterprises, since only those firms that do financially well can afford to spend more of their resources on cleaner technologies. for improving environmental performance and applying technologies and processes that meet environmental requirements, liquidity improvement, strengthening of the ability to generate cash flows from internal sources and profitability improvement are necessary. the sample is selected from the prtr register of major sources of pollution in serbia (sepa, 2017). serbia belongs to countries that are part of the europe-wide register (e-prtr) which provides easily accessible key environmental data from industrial facilities. harmonization with european standards in the area of environmental protection is part of the process of accession of serbia to the european union. the adoption and implementation of the standards covered by chapter 27 make the negotiating process of serbia complex and challenging. the aforementioned regulations within this area make one third of the total number of the eu regulations (grs, 2018). the annual financial statements on the basis of which the dependant and independent variables are determined were taken from the serbian business registers agency. the set of the analysed financial statements consists of the balance sheet, the income statement and the cash flow statement. financial statements for the period 2010 through 2015 are analysed. the data are given on an annual basis. the number of analysed financial statements changed during the period under observation, as for certain periods financial statements were not publicly available and some enterprises were established during the stated period, which made collating and updating of data used in our research more difficult. 4. methodology the panel data series are provided for the given sample of 48 medium-sized polluting enterprises and over the period under observation, from 2010 through 2015, with the total number of observations being 288. we used six indicators (three liquidity ratios and three cash flow based indicators) for our panel regression model of profitability. after analysing different types of measures of firm performance, we decided to use the roa. it is an indicator often used in the literature and in practice as one of the key indicators of enterprise profitability. the roa rate is obtained by dividing the net financial result of enterprise i for period t by the operating assets value of enterprise i at the end of the fiscal year t. 74 slavica stevanović, jelena minović, isidora ljumović 2019/24(3) as the dependent variable is roa, and regressors are clr, qlr, cfol, cfom, cfim, and cffm, we follow the regression with the panel data: (1) we include α and it to capture the portion of return not explained by clr, qlr,cfol, cfom, cfim, and cffm as in clinch et al. (2002). roait is return on assets of enterprise i in period t, where i = 1,..., 48, t = 2010, ..., 2015. clrit is current liquidity ratio of enterprise i in period t. qlrit is quick liquidity ratio of enterprise i in period t. cfolit is operating cash flow liquidity ratio of enterprise i in period t. cfomit is cash flow operating margin of enterprise i in period t. cfimit is cash flow investing margin of enterprise i in period t. cffmit is cash flow financing margin of enterprise i in period t. it is the error term, independently and identically distributed with zero mean. the α parameter represents the overall constant in the model. we tested the panel regression model of profitability on the sample that includes the medium-sized polluting enterprises. using hausman’s test we found that the fixed effects model was appropriate, as baltagi (2005) mentioned the fixed effects model is an appropriate specification if we are focusing on a specific set of n firms. we estimated the unbalanced panel because our dataset had missing values. the assessment panel given with equation (1) is based on the standard pooled ols estimator. kao’s residual cointegration test was applied to check the long-run model variable cointegration. we obtained that adf t-statistic -0.874 and p=0.191, meaning that variables were not cointegrated in the long-run, therefore there was no need to evaluate the panel dynamic ols. as in vătavu (2014), unit-root tests were applied on every variable included in the panel data in order to examine if data were stationary. according to test pp-fisher chi-square and hadri z-stat all variables in the panel dataset were stationary. 5. results and discussions a summary of descriptive statistics of profitability, liquidity indicators and cash flow components is given in table 1. our measure of profitability, roa, has a mean of 1.80, a median of 1.09, and a standard deviation of 12.51. a large standard deviation tells us about a large variability in profitability of the selected serbian medium-sized enterprises. a similar result is obtained for turkish manufacturing firms showed by isik and tasgin (2017). each variable also exhibits substantial skewness (i.e., a large mean relative to the median). table 1: descriptive statistics for the full sample (2010–2015) source: authors’ calculations. clr as a liquidity measure of the analysed enterprises has a mean of 2.14. according to a traditional banking financing rule, the current-assets-to-current-liability ratio is 2:1. the interpretation of this rule corresponds better to setting the lower limit than the norm. the literature avoids setting rigid and generally applicable norms, stating that a primary usefulness of an indicator is that it measures enterprise capacity to cover shortterm liabilities. the clr median of 1.3 means that 50% enterprises have a good ability to service short-term liabilities with available current assets. the charted institute of management accountants – cima (2010), and 75 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) ghasemi and ab razak (2016) suggest ratios for evaluating liquidity risks. on the basis of these studies, we have found that the mean value of the current ratio is 2.14, and it is over 1.5 (cima suggestion) which means that it is a low liquidity risk for this kind of serbian enterprises. the quick liquidity ratio is a much more reliable and a more conservative test of liquidity than the current liquidity ratio. the common qlr norm is 1:1, which corresponds to our result (qlr mean of 1.12). the qlr median of 0.67 shows that the value of liquid assets of more than 50% enterprises is not sufficient to cover short-term liabilities. the mean value of quick ratio is 1.12, which means that serbian medium-sized polluting enterprises are between low and average liquidity risk according to the cima suggestion (cima, 2010). stevanovic and marinkovic (2018) compare the average current and quick liquidity ratios of the selected polluting enterprises with the liquidity of medium enterprises sector and the whole serbian economy, and conclude that serbian medium polluting enterprises outperform medium enterprises sector and the whole serbian economy. the liquidity indicator based on operating cash flow has a mean of 0.33. this result is relatively good given that in the literature authors use the norm of the level of 0.4, for the short-term liabilities coverage with the net operating cash flow. the cfol median and standard deviation of 0.09 and 0.81, respectively, show a huge variability of this indicator. with each cash flow component, the standard deviation is relatively high, meaning that cash-flow variability is pronounced over time. the median of these indicators shows extreme values. according to the theory and practice, enterprises prefer to finance their activities from internally generated cash flows. the high cfom mean suggests that enterprises from our sample have a strong ability to generate cash flows from internal sources. the positive mean of cfim shows that cash outflows used by investing activities are higher than cash inflows provided by investing activities. approximately in only 17% of the analysed enterprises the value of cash receipts from investing activities is higher than that of outflows from investing activities. as we observed total investment cash inflows and outflows, the limitation in this part of the research is related to the fact that the cash flow statement does not provide information on the clean investments of enterprises. the negative mean of cffm shows that cash outflows used by financing activities are higher than cash inflows provided by financing activities. in table 2, we present a summary of statistics from regressions of roa on cash flow and liquidity components of serbian enterprises, for the period 2010 to 2015. table 2: summary of statistics from regressions of roa on cash flow and liquidity components for the period 2010 -2015 notes: *, **, *** denote p-value less than 0.10, 0.05, and 0.01, respectively. source: authors’ calculations. the results in table 2 show that clr and cfol do not have a significant impact on profitability, while the qlr has a positive statistically significant impact on the profitability (roa) at the level of 5%. therefore, improving efficiency of liquid asset management leads to a higher value of qlr that has a positive effect on profitability. consequently, the hypothesis that liquidity measured by traditional liquidity indicator affects profitability cannot be rejected. the result that the current liquidity ratio is statistically insignificant and does not have an impact on the selected serbian enterprises’ profitability coincides with pervan and visic (2012) for croatian firms. also, this result is in line with the result by saleem and rehman (2011) for pakistani companies in the oil and gas sec76 slavica stevanović, jelena minović, isidora ljumović 2019/24(3) tors. however, our result does not coincide with dencic-mihajlov (2015) for large and medium-size serbian enterprises, and with pervan et al. (2012). the result that quick liquidity ratio is statistically significant and affects the selected serbian enterprises’ profitability does not coincide with saleem and rehman (2011). table 2 indicates that the cfom has a statistically significant impact on profitability at the level of 1%, but with a small negative coefficient value of -0.002. the cfim has a positive statistically significant impact on roa at the level of 10% (coefficient value of 0.087). considering that the increase in investments is a generator of future rentability flow and cash flow, clean technologies investments as part of total investments can also be drivers of profitability. consequently, the hypothesis that cash flow affects profitability cannot be rejected. the cffm does not have a statistically significant relationship with profitability. table 2 shows that r-squared value is 0.592, indicating that 59.2% variance in the return on assets as a dependent variable can be explained through six independent variables which we used. references [1] alagathurai, a. (2013). a nexus between liquidity & profitability: a study of trading companies in sri lanka. european journal of business and management, 5(7), 221-237. [2] andjelic, s., gajic, a., & ilic, dj. (2016). problems of financial management in the public sector. economic analysis, 49(3-4), 48-68. [3] baltagi, b.h. (2005). econometric analysis of panel data, third edition, john wiley & sons ltd, england. [4] ben-caleb, e., olubukunola, u., & uwuigbe, u. (2013). liquidity management and profitability of manufacturing companies in nigeria. iosr journal of business and management, 9(1), 13-21. [5] bolek, m. & wili’nski, w. (2012). the influence of liquidity on profitability of polish construction sector companies. e-finanse: financial internet quarterly, 8(1), 38-52. [6] carslaw, c.a. & mills, j.r. (1991). developing ratios for effective cash flow statement analysis. journal of accountancy, 11, 63-69. 77 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) in this paper, we tested the impact of selected serbian enterprises’ liquidity on their profitability using the panel regression model for the period 2010-2015. for that purpose, we used traditional liquidity indicators (current liquidity ratio and quick liquidity ratio) and indicators based on cash flow (operating cash flow liquidity ratio, cash flow operating margin, cash flow investing margin, cash flow financing margin). the contribution of this paper is our focus on the polluting medium-sized enterprises in serbia and the use of cash flow indicators as a liquidity measure. the clr as a liquidity measure of analysed enterprises has a mean of 2.14 and qlr has a mean of 1.12. this result is in line with traditional banking financing rules. the clr median of 1.3 means that 50% of enterprises have a good ability to service their short-term liabilities with available current assets. the qlr median at the level of 0.67 shows that the value of liquid assets for more than 50% of enterprises is not sufficient to cover their short-term liabilities. the liquidity indicator based on operating cash flow has a mean of 0.33, and this is a relatively good result. high standard deviations of all cash flow components show a huge variability of cash flow during the observed period. the median of these indicators shows extreme values. the high cfom mean suggests that selected polluter medium enterprises have a strong ability to generate cash flows from internal sources. the results of our study show that there is a significant impact of quick liquidity ratio, cash flow operating margin and cash flow investing margin on the profitability of the selected serbian enterprises. the quick liquidity ratio (qlr) has a positive statistically significant impact on the profitability, but it does not coincide with saleem and rehman (2011). the cash flow operating margin has a small negative impact on profitability but the cash flow investing margin has a small positive impact on assets return. there is no significant impact of the current liquidity ratio, operating cash flow liquidity ratio and cash flow financing margin on roa. the current liquidity ratio is statistically insignificant, and this result is in line with pervan and visic (2012), and saleem and rehman (2011). the conclusions of our paper are restricted to the selected enterprises and to the observed period. a recommendation to the management of polluting medium enterprises refers to the fact that improving the efficiency of liquid assets management and current liabilities, as well as increasing investments in clean technologies can be profitability drivers. a future research can be made by testing for coefficient equality across cash flow components, similarly to clinch et al. (2002) who investigate whether components of cash flows convey information relevant to investors beyond that provided by aggregate net cash flows. acknowledgement the authors acknowledge funding from the ministry of education, science and technological development of the republic of serbia through research projects 47009, 179015, and 179001. conslusion [7] charitou, a., clubb, c., & andreou, a. (2000). the value relevance of earnings and cash flows: empirical evidence for japan. journal of international financial management & accounting, 11(1), 1-22. [8] checkley, k. (1999). cash is still king: the survival guide to cash flow management, chicago and london: fitzroy dearborn publishers. [9] cima charted institute of management accountants. (2010). improving cash flow using credit management the outline case, 1-28, uk: chartered institute of management accountants. [10] clinch, g., sidhu, b., & sin, s. 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(2018). air pollution, stock returns, and trading activities in china. pacific-basin finance journal, 51, 342-365. doi: 10.1016/j.pacfin.2018.08.018 [45] zainudin, n. (2006). liquidity-profitability trade-off: is it evident among malaysian smes?. international journal of management studies (ijms), 13(2), 107-118. [46] zenzerovic, r. (2009). business′ financial problems prediction-croatian experience. economic research-ekonomska istrazivanja, 22(4), 1-15. doi: 10.1080/1331677x.2009.11517387 [47] zygmunt, j. (2013). does liquidity impact on profitability. in proceedings of the conference of informatics and management sciences, 25-29 march, zilina, slovakia, pp. 38-49. received: 2018-10-12 revisions requested: 2018-11-30 revised: 2018-12-25 accepted: 2019-01-30 slavica stevanović institute of economic sciences, belgrade, serbia e-mail: slavica.stevanovic@ien.bg.ac.rs slavica stevanović, phd is employed as a research associate at the institute of economic sciences in belgrade. she graduated and she got her magister degree at the faculty of economics, university of belgrade. she acquired her phd degree at the belgrade banking academy faculty for banking, insurance, and financing, university union in belgrade. slavica participated in international and national scientific conferences and was an author and co-author of numerous scientific papers. her research interests are financial reporting and analyses, cash flow analyses, accounting, and environmental reporting and accounting. she is engaged in several domestic and international projects, and she is an editor of the annual publication named: national network for medium enterprises in the republic of serbia, published by the institute of economic sciences. 79 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) about the authors 80 slavica stevanović, jelena minović, isidora ljumović 2019/24(3) jelena minović institute of economic sciences, belgrade, serbia e-mail: jelena.minovic@ien.bg.ac.rs jelena minović, phd is senior research associate at the institute of economic sciences in belgrade. she acquired her phd degree (2012) at the faculty of economics, university of belgrade. jelena completed her studies at the european business school (ebs university) in wiesbaden, germany for post-doc research stay from may 2013 to august 2013. jelena participated in many international and national conferences. she was an author and co-author of a significant number of papers (about 70). her research interests are: quantitative methods and models in finance and economics, econometrics, time series analysis, financial economics and financial markets. her articles have been published in various international journals, such as applied economics, economic research, panoeconomicus, engineering economics, international journal of engineering education, economic annals, theoretical and applied economics, and others. isidora ljumović institute of economic sciences, belgrade, serbia e-mail: isidora.ljumovic@ien.bg.ac.rs isidora ljumović, phd is employed as a senior research associate at the institute of economic sciences in belgrade. she graduated in the field of organizational sciences, and she got her master and phd degrees in the field of banking. she is engaged in several domestic and international projects, among which are projects financed by the mestd ros, the world bank, the european union and other international donors. she has published two monographs, numerous 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01_vesna milicevic:tipska.qxd 5 adam sofronijević1, vesna milićević2 , bojan ilić3 1 university of belgrade, university library ‘’svetozar marković’’ 2,3 university of belgrade, faculty of organizational sciences smart city as framework for creating competitive advantages in international business management udc: 005.591.6:711.452 ; 007:711]:004 doi: 10.7595/management.fon.2014.0015 1. introduction “not houses finally roofed, or the stone of walls well built, no not canals or dock yards make the polis, but men able to use their opportunity.” alcaeus, poet, 620 bc the beginning of the second decade of the 21st century is characterized by dramatic changes in economies and societies worldwide spurred by the rise of the second machine age and the emergence of smart cities as hubs of creativity and innovations. as developed countries go even further into the domain of knowledge and innovation driven economies, the importance of creativity and efficiency in offering new products and services becomes a must for achieving growth and sustainable competitive advantage. the heavy blows dealt to traditional business paradigms by shockwaves of economic crisis 2008 and subsequent emergence of machines as a replacement for many knowledge workers prompted the transition from long term customer relationship paradigm to the one of trust between the customer and the brand. in such a global environment smart cities emerge as a basis for business operations offering a set of particular advantages to companies and managers operating within their framework. building on local economies of scale guaranteed by the sheer number of their inhabitants, supported by ubiquitous cutting edge information and communication technologies (ict) and using the strategic advantages of operating out of hubs of creativity and innovation managers nowadays use smart cities as a springmanagement 2014/71 the paper presents the essence of the smart city concept and opportunities for the creation of competitive advantages arising in the framework generated by this concept. various elements of a smart city are analysed and related to different options for economic growth and business innovation improvement. possibilities arising from networking and clustering in creative cities are listed along with some details of advantages provided by a symbiosis of information and communication technologies and creativity to companies operating in such environments. managerial aspects of the internet of things are presented and identified as a basis for the smart city outlook, but also as a major prospect to develop certain business opportunities leading to competitive advantages for companies operating out of smart cities. keywords: smart city, competitive advantage, international business management, creative city, internet of things, information and communication technologies. 2 this paper brings the results of research of the author within the project no. 179081 financed by the ministry of education, science and technological development of the republic of serbia. board for lunching international business operations that use all of these advantages to build sustainable competitive advantage. this new business paradigm poses numerous questions related to the role of smart cities for national and even regional economies and long term sustainability of economies and wellbeing of nations that fail to develop these business focal points numerous in population and equipped with all the elements that make a city truly a smart one. 2. the significance of smart city concept in 21st century from an international business perspective in current economic and business conditions the general importance of cities cannot be stressed enough. since the early times every civilization can be characterized by its urban developments, and this especially holds true for the contemporary western civilization, defining the human conditions we live in, that may be characterized as city dominated, especially in late 20th and early 21st centuries when the number of people engaging in agriculture dwindles in the first world countries to a number that can barely be measured by the census and worldwide to less than 50%, with the prognoses that this number worldwide will be less than 20% by the end of the century (unpd, 2007). of especial importance, in such a context, is the global trend of increase in concentration of almost entire populations in just a few very large cities. large cities, with dense population, counted in millions and tens of millions, may be very productive places, innovative ones that are potentially very environmentally friendly, fulfilling almost every aspect of desirability for the future. on the other hand, a fast and intensive arrival of new citizens presents these cities with very real challenges in the present and in the immediate future. the services need to be provided at once for a huge population and the benefits and revenue income needed to support these services will be available fully only in the future. thus, there is a high probability of traffic congestion, pollution and limited access to resources. city councils and other local authorities grappling with such challenges and even more seriously with the challenge of the globalization that has connected such large cities across the globe in the competition for human resources, investment capital and ideas, are implementing new approaches to many aspects of urban planning, design, service provision, infrastructure development and operations broadly called smart cities. the importance of management and the role of information and communication technologies in the implementation of such ideas are of crucial significance. the relevance of the smart city concept in providing for the needs and thus attracting people of y and z generations is of utmost economic relevance, since these people are perceived to be the developers of new economic potentials and opportunities and the competition for hosting members of these highly mobile generations is rapidly increasing among cities across the globe (harrison & donnelly, 2011). there are many definitions of the smart city and it is no wonder a wider consensus has not been reached on a unified approach to the concept having in mind its novelty. the focus on the interlinings and networking effects arising from the interaction among the intellectual capital of universities, the wealth creation of industries and the democratic government of civil society makes the essence of generating dynamic spaces in which knowledge can be exploited to enhance innovation and economy in smart cities (leydesdorff & deakin, 2011). the importance of connections that bond the it infrastructure, the business infrastructure, and the social infrastructure, leveraging collective intelligence makes the essence of the smart city according to (harrison et al., 2010). the use of smart computer technologies is what smart cities are based on, making the critical infrastructure elements and services of a city intelligent, interconnected and efficient (washburn et al., 2010). the smart city can also be considered a contextualized interplay among managerial and organizational innovation, innovative technology and innovation in policies (nam & pardo, 2011). one side of the analysis of the smart city phenomenon has to be devoted to managerial aspects of ict related companies business because of the tremendous importance of ict in smart cities and correlating investments in this area that spur other business opportunities and entrepreneurial activities. if an ict company devotes its business objectives to developing technologies related to smart cities, that can be viewed in another dimension, not just the one that is foundational for other activities in a smart city. this is a strategic business aspect of ict in a smart city and it is presented in figure 1, along with its relation to the technology view, i.e., a concrete technology solution for a specific smart city and stakeholders or systems view, i.e., city institutions along with officials and citizens. therefore one has always to bear in mind the relationships between strategic aspects that ict solutions development for the smart city has for ict companies and the other aspects of these technologies that are more vital for other stakeholders (paroutis, bennett & heracleous, 2013). 6 2014/71management figure1: perspectives on researching a smart city solution (paroutis, bennett & heracleous, 2013, p. 9) the business logic that is behind the transformation of traditional cities into smart cities can be different. two modes that describe the phenomena have been identified in (kuk, & janssen, 2011). the first one has business models come into being before the information architecture that makes a vital part of the smart city. in this scenario, business value is created through the use of technology and the main idea is to enhance existing services and to bring about the new ones. in the second one the opposite holds true; first the infrastructure is created that is in fact a technology platform inducing changes and upgrades in business practices. in the first scenario business value is accumulated faster and many improvements in existing services and new services become available to the citizens of the smart city. the second approach requires much more resources and is basically a long-term approach requiring also time to bring about new services to citizens. but in this case the services implemented are much more advanced and improved and much higher levels of sustainability of the business models that are in the roots of these services have been achieved. in order to function in a sustainable way and to provide overarching, intelligent services to its citizens, smart cities have to rely on integrated infrastructures in various domains. this unified whole, that presents an information backbone and at the same time a function and utility highway connecting all spatially and functionally diverse parts of the smart city has to employ cutting edge technology to monitor and to control city beats in different arenas of its growth and also in everyday functioning. for monitoring purposes state of the art devices are crucial and they provide capabilities for huge efficiency enhancements of various functions, but besides this, ubiquitous sensing brings along many challenges, least of which are technological, and that border many areas such as privacy, human rights and many other different social and humanistic fields. in designing smart cities an improved automation of systems is required and advanced autonomous automated systems may both monitor and act if needed. as cities grow larger the need for resource consumption exponentially grows, bringing into focus the incentives for innovation that tackle climate changes and resource shortages. this can only be provided by smarter urban infrastructure. advancements in different fields of urban dynamics are needed and this is again related to an omnipresence of sensing in smart cities as presented in figure 2. in the roots of all these systems are communication technologies that enable wireless, low energy consumption sensors to transfer data 24/7. as regards location and coverage there are many different networks in smart cities (hancke & hancke jr, 2012). home area networks use short range standards such as wi-fi (802.11 g/n). wide area networks connect customer premises with utilities supplier requiring much broader coverage. for ultra short distance communication that is crucial for smart city operations in general, once the basic networks that have been mentioned are provided, the rfid (radio frequency identification) and the nfc (near field communication) technologies have come to prominence in this context. the rfid technology is widely spread today, consisting basically of the rfid tag, which may be active or passive and is a data storage, and of the rfid reader that in close 7 management 2014/71 it organization smart technology smart city solution smart city systems city strategic view technology view systems view proximity to the tag induces an electromagnetic field that provides energy for passive tags and enable data reading. the rfid enables a range of applications in smart cities such as tracking of objects, asset management and smart parking. this technology also provides for environment data to be written to the tag and because passive tags are inexpensive and have very low energy consumption being a power only when needed, massive deployment of passive rfid tags can provide for omnipresent sensing in smart cities. figure 2: sensing in smart cities (hancke & hancke jr, 2012, p. 394) in contrast to the rfid technology which provide unidirectional communication, the nfc technology can provide bidirectional communication which is in some scenarios of utmost importance for the implementation of utility and other business related functions in the smart city. the nfc is mostly used in mobile phones and other handheld devices where it provides communication capabilities spanning mini ranges. one important application enabled by the nfc is a digital wallet function of smart phones that allow them to replace credit cards and spark the drive towards cashless societies. the nfc also provides for data sharing among user devices and city infrastructure allowing for extremely precise locating of each person, that makes certain sophisticated city functions possible, smart energy metering intertwined with ‘’pay on the spot where the meter is’’ capabilities and data acquisition and control making user smart phone platforms for advanced measurement and processing of environment and other data. by describing different aspects: technological, economic, organisational, managerial, etc. of smart cities one can determine that the emerging concept is very complex. in order to provide a framework that will be at the same time comprehensive and overarching, capturing all the important aspects of this phenomenon we turn to proposition in (chourabi et al., 2012). figure 3 depicts major factors influencing smart cities that allow for the measurement and comparison of the existing initiatives in this field. we will discuss some of these factors that have not been mentioned so far and that are important in the context of creation of competitive advantages in international business management. economic factors have been major drivers behind smart city initiatives so far. an overall high degree of competitiveness has been a hallmark of smart cities, as well as a key indicator for measuring their success. the emergence of an environment that is favourable for business development and economic growth has been pivotal in the framework of a smart city. business creation, job creation, workforce development and improvements in productivity have all been economic outcomes of smart city initiatives. another important factor in evaluating smart city initiatives have been people and communities of these cities. factors that can be measured and which will be improved by these initiatives include digital divide, participation and public partnerships, education, quality of life and existence of information and community gatekeepers. the policy context is a factor that can be very helpful in the analysis of success of smart city initiatives. policy making plays an important part in the transformation from an ordinary into a smart city. the readiness of institutions to remove legal and regulatory barriers may be 8 2014/71management the smart city smart surveillance smart transportation smart electricity and water distribution smart infrastructures smart services smart buildings smart healthcare crucial for such initiatives, as well as overall interactions of technological, political and institutional components in a city and in its wider environment. closely related to this factor is the one labelled as governance in (chourabi et al., 2012). many elements of this factor influence smart city initiatives including collaboration within the public sector, leadership, data-exchange, accountability and transparency among others. and, finally, managerial and organisational factors have a heavy influence on smart city initiatives. in this area some challenges have been identified: the project size, attitudes and behaviour of managers, organizational diversity, alignment of organisational goals and resistance to change. also, and partly as solutions to these challenges some of the strategies that may be employed to attain a smart city initiative have been pinpointed, such as developing project team skills and expertise, appointing a respected leader in the area of ict related activities, fostering end-user involvement, adequate training for all stakeholders, innovative funding and measurable deliverables. figure 3: smart city framework (chourabi et al., 2012, p. 2294) many examples of successful smarty city initiatives are important from an international business management perspective. helsinki has been successful in implementing public competitions as policy-like instruments. these encouraged the development of a new mobile application using open data and benefiting both to the mobile application cluster members that developed this application, and to the customers using them (hielkema & hongisto, 2013). in thessaloniki, the development of broadband networks, smart urban spaces, web-based applications and e-services helped different city districts to attain their aims in the arenas of competitiveness and sustainable development. this example shows how new orientation in urban governance may help society deal with the challenges of digital literacy, creativity needed for enhancing smart environments and developing business models grounding the sustainability of urban e-services (komninos & tsarchopoulos, 2013). the city of manchester, which has long been considered one of the foremost industrial cities of the first world, had to grapple with high unemployment rates and other consequences of the post industrial era. key stakeholders coming from the public sector, business, education and the community sector of this city, responded to this by implementing ideas that brought about a more inclusive, creative and sustainable city which is also relevant for the further development of international tourism. through the imaginative use of information and communication technologies, commitment to open innovation and the co-production of new and innovative services in public and private collaboration, the citizens of manchester nowadays experience one of the most successful instances of implementation of the smart city concept (carter, 2013). the city of barcelona has been very effective in the implementation of the 9 management 2014/71 people communities natural environment smart city initiative built infrastructure economy governance policy organization technology smart city concept. it is pursuing the goal of achieving a prestigious status of the smart city model for the world. important elements of the strategy to implement the smart city concept in barcelona have been smart districts, living labs, digital initiatives, e-services, smart infrastructures and open data (bakýcý, almirall & wareham, 2013).the european union is allocating immense resources and devoting constant efforts to achieve urban development in the framework of the smart city concept for its metropolitan areas in the conditions of intense global competition. even some smaller cities like krakow and zaragoza have also implemented some elements of the smart city concept in the form of devising numerous sets of digital forms that citizens and foreign tourists can fill and submit online, thus eliminating commuting costs, and reducing costs related to public administration (caragliu, del bo & nijkamp, 2011). 3. the role of creative cities in achieving competitive advantages in international management there is an extremely fierce competition in many industries in the conditions of digital economy (milicevic & ilic, 2011). highly competitive international markets of today are characterised by fast-paced technological advancements, short life cycles of both physical and electronic products, but also by sophistication of demand of individual and business buyers, and also of foreign tourists. in such conditions there is a growing importance of knowledge, information and ideas as resources. smart cities are expected to be general drivers of economies and societies around the globe in the future, with every smart city developing its own special characteristics and sets of traits that allow for sustainable competitiveness. one area that is of special interest in describing the specialization of smart cities is creativity. creativity, the creative class and creative industries represent a hotbed of innovation and influence every human activity. they are especially important as the world goes forth into the second machine age with prospects of leisure time for general population being such that creative industries will become the basic industries in terms of their importance for the long term sustainability of human societies (brynjolfsson & mcafee, 2014). a fine example of importance of creativity in contemporary global economy is the rise of apple inc. that combined distinctive creative features with cutting edge technologies and innovation providing the market with new products and services that were both functional and artistic in their nature and becoming in the process one of the most successful companies of today. in parallel to this, steve jobs, the founder of apple inc., has created another stunningly successful company that is even more obviously in the domain of creative industries, pixar inc. again the combination of technology and creativity, with a much higher dose of creativity in the case of pixar inc., provided for another revolution in movie animation and establishment, in a time span that was shorter than one decade, of the leading company in this creative sector (isaacson, 2011). this proves that creative industries have a unique potential to add the flavour to information and communication technologies that makes them more human and by consequence more economically successful. on the other hand, creativity spurred by technology may provide significant economic results in the shape of successful companies and strong industries that are drivers of growth and innovation in other fields of human activities. clustering of creative activities and companies proved to be of utmost importance for the creative process and overall operations in creative industries. the conceptualization of this phenomenon in the framework of the smart cities leads to the concept of the creative city. in the contemporary global economy, creative cities are often organized around production systems characterized by flexible networks connecting creative companies and flexible labour markets. this provides an essential framework for a high intensity and frequency of information creation, interchange of ideas as well as for frequent experimentation by individual creative companies, in regard to industrial processes and new products and services for the global market. the fluidity of the economies of creative cities means that the companies and the creative workers that make them up are constantly in contact with one another which by itself unleash diverse innovative energies in the creative city and among the creative class (scott, 2006). in order to create a basis for measuring success of a creative city and its achievements a quantitative index has been proposed in (hartley, potts & macdonald, 2012). the creative city index presents a new approach to the measurement and ranking of creative global cities. in its basis there are eight primary dimensions, each with multiple distinct elements. some of these dimensions are measuring the size of creative industries, the scale of cultural amenities, or the flows of creative people and global connectedness. adding to these there are several dimensions that measure the demand side of creative participation, the attention economy, usercreated content, and the productivity of socially networked consumers. the results for 5 global creative cities 10 2014/71management are presented in table 1. one can conclude that in europe the long histories of cities and their central role for the respective national states lasting for centuries still have a great bearing on the success of these cities today, whereas in australia the differences are not as big due to the specific history of development of this country. a basic analysis of these two trends reveals that there are advantages and disadvantages in both situations. a uniform growth of multiple city centres, in the case of australia, provides more advantages for general population of the entire country, but relatively low index results for all australian cities present a threat when considering global competition with other cities around the globe. high index results of european capital cities are a promise for global domination and a basis for the creation of global cultural and economic centres that will be able to foster the development of other cities in their respective countries, but the price for this is relatively low index results in other cities which will leave their citizens behind, for a while at least. table 1: creative city index results for 5 global cities (hartley, potts & macdonald, 2012, p. 18) having these considerations in mind, one can comprehend the importance of existence of a major economic and cultural hub and a huge competitive advantage this provides for the country, the nation and the region in international business, but one also has to bear in mind the responsibilities for the uniform development of all the cities that may provide for equal opportunities for all their citizens. only by balancing investments in human resources and attention of governing bodies and by application of appropriate long term policies will countries and regions be able to make the most of historic heritage of their great cities and at the same time provide equal opportunities for everyone. intelligent cities, another concept related to innovative merging of managerial skills, information and communication technologies and business frameworks, are pertinent for both urban development and management. in the field of contemporary management the intelligent city sustains the globalisation of innovation networks and the consequent opening up of innovation systems on a global scale (komninos, 2009). by bringing together urban resources, innovative organisations and cutting edge technologies, intelligent cities may help internationally oriented companies to deal with the challenges of global competition and foster cities to make a further leap towards the knowledge, innovation and competitive advantage implementation in the global arena. complex relationships between global networks and cities that have been so far by definition local make the essence of the future economic, cultural and business prospects in our interconnected and technology-dependent world. investments in information and communication technologies and the infrastructure built on top of these technologies support the competitiveness of cities and dramatically influence economic development alternatives for individuals and for companies that have international business orientation. the con11 management 2014/71 creative city index brisbane (aus) melbourne (aus) berlin (ger) bremen (ger) cardiff (uk) london (uk) 1. creative industries scale, scope & employment 49.8 54.4 53.4 49.2 51.7 96.6 2. microproductivity 37.0 41.8 56.3 39.2 49.2 83.6 3. attractions & economy of attention 15.7 30.8 54.9 12.6 10.7 97.8 4. participation & expenditure 37.0 41.5 69.5 54.6 37.8 79.8 5. public support 100.0 80.1 77.3 79.3 68.5 94.4 6. human capital & research 41.8 48.9 75.2 54.8 50.2 75.6 7. global integration 40.5 52.2 46.0 28.3 25.4 76.7 8. openness, tolerance & diversity 67.5 76.0 74.0 70.5 63.6 76.5 creative city index 48.7 53.2 63.3 48.6 44.5 85.1 temporary cyberspace age leaves us in doubt whether any of the resources that are controlled by cities are keys to their economic development or just a prerequisite in a need of additional, more global essence. it is increasingly evident that the 21st-century economy is being shaped more by global than by local forces and because of this the local economic development paradigm must be rethought, and that communities taking a new path have a chance of success in a new global economy (blakely, 2001). the concept of the internet of things (iot) is a new vision of overarching communication paradigm involving purposeful communication and bidirectional transfer of data through the internet connectivity among different objects or things in our environment (atzori, iera & morabito, 2010). objects that are nowadays part of the everyday life and common use are becoming or will become in the near future equipped with sensing digital parts, microprocessors and suitable communication protocols, enabling them to be part of digital communication with one another and with the users, which will be of special importance for smart cities as a framework for creating competitive advantages in international business management. in this manner these objects are becoming an integral part of the internet in the same manner the personal computers and other devices have been in the past and will continue to be in the future. the proliferation and omnipresence of the devices that have capabilities to exchange and process data makes the emergence of the internet of things a reality of the second decade of 21st century. today we have sensors and actuators embedded seamlessly with the environment around us, and the information is exchanged and transformed both vertically and horizontally across platforms in order to develop a common digital vision of the environment. ignited by the adaptations of various wireless technologies, such as beforehand mentioned rfid and nfc, the iot has stepped out of its infancy and is becoming the next revolutionary concept in transforming the internet into a fully integrated network, allowing us to have a real time comprehensive digital image of our real world. as we move from web 1.0, characterized by static web pages and email communication, through web 2.0, characterized by social networking, interaction and participation, to the iot or the internet of the future, characterized by ubiquitous, networked sensing and computing, the need for data-ondemand, using sophisticated intuitive queries, increases daily and significantly (gubbi et al., 2013). technologies and scenarios for the applications that make the internet of things a reality gradually mature and become more and more present in the contemporary world allowing for the connectivity and exploitation of millions of devices, making the internet truly ubiquitous, which will be important for international managers in the future. within our grasp today are even such futuristic scenarios in which enablers such as advanced technologies will allow things to evolve and learn from experiences of other things, thus becoming more autonomous, more reliable and smarter (kyriazis & varvarigou, 2013). nevertheless, there still are some technological challenges for those who are implementing the iot. these challenges are about regarding the dependability of technologies used for bringing the architecture of iot to life, both in terms of reliability and availability, since a device failure might put people in danger or result in financial loss (silva et al., 2013). the smart city concept involves reliance on ict and internet connectivity thus making a natural complement with iot implementation. to make a city truly smart one has to have real time data on many things in the city and this is what concept of iot can provide. there are already some services that are functioning and some might be enabled by further implementation of the urban iot paradigm. these services are of high importance in the smart city context because they can at the same time increase the quality and enhance the services offered to the citizens and bring a competitive advantage for the city and score positive economic output for the city administration in terms of reduction of operational costs. some of these services are related to these urban issues: structural health of buildings, waste management, air quality, noise monitoring, traffic congestion, city energy consumption, smart parking and smart lighting (zanella et al., 2014). it is of high importance to early envision the ways in which the smart city framework will enable enterprises to grow and become more innovative. one important aspect of the iot, which is a basic infrastructure of the smart city, as we have seen in previous paragraphs, is that it may allow for major business opportunities to be rooted in the basics of every company operating from a smart city framework. the real-world visibility and the business process decomposition are two business opportunities that may become inherent in operations of companies that use smart cities as a springboard for their international operations (haller, karnouskos & schroth, 2009). the real-world visibility marks business opportunities arising in the use of automation of identification and data collection gathering. this will allow companies to better understand what is really going on in the physical world around them and get a better grip on their operations. effects of this 12 2014/71management 13 management 2014/71 are visible in increased knowledge of real world business performance and precise pinpointing of the status and whereabouts of the assets and products in the supply chain. the deep understanding of the business processes allows a better managerial approach at the operational level and can lead to the optimisation of critical processes. the increased accuracy and timeliness of information about the business processes provides competitive advantages in terms of process optimisation (haller, karnouskos & schroth, 2009). the business process decomposition is another business opportunity provided by a wide implementation of the iot, mostly in the context of the smart city. whereas the real-world visibility is basically about the collection of data on large scale on every aspect of real world important for business operations and fast processing of these data in order to make timely business decisions, the business process decomposition takes this a step further. with the advent of sensing and processing devices and possibilities for them to be embedded and omnipresent, it is not difficult to decompose a business process. the decomposition of the business process provides process steps that are clearly distinctive and some of them may be executed in a distributed manner, even at the edges of the network and on physical items themselves. the physical objects that can be part of execution of a process step of a decomposed business process and have the capacity to process business logic are called smart items. with the rise of sensing and processing capabilities of embedded objects and other physical objects that can be part of both reporting and managerial decision making on the distributed business process steps, more and more instances of such steps will be available to companies in different industries making overall economies of smart cities more efficient. the decomposition of existing business processes and the distributive nature of execution of the resulting process steps can lead to an increase in scalability of overall business operation and achievement of higher performances in comparison with international competitors. further, the distributed nature of business processes can provide for improvements in business decision making and in turn make new revenue streams. the importance of deployment of efficient software tools on smart items in such scenarios is obvious and one can judge on high importance of managerial decisions regarding software development and innovation. references [1] atzori, l., iera, a., & morabito, g. 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(2013). a dependability evaluation tool for the internet of things. computers & electrical engineering, 39(7), 2005-2018. [27] unpd (united nations population division), (2012), world urbanization prospects: the 2011 revision. retrieved april 14, 2014, from [28] http://esa.un.org/unup/pdf/wup2011_highlights.pdf [29] washburn, d., sindhu, u., balaouras, s., dines, r. a., hayes, n. m., & nelson, l. e. (2010). helping cios understand “smart city” initiatives: defining the smart city, its drivers, and the role of the cio. cambridge, ma: forrester research, inc. retrieved april 12, 2014, from [30] http://public.dhe.ibm.com/partnerworld/pub/smb/smarterplanet/forr_help_cios_und_smart_city_initiatives.pdf. [31] zanella, a., bui, n., castellani, a. p., vangelista, l., & zorzi, m. (2014). internet of things for smart cities. ieee internet of things journal. (in print) receieved: april 2014. accepted: may 2014. 14 2014/71management 15 management 2014/71 adam sofronijević university of belgrade, university library svetozar marković sofronijevic@unilib.bg.ac.rs adam sofronijević is a management engineer – master and works at the university library ‘’svetozar marković’’ of the university of belgrade. he has written chapters in several scientific monographs and a large number of scientific and professional papers in the fields of librarianship, management and it in national and international journals. he participates in activities of the association of european research libraries. adam sofronijević has many years of managerial experience in the area of creative industries and digitization. vesna milićević university of belgrade, faculty of organizational sciences milicevic.vesna@fon.bg.ac.rs dr. vesna milićević is professor at the faculty of organizational sciences of the university of belgrade where she teaches at the courses in the areas of economics, management and international business. she is the author or co-author of a number of monographs, textbooks and articles in national and international scientific and professional journals. vesna milićević is an elected member of the scientific society of economists of serbia. she has participated in strategic scientific & research projects and in projects and management training in companies. bojan ilić university of belgrade, faculty of organizational sciences ilic.bojan@fon.bg.ac.rs dr. bojan ilić is professor at the faculty of organizational sciences of the university of belgrade, both an economist and engineer of information systems. he received his msc and phd degrees at the faculty of organizational sciences in belgrade. he is the author of two monographs, the co-author of several books. he has published many scientific and professional papers in the areas of economy, it and management in the country and abroad. bojan ilić is an elected member of the scientific society of economists of serbia. about the author 03_bojana jovanovic:tipska.qxd 25 bojana jovanović1, boris delibašić2 1iritel a.d. belgrade, serbia 2 university of belgrade, faculty of organizational sciences, serbia application of integrated qfd and fuzzy ahp approach in selection of suppliers udc: 005.311.12:519.8 ; 658.7:621.3.04 doi: 10.7595/management.fon.2014.0018 1. introduction and literature review limited business resources and a fierce market competition require quality management which considers stakeholders’ needs. for every production company important stakeholders are suppliers of components embedded in the final product. the selection of suppliers of product components plays a very important role in the realization of the production process. supplier selection is a multi-criteria decision-making problem which often consists of qualitative metrics. many authors presented different approaches in supplier selection. variants of the integrated qfd (quality function deployment) methods (ju & hwang, 2004) have been used in selecting and ranking suppliers. for example, a supplier selection methodology based on qfd and data mining technique has been proposed (ni et al., 2007). many researchers have proposed the introduction of fuzzy numbers in the qfd approach for the supplier selection process (bevilacqua et al., 2006). gencer & gurpinar (2007) proposed a model for usage of an analytic network process (anp) in supplier selection. & (2009) published a paper about the internet service provider selection, using fuzzy numbers in combination with the qfd method. kilincci & onal (2011) presented one supplier selection problem of a washing machine company in turkey that used a fuzzy analytic hierarchy process (ahp) methodology. zouggari & benyoucef (2012) presented an approach for the supplier selection problem, using the fuzzy topsis (technique for order of preference by similarity to ideal solution) technique. many papers present separated integrated fuzzy ahp and fuzzy qfd approaches, but there are only several papers which present integrated qfd and fuzzy ahp approaches as one technique. to the best of our knowledge, no selection of suppliers of electronic components using integrated qfd and fuzzy ahp approaches has been published up to now. one integrated qfd and fuzzy ahp approach and its application is presented in this paper. this is the first application of qfd and fuzzy ahp in a serbian company. the detailed algorithm of application of the proposed approach is given in chapter 3. the proposed approach allows for an integration of requirements of different stakeholders in decision making about the supplier selection. a pilot research is conducted in one company which is a manufacturer of electronic devices. management 2014/72 supplier selection is a widely considered issue in the field of management, especially in quality management. in this paper, in the selection of suppliers of electronic components we used the integrated qfd and fuzzy ahp approaches. the qfd method is used as a tool for translating stakeholder needs into evaluating criteria for suppliers. the fuzzy ahp approach is used as a tool for prioritizing stakeholders, stakeholders’ requirements, evaluating criteria and, finally, for prioritizing suppliers. the paper showcases a case study of implementation of the integrated qfd and fuzzy ahp approaches in the selection of the electronic components supplier in one serbian company that produces electronic devices. also presented is the algorithm of implementation of the proposed approach. to the best of our knowledge, this is the first implementation of the proposed approach in a serbian company. keywords: qfd; fuzzy ahp; fuzzy numbers; supplier selection; stakeholders. the reminder of the paper will be organized as follows. in chapter 2, the qfd method, the fuzzy qfd method and the fuzzy ahp approach, with their applications in available literature are described. in chapter 3, the implemented integrated qdf and fuzzy ahp approaches are described and necessary guidelines for its practical implementation are given. in chapter 4, a case study of implementation of the integrated qfd and fuzzy ahp approach in the selection of the electronic components supplier in one serbian company that produces electronic devices are showcased. in chapter 5, the result analysis, conclusions and future research proposals are described. 2. qfd, fuzzy and ahp approaches the qfd method originated in 1972 in japan, as a methodology for improving products quality in japanese firms (hauser & clausing, 1988). one of the benefits of the qfd method is that it takes into consideration the stakeholders’ needs (akao, 1990). the process of qfd involves the construction of one or more interlinked matrices, ‘‘houses of quality’’ (hoqs). during the qfd process, the determination of the importance weights of stakeholders’ requirements is an essential step ( & , 2003). some authors have integrated qfd with other methods. chen & ngai (2008) proposed a fuzzy-qfd approach. lee et al. (2008) integrated the kano model with the fuzzy mode into the matrix of the qfd. delice & zülal (2009) combined the qfd with an integer linear programming model and the kano model. liang (2010) developed an approach of a fuzzy-qfd. another variant for the integration of the qfd model is the ahp technique. there have been huge efforts to integrate ahp with qfd in order to identify the priority of customer requirements (chuang, 2001; bhattacharya et al., 2005). in recent years, the qfd has been used in different areas. karsak et al. (2002) used the qfd for product planning. luo et al. (2008) used the qfd method for components selection. chaudhuria & bhattacharyya (2009) linked the qfd with the conjoint analysis to determine technical characteristics. chen (2009) integrated the qfd with the process management in product design improvement. deros et al. (2009) proposed a qfd method for measuring the service quality characteristics. chuang at al. (2009) used the qfd method to provide the market trends, competitive and operational strategies. zadeh (1965) introduced the fuzzy set theory to deal with the uncertainty. the motivation for the use of words or sentences rather than numbers is that linguistic characterizations are less specific than numerical ones (zadeh, 1973). the fuzzy logic allows for decision-making with estimated values under incomplete information. the integrated fuzzy qfd approach is used in many different areas, for example, in ensuring reliability in supply chain management (sohn & choi, 2001), in evaluation in building industry (yang et al., 2003), in an industrial company which supplies motors for electronic appliance companies (erol & ferrell, 2003), in ranking the strategic actions of the iran mobile cellular telecommunications (khademi-zare et al., 2010), in routing of shipping investment decisions in crude oil tanker market (celik et al., 2009), in environmental considerations (kuo et al., 2009), in acquiring enterprise software selection requirements (sen & baracli, 2010), in characterizing customers’ rating of extra virgin olive oil (bevilacqua et al., 2012), as a decision support model for licensor selection (wang et al., 2012). the analytic hierarchy process (ahp) has been developed by saaty (1977, 1980). the methodology tradesoff among various qualitative and quantitative factors with a scale called saaty‘s ninepoint scale (saaty, 1980, 1988, 2008). in the research of literature, it is observed that the focus has been on the applications of the integrated ahp rather than the stand-alone ahp. the methods and techniques which are commonly combined with the ahp include mathematical programming, quality function deployment (qfd), meta-heuristics, the swot analysis, and the data envelopment analysis (dea) (, 2008). the fuzzy ahp approach is implemented in many different business areas, such as a strategic analysis of healthcare service quality (buyukozkan et al., 2011), in shipping registry selection in the turkish maritime industry (celik et al., 2009), in prioritization of attributes in target planning for automotive product development (nepal et al., 2010), in evaluating environmental sustainability from the perspective of the “secured by design” scheme (larimian et al., 2013), in work safety evaluation and early warning rating of hot and humid environments (zheng et al., 2012), in the evaluation of recreational fishing (gao & hailu, 2012), in risk assessment of implementing green initiatives in the fashion supply chain (wang et al., 2012), in multi-criteria supplier segmentation (rezaei & ortt, 2013), in the strategic analysis of electronic service quality in healthcare industry (buyukozkan & cifci, 2012), in timetable evaluation (isaai et al., 2011), in managing intellectual capital assets and an application to the ict service industry (calabrese et al., 2013), in prioritizing customer requirements in qfd (kwong & bai, 2006). ho et al. (2012) presented an integrated qfd and fuzzy ahp approach and its application in strategic logistics outsourcing. 26 2014/72management 3. integrated qfd and fuzzy ahp approach the integrated qfd and fuzzy ahp approach which is implemented in this paper includes three “houses of quality” (hoqs), including hoq1 which links company stakeholders with their requirements, hoq2 which relates stakeholder requirements to suppliers evaluating criteria, and hoq3 which benchmarks alternative suppliers with respect to various criteria. each pairwise comparison result in an ahp matrix or hoq is a fuzzy number which possesses the characteristics of a triangular fuzzy membership function (ho et al., 2012). in the case study in this paper, the integrated qfd and fuzzy ahp approach, proposed by ho et al. (2012) and calabrese et al., (2013) is used. we adopted a triangular fuzzy conversation scale proposed by chang (1996), given in table 1. for defuzzification, we used the central deffuzification method. table 1: triangular fuzzy conversation scale (chang, 1996) the numbers used in the comparison scale (given in table 1) have the following meanings: 1 – just equal –both subjects have the same significance 2 – equally important – subject on the left side of the scale is equally important as the subject on the right-hand scale 3 – weakly more important subject on the left side of the scale is weakly more important than the subject on the right-hand scale 4 – moderaterly more important subject on the left side of the scale is moderately more important than the subject on the right-hand scale 5 – strongly more important subject on the left side of the scale is strongly more important than the subject on the right-hand scale 6 – extremely more important subject on the left side of the scale is extremely more important than the subject on the right-hand scale prior to the implementation of the method, ahp questionnaires were prepared. we made a pilot research, using the created ahp questionnaires, with answers in fuzzy numbers. we had four groups of ahp questionnaires (for prioritization of stakeholder importance, for prioritization of stakeholder requirements, for prioritization of evaluating criteria and for prioritization of alternative suppliers). for computing priorities on the basis of questionnaires, a fuzzy ahp is used. all priorities are prescribed in three hoqs. in the first step, the management team establishes the importance of stakeholders in decision-making. after that, each of the stakeholders completed one questionnaire which determined the priority of the stakeholder requirements. afterwards, a team comprised of stakeholders completed one questionnaire, which determined the priority of the criteria for the evaluation of suppliers. and finally, again, the same team consisting of stakeholders, completed one questionnaire, which evaluates suppliers in respect of all criteria. in figure 1 the algorithm of the implemented approach is given. 27 management 2014/72 linguistic scale triangular fuzzy conversation scale triangular fuzzy reciprocal scale just equal (1) (1, 1, 1) (1, 1, 1) equally important (2) (1/2, 1, 3/2) (2/3, 1, 2) weakly more important (3) (1, 3/2, 2) (1/2, 2/3, 1) moderaterly more important (4) (3/2, 2, 5/2) (2/5, 1/2, 2/3) strongly more important (5) (2, 5/2, 3) (1/3, 2/5, 1/2) extremely more important (6) (5/2, 3, 7/2) (2/7, 1/3, 2/5) figure 1: algorithm of integrated qfd and fuzzy ahp approach 4. case study of implementation of integrated qfd and fuzzy ahp approach on selection of electronic components supplier the company that is the subject of our case study is one serbian enterprise that produces electronic devices and has its own research and development institute. the company‘s main business activities are: research & development, design, manufacturing, engineering, consulting, maintenance, technical and customer training. the company is paying great attention to the selection and evaluation of suppliers of electronic components. in accordance with the implemented and certified quality management system, the company has to evaluate potential suppliers. the integrated qfd and fuzzy ahp method allows the company to include stakeholder requirements in the process of evaluation and selection of suppliers. one possible method for evaluation and selection of suppliers of electronic components is proposed. stakeholders who influence the selection of suppliers are: procurement manager, marketing manager, product development manager and production manager. the structure of the ahp model is given in figure 2. identified requirements of stakeholders (conducted brainstorming sessions): • appropriate delivery conditions • possession of certified management systems • guarantees for the execution of delivery and services within the warranty period the authors ho et al. (2012) used the following criteria in evaluating suppliers of third-party logistics services: cost, delivery, flexibility, quality, technology and risk. supplier selection attributes according to ha & krishnan (2008) framework are the following: after sales service, geographical location, product appearance, 28 2014/72management amount of past business, impression, production facilities and capacity, attitude, just-in-time capability, quality, catalogue technology, labour relations, reciprocal arrangements, communication system, maintainability, reputation and position in industry, delivery, management and organization, response to customer request, ease-of-use, operational controls, technical capability, e-commerce capability, packaging ability, technical support, environmentally friendly products, performance history, training aids, financial position, price, warranties and claims. identified criteria for evaluation of suppliers, in accordance with the requirements of stakeholders (conducted brainstorming sessions) are the following: • delivery conditions: delivery time, price, distance of supplier, adaption to customer needs (emergency supplies, smaller lots, etc.), discounts (quantity, loyal customers, etc.). • management systems: courtesy of staff, packaging and transport conditions, previous customer experience, experience in communication with staff, number of certified management systems. • warranties: financial stability, complaints procedure, warranty period. figure 2: fuzzy ahp model: goal, criteria, sub-criteria and alternatives all results obtained in the research are systematizes in three hoqs, shown in table 2, table 3 and table 4. the first hoq (hoq1) represents the stakeholders involved in the selection of suppliers of electronic components, their importance in the process of selection of suppliers and stakeholder requirements. the hoq1 allow us to compute the importance of each stakeholder‘s requirements, which will then be used in the hoq2. table 2: hoq1 – stakeholders and stakeholder‘s requirements 29 management 2014/72 hoq1 im p o rt a n ce o f st a ke h o ld e r a p p ro p ri a te d e liv e ry co n d iti o n s p o ss e ss io n o f ce rt ifi e d m a n a g e m e n t sy st e m s g u a ra n te e s fo r th e e xe cu tio n o f d e liv e ry a n d se rv ic e s w ith in t h e w a rr a n ty p e ri o d procurement manager 0.349 0.319 0.361 0,319 marketing manager 0.206 0.298 0.431 0,27 product development manager 0.222 0.319 0.361 0,319 production manager 0.222 0.42 0.289 0,289 importance of stakeholder requirements: 0.3367 0.3591 0.3019 the second hoq (hoq2) represents the stakeholder requirements, defined at the brainstorming session, their importance for each stakeholder and the criteria for the evaluation of suppliers (defined at the brainstorming session). the hoq2 allow us to compute the importance of each evaluating criteria, which will be used in the next hoq3. table 3: hoq2 – stakeholder‘s requirements and evaluating criteria the third hoq (hoq3) represents evaluating criteria, their importance in the evaluation of suppliers, and the suppliers which will be evaluated. the hoq3 allow us to compute the importance of each supplier. table 4: hoq3 – evaluating criteria and suppliers 30 2014/72management hoq2 im p o rt an ce o f st ak e h o ld e rs ’ re q u ir e m e n ts d e liv e ry t im e p ri ce d is ta n ce o f su p p lie r a d ap ta tio n t o cu st o m e r n e e d s d is co u n ts c o u rt e sy o f s ta ff p ac ka g in g a n d tr an sp o rt co n d iti o n s p re vi o u s cu st o m e r e xp e ri e n ce e xp e ri e n ce in co m m u n ic at io n w ith s ta ff n u m b e r o f ce rt ifi e d m an ag e m e n t sy st e m s f in an ci al s ta b ili ty c o m p la in ts p ro ce d u re w ar ra n ty p e ri o d appropriate delivery conditions 0 .3 3 7 0 .1 9 5 0 .2 4 1 0 .1 5 8 0 .1 7 4 0 .2 3 3 possession of certified management systems 0 .3 5 9 0 .1 5 6 0 .2 2 6 0 .2 3 6 0 .2 0 .1 8 2 guarantees for the execution of delivery and services within the warranty period 0 .3 0 2 0 .2 6 1 0 .3 6 9 0 ,3 6 9 importance of evaluating criteria: 0 .0 6 6 0 .0 8 1 0 .0 5 3 0 .0 5 9 0 .0 7 8 0 .0 5 6 0 .0 8 1 0 .0 8 5 0 .0 7 2 0 .0 6 5 0 .0 7 9 0 .1 1 1 0 .1 1 1 hoq3 im p o rt a n ce o f e va lu a tin g cr ite ri a s u p p lie r 1 s u p p lie r 2 s u p p lie r 3 delivery time 0.066 0.421 0.29 0,29 price 0.081 0.302 0.315 0,384 distance of supplier 0.053 0.37 0.37 0,261 adaptation to customer needs 0.059 0.37 0.261 0,37 discounts 0.079 0.261 0.37 0,37 courtesy of staff 0.056 0.333 0.333 0,333 packaging and transport conditions 0.081 0.34 0.321 0,34 previous customer experience 0.085 0.37 0.261 0,37 experience in communication with staff 0.072 0.368 0.341 0,291 number of certified management systems 0.065 0.228 0.393 0,379 financial stability 0.079 0.333 0.333 0,333 complaints procedure 0.111 0.37 0.261 0,37 warranty period 0.111 0.333 0.333 0,333 importance of suppliers: 0.3376 0.3181 0.3427 after determining all relationship importance, the importance rating of each supplier was computed in the hoq3 as shown in table 4. according to the hoq3, the performance of the supplier 3 is the best, followed by supplier 1 and supplier 2. alternatively, the performance of suppliers can be evaluated with respect to groups of evaluation criteria (delivery conditions, management systems and warranties). result analysis and conclusions in this section, we will benchmark alternative suppliers with respect to groups of evaluating criteria. each group of criteria will be analyzed to understand which supplier is the best in respect of each group of criteria. values of importance of suppliers given in table 5, table 6 and table 7 have been normalized. the first group of criteria is “delivery conditions”, in which there are five criteria as shown in table 5. supplier 3 performs the best in this category because it has discounts for customers, is adaptive to customer needs and offers a competitive price. however, this does not apply to the two criteria, which will lead to a low level of satisfaction because of lengthy delivery time and a large distance of the supplier from the company. table 5: importance of suppliers with respect to group of criteria: delivery conditions the second group of criteria is “management systems”, in which there are five criteria as shown in table 6. supplier 3 performs the best in this category because it has courteous staff, good packaging and transport conditions and previous customers have good experience with this supplier. however, this does not apply to the two criteria, which will lead to a low level of satisfaction because of bad experience in communication with the staff (inefficiency in communication) and a smaller number of certified management systems in comparison with supplier 2. table 6: importance of suppliers with respect to group of criteria: management systems the third group of criteria is “warranties”, in which there are three criteria as shown in table 7. supplier 3 and supplier 2 perform the best in this category because they are financially stable (as other suppliers), have a short and simple procedure for complaints and offer a warranty as other suppliers. 31 management 2014/72 importance of evaluating criteria supplier 1 supplier 2 supplier 3 delivery time 0.066 0.421 0.29 0,29 price 0.081 0.302 0.315 0,384 distance of supplier 0.053 0.37 0.37 0,261 adaption to customer needs 0.059 0.37 0.261 0,37 discounts 0.079 0.261 0.37 0,37 importance of suppliers: 0.11431 0.10889 0.115137 importance of evaluating criteria supplier 1 supplier 2 supplier 3 courtesy of staff 0.056 0.333 0.333 0,333 packaging and transport conditions 0.081 0.34 0.321 0,34 previous customer experience 0.085 0.37 0.261 0,37 experience in communication with staff 0.072 0.368 0.341 0,291 number of certified management systems 0.065 0.228 0.393 0,379 importance of suppliers: 0.11895 0.11693 0.123225 table 7: importance of suppliers with respect to group of criteria: warranties this paper used an integrated qfd and fuzzy ahp approach to measure the performance of suppliers of electronic components, embedded in electronic devices. a case study was presented to demonstrate how this approach can be implemented in the selection of electronic component suppliers. the integrated fuzzy ahp and qfd approach was used to translate the stakeholders’ requirements into 13 evaluation criteria which were used to benchmark the suppliers and to determine the importance and weightings in the hoqs. the integrated approach involves a team of people representing various departments that have a say in the selection of electronic component suppliers: procurements, marketing, product development and production. after the implementation of the proposed approach, we can conclude that the company should select supplier 3, because it has courteous staff, good packaging and transport conditions, previous customers have good experience with this 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(2012). simulation based fuzzy topsis approach for group multi-criteria supplier selection problem, , , pages 507–519, doi: 10.1016/j.engappai.2011.10.012 acknowledgment this paper is part of a project supported by the ministry of education, science and technological development of the republic of serbia, under the title tr 32016 innovative electronic components and systems based on inorganic and organic technologies, embedded in goods and consumer products. receieved: may 2013. accepted : june 2014. 34 2014/72management 35 management 2014/72 about the author bojana jovanović iritel a.d. belgrade, batajnicki put 23, serbia bojana.jovanovic.123@gmail.com bojana jovanović is a phd candidate at the faculty of organizational sciences, department of management, university of belgrade. the author works as a research associate at the institute for telecommunications and electronics iritel a.d. belgrade, as a lecturer at the education center institution and as a consultant at various projects for ce marking of products. boris delibašić university of belgrade, faculty of organizational sciences, serbia boris.delibasic@fon.bg.ac.rs boris delibašić is profesor at the faculty of organizational sciences, university of belgrade. he obtained his phd in 2007 in business decision-making. his main research areas are decision support systems, business intelligence, data mining, and decision theory. # 01 24_1 drazeta:tipska.qxd 1 mirjana joksimović1, ashlee robertson2, borivoje đokić2, lazar dražeta3* 1elementary school “diša durđević”, belgrade, serbia 2keiser university, usa, 3singidunum university, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(1) technology-based professional development: the case of elementary school teachers in belgrade doi: 10.7595/management.fon.2018.0029 abstract: 1. introduction terek, ivanovic, terzic, telek & scepanovic (2015) describe a state of educational reform in serbia, dictated by appointments of new ministers, political climate, and scientific vision. these changes impact training and development of teachers, as methods and tools are in constant state of flux. as with many mandates, innovations such as technology integration go into law, with little focus on how to practically implement into an infrastructure that already exists. in serbia, technology is one of those innovations that has been rapidly introduced into elementary schools, without professional development plans to support teachers in preservice education or classroom practice unfortunately, the truth of the matter as explained by terek et al. (2015) is that higher education institutions have little control over what is taught in pre-service education, so the onus of preparing teachers for new innovations is placed upon in-service training and professional development at the schools. this study seeks to explore and analyze data from elementary school teachers in belgrade, serbia, regarding their experiences and preferences of technology-based professional development, and to provide support and recommendations for school-based training practices. *corresponding author: lazar dražeta, e-mail: ldrazeta@singidunum.ac.rs research question: this paper investigated the correlation between the perceptions of strategies that affect professional development and the obstacles to successful implementation of technology-based professional development. motivation: the research sought to determine elements that make professional development effective in the eyes of teachers, so that they may be more apt to use what they learn in classroom practice. the concept draws upon the tpack framework while discussion and recommendations draw upon the utaut stages that teachers pass through when faced with new innovations. this study looks at the variables of a) time spent teaching, b) level of education, c) knowledge/use of computers, d) class preparation, and e) technology seminars of survey participants, to determine what demographical characteristics may have an impact on certain belief patterns surrounding professional development and technology use. idea: the idea of this study is to look at the effectiveness of professional development to integrate technology into classroom practice and to allow for recommendations for improved technology-based professional development. data: data collected from a paper-based survey was completed by elementary school teachers in the school district of the city of belgrade, serbia. tools: to explore possible correlations and to measure the strength of the relationship between nominal variables in this study, a non-parametric spearman coefficient was used. findings: this study has found that educational experiences and practice using technology do correlate with self-efficacy, willingness to use technology and active resistance of professional development experiences. contribution: the results call for more technology support and communities of collaboration to implement effective professional development and may help educational leaders in serbia to develop effective technology-based professional development programmes. keywords: tpack, preferences, technology, professional development, technology-based training jel classifications: c14, c18, i20, i21, i24, i28, j24, l86 professional development provides the opportunity for teachers to be exposed to, practice, and obtain feedback on professional goals for intended change of pedagogy. it allows pedagogical and content experts to “recognize, accept, adapt, explore, and advance” technologies, hence should be based on teacher needs (ndongfack, 2015a). the idea of pedagogical knowledge was first introduced by shulman (1986), where it was determined that teachers develop a unique knowledge beyond the content areas, and show a development of understanding by learning content in a way that relates to how they are going to teach it. this knowledge includes understanding structure, organization, use, curriculum alignment, and placement of subsequent learning and steps. this study will draw upon an extension of shulman’s (1986) theory, a concept called the tpack framework that includes technological, pedagogical, and content knowledge (mishra & koehler, 2006). this framework describes professional development practices that allow teachers to implement learned skills into the classroom, and is often used to instigate professional development by integrating learning and practice of technology, alongside specific pedagogical and content uses. accordingly, terek et al. (2015) describe an alignment to the tpack framework in that serbian primary teachers are being held accountable for a truly multidisciplinary approach. in this, the knowledge of teachers spans across areas of subject expertise, curriculum and standards, pedagogical expertise, and innovation, research, and social and cultural needs of students. without an all-encompassing framework of training for the purpose of teaching, teachers will falter, and not meet the needs of their students. historically, technology-based professional development trained on what the technology could do, and not necessarily on how to use it in practice, so this framework focuses on what is needed to effectively integrate technology to the classroom (mishra & koehler, 2006; koehler & mishra, 2009). in this framework, it is recommended that technology is used as a platform for professional development so that teachers gain experience with it first. when technology is utilized to implement professional development, this can provide self-confidence and support a higher rate of change (kao, tsai & shih, 2014). effective professional development, according to teachers, is ongoing, addresses specific problems, supports collaboration, allows for lesson planning, and encourages observation and follow-up (ndongfack, 2015a). when teachers buyin, and effectively interpret how technologies can be used to impact the student learning (lochner, conrad & graham, 2015), the effects can be widespread on student and cultural outcomes. variables impacting the adoption, integration, and sustainability of technology are often dependent upon attitudes, mastery, and engagement of stakeholders, which is coined as technology acceptance (davis, 1989). lochner et al. (2015) describe stages that teachers pass through before they truly accept a change: awareness, gathering information, personal impacts, management, consequences, collaboration, and refocusing. teachers move through these stages during technology implementation, often beginning in avoidance, then considering personal impacts, gaining willingness, organizing information for practical application, and then finally, they work through the impacts of use, as they seek support for full implementation. to truly get to adapt and change, the idea of acceptance is important. davis (1989) explored variables that could be measured to predict technology usage. from this groundbreaking study, it was determined that perceived usefulness was correlated with predicted future use, and ease of use was related to perceived usefulness. to avoid helplessness during any of the early stages, professional development should work through the technology processes, and focus on the value of the innovation. in 2003, venkatesh, morris, davis & davis (2003) attempted to unify the wide range of models on technology acceptance, and determined a distinct model called the unified theory of acceptance and use of technology (utaut). this theory describes four areas of acceptance of technology, along with demographical variables that could impact prediction of use. these variables were: performance expectancy, effort expectancy, social influences, facilitating conditions, and variables included age, gender, voluntariness, and experience. the style or circumstances of perceptions of professional development, perceived usefulness, and obstacles for integration of technology into the classroom are essential in understanding implications that impact the transition to use technology in the classroom. matovic and spasenovic (2016) explain that while serbia has paved a path for professional development by requiring teachers to complete 120 points of in-service trainings to keep certifications, the types of in-service trainings are typically left to teachers’ own initiative. the limited structure of professional development and seminar programmes that take too much time and funds, without clear results (terek et al., 2015), could be a barrier to successful implementation. furthermore, matovic and spasenovic (2016) stated that while the attendance to professional seminars has been a popular in-service training, it provides a gap for elementary school teachers who need more in-class practice of strategies. hence, the goal of this research is to look at circumstances in a school district in belgrade, serbia, and to confirm experiences and perceptions of professional development in technology utilization. exploring this information will allow for recommendations for improvement and acceptance of technology-based professional development. 2 mirjana joksimović, ashlee robertson, borivoje đokić, lazar dražeta 2019/24(1) 2. research methodology for this study, a paper-based survey was submitted to teachers that questioned basic demographics, experiences with technology as a teaching tool, professional development experienced, preferences and beliefs regarding professional development, improvement of technology use, and obstacles to successful implementation of technology in the classroom. it included 61 teachers within six elementary schools in the school district of the city of belgrade (municipalities of lazarevac, voždovac, and new belgrade). this exploratory study set out to determine if there were correlations among elements of data related to technology-based professional development and teacher experiences with technology. the following research questions helped guide the exploration of data: is there a correlation between perceptions of strategies that impact professional development and obstacles to successful implementation of technologybased professional development, and a) time spent teaching, b) level of education, c) knowledge/use of computers, d) class preparation, and e) technology base seminars of survey participants? the reliability of the survey was first tested for the groups of independent variables (demographics). then the groups of questions about experiences (dependent variables) were also tested. in both cases, cronbach alpha was used as a measure of reliability (george & mallery, 2007). it showed a high level of reliability (0.803 for independent and 0.923 for dependent variables), meaning that the instrument used provides true representation of the measured sample. 3. results in the total number of participants (n=61), there were 91.8% female teachers, and 8.2% male teachers. this shows that the employees in the field of education in the belgrade school district are mostly female, which coincides with both national (djordjevic, 2017) and worldwide trends (eurostat, 2016; the world bank, 2016). the largest number of participants (41%) have worked as teachers for 8-15 years, the smallest number (1%) worked for 36 or more years. it can be said that most participants were mid-way through the career. the largest number of participants (79%) had a bachelor degree, while the smallest number had associate degrees (3%). the master’s degree is held by 21% of participants. in terms of a teaching field, the largest number of participants were teaching subjects in social sciences (56%), while the smallest group was in the field of arts (3%). to explore possible correlations and to measure the strength of the relationship between variables, a nonparametric spearman coefficient (ρ, greek letter rho) was used. because variables measured in this study were nominal, nonparametric analysis was deemed appropriate. correlation denotes the association between the two variables, so that a negative correlation represents a decrease in perceptions of values of one variable while the other variable increases. in addition, if probability value p < 0.05 were found, it was considered a statistically significant relationship for a given statistical model (tables 1-5). table 1: the impact of years of teaching on given variables source: author’s calculation 3 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) �������� ��������� ������� ������������� ���� � ������� ������ �� ������ ���� � ������� ������ ������ ������������� �� �� ��� ����!�� ������ �� ����"��#��� �������� �� ���� ����� ������� ����!� $� � ���� ��� ���"� ��� ���� ����%�� ����&� $� � ���� ������ ������ ���� ����&�� ���&�� $�� �� ���� � ������ �����" ���� ����&�� ����%� $ �'������� ( � ��� �� ���)�� ���� ������� ������ table 2: the impact of education level on given variables source: author’s calculation table 3: the impact of knowledge of computer programs on given variables source: author’s calculation table 4: the impact of using technology to prepare lessons on given variables source: author’s calculation table 5: the impact of technology based seminars on given variables source: author’s calculation 4. discussion terek et al. (2015) explain that teachers in the beginning of their career have a keen focus on education law, accountability, teaching methods, certification, and student individual needs, and many schools in serbia do not have the professional development capacity to meet the unique needs of beginning teachers, therefore creating a gap in the integration of methods learned directly to the classroom. a needs assessment conducted by terek et al. (2015) on serbian primary teachers highlighted the need for professional development on differentiation strategies, using modern methods in teaching and use of new technologies. these needs open the floor for the following discussion and recommendations. as shown, veteran elementary teachers tend to use technology less, have less confidence, and less willingness to use and collaborate around technology. they are not using social media as often as teachers new to the career (table 1), but when they do, they are likely to use it to exchange content with students as a teaching tool. this may support the use of co-teams of new and veteran teachers to share knowledge, processes and pedagogy when implementing technology into classroom practice. duncombe & armour (2004) agree that collaborative professional learning makes continuing professional development more relevant. when teachers are grouped based on individual experiences and abilities, collaboration can be effective. from the matovic & spasenovic (2016) study, serbian elementary teachers included in the study felt most prepared from professional development when they could corroborate with experts, collaborate with 4 mirjana joksimović, ashlee robertson, borivoje đokić, lazar dražeta 2019/24(1) �������� ��������� ������� ������� � �� �� ����� ��� �� � ����� ����� ���� ��� �������� �� ������� ������� ����� ����� ������� ��� ������� ������ ����� ����� �� �� �� ��� ����� ����� ���! �� ���"����� �� �� �#������ ���$� ����� �������� ��������� ������� �������� ��� ��� ��� ������ ����� ����� �������� ��� ������ ������� ����� ����� ����� ��� � ������ ������� ����� ����� ������� ��������� ��� �� ����� ����� �������� ��������� ������� ������� �� �� � �� ��� �������� ������ ������ ���� �� �� ���������� ������ ������ ��� ������� ��� �� �����! ��"�!� �� ������ ������ #��$��� �����! ��"�!� ��� ����%� ������ �������� ��������� ������� �������� �� ������������������ ������ ������ ���������������������� ����� ������� ������ colleagues, practice concepts in their classroom, and be given up-to-date literature. they did not feel prepared after attending conferences, or taking tours of schools. this request for school-based and taskbased trainings are concepts suggested by the tpack method. veteran teachers tended to have a lower self-efficacy in their technical ability, which can be intensified due to change in educational mandates. as teachers progress through their career, they become less likely to use technology to prepare lessons, and become more resistant to change and collaboration with colleagues around technological skills (table 1). liu, tsai & huang (2015) have found that pre-service teachers typically have more experience than in-service teachers in regard to the use of technology, while teachers later in their career have more experience with content and pedagogy. this shift in skills and expertise may call for a strong mentor programme as part of professional development. for primary school teachers in serbia, there is a system set up for a two-year internship for all new teachers. this programme consists of inductions, exams to obtaining a licance, and being assigned a mentor (terek et al., 2015). the mentor relationship includes sharing duties of student assessment, observation of lessons and lesson plans, and modelling of lessons to offer feedback. the problem is little guidance to this mentor programme, little training for mentors, and little accountability to benchmarks. with the recommendations from the tpack method used, this mentorship programme could be re-invented and focus on professional development needs of elementary school teachers and to innovative approaches to teaching. professional development that utilizes the tpack method of support, collaboration, and practice, could help share upon strengths of teachers in different stages of their career. to move teachers beyond resistance, it is recommended that professional development focus on concerns, and allow teachers to safely practice and integrate with confidence. this is addressed by kannan & narayanan’s (2015) research showing that the variables that had the most impact on teacher satisfaction with utilizing new technology were the effectiveness of the technology on classroom practice and behavioural intention to use the technology; all elements that can be practiced and built. kadijevic, haapasale & hvorecky (2005) conducted a study with elementary math teachers from finland, serbia, and slovakia to study the extent to which integration of technology from professional development was being utilized in class. this study found that the rate of interest in technology was indicative of utilization of the skills, and that interest was primarily influenced by the computer attitude. this lends toward professional development focusing on computer attitude of teachers, and “developing a strong positive relationship with technology” (p. 52). the tpack framework supports this by: a) showing benefits of using technology in professional development (pd), b) allowing self-efficacy to build by practice and demonstration, c) allowing integration of technology into lesson plans, and d) working together to integrate technology into the curriculum by involving participants in true critical thinking (ndongfack, 2015b). as data shows, this supports the notion that participants who develop better knowledge of computer programs through practice, will have more intention and motivation to learn from professional development (table 3). teachers with less practice with technology tend to not want professional development of any form. this active resistance to change could be connected to performance expectancy, which outlines the degree to which someone believes that utilizing technology will help obtain gains in performance or cause struggles in their performance (venkatesh et al., 2003). those with more knowledge or experiences with online seminars tend to want more collaborative experiences, even though they still did not agree that online courses were the best method for professional development (table 5). participants that use technology to prepare lessons believed in online learning for personal benefit, but agreed more in legal regulations regarding teaching, needing further improvement (table 4). even with active experiences in learning online, until those experiences become utilized and comfortable in classroom application, individuals may resist learning in any format. davis (1989), as well as thompson, higgins & howell (1991) suggested that users will be more inclined to accept technology if they find it useful to their job performance. if online seminars are the best professional development approach for a school, it is important to give participants the opportunity to utilize what they are learning in practice, and to clearly identify performance expectancy, in order to gain buy-in and motivation for the innovation. with the application of technology becoming more common, teachers are becoming more open to technology communities, to using technology with students, and to overcoming fear of regulations and change. to impact motivation, it is recommended that leaders use collaboration, safe competition, and positive reinforcement to support teachers in changing their practice. hebib, spasenovic & saljic (2015) explain that serbian elementary school teachers feel that positive feedback through teacher evaluation helps support the growth of teachers. the recommendation of tying pd to the teacher evaluation system could foster a feedback and impact self-efficacy. accordingly, technology readiness and integration is made up of personal dispositions of optimism, innovativeness, perceived lack of control, and distrust. the more this 5 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) professional development focuses on optimism and innovativeness, rather than feed into the inhibitors, the more likely it is that success will be achieved (lin, lin & lee, 2015). teachers who have not had a lot of practice in formal academic experiences could benefit from the use of consistent technology interactions and more time to practice. this concept may refer to the idea of effort expectancy, which is the degree of perceived ease when using new technologies (venkatesh et al., 2003). the results from table 2 show that teachers with more formal education tend to agree that they do not lack motivation to utilize technology, while teachers with less practice may. tondeur, kershaw, vanderlinde & van brak (2013), and murthy, iyer & warriem (2015) explain that collaboration with colleagues can impact effective integration of technology, as when learning technology is left to figure out on their own, this leads to ineffective solutions and isolation. in early stages of technology adoption, if teachers have not had adequate training or believe the benefits of the new technology outweigh the challenges, the expected (or anticipated) effort may become an obstacle (davis, bagozzi & warshaw, 1989). teachers who may not have had formal experiences with technology may become more motivated when working with someone who has, on practical and useful projects. if teachers have low self-efficacy for utilizing technology, this could turn them away from training and cause a feeling of helplessness. according to slaouti & barton (2007), the internet self-efficacy indicates selfperceived confidence, and unsuccessful experiences impact motivation towards future technology use. when teachers have high self-efficacy, they often interact in training, have higher probability of application to the classroom, and have less anxiety about collaboration (kao et al., 2014). the construct of facilitating conditions in pd (constraints) is one that the institution can directly support to eliminate barriers and increase acceptance. in case of older teachers, it was found that facilitating conditions were especially important for increased use (venkatesh & morris, 2000). for teachers struggling, if training is coupled with more technical support focusing on instruction, practice, and safe feedback, teacher confidence may be improved. the pd for struggling teachers should be housed in the school and focus on specific roles to practically and immediately apply what they learn, with support. to improve self-efficacy, teachers need an opportunity to master technology changes so that they can be supported and develop more confidence. it has been documented that teachers’ sense of personal ability determined how they handled the challenge of integrating new technology (cervera & cantabrana, 2015), while perceived self-efficacy and computer anxiety are often predictors of technology use (machado a& chung, 2015). these efficacy issues may impact the teachers’ image or status if they are perceived to be incompetent. social influence is the perception that teachers may have about how they look and whether “important” people believe they should use the new technology (venkatesh et. al, 2003; taylor & todd, 1995). this is impacted by the perception of volunteering to use the innovative strategy, versus being “forced” to use it. educational leaders should be aware that resistant behaviours may show a link to low self-efficacy. active resistance often comes in the form of ignoring resources, mandates, complaining about technical support, etc. these are usually teachers that need more hands on, school-based and supportive professional development, because teachers with a positive perception of improving their own teaching ability, persevere in innovative activities (cervera & cantabrana, 2015). supportive professional development should therefore include: training topics developed from school needs and results, teacher choice in how the innovation is used, technical support for clearer implementation, direct alignment to the teacher assessment system so that feedback and praise can be included, and development of a positive outlook of change within the organizational culture. 6 mirjana joksimović, ashlee robertson, borivoje đokić, lazar dražeta 2019/24(1) with the understanding that teachers in belgrade, serbia, may have limited opportunities for professional development that matches personal and school needs, the following suggestions are recommended for school leaders to implement schoolbased pd opportunities around changing technology innovation and demands. rogers (1962) describes a series of characteristics that support the adoption of new innovations and behaviour within a social system, called the diffusion of innovation. it was determined that individuals who will accept early on, are associated with certain characteristics of a population. it is essential for leaders to determine who will be the ones supporting the innovation, versus the ones that will struggle. after this is determined, rogers (1962) supported a series of factors that leaders can use to limit the obstacles of acceptance including: supporting advantages of the improvement, tying the innovation to the values, mission, and social environment, training to overcome complexities with the technology, allowing for testing and experimenting in a supportive environment, and clearly observing positive results. the failure to apply technology into the classroom once it conclusion references [1] burgoon, j. m., meece, j. l., & granger, n. a. (2012). self-efficacy’s influence on student academic achievement in the medical anatomy curriculum. anatomical sciences education, 5(5), 249-255. doi: 10.1002/ase.1283 [2] cervera, m., & cantabrana, j. (2015). professional development in teacher digital competence and improving school quality from the teachers’ perspective: a case study. new approaches in educational research, 4 (2), 115-122. doi: 10.7821/naer.2015.7.123 [3] davis, f. (1989). perceived usefulness, perceived ease of use, and user acceptance of information technology. mis quarterly, 13(3), 319-340. doi: 10.2307/249008 [4] davis, f., bagozzi, r., & warshaw, p. (1989). user acceptance of computer technology: a comparison of two theoretical models. management science, 35(8), 982-1003. [5] djordjevic v. (2017). feminizacija prosvete. srpski kulturni klub. retrieved from: http://скк.срб/2017/05/30/vladislav-djordjevic-feminizacija-prosvete/ [6] duncombe, r., & armour, k. (2004). collaborative professional learning: from theory to practice. journal of in-service education, 30(1), 141-166. doi: 10.1080/13674580400200230 [7] eurostat (2016). women teachers largely over-represented in primary education in the eu. retrieved from: http://ec.europa.eu/eurostat/documents/2995521/7672738/3-04102016-bp-en.pdf/9f0d2d04211a-487d-87c3-0a5f7d6b22ce [8] george, d., & mallery, p. (2007). spss for windows step by step: a simple guide and reference. pearson, 222-223. [9] hebib, e., spasenovic, v., & saljic, z. (2015). evaluation of school education in serbia. education policy, reforms & school leadership, 198-204. [10] kadijevic, d., haapasale, l., & hvorecky, j. (2005). educational technology standards in professional development of mathematics teachers: an international study. the teaching of mathematics; 8(1), 47-52. [11] kannan, k., & narayanan, k. (2015). a structural equation modelling approach for massive blended synchronous teacher training. educational technology & society, 18 (3), 1 15. [12] kao, c.-p., tsai, c.-c., & shih, m. (2014). development of a survey to measure self-efficacy and attitudes toward web-based professional development among elementary school teachers. educational technology & society, 17 (4), 302–315. [13] koehler; m.j., & mishra, p. (2009). what is technological pedagogical content knowledge? contemporary issues in technology and teacher education, 9(1), 60-70. doi: 10.1177/002205741319300303 7 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) is diffused can be mitigated through the use of the tpack method, where teachers learn to integrate technological knowledge (tk) into their existing pedagogical (pk) and content knowledge (ck), to create understanding and practical application of technology use within their personal teaching methods. based on the data collected, the teacher’s perceptions about using technology in the classroom, support the need for effective professional development. terek at al. (2015) suggest a shortfall in primary school teacher professional development for elementary school teachers in serbia, in that programmes are limited, and are not often based on individual and school needs and innovations. by keeping professional development as a school-focused activity, training can get directly to individual needs and plans. to be considered effective, it is recommended that collaborative professional development experiences be used to integrate technology, and to allow new and veteran teachers to collaborate together (duncombe & armour, 2004; tondeur et al., 2013). furthermore, duncombe & armour (2004) conducted a review of the literature on professional development and collaboration, and offered the most highly researched concepts for collaboration which included mentoring, peer coaching, critical friends, collegiality, observation, and resource sharing. collaboration included through mentors, professional learning communities and observation are best practices that leaders could integrate to increase self-efficacy, and therefore, teacher performance (burgoon, meece & granger, 2012). shea & bidjerano (2010) maintain that providing more opportunity for teachers with varying levels of experiences to work together and to engage with online activities, allows for practice and comfort with new technology. effective professional development allows teachers to access resources and meet individual needs and schedules (ndongfack, 2015a). it is recommended that online professional development sessions are shortened and give teachers the opportunity to use examples from their own teaching domain, to implement strategies first for practice, then to teach strategies for pedagogical uses, to provide opportunities for follow-up (ndongfack, 2015a), and to give practice in both the student and instructor roles of the new technology (murthy et al., 2015). to support the use of the strategies learned, the technology must be readily available to teachers, so they can immediately apply knowledge (shaha, glassett, copas & ellsworth, 2015). depending on teacher experiences, professional development should focus on optimism and minimizing insecurities (lin et al., 2015). this can be done through experience sharing seminars, verbal and written reflections, and ensuring that professional learning contexts and follow up always take place after professional training (prestridge & tondeur, 2015). [14] lin, s., lin, c., & lee, d. (2015). the relationship between elementary school teachers’ technology readiness and intention to use social media platforms for classroom management. international journal of organizational innovation, 8 (1), 48-63. [15] liu, s. h., tsai, h. c., & huang, y. t. (2015). collaborative professional development of mentor teachers and pre-service teachers in relation to technology integration. educational technology & society, 18 (3), 161–172. [16] lochner, b., conrad, r., & graham, e. (2015). secondary teachers’ concerns in adopting learning management systems: a u.s. perspective. techtrends, 59 (5), 62-70. doi: 10.1007/s11528-0150892-4 [17] machado, l., & chung, c. (2015). integrating technology: the principals’ role and effect. international education studies, 8 (5), 43-53. doi: 10.5539/ies.v8n5p43 [18] matovic, n., & spasenovic, v. 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(2015). exploring elements that support teachers engagement in online professional development. education sciences, 5, 199-219. doi: 10.3390/educsci5030199 [24] rogers, e. (1962). diffusion of innovations. new york, ny: free press. [25] shaha, s., glassett, k., copas, a., & ellsworth, h. (2015). title i schools: the student-based impact of online, on-demand professional development on educators. contemporary issues in education research, 8 (4), 227-234. [26] shea, p., & bidjerano, t. (2010). learning presence: towards a theory of self-efficacy, self regulation, and the development of a communities of inquiry in online and blended learning environments. computers & education, 55(4),1721-1731. doi: 10.1016/j.compedu.2010.07.017 [27] shulman, l. (1986). those who understand: knowledge growth in teaching. educational researcher, 15, 4-14. doi: 10.3102/0013189x015002004 [28] slaouti, d., & barton, a. (2007). opportunities for practice and development: newly qualified teachers and the use of information and communications technologies in teaching foreign languages in english secondary school contexts. journal of in-service education, 33(4),405-424. doi: 10.1080/13674580701687807 [29] taylor, s., & todd, p. (1995). assessing it usage: the role of prior experience. mis quarterly, 19, 561570. doi: 10.2307/249633 [30] terek, l, ivanovic, a., terzic, i, telek, k., & scepanovic, n. (2015). professional development for programs as a support for teachers at the beginning of their career. croatian journal of education; 17(2),137-158. doi: 10.3102/0013189x015002004 [31] the world bank (2016). primary education teachers, % female. unesco institute for statistics. retrieved from: https://data.worldbank.org/indicator/se.prm.tchr.fe.zs [32] thompson, r., higgins, c., & howell, j. (1991). personal computing: toward a conceptual model of utilization. mis quarterly, 15, 124-143. doi: 10.2307/249443 [33] tondeur, j., kershaw, l. h., vanderlinde, r. r., & van braak, j. (2013). getting inside the black box of technology integration in education: teachers’ stimulated recall of classroom observations. australasian journal of educational technology, 29(3), 434-449. doi: 10.14742/ajet.16 [34] venkatesh, v., morris, m., davis, g., & davis, f. (2003). user acceptance of information technology: toward a unified view. mis quarterly, 27(3), 425-478. doi: 10.2307/30036540 [35] venkatesh, v., & morris, m. (2000). why don’t men ever stop to ask for directions? gender, social influence, and their role in technology acceptance and usage behavior. mis quarterly, 24(1), 115-139. doi: 10.2307/3250981 received: 2018-03-24 revisions requested: 2018-05-11 revised: 2018-09-06 accepted: 2018-10-08 8 mirjana joksimović, ashlee robertson, borivoje đokić, lazar dražeta 2019/24(1) 9 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) mirjana joksimović elementary school “diša đurđević“, vreoci-lazarevac, serbia ivajoks@gmail.com mirjana joksimović, msc, is the principal of elementary school “diša đurđević“. she graduated from the faculty of pedagogy for teacher education, university of belgrade, and completed her master’s degree in engineering management program at the singidunum university. under the auspices of the ministry of education, science and technological development of the republic of serbia, she has been engaged in the training programme and obtained a license to work as the principal of the school. she is currently engaged in mentoring and human development program in the school, as a part of tempus program on leadership in education. ashlee robertson keiser university, education faculty, usa arobertson@keiseruniversity.edy ashlee robertson, phd, is a graduate school professor at keiser university in florida, usa, for the phd education departments of educational leadership, curriculum and instruction and instructional design. her phd is in curriculum and instruction, and her professional expertise and experience is in k-12 teaching, school administration and instructional design. borivoje đokić keiser university, business faculty, usa bdjokic@keiseruniversity.edy borivoje đokić, phd, is a graduate school professor at keiser university in florida, usa, for the mba and dba programmes of business department, areas of quantitative analysis and business research methods. his professional expertise includes performing applied research at the university of miami, school of medicine and computer and biostatistics support for the department of pediatrics of university of miami, school of medicine. lazar dražeta singidunum university, serbia ldrazeta@singidunum.ac.rs lazar dražeta, phd, works as assistant professor and coordinator of the singidunum university institute. he is involved in teaching at bachelor and master programmes as well as business consulting in the area of human resource management. his previous work experience includes a number of corporate sales and human resource functions, both in serbia and overseas. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05 mihailo stupar:tipska.qxd 47 mihailo stupar, pavle milošević, bratislav petrović university of belgrade, faculty of organizational sciences, serbia udc: 005:519.8 510.644 a fuzzy logic-based system for enhancing scrum method doi: 10.7595/management.fon.2017.0007 1. introduction agile methodologies provide a structure and a set of principles for collaborative software development. they were created in the 1990s as a reaction to the deficiency of strictly panned projects, where the top-down approach is assumed. they are focused on activities that directly add values to the product and make a customer more satisfied (fowler& highsmith, 2001, dingsoyr et al., 2012) in the majority of agile development methods, product development is divided into small increments that minimize the amount of up-front planning and design. each iteration must deliver some meaningful unit and bring benefits to the product itself, with each iteration having its own development phase. each iteration consists of planning, development, testing and documentation phase (nerur et al., 2005). the order of these phases is irrelevant and they can be developed in parallel, because the only important thing is to have small pieces of a unit completed upon the end of a single iteration. we can find the same phases in the classical waterfall methodology, but they need to be executed in an explicit order and the customer’s first encounter with the product is only after the development phase, which is probably somewhere close to the end of the project. the main benefits and limitations of agile methods are identified and analysed in the literature (dyba&dingsoyr, 2008). scrum is a very popular agile methodology within the software and product development. scrum is ideal for projects with aggressive deadlines, complex requirements, and a significant degree of uniqueness (almmanagement: journal of sustainable business and management solutions in emerging economies 2017/22(1) abstract: in this paper, we propose a decision support system for enhancing scrum methodology based on fuzzy logic. scrum is a very popular agile methodology within the software and product development. in the basic scrum, requirements that describe a certain task do not have a clear interpretation. also, the traditional model does not take into account the experience of the developers nor the logical dependencies of input variables. fuzzy inference is particularly useful for this purpose, because it incorporates logic in inference process and inputs are presented using linguistic quantifiers. the proposed system consists of three main components: a fuzzy inference system, an aggregation operator and a feedback function. the aggregation function is used to aggregate task predictions in a single value that uniquely represent a specific task, while a feedback is employed to adjust an input variable to improve system performance. furthermore, the proposed system is simulated with randomly generated inputs in order to analyse its behaviour. the predictions of the system are more accurate and with smaller deviation in the final iterations. keywords: scrum methodology, decision support system, fuzzy inference system, aggregation operator, feedback function jel classification: c63, d81, l86 corresponding author: pavle milošević, e-mail: pavle.milosevic@fon.bg.ac.rs seidin et al., 2015). although development teams are nowadays often distributed all over the world, this methodology is still used to run projects (sutherland et al., 2007). in scrum, projects move forward through the series of iterations called sprints, and each sprint is typically two to four weeks long. at the start of each sprint, a whole team of developers has a meeting, i.e., sprint planning meeting, where they decide which tasks should be included in the following sprint. they have a list of features and/or tasks made by experts that should be implemented by the end of the project. these requirements are collected in the product backlog (duchting et al., 2007). team members estimate the completion time for each task. here, they use story points, i.e., weights, as estimation measure (cho, 2008). the number of story points contained within a sprint is well known, however, the number of tasks included in the sprint depends on the developers’ estimation on how difficult each task is. in the sprint planning meeting, they negotiate the value of the tasks and how many tasks from the product backlog will be included. they all give a value (weight) to each task independently. later, the manager, i.e., scrum master, decides (with the agreement of the whole team) how many story points each task is actually worth based on the weights of each task. although the scrum methodology is successfully applied in various fields, there are certain issues that should be addressed with regards to the story point estimation. developers often think that the number of story points for each task corresponds to the number of hours/days needed to complete this task. the first assumption about the concept of story points is that they are relative in nature (coelho&basu, 2012). looking at the values one will be able to compare tasks based on story points without expressing these values in terms of how many hours/days would be needed to complete these tasks. another issue is related to the experience of developers. some developers are experienced and tasks are often too easy for them, while others might not be that good at estimation. for example, they often undervalue some tasks giving them smaller weights. furthermore, the scrum master has a difficult task of aggregating all assessments into an appropriate value of story points. the problems regarding scrum and other agile methodologies are interesting for both researchers and practitioners. the problems are usually solved by introducing some soft computing method, e.g., fuzzy logic, genetic or evolutionary algorithms or neural networks, to support or optimize the decision-making process. bayesian networks were proposed as a tool for problem detection in a process of development scrumbased software projects (perkusich et al., 2015). chaves-gonzález et al. (2015) were dealing with the next release problem in software development using a multiobjective swarm intelligence evolutionary algorithm. mukker et al. (2014) aimed to enhance the quality of scrum-based software products by optimizing their performance. beikkhakhian et al. (2015) proposed a three-component system that consists of fuzzy hierarchical analysis method, topsis and ahp method, and is used for ranking suppliers in agile supplier selection problem. luo et al. (2009) developed a model based on radial basis function artificial neural network to support supplier selection decision-making process in agile supplier chains. promethee and ahp are used for the selection of the optimal agile software development method (sharma&bawa, 2016), while fuzzy logic is used for selection of an appropriate software development life cycle (ozturk, 2013). in this paper, we aim to propose a decision support system based on fuzzy logic that deals with the main problems in scrum methodology. a scrum master needs to think about all parameters and their logical dependencies when deciding on the final value of story points for each task. since fuzzy logic is a useful tool to deal with problems that include imprecise and vague data (lin et al., 2006), it is ideal to be used for this purpose. the proposed fuzzy logic-based system can enhance efficiency in scrum planning phase. the developers’ task estimation and the scrum master’s knowledge are inputs in the system, while the output is weight (story point value) of the observed task. in this way, we aim to accelerate the decision-making process in the scrum, reduce subjectivity of developers and the scrum master and include dependencies of variables using logic-based rules. the system is dynamic since it utilizes a feedback function in each iteration to assess accuracy of developers’ predictions in order to give a more precise prediction over time. this paper is structured as follows. in section 2 the basic concepts of fuzzy logic and fis are given. further, we provide a brief overview of the applications of fuzzy logic within the scrum methodology. in section 3 we introduce our fuzzy logic-based system and its components: fis, an aggregation operator and a feedback function that should improve the accuracy of the system. we create and present a simulation of the proposed system in section 4. finally, the main conclusions and ideas for further research are listed in section 5. 48 mihailo stupar, pavle milošević, bratislav petrović 2017/22(1) 2. fuzzy logic fuzzy logic is a generalization of classical logic in a sense that it can process all values from the interval [0,1] (zadeh, 1996,zadeh, 2008). it may be seen as an attempt to formalize human capability to reason and make rational decisions in an environment of imprecision and uncertainty. fuzzy logic is based on the fuzzy set theory (zadeh, 1965). fuzzy sets generalize classical sets, since bivalent membership functions of classical sets are special cases of the membership functions of fuzzy sets, i.e., the membership functions of fuzzy sets take values from the whole unit [0,1] interval. the most common fuzzy membership functions are triangular-shaped (characterized with three values representing its vertices), trapezoidal-shaped (characterized with four values representing its vertices), pi-shaped (characterized by four values where the fist and the last are locating “feet” of the curve, while the others locate its “shoulders”), s-shaped, z-shaped, bell-shaped functions, etc. the fuzzy membership functions are used for fuzzification, the process of transformation continues variables to [0,1] interval. the inverse process is called defuzzification. the most popular defuzzification methods (runkler, 1997) are the centre of gravity, bisector of area, etc. in the fuzzy logic/fuzzy set theory, operators of conjunction/intersection and disjunction/union are realized using different functions that are referred to as t-norms and t-conorms (or s-norms), respectively. the min operator is the standard choice for fuzzy intersection, while algebraic product and lukasiewicz norm are also frequently used (klement et al., 2004). the max operator, probabilistic sum and lukasiewiczt-conorm are the corresponding as t-conorms. the most common negation operator in fuzzy logic is a standard fuzzy negation . 2.1 fuzzy inference system a fuzzy inference system (fis) is a system based on fuzzy logic that utilizes a set of rules to map inputs to outputs. it is the most frequently used fuzzy-based technique, applied in different areas such as finance (yunusoglu&selim, 2013; chourmouziadis&chatzoglou, 2016), medicine (marzuki et al., 2014; dragovic et al., 2015), risk assessment (camastra et al., 2015, pamučar et al., 2016), etc. fiss are particularly useful in problems where inputs, i.e., fuzzy sets, are expressed as linguistic expressions such as easy, not-that-hard, extremely hard, etc. just like an algebraic variable takes numbers as values, a linguistic variable takes words or sentences as values. thus, fuzzy inference systems are operating similarly to human perception and they are easy to interpret and analyse. furthermore, the modelling using fis is significantly simpler in comparison with classical modelling techniques. the fis is based on if-then rules, fuzzy conditional statements that incorporate logic. they are a collection of linguistic statements that describe how the fis should make a decision. the if part is a logical condition that should be fulfilled in order that the then part be realized. if-then rules are commonly specified by a field expert, although they can also be learned from the existing data (jang, 1993). two most important types of the fis are mamdani (mamdani, 1977) and takagi–sugeno (takagi &sugeno, 1985). in the mamdani system, both inputs and outputs are presented as fuzzy sets, so these systems are very easy to interpret. in the takagi– takagi–sugeno system, inputs are fuzzy sets, while the output is a linear combination of its inputs. this type of fis is a more accurate one, but also more computationally expensive and not so close to human perception. after the process of modelling, i.e., modelling inputs/outputs using fuzzy membership functions and determining a set of if-then rules, the fuzzy inference process consists of four crucial steps: fuzzification, rule evaluation, aggregation and defuzzification. the first step in fuzzy inference is to convert linguistic expressions to values on the unit interval [0,1] using previously defined input membership functions. further, fuzzy rules are evaluated using chosen operators for t-norm, t-conorm and fuzzy negation. results of all if-then rules are aggregated into a single fuzzy set. finally, defuzzification is applied to convert a fuzzy set into a crisp value, representing the final output. 2.2 fuzzy logic in the scrum methodology fuzzy logic proved to be particularly useful for building an expert system based on logical dependent variables. it is especially suitable when inputs are expressed as linguistic statements. due to its characteristics, fuzzy logic seems to be an appropriate tool for enhancing scrum methodology. 49 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) sedehi and martano (2012) introduced a new model based on fuzzy logic that is used to evaluate and monitor scrum projects. their model has linguistic variables as inputs while output is the level of success of the (part of) scrum project. mohammed and darwish (2016) aimed to overcome unclear and ambiguous indicators of agility evaluation using fuzzy logic in order to develop a framework for calculating success metrics of agile software projects. colomo-palacios et al. (2012) developed a fuzzy logic-based recommender system for supporting the development process in scrum environments and helping to form the most suitable team for different tasks. bach-dabrowska and wojnar (2013) used fuzzy logic and role patterns to improve candidate assessment and selection process for agile it project teams. fuzzy logic is also used for effort estimation accuracy by using trapezoidal membership functions (raslan et al., 2015). kurian et al. (2007) created sugeno based fuzzy model that should determine and react to changes in an agile process, such as product/software development process. a similar approach can be found in lin et al. (2006), where they used mamdani based model to register changes in the enterprise world. 3. design of fuzzy expert system the goal of this paper is to build a fuzzy decision support system that can be a valuable or even a complete replace an expert (scrum master) during the sprint planning phase. the rules that scrum master follows in the decision-making process can be easily expressed linguistically, so the fuzzy logic system is suitable when dealing with this kind of problem (lin et al., 2006). the proposed system consists of three components: a fuzzy inference system, an aggregation function and a feedback function. fis is used to model inputs and asses output for each developer. further, estimated scores for each developer are aggregated using a suitable function. the proposed system is dynamic and experts’ knowledge is used only in the first iteration in order to set up initial parameters. in further iterations a feedback function is used to control system. 3.1 fuzzy inference system our fuzzy logic system has three input variables that describe the experience of developers, their estimation skills and their rating for the observed task. the output is a value (story point value) of the observed task. in case of the experience (exp) input variable, every developer has a specific status in the company, which is based on their years of experience. instead of using four groups (junior, intermediate, senior, and expert), which is common in literature (orlowskiet al., 2006), we decided to exclude the expert group from our system. experts are usually project leaders and they define tasks that need to be done instead of implementing them. so, our exp variable consists of three membership functions, each one representing one level of experience. every membership function in this paper is a pi-shaped function defined by four parameters. these parameters are specified by an expert using the fuzzy visualization tool in matlab (sivanandam et al., 2007). parameters for every membership function for exp variable are shown in table 1. values represent the years of experience and they are comma separated. table 1: membership function parameters for exp variable the second input variable describes an accuracy/quality of developer’s estimation on how much a specific task is complex (est). this variable may be of great importance for the inference process, since some developers constantly miscalculate the task complexity. it is linguistic in nature and represented by three membership functions: overestimated, well estimated, and underestimated, while the assessments are in the interval [1,7]. membership functions’ parameters are shown in table 2. bearing in mind that the accuracy of each developer’s estimation may vary over time, est values should be adjusted after each iteration. the proposed system has a sort of feedback at the end of each iteration, which improves the validity of est variable. a detailed explanation of feedback function will be given later in the text. 50 mihailo stupar, pavle milošević, bratislav petrović 2017/22(1) variable type values of parameters junior pi shaped 0.00. 0,00, 1.20, 2.65 intermediate pi shaped 1.50, 2.70, 3.70, 5.05 senior pi shaped 3.60, 5.20, 6.25, 8.15 table 2: membership function parameters for est variable finally, the third input variable is a weight/rating that the developer gives to each task (wei). although human expression can be interpreted with 9 linguistic terms (lin et al., 2006), in agreement with the scrum master, we decided to represent this variable with three values (easy, medium, heavy) while the experts’ assessments are on the interval [1,7]. this task weight representation is intuitive, close to human perception and based on natural language. all these variables are pi-shaped as well, and their parameters are represented in table 3. table 3: membership function parameters for wei variable the output of the fuzzy system is a numeric value that represents the weight of the task in terms of story points, and all values are split into four groups: easy, medium, complex, and very complex. although the valid story point values in basic scrum methodology belong to modified fibonacci array (1/2, 1, 2, 3, 5, 8…), we decided to represent the output using a uniform distribution. if we used the fibonacci array, we would have a very small difference between easy and medium group and a large gap between complex and very complex groups (see table 4). as a result, the tasks would be weighted as a complex or very complex with high probability. table 4: story point distribution using fibonacci array it is obvious that this distribution cannot give useful results because the fuzzy system threatens all membership functions equally and very complex membership function takes almost half of the output interval. so, instead of using these values, the parameters of output membership functions are rescaled according to scrum master suggestions (table 5). table 5: output membership functions’ parameters using these inputs and the output, we created a set of rules for our fuzzy system. we follow the scrum master’s thoughts and recommendations during the scrum planning phase. this phase is interactive and this person leads it with their suggestions. these pieces of advice are transformed into the following set of rules: 1. if (est = well estimated) and (exp is not junior) and (wei is easy) then (out is easy) 2. if (est = overestimated) and (wei is not easy) then (out is easy) 3. if (est = underestimated) and (exp is not senior) and (wei is easy) then (out is medium) 4. if (est = overestimated) and (wei is not easy) then (out is medium) 5. if (est = overestimated) and (exp is not senior) and (wei is heavy) then (out is complex) 6. if (est = underestimated) and (exp is not junior) and (wei is heavy) then (out is complex) 7. if (est = well estimated) and (exp is not junior) and (wei is heavy) then (out is very complex) 8. if (est = underestimated) and (wei is not easy) then (out is very complex) 51 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) variable type values of parameters overestimated pi shaped 0.00, 0.00, 1.85, 3.45 well estimated pi shaped 2.05, 3.25, 4.60, 6.00 underestimated pi shaped 4.50, 6.30, 7.30, 9.70 variable type values of parameters easy pi shaped 0.00, 0.00, 1.75, 3.55 medium pi shaped 1.95, 3.35, 4.50, 5.95 heavy pi shaped 4.65, 6.15, 7.25, 9.15 group name values easy 1/2, 1, 2 medium 3, 5, 8 complex 13, 21, 34 very complex 55, 89 group name type values of parameters easy pi shaped 0.00, 0.00, 2.70, 15.55 medium pi shaped 3.55, 10.90, 16.05, 25.35 complex pi shaped 16.80, 23.95, 30.00, 38.80 very complex pi shaped 28.00, 40.00, 50.00, 55.00 the proposed fis is mamdani-type. this type of fis ensures the necessary transparency of the decisionmaking process. the conjunction operator is evaluated using min function, the disjunction operator is evaluated using max function and in the defuzzification process we used the centre of gravity (centroid) method. in figure 1, it is shown how out values change for different exp and est values and a constant wei value. if a developer is a good estimator (est value is close to 4), the out value is high (since wei is high), except in case of inexperienced developers (exp < 2). since inexperienced developers do not yet have sufficient knowledge, they may perceive medium tasks as difficult ones. on the other hand, the developers who usually overestimate their tasks have out values smaller than predicted (about 2). figure 1: output values for wei=6 3.2 aggregation function each developer has its own input vector and fis generates a separate output for each task. in other words, for each task we get as many outputs as there are developers in our system. in the second layer, we aim to aggregate these predictions in a single value that uniquely represents a specific task. since characteristics of each developer are taken into account in fis, all fis output values should be treated equally. therefore, we propose a simple average as the aggregation function. the scrum master’s insights regarding a certain team and/or a project may be expressed by using various aggregation functions in this layer. for example, if the optimistic estimation is needed, the proper aggregation function is the max function. for calculating pessimistic estimation, the min function should be used. in order to model complex relations and logical dependencies of variables, more advance aggregation functions such as owa operator (yager, 1988) or logical aggregation (radojevic, 2008) may be used. 3.3 feedback the third and very important layer is a feedback function which is represented in figure 2. at the end of each iteration/sprint, we can see how difficult each task was, represented by real_out value. using this real_out and estimated_out values for the ith sprint, we can update the est value for each developer in the (i+1)th sprint. for example, let us assume that the developer d is a good estimator and he states that the task t is a heavy one (wei). after the sprint, if the task t turned out to be easy in general (real_out), the developer d should not be regarded as a good estimator in the next iteration. the feedback is realized as the quadratic function of the difference between the real and the estimated difficulty. the function is weighted in order to get a weaker slope of the function. using this function, we will award or penalize a developer est value, depending on their good or bad estimation. 52 mihailo stupar, pavle milošević, bratislav petrović 2017/22(1) figure 2: design of the fuzzy expert system using this set of rules and a feedback function, the system should improve itself over time and become stable after a few sprints. furthermore, we can assess developers’ estimations in order to analyse their tendency to overestimate or underestimate the task over a period of time. at the beginning, we can assume that all developers are good estimators, and by the end of the project, we will see how good they actually are. these trained values should be starting points in the next project, so we could expect better results from the start. 4. experiment in this section we present the simulation in order to illustrate how the proposed system works. we will simulate the work on the project that consists of two sprints with six tasks. five experts with various levels of experience participated in the project. first, the initial values of the estimation accuracy est and experience exp variables for each developer are assigned. further, we assign output values real_out for each task in one sprint. real_out represents the actual complexity of the task that includes both objective circumstances and a human factor. on the other hand, it will also be used as a base for wei value calculation in this simulation. we are going to use these output values in order to find out the mean squared error of each task in the estimation process. est, exp and real_out values are taken from a uniform distribution. finally, the weight/rating that the developer gives to each task wei is calculated based on est and out values. wei value calculation. values of variable wei cannot be randomly generated because they depend on characteristics of the tasks (summarized in real_out) and the accuracy of developers’ estimations (explained with est). however, we calculate wei in such a way that it resembles developers’ evaluation. (1) (2) uniformly disturbed on the interval [1,7], so in our case center_est is 4. further, wei value is calculated using the formula (2). the value of coefficient c is obtained through testing and set to 0.35. fis evaluation. next, we use est, exp and wei as inputs for our fuzzy inference system in order to get estimated_out as output. we are going to get as many estimated_out values for a single task as we have developers on the project. note that in the first iteration we use init_est value for est variable. in further iterations, est values are going to be calculated with feedback function. est value improvement using feedback. after each iteration, est value is updated in accordance with the prediction accuracy. thus, the adaptability of the system and its robustness to changes are ensured. (3) (4) (5) 53 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) 54 in the equation (3), we calculate the difference between the predicted and the real output weights. later, we use a weighted quadratic function (4) to calculate the value which will be added to the est value from the previous iteration (5). the value of weighting coefficient w is set to 0.05. the evaluation of the system. instead of evaluating our system as a set of iterations (sedehi and martano, 2012), we will utilize the difference between the aggregated estimated and actual output ( fin_out) and mean squared error (mse) for each task as performance measures. we use estimated_out values from each developer and aggregate them using the average function into estimated_out_avg. this value will be compared to the real_out value to obtain the difference between the estimated and the actual outputs. mse is used as a deviation indicator of individual prediction estimated_out. first, we calculate the mean squared error for each developer separately and then apply the average function to them to get a single mse. this value can show how stable our system is. table 6: mse for sprint 1 table 7: mse for sprint 2 in tables 6 and 7, the results for two sprints are presented together with fin_out and mse. in general, the average accuracy of prediction in sprint 2 is increased compared to sprint 1, while the mse value is notably decreased. based on mse values, we can see that our system becomes more and more stable over time. in the beginning, even in cases when it produced a good prediction of the task complexity, i.e., for task 2 in sprint 1, it had high deviation of individual assessments. for sprint 2, mse values are significantly lower. therefore, we can state that besides greater estimation accuracy, the proposed fuzzy logic-base system improves the stability of individual assessments. mihailo stupar, pavle milošević, bratislav petrović 2017/22(1) task estimated_out_avg real_out fin_out mse 1 3.8620 4 0.138 3.8765 2 5.1015 5 0.1015 8.8885 3 0.8593 2 1.1407 1.3015 4 1.1220 3 1.878 3.5324 5 0.8551 2 1.1449 1.3111 6 1.1198 3 1.8802 3.5687 average 1.0472 3.7465 task estimated_out_avg real_out fin_out mse 1 3.9489 4 0.0511 1.6600 2 1.2121 3 1.7879 3.2835 3 0.8594 2 1.1406 1.3013 4 1.8630 2 0.137 0.2163 5 4.3738 4 0.3738 3.2725 6 1.1049 1 0.1049 0.1093 average 0.5992 1.6405 conclusion and future work fuzzy logic has been widely used to assist decision-makers in a number of different domains. in this paper, it is utilized as a basis for building a decision support system to determine the weight of the tasks in agile methodology such as scrum. the system consists of three modules: a fuzzy inference system, an aggregation operator and a feedback function. we consider that there is no need to use unique, predefined values for estimation in the scrum (such as fibonacci series), but that we can efficiently use linguistic variables to achieve the same goal. using the proposed fuzzy inference systems, we enhance each developer’s story point estimation in accordance with their experience and previous prediction accuracy. the knowledge of the scrum master is transformed to fuzzy rules that are easy to interpret and fully resemble human reasoning. the output variables are further aggregated in a final estimation using a simple average. the feedback is applied to update the variable that represents each developer’s quality estimation in order to increase adaptability to changes and poor assessments. we have simulated the proposed system and showed that it becomes more accurate over time and gives better predictions of the tasks. references [1] almseidin, m., alrfou, k., alnidami n., &tarawneh a. 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(2008). is there a need for fuzzy logic?.information sciences, 178(13), 2751-2779. doi:10.1016/j.ins.2008.02.012 (received/accepted ) (february 2017 / april 2017) mihailo stupar, pavle milošević, bratislav petrović 2017/22(1) 57 about the author mihailo stupar university of belgrade, faculty of organizational sciences mihailo stupar is an associate developer at msg global solutions and a master of science student at the university of belgrade, faculty of organizational sciences. his major professional interests include data analysis, machine learning, cloud computing and software development. pavle milošević university of belgrade, faculty of organizational sciences pavle milošević is a teaching associate and a phd student at the university of belgrade, faculty of organizational sciences. his major professional interests include: fuzzy logic, intuitionistic fuzzy sets, system theory, machine learning, metaheuristics and time series analysis. bratislav petrović university of belgrade, faculty of organizational sciences bratislav petrović is a full professor at the university of belgrade, faculty of organizational sciences. his major professional interests include: system theory, bilinear control systems, optimal control, nuclear medicine, soft computing and artificial intelligence. management: journal of sustainable business and management solutions in emerging economies 2017/22(1) journal of sustainable business and management solutions in emerging economies 58 << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /none /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /error /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 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can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /converttocmyk /destinationprofilename () /destinationprofileselector /documentcmyk /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure false /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles false /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /documentcmyk /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /usedocumentprofile /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [612.000 792.000] >> setpagedevice 06_vesna damnjanovic:tipska.qxd 61 vesna damnjanović, ivana mijatović university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2017/22(2) udc: student perception of benefits from being engaged in international case study competitions doi: 10.7595/management.fon.2017.0017 1. introduction according to the data of the word bank enterprise survey, based on the sample of 10690 enterprises from 23 eastern european countries and on the data collected in 2012, one of the most important obstacles for doing business is inadequately educated workforce. according to the same data source, in serbia, 37.5% of enterprise representatives reported inadequately educated workforce as an obstacle to their current operations (see more in mijatovic and damnjanovic, 2016). the gap between the job market needs and outcomes of higher educational institutions is a challenging topic for a large number of academics and practitioners. in the areas of management and business higher education, crossing the lines between the corporate and academic world seems to be a crucial task for many business schools. the global and dynamic business environment influences higher education in multiple ways and many business schools are faced with the need to “internationalize” institutional culture and the student experience at university (altbach and knight, 2007) in order to prepare students for their future career (teichler, 2009, paphitis and kelland, 2016). as future managers and leaders, students need to develop critical and creative thinking skills (greenhalgh, 2007). apart from globalization and internationalization, changing student expectations and changing employer needs (casareset al., 2011) rank among key drivers of change in higher education today. based on the research (lowden et al., 2011) of the university of glasgow, employers expect graduates to demonstrate a abstract: the main aim of this research paper is to present experience of the students from serbia who participated in international business case competitions. the findings indicate the six main benefits for students at case competitions, as follows: skills improvement, knowledge, contacts, self-realization, employment opportunity and the role of mentor. additionally, we identified some perceived advantages of domestic students compared to colleagues/students from developed countries: presentation, preparation for competition, creativity, multidisciplinary approach to problems and teamwork, while the perceived advantages of colleagues/students from developed countries are: a more advanced business environment, the availability of multiple sources for learning, more practical experience, student exchange programmes, larger budgets and university reputation. this paper presents an innovative way of active learning for business schools through business case competitions, valuably contributes to gaining skills and knowledge, personal improvement for students and better preparation for their future career. keywords: the case study competition, higher education, student’s perception, internationalisation, serbia jel classification: i23, c00, d83 correspodning author: vesna damnjanović, email: damnjanovic.vesna@fon.bg.ac.rs range of skills and attributes that include: teamwork, communication, leadership, critical thinking, problem solving and often managerial abilities. in the knowledge economy, new entrant skills are highly desired by employers, as they are critical to an employee being successful in their work. under the high influence of technology usage and social media, the key values of the millennial generation are meaningful work and a high salary (meeker, 2015). a recent study by rosenbaum et al. (2016) identified that students expect college to provide to them: progress, relevant courses and job contacts. recently, there has been a growing interest in providing adequate knowledge and skills in the management field for students included in higher education using the case method as a learning tool (christensen and carlile, 2009, gamble and jelley, 2014). in a research study (hawes, 2004) it is pointed out that case solving thinking help students learn about a wide range of companies, industries and problems or opportunities, develop reasoning and logic skills, deal with constructive criticism and learn from it. leading universities have already created the curricula based on case learning courses and case extracurricular programmes with top talent students with an objective to compete at international case competitions and maintain a strong reputation all around the world. the main objective of the research presented in this paper is to provide insight into the benefits from being engaged in international case study competitions from the perception of serbian students. the paper is structured as follows. the next section introduces a literature review related to active teaching methods and case study competitions. the third section provides methodology, while the forth section reports the results. finally, the fifth section derives discussion based on the results and provides concluding remarks. 2. literature review as an active teaching strategy, the case study method was developed by harvard university as a way to expose business students to ‘real’ corporate problems(credleet al., 2009). erskine (1998) defines case studies as ‘a description of a real event, which includes a decision, challenge, opportunity, problem or attitude with which a person or people in an organization are faced. literature proves that there are two areas in which the case study method can be used in higher education: the classroom and the case competitions. case based learning is a well-known teaching and learning method that motivates students to learn and bridges the gap between theoretical knowledge and practice (lee et al., 2016). therefore, the classroom needs to include active and interactive learning as the basis for developing understanding of core disciplinary concepts, with strong implications for student retention (crosling et al., 2009.). finally, the case method allows the students and teachers to learn by doing, which is believed to be one of the best ways to integrate knowledge (cameron et al., 2012). however, applying active case learning at a case competition describes an opportunity for undergraduate students to apply concepts they have recently seen in their coursework to ‘real world’ business problems (bale et al., 2013). competitions enable students to deal with the challenge of delivering results under pressure, given an enigmatic real-world business problem (sachau and naas, 2010).case competitions can be used to prepare students for their future professions as the case study method helps students develop managerial skills including: problem solving, critical reasoning, analytical thinking, teamwork skills, confidence and other personal and professional improvements (umbleet al., 2008, damnjanovic et al., 2016). a case study competition exposes students to real world experiences, encourages them to take ownership of their learning and helps them assimilate their ideas into theory and practice (burke et al., 2013). this optimizes learning transfer and shifts learning responsibility to the students to set learning goals and apply effective learning strategies (corner, 2006, yueet al., 2016).there are three stages of the learning process for fast tackling cases that helps students achieve superior results. this three step case learning process consists of: individual preparation, small team and large team discussion (maufefette-leenders et al., 1999). referring to potential employability skills, case study competitions improve teamwork, critical thinking and communication skills, which are the skills that employers require from their new employees (burke et al., 2013). case competitions provide an opportunity to make business education meaningful to business students, while providing students with an opportunity to prepare for upcoming career challenges. lastly, the benefits for managers and companies from case competitions are: recruitment of high achieving students and networking with the organization that provided the case to the faculty (damnjanovic, 2011). based on previous research, case competitions have been shown to have multiple benefits for the students who are 62 vesna damnjanović, ivana mijatović 2017/22(2) participating; however, one should notice these studies come primarily from developed world countries. few research efforts have been devoted to the perceptions of international case study competitions in countries that have only recently started to participate in the competitions. 3. methodology 3.1. research questions the research work presented in this paper was driven by the following two main research questions (rqs): rq1: how do students perceive benefits from being engaged in case study competition? rq2:how do students perceive their advantages and disadvantages when compared to colleagues/students from developed countries (higher level universities) being engaged in case study competition? 3.2. study design, data collection and analysis even though the case study competitions have long tradition in business schools in developed countries, studies about effects of the case study competitions are missing. in order to explore perception of effects from being engaged in international case study competitions we needed a knowledge base for future research so the critical incident (ci) technique was chosen.the ci technique is a well proven qualitative research approach to collecting and analyzing information about human activities; it is used to reflect reallife experience and provide a knowledge base for further research (hughes, 2007, p.49). the ci technique was developed by john flanagan during world war ii, was best described in his article published in july 1954 in the psychological bulletin, where he defined the ci technique as “a set of procedures for collecting direct observations of human behavior in such a way as to facilitate their potential usefulness in solving practical problems…” (flanagan, 1954). an incident means significant instances of a specific human activity as experienced or observed by the research participants (hughes, 2007, p.50). by recalling and mentioning their experience (in interviews or written statements), an examinee provides evidence of a specific experience which is valuable and important for them. it is possible to have a situation in which some examinees had a specific experience but they failed to mention it; however, in this case that kind of experience was considered as not important, valuable or noteworthy. since flanagan’s work, the ci technique has evolved and has numerous variations; in our research we followed the method of johnson and gustafsson (2000). this method was chosen to avoid any influence on student perception. in the first step we analyzed potential research participants and the context of their experience. we identified 36 participants (20 female and 16 male students or ex-students) that had past experience in active participation in international case study competitions. all research participants have had experience in participating in at least one international case study competition with other teams from the uk, denmark, norway, the netherlands, portugal, the usa, canada, singapore, china, hong kong, thailand, australia and new zealand. in order to better understand there search participants’ experience, the structure and process of the international business case competition is elaborated. the structure and process of the international business case competition for undergraduate students are usually as following. each business school selects a team of four students and one mentor/case advisor (university staff member or a person from practice). every student, member of the team, needs to be specialized in a different field such as: accounting, economics, engineering, finance, information technology, international business and marketing. a host university invites each team usually based on results from previous years. in a competition, students are provided with one or multiple cases that they have not seen before and are sequestered in a room for preparation for a limited amount of hours (usually 24 or 32 hours). each team needs to develop a case solution, based on quantitative analysis and a power point presentation and present it to a jury consisting of people from industry (top management level and consultants). the jury panel evaluates the teams based on criteria including content, presentation skills and performance under consideration and answer component. each case competition chooses the top three winning universities and the number of schools who participate varies from 12 to 30 schools (damnjanovic et al., 2016). 63 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) data collection was based on the student responses taken in written form. for the research question rq1, research participants were asked to provide their description about their experience in being engaged in case study competitions. for the research question rq2, students were asked only one open question to provide a list of their advantages and disadvantages from being engaged in case study competition when compared to colleagues/students from developed countries. after collecting and coding critical incidents, content analysis of occurrences of the same or similar critical incidents and sorting was conducted. 4. findings in this section, the study results are presented and discussed from the perspective of the research questions (see section research questions). rq1: how do students perceive benefits from being engaged in case study competition? based on an analysis of critical incidents, 190 critical incidents were identified, and they were classified into 6 categories (table 1.). the largest number of critical incidents was identified in the area of skills improvement (37%). in this area, respondents most frequently mentioned benefits of improving the skills of teamwork and analytical thinking. respondents mentioned teamwork mostly in two contexts: in the context of improving the ability to work with different types of people and in the context of responsibility and sacrifice for common goals. table 1: critical incidents related to benefits from being engaged in case study competition 64 vesna damnjanović, ivana mijatović 2017/22(2) categories of critical incidents total male (16) female (20) no. (%) no. no. 1. skills improvement 71 37.3 29 42 teamwork skills 22 11.6 6 16 work under pressure 7 3.7 2 5 presentation skills 8 4.2 5 3 analytical way of thinking 19 10.0 8 11 other 15 7.9 8 7 2. knowledge 35 18.4 15 20 the application of theoretical knowledge acquired at university (application of knowledge) 5 2.6 2 3 expansion of existing knowledge (acquisition of new knowledge) 12 6.3 4 8 expansion of existing knowledge in specific areas 15 7.9 6 9 feedback 3 1.6 3 0 3. contacts 30 15.8 10 20 business contacts, networking 15 7.9 6 9 exploring different cultures 6 3.2 2 4 finding friends, developing friendship 9 4.7 2 7 4. employment 29 15.3 9 20 in the process of selection and recruitment for job 9 4.7 3 6 at work 20 10.5 6 14 5. self-realization 19 10.0 11 8 progression 2 1.1 2 0 a broader understanding 3 1.6 3 0 pushing their own limits 5 2.6 2 3 finding areas of interest 3 1.6 2 1 self confidence 6 3.2 2 4 6.the role of mentor 6 3.2 5 1 total 190 100 79 111 in the context of improving the ability to work with different types of people, respondents positively valued the chance to collaborate with colleagues they would not choose to be in the same task with (“this experience has helped me learn how to work with different people”), in the context of responsibility and sacrifice for common goals, respondents reported positive experience (“…it helped me find compromise between the task and the team “). the benefits gained through improved analytical skills are as following: improvement of problem solving skills (“i have learned how to recognize the core of the business problem and choose the best approach to solve it”), stepping out of factual learning (“... from believing that there is only one solution to a problem, to realizing there are plenty of correct solutions to the same problem”); understanding the difference between ideas and solutions (“... i realized that the idea is relevant only if it is applicable and realistic in practice“,”i learned how to implement ideas, and not only to create them”) and understanding the broader context of the business case (“i developed the ability to see “the broader picture”). from the total number, 18% of participant responses are associated with the experience of gaining new knowledge. these experiences are systematized into four subgroups: expansion of existing knowledge in general, expansion of existing knowledge in specific areas, the application of theoretical knowledge and feedback. most of the experiences in this area are related to expanding and acquiring new general and specific knowledge. thus, it can be concluded that the process of preparing for the case study competition encourages ‘continuous learning’, ‘constantly learning about new things and sharing the knowledge’, and business knowledge (acquired during preparations). most of the respondents (60%) stated that, through working on the case studies, they learned about different markets, different industries and “how the business world works, in this country as well as globally.” the respondents stated that their involvement in case study competitions helped their self-realization through: progression (“the most interesting thing is how i “progressed seamlessly” and “i see a huge change in comparison with two years ago”); a broader understanding (“i expanded my horizons”); pushing their own limits (“when a student learns how to come up with the best possible solution within 24 hours, it teaches him/her that there are no limits’’, “allows me to constantly go beyond my limits in the direction in which i want to develop”); finding areas of interest (“because of the case competition, i realized what i want to do in my life and what my future career should be“) and self-confidence (“it is very important for me that i overcame the fear of speaking in public and because of that i am a step ahead of all other applicants for a certain job position”). of the total number of identified critical incidents, 17% are related to networking. the critical incidents are grouped into three subgroups: the establishment of business contacts, making friends and learning about other cultures. half of the critical incidents in this group relate to the establishment of business contacts. about 30% of respondents recognized the benefits of meeting, knowing and getting feedback from company representatives that they met during case competitions in jury panels. respondents perceive business contacts as “priceless”, “very important” and “extremely useful” (“international competitions enabled me to create priceless contacts”, “i am connected with the extremely talented people, with whom i can cooperate and i did cooperate after college”). of the total number of identified critical incidents, 15% refer to the benefits of participation in the case study competition for employment and daily work. out of 36 respondents, 18 mentioned positive experiences in employment (“i think i initially had the advantage over the other candidates”, “during one of the competitions, representatives of the company liked how our team solved the case, so they called us for an internship. a few years later, thanks to that, i got the opportunity to work in the headquarters of one of the 25 largest companies in the world.” most of these experiences are related to the benefits of finding a good job position. in the area of work benefits most of the experiences are mentioned in the context of an easier adjustment (“i managed to adjust my way of thinking and accessing business problems in a way that employers and companies expect from their employees”, “easier to adapt to business environment and begin to contribute to the company, a specific approach adopted in the case competition (“business people recognize and value in practice the kind of attitude and experience gained through solving cases”, “i’m ready to respond to different challenges, to always be ready to work under pressure and show creativity”). 65 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) rq2: how do students perceive their advantages and disadvantages when compared to colleagues/students from developed countries being engaged in case study competition? based on an analysis of critical incidents, 163 critical incidents were identified, which are related to the perception of advantages of domestic students and 146 that are related to the perception of advantages of students from developed countries (tables 2 and 3). the perceived advantages of domestic students are seen in the areas of presentation skills, team work skills, creativity, adroitness, broad education – multidisciplinary approach and analytical skills. respondents have especially emphasized seriousness as a very important benefit of the preparation process for a case competition. from the ci analysis, which refers to personal advantages of domestic students, the following areas were identified: • presentation skills and structure. the domestic students explain their experiences through three contexts: they emphasize presentation as a tool for ‘selling the solution’ (“all of us are aware of the importance to pitch the solution in a good way”), the energy during presentations (“we know how to create an impression and stand out from others with our energy”, and the appearance and structure of powerpoint presentations (“visually, we are great as a team but as good in creating power point slides”). • preparations for case competitions. respondents explained their experience through three contexts: the seriousness of preparations, specific mentorship work, and preparations for specific markets. in the category of seriousness of preparations respondents indicate that they seriously prepare themselves for competitions (“we have intense and thorough preparations”, “we make great effort during our periods of preparation”,“preparations are very intense and of great importance for success”, “we have excellent relationship with mentors and they provide us detail guidelines and valuable feedback”, “our mentors help us prepare for specific markets and understand local difference”), but at the same time indicate the feeling of inferiority (“we prepare very seriously because we are aware of our down sides, such as in comparison with native english speakers”, “it is difficult to present on a stage where everyone “considers you worse than themselves”, “..we have the urge to win and to be acknowledged”, “we do not start from the arrogant assumption that we are the best (because of some world-renowned reputation), which makes us work twice as much”). due to limited resources for competitions, respondents indicate that the teams prepare via the transfer of experiences from colleagues (“we are always analyzing our weaknesses in order to make progress”, “we are unpredictable we are always changing methodology and we are always ready to surprise”. “it is important to hear about experiences from older and more experienced competitors”). • teamwork. respondents explained they perceived a better connectivity among their team members when compared to others. “we stand out, because we appear as a team”, “team spirit and cooperation between team members are very expressed”, “most of the time we seem more as a team in comparison to others”), (“we have more direct relationship and we know each other better”, “we work very well as a team”, “we are not just team members, we are friends, and that is something that does not exist in other teams”). • creativity. with regards to creativity, respondents refer to innovative solutions (“we like to think outside the box”, “we always have creative ideas aligned with trends from the industry”). • multidisciplinary approach. respondents explained the perceived benefits of broad education “when we solve the case we have different perspective from management and information technology side among team members, which provides us with an advantage in technological and business synergy”). 66 vesna damnjanović, ivana mijatović 2017/22(2) table 2: critical incidents related to advantages of serbian students in comparison with colleagues/students from developed countries the 146 identified ci relating to the perception of the benefits that students from developed countries have, were classified into two groups. the first group refers to the circumstances in which they prepare students and the second refers to the solutions provided in competitions. key insights from the first group include: • more advanced business environment. respondents believe the key benefits of their counterparts from developed countries is knowledge of the business environment in developing countries (“business environment in which they live is generally more advanced than ours “,“ they know better the mechanisms operating in developed countries”, ”familiar with new trends and technologies first hand because they appear first on their markets”). • the availability of multiple sources for learning. in the second place, by the number of ci, were available sources that foreign students have in their preparations. respondents indicated “university knowledge base”, “subscriptions to relevant sources of information,” “bigger and better database”‘, ”better access to quality literature (textbooks, case books ...)” or (“strong alumni network that is available to them”, “cooperation with mentors from strategic consulting”). • better theoretical knowledge. respondents believe that their colleagues have more opportunities to gain the knowledge they need to solve a case study during regular lectures (“they learn more during their education,” “have a knowledge of the basic studies”). • native speaker. respondents believe the mother tongue or fluency in english presents a significant advantage especially because of the knowledge of business terminology (“know better business terminology from different industries”). • they have more practical experience. (“the system allows them to work while studying in order to gain more practical knowledge that can be used in solving the cases”, ”they get a job at the second year of studies”). • student exchange programs are considered to be a significant advantage of foreign students (“they go on an exchange programme during education and that way they get a broader picture of global business”, ”have experience in real consulting through internships and trainings). • experience in a case study in the classroom. (“have a longer tradition in the study and the use of case methodology”, “education system is more based on cases, therefore they have been more familiar with this way of learning”) 67 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) category total male (16) female (20) no. (%) no. no. presentation 45 27.6 20 25 presentation skill in general (sales) 24 14.7 11 13 presentation structure 3 1.8 2 1 presentation appearance and structure 6 3.7 3 3 energy while presenting 12 7.4 4 8 preparation 30 18.4 15 15 seriousness of preparations 14 8.6 8 6 mentorship 9 5.5 5 4 preparations for a specific market 7 4.3 2 5 teamwork 27 16.6 10 17 team spirit 14 8.6 5 9 team structure 4 2.5 2 2 team cohesion 9 5.5 3 6 creativity innovative solution 16 9.8 5 11 resourcefulness 12 7.4 5 7 multidisciplinary approach due to broad education 10 6.1 6 4 analyticity 7 4.3 5 2 other 16 9.7 5 11 total 163 100 71 92 • bigger budgets. respondents mentioned larger budgets that their universities have at their disposal in two contexts: through increased investment in education and greater opportunities for participating in competitions. (“financial aspect that some of the schools abroad have cannot be ignored, although i do not think that this is crucial,” “it is clear that they have the opportunity to compete more often but no one has an unlimited budget “). • reputation of the universities with which they come from (“when you come from a famous university in the world it is not the same “, “we do not start from the arrogant assumption that we are the best (because of some world-renowned reputation), which makes us to work twice as much”). the benefits of the solutions that our colleagues from developed countries present are related to a clear focus (“they are more focused on business logic rather than on presenting solutions”), focus on feasibility, the simplicity of the design (“down-to-earth solutions”, “their methodology is simple easy to understand”) and focus on implementation (“they have much better implementation with less detail but are easier to follow and easier for the jury to understand”). table 3: critical incidents related to advantages of colleagues/students from developed countries 68 vesna damnjanović, ivana mijatović 2017/22(2) category total male (16) female (20) no. (%) no. no. more experience in advanced business environment 16 10.9 7 9 the availability of multiple sources for learning 15 10.2 7 8 better theoretical knowledge 14 9.6 3 11 native speaker 14 9.6 6 8 more practical experience 12 8.2 4 8 student exchange programs 11 7.5 3 8 experience in a case study in the classroom 10 6.9 5 5 bigger budgets 7 4.8 2 5 university reputation 3 2.1 2 1 usage of advanced software 4 2.7 3 1 the features of the solutions they presented (total): 30 20.6 10 20 clear focus 7 4.8 3 4 focus on finance 7 4.8 2 5 simplicity of solutions 6 4.0 1 5 better argumentation in the q&a sessions 6 4.0 0 6 detailed implementations 4 2.7 4 0 other 10 6,9 4 6 total 146 100 56 90 discussion and conclusion the global and dynamic business environment requires new entrant employees ready for immediate start with many companies providing limited time for learning/introduction in the workplace. in the modern business arena business schools are facing increased pressure for achieving competitive advantage, building stronger university reputation that can be built not only with research but also through excellent and creative active teaching at an international level (oxford strategy, 2015). this paper is a pilot study and provides insight into a serbian student perception of their engagement in international case study competitions. the international case competitions represent a unique learning experience for serbian students that allow them to apply practical knowledge and skills, increase self-confidence and establish contacts for future jobs. the results from the current study corresponded with the findings from the research work of kress et al. (2004). this extracurricular activity of student learning is consistent with the previous work that emphasizes the use of case-based learning as a means of encouraging creative thinking (credle et al, 2009, menna, 2009) and better understanding a multidisciplinary approach, connection between business and technological perspectives (yadav et al, 2007). furthermore, the opportunity to attend international 69 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) case competition has given students a chance to improve the case learning process in all stages: individual preparation, small group and large group discussion (maufefette-leenders et al.,1999). following the evidence of study by hawes (2004), the use of experiences from older and more experienced competitors and mentors in an individual preparation phase help students to better understand the case and identify the main issues quickly because students are constrained by time. good individual preparation demands a high level of hard work during individual assignments and internship attempts to provoke students who compete at case competitions to present new ways of thinking based on practice knowledge background, maenette and benham (1996) which was identified as an advantage of developed countries. also, better access to information and familiarity with multicultural environment through international student exchange provide students from developed countries with advantages in individual thinking in business logic field referring to study from croatia, jelenc (2011). students from developed countries (leading universities) have a better perception about strategic recommendation what is feasible on the market. moreover, after individual preparation there is the second phase of case learning where each team discuss together, burko (2015). having an excellent team building skills is an advantage for serbian students due to the fact that this is a cultural characteristic of eastern europe region, which is aligned with the results of the previous study from serbia and croatia. (damnjanovic and dlacic, 2015). our findings showed that the important advantage for better learning performance of serbian students is the connection of the first and second stages: individual effort preparation is a precondition for successful small group discussion. in that context our results are similar to the findings of flynn and klein (2001). working in team of four students and discussion in small groups for case competition provides possibility to encourage debate, brainstorming session and allow them to construct new creative ideas. additionally, a large team discussion as the third phase of case learning at case competition provides a students team with a possibility for learning, comparing different approaches of presentation skills delivery to jury panel. students should develop cross cultural awareness skills considering a variety and diversity of student ideas from europe, asia, north america and australia. respondents believed they were better in presentation and delivery in comparison with other students from leading universities. this is probably because serbian students are not native speakers and they prepare more intensely for presentation and for how to sell the recommendations to target audience. our findings show that students perceive their engagement in international case study competitions as a very positive and life changing experience. key benefits are seen in the improvement of managerial and employment skills: presentation skills, teamwork skills, under pressure skills and analytical thinking. the majority of the students pointed out an important effect of their engagement in international case study competitions as stepping out of factual learning and understanding the broader context. learning is moved from memorization of numerous facts to the practical application of theories, concepts and techniques to real problems. in a broad sense our findings are compliant with those of (meeker, 2015) that the millennial generation values motivation achieved by engaging in meaningful work. our results are compliant with research study of credle et al. (2009) that perceived that the benefits of the case competition are the possibility of networking, and opportunities such as student internships or offers of permanent employment. on the other side, international case study competitions can be seen as an area of exchange of experience in the teaching and learning practice. teachers should encourage active case learning and give students feedback and be open to varying levels of talent and learning abilities (latusek, 2016). our findings explain, experience with case study competitions shifts student perception of learning, from teachers ‘providing knowledge’ to students ‘taking responsibility for their learning’. almost all examinees mentioned more advanced business environments, the availability of more sources for learning (knowledge basis, university online libraries and databases) and bigger budget as key advantages of their colleagues from developed countries. other disadvantages as a lower level university are that leading universities globally have focus on international dimension (provide undergraduate programmes in the english language for international students and international student programme exchange). furthermore, their formal education system is more based on cases and has better theoretical knowledge (case educational program). also, leading schools have more practical experience because of three months of student internships during the educational study process (better practical knowledge).these outcomes: more adequate on line learning materials (database and software), launching international program, more cases in formal education and better practical knowledge through internships should serve as directions for improvement for business schools in serbia as a representative from eastern europe region. the limitations of this study include the number of participants who attend an international case competition from one business school. other limitations include only the opinion from the student perspective. a future study may explore opinions from the mentor side and a larger international sample. future research can focus on the comparison of the students’ and mentors’ perceptions of case competition benefits. references [1] altbach, p.g. & knight., j. 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(2008). enhancing undergraduates' capabilities through team-based competitions: the edward jones challenge. decision sciences journal of innovative education, 6(1), 1-27. doi:10.1111/j.1540-4609.2007.00164.x [40] yadav, a., lundeberg, m.a., deschryver, m., dirkin, k. h., schiller, n., maier, k., & cf. herreid, (2007). teaching science with case studies: a survey of faculty perceptions on the benefits and challenges of using cases. journal of college science teaching, 37(1), 34-38., retrieved from https://eric.ed.gov/?id=ej774281 [41] yue, z.a., wing, a.b., & yates, g.b.(2016). university students' self-control and self-regulated learning in a blended course. internet and higher education, 30, 54–62.doi: 10.1016/j.iheduc.2016.04.001 (received/accepted) (may 2017 / september 2017) 71 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) 72 vesna damnjanović, ivana mijatović 2017/22(2) about the author vesna damnjanović university of belgrade, faculty of organizational sciences damnjanovic.vesna@fon.bg.ac.rs vesna damnjanović is an associate professor at the marketing department of the faculty of organizational sciences, university of belgrade. she gained her professional postgraduate diploma in marketing at the chartered institute of marketing in the united kingdom. her research focuses on: education using case study method, active learning and teaching with cases, marketing and sales, destination branding. she is the founder and managing director of belgrade business international case competition bbicc – top 12 business case competitions in the world and coach for many winning student teams in case competitions at a global level. ivana mijatović university of belgrade, faculty of organizational sciences mijatovic.ivana@fon.bg.ac.rs ivana mijatović is an associate professor at the faculty of organizational sciences, university of belgrade. she earned her b.sc. in mechanical engineering at the faculty of mechanical engineering, university of belgrade, har m.sc. and ph.d. at the faculty of organizational sciences, university of belgrade. during a large part of her academic career, she has focused on quality management and standardization. she is a passionate teacher; at bachelor studies she teaches standardization, quality engineering and quality planning, at master and phd studies she teaches standardization and ict standardization. she serves on the boards of the european academy for standardization (euras) and balkan coordination committee for standardization, protypes and quality (bcc). her current academic work addresses the issue of standardization, education about standardization, teaching quality and quality aspects of technology enhanced learning. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 06 percic:tipska.qxd the adoption of internet media as marketing innovations in serbia doi: 10.7595/management.fon.2018.0032 abstract: 1. introduction the adoption of internet media by consumers in the republic of serbia as marketing innovations was performed firstly through a literature review and a research on this subject, and then through the presentation of the obtained results and conclusions. the subject of the conducted research is testing consumer habits and preferences in serbia regarding the use of online direct marketing media for obtaining information on products/services, companies and ordering/purchasing via the internet. the aim of the research is to learn about the current attitudes in serbia regarding the adoption of knowledge and technologies related to modern forms of company advertising, communication with their target group and sales, from the consumers’ point of view. the research questions are to what extent the consumers in serbia use innovative forms of communication (via the internet) with companies for obtaining information about products/services, companies and to what extent they buy online. in the search for answers to these questions, some existing data about using internet for informing and purchasing without considering the social networks (sors statistical office of the republic of serbia, 2016c; market research agency masmi, 2016a, 2016b) were used and the following hypotheses of the research were formulated. 63 * corresponding author: karolina perčić, e-mail: karolina.percic@metropolitan.ac.rs, percic.karolina@gmail.com karolina perčić1*, nenad perić2, đuro kutlača3 1belgrade metropolitan university, faculty of management, serbia 2belgrade metropolitan university, faculty of management and faculty of digital arts, serbia 3university of belgrade, „mihajlo pupin“ institute, serbia research question: the adoption of internet media of direct marketing by consumers in the republic of serbia as marketing innovations, both in terms of communication between advertisers and consumers as well as contemporary purchasing methods, has been presented in this paper. motivation: the research in the field of marketing innovations mainly relates to their application by the organizations, and if there is any research on this topic from the perspective of consumers, it is not sufficiently detailed and useful to be of importance for the formulation of marketing strategies in the field of internet marketing. idea: the methodological approach to studying this topic involves the application of a descriptive-analytical method in order to explain marketing innovations and diffusion of knowledge and technologies in internet marketing. data: empirical research has been performed in the period june-july 2017 on the territory of the republic of serbia by using the questionnaire survey method. the target group are consumers aged 15 to 64, in order to examine what their habits and preferences regarding the use of the internet as direct marketing media are, including the frequency of using the internet as direct marketing media, and especially social networks, for obtaining information on products/services, companies and ordering/purchasing via the internet. the sample is stratified and it consists of 1,532 respondents. tools: when processing data and interpreting the results, spss was used. findings: it has been concluded that there is a statistically significant correlation between the consumer’s age and the frequency of visiting social networks and following pages that users of these networks like. the number of consumers in serbia who buy online is increasing from year to year and thus companies need to focus on internet marketing. contribution: this paper expands the existing research related to the adoption of internet media in serbia, especially focusing on the social networks that were not including in previous researches. the contribution of the conducted research is also in terms of the innovativeness of the consumers in serbia. key words: adoption, internet, direct marketing, innovations, knowledge and technology diffusion, consumers, serbia jel classification: m31, o33 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) hypothesis 1: the majority of consumers in serbia often use the internet media of direct marketing to obtain information about products/services and companies, while a smaller percentage of consumers have a habit of buying online regularly, most often via domestic sites. considering the fact that the percentage of consumers in serbia who perform their purchase via the internet is increasing from year to year, it is assumed that the percentage of consumers who buy via the internet will be higher than 45.4% of the internet users (as it was in april 2016, according to sors, 2016c). hypothesis 2: there is a statistically significant correlation between variables, i.e. the age of the consumers and dependent variable the frequency of web site visits on the internet for obtaining information on products/services. hypothesis 3: there is a statistically significant correlation between variables, i.e. age of the consumers and dependent variable the frequency of ordering products/services via the internet. hypothesis 4: there is a statistically significant correlation between variables, i.e. the age of the consumers and dependent variables the frequency of visiting social networks: facebook and instagram, and following pages that users of these networks like. hypothesis 5: there is a statistically significant correlation between variables, i.e. the age of the consumers and dependent variables the frequency of orders via facebook and instagram. a survey was conducted by the authors, with consumers divided into 5 categories by age, in order to see the frequency of using the internet as direct marketing media and in order to test a correlation between the mentioned variables. the use of social networks (facebook, instagram) as a media for informing and ordering products/services by the mentioned categories of respondents was also considered, which was also not included in the research of sors and market research agency masmi, and that the authors of the paper proved the results of their empirical research as extremely important and necessary for inclusion in digital marketing strategy. the contribution of the conducted research by the authors is also in terms of the innovativeness of the consumers in serbia because the original results show state of willingness of consumers to adopt new products/services, which also affects the amount of necessary investments over time and, in the specific case of serbia, the patience that is expected from companies in terms of return on investment and profitability. the changes are rapidly taking place today and they need to be monitored, as update data which are important for defining adequate (marketing) strategies. it is very important to monitor the trend of increasing the use of the internet and social networks for the purposes of direct marketing, and it is especially important to highlight the importance of marketing innovations in terms of new features of social networks. 2. marketing innovations „an innovation is an idea, practice, or object perceived as new by an individual or other unit of adoption“, (rogers, 2003, p. 36).„through innovation, new knowledge is created and diffused, expanding the economy’s potential to develop new products and more productive methods of operation. such improvements depend not only on technological knowledge, but also on other forms of knowledge that are used to develop product, process, marketing and organizational innovations“, (oecd, 2005; p. 33). „innovation is a key factor for achieving success and the basis for improving the competitiveness of the economy and society regardless the area“, (stankovic, djukic & popovic, 2014, p. 276). the innovation process is traditionally regarded as a social process, i.e. „social change that is caused by both invention (the process by which a new idea is discovered or created) and diffusion“, (rogers, 1983, p. 42). founding father of innovation diffusion research is gabriel tarde, and he said that inventions are diffused by process of imitation (as cited in kinnunen, 1996, p. 433), and in contemporary diffusion terms, „imitation could be called adoption of an innovation“, (rogers, 1983, p. 40). “innovation is used for successful commercial (market) application of invention”, thus one may conclude that “not all inventions are completed as innovations”, (kutlaca & semencenko, 2005, p. 62). „innovation does not necessarily have to be new to the market or to the world as a whole, but could simply be new to the firm and have impact on productivity and employment because of that“, (zanello, fu, mohnen & ventresca, 2016, p. 887). marketing innovations involve the implementation of new marketing practices (junge, severgnini & sørensen, 2016, p. 725), which includes „changes in product design and packaging, in product promotion and placement, and in methods for pricing goods and services“, (oecd, 2005, p. 17), that refer to: the development of new ways of communicating with the market or promotion, the use of new means of commu64 karolina perčić, nenad perić, đuro kutlača 2019/24(2) nication, new marketing channels, the development of new methods for formulating prices for products and services, innovation in design and packaging, new approaches in marketing research, a new approach to customer relationship management (stankovic, et al., 2014, p. 277). marketing innovation contributes to defining and reinforcing competitive advantages, goal setting, and business performance (cruz-ros, garzón & mas-tur, 2017, p. 1031). in contemporary business conditions, marketing innovations are a factor of primary importance for achieving high performance of the company and a condition for consumers’ satisfaction and loyalty (mladenovic, mladenovic & roganovic, 2015, p. 104). 3. internet marketing as a form of direct marketing direct marketing is an interactive system which uses one or more promotional media to provide a measurable response and/or transaction in any way (kotler, 2000, p. 317), and it is one of the most dynamic marketing areas, and one of the “integrated instruments (forms) of integrated marketing communication tools that establish and maintain good relationships with current and potential consumers in order to attract and retain them, providing them with satisfaction, as well as loyal consumers and value to the company”, (salai & koncar, 2007, p. 10). for the realization of direct marketing, the use of various media is available (direct mail, telephone, newspapers, magazines, catalogs, television, the internet, mobile phone), and “each type of media has its advantages and disadvantages from the standpoint of expressive possibilities, reputation, scope, selectivity, the level of transparency, and the possibility of updating messages at certain intervals, the cost of “catching” the target segments”, (hanic, domazet & simeunovic, 2012, p. 795). the internet, which had the highest rate of innovation adoption, is considered in the literature as a medium, a form of sales, a form of marketing communication, but in fact it is much more. “the internet cannot be considered as a new medium, it represents a new marketing paradigm by putting consumers into the role of the offer creator, the most active member of the active controller of the entire production process and sales-purchase”, (kesic, 2003, p. 410-412). “companies develop new business activities based on technologies foremost of which are internet related and are under heavy pressure of competition and pace of innovation coming from globalized markets“, (sofronijevic, milicevic & markovic, 2015, p. 37-39). internet marketing is interactive direct marketing that enables the advertisers and consumers with the possibility of individualization and interaction, which basically represents micro marketing (one person one segment). “internet marketing may be defined as using the internet as a virtual store where products are being sold directly to consumers”, (corley, jourdan & ingram, 2013, p. 177). the research carried out by domazet, djokic & milovanov (2017) showed that the internet has a big influence on consumers (on brand awareness) in serbia, immediately after the influence of television. as a direct marketing medium, the internet belongs to electronic marketing, and has several instruments: web pages, banners, e-mail, social networking, google adwords, seo. according to research by the international marketing agency zenith media (2016) on global level, traditional digital advertising (banners and similar formats) take up only 3.1% in 2016, after a growth of 8.6% in 2015. prediction of zenith media is that online video advertising will grow at a rate of 20.1 per annum annually, and that the growth of social media will be 23.6% in the period from 2015 to 2018. today, consumers mostly search the internet to find the desired product/service, so advertisers, in order to attract consumers, use the option of optimizing their web sites (search engine optimization seo) based on key words (which are often part of the site’s content). seo makes free positioning of web sites on search engines, all in order to increase the number of visitors to a site. for promotion on google, google adwords is used, that is paid ads which appeared to those who typed the word chosen by the company. in general, online campaigns are quite efficient because with relatively small investments they can reached targeted customers. to promote the web site, social media are also used, which are a collection of free online tools and platforms (social networks, blogs, photo sharing, online videos, etc.), and these media have influenced the emergence of social marketing the third era in the marketing revolution, after mass and direct marketing (reed, 2011, p. 7). “just as the rapid growth of mobile phone mobilization has opened up new marketing communications and targeting opportunities, the ubiquity of social media has changed the way in which customers now share information and interact with brands”, (lamberton & stephen, 2016, p. 146). social networks were made for communication over the internet and are increasingly replacing e-mails. from a marketing point of view, instagram and facebook are a very powerful promotional tools that can be used by advertisers by creating product/service promotion page and setting the parameters for successful advertising through paid ads. with precise targeting of consumers, companies are able to attract people from their target group, who will voluntarily start to follow the company through social networks, with the possi65 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) bility of entering into direct communication with them, providing the necessary information, taking orders, negotiating about product characteristics, delivery. 4. the diffusion of knowledge and technology in internet marketing economic growth and development require two driving forces, a process of knowledge creation and technology, and then a diffusion of knowledge and technology (kutlaca & semencenko, 2015, p. 8). „diffusion is a particular type of communication in which the information that is exchanged is concerned with new ideas“, (rogers, 2003, p. 18). rogers (2003, p. 12-31) identifies the four main elements in diffusion as being the innovation itself, the channels of communication which carry the information about the innovation, relative time of adoption, and the social system or adopter population. in the diffusion process the most important role is held by the media for attracting attention, but for the adoption of certain innovations interpersonal communication is the most important nevertheless, since the media can influence the dissemination of information about innovations, but rarely when they influence changing attitudes or behaviors (kunczik & zipfel, 2006, p. 185). the diffusion of knowledge and technology, the comprehensive acceptance and adoption by users affects the ability of national economies to generate greater economic growth and a greater social product (mosurovic, semencenko & kutlaca, 2015, p. 39-40). we continue with the analysis of innovative activities trend in serbia in the context of the innovative european space. based on the calculated values of the total innovation index of all eu members and in relation to the average value, the eu member states are categorized into four innovative categories: innovation leaders, strong innovators, moderate innovators, modest innovators (european commission, 2017, p. 31). according to the european innovation scoreboard 2017, serbia is included in the category of moderate innovators. in the period from 2010 to 2016, the innovative performance increased by 17.3% compared to the eu 2010 average. the main reason for this trend is seen in increased investment in business (r&d expenditure in the business sector an increase of 13.4%, non-r&d innovation expenditures an increase of 164.7%), an increase in the number of science doctors (by 45.4%) and an increase in the number of product and/or process innovators (by 42.9%) and marketing innovators and/or organizations (by 63.8%). generally, the innovation of the serbian companies, although progress is evident, is still unsatisfactory which negatively affects business and national competitiveness. the level of development and implementation of marketing in serbia is also low the marketing concept as a management attitude towards its role in the economy and society is still not accepted as a dominant business philosophy, but the sales concept is still dominant (stankovic, et al., 2014, p. 277). according to the results of sors (2016a), the participation of business subjects of innovators in organization and marketing accounts for 30.2% and is less than the innovator of products and processes, where every third business subject is an innovator. the presence of business subjects, who have simultaneously introduced innovations of products and processes, as well as innovations in organization and marketing account for 22.4%. according to the market research agency masmi (2016b), about ¾ of micro, small and medium-sized enterprises (msmes) in serbia have a corporate website. the main reason for this is the lack of desire to invest in additional promotion because their work is satisfactory. passive attitude (“it’s too complicated, i do not have time”) is observed within 14%. a similar percentage believes that their consumers are not online, and that this way of communication is not adequate for their business. most msmes in serbia (64%) still do not expand their business to the online market, and only 14% intend to launch the internet offer one day. about one-third offers its products and services online (36%). most of them use a corporate website (88%), as well as social networks and advertising sites (32-35% each). about a half of those who offer their products and services online at all (46%) has an online ordering option (16% of all msmes in serbia). for most of them, online business is still not an important source of business it accounts for up to 10% in the total turnover of the company. about 17% were motivated to introduce an offer of e-commerce by consumers’ demands to introduce this option. online and offline payments are equally in offer in msmes in serbia. 44% of msmes, who do not have online payment option, believe it is too complicated (¼ of them will offer it in the future, while half is determined regarding the rejection). according to sors (2016c), 67.1% of people in serbia have used the internet. when asked how often, on average, they used the internet in the last three months, 85.9% of respondents answered: every day or almost every day. when it comes to the time frame in which internet users bought/ordered goods/services via the internet, 26.3% of users made purchases/orders in the last three months, 12.0% more than three months ago and 7.1% more than a year ago; 54.6% of internet users have never bought/ordered goods or services via the internet. even 90.3% of the internet population aged 16 to 24 has a social networking account (facebook, twitter). the citizens of serbia who are more educated and with higher income buy more often online (market research agency masmi, 2016a). 66 karolina perčić, nenad perić, đuro kutlača 2019/24(2) 5. the research methodology the research is empirical by character and was conducted in the republic of serbia, using the test method, in the period june july 2017. the target group are serbian citizens consumers aged 15 to 64 who belong to the category of labor-efficient population, in order to examine what their habits and preferences regarding the use of online direct marketing media are, with the aim of obtaining information about products/services, companies and ordering/purchasing via the internet. for the purpose of the research, a descriptive research technique was used a questionnaire (in two forms: online and printed, of the same content shared to the respondents), which was specially prepared for the needs of this research. the sample is stratified. the structure of respondents, according to their age, corresponds to the structure of citizens according to the sors (2016b), which ensured the representativeness of the sample. the sample consists of 1,532 respondents, and the statistical error is 2.5%, with a confidence interval of 95%. while processing data and interpreting the results, the spss statistical data processing program was used, as well as descriptive and comparative statistics (regression and correlation). 6. the research results consumers in serbia often visit websites on the internet in order to obtain information on products/services (66.7% almost always and often); often, they get informed before the purchase via the internet (67.6% almost always and often). about 78% of consumers ordered a product/service via the internet at least once a year. nearly 80% of consumers have a profile on facebook and visit this social network quite often (48% every day); 50% of consumers have an instagram account and the highest percentage (35%) visits this social network almost every day. they use these social networks to order products/services (via facebook 36%, and 22% via instagram). table 1 presents the results of the conducted research according to respondents’ responses to the degree of agreement with questions in the form of statements, covering the period of the last year. these statements were evaluated from 1 to 5 (five-degree likert scale), where 1 meant never, 2 rarely, 3 sometimes, 4 often, and 5 almost always. table 1: the distribution of respondents according to answers in terms of degree of agreement with questions in the form of statements, regarding the frequency of obtaining information and ordering via the internet, according to age categories of respondents * the first category of respondents consists of those aged 15-24, the second from 25 to 34, the third from 35 to 44, the fourth from 45 to 54 and the fifth from 55 to 64. 67 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) almost always often sometimes rarely never number of respondents missing mean i visit websites on the internet to inform about products/services. in total 46.9% 19.8% 12.8% 8.6% 11.2% 1521 11 3.83 i category 38.7% 18.3% 16.3% 11.6% 14.8% 306 1 3.55 ii category 59.5% 23.3% 10.4% 2.9% 3.9% 314 0 4.32 iii category 64.3% 19.9% 10.3% 2.2% 3.3% 307 0 4.40 iv category 50.0% 27.0% 13.1% 6.3% 3.6% 287 0 4.13 v category 27.7% 12.4% 11.7% 17.7% 27.0% 307 10 2.96 i order products/services via the internet. in total 13.5% 22.1% 21.1% 20.2% 22.1% 1517 15 2.85 i category 10.1% 20.6% 21.9% 21.3% 25.7% 305 2 2.68 ii category 17.9% 28.0% 26.2% 14.7% 13.3% 314 0 3.23 iii category 20.2% 25.0% 28.7% 16.2% 9.2% 305 2 3.31 iv category 10.7% 18.7% 17.1% 24.6% 27.8% 284 3 2.59 v category 10.6% 18.8% 11.3% 24.1% 32.3% 309 8 2.50 i order products/services via facebook. in total 4.8% 6.1% 9.5% 13.7% 64.2% 1508 24 1.72 i category 5.4% 7.6% 11.6% 14.8% 59.3% 301 6 1.83 ii category 9.0% 7.9% 13.6% 19.4% 49.5% 312 2 2.07 iii category 6.6% 5.1% 15.1% 16.5% 56.6% 307 0 1.89 iv category 1.2% 7.1% 3.6% 8.7% 73.0% 271 16 1.45 v category 1.4% 2.1% 2.1% 8.2% 86.2% 317 0 1.24 i order products/services via instagram. in total 3.7% 3.3% 7.2% 6.2% 77.9% 1506 26 1.46 i category 7.8% 5.6% 14.5% 12.5% 57.9% 300 7 1.91 ii category 2.9% 4.7% 7.2% 7.2% 74.9% 305 9 1.49 iii category 3.3% 1.5% 5.9% 2.2% 87.1% 307 0 1.32 iv category 0% 2.4% 2.4% 0% 92.9% 281 6 1.12 v category 1.8% 0.7% 1.4% 4.6% 90.1% 313 4 1.17 almost one half of respondents (46.9%), almost always uses websites to inform themselves about products/services, and only 11.2% of respondents never visit web pages on the internet. of all the categories, respondents aged 35 to 44 present a group of those who visit websites most often (64.3% always), while compared to other categories, the largest number of respondents aged 55 to 64 (27%) never visits web pages for information in order to buy something. then, they are followed by the youngest ones (14.8%) who never use websites on the internet for information purposes. based on the results, it can be noted that 13.5% of respondents always buy via the internet, 22.1% of respondents do that often, 21.1% of respondents do that sometimes, and 20.2% of respondents rarely use the possibilities of modern purchasing and 22.1% have never ordered products/services via the internet. compared to other categories, the largest percentage of those who have never done it refers to people aged 5564 (32.3%) and the smallest percentage accounts for those respondents of category iii who have never ordered online (9.2%). those who find this type of shopping familiar are respondents aged 35 to 44, who have stated to the greatest extent that they always order in this way (20.2%). the percentage of those who do not order products/services via facebook (64.2% of all respondents) and instagram (77.9% of all respondents) is huge, and only a small number of respondents is always ready to place an order via facebook (4.8%), 6.1% of them do it often, 9.5% do it sometimes and 13.7% do it rarely; also via instagram, 3.7% do it always and 3.3% do it often, 7.2% do it sometimes and 6.2% do it rarely. it can be concluded that 34.1% of respondents have ordered a product via facebook and 20.4% via instagram at least once. given that the facebook profile is held by 77.8% of respondents, 43.7% of them have never ordered via this social network. the percentage of respondents aged 25 to 34 (9%) who always order via facebook is the highest, while the lowest one accounts for those respondents aged 45 to 54 (1.2%). the largest number of respondents is in the category aged from 55 to 64 who have never ordered products/services in this way (86.2%), and the smallest percentage of respondents accounts for those respondents aged 25 to 34 (49.5%). given that 49% of respondents own an instagram profile, 28.6% of them have never ordered via this social network. the percentage of respondents aged 15 to 24 (7.8%) who always order via instagram is the highest, and the lowest one accounts for those respondents aged 45 to 54 (0%). the largest number is presented by those respondents in the category from 55 to 64 who have never ordered products/services in this way (90.1%). here are the results of testing of regression and correlation between variables, i.e. the age of the respondents and the following variables: the frequency of web site visits on the internet to obtain information about products/services (confidence interval 99%, risk of error 1%): there is a minimal impact of the respondents’ age to the frequency of web site visits (r2=0.008), and correlation is negative and weak (p=0.001<0.05; pearson correlation=-0.1); the frequency of ordering products/services via the internet (confidence interval of 99%, risk of error 1%): there is a minimal impact of the respondents’ age to the frequency of ordering via the internet (r2=0.007), and correlation is negative and weak (p=0.001<0.05; pearson correlation=-0.1); the frequency of visiting the facebook and following pages that users of this network like (99% confidence interval, risk of error 1%): there is an impact of the respondents’ age to the frequency of visiting the facebook (r2=0.167) and to the frequency of following pages (r2=0.177), and correlation is negative and medium by strength (p=0.00<0.05; pearson correlation=-0.4); the younger the customers, the more often the use of this social network and following the promotional pages; the frequency of ordering via facebook (confidence interval 99%, risk of error 1%): there is a minimal impact of the respondents’ age to the frequency of ordering via facebook (r2=0.041), and correlation is negative and weak (p=0.00<0.05; pearson correlation=-0.2); the frequency of visiting instagram and following pages that users of this network like (99% confidence interval, risk of error 1%): there is an impact of the respondents’ age to the frequency of visiting instagram (r2=0.267) and to the frequency of following pages (r2=0.282), and correlation is negative and medium by strength (p=0.00<0.05; pearson correlation=-0.5); the younger consumers, the more often use of this social network and following the pages of preferred brands; the frequency of ordering via instagram (confidence interval 99%, risk of error 1%): there is an minimal impact of the respondents’ age to the frequency of ordering via instagram (r2=0.080), and correlation is negative and weak (p=0.00<0.05; pearson correlation=-0.28). in order to learn what the consumers’ inclination to accept new products/services is, they were given the task to mark the best answer which describes them, and the results are as follows (answers and percentages are provided): i am the first to become a user of it (i follow developments regarding products that i am interested in, beyond the borders of our country); 12.0%, 68 karolina perčić, nenad perić, đuro kutlača 2019/24(2) when i see a product for the first time in others, i quickly become a user of it (i like to give advice and information); 8.7%, i accept new products and become their user before the vast majority (“average”); 27.2%, i refrain from new products (i become a user of a product only when most people around me have it); 14.4%, and i do not like to change the habits and products i am inclined to; 32.2%. figure 1: categorization of the adopter of certain innovation based on the relative time of implementation (rogers, 2003, p. 281) – percentages from theory vs. research results according to the results, it may be concluded that the highest percentage of consumers (32.2%) dislikes changing their habits and products that they are prone to, i.e. they belong to a group of consumers who are called laggards, given the speed of adoption of new products. after the laggards, the next group of consumers is referred to as the early majority (27.2%), and then there are those called the late majority (14.4%), innovators (12.0%) and finally the lowest percentage – early adopters (8.7%). a large percentage of laggards in serbia is not a good indicator of successful growth and development, as knowledge and technology diffusion is one of the preconditions for growth and development on micro and macro levels, while a relatively high percentage of innovators (compared to the data from theory, where innovators only make about 2.5% of consumers rogers, 2003, p. 281), represents the potential for more efficient business and quick implementation of innovations and innovative processes in marketing and in general. the number of serbian consumers who buy via domestic websites is higher (64.9% of those who buy via the internet), while the number of those who buy via foreign sites is a slightly smaller (43%). the percentage of consumers who have never bought via domestic sites accounts for 35.1% and the percentage of those who have never bought via foreign sites accounts for 57%. 69 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) direct marketing has become an integral and inevitable part of regular business. this way of communication is a long-term activity with the aim of developing lasting, direct relationships with consumers in order to gain loyal consumers, the greatest value for company. making contact with consumers without intermediaries enables lowering the contact costs, but also the information obtained is of better quality and safer due to directness, which can be regarded as prerequisites for creating a competitive advantage. innovation of all forms contributes to achieving competitiveness on the market since they create a unique value for consumers. the importance and significance of innovations in marketing is becoming increasingly evident, organizations are more often promoted via the internet media, but e-commerce is still underdeveloped in serbia. innovation in marketing is one of the factors which the overall innovation index of serbia depends on. in the business of companies with marketing orientation, it is necessary to consider the other side of the market, i.e. consumers and their willingness to accept and adopt knowledge and technologies in terms of the application of new methods of communication and purchasing. this is due to the fact that without their support regarding the aforementioned, it is unlikely that the implementation of innovations in marketing would be successful, i.e. success depends on the adoption speed of knowledge and technology by the consumers/users that it is intended to. rate of adoption can depend on the characteristics of the product/process, the degree of its complexity, the characteristics of the target market, the degree of social integration of the target market, and the marketing effort of the enterprise. according to surveys, the number of consumers in serbia who are willing to order/buy via the internet is increasing, and often consumers demand from companies to introduce an online ordering option, while managers in these companies do not see the importance and significance of selling via the internet. based on the conducted research, it may be concluded that most consumers in serbia frequently use the internet direct marketing media to obtain information about products/services, companies (up to 70%), while the percentage of consumers who regularly buy online is smaller (only 4.8% of respondents said that they almost always buy in this way). conclusion references [1] corley, j.k., jourdan, z. & ingram, w.r. 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(2005). koncept nacionalnog inovacionog sistema. beograd: institut mihajlo pupin, centar za istraživanje razvoja nauke i tehnologije. [13] kutlaca, dj. & semencenko, d. (2015). nacionalni inovacioni sistem u srbiji: prošlost, sadašnjost, budućnost. beograd: institut mihajlo pupin. 70 karolina perčić, nenad perić, đuro kutlača 2019/24(2) younger consumers of serbia search information on the internet more frequently, and they also place orders via the internet and social networks. the percentages of those who order via social networks are not negligible facebook (36%) and instagram (22%) while generally, 78% of consumers have placed orders via the internet at least once over the last year. also, the purchases are more often performed via domestic sites compared to foreign ones (65%:43%). based on these results, the hypothesis 1 is entirely confirmed. considering the strength of the correlation between the variables that are examined, it can be concluded that only hypothesis 4 is confirmed there is a statistically significant correlation between the age of consumers and the frequency of visiting social networks: facebook and instagram, and following pages on these social networks. hypotheses 2, 3 and 5 have not been confirmed there is no statistically significant correlation between the variables that are tested. considering the innovators-to-laggards segmentation scheme with the results of the research, one-third of customers in serbia belong to a segment called laggards, and it show that the patience is expected from serbian organizations, because return on investment will not be so quickly realized. „higher profitability of consumers from later segments can offset firms’ investments in the innovator or early adopter segments“, (sood & kumar, 2017, p. 932). consumers may become more innovative, if most companies manage their business to achieve mentioned higher profitability of later segments, and if the country’s economy improves, generally, because the degree of adoption of novelty depends on the level of customer’s income, also. when it comes to innovation, various business entities face numerous challenges. although they are aware of the necessity of innovation in order to ensure continuous growth and development, and therefore the survival of the market, it is often the problem that innovation can’t be generated independently, especially in case of lack of knowledge and technology, and those from the field of (digital) marketing. from the point of view of marketing and its development, it is necessary to know the extent of the adoption of new knowledge and technologies in relation to internet as direct marketing media so that they can be applied in direct communication with consumers, and in order to know if the effects can be achieved that justify investing in contemporary forms of direct marketing. considering that marketing orientation has not yet been sufficiently adopted in serbia by the organizations, the paper highlights the importance of using the internet as a direct marketing (digital) media, especially social networks, which are increasingly used by consumers in serbia and have great influence to make a purchase decision. just having a page on social network will not suffice, and managers must consider digital strategies and understand the complexity of online advertising and challenges involved if they are to reap the rewards, and „firms need a clear social media strategy for innovation“, (roberts, piller & luttgens, 2016, p. 129). [14] lamberton, c. & stephen, a. t. (2016). a thematic exploration of digital, social media, and mobile marketing: research evolution from 2000 to 2015 and an agenda for future inquiry. journal of marketing, 80(6), 146–172. doi:10.1509/jm.15.0415 [15] market research agency masmi (2016a). development of e-business: study on motivators and barriers for online shopping for e-consumers in serbia. retrieved from: http://www.eposlovanje.biz/cms/istra%c5%bdivanje%20o%20podsticajima%20i%20prepre kama%20za%20e-potro%c5%a0a%c4%8ce%20u%20srbiji,%20oktobar%202016.pdf [16] market research agency masmi (2016b). e-commerce development monitoring study: the research on e-commerce in the msmes and protection of e-consumers in serbia. retrieved from: http://www.eposlovanje.biz/cms/istra%c5%bdivanje%20o%20etrgovini%20u%20mmsp%20i%20za%c5%a0titi%20epotro%c5%a0a%c4%8ca%20u%20srbiji,%20oktobar%202016.pdf [17] mosurovic ruzicic, m., semencenko, d. & kutlaca dj. (2015). inovaciona infrastruktura za transfer i difuziju tehnologija u srbiji. časopis za marketing teoriju i praksu marketing, 46(1), 36-46. doi:10.5937/markt1501036m [18] mladenovic, i., mladenovic, j. & roganovic, m. (2015). uticaj inovacija u marketing na performance malih i srednjih preduzeća. časopis za marketing teoriju i praksu marketing, 46(2), 104-114. [19] oecd – organisation for economic co-operation and development (2005, 3rd ed.). oslo manual, guidelines for collecting and interpreting innovation data. retrieved from: http://www.oecdilibrary.org/docserver/download/9205111e.pdf?expires=1506110252&id=id&accname=guest&chec ksum=206efa3896568073409d79124b36dbfd [20] reed, j. (2011). get up to speed with online marketing. great britain: financial times prentice hall, pearson. [21] roberts, d.l., piller, f.t. & luttgens, d. (2016). mapping the impact of social media for innovation: the role of social media in explaining innovation performance in the pdma comparative performance assessment study. journal of product innovation management, 33(s1), 117-135. doi:10.1111/jpim.12341 [22] rogers, e.m. (2003). diffusion of innovations (5th ed.). usa, new york: the free press. retrieved from: https://books.google.rs/books?id=9u1k5ljuowec&printsec=frontcover&source=gbs_ge_summary _r&cad=0#v=onepage&q&f=false [23] rogers, e.m. (1983). diffusion of innovations (3rd ed.). usa, new york: the free press. retrieved from: https://teddykw2.files.wordpress.com/2012/07/everett-m-rogers-diffusion-of-innovations.pdf [24] salai, s., & koncar, j. (2007). direktni marketing. subotica: univerzitet u novom sadu, ekonomski fakultet subotica. [25] sofronijevic, a., milicevic, v. & markovic, a. (2015). new internet business initiatives in the context of change management. management: journal for theory and practice management, 20(74), 37-46. doi:10.7595/management.fon.2015.0007 [26] sood, a. & kumar, v. (2017). analyzing client profitability across diffusion segments for a continuous innovation. journal of marketing research, liv, december, 932-951. doi:10.1509/jmr.16.0209 [27] sors statistical office of the republic of serbia (2016a). publication statistics of science, technology and innovation. indicators of innovative activities, 2014-2016. retrieved from: http://www.stat.gov.rs/website/repository/documents/00/01/89/77/ia01-276-inovacije_2014.pdf [28] sors statistical office of the republic of serbia (2016b). statistical yearbook of the republic of serbia science, technology and innovation, 2016. retrieved from: http://webrzs.stat.gov.rs/website/repository/documents/00/02/28/92/18_nauka_i_kultura.pdf [29] sors statistical office of the republic of serbia (2016c). ict use in the republic of serbia, 2016. retrieved from: http://pod2.stat.gov.rs/objavljenepublikacije/g2016/pdf/g20166004.pdf [30] stankovic, lj., djukic, s. & popovic, a. (2014). marketing inovacije kao izvor konkurentske prednosti preduzeća, časopis za marketing teoriju i praksu marketing, 45(4), 271-281. doi:10.5937/markt1404271s [31] zanello, g., fu, x., mohnen, p. & ventresca, m. (2016). the creation and diffusion of innovation in developing countries: a systematic literature review. journal of economic surveys, 30(5), 884–912. doi:10.1111/joes.12126 [32] zenith media (2016). zenith forecasts 75% of internet use will be mobile in 2017. retrieved from: http://www.zenithmedia.com/mobile-forecasts-75-internet-use-will-mobile-2017/ received: 2018-01-15 revision requested: 2018-03-31 revised: 2018-09-14 accepted: 2018-09-19 71 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) 72 karolina perčić, nenad perić, đuro kutlača 2019/24(2) karolina perčić belgrade metropolitan university, faculty of management, serbia karolina.percic@metropolitan.ac.rs, percic.karolina@gmail.com karolina perčić is a teaching assistant and phd student at the faculty of management of belgrade metropolitan university. she completed her bachelor academic and master studies at the faculty of economics in subotica (university of novi sad), in the field of marketing. karolina has lectured courses of management, marketing and economics for nine years. her current research interests focus on marketing and education. she has a long-standing experience in the field of marketing research. nenad perić belgrade metropolitan university, faculty of management and faculty of digital arts, serbia nenad.peric@metropolitan.ac.rs nenad perić is an associate professor at belgrade metropolitan university and full professor at academy for communications in belgrade. he is a lecturer and mentor at all levels of studies: bachelor, master and doctoral studies. nenad perić finished bachelor and postgraduate studies of management and production of arts and media at the faculty of dramatic arts in belgrade, specialized in the same field at the faculty of film and television in bratislava and acquired his phd degree in communications at the faculty for culture and media in belgrade. đuro kutlača university of belgrade, „mihajlo pupin“ institute, serbia djuro.kutlaca@pupin.rs đuro kutlača is head of science and technology policy research center and scientific advisor at institute mihajlo pupin, university of belgrade. he is full professor at university of belgrade, doctoral studies of history and philosophy of natural sciences and technology where he teaches science policy and national innovation system, technology and transition and methodology of scientific research. he was a visiting researcher at fhg institut für systemtechnik und innovationsforschung, karlsruhe, germany (1987; 1991-1992) and at science policy research unit, university of sussex, brighton, uk (1996; 1997; july 2001-october 2002). he is a former member of nesti (national experts for s&t indicators) group at oecd (1988-1992) included in preparation procedure for the following methodological documents: tbp manual version 1990, oslo manual version 1992, frascati manual version 1993. during 37 years of research experience, he was a member of research teams in 47 large r&d projects (16 financed within eu framework programmes), in the area of s&t and innovation policy; has published 40 scientific papers, and presented 170 papers at international and national scientific conferences. he is author of 4 and co-author of 31 books. he is a coordinator of national scientific projects financed by the ministry of education, science and technological development and project manager of international projects funded by different eu programmes. prof. dr đuro kutlača is a member of programme council at university of belgrade and an active business consultant in the field of enhancing innovation capacity of enterprises. specific areas of his research interest are: s&t and industry development and policy, metrics in s&t and innovation, and innovation theory and practice. he is organizer of the scientific conference "technology, culture and development” since 1994 and chair and/or member of programme committees of numerous scientific conferences. about the 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 06 85_2 susilowati:tipska.qxd 65 etty susilowati*, mohammad guntur ardhita putra budiluhur university, faculty of economics and business, international business and management studies, indonesia management: journal of sustainable business and management solutions in emerging economies 2020/25(2) smartphone brand loyalty and consumer heterogeneity doi: 10.7595/management.fon.2020.0007 abstract: 1. introduction nowadays, marketing is a very important aspect of a company’s life, without proper marketing strategies of which companies will not be able to enter and maintain the product life cycles. currently, the marketers face high challenges to take up the appropriate marketing strategies due to a high variety of the products, high customer expectations and rapid industrial growths. samsung electronics co., ltd. is a south korean multinational electronics company headquartered in suwon, south korea. it is the flagship division of the samsung group, which accounts for 70% of the group’s revenue in 2012 (klimes, 2019). it is the world’s second largest information technology company by revenue, after apple inc. (forbes, 2019). samsung electronics has assembled sales networks in 80 countries and employs around 370,000 people (shams, 2016). data indicated that in 2015 and 2014, samsung smartphones had the highest shipment volume and market share compared to competitors’ brands such as apple, huawei, lenovo, and xiaomi. the shipment volumes reached the value of 324.8 million units in 2015, which was higher than apple (231.5 million units), huawei (106.6 million units), lenovo (74 million units), and xiaomi (70.8 million units). the market share of samsung in 2015 reached the value of 22.7 %, which was higher than apple (16.2%), huawei (7.4%), lenovo (5.2%), and xiaomi (4.9%). the same condition also applied in 2014 where samsung still led both in shipment volumes and market share in comparison with the other four brands (idc, 2016). the high popularity of samsung smart * corresponding author: etty susilowati, e-mail: ettysslwt@gmail.com research question: the purpose of this study is to examine the effect of sales promotion and advertisement on brand association and brand loyalty of samsung smartphones via the analysis of gender and age as moderating variables. motivation: the motivation for this study emerges from the fact that the effect of sales promotion and advertisement on brand loyalty have not considered the effects of consumer heterogeneity such as age and gender. idea: the core idea of this study is to verify the effect of monetary promotion, non-monetary promotion, perceived advertising, and individual attitude towards brand association and brand loyalty through the moderate effects of age and gender. data: this research was carried out in south jakarta, indonesia by employing a simple random sampling method and questionnaires distributed to 100 respondents. tools: data were analyzed by using partial least square structural equation (pls-sem) method and the smartpls 3.0 software. the pls-sem was performed with a two-step approach by analyzing the outer and inner model, afterwards followed by a multi-group analysis to analyze moderating effects of both variables of gender and age. findings: the findings indicate that non-monetary promotion and individual attitude towards advertising significantly affect brand association while brand association significantly affects brand loyalty. gender and age-specific analyses indicate that gender differences significantly moderate the influence of individual attitude towards advertising on brand association and age differences significantly moderate the effect of monetary promotion on brand association. moreover, women, men, younger and older consumers behave differently towards sales promotion. contribution: this study contributes to the literature by adding empirical evidences in terms of how different consumers respond to sales promotion and advertising as well as further effects on brand association and brand loyalty. keywords: sales promotion, advertisement, brand association, brand loyalty, age, gender jel classification: m31, m37 phones in indonesia is not separated from the role of sales promotion and advertising conducted by the company. the company claims to control 50% of the smartphone market share in indonesia. a majority of their consumers are loyal consumers (wardani, 2019). some marketing strategies undertaken by this company to maintain its market share, including conducting market research, developing related business ecosystems such as providing operator services and developing applications, as well as building partnerships with retail business partners to distribute its products (arum, 2013). previous studies have proven positive relationships between sales promotion and advertisement on brand association and brand loyalty (valette-florence, guizani, & merunka, 2011; buil, de chernatony, & martínez, 2013; boyland, & halford, 2013). in this study, we examine the effect of sales promotion and advertisement on brand associations and brand loyalty of samsung smartphones through an analysis of gender and age as moderating variables. this is because the two variables have been verified to significantly affect consumer behavior in the prior studies (verhaeghen, marcoen, & goossens, 1993; loo, 2000; finucane, slovic, hibbard, peters, mertz, & macgregor, 2002; strough, cheng, & swenson (2002); ellen, hess thomas, daniel, & corinne, 2007; bruine de bruin, parker, & fischhoff, 2007; sun, fang, & lim, 2012; huang & benyoucef, 2017). prior studies have not considered the effects that resulted from consumer heterogeneity (age and gender). therefore, this study contributes to the literature in adding empirical evidence to how male and female consumers as well as younger and the older groups respond to sales promotions and advertisements offered by companies and the effects on creating brand associations and brand loyalty. the remaining part of this study is organized as follows: we will explain the literature review, the hypotheses development, and the proposed structural model in the next section. in the third section, we will further explain the sampling, measurements and data analysis, followed by the findings and discussion in the fourth section and finally with the conclusions of the study. 2. literature review this section will briefly describe the variables used in this study based on the theories and previous studies. it is used as the rationalization for the hypothesis development and the structural model. the variables are monetary and non-monetary sales promotion, perceived advertising, brand associations, brand loyalty, as well as gender and age as moderating variables. 2.1 sales promotion sales promotion is one of the five aspects of the promotional mix which the other four aspects are advertising, personal selling, direct marketing and publicity or public relations (rowley, 1998). sales promotion can be undertaken in the form of product display, contest, voucher, free product, gift, discount price, and rebate (tellis, 1998). all these tools are used to increase product sales in the short run (kotler & amstrong, 1997; kotler & amstrong, 2008) while sales promotion is proved to increase demand and positively affect consumer purchasing behavior (greenleaf & lehmann, 1995; laroche, kim, & zhou, 1996; thomas & menon, 2007; santini, sampaio, perin, & vieira, (2015); luxton & brito, 2015). on the contrary, this variable proved to have positive and negative effects on brand equity. monetary sales promotion such as discounts or coupons is proved to negatively affect brand equity (yoo, donthu, & lee, 2000). this is because most consumers set the price as one indicator of product quality. providing discounts or coupons will result in price reductions and decline the consumers’ perceptions of product quality (agarwal & teas, 2002; delvecchio, henard, & freling, 2006). non-monetary sales promotion, however, has the opposite effect in which the provision of free products and gifts proves to increase the brand’s product equity (chu & keh, 2006; palazón and delgado-ballester, 2009; buil et al., 2013). according to the above explanations, the hypotheses that will be tested in this study are: hypothesis 1. monetary promotion has a negative effect on brand association hypothesis 2. non-monetary promotion has a positive effect on brand association 2.2 advertising advertising is a form of non-personal marketing communication that gives information about products and services or ideas through various media such as newspapers, magazines, television, radio, outdoor advertising, or online media such as search results, blogs, or websites (bovee, 1992). advertising is differentiated from public relations in that an advertiser usually pays for and has control over the message. it is differentiated from personal selling in that the message is non-personal, i.e., not directed to a particular individual. advertising is communicated through various mass media. previous studies have been carried out to ana66 etty susilowati, mohammad guntur ardhita putra 2020/25(2) lyze a broader impact of these variables on attracting consumers’ attention (nettelhorst & brannon, 2012), increasing sales (kotler & amstrong, 2010; akanbi & adeyeye, 2011), and affecting consumer attitudes towards products (jeong & jang, 2016 ; shareef et al., 2017; stroup & branstetter, 2018), whereas according to hasan (2010) and goodrich (2014), the gender difference also serves as a moderating role in influencing consumer behavioral intention. to examine the effect of advertising on brand equity, buil et al. (2013) utilizes perceived advertising and individual attitudes towards advertising. perceived advertising is the consumer’s perception of how much advertising the company is doing. the more advertising applied, the more inheriting a brand in the minds of consumers. meanwhile, the consumer’s perception of the attributes and brand quality of products affects the individual attitudes towards advertising (buil et al., 2013). according to the above explanations, the hypotheses that will be tested in this study are: hypothesis 3. perceived advertising has a positive effect on brand association hypothesis 4. individual attitude towards advertising has a positive effect on brand association 2.3 brand associations and brand loyalty brand association and brand loyalty are elements of the brand equity. these two variables are the two highest dimensions of brand equity (aaker, 2009). brand association is a collection of information and impressions attached to a consumer’s memory of a particular brand (aaker, 2009) while brand loyalty is the commitment of consumers to make a consistent purchase of a particular brand of product or service without being affected by the influence of a competitor’s brand (oliver, 2014). brand equity is a set of branded assets that can subtract the value provided by the products or services to companies and customers (aaker, 2009). brand association and brand loyalty have significantly affected brand equity (yoo, et al., 2000). brand association is also sometimes considered as brand awareness (yoo et al., 2000). the positive relationship of brand association and brand loyalty has been proven by keller & lehmann (2003), pappu, quester, & cooksey, (2005), & buil et al., 2013). in addition, there is a positive relationship between sales promotion, advertisement and brand equity (valette-florence et al., 2011; buil et al., 2013; boyland, & halford, 2013). the results of prior studies indicate a positive relationship of sales promotion and advertising on brand equity. according to the above explanations, the hypothesis that will be tested in this study is: hypothesis 5. brand association has a positive effect on brand loyalty 2.4 gender and age considerations gender and age have been proven to affect consumer purchasing decisions (sun et al., 2012; huang & benyoucef, 2017). when purchasing, women tend to access all information related to the product or service they want to buy, whereas males only access some of the information that is perceived as trustworthy and important (yang & chen, 2010). in addition, females are more affected by others and environments than males (tamres, janicki, & helgeson, 2002). mazumdar & papatla (1995), harmon & hill (2003), and kwon & kwon (2007) prove that women are affected by the type of promotion that affects transactional prices such as coupons, but more likely to be affected by the type of promotion affecting acquisition values such as rebates and non-monetary promotions. besides, females are affected by more verbal than visual advertisements (putrevu, 2014). in addition to gender, another factor that significantly affects purchasing decisions is consumer age. some research suggests that the ability of consumers to make rational decisions is diminished in the older group (verhaeghen et al.,1993; loo, 2000; ellen et al., 2007) while other studies suggest that the older group make more rational and intuitive decisions than the younger group (bruine de bruin et al., 2007). also, the older group is more likely to delegate decisions than the younger group (finucane et al., 2002; strough et al., 2002). according to the above explanations, the hypotheses that will be tested are: hypothesis 6a. the effect of monetary promotion on brand association is moderated by gender hypothesis 6b. the effect of non-monetary promotion on brand association is moderated by gender hypothesis 6c. the effect of perceived advertising on brand association is moderated by gender hypothesis 6d. the effect of individual attitude on brand association is moderated by gender hypothesis 6e. the effect of brand association on brand loyalty is moderated by gender hypothesis 7a. the effect of monetary promotion on brand association is moderated by age hypothesis 7b. the effect of non-monetary promotion on brand association is moderated by age hypothesis 7c. the effect of perceived advertising on brand association is moderated by age hypothesis 7d. the effect of individual attitude on brand association is moderated by age hypothesis 7e. the effect of brand association on brand loyalty is moderated by age 67 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) 3. methodology 3.1 sampling and measurements questionnaires with five-point likert scales (1 = strongly disagree; 5 = strongly agree) were distributed to 130 smartphone owners in south jakarta, indonesia. the samples were selected through random sampling method and the questionnaires were distributed by using google forms from august until december 2018. sales promotions are segmented into monetary and non-monetary promotions following buil et al. (2013). monetary promotions consist of price discounts (x1, x2, x3) and cashbacks (x4, x5, x6) while non-monetary promotions consist of free items (x7, x8) and gifts (x9). in addition, advertising is segmented into perceived advertising and individual attitudes (buil et al., 2013). perceived advertising consists of varieties of online advertising (x10) and advertising media (x11) while individual attitudes consist of the capabilities of commercial tv smartphones to be remembered by consumers (x12), the ability of the smartphone company promoting the advantages of the smartphones in television advertising (x13), and the uniqueness of smartphone advertising (x14). brand association is measured through the credibility of samsung company (x15), the clear image of the type person who uses the brand (x16), whether the brand has a personality and is interesting (x17). finally, brand loyalty is measured through the willingness of consumers to buy samsung smartphones (x18), the brand as consumers’ first choices, and the superiority of the brand compared to other brands, whether samsung smartphones are the first consumer choice (x19), whether consumer prefers samsung smartphones to other brands (x20) (keller & lehmann, 2003; pappu et al., 2005; buil et al., 2013). more information can be found in appendix a.1. the structural model is shown in figure 1 below. note: —moderating effects figure 1: the structural model 3.2 data analysis data analysis was performed by using partial least square structural equation (pls-sem) method and the smartpls 3.0 software. the use of this method is selected precisely because of the relatively small number of respondents causing covariance-based sem analysis not possible to be applied. the pls-sem analysis was performed with a two-step approach by analyzing the outer model (evaluation of measurement model) and followed by analyzing the inner model (yamin & kurniawan, 2011). first, the pls-sem analysis is performed on all data sets, followed by a multi-group analysis to analyze moderating effects of both variables of gender and age. 4. findings 4.1 respondents characteristics in this study, we distributed questionnaires to 130 respondents. however, only 100 data were used since 30 respondents did not have any experience in using a samsung smartphone. the respondents sample consisted of university students (51%), employees (26%), high school students (18%), and others (5%) in south 68 etty susilowati, mohammad guntur ardhita putra 2020/25(2) monetary promotions individual attitudes non-monetary promotions perceived advertising x1 x2 x3 x4 x5 x8 x6 x7 x14 x9 x10 x11 x12 x13 brand associations brand loyalty x15 x16 x17 x19 x20 x18 gender age jakarta. as many as 52% of respondents were women, while the other 48% were men. based on age, 57% were aged 21 to 30, 40% were aged less than 20, and 3% were aged 31 to 40. as many as 56% earn less than rp 1,500,000, 25% between rp 1,500,000 to rp 2,500,000, 10% between rp 2,500,000 to rp 3,500,000, 6% between rp 3,500,000 to rp 4,500,000, and 3% more than rp 4,500,000. 4.2 pls-sem results the first analysis of pls-sem is an outer model analysis that is by evaluating the measurement model (yamin & kurniawan, 2011). this evaluation is performed by looking at the result of convergent and discriminant validity. the result indicates that convergent validity has been attained. all values of factor loadings are > 0.50 and t-statistics are > 2.0. moreover, the value of composite reliability and cronbach’s alpha of all latent variables are > 0.70. finally, the average variance extracted (ave) value of all indicators are > 0.50 (fornell & larcker, 1981) (table 1). table 1: results of measurement model note: *** p<0.01; **p<0.05; *p<0.10 source: processed data the next evaluation is to assess discriminant validity by looking at the cross loadings of each manifest variable with the latent variables. the model is deduced to have good discriminant validity when the correlation between the manifest variable is higher against the latent variables in comparison with the other latent variables (yamin & kurniawan, 2011). table 2 summed up that the condition has been attained. 69 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) latent variables manifest variables standardized regression coefficients average variance extracted (ave) composite reliability cronbach’s alpha rho a monetary promotion x1 0.769*** 0.525 0.868 0.818 0.831 x2 0.636*** x3 0.736*** x4 0.719*** x5 0.739*** x6 0.739*** non-monetary promotion x7 0.798*** 0.723 0.887 0.813 0.848 x8 0.872*** x9 0.879*** perceived advertising x10 0.928*** 0.748 0.855 0.679 0.790 x11 0.796*** individual attitude towards advertising x12 0.883*** 0.710 0.880 0.796 0.812 x13 0.781*** x14 0.860*** brand association x15 0.935*** 0.816 0.930 0.887 0.901 x16 0.863*** x17 0.911*** brand loyalty x18 0.895*** 0.748 0.878 0.790 0.800 x19 0.856*** x20 0.764*** table 2: cross loadings results source: processed data the second analysis of pls-sem is the inner model analysis by evaluating the structural model (yamin & kurniawan, 2011). this evaluation is performed by looking at the path coefficients, r-square values, and multicollinearity between variables. non-monetary promotion and individual attitude towards advertising significantly affect brand associations (coef. = 0.370; p-value= 0.05 and coef. = 0.207; p-value= 0.05, respectively). therefore, hypotheses 2 and 4 are statistically supported. non-monetary promotion has a greater effect on brand association than individual attitude towards advertising. in contrast, monetary promotion and perceived advertising do not significantly affect brand association. furthermore, brand association significantly affects brand loyalty (coef. = 0.843; p-value= 0.01). therefore hypothesis 5 is statistically supported (table 3). the r-square values indicates that the value of brand association is 40.1 % and the brand loyalty is 71.1 %. according to latan & ramli (2013), the values above 0.40 and 0.75 denote moderate and strong models, respectively. the result of variance inflation factor (vif) values all variables are < 3 indicate the absence of multicollinearity. table 3: path coefficients source: processed data notes: *** p<0.01; **p<0.05; *p<0.10 70 etty susilowati, mohammad guntur ardhita putra 2020/25(2) monetary promotion non-monetary promotion perceived advertising individual attitudes towards advertising brand association brand loyalty x1 0.769 0.391 0.333 0.309 0.432 0.408 x2 0.636 0.236 0.261 0.184 0.253 0.292 x3 0.736 0.423 0.201 0.123 0.315 0.352 x4 0.719 0.555 0.195 0.312 0.333 0.395 x5 0.739 0.570 0.272 0.418 0.355 0.415 x6 0.739 0.586 0.285 0.319 0.333 0.392 x7 0.457 0.798 0.222 0.262 0.345 0.318 x8 0.539 0.872 0.156 0.174 0.449 0.417 x9 0.615 0.879 0.317 0.335 0.547 0.499 x10 0.382 0.285 0.928 0.620 0.420 0.455 x11 0.207 0.180 0.796 0.340 0.258 0.261 x12 0.367 0.290 0.457 0.883 0.374 0.438 x13 0.188 0.247 0.445 0.781 0.318 0.332 x14 0.406 0.240 0.563 0.860 0.425 0.415 x15 0.436 0.542 0.366 0.452 0.935 0.805 x16 0.394 0.424 0.327 0.304 0.863 0.647 x17 0.449 0.488 0.408 0.438 0.911 0.815 x18 0.504 0.492 0.448 0.547 0.776 0.895 x19 0.338 0.385 0.259 0.326 0.693 0.856 x20 0.473 0.364 0.382 0.297 0.650 0.764 structural path direct effect indirect effect total effect monetary promotion -> brand association 0.102 0.102 monetary promotion -> brand loyalty 0.086 0.086 non-monetary promotion -> brand association 0.370 0.370** non-monetary promotion -> brand loyalty 0.312 0.312** perceived advertising -> brand association 0.147 0.147 perceived advertising -> brand loyalty 0.124 0.124 individual attitude towards advertising -> brand association 0.207 0.207** individual attitude towards advertising -> brand loyalty 0.175 0.175** brand association -> brand loyalty 0.843 0.843*** the relationship of all variables is presented in figure 2 below. figure 2: structural result of pls-sem 4.3 moderating effects analyses to capture the moderating effects of gender and age, partial least square multi group analysis (pls-mga) was applied to the dataset following henseler, ringle, & sinkovics (2009) and hew, badaruddin, & moorthy (2017). as proposed by hew et al. (2017), 5000 bootstrapping samples were used for robust group comparison results. the results of pls-mga with gender as moderating variable are summed up in table 4. gender differences are judged as significant if p-value > 0.90 (hew et al., 2017). gender differences significantly moderate the effect of individual attitude towards advertising on brand association while the effect is relatively higher in women (coef. = 0.374; p-value= 0.05 and coef.= 0.048; p-value= 0.05, respectively). therefore, hypothesis 6d is supported. the r-square values of brand associations and brand loyalty are 45.8 % and 73.7 %, respectively. table 4: pls-mga results of gender as a moderating variable source: processed data notes: *** p<0.01; **p<0.05; *p<0.10 furthermore, the result of pls-mga with age as a moderating variable is summed up in table 5. consumer age is segmented into two; less than and over 20 years of age. the age differences significantly moderate the influence of monetary promotion on brand association in which the effect of monetary promotion is positive for the the older group (coef.= 0.072; p-value= 0.01 and coef.= 0.424; p-value= 0.01, respectively). be71 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) 0.102 0.370 0.207** 0.935 0.863 0.911 0.769 0.843*** 0.895 0.856 0.764 0.798 0.872 0.879 0.928 0.796 0.883 0.781 0.860 0.769 0.636 0.736 0.719 0.739 0.739 monetary promotion individual attitude non-monetary promotion perceived advertising x1 x2 x3 x4 x5 x8 x6 x7 x14 x9 x10 x11 x12 x13 brand associations brand loyalty x15 x16 x17 x19 x20 x18 hypotheses paths men women path coef.differences pvalue h6a monetary promotion -> brand association -0.015 0.027 0.041 0.563 h6b non-monetary promotion -> brand association 0.623*** 0.311** 0.313 0.102 h6c perceived advertising -> brand association 0.242** 0.188 0.054 0.420 h6d individual attitude -> brand association 0.048 0.374** 0.326 0.935 h6e brand association -> brand loyalty 0.850*** 0.858*** 0.008 0.575 sides, age differences also significantly moderate the effect of individual attitude towards advertising on brand association while the negative effects are found in the older group (coef.= 0.290; p-value= 0.10) and positive in the younger group (coef.= 0.249; p-value= 0.10). hence hypotheses 7a and 7d are statistically supported. the r-square values of brand association and brand loyalty are 43 % and 72.3 %, respectively. table 5: pls-mga results of age as a moderating variable source: processed data notes: *** p<0.01; **p<0.05; *p<0.10 5. discussion according to the empirical analysis results, it is proved that non-monetary promotion and individual attitude towards advertising significantly affect brand association of samsung smartphones. non-monetary promotion has a positive effect on brand association. the result has supported chu & keh (2006), palazón & delgado-ballester (2009), as well as buil et al. (2013). in contrast, monetary promotion has no significant effect on brand association. individual attitude towards advertising also has a positive effect on brand association of samsung smartphones. the result has supported buil et al. (2013) and kotler & keller (2007). there are three key factors to consider, namely 1) the quality of the advertised message, 2) the way the message is delivered, and 3) the frequency of the message delivered. to that end, a more qualified, creative and attractive advertisement will influence consumers and brand association (moorthy & hawkins, 2005; keller, parameswaran, & jacob, 2011). perceived advertising including media and frequency of advertising does not significantly affect brand association of samsung smartphones. the empirical results also indicate that brand association has a positive effect on brand loyalty. the result has supported keller & lehmann (2003), pappu et al. (2005), & buil et al. (2013). furthermore, the result of empirical analysis by incorporating gender as moderating variable indicates that, from the five hypotheses tested, only the effect of individual attitude towards advertising towards brand association is moderated by the differences between men and women (hypothesis 6d) while individual attitude towards advertising has no effect against brand association in men. moreover, the results obtained by using age as a moderating variable indicate that the differences of consumer age only moderate the effect of monetary promotions on brand associations (hypothesis 7a) while in younger consumers the effect of monetary promotion is not significant to brand association. in addition, consumer age differences also moderate the effect of individual attitude towards advertising on brand association (hypothesis 7d) in which the effect of individual attitude is not significant to younger consumers. overall results indicate that gender and age differences do not moderate the effect of sales promotion and advertising on brand association nor the effect of brand association on brand loyalty. women, men, younger and older consumers behave differently towards sales promotion and advertising as suggested by hew et al. (2017). men are more affected by non-monetary promotion than women. conversely, although the result is not significant at p-value 0.10, the difference in coefficient of monetary promotion indicates that women are more affected by this type of promotion while the coefficient is negative in men. the results are consistent with mazumdar & papatla (1995) and harmon & hill (2003) that women are more affected by monetary promotions, including coupons. the plausible explanation is due to the role of women as the person responsible for the family financially, so that they tend to spend the money with full consideration. however, harmon & hill (2003) prove that the effect of non-monetary promotion may differ on the type of promotions provided. for example, rebates are more gender neutral than coupons. more rebates are given for non-grocery products. in this study, the monetary effect covers price reduction, cashback (rebates) and we 72 etty susilowati, mohammad guntur ardhita putra 2020/25(2) hypotheses paths age < 20 age > 20 path coef.differences p-value h7a monetary promotion -> brand association -0.072 0.424*** 0.495 0.951 h7b non-monetary promotion -> brand association 0.492* 0.383** 0.109 0.388 h7c perceived advertising -> brand association 0.133 0.286 0.153 0.707 h7d individual attitude towards advertising -> brand association 0.249 -0.290* 0.539 0.034 h7e brand association -> brand loyalty 0.857*** 0.862*** 0.004 0.549 surprisingly find that women tend to be more affected by this kind of monetary promotions. non-monetary in this study includes additional items and gifts. kwon & kwon (2007) further mentions that women and men respond differently to certain types of promotions as they refer to female and masculine identity. female identity is more easily affected by transaction value, whereas masculine identity is more affected by acquisition utility. therefore, men are more affected by rebates and non-monetary promotions than women. furthermore, empirical analysis indicates that the younger group is more affected by non-monetary promotions than the older group. in contrast, monetary promotions only affect the older group. lambert-pandraud, laurent, & lapersonne (2005) suggest that the older group is more loyal to brands than the younger group. it causes the younger group to be more price sensitive than older consumers. in addition, the older group tends to have higher income (lee, 1997). however, surprisingly in this study, we find the opposite – that non-monetary promotion highly affects the younger group. it is because the younger group in this study includes consumers less than 20 years old and most of consumers at this age level are high school and university students who have not made their own income. this consumer group uses their parents’ money to make purchases. therefore, they are more non price elastic in comparison with older consumers. this study provides information to the smartphone managers of the powerful effect of non-monetary promotions and individual attitudes in shaping brand associations that will ultimately shape consumer loyalty. the effect of promotion in the form of free items and gifts on consumer brand equity is relatively higher than on monetary promotions such as discounts, rebates, or coupons. in addition, the effect of ad quality and its creativity is higher than either the media employed or the frequency of advertising given. the results of this study will be useful for managers in determining the appropriate type of promotions based on consumers’ gender and ages. men are more influenced by non-monetary promotions while women are otherwise. references [1] aaker, d. a. 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(2000). an examination of selected marketing mix elements and brand equity. journal of the academy of marketing science, 28(2), 195-211. doi: 10.1177/0092070300282002 received: 2018-11-13 revision requested: 2019-03-27 revised: 2019-06-20 (3 revisions) accepted: 2020-02-27 75 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) 76 etty susilowati, mohammad guntur ardhita putra 2020/25(2) etty susilowati budiluhur university, faculty of economics and business, international business and management studies, indonesia e-mail: ettysslwt@gmail.com etty susilowati is a lecturer with a phd in strategic management. since 2017, she has been employed at the faculty of economics and business, budiluhur university, indonesia. her area of expertise is strategic and financial management. besides, she has years of experience as a director and senior specialist in the fields of marketing, financing, and business in various private and state-owned companies in indonesia. mohammad guntur ardhita putra budiluhur university, faculty of economics and business, international business and management studies, indonesia e-mail: gunturardhita216@gmail.com mohammad guntur ardhita putra is a student of international business and management studies at the faculty of economics and business, budiluhur university, indonesia. appendix a table a.1: variable measurements latent variables labels manifest variables monetary promotion (buil et al., 2013) x1 samsung lowered its product price over time x2 samsung gives a promotional price for a certain period of time x3 samsung often gives price reduction x4 samsung provides cashback x5 cashback is satisfactory x6 cashback is one of the advantages of all kind of samsung promotions non-monetary promotion (buil et al., 2013) x7 samsung gives additional items for each purchase x8 samsung gives free gifts for each purchase x9 free gifts and additional items are very interesting perceived advertising (buil et al., 2013) x10 samsung provides a variety of online advertising x11 samsung uses online internet as its advertising medium individual attitude towards advertising (buil et al., 2013) x12 samsung tv commercial is memorable x13 samsung shows the advantages of its smartphones in television advertising x14 samsung television advertising has a unique concept brand association (keller & lehmann, 2003; pappu et al., 2005; buil et al., 2013) x15 samsung company has a credibility x16 i have a clear image of the type of person who use samsung products x17 samsung has a personality and is interesting brand loyalty (keller & lehmann, 2003; pappu et al., 2005; buil et al., 2013) x18 i always want to purchase a new type of samsung smartphone x19 samsung becomes my first choice x20 i prefer samsung to other brands about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01 85_2 tonjanski:tipska.qxd 1 vesna tornjanski1, dejan petrović1, sandra nešić2 1university of belgrade, faculty of organizational sciences, serbia 2singidunum university, faculty of media and communications, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(2) effectiveness of knowledge transfer between project team members in digitally disrupted organizations doi: 10.7595/management.fon.2018.0034 abstract: 1. introduction the banking sector in serbia faces unprecedented challenges imposed by the fourth industrial revolution, strong competition, frequent structural, regulatory and technological developments, economic crisis and iterative customers’ requirements. these underlying influences have intensified initiation and implementation of various changes through projects within banks, of which the most prominent are it based (tornjanski et al., 2017a). as more and more sectors adopt a project-based mode of operation, project journey acquires accelerated significance within organizations and management science nowadays. projects are defined as organizations, created with specific aim and scope and built upon predefined and definite periods of time (gann and salter, 1998; turner and muller, 2003; cacciatori et al., 2012; todorovic et al., 2015). many authors (e.g., 1corresponding author: vesna tronjanski, e-mail: vtornjanski@gmail.com research question: the study aims to extend and deepen the understanding of maturity level of knowledge transfer effectiveness between project team members in an organization in which disruptive innovations and external forces foster acceleration of various types of changes within organization. motivation / idea: banks in serbia are characterized by dominant functional organizational structure in which knowledge is acquired and stored in well-established departments and branches. on the other hand, the banking sector in serbia is going through transformation mainly due to external forces that accelerate significant changes, at the same time implying meaningful increase in number and types of projects which are becoming increasingly demanding and complex. these factors further imply a shift from functionally-based operations to project-based operations. a radical shift of temporary organization from functionally-oriented to project-oriented foster new challenges when knowledge transformation is in question. accordingly, the purpose of this paper is to research predictors for knowledge transfer success between project teams and to reveal major barriers to knowledge transfer effectiveness in the banking sector. data / tools: this paper opted for a survey research method and the sampling frame includes 13 banks that operate in serbia. findings: research results show that knowledge transformation between project team members is low. moreover, very dynamic circumstances, projects complexity and tight deadlines create new challenges when knowledge transfer effectiveness is in question. accordingly, research results show that organizational understanding, valuing and adequate support for knowledge acquisition and transfer represent significant indicators for knowledge transfer success within project teams in the banking industry of serbia. besides, individual readiness, efforts, capabilities and history of successful knowledge transfer play an important role in knowledge transformation success. finally, regression analysis output disclosed that all observed aspects, i.e., characteristics of knowledge transfer, individual and organizational aspects represent significant simultaneous predictors for knowledge transfer success between project teams in the banking sector of serbia. contribution: the paper contributes to enriching the literature on knowledge transfer between project teams in an industry’s, country’s and regional contexts that have been poorly addressed so far. by focusing on this phenomenon, the paper contributes to project managers, strategic managers and policy makers by addressing the gap between importance of knowledge transfer in one hand, and poor project outcomes on the other. keywords: knowledge transfer effectiveness, banking industry, digital disruption, empirical research, project success jel classification: g21, o22, d83 markus and benjamin, 1996; turner et al., 1996; markus, 2004; peppard et al., 2007; crawford and nahmias, 2010) have recognized that projects can be significant drivers of change within organizations, having principal dependency on information technologies and knowledge as a strategic resource (mehta et al., 2014). knowledge represents a vital invisible organizational value that creates individuals and contributes to improvement of firm’s competitive advantage (drucker, 1993). a knowledge-based perspective of an organization has emerged in the literature of strategic management and extends the resource-based theory (alavi and leidner, 2001). the importance of knowledge, its way of acquiring, using and sharing, is widely accepted as key to project and organizational performances, respectively (prusak, 2015). zhao et al. (2015) argue that effective knowledge transfer exerts a positive outcome on project efficiency, effectiveness and improved quality of services. however, due to temporary nature of projects, collecting and transferring knowledge is more difficult in project-type operations than in continuous operations (cacciatori et al., 2012). despite the relevance that knowledge transfer phenomenon has on an overall project performance, mckinsey and the university of oxford revealed that large it projects exceed budget by 45%, break the schedule plan by 7%, and deliver 56% less business value than expected (bloch et al., 2012). similarly, research results from the chaos manifesto of 2013, show that only 39% of worldwide it projects achieved project management success (the standish group international, 2013). taking into account an evident gap between importance of knowledge transfer, on one hand, and poor project outcomes on the other, effectiveness of knowledge transfer in project adventure remains to be a challenging task that requires deeper understanding and research. moreover, little is known about effects of knowledge transfer in banking – the industry that is in a revolutionary transfer process. accordingly, for both practical and theoretical reasons, this study is developed to research the effectiveness of knowledge transfer between project team members in digitally disrupted organizations. the purpose of this study is to clarify the biggest challenges of effective knowledge transfer during project journeys in banks that operate in serbia. the paper is organised as follows. the literature review section unfolds an overview of the industry under study and exhibits the backgrounds of knowledge transfer among project team members. the research method is then introduced with a detailed explanation of the steps, measures and a sample. afterwards, the results and discussion of the study are presented. finally, the paper concludes with the implications and recommendations to practice, along with the suggestions for future research. 2. literature review 2.1. an overview of the industry under study the banking sector of serbia has experienced significant transfer in past decades. the 1990s were characterized by political instability, hyperinflation and collapse of the financial service sector. however, at the beginning of the 21st century, the banking sector of serbia has begun to recover due to structural economic reforms and has taken restructuring measures that resulted in a significant level of the sector’s stability. with the wave of privatization, liberalization and consolidation, considerable developments have been made in the banking industry. these efforts were recognized as key elements of successful transition towards a system that is market-oriented, attributing to a more efficient and well-functioning sector (barisitz and gardo, 2008; sokic, 2015). since 2008, the global economic crisis has caused structural weaknesses of the banking sector that led to the recession in 2009. macroeconomic volatility, fast-changing and unpredictable business environment represent crucial issues that banksare still struggling against aiming for further growth. moreover, a high level of competition between 30 active banks, technology and digital innovations, heterogeneity of customers’ needs and shortened product life cycles have imposed additional challenges to banks, signifying continuous change of their strategic focus and competitive dynamics (nbs, 2016; tornjanski et al., 2017; tornjanski et al., 2017a). in the era of the fourth industrial revolution, the banking sector of serbia is at the beginning of a new journey, strengthened to find a perfect equilibrium between all influential factors that disturb the banking business, of which the most challenging are: harmonization between regulatory requirements, intensified changes in customers’ needs and evolving digital disruption (tornjanski et al., 2017a). in such circumstances, projects represent important vehicles for all organizational changes, particularly those that are based on information technologies. 2.2. knowledge transfer between project team members according to kirchner & cudanov (2011), knowledge-intensive organizations are characterized by a quick change and involvement of many employees that are pursuing different business activities. in such organizations, knowledge is recognized as diverse; with vast proportions that steadily grow. hence, the distribution of knowledge between project team members, individuals and communities of practices is viewed as 2 vesna tornjanski, dejan petrović, sandra nešić 2020/25(2) an important factor. according to stevens and campion (1994), an overall capability of a team to harmonize knowledge and skills of its members is considered as a basic principle for successful accomplishment of team work. furthermore, capabilities of project teams of managing and exploiting knowledge have been certified to play a weighty function in executing projects (teerajetgul et al., 2009). most studies have adopted knowledge transfer as a process that consists of two sub-processes, i.e., sending knowledge and receiving knowledge (ko et al., 2005; zhao et al., 2015). other scholars see knowledge flows as “knowledge as a solution”, “knowledge as experience” and “socially created knowledge” (snider and nissen, 2003; ajmal and koskinen, 2008). one of the definitions of knowledge transfer states that knowledge transfer is: “the methodical replication of the expertise, wisdom, insight, and tacit knowledge of key professionals into the heads and hands of their co-workers. it is more than just on-the-job training. in organizational theory, knowledge transfer is the practical problem of transferring knowledge from one part of the organization to another. knowledge transfer seeks to organize, create, capture, or distribute the “know-how” of the most expert in a field and ensure its availability for future stakeholders” (howlett et al., 2011; prusak, 2015, p.6). other authors outline knowledge transfer as “the process by which one unit of an organization, such as a group or department, is affected by the experience of another” (argote and ingram, 2000, p.151). according to zhao et al. (2015), cross-project knowledge transfer is viewed as “the communication activities of knowledge from a source project to a recipient project so that the useful knowledge is absorbed and reused by the recipient project”. based on the thematic analysis carried out by broadley et al. (2016), authors argue that nuanced range of tools, techniques and methods can strengthen the multidisciplinary engagement and can create a shift from co-design methods to sustain collaborative mindsets in knowledge swap toward innovation. when innovation is in question, cross-boundary teaming is viewed as an increasingly popular strategy for innovation. according to the authors, knowledge diversity represents an asset to extend the range of views and ideas that teams can use to innovate (edmondson et al., 2018). to enhance the capacity of a project team to innovate and manage information, huang and chin (2018) suggest adoption of collective teaching to create team intelligence. moreover, results from the research study taken by prieto-pastor et al. (2018) show that knowledge integration represents a benefit for exploratory and exploitive learning, implying that r&d organizations may be ambidextrous in managing knowledge. several studies have been conducted to identify and clarify a set of factors that disturb effective cross-project knowledge transfer at both organizational and individual levels. according to bakker et al. (2011), there are five factors, i.e., relational embeddedness, cognitive embeddedness, temporal embeddedness, absorptive capacity and motivation that represent forceful predictors of the degree of project knowledge transfer. lewis et al. (2005) note that project task similarity is the precondition for effective knowledge transfer. on the other hand, park et al. (2008) point out that time urgency needed for project completion is an important factor for a successful knowledge transfer among project team members (zhao et al., 2015). de long and fahey (2000) have found that organizational culture plays an important role in knowledge origination, exchange, and purposive utilization. in addition to this, naftanaila (2010) notes that flat organizational culture and decentralized decision-making support knowledge transfer among project team members. besides, naftanaila (2010) point out that management style, trust, motivation and values can also influence knowledge flows among project team members. banks in serbia are characterized by functional organizational structure. according to ajmal and koskinen (2008), in functional organizations, knowledge is acquired and stored in well-established departments and branches. in such organizations, project teams can easily access and use documented records of knowledge. on the other hand, the banking sector in serbia is going through transformation mainly due to external forces that accelerate significant changes, at the same time implying meaningful increase in the number and types of projects which are becoming increasingly demanding and complex, and should be implemented within very tight deadlines. with that in mind, in this study we hypothesize: h1: knowledge transfer is at a low level of effectiveness among project team members in the banking industry in serbia. h2: knowledge complexity and difficulty to codify knowledge linearly increase the difficulty to transform knowledge among project team members in banks in serbia and at the same time decrease the success of knowledge transfer. h3: organizational understanding, valuing and adequate support for knowledge acquisition and transfer are in a positive correlation with effective knowledge transfer between project teams in the banking industry of serbia. 3 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) h4: individual readiness, efforts, capabilities and a history of successful knowledge transfer are in a positive correlation with the success of knowledge transfer between project team members in the banks in serbia. h5: organizational and individual efforts in a simultaneous loop with the characteristics’ levels of knowledge transfer are predictors for knowledge transfer success among project team members in the banking sector of serbia. 3. research methods this paper opted for a survey research method. based on the broader literature review (e.g. argote and ingram, 2000; cowan et al., 2000; haldin-herrgard, 2000; rivkin, 2001; beesley, 2004; ajmal and koskinen, 2008; szulanski et al., 2016), a web-based questionnaire with a five-point scale is employed as a survey instrument. during the survey development, all required methodological principles were met (saris and gallhofer, 2014). the questionnaire contains 20 questions that are clustered in 5 main sections. the first section consists of enquiries in regard to gender, age, education, position in the company, years of overall and current work experience, the company’s name and the role of participant in the project. the second part of the questionnaire aims to research into how project team members perceive the following characteristics levels of knowledge: level of difficulty to codify knowledge, level of knowledge complexity and level of difficulty to transfer knowledge. the next set of questions refer to individual experience in relation to knowledge transfer among project team members: readiness, capability to transform knowledge and the history of successful knowledge transfer. the fourth section deals with the organizational aspect: the level of understanding the importance of knowledge transfer, the degree to which the organization recognizes and values participants of project team who share their knowledge and the level of providing adequate support in acquiring and transforming knowledge during the project journey. the last part of the questionnaire aims to measure the effectiveness of knowledge transfer in cross-functional team members and those that have the same role in the project. the final question aims to reveal what are the major barriers for effective knowledge transfer among project team members. our sampling frame includes experts who had one of the three conventional roles in a project team, i.e., leader, member or contributor. a web-based questionnaire was sent via e-mail to 150 project experts who are employed in banks that operate in serbia. of the 150 experts who are invited to participate in the survey, 54 completed the questionnaire; yielding a response rate of 36%. the banking sector was selected for the sake of the following reasons. first, the banking sector in serbia plays a key role in the financial system stability of the country. second, the banking industry is recognized as one of the most disruptive industries nowadays. finally, the disruptive innovations and external forces foster acceleration of various types of changes which imply a significant increase in the number of projects and their complexity. very dynamic circumstances, projects complexity and tight deadlines create serious challenge for effective knowledge transfer to all stakeholder groups. from 30 active banks that operate in serbia, 13 banks were involved in the study. the list of banks which contributed to the research is presented in table 1. table 1: the list of banks included in the study source: authors 4 vesna tornjanski, dejan petrović, sandra nešić 2020/25(2) finally, data were analyzed in three main phases using spss software package. our analysis of the data started from descriptive statistics to present a summary of collected data and to test one hypothesis. the second phase of the data analysis encompasses the assessment of distribution normality. normal distribution is tested utilizing the kolmogorov–smirnov test. next, to assess the strength of the relationship in a monotonic relationship between variables, spearman’s rank correlation coefficient is carried out, followed by a regression analysis to estimate the relationships among dependent and independent variables in the model. finally, frequencies were used to reveal the major barriers for effective knowledge transfer among project team members in the banking sector of serbia. 4. results and discussion the first two phases of data analysis refer to summarizing the data and testing the normal distribution. the results are shown in table 2. table 2: descriptive statistics and kolmogorov–smirnov test of normal distribution source: authors based on the results presented in table 2, respondents in this research are 33 years old on an average, have almost 8 years of work experience and almost 4 years of work experience at the current position. participants included in the study have estimated characteristics of knowledge transfer, variables with respect to individual and organizational aspect when knowledge transferring is in question, and finally have assessed the success of knowledge transfer among project team members using likert scale from 1 to 5. 5 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) comparing mean values between grouped variables, respondents have assessed that the difficulty to transfer and codify knowledge and its complexity during the project journey have greater weights (m=3.648) than variables that relate to individual (m=3.130) and organizational aspects (m=2.839). the smallest mean value refers to knowledge transfer effectiveness among project team members that have the same role in the project and between cross-functional team members (m=2.815). accordingly, hypothesis 1 is supported. in regard to the distribution normality evaluation, the results of kolmogorov-smirnov test show that for a majority of variables normal distribution does not exist (p<0.05). hence, hypotheses 2. 3 and 4 were tested using spearman’s rho correlation. table 3 provides an insight into the correlation analysis output. table 3: spearman’s rho correlation matrix source: authors according to the results, knowledge complexity is in a moderate uphill correlation with the difficulty to transfer knowledge (r=0.663; p=0.000). similarly, the difficulty to transfer knowledge is in a moderate positive relationship with the difficulty to codify knowledge (r=0.676; p=0.000). on the other hand. knowledge complexity is in a moderate downhill correlation with the knowledge effectiveness between both cross functional project team members (r=-0.653; p=0.000) and between members with the same role in project (r=-0.634; p=0.000). similarly, knowledge transfer difficulty (r=-0.520; p=0.000; r=-0.532; p=0.000) and codification difficulties (r=0.596; p=0.000; r=-0.599; p=0.000) are in a moderate negative relationship with the knowledge effectiveness for both observed groups: teams with the same role in project and cross-functional team members. in other words, when a project complexity rises, knowledge transferring is becoming linearly difficult. furthermore, when knowledge is difficult to transfer, it is also difficult to codify. to the contrary, when knowledge complexity, difficulties to transfer and codify knowledge increase, knowledge transfer effectiveness decreases for both project team members in the same project role and for cross-functional project team members in the banking sector of serbia. accordingly, hypothesis 2 is supported. 6 vesna tornjanski, dejan petrović, sandra nešić 2020/25(2) 1 2 3 4 5 6 7 8 9 10 11 correlation coefficient 1,000 sig. (2-tailed) . n 54 correlation coefficient ,681 ** 1,000 sig. (2-tailed) ,000 . n 54 54 correlation coefficient ,676 ** ,663** 1,000 sig. (2-tailed) ,000 ,000 . n 54 54 54 correlation coefficient -,387 ** -,434** -,420** 1,000 sig. (2-tailed) ,004 ,001 ,002 . n 54 54 54 54 correlation coefficient -,480 ** -,469** -,457** ,873** 1,000 sig. (2-tailed) ,000 ,000 ,001 ,000 . n 54 54 54 54 54 correlation coefficient -,676 ** -,771** -,664** ,434** ,527** 1,000 sig. (2-tailed) ,000 ,000 ,000 ,001 ,000 . n 54 54 54 54 54 54 correlation coefficient -,432 ** -,520** -,543** ,507** ,426** ,708** 1,000 sig. (2-tailed) ,001 ,000 ,000 ,000 ,001 ,000 . n 54 54 54 54 54 54 54 correlation coefficient -,202 -,256 -,419** ,412** ,302* ,514** ,755** 1,000 sig. (2-tailed) ,142 ,061 ,002 ,002 ,027 ,000 ,000 . n 54 54 54 54 54 54 54 54 correlation coefficient -,243 -,372** -,415** ,445** ,346* ,504** ,765** ,796** 1,000 sig. (2-tailed) ,077 ,006 ,002 ,001 ,010 ,000 ,000 ,000 . n 54 54 54 54 54 54 54 54 54 correlation coefficient -,596 ** -,653** -,520** ,515** ,514** ,756** ,719** ,502** ,591** 1,000 sig. (2-tailed) ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,000 . n 54 54 54 54 54 54 54 54 54 54 correlation coefficient -,599 ** -,634** -,532** ,558** ,534** ,718** ,740** ,443** ,527** ,889** 1,000 sig. (2-tailed) ,000 ,000 ,000 ,000 ,000 ,000 ,000 ,001 ,000 ,000 . n 54 54 54 54 54 54 54 54 54 54 54 11. knowledge transfer is the most effective between participants who have the same role in project **. correlation is significant at the 0.01 level (2-tailed). *. correlation is significant at the 0.05 level (2-tailed). 5. i make an effort, i have the ability and i am capable to transfer knowledge 6. i have a history of successful knowledge transfers 7. organization fully understands the importance of knowledge transfer and it requires from each project member 8. organization recognizes and values participants of project team who share their knowledge 9. organization provides adequate acquiring and transfer of knowledge during the project 10.knowledge transfer is the most effective between cross-functional project team members 1. level of difficulty to codify knowledge 2. level of knowledge complexity 3. level of difficulty to transfer knowledge 4. i am willing to share knowledge to project team members with regard to hypothesis 3, we have examined the relationship between groups of variables that relate to organizational context and knowledge transfer success. based on the obtained results, organizational understanding of knowledge transfer importance required from each project team members is in a strong positive linear relationship with knowledge transfer effectiveness for both observed groups. i.e., cross-functional project teams (r=0.719; p=0.000) and members in the same project task (r=0.740; p=0.000). organizational recognition and valuing of project team members who share knowledge is in an uphill moderate linear correlation with the effectiveness of knowledge transfer between cross-functional team members (r=0.502; p=0.000) and in a weak positive relationship with the effectiveness of knowledge transfer within teams with the same project role (r=0.443; p=0.001). organizational support for adequate acquiring and transfer of knowledge during the project is in a moderate uphill relationship with knowledge success between crossfunctional teams (r=0.591; p=0.000) and between groups of experts with the same role in the project (r=0.527; p=0.000). that is to say, the presented results indicate that the organizational aspect represents a significant indicator for knowledge transfer success within project teams in the banking industry of serbia. therefore hypothesis 3 is supported. hypothesis 4 is tested using correlation analysis too. individual readiness to share knowledge is in a moderate positive relationship with the knowledge transfer success between cross-functional team members (r=0.515; p=0.000) and among individuals in the same team (r=0.558; p=0.000). also, an individual’s efforts and capabilities of transferring knowledge are in a moderate uphill relationship with the effectiveness of knowledge transfer for both observed groups, cross-functional teams (r=0.514; p=0.000) and members of the same team (r=0.534; p=0.000). the history of successful knowledge transfer is in a strong positive correlation with the knowledge transfer success according to the correlation coefficients for both cross-functional groups (0.756; p=0.000) and among members within one team (0.718; p=0.000). accordingly, hypothesis 4 is supported. with respect to hypothesis 5, we have estimated the relationships among dependent and independent variables. independent variables in the model represent all variables from 1 to 9 in table 3, i.e., a group of variables referring to knowledge transfer characteristics, variables that relate to individual and organizational aspects. on the other hand, knowledge success, i.e., variables from 10 to 11 in table 3 are padded as dependent variables in the model. the model summary is shown in table 4. table 4: regression model summary source: authors based on the output presented in table 4 (r2=0.727; r2adj=0.672), 72.7% of all variables are explained by knowledge transfer success. the following table (table 5) shows the anova analysis results in regard to the regression model. table 5: anova analysis source: authors the anova analysis has resulted in f statistics of 13.047 and significance of p<0.001, meaning that all predictors statistically significantly predict the effectiveness of knowledge transfer. the following results from the regression analysis, organizational and individual efforts in simultaneous loop with the characteristics levels of knowledge transfer represent significant predictors for knowledge transfer success among project team members in the banking sector of serbia. accordingly, hypothesis 5 is supported. the table below (table 6) depicts coefficients for each constent variable in the model. according to the results shown in table 6, the most important predictor for successful knowledge transfer among project team members in the banking sector of serbia refers to organizational aspect. more precisely, organizational full 7 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) understanding of importance of knowledge transfer and organizational requirement for knowledge transfer from each project team member is the most significant predictor (p=0.008) of an effective knowledge transfer among project teams in the banking industry. on the contrary, the least important predictor for effective knowledge transfer is a knowledge transfer difficulty (p=0.577). table 6: coefficients for constant variables in the regression model source: authors the results are presented in figure 1. too. figure 1: predictor importance for knowledge transfer success source: authors 8 vesna tornjanski, dejan petrović, sandra nešić 2020/25(2) finally, respondents revealed what are the major barriers to effective knowledge transfer among project team members in the banking sector of serbia. the results are shown in table 7. table 7: the major barriers for effective knowledge transfer source: authors respondents are of the opinion that the major barrier for knowledge transfer effectiveness lies in the lack of time due to high pressure of deadlines and project activities (n=18), followed by organizational culture (n=12). nine respondents answer that managerial style plays an important role in regard to this phenomenon, while eight participants are of an opinion that the lack of capabilities to effectively transfer knowledge is an important barrier for its success. the smallest number of participants believe that the organization does not pursue knowledge transfer (n=4). finally, having no trust in sharing knowledge is viewed as one of the limitations from three respondents included in the study. taking into account that banks in serbia are characterized by dominant functional organizational structure in which knowledge is acquired and stored in well-established departments and branches and the fact that it is one of the most disruptive industries nowadays, knowledge transformation among project team members is low. moreover, very dynamic circumstances, project complexity and tight deadlines create new challenges when knowledge transfer effectiveness is in question. accordingly, the research results show that organizational understanding, valuing and adequate support for knowledge acquisition and transfer represent significant indicators for knowledge transfer success within project teams in the banking industry of serbia. besides, individual readiness, efforts, capabilities and history of successful knowledge transfer play an important role in knowledge transformation success. finally, regression analysis output disclosed that all observed aspects, i.e., characteristics of knowledge transfer, individual and organizational aspects, represent significant simultaneous predictors for knowledge transfer success among project teams in the banking sector of serbia. 9 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) the fourth industrial revolution, the disruptive innovations and influential external forces such as strong competition, frequent structural, regulatory, technological and customers’ requirements changes, along with the economic crisis have imposed serious challenges to the banking industry nowadays. these critical influences have accelerated varied classes of changes, implying substantial increase in the number of projects and their complexity. in addition to this, the temporary nature of projects and tight deadlines, along with all related factors, create an intense challenge and significant concern to all stakeholder groups when effective knowledge transfer is in question. knowledge acquiring, using and sharing are widely recognized as a key component to project efficiency, effectiveness and overall project and organizational performances. despite its relevance, poor project outcomes are evidenced. yet, little is known about effects of knowledge transfer in banking. accordingly, this study set out to research the effectiveness of knowledge transfer among project team members in banking, as one of the most digitally disrupted industries nowadays. to this end, this paper opted for a survey research method using an internet-based questionnaire as a survey instrument. the sampling frame consisted of experts who had one of the three conventional roles in a project team, i.e., leader, member or contributor. of the total invited experts to participate in the survey, 54 completed the questionnaire, yielding a response rate of 36%. the research results show that knowledge transfer is at a low level of effectiveness among project team members in the banking sector of serbia. also, knowledge complexity and difficulty to codify knowledge linearly increase difficulty to transfer knowledge among project team members in banks in serbia and at the same time decrease the success of knowledge transfer. on the other hand, organizational understanding, valuing and adequate support to knowledge 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(2015). examining the factors influencing cross-project knowledge transfer: an empirical study of it services firms in china. international journal of project management. 33(2). 325-340. doi:10.1016/j.ijproman.2014.05.003 received: 2018-09-06 revisions requested: 2018-10-19 revised: 2018-10-21 accepted: 2018-12-17 vesna tornjanski university of belgrade. faculty of organizational sciences. serbia e-mail: vtornjanski@gmail.com vesna tornjanski is a phd candidate at the university of belgrade – faculty of organizational sciences, serbia. she works at eurobank, a.d. belgrade. her interests lie in the area of organizational development, service design and business excellence, innovation and technology management and business decision-making. her research profile is available at: https://www.researchgate.net/profile/vesna_tornjansk about the authors dejan petrović university of belgrade, faculty of organizational sciences. serbia e-mail: petrovic.dejan@fon.bg.ac.rs dejan petrović, phd, is a full professor at the faculty of organizational sciences, university of belgrade, department of management and specialized management disciplines. he is also a visiting professor at several universities in the country and abroad. his research interests include management, project management, strategic management, project appraisal and change management. he has been a consultant for a wide variety of public and private organizations and he has published books and articles in refereed journals. sandra nešić singidunum university, faculty of media and communications, serbia e-mail: sandra.nesic@fmk.edu.rs dr sandra nesic is an associate professor at the faculty of media and communications at the singidunum university, teaching courses on startup and entrepreneurship and management in the digital age. dr nesic published a number of articles in academic journals and co-authored a textbook on corporate finance (2010) and on the modern theories of management: schools and new approaches 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02_domazet:tipska.qxd 13 ivana domazet1*, ines djokic2, olja milovanov2 1 institute of economic sciences, serbia 2 faculty of economics in subotica, university of novi sad management: journal of sustainable business and management solutions in emerging economies 2018/23(1) the influence of advertising media on brand awareness doi: 10.7595/management.fon.2017.0022 1. introduction in the conditions of intensifying and increasing competitive struggle in the market, the mission of the company is to capture a special position in the mind of consumers. through highly differentiated marketing strategies that tend to engage multiple communication channels, the target of marketing managers is to reach consumers in as many touchpoints, with a more valuable offers. a fundamental instrument of winning the leading position in such conditions, is the branding process, through the promotion instruments (domazet stosic & zubovic, 2011). one of the instruments of promotion that can influence the consumer awareness of the brand, as well as to contribute to the formation and preservation of a positive image of the company and its products, is advertising. brands are now part of the modern consumerist society and a major preoccupation of consumers and companies. the success of the branding process is measured by brand equity, and awareness that the consumer has about the brand is the first of five elements of this arrangement (aaker, 1991), and is considered as the basis of all further activities and decisions that a consumer makes in connection with the brand (konecnik & gartner, 2007). the aim of this study is to investigate the influence of advertising media on the consumer’s abstract: in modern business conditions, the company sends its messages through various instruments of promotion, and therefore the different media. one of the instruments of promotion economic propaganda (advertising), which uses a number of media such as television, radio, newspapers, billboards, internet and others. . by using various media, the company affects the consumer awareness of the brand, spreads information about themselves and the brand, educates consumers, creates a brand image and the like. the aim of this study is to investigate the influence of different media of advertising on consumer awareness of the brand, as well as to investigate that influence in the context of socio-demographic characteristics of respondents. the methods used in the work are historical and research (field and online) methods and include a total of 690 respondents from serbia in the period february-april 2017. for data analysis, we used the independent-samples t-test and the spearman’s rank correlation coefficient. the results showed that television has the strongest impact on brand awareness. the internet and billboards follow, while the weakest effect is that of newspapers and radio. results show that in the context of gender, age, education and income of respondents, there are reasons to analyze the impact of television, radio, newspapers, billboards and the internet to consumer awareness of the brand in a different manner. the contribution of the thesis is also reflected in the fact that, on the basis of the obtained results, the authors give recommendations, when it comes to perception and brand awareness, on the media that are an adequate promotional instrument for a particular segment of consumers. keywords: advertising, media, brand awareness, brand equity, effects of advertising and promotion, marketing instruments jel classification: m31, m37, m21 * corresponding author: ivana domazet, e-mail: ivana.domazet@ien.bg.ac.rs awareness of the brand, to research that impact in the context of socio-demographic characteristics of respondents, and also to review previously conducted research on the effects of advertising media. advertising is one of the oldest, most ubiquitous and the most important instruments of promotional mix (de pelsmacker, geuens & bergh, 2007, p. 192). it has the aim of informing and educating about the product as well as creating a positive predisposition and incentives to purchase (filipovic & kostic-stankovic, 2014; salai & grubor, 2011). in addition, advertising is used to build a long-lasting product image or to achieve fast sales. the authors dibb, simkin and pride state that advertising enables multiple repetitions of the promotional messages, which allows consumers to compare the messages of various competitors. the same authors indicate that the advertising can increase the value of the product, which suggests that consumers consider the product being promoted intensively has an adequate value, which can also affect their awareness of a given product. one of the advantages of advertising lies in its flexibility to reach out to large target groups of consumers, but on the other hand, can be directed at a small, precisely targeted consumer segment, depending on the medium used and the objectives to be attained (domazet, 2012). 2. measuring the effects of advertising the question that stands out when it comes to promotion instruments, and therefore advertising, is how to measure their effects. authors (clow & baack 2002, p. 583) suggest that it is necessary to include several factors in the analysis: short-term results (sales), long-term results (brand awareness, brand loyalty, the market value of the brand), product awareness, awareness of the entire company and affective/emotional responses (positive brand image). this paper measures the effects of the impact of advertising media on brand awareness. the authors tellis, chandy and thaivanich (2000) developed a model that measures the effects of advertising using television. the model estimates how influential the advertisement is, as well as on which tv station, at what time and for how long this is so. the results show that the ads encourage a direct answer, but their effects disappear in a short time. effects and profitability vary, depending on the creativity of the ad, the tv station and the number of broadcasts during the day. to study the impact of advertising on the brand choice, the authors used the relevance-accessibility or ram model (baker & lutz, 2000). by applying this model, observation time is shifted, and instead of the moment of broadcasting a promotional message, the moment of the brand of choice is taken into consideration. in this sense, the authors differ: advertising message involvement (ami) or motivational construct that affects the motivation of consumers to process the information at the time of exposure to the promotional message, and brand response involvement (bri) or motivational construct that affects the motivation of consumers to process the information at the moment of brand choice. they claim three of the selection processes optimisation, satisfaction and indifference, which are associated with three different types of information: confirmation of the superiority of performance, certificate of credibility and confirmation of product popularity, in the order they are listed. the point is that the level of motivation of consumers to consider (make a decision) when choosing the brand, a brand, has an impact on which of the three processes of brand selection will be the most appropriate. the most important appeal used in the promotional message (significance) is the one that leads to the easiest way to accomplish the consumer’s objectives when choosing a brand. the highest probability for the appeal used in the promotional message to be accessible (accessibility) is when the consumer’s involvement at the time of promotional message broadcasting (i.e. at the time when they are exposed to it) leads to its efficient decoding in the memory of consumers. when it comes to measuring the effects of “outdoor” advertising taylor (2010) advocates the use of “eyes on” system to determine the number of respondents who have actually perceived an advertisement, and not only those that might have spotted it. trust in advertising is subject to a small number of studies and soh, reid and king (2009) developed a socalled. “adtrust” scale for measuring consumer confidence in advertising messages. the authors assume that trust in advertising is multidimensional (includes cognitive, affective and behavioral dimension), including four different factors: reliability, usefulness, impact and consumer willingness to rely on it. the scale of confidence in the advertisements is a combination of (1) the perception of consumers regarding the reliability and usefulness of advertising messages, (2) the connection of consumers and advertising, and (3) the willingness of consumers to rely on advertising when making decisions about the choice of products. when measuring the confidence in the advertisements, the authors have focused on the relationship between confidence in ads and two associated structures, the credibility of advertising and attitudes towards advertising in general. 14 ivana domazet, ines djokic, olja milovanov 2018/23(1) rajagopal (2011) researched the effects of radio advertising. hereby, special advantage of its implementation is recognized in the case of fast moving consumer goods. the reasons were possibility to reach wide targeted listener demographics in urban habitat, attractiveness of such commercials and consumer fast response in supermarkets and department stores. bhat, bevans and sengupta (2002) made a review of methods for measuring the effects of advertising on the internet. they assume that the choice of methods depends on the research objectives, budget and techniques at the disposal of the company and time for research to be carried out. the authors note that the objectives of the research (measurement) are very important and that in this regard one should take into account the following estimates: the popularity of the website, the site’s ’’ability’’ to attract and retain consumers’ attention, the usefulness of messages to consumers (site visitors) and efficiency while targeting users. for each of these goals, the authors cite specific methods and some of them are: the number of page views, the popularity of the page, the number of page visitors, the number of ad hits on the page, the duration of page views for the first time, the number of web site returns, the time that elapses until the sender returns to the page again, profiling of visitors. the authors point out that there is no best way to measure advertising on the internet, but that measurement should be based on research to achieve the goals set and the combination of multiple research methods. as the main company’s communication instrument on the internet, jevremovic, stavljanin & kostic-stankovic (2016) analyzed the impact of the interactive website features. in fact, every interactive feature of the website affects the user to a different degree, so depending on the objectives, one can make a different combination of interactive features used via web site. such an outcome of research indicates that companies can create interactive web sites in order to increase awareness of a particular brand of the company. with interactive web sites, increasingly popular video games have huge potential for increasing awareness of the brand, provided that the characteristics of the promoted brand are compatible and fit into the context of video games. in this case, the indirect effects of advertising within video games can be expected (stavljanin, kostic-stankovic & cvijovic, 2016). there are also investigations of the effects of multichannel advertising, which are considered as “bright spots” of contemporary marketing research when it comes to customer experience across the customer journey (lemon & verhoef, 2016). olbrich and schultz (2014) point out that various research confirms that online advertising (especially search engine advertising) influences online as well as offline sales. a number of these researches support the existence of synergetic effects. kireyev, pauwels and gupta (2016) also support existence of such effects, stressing that display ads increase search conversion. de haan, wiesel and pauwels (2016) research nine advertising forms in the context of their long-term effectiveness (how they generate traffic, affect conversion, and contribute to revenue) within five product categories. they rated content-integrated advertising, content-separated advertising, and firm-initiated advertising as the most effective forms of advertising, respectively. xu, duan and whinston (2014) study the observation that there are clicks in advertisement that do not lead to immediate purchases, but encourage subsequent clicks performed on other forms of advertisements later resulting in purchases, in the context of display advertisements. for that advertisement form authors find relatively low direct effect on purchase conversion, but stimulating subsequent visits performed on other formats of advertisement. when it comes to display advertising, ghose and todri-adamopoulos (2016) stress that “the longer the duration of exposure to display advertising, the more likely the consumers are to engage in direct search behaviors (e.g., direct visits) rather than indirect ones (e.g., search engine inquiries).” 3. brand awareness successful brands are the most valuable intangible assets that a company can possess, and a basis of permanent competitive advantage (kotler & keller, 2012). in addition, they are a means by which consumers express their personality, lifestyle, attitudes and preferences. according to heding, knudtzen and bjerre (2009), the brand is now seen as a “living entity” that has its own “personality that changes over time and serves to build relationships with other living beings” (p. 21), while olins (2003, p. 14), calls branding “a story about belonging and pervasion” in which individuals, using the beloved brands, consciously talk about themselves and interact with their environment. without a doubt, brands have become an inevitable part of modern culture and the global society, the most powerful tool in market competition and consumers’ main preoccupation of the 21st century. as a result of efforts to more precisely define the relationship between the consumers and the brands that undoubtedly exists – it is solid, highly influential, and to a large extent of a psychological nature, the term 15 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) brand equity appeared. abstract perspective in studying the brand stems from its existence and life in the minds of consumers as something completely different from anything that is actually available. brand awareness is the first step towards creating a link between consumers and a given brand (konecnik & gartner 2007; aaker, 1991), and it is also one of the five elements by which to measure the brand equity (aaker 1991) and the first dimension which measures the level of brand knowledge, that is the power of the brand name and the level of consumers familiarity with it (esch et all, 2006). brand awareness is “the ability of potential customers to recognize and to remember that a certain brand belongs to a certain category of products” (aaker, 1991, p. 61). in the age of internet, when customers gather most of information about products and services through the online channels, it is very important that they can spontaneously recall brands from their memory, even if they don’t see them physically at the moment of searching and making decision (edelman 2010). the probability of buying a brand is higher if consumers are familiar with it (draganska & klapper 2010). in order to make the customer be able to recognize the brand, it is essential that he/she has already seen or heard something about it. this belongs to one of the reasons (being chronologically at the beginning) for seriously studying the connection of brand and integrated marketing communications (luxton, reid & mavondo, 2017). on the other hand, recalling involves “pulling“ of information about the brand from the memory of the consumer at the time when the given product category or the need which is satisfied by that brand is mentioned (keller, 1993). remembering also applies to linking of the brand name with the logo and symbols which characterize that brand (farjam & hongyi, 2015; keller, 2003). in addition to recognition and recalling, keller (2003) points to higher levels of awareness that exist in a case of the brand dominance, when it is at the top-of-mind, and when there is a developed brand opinion. brand awareness is expressed by using a brand salience dimension, which shows the extent to which the brand is taken into account by consumers in different situations during the purchase and consumption (keller, 2003). to highlight the brand, the consumer must be familiar with (kuhn, alpert & pope, 2008): 1) the ability of the brand to meet the expressed needs of consumers, and 2) product category to which the brand belongs. brand awareness, when measuring, is often reported together with the brand associations as a one-dimensional variable (yoo & donthu, 2001), but it is noted that awareness is a prerequisite for creating associations about the brand (washburn & plank 2002). boo, busser and baloglu (2008) showed that brand awareness directly affects the customer experience. brand awareness is one of the clearest indicators of the extent to which the brand exists on the mental map of consumers at all (aaker, 1991; keller, 1993). if the consumer is aware that a certain brand exists, it allows him to better connect with it during the marketing communication which the company directs towards him, gives him the power to understand that communication, react and respond to it, and finally take into account the brand as a potential choice when purchasing (aaker, 1991). also, as awareness has multiple levels of influence on consumers, it can create interest and curiosity among consumers to buy a brand for the first time, which is the main prerequisite (but not the only one) of repeated purchases and of creating brand loyalty (chen & tseng, 2010; konecnik & gartner 2007; baldauf, cravens & binder, 2003). the high level of awareness and knowledge of a brand can influence the formation of opinions, feelings and attitudes about the brand (keller, 2003), which is necessary to build a strong brand that generates high sales and profit (baldauf, cravens & binder, 2003). creating a long-term competitive advantage by building a unique and successful brand is the main task of any marketing strategy. in this regard, building brand awareness is an essential element in the long-term brand management process. brand awareness is a direct consequence, and an indicator of the successful implementation of promotional instruments (domazet, 2015). hereby, different researches point out to different aspects of connection of instruments of promotion and brand awareness. uribe (2015) suggests that the using placement and advertising can be useful for directly increasing the level of spontaneous brand recall by consumers. terui, ban and allenby (2011) stress the role of advertising in the context of its significance for consumer learning regarding new products and products with nontangible attributes. buil, de chernatony and martínez (2013) emphasize the need for using original, creative and different advertising strategies by the companies in order to increase brand awareness and positive perceptions. when it comes to the level of presenting brand within advertisement in the context of its optimal recognition, gerber, terblanche-smit and crommelin (2014) point out that it should be present for about two-thirds of the time. the context of advertising influence on brand awareness is in some researches associated to consumers’ or situational characteristics. lambert-pandraud, laurent, mullet and yoon (2017) found out that older consumers actually had higher awareness in regard to long-established brands than to recent brands. vaughan, 16 ivana domazet, ines djokic, olja milovanov 2018/23(1) beal and romaniuk (2016) compared brand users and nonusers and concluded that bias in memory for advertising was a real phenomenon that occurred under a wide range of conditions. 4. the methodology and results of the research the applied research method is based on a survey of respondents according to a pre-structured questionnaire. it consisted of two parts. the first is the question of gender (male; female), age (younger than 20; between 20 and 30 years old; between 30 and 40 years old; over 40 years old), education (primary education; secondary education; higher education; university graduates), and the amount of monthly income (less than 25,000 rsd; from 25,000 rsd to 45,000 rsd; from 45,000 rsd to 65,000 rsd; and above 65,000 rsd). the second part of the questionnaire consisted of questions related to the impact of advertising media on brand awareness. the analysis included the following media: television, radio, newspapers, billboards and the internet. in each case the question was formulated in following manner: “please rate how (one of the listed media) affects your brand awareness by using the likert scale of 1 to 5 (1 being the lowest and 5 the highest rating)” the survey was conducted between february and april 2017 on the territory of the republic of serbia and included a total of 690 respondents who were interviewed in person (195 of them) or by sending a questionnaire to the email address of respondents (495). convenience sampling was used. as for the respondents interviewed in face-to-face interview, they were approached near shopping centers in several largest serbian towns. when it comes to questioning by e-mail, the list was obtained by students from three serbian university centers and the person in charge for buying and/or making decision about buying in their primary household was interviewed. the larger ratio of respondents interviewed by e-mail was caused by authors’ intention to reach interviewees from larger number of places since students in these centers had, to a large extent, families living in different towns. the answers of respondents interviewed in two different manner did not statistically significantly differ by any question. furthermore, although the sample cannot be regarded as fully representative for serbian market (although it is difficult to define preciously the population of persons in charge for buying and/or making decision about buying), the authors believe that its size and dispersion allows at least obtaining information about tendencies in our country. the approach in which the sample does not fit to entire population but is used for establishing tendencies and not necessarily quantifying the results to the whole population is already implemented in the literature (e.g. verbeke, 2005). the structure of the respondents in the survey sample is as follows: by gender, female represent 55.3% and male 44.7% of respondents. according to the age structure, the largest share of respondents (36.1%) is between 20 and 30 years, followed by respondents between 30 and 40 years with 27.7%, and then those over 40 (24.6%), while the lowest part of 11.6% consists of subjects that have less than 20 years. by level of education, the largest share of the respondents are university graduates (36%), followed by those with secondary education (32.6%), then with higher education (28%) and finally respondents with primary education (3. 4%). with regard to the monthly income, the majority of subjects have an income between 25,000 and 45,000 rsd (34.4%), followed by respondents with an income of 45,000 to 65,000 rsd (30.9%), then those with income above 65,000 rsd (23.4%) and those with a monthly income below 25,000 rsd (11.3%). the average score (from 1 to 5) of the respondents on how individual advertising media affects their brand awareness are shown in the following table. table 1: the order of an average score of media influence on the awareness of respondents about the product source: author’s analysis table 1 shows that the impact of tv on brand awareness is estimated with the highest average grade compared to other media. at the second place is the internet and billboards are positioned at the third. the overall impact of the media on brand awareness is 3.39 indicating that the three media are rated above average, while newspapers and radio rate below the average. nevertheless, their impact on the brand awareness was assessed with high marks. 17 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) # media score 1. television 3.96 2. the internet 3.60 3. billboards 3.40 4. newspapers 3.08 5. radio 2.91 below is an analysis of the (non) existence of statistically significant differences/correlations between respondents according to certain variables (gender, age, education, income) when it comes to the perceived impact of individual advertising media on awareness of respondents about the brand (product). table 2: gender of the respondents and brand awareness note: p-level of statistical significance, m-arithmetic mean source: author’s analysis based on table 2, where the results are obtained using the t-test when considering men and women, it can be concluded that there is a statistically significant difference with respect to the influence of the television, as well as of the internet, on the respondent’s awareness of the brand. when it comes to the influence of television on the awareness of respondents about the brand, women give higher average grade to this influence than men, and the results are reversed when it comes to the impact of the internet on brand awareness, where men give a higher average rating than women. table 3: age of the respondents and brand awareness note: ρspearman’s correlation coefficient, p-level of statistical significance source: author’s analysis based on table 3, where the results are obtained using spearman’s correlation test, one can conclude the following: there is no statistically significant correlation between the impact of tv on brand awareness and age of the respondents, there is a positive and weak statistically significant correlation between the impact of radio on brand awareness and age of the respondents, there is a positive and moderate statistically significant correlation between the impact of newspapers on brand awareness and age of the respondents, there is a negative and moderate statistically significant correlation between the impact of billboards and the internet on brand awareness and age of the respondents. these results show that as the age of the respondents increases, so does the average rating for the impact of radio and newspapers on their awareness of the product. when it comes to billboards and the internet, as older respondents are, they are likely to give a lower score regarding the impact of the media on their product awareness. table 4: education of the respondents and brand awareness note: ρspearman’s correlation coefficient, p-level of statistical significance source: author’s analysis based on table 4, where the results are obtained using spearman’s correlation test, one can conclude the following: there is no statistically significant correlation between the impact of television, radio, billboards and the internet on the brand awareness and the education of the respondents, there is a positive and weak statistically significant correlation between the impact of newspapers on the brand awareness and the education of the respondents. these results show that as the level of education of the respondent’s increases so does the average rating impact of newspapers on the brand awareness. 18 ivana domazet, ines djokic, olja milovanov 2018/23(1) gender television radio newspaper billboards the internet p 0.000 0.917 0.212 0.553 0.014 female m 4.17 2.90 3.13 3.38 3.50 male m 3.70 2.91 3.02 3.43 3.72 media television radio newspapers billboards the internet awareness 0.044 0.234 0.566 -0.314 -0.395 p 0.243 0.000 0.000 0.000 0.000 media television radio newspapers billboards the internet attitude -0.074 0.042 0.152 0.014 -0.021 p 0.052 0.262 0.000 0.717 0.582 19 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) table 5: income of the respondents and brand awareness note: ρspearman’s correlation coefficient, p-level of statistical significance source: author’s analysis based on table 5, where the results are obtained using spearman’s correlation test, one can conclude the following: there is a positive and statistically significant correlationbetween the impact of television on the brand awareness and the income of the respondents, where the coefficient value is relatively low there is a positive and weak statistically significant correlation between the impact of newspapers on the brand awareness and the income of the respondents, there is no statistically significant correlation between the impact of radio, billboards and the internet on the brand awareness and the income of the respondents, these results show that as the amount of monthly income of the respondent’s, increases, so does the average rating impact of newspapers on brand awareness, and to a lesser extent, of television. income television radio newspapers billboards the internet awareness 0.084 0.040 0.244 -0.055 -0.070 p 0.026 0.296 0.000 0.147 0.064 discussion and conclusion in order to achieve the intended effects of promotion through the implementation of the various promotional mixes, and of advertising, among other things, it is necessary to know the basic features and capabilities of certain media. it is important to have a good estimate of the effect of the media, their number and the availability, quality, content, scope, costs and their impact on sales, product image, as well as particularly important their impact on brand awareness. the significance of researching brand awareness as a consequence of advertising is already recognized in the literature (clow & baack 2002). as partly already stressed, brand awareness presents not only the first step towards creating a link between consumers and given brand (konecnik & gartner 2007; aaker, 1991), but also belongs among five elements of the brand equity (aaker, 1991) and dimensions of brand knowledge (esch et al., 2006). the results of a study conducted in this paper indicate that the economic advertising media influence on brand awareness is generally significant, given that the average ratings by the respondents to influence of the media on their brand awareness are high. specifically, the subjects on a scale of 1 to 5 evaluated the effects of five media and the average rating of the impact of all the media (television, billboards, radio, newspapers and the internet) was above grade 3, except that the radio has been evaluated at an average score of 2.91 which is the lowest average rating, although assessment is closer to grade 3 than 2. looking at each of the media individually, television is the medium that influences the brand awareness of the respondents the most, followed by the internet, billboards, newspapers and radio. these results suggest that television is one of the most powerful media and that its impact on consumers is immense, especially in the female segment because the results show that women give a greater score to the impact of television on their awareness of the product comparing to men. when it comes to age and education of the respondents, and to a large extent their income, the impact of television on their brand awareness is almost equal for both older and younger respondents, as well as for those which are more or less educated, or have higher or lower incomes. that once again leads to a conclusion about its power as an advertising media. the second type of media by the strength of its influence on the minds of the respondents about the brand is the internet. the internet is a modern medium of advertising that stands out with its interactivity and target orientation towards consumers. the results showed that when the gender of the respondents are concerned, there is a statistically significant difference between males and females in the way that men have given a higher average grade to the influence of this media on their product awareness than women. comparing the influence of television and the internet on brand awareness between males and females, it can be concluded that television is a better medium for promotion of cosmetic products, healthy food or clothing and shoes, while the internet is a better choice for the promotion of computers, cars, mobile phones or similar. what still stands out in the results related to the impact of the internet on the brand awareness of the respondents is a statistically significant correlation that exists when it comes to the age of the respondents. the results show that the younger the respondents are, the higher is the score that they gave to the impact of the internet on their brand awareness, and vice versa. based on this result, it can be concluded that the internet is a medium that would fit the promotion of products or services or events intended for the younger population, such as places to go out, trendy products, and the like. outdoor advertising media, which are used as auxiliary media for communication of short and concise messages are billboards. survey results show that they are ranked third by their impact on 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(2001). developing and validating a multidimensional consumer-based brand equity scale. journal of business research, 52(1), 1-14. doi:10.1016/s0148-2963(99)00098-3 received: 2017-05-09 accepted: 2017-09-06 ivana domazet institute of economic sciences, belgrade ivana.domazet@ien.bg.ac.rs ivana domazet is a senior research fellow at the institute of economic sciences and associate professor at the faculty for banking, insurance and finance, union university. she teaches courses on marketing (graduate studies), marketing management, marketing strategy and integrated communications (postgraduate studies). her scientific interest refers to: marketing research and strategy, integrated marketing, communications, crm and strategic management. she is president of scientific council at the institute of economic sciences, board member of the institute of social sciences, member of serbian scientific association of economists and serbian marketing association. ines đokić faculty of economics in subotica, university of novi sad mines@ef.uns.ac.rs ines đokić, phd is a teaching assistant at department of trade, marketing and logistics at faculty of economics in subotica (university of novi sad, serbia). she teaches sales management, business negotiation and marketing communication. she is a member of the serbian marketing association (sema). olja milovanov faculty of economics in subotica, university of novi sad olja.milovanov@ef.uns.ac.rs olja milovanov, msc. is an assistant lecturer at the faculty of economics in subotica (university of novi sad, serbia). her field of interest is marketing. she teaches principles of marketing, product management and business marketing. she is a member of the serbian marketing association (sema) and technical editor of the journal “annals of the faculty of economics in subotica”. 22 ivana domazet, ines djokic, olja milovanov 2018/23(1) about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01_savoiu gheorghe:tipska.qxd 5 gheorghe săvoiu1, ondrej jasko2, marian ţaicu3 1university of pitesti, faculty of economic sciences, romania 2university of belgrade, faculty of organizational sciences, serbia 3 university of pitesti, faculty of economic sciences, romania the evolution of the public debt in romania and serbia, during and after the global recession udc:336.27(497.11) ; 336.27(498) ; 338.124.4(100) doi: 10.7595/management.fon.2014.0021 xiv international symposium symorg 2014, 06 10 june 2014, zlatibor, serbia 1. introduction debt issues dominate economic history, and the economic history of the last three decades has dilated, in points of volume and impact, up to limits that are hard to accept and not in the least anticipated. two concepts prevail in the language of this significant economic chapter: external/foreign debt and public debt, and in particular the latter has caught the attention of recent research. external debt (ed) means an amount in foreign currency payable, at a given point in time, by an economy to other economies and/or international financial institutions, in keeping with the loans received by the government and private companies, under the government’s guarantee, and is to be paid over a period longer than one year. this sense is used in international statistics, and is understood as external public debt, not including loans with maturities under one year, which were contracted without the government’s guarantees. foreign debt can be gross or it can be net, after deduction, from the gross external debt, of its own claims in relation to non-residents. in determining the net foreign debt, only claims (rights) are taken into account, or those that can be easily mobilized (for which the perspective of collecting them from foreign debtors is clear). public debt (pd) represents all the obligations that the state (government) assumes when contracting internal and/or external loans to finance public economy. public debt is related to the financial intervention of the state (government) in the economy, whose aim is to form public capital, stimulate investment, increase employment. in its broadest sense, public debt also includes a visible debt, resulting from cash deposits in public vaults, which is payable at any time by the depositors. in terms of material content, it can consist of goods and values, in terms of its destination it may consist of consumption and of production, and in terms of duration it may be long-term, short-term, etc. encyclopaedia britannica’s definition shows that “public debt represents the obligations of governments, particularly those evidenced by securities, to pay certain sums to the holders at some future time, being distinguished from private debt, which consists of the obligations of individuals, business firms, and nongovernmental organizations.” the debt owed by national governments is usually referred to as the national debt and is thus distinguished from the public debt of state and local government bodies (http://www.britannica.com/). much of the literature on the topic of debt produced in recent years has tried, and it is still trying, to provide and present genuine solutions and new methods of reassessment of those phenomena and thresholds, management 2014/72 this paper describes a special evolution of debt of romania and serbia, during and after the recently completed global recession, with a focus on public debt. after a brief theoretical introduction and an equally short review of the recent literature devoted to the subject, the authors stress both the common elements and the particular aspects of the upward trends of borrowing in the two economies, concluding with some final remarks and a tentative anticipation of short-term and medium-term evolution. keywords: external or foreign debt (ed), public debt (pd), governmental debt (gd), gross domestic product (gdp), export (x). and especially of forecasting external and public debt (knedlik, von schweinitz, 2012), or even extends the analyses related to the same range of problems in geographic behavior areas (hrvoje, 2013) considered to be similar in point of behaviour. the contemporary theory continually redefines the essential role of foreign and public debts and the financial development of an economy, while delimiting the number of debt sustainability problems that are increasingly acute, so the tendency always appears to expand the universe of financial research and enrich it with new instrumental or cross-disciplinary solutions – crossdisciplinarity being accepted today as the application of field-specific methods and their recognized use in fields that are altogether different from the original ones, with special effects and an increased relevance in understanding the phenomena in question (s�voiu, 2014). in this regard we can mention the identification and statistical quantification of certain limits through indicators having the nature of restricting debt by the budget, going as far as the maintenance, through close monitoring, low thresholds for reference interest rates, a phenomenon of quantification of incipient “financial repressions”, through statistical indicators (reinhart, 2012; prabha and savard, 2013), continually assessing and predicting a phenomenon which is hard to achieve in practice, suggestively called liquidation of public debt, particularly aimed at government debt (reinhart and sbrancia, 2011). a new approach to adjusting the level of public debt in a more sustainable manner is more clearly distinguishable, based on a slightly more stable fiscal measures, or on measures with no temporary character, there being constant monitoring and the analysis of results being conducted at an ever shorter time intervals, noting that tax recovery and reducing debt, however, require a long time, as process management activities (the current eurostat indicators system operates, during the recession, and especially after recession, with quarterly periodicity). the attempt to scale, through innovative indicators, “the hidden areas of public debt” (imf survey, 2013) is another original solution to analyzing debt, stratified in keeping with the level of development of the economies. kenneth rogoff and carmen reinhart, who analyzed and quantified the phenomenon of debt over nearly eight decades, between the two great historical recessions (one starting in 1929, and the other starting in 2007), note that, after more than three years of financial crisis of the system, plus another three years of recovery (basically, over a period of about six years, i.e. the duration of the latest recession in the balkans), the debt of a country tends to increase, on average in the first three years, by 86 percent of its original level, and after six years it tends to double in relation to the volume of exports, because of these very hidden areas of the debt; the delimitation of the hidden area especially regards commitments for future budgetary payments related to the pension scheme, which is under the pressure of an aging population; thus, those thresholds or limits of debt are set, where its effects turn from positive to negative, and the debt itself becomes unsustainable. (cecchetti, mohanty, zampolli, 2011). in the european community the preference is maintained related to primarily evaluated public debt, and more especially government debt, whose theoretical limit amounts, in general terms, within the european union (eu) and european monetary union (emu), to 60% of gdp. in romania, secular studies (reinhart, rogoff, 2010) place the alarm threshold even lower (at about 41%), while for serbia, which has a much higher per capita income and a higher degree of development, the general alarm level remains that proposed in pre-accession (eu) and (emu), i.e. the same 60%. the intention and the originality of the present paper is to exploit the method of confronting, in statistical terms, the phenomenon of borrowing and the statistical indicators in the two balkan economies (that of romania, a member of the eu, and of serbia, which is currently in the pre-accession phase), behaving in a relatively similar ways in their modern history of nearly one and a half centuries. 2. a brief statistical analysis of the alarming upward evolution of public debtin serbia and romania due to a series of social and geopolitical discontinuities in serbia, the analyses of public debt in the period before the year 2000 are not objective. after that period, the public debt of the republic of serbia shows two distinctly different trends: • a decreasing trend between the years 2000 and 2009, and • an increasing trend since 2009 until today. 6 2014/72management figure 1: public debt of the central government share of gdp% source: uprava za javni dug, february 2014, page 9 if we analyze the trend and the basis for the decrease of the public debt share of the gdp in the period up to the year 2008, we can draw certain important conclusions. the most significant debt reduction occurred in the year 2004, based on agreements on debt write-off (66% of the debt to the paris club, 62% of the debt to the london club of creditors (until 2003)). a further reduction is the result of repaying a debt of 1.3 billion euros on the basis of old foreign currency savings and domestic debts based on delays. since 2004, the acceleration of the privatization process and the use of privatization revenues to cover the budget deficit made it possible to achieve a low amount of new loans, and in 2008 serbia was in the group of low-debt countries. figure 2: fiscal budget deficit/suficit share of gdp% for serbia, 2007-2012. source: šljivić, s.,jevtić, b., šljivić, s. 2013. page 508 since 2009, with the first effects of the global economic crisis, the public debt starts to grow both in absolute figures and in a share of gdp. the main causes for this increase were: primary fiscal deficit which was financed by the loans, the activated government guarantees for debts of public enterprises, but also a remarkable decline in net foreign direct investments. the correlation between the budget deficits and the public debt points to the key motive for borrowing, and that is maintaining the budget stability, while the relationship between the public debt trends and economic activity is negative. for example, romania can be extrapolated, as lying relatively close to the average trend of the south-eastern european area, and especially the balkans. romania makes a relatively common instance for the two areas in point of overall trends in the phenomenon of borrowing. we exploit three waveforms that cyclically dismantle (in a kondratiev manner) three similar historical periods in the two economies, defined by upward-downward repeatability, based on the visual support of the graph for a logical statistical thinking, the quality of which is recognized for the phenomenological approach to temporal variation (figure 3). 7 management 2014/72 figure 3: debt dynamics in modern romania for two and a half kondratriev type cycles source: săvoiu, g., (2014), figures 5-7 pages 5-7. the main statistical indicators of public debt are the indicators of public indebtedness (pd, pd/gdp, pd/inhabitant and total annual change of pd in %), and, separately, the indicators of public debt service or the annual financial burden of public debt repayment (pds, pds/gdp, and pds/inhabitant) (săvoiu, apostol, 2013). a breakdown of the values of these indicators in the first category shows rising levels developments, and especially increasingly alarming dynamics. table 1: major statistical indicators of the level of public debt of romania and serbia, during and after the crises source: economist intelligence unit, available on-line at: http://www.economist.com/content/global_debt_clock. the public debt in early 2013 was, according to the world bank data, 172.5% of romanian exports, and 182.2% for serbia, as the general theoretical limit accepted for pd/x is 200%. much more serious, however, is the debt level reached after six years of the analysis, i.e. multiplied by 2,224 times for romania, and by only 1.49 times for serbia. at the same time, the negative legacy of debt (i.e. the debt inherited) increases from the parents to their children by 2.24 times in romania, and by 1.52 times in serbia. the gdp/inhabitant indicators in the two economies are totally different at the beginning, which appeared to require separate analysis thresholds, but are strikingly close at the end of the period analyzed. the most serious evolution remains the structural one: the share of public debt in the gdp in romania increased from 17.1% to 31.9% and 35.8% to 48.5% in serbia, in about six years of recession and post-recession, and the outlook becomes really alarming, asking for immediate concrete policies with major financial impact. table 2: short-term and medium-term outlook for public debt indicators in romania and serbia source: economist intelligence unit for public debt* (http://www.economist.com/content/global_debt_clock). 8 2014/72management romania serbia 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 public debt pd – mil. usd 24863 33906 39704 45280 48645 55293 12526 12901 12908 14539 16105 18667 pd/gdp (%) 17.1 19.6 22.3 26.8 29.3 31.9 35.8 30.4 30.8 37.1 43.5 48.5 pd/population usd/inhabitant 1152 1576 1849 2108 2268 2580 1695 1748 1754 1985 2205 2567 total annual pd change (%) 47.3 36.4 17.1 14.0 7.4 13.7 2.4 3.0 0.1 12.6 10.8 15.9 romania serbia 2013 2014 2015 2013 2014 2015 public debt pd – mil. usd 59481 63670 67859 21359 24052 26745 pd/gdp (%) 34.4 36.9 39.4 60.3 72.2 84.1 pd/population -usd/inhabitant 2778 2975 3172 2950 3333 3715 total annual pd change (%) 7.6 7.0 6.6 14.4 12.6 11.2 the answer to the question whether there is a statistical correlation between public debt and economic growth, or, to put it differently, if the public debt is justified as a factor of development and, especially, as infrastructure investment support intended to change the economy, is disappointing. table 3: associable or correlated potential indicators characterizing public debt and economic growth source: http://data.worldbank.org/indicator a correlation matrix, even considered for a very small number of terms, delimits both similar and different behaviours in the two economies according to the values of the determination coefficient in table 4 (which contains the values of the correlation ratio, or of simple r resulting from the classic r squared): table 4: correlation matrix source: data from table 3. software used: eviews the analysis of the correlation between the gdp growth (%) and the pd (%) identifies an average connection between public debt and economic growth, visible and relevant in romania, which has now a much more open economy under the impact of the crisis and the recession, and also under the impact of economics of restarting growth, as a eu member, while it identifies a negative relationship, or almost a non-existent one, at the limit of statistical testing, in serbia (r= 0.209301). large inflows of foreign capital through credits, privatization and foreign direct investment (fdi) were a major source for financing high consumption in serbia in the period between 2005 and mid 2008 (popovic, n. jaško, o, 2012) , which had an impact on economic activity, with the gdp growth rate higher than 5%. however, the economic crisis refocused the use of these sources to cover the budget deficit, in which, opposite of the required, a permanent reduction of spending on infrastructure projects and the economy (up to 5% of the national budget) was observed, while the allocations for salaries in the public sector and pensions grants remained at the same level (about 55% of the national budget). on the other hand, the fdi were almost stopped, given that many companies performed operations contractions during the crisis in order to adjust to these new circumstances. the reduction or stabilization of the public debt is possible on the basis of reductions in public spending or through tax increases (budget inflows). in the short term, reforms in public sector in order to reduce budget 9 management 2014/72 romania serbia year gdp growth (%) pd(%) gdp/ capita pd/ capita gdp growth (%) pd(%) gdp/ capita pd/ capita 2007 6.3 47.3 8170 1152 5.4 2.4 5277 1695 2008 7.9 36.4 9949 1576 3.8 3.0 6498 1748 2009 -6.8 17.1 8069 1849 -3.5 0.1 5498 1754 2010 -0.9 14.0 8139 2108 1 12.6 5073 1985 2011 2.3 7.4 9064 2268 1.6 10.8 5964 2205 2012 0.4 13.7 8437 2580 -1.7 15.9 5190 2567 romania serbia gdp growth (%) pd(%) gdp/ capita pd/ capita gdp growth (%) pd(%) gdp/ capita pd/ capita ser01 ser02 ser03 ser04 ser05 ser06 ser07 ser08 ser01 1.000000 0.655422 0.644427 -0.457696 0.907705 -0.062483 0.486256 -0.161364 ser02 0.655422 1.000000 0.160833 -0.906713 0.722941 -0.628160 0.178830 -0.666111 ser03 0.644427 0.160833 1.000000 -0.068513 0.405304 -0.089228 0.932734 -0.053051 ser04 -0.457696 -0.906713 -0.068513 1.000000 -0.660397 0.827000 -0.211983 0.897560 ser05 0.907705 0.722941 0.405304 -0.660397 1.000000 -0.209301 0.318033 -0.414691 ser06 -0.062483 -0.628160 -0.089228 0.827000 -0.209301 1.000000 -0.371959 0.897362 ser07 0.486256 0.178830 0.932734 -0.211983 0.318033 -0.371959 1.000000 -0.271773 ser08 -0.161364 -0.666111 -0.053051 0.897560 -0.414691 0.897362 -0.271773 1.000000 expenditures may be sufficient to stabilize the debt of serbia, while the long-term debt reduction needs tax policy that is associated with the stimulation of investments in the real sector and in individual demand. particulary acceptable operations are those that operate in both directions, especially public private partnership (ppp), which do not increase public debt, but rather substitute public sector investment and increase demand. on the other hand, after statistical confrontation between the two countries, the values of r highlight a strong positive relationship (of an evolving nature) between the dynamics of economic growth in romania and serbia, and between the debt dynamics per inhabitant, as well as a contradictory reversed, or staggered (r= 0.628160) relation between the temporal trends of indebtedness of the two countries, according to their financial and monetary policies which are distinctly separate at the moment, but are probably likely to be common in the near future, as eu member states. from this emerges an important remark, highlighting the advantages of eu integration, i.e., the synchronicity and integration into the eu economic cycle can bring about, through “contagion”, in addition to other advantages, some optimization in debt policies: public debt is much better correlated with economic growth and much more appropriate in times of recession in romania, in comparison with serbia; the remaining trends are similar for the two economies. a tentative econometric modelling could only be achieved for the romanian economy (săvoiu, apostol, 2013), where comparative data are available for a longer period of time (minimum 15 years or items in the model). table 5 summarizes two specified econometric models for romania, parameterized and validated, with public debt as endogenous variable (a unifactorial and multfactorial model as possible examples). table 5: two econometric models of public debt (pd) in romania between 1997 and 2012 software used eviews. source: (săvoiu, apostol, 2013a, page 25-26) note: foreign direct investment as % of gdp = fdi/gdpi; european union fixed capital formation as % of eu gdp = eu fcfi. the major conclusion of this analysis shows that econometric models can be made to simulate and estimate or predict the dynamics of public debt, as well as some aspects of the most important exogenous variables that contribute to an optimized and efficient debt service applied to various periods or horizons. some final remarks the present paper evolved from the idea to emphasize the importance of public debt, of statistical confrontation on this issue between the economies of romania and serbia in general, and also the assessments and modelling which are possible, but did not limit itself to the public debt, which requires a special, detailed treatment, exceeding the space of a midsize paper. the significance of public debt issues goes beyond many other important economic policy issues relating to accession and convergence processes, because of its effect on major economic equilibria, and especially on economic growth, optimizing the ability to consistently and sustainably manage the public debt process, turning it into a process of investment and development impact, in parallel with a process of inflation control. of course, external debt is also important (i.e. at the beginning of 2013, romania’s foreign debt already exceeded the alarm level of 100 million, i.e., about ¾ of the official gdp), but the monitoring tools to do that are considerably improved, the solutions are much more efficient and the experience of both economies is already relevant from the periods prior to transition, through the balance of payments and balance of trade analyses. 10 2014/72management dependent variable: pd method: least squares specified models for the 16 – term series r-squared f-statistic pdi = 31.90 + (2.41) × fdi/gdpi + i 0.621825 23.01993 pdi = 111.70 + (1.55) × fdi/gdpi + (-3.56) × eufcfi + (-0.669) × savings in eui + i 0.802784 16.28232 the aggravating prospects of global public debt, which is likely to exceed usd 55.802 billion not later than the end of 2015, and the prospects of romania’s and serbia’s public debt, which at the end of the same year 2015 will amount to around usd 67.9 billion, and 26.75 billion respectively, require statistical analyses based on innovation, both instrumentally and methodologically, foresight solutions and policies focusing on new econometric modelling and simulations. in the past six years, the public debt has followed an upward trajectory aggravating through its consequences, speeding up, and even defining a globalizing process. the public debt has relevant advantages and disadvantages. the first category includes help to the national bank concerning the monetary policy, the ability to avoid the negative effects of taxes against incentives and increased government spending, finally managing to develop the economy of any country, but leaving an unsustainable legacy for the generations to come. however, when the public debt exceeds the theoretically admissible limit, more and more long-term economic difficulties are generated, and this is what really happens in the cases of romania and serbia. while there are no previous secular studies for the economy of serbia, which is on the eve of eu accession, and which induces the threshold of 60% of gdp as the natural limit of the moment, there is ample international research for the romanian economy. thus, in a famous 2003 paper, which examined debt carefully in relation to gdp, a threshold of 41% of gdp was established; the effects of exceeding the threshold of the debt can induce not the economic growth required of an eu economy towards the eu-28 average, but rather diminish its economic growth (reinhart, rogoff and savastano, 2003). the analysis in that paper highlights, among other things, that both serbia and romania have exceeded the debt threshold in the short and medium term, that the debt threshold is rapidly and dangerously approaching the sustainability limit the of public debt, i.e. 60% and 41% of gdp respectively, or the maximum level accepted by investors for these countries. the paper emphasizes the importance of the phenomenon, and the need to generate new economic policies that do not neglect the signals provided by the general public debt indicators, and by internal debt, especially, firstly, because “internal debt is already nearly two-thirds of the public debt” (reinhart and rogoff, 2011); secondly, because the indicators are becoming ever more explicit and turning into increasingly lower warning thresholds; and thirdly, because the domestic market needs to be increasingly investigated and monitored, compared to similar markets and simialr effective solutions, largely ignored in the literature on the complex phenomenon of public debt. references [1] cecchetti, s., mohanty, m.s., zampolli, f., (2011). the real effects of debt, symposium achieving maximum long-run growth, jackson hole,(usa), pag. 1-34, available on-line at: http://www.bis.org/publ /othp16. pdf. [2] hrvoje, j., (2013). comparative analysis of external debt indicators in croatia and southeastern european countries*, ekonomska misao i praksa, vol. 22 (1), pages 197-220, available on – line at: http://search.proquest. com.ux4ll8xu6v.useaccesscontrol.com/docview/1400678213?accountid=15533. [3] knedlik, t., von schweinitz, g., (2012). macroeconomic imbalances as indicators for debt crises in europe, jcms-journal of common market studies, vol. 50 (5), pages 726 – 745. [4] prabha, a., savard, k., (2013). financial repression: antidote for depression or prescription for financial trouble?, pages 1-13, available on –line at: https://www.milkeninstitute.org/pdf/financialrepression.pdf [5] popović, n. jaško, o (2012). ekonomski predlozi i dileme, sec, beograd, page 4-16 [6] reinhart, c. (2012). the return of financial repression, financial stability review, banque de france, issue 16, pag. 37-48, available on line pe: http://www.banque-france.fr/fileadmin/user_upload/ banque_de_ france/ publications/revue_de_ la_ stabilite_financiere/2012/rsf-avril-2012/fsr16-article-04.pdf [7] reinhart, c., sbrancia, b., (2011). the liquidation of government debt, nber working paper 16893, march, pag. 1-66, available on – line pe : http://www.nber.org/papers/w16893. [8] reinhart, c.m., rogoff, k. s. and savastano, m., (2003), debt intolerance, william brainerd and george perry (eds.), brookings papers on economic activity, pp. 1-74, available online at: http://www.nber.org/papers/w9908. [9] reinhart, c., rogoff k., (2010), from financial crash to debt crisis, nber working paper 15795, march 2010. american economic review. available on-line pe: http://www.reinhartandrogoff.com/data/browseby-topic/topics/9/ including data from eurostat for 2011 and 2012. 11 management 2014/72 12 2014/72management [10] reinhart, cm and rogoff, ks (2011). the forgotten history of domestic debt, economic journal, 2011, vol. 121 (552), pp. 319 – 350. [11] săvoiu, g., (2014). the kondrative type of cyclicality of romania’s economy, argued through three essential statistical indicators: gdp, cpi and debt, romanian statistical review, vol. 62(1) forthcoming, (conference to scientific seminar octav onicescu, romanian statistical society on the 20th february, 2014, available on – line at: http://www.insse ro/cms/ro/content/seminarul-stiintific-octav-onicescu . [12] săvoiu, g., apostol, l., (2013). defining public debt and external debt and revealing their statistical trends and econometric models, romanian statistical review, vol 61 (suplement 4) pages 93-104. [13] săvoiu, g., apostol, l., (2013a). econometric models, methodology and trends regarding public debt and external debt, romanian statistical review, vol 61 (9): 24 35. [14] šljivić, s., jevtić, b., šljivić, s.: fiskalna konsolidacija, ekonomski rast i socijalne nejednakosti u srbiji, u zborniku: institucionalne promene kao determinanta privrednog razvoja srbije, ekonomski fakultet univerziteta u kragujevcu, 2013. godine. *** imf (2013), high government debt threatens growth prospects, imf survey, washington, january, available on –line at: http://www.imf.org/external/pubs/ft/survey/so/2013/new010813a.htm *** encyclopaedia britannica, available on-line at: http://www.britannica.com/ebchecked/topic/482318/public-debt *** economist intelligence unit available on-line at: http://www.economist.com/content/global_debt_clock. http://www.javnidug.gov.rs/upload/bilteni/bilten%20cir/2014/mesecni%20izvestaj%20uprave%20za %20javni%20dug%20-%20februar%20cir.pdf receieved: june 2014. accepted: september 2014. gheorghe săvoiu university of pitesti (romania), faculty of economics gheorghe.savoiu@upit.ro or gsavoiu@yahoo.com gheorghe săvoiu, phd, is associate professor at the department of accounting, faculty of economics, university of pitesti (romania). gheorghe săvoiu graduated with mba from bucharest academy of economic studies (commerce department – commerce section), and acquired his phd degree in economic science from the faculty of economic cybernetics, statistics and informatics, bucharest academy of economic studies (romania). in addition to pedagogical activities, he held a position of manager at the general board of statistics argeş county – pitesti. he held a position of dean to finance – accountancy faculty, to constantin brâncoveanu university, pitesti, between 2003 and 2006. since 2014, he is also an associate researcher at the ince "costin c. kiriţescu" of the romanian academy, part of the new centre of mountain economics cemont. he is a (co)author of more than 30 books, of 20 papers isi thompson (web of knowledge), with hindex isi thompson = 4 and of more than 200 indexed journal and conference papers. he has been a project manager or a member of the project team in more than 10 projects. the major domains of his interest include: statistics, econometrics, econophysics, sociophysics, logic, philosophy, economics, marketing research, human ecology, management methods, demography, price universe and interpreter indices, rural tourism. about the author 13 management 2014/72 ondrej jasko university of belgrade faculty of organizational sciences jasko@fon.bg.ac.rs ondrej jaško, ph.d., is full-time professor at the faculty of organizational sciences, university of belgrade, and currently lectures at several courses in the area of business system organization. his teaching and research interests include organization theory, organizational models, management and change management. during his university career, he was chief of department for business system organization, vice-dean and president of the master studies council. he is a (co)author of more than 15 books and monographs. he has also published more than 100 papers at various scientific conferences and 35 articles in international and national journals. as an executive officer or a team member, he was involved in more than 20 research projects. as a business consultant, he led projects of organizational design in some of the most significant companies in the balkan region. marian ţaicu university of piteşti, faculty of economic sciences taicumarian@yahoo.com marian ţaicu is assistant professor at the faculty of economic sciences, university of piteşti, romania. his major research interests are management accounting, controlling and multidisciplinary application of business related disciplines. he has published more than 40 papers in scientific journals or conference volumes and is a coauthor of 9 books. he currently works as assistant editor for econophysics, sociophysics & other multidisciplinary sciences journal (esmsj). 02_karabasevic:tipska.qxd 15 darjan karabasevic1, dragisa stanujkic2, snezana urosevic3, gabrijela popović4, mladjan maksimovic5 1, 5university business academy in novi sad, faculty of applied management, economics and finance, jevrejska 24, belgrade, serbia 2, 4john naisbitt university, faculty of management in zaječar, serbia 3university of belgrade, technical faculty in bor, serbia management: journal of sustainable business and management solutions in emerging economies 2017/22(3) an approach to criteria weights determination by integrating the delphi and the adapted swara methods doi: 10.7595/management.fon.2017.0024 1. introduction a rapid development of the field of multiple-criteria decision making (mcdm), as an important part of operational research, has caused the creation of many methods for decision making. bana e costa and pirlot (1997) point out that a significant development in the area of multiple-criteria decision-making started in 1972, when the international scientific community interested in the multi-criteria domain emerged in an organized form. as a significant subfield of operational research, mcdm deals with the evaluating and choosing/selecting of the best alternative based on several criteria (hajiagha et al., 2016). also, mcdm may be considered as a complex and dynamic process, inclusive of one managerial level and one engineering level (duckstein & opricovic, 1980), where the managerial level defines the goals and chooses the optimal alternative (opricovic & tzeng, 2004). every problem of multiple-criteria decision-making is always associated with multiple criteria. cupic et al. (2003) state that criteria represent different dimensions from which alternatives can be observed. in situations when there is a large number of criteria, the criteria can be arranged in a hierarchical sense, which means that one criterion is more important than another, i.e., the main criterion. also, each main criterion can be associated with several sub-criteria; each sub-criterion can be associated with slightly lower sub-criteria. diakoulaki et al. (1995) emphasize the association of the weights of criteria in mcdm problems and state that it is the critical stage of the whole decision-making process. also, zavadskas and podvezko (2016) point out the fact that the weights of criteria are of great importance in mcdm. therefore, the significance of evaluation criteria, i.e., the weights of criteria, is important because it has an impact on the ranking of the results obtained by applying mcmd methods. srdjevic et al. (2004) also confirm the importance of criteria for solving multi-criteria problems and emphasize the fact that, in the process of the evaluation of alternatives, criteria are crucial for the final decision. the effectiveness of the personnel selection process largely depends on the defined set of criteria by which the evaluation and the final selection of candidates are conducted. the significance of criteria during the process of personnel selection is specially highlighted in a research study carried out by kelemenis and askounis (2010), where they state that criteria should be defined in order to cover the decision-maker’s requirements and that they should be related to the specific job description and requirements. a set of the abstract: the process of evaluation and selection of personnel is characterized by defining a specific set of criteria. the process of defining and determining the weights of the criteria is a significant, because the evaluation and the final selection of personnel are carried out on the basis of the defined set of criteria. therefore, this manuscript is aimed at creating a set of the sales managers’ evaluation criteria as well as defining the weights of such criteria. the survey sample was 79 domain experts in the field of the recruitment and selection of personnel. the proposed approach based on the integration of the delphi technique and the adapted swara methods was successfully applied for the purpose of defining the weights of the criteria and completely responded to the requirements in terms of defining the criteria and determining the weights of the criteria. keywords: evaluation criteria, sales manager, weights determination, swara, delphi technique, mcdm. jel classification: d81, o15, c02 necessary evaluation criteria and the required skills that candidates should possess are significant from the company’s standpoint because, during the process of recruitment and selection, recruiters always strive to fill the vacant position with the personnel who best meet the evaluation criteria (karabašević et al., 2015a). over time, many approaches that can be used for the defining of criteria weights have been proposed, such as: the ahp method, proposed by saaty (1977; 1980); the delphi technique, proposed by hwang and lin (1987); the macbeth method, proposed by bana e costa (1992) and bana e costa and vansnick (1993); the swara method, proposed by keršulienë et al. (2010); the fare method, proposed by ginevicius (2011); the kemira method, proposed by krylovas et al. (2014) and so on. also, some of the existing methods are used in the fuzzy environment in order to determine the relative weights of evaluation criteria, such as fuzzy ahp (torfi et al., 2010). the work is aimed at creating a set of the evaluation criteria for the position of the sales manager, as well as at defining the weights of such criteria. therefore, the paper is organized as follows: in section 1, the introductory considerations are given; in section 2, the swara method is presented. section 3 is dedicated to the selection of the evaluation criteria, whereas, finally, the conclusions are presented in section 4. 2. step-wise weight assessment ratio analysis the new step-wise weight assessment ratio analysis (swara) method was proposed by kersulienë et al. (2010). according to kersulienë et al. (2010), one of the main features the swara method brings is a possibility of engaging experts in appraising the significance ratio of the criteria in the process of the determination of their weights. in their research, stanujkic et al. (2015) also especially emphasize the advantages of the swara method in comparison with the well-known ahp method, this being so primarily due to a lower number of pairwise comparisons, for which reason it is much easier to apply. hashemkhani zolfani et al. (2015) further state that the swara method can successfully be used instead of the ahp, the anp or the fare methods. the swara method has so far been applied in solving various problems, primarily in determining the weights of criteria, such as: the rational dispute resolution (kersulienë et al. 2010), the architect selection (kersulienë & turskis, 2011), the design of products (hashemkhani zolfani et al., 2013), the machine tool selection (aghdaie et al., 2013), a supplier selection (alimardani et al., 2013), wall insulation (ruzgys et al., 2014), the selection of a packaging design (stanujkic et al. 2015) and the personnel selection (kersulienë & turskis, 2014; hashemkhani zolfani & banihashemi, 2014; karabašević et al., 2015a; 2015b; 2016), the evaluation of strategies (hashemkhani zolfani et al., 2015), the erp system selection (shukla et al., 2016) and so on. the procedure for expressing the relative importance between criteria and for the determination of the weights of criteria can be shown in figure 1. figure 1: the determination of the weights of criteria based on the application of the swara method (kersulienë et al., 2010) 16 darjan karabasevic, dragisa stanujkic, snezana urosevic, gabrijela popović, mladjan maksimovic 2017/22(3) determination of the criteria ranks drawing a list of criteria respondent survey listing the main criteria drawing a general list of criteria arrangement of the criteria according to the frequency of indication analysis of the criteria list respondent survey (respondents arrange criteria according to the rank, the most important criterion being listed as the first, etc.) deletion of the interrelated criteria drawing of the unrelated criteria list determination of the criteria weight presentation of the j criterion presentation of the j+1 criterion values of the importance of the j+1 criterion evaluation of how much the j+1 criterion is less important than the j criterion j = j+1 j n? determination of the criteria yes no determination of criteria importance the process of the determination of the relative weights of criteria by using the swara method based on kersulienë et al. (2010) is further simplified by stanujkic et al. (2015) and can be shown through the following steps: step 1. the criteria are sorted in the descending order, based on their expected significances. step 2. starting from the second criterion, the respondent expresses the relative importance of the criterion j in relation to the previous (j-1) criterion, and does so for each particular criterion. according to kersulienë et al. (2010), this ratio is called the comparative importance of the average value, sj. step 3. determine the coefficient kj as follows: . (1) step 4. determine the recalculated weight qj as follows (karabašević et al., 2015a): . (2) step 5. the relative weights of the evaluation criteria are determined as follows: , (3) where wj denotes the relative weight of the j-th criterion, and n denotes the number of the criteria. 3. an approach to the selection of the sales manager’s evaluation criteria, based on the swara method and the delphi technique the selection of the key criteria, together with associated weights for the position of the sales manager, was conducted through the two cycles of the survey on the total of 79 research participants, out of whom 21 were surveyed in the first round and 58 in the second. the participants in the study were hr managers, hr experts, hr partners, hr experts in recruitment and selection and the sales directors who participated in the selection of sales managers. for the purpose of determining the weights, the adapted swara method (kersulienë et al., 2010) combined with the delphi technique (bowels, 1999) was used. in the proposed integrated approach, some benefits that the delphi technology permits are used to replace some initial steps of the original swara method, or more precisely said, to replace the steps related to the determination of the list of the evaluation criteria. such an approach should provide an opportunity for the systematic refinement of experts’ opinions in order to reach a consensual position. the proposed approach can be shown through the two rounds of the conducted survey, namely as follows: round 1 of the survey. the first round, performed in two steps, was conducted in order to identify the most important criteria. step 1. the creating of the initial set of the alternatives. the first step involves the creation of the initial set of the general evaluation criteria for the position of the sales manager. the initial set of 10 proposed criteria was obtained on the basis of the studied literature and the interviews with experts in this domain and the representative references are displayed in table 1. 17 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) table 1: the initial set of the proposed evaluation criteria source: authors’ calculations the respondents were given an opportunity to make a free choice of the criteria from the proposed initial set or, if they believed they could propose their own set of the evaluation criteria, they were free to do so. it was necessary that the criteria should be entered according to their importance, starting from the most significant and ending with the less significant ones. step 2. the creating of the final list of the evaluation criteria upon completion of the first round of the survey. the respondents interviewed in the first round of the survey took the advantage of the possibility of entering their evaluation criteria that differed from the initial set of the proposed criteria. accordingly, additional 29 criteria were added apart from those criteria, for which reason the set of the criteria at the end of the first round of the survey consisted of a total of 39 criteria shown in table 2. table 2: the list of the evaluation criteria obtained after the completion of the first round of the survey source: authors’ calculations 18 darjan karabasevic, dragisa stanujkic, snezana urosevic, gabrijela popović, mladjan maksimovic 2017/22(3) the proposed evaluation criteria representative references interview preparedness (cv and personal presentation) ruetzler et al. (2010); popovic et al. (2012). relevant work experience ruetzler et al. (2010); popovic et al. (2012); boran et al. (2011); hill and birdseye (1989); bogdanovic and miletic (2014). education popovic et al. (2012); hill and birdseye (1989). interpersonal skills ruetzler et al. (2010). communication and presentation skills biesma et al. (2007); popovic et al. (2012); boran et al. (2011); bogdanovic and miletic (2014). commitment and aptitude for working with others (team work) ruetzler et al. (2010); biesma et al. (2007); popovic et al. (2012). organizational, leadership and analytical skills popovic et al. (2012). problem solving and strategic thinking biesma et al. (2007); bogdanovic and miletic (2014). computer skills popovic et al. (2012); bogdanovic and miletic (2014). knowledge of foreign languages popovic et al. (2012); bogdanovic and miletic (2014). evaluation criteria interview preparedness (cv and personal presentation) the appropriate qualifications relevant work experience advanced sales skills and knowledge education self-motivation interpersonal skills leadership skills and their potential communication and presentation skills the ability to analyze problems, reasoning and decision-making commitment and aptitude for working with others (team work) relevant work experience and references organizational, leadership and analytical skills leadership and mentoring problem solving and strategic thinking negotiation skills and communication computer skills knowledge of psychology of sales skills knowledge of foreign languages special education (training) proactivity presentation skills creativity problem-solving skills motivation and dedication to work understanding the needs of potential customers organizational, analytical and problemsolving skills communication and presentation skills, cultural expression, the ability to establish contact presentation skills and leadership abilities individual competencies (self-initiative, ability to adapt, ability to harmonize personal goals in the organization) references organizational and leadership skills appearance creative competences (creative motivation, initiative to improve and discover new opportunities, searching for information) willingness to learn analytical thinking ability, expert opinion impression at the interview (personal presentation) ability to lead teamwork confirmed recommendations of former employers (work experience) round 2 of the survey: the second round, which is presented through the three steps further in the text, was conducted with the aim of creating the final set of the evaluation criteria together with the corresponding weights. step 1. the criteria reduction in the evaluation criteria list derived from the first round of the survey. the reduction in the number of the selection criteria was made and the 20 evaluation criteria that would be used in the second round of the survey were selected in the following two stages: according to the number of the occurrences and according to the importance assigned to them in the questionnaire. the final list of the 20 evaluation criteria obtained after making the reduction is accounted for in table 3. table 3: the final list of 20 evaluation criteria after completing the reduction source: authors’ calculations step 2. the evaluation of the criteria and the creation of the final list of the evaluation criteria together with the corresponding weights during the second round of the survey. during the second round of the survey, the respondents were given the opportunity to choose as many as 7 criteria stated in the list of the criteria shown in table 3. then, it was necessary to carry out the comparison of the criteria on the basis of the expected significance, i.e., from the highest to the lowest ones. step 3. the modification of the swara method for determining the group weights. the normal swara approach implies that the selected alternatives have previously been ranked according to the expected importance in a descending order, after which the activity of assigning significance in relation to the n-1 alternative is carried out. in order to collect the respondents’ more realistic attitudes, the adapted swara approach was applied for the purpose of weights assignment at the group level. accordingly, the respondents were allowed to make a choice of the criteria at their own discretion, after which it was necessary that the criteria should be assigned relative importance, i.e., their corresponding weights. in order to facilitate the evaluation of the criteria, i.e., the assignment of importance, it was recommended that the respondents should (and could) also express relative importance in percentages. due to the above said, prior to the application of the computational procedure of the swara method, it was necessary that the following formula should be applied in order to determine si.: , (4) where pi denotes the significance of the criteria (how much the criterion is less significant in relation to the j criterion), while i, is expressed in percentages. step 3.1. the choice of the evaluation criteria and the determination of the weights on the basis of the second round of the survey. the respondents expressed their relative importance in such a way as explained in the previous step. when the ranking of the criteria according to the mean value of the weights is concerned, an anomaly was noted, namely, that the criteria chosen by a smaller number of the respondents, and with greater importance/weight assigned to them, were given higher rankings. for the purpose of solving the above problem, the following approach was proposed for the purpose of achieving 19 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) evaluation criteria interview preparedness (cv and personal presentation) motivation and dedication to work relevant work experience leadership and mentoring education advanced sales skills and knowledge interpersonal skills negotiation skills and communication communication and presentation skills knowledge of psychology of sales skills commitment and aptitude for working with others (team work) communication and presentation skills, cultural expression, the ability to establish contact organizational, leadership and analytical skills analytical thinking ability, expert opinion problem solving and strategic thinking references computer skills the ability to analyze problems, reasoning and decision-making knowledge of foreign languages special education (training) a more equitable ranking of the criteria that assigns equal importance to the medium value of the weights and to the sum of the weights in the following manner: (5) where represents the coefficient, [0,1], denotes the rank achieved on the basis of the mean weights of the criteria, i, and denote the rank achieved on the basis of the sum of the weight of the criteria i. thereafter, the discussed criteria were ranked in relation to li, after which the selection of the n of the highestranked criteria was performed. in order to meet the requirement , the weights of the selected criteria were determined as follows: (6) where denotes the mean weight of the criteria j, achieved on the basis of the respondents’ attitudes, denotes the sum of mean weights of all selected criteria , and n denotes the number of the selected criteria. table 4 is the list showing the total of 20 criteria, together with the corresponding weights. the value of the coefficient is 0.5. table 4: the final ranking of the 20 evaluation criteria after the completion of the second round of the survey 20 darjan karabasevic, dragisa stanujkic, snezana urosevic, gabrijela popović, mladjan maksimovic 2017/22(3) criteria mean weights of criteria i rank to the mean weights i o′ sum of the weights of criteria i rank to the sum of weights – io′′ coefficient λ for io′is 0.5 coefficient λ for io′′ is 0.5 aggregated rank il final rank max min max min 0.5 0.5 1 communication and presentation skills 0.231 1 6.464 3 0.5 1.5 1 1 interpersonal skills 0.122 11 3.905 10 5.5 5 5.25 11 relevant work experience 0.191 3 8.776 1 1.5 0.5 1 1 commitment and aptitude for working with others (team work) 0.127 10 4.564 7 5 3.5 4.25 8 education 0.149 6 5.073 5 3 2.5 2.75 4 organizational, leadership and analytical skills 0.129 9 5.165 4 4.5 2 3.25 6 problem solving and strategic thinking 0.111 12 4.001 8 6 4 5 10 interview preparedness (cv and personal presentation) 0.195 2 7.021 2 1 1 1 1 computer skills 0.129 8 0.259 18 4 9 6.5 13 knowledge of foreign languages 0.059 16 0.473 14 8 7 7.5 15 source: authors’ calculations table 5 shows the final selection and the final ranking of the best-placed criteria. the table also shows the original weights of the criteria and the adjusted weights of the criteria in order to satisfy the requirement that the sum of the weights results in the value 1. table 5: the 7 top-ranked criteria together with the corresponding weights and the corrected weights source: authors’ calculations 21 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) criteria mean weights of criteria i rank to the mean weights i o′ sum of the weights of criteria i rank to the sum of weights – io′′ coefficient λ for io′is 0.5 coefficient λ for io′′ is 0.5 aggregated rank il final rank max min max min 0.5 0.5 1 λ λ motivation and dedication to work 0.156 5 4.668 6 2.5 3 2.75 4 leadership and mentoring 0.075 14 0.895 12 7 6 6.5 13 advanced sales skills and knowledge 0.141 7 3.940 9 3.5 4.5 4 7 negotiation skills and communication 0.108 13 1.075 11 6.5 5.5 6 12 knowledge of psychology of sales skills 0.072 15 0.289 17 7.5 8.5 8 16 communication and presentation skills, cultural expression, the ability to establish contact 0.170 4 0.678 13 2 6.5 4.25 8 analytical thinking ability, expert opinion 0.051 17 0.308 15 8.5 7.5 8 16 references 0.031 19 0.306 16 9.5 8 8.75 18 the ability to analyze problems, reasoning and decision-making 0.047 18 0.094 19 9 9.5 9.25 19 special education (trainings) 0.020 20 0.039 20 10 10 10 20 rank criteria weights corrected weights 1 communication and presentation skills 0.231 0.194 1 relevant work experience 0.191 0.160 1 interview preparedness (cv and personal presentation) 0.195 0.164 4 motivation and dedication to work 0.156 0.131 4 education 0.149 0.125 6 organizational, leadership and analytical skills 0.129 0.108 7 advanced sales skills and knowledge 0.141 0.118 1.191 1.000 22 darjan karabasevic, dragisa stanujkic, snezana urosevic, gabrijela popović, mladjan maksimovic 2017/22(3) as an expert-oriented method, the swara method has proved to be extremely suitable for testing respondents’, i.e., experts’ attitudes. the adapted swara method is successfully applied in the work in order to determine the weights of the criteria. the set of the criteria for the selection of sales managers, together with their corresponding weights, is successfully defined by applying this approach. the adapted swara method has proved to be very suitable for problem solving from the very beginning of the research study. initially, the planned approach was solely based on the application of the swara method; in order to make the study closer to the respondents, however, the above method was also modified to a certain extent. the proposed approach has successfully responded to the requirements in terms of defining the criteria and determining the weights of the criteria. the applicability and ease of use of the proposed approach has proved to be useful and can be applied in order to determine the weights, differently from the traditional approaches based, for example, on the ahp method, and the same can be used for the examination of the attitudes of experts in other areas as well, depending on the problem that is being considered. at the beginning of the research study, the initial set of 10 criteria belonging to the criteria displayed in table 1 was created. if we compare the final list of the criteria after conducting the survey from table 5 with the criteria initially proposed in table 1, we can notice that the five of these criteria (communication and presentation skills; relevant work experience; interview preparedness (cv and personal presentation); education and organizational, leadership and analytical skills) come from the initial list of the proposed criteria, which suggests that, at the start of the research study, the criteria were well-selected, based on the thoroughly investigated literature and interviews with the experts in this domain. on the basis of the research and the opinions of the experts in the field of human resources, we can notice that, in the process of the recruitment and selection of sales managers, decision-makers pay 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(2016). integrated determination of objective criteria weights in mcdm. international journal of information technology & decision making, 15(02), 267-283. doi: 10.1142/s0219622016500036 received: 2016-07-18 accepted: 2017-10-11 darjan karabasevic faculty of applied management, economics and finance, university business academy in novi sad, jevrejska 24, belgrade, serbia darjan.karabasevic@mef.edu.rs dr. darjan karabasevic is an assistant professor of management at the faculty of applied management, economics and finance, university business academy in novi sad. he obtained his degrees at all the levels of studies (b.sc. appl. in economics, b.sc. in economics, academic specialization in the management of business information systems and ph.d. in management and business) at the faculty of management in zajecar, john naisbitt university, belgrade. his current research is focused on human resource management, management and decision-making theory. dragisa stanujkic faculty of management zaječar, john naisbitt university belgrade, park šuma “kraljevica” bb, 19000 zaječar, serbia dragisa.stanujkic@fmz.edu.rs dragisa stanujkic, ph.d., is a full professor of information technology and decision sciences at the faculty of management in zaječar, john naisbitt university in belgrade. he obtained his m.sc. degree in information science and his ph.d. degree in organizational sciences at the faculty of organizational sciences, belgrade university. his current research is focused on decision-making theory, expert systems and intelligent decision support systems. 24 darjan karabasevic, dragisa stanujkic, snezana urosevic, gabrijela popović, mladjan maksimovic 2017/22(3) about the author snezana urosevic technical faculty in bor, university of belgrade, vojske jugoslavije 12, bor, serbia surosevic@tf.bor.ac.rs snezana urosevic, ph.d., is an associate professor. she defended her doctoral thesis at the technical faculty “mihajlo pupin” in zrenjanin, university of novi sad, in 2007, in the field of management. she has published 15 papers in international sci journals. she is a member of the editorial boards of several national and international journals, a member of the scientific boards of several international conferences, and is currently a researcher in two national projects. her areas of interest include human resource management and environmental management gabrijela popovic faculty of management zaječar, john naisbitt university belgrade, park šuma “kraljevica” bb, 19000 zaječar, serbia gabrijela.popovic@fmz.edu.rs gabrijela popovic, ph.d., is an assistant professor of project management and investment project management at the faculty of management in zaječar, john naisbitt university belgrade. she obtained her m.sc. degree in economics and her ph.d. degree in management and business at the faculty of management in zaječar, john naisbitt university, belgrade. her current research involves decision-making theory, project management and environmental and natural resource economics. mladjan maksimovic faculty of applied management, economics and finance, university business academy in novi sad, jevrejska 24, belgrade, serbia mladjan.maksimovic@mef.edu.rs mladjan maksimovic, ph.d., is an assistant professor of management at the faculty of applied management, economics and finance, university business academy in novi sad. he obtained his b.sc., m.sc. and ph.d. degrees in management at the faculty of management in zaječar, john naisbitt university, belgrade. his current research is focused on management, sustainable development and tourism. 25 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07_dragan nonic:tipska.qxd 71 dragan nonić1, jelena nedeljković2, nenad ranković3 1university of belgrade, faculty of forestry, serbia 2university of belgrade, faculty of forestry, serbia 3university of belgrade, faculty of forestry, serbia small and medium enterprises based on non-wood forest products: characteristics and types in serbia udc: 338.45:630(497.11) ; 630*8(497.11) doi: 10.7595/management.fon.2014.0024 xiv international symposium symorg 2014, 06 10 june 2014, zlatibor, serbia 1. introduction small and medium-sized enterprises (smes) have an important role in every economic sector, primarily due to “...contribution to social stability and significant fiscal revenues generation” (premović, boljević, & arsić, 2011). in order to increase the contribution of the forestry sector to the economic and social development, it is necessary to support the establishment and development of forest-based smes (ranković, nonić, nedeljković, marinković, & glavonjić, 2012). to properly plan the development of the private forestry sector and ensure the development of smes in forestry, it is necessary, in addition to wood products, to pay special attention to non-wood forest products1 (nwfps). previous research shows that entrepreneurs in the forestry sector, when exploring new development strategies, should take nwfps into account as these products provide significant opportunities for additional revenues (niskanen et al., 2007). in this paper, the nwfps are taken to be mushrooms, medicinal and aromatic plants (map), wild berries and other forest fruits (wbff). research on smes for procurement, processing and selling of nwfps (nwfp-smes) in serbia argues that the structure of these enterprises is very heterogeneous, and production capacities are underutilized and often inadequate. one of the reasons for this may be the lack of adequate support, as it was determined that most of these enterprises do not have sufficient financial resources, nor do they have access to favourable bank loans (nonić, nedeljković, & jovanović, 2012; nonić, ranković, & nedeljković, 2013a). management 2014/72 in order to increase the contribution of the forestry sector to economic and social development, it is necessary to support the establishment and development of small and medium-sized enterprises (smes) whose business is based on wood and non-wood forest products (nwfps). to properly plan the development of the private forestry sector, it is also necessary to establish the basic structure and forms of smes for procurement, processing and sale of nwfps (nwfp-smes) as well as their business. in this context, the aim of the research was to determine the characteristics and types of nwfp-smes. the study included 91 representatives of nwfp-smes in central serbia. the analysis of the results showed that, based on the characteristics and activities they perform, there are three types of nwfp-smes. based on the characteristics and attitudes towards additional training, four types of nwfp-smes representatives can be distinguished. the results can serve as a basis for further study on types of smes and improving the entrepreneurship in nwfp sector. keywords: small and medium enterprises, entrepreneurship, types, non-wood forest products, forestry 1 nwfps are “…goods of biological origin other than wood, derived from forests, other wooded land and trees outside forests” (fao, 1999). the results of research conducted in different countries indicate that smes need more support in order to enlarge and improve production capacities, obtain the necessary technical knowledge and increase profitability (pettenella, secco, & maso, 2007; uddin et al., 2008). however, there is a lack of support for the development of smes in forestry in many countries; if any support exists, it is often inadequate or poorly targeted (macqueen, 2007). therefore, policy-makers may need “...policies that support the varying needs of different types of entrepreneur, rather than provide broad ‘blanket’ policies to all types of entrepreneurs, irrespective of need or ability” (westhead, ucbasaran, wright, & binks 2005, p. 110). for these reasons, it is essential that decision-makers obtain necessary information about the types of enterprises in the private forestry sector, in this case nwfp-smes. in literature, there are several typologies of entrepreneurs (dowell, dawson, fuller-love, & hopkins, 2012; schwienbacher, 2007; westhead et al., 2005), and smes (andersén, 2012; franco & haase, 2013; swoboda & olejnik, 2013). also, some authors have studied types of business strategies, which are not directly related to smes, but can be applied to them (grant, cadden, mcivor, & humphreys, 2013; löfving, säfsten, & winroth, 2014; miller & roth, 1994). previous studies in the private forestry sector in serbia have determined several types of classification, in relation to: private forest owners (nonić, ranković, glavonjić, & nedeljković, 2013); smes and entrepreneurs operating with wood products (ranković et al., 2012); supply chains of nwfps (nonić, ranković, & nedeljković, 2013b), and the attitudes of representatives of nwfp-smes towards the documentation needed for nwfps collection (nedeljković et al., 2013). however, there is a lack of knowledge about the types of nwfp-smes and their representatives. for these reasons, the aim of the research was to determine the characteristics and types of nwfp-smes in central serbia2. the purpose of the research is to create a basis for further research and improvement of the entrepreneurship in the nwfp sector. the subjects are attitudes of the representatives of nwfp-smes. 2. methods different scientific methods are applied in the paper: statistical, comparative, analysis and synthesis. as a research technique for data collection, the “door-to-door” survey was used (malhotra, 2007). the questionnaire was created as a combination of 65 openand close-ended questions, divided into six groups. only those questions that relate to the basic characteristics of nwfp-smes and their business, and basic (socio-demographic) characteristics of the respondents, were selected for the purposes of this paper. during the statistical processing of answers to questions that were continuous variables the descriptive statistics was used, while in the case of categorical variables the frequency analysis was applied. the cluster analysis was used as statistical analysis, which is mainly applied in determining the specific typology in socio-economic studies (grant et al., 2013; swoboda & olejnik, 2013). to group objects into relatively homogeneous groups (so-called clusters), i.e., to determine the types of smes and theirs representatives, a two-step cluster analysis (malhotra, 2007) was applied. the criterion for clustering was the schwarz’s bayesian criterion (bic). the two-step cluster analysis allows grouping of categorical, and categorical and non-categorical variables and does not require a prior knowledge of a number and characteristics of clusters. those are determined by the value of bic and ratio of distance measures (rdm). the quality of the grouping is determined on the basis of silhouette coefficient3. to test the differences in the obtained (empiric) and expected frequencies4, χ2 test for goodness-of-fit was used. 72 2014/72management 2 term “central serbia” refers to the territory of serbia without ap vojvodina and kosovo and metohija. 3 if the average value of silhouette is 0.70-1, quality of data grouping is strong, if >0.50 and ≤0.70, quality is reasonable, if >0.25 and ≤0.50, quality is week, and if ≤0.25, grouping is not statistically significant (pearson et al., 2004). 4 in all cases it was assumed that expected (hypothetical) frequency distribution was 50%:50%, i.e., the null hypothesis was that all proportions were equal. map 1. distribution of analyzed smes in forest areas the basic information (name, registered office, contact) on nwfp-smes were obtained from internal reports of the ministry of environment, mining and spatial planning5, whose responsibility these tasks were in the research period (2011-2012). data collection was conducted with representatives of 91 enterprises (from the total number of 127 smes active at the moment of research)6. the distribution of these smes in forest areas7 is shown in . sampling was not used in the research, i.e. the census was conducted because of the small population (malhotra, 2007). 3. results in the results are presented and analysed the data related to characteristics and types of nwfp-smes and their representatives. 3.1. characteristics and types of nwfp-smes as basic characteristics of nwfp-smes in this research the following are considered (table 1): • location; • number of employees and seasonal workers; • type of nwfps; • transportation equipment and mechanization. 73 management 2014/72 5 in accordance to the decree on putting under control the use of and trade in wild flora and fauna, all legal entities engaged in collection of nwfps for commercial purposes are obliged to have a permit. the register of these legal entities is kept, based on the data from the permits. 6 after determining the final number of smes that asked for the permit for commercial collection of nwfps in the period 2007-2010, their liquidity was verified (telephone contact and checking databases of the serbian business register agency and the national bank of serbia). 7 detailed information on forest areas are given in the law on forests (2010). table 1. share of nwfp-smes as regards basic characteristic in relation to the location, most nwfp-smes are located in urban, but also in rural areas while a certain number (27.5%) of these perform business activities in both locations. around a half of nwfp-smes (49.5%) have 11-50 employees. the results of χ2 test for goodness-of-fit show a statistically significant difference between these groups (χ2=13.01, df=2, p=0.00). as regards the number of employees, most enterprises belong to the group of small enterprises8. most nwfp-smes (84.6%) hire seasonal workers, whose average number is 10 and maximum number amounts to 250. nwfp-smes need to hire seasonal workers because collection, purchase and processing of nwfps are seasonal activities, mainly preformed during summer and autumn. when it comes to type of nwfps, most smes (62.2%) are engaged in mushrooms and wbff business and 35.2% in map. regarding transportation equipment and mechanization, most nwfp-smes have vans without refrigerator (60.4%) and other equipment necessary for secondary processing of nwfps (weighing machine, drying machine, machine for processing and cold-stores). the oldest equipment, which enterprises purchased at the time of their establishment, are drying machines, vans, machines for processing (10 yrs.) and packaging (8 yrs.), and cold-stores (7 yrs.). the average age of weighing machines is smaller (5 yrs.), because they need to be renewed frequently. analysed major characteristic of nwfp-smes9 business are the following (table 2): • business activities; • average use of technological capacity; • working conditions; • problems in business; • relationship to investments. 74 2014/72management nwfp-smes basic characteristics frequencies (%) rural 70.3 location urban 57.1 up to 10 31.9 11-50 49.5 number of employees 51-250 18.7 mushrooms 62.6 map 35.2 type of nwfps wbff 62.6 van with refrigerator 42.9 van without refrigerator 60.4 weighing machine 95.6 drying machine 65.9 machine for processing 75.8 machine for packaging 22.0 transportation equipment and mechanization cold-store 56.0 8 if only number of employees is taken as a criterion, these enterprises, in accordance with the current law on accounting (from 2013), belong to the category of small enterprises. 9 in relation to legal form, most enterprises are registered as business companies (74.7% as limited liability company and 1.1% as joint stock company). in addition, there are entrepreneurs (22.0%) and cooperatives (2.2%). table 2. share of nwfp-smes as regards basic characteristic of business business activities of most nwfp-smes include procurement (98.9%), processing (95.6%) and selling (68.1%). also, nwfp-related business activities are the main or sole activity for around ¾ (73.6%) smes. in the analysed enterprises, there is a high degree of utilization of drying machine (74.8%) and equipment used for other processing (70.8%), while the degree of utilization of cold-stores is slightly lower (57.6%). the respondents believe that working conditions are mostly defined by weather (78.7%), which is understandable bearing in mind that nwfps yield depends solely on nature and weather conditions. also, the majority of respondents (70.8%) claim that the legal framework is inadequate. unfair competition is the most important problem in business (60.4% of smes representatives). representatives also maintain that insufficient labour, undeveloped national market, and payments each (39.6%) cause problems in business. on the other hand, the smallest number of respondents believe that problems are caused by clients (9.9%) and cooperation with other enterprises (11.0%)10. most smes representatives (74.1%) believe that financial resources should be invested in new equipment, i.e. fixed assets. types of nwfp-smes were determined based on two groups of variables: 1) basic characteristics (location, number of employees and seasonal workers); 2) smes’ activities. 75 management 2014/72 10 most respondents believe that unfair competition represents „...problem in nwfp purchase”, while on the other hand the majority emphasize that they “...with other enterprises usually cooperate in selling”. basic characteristics of nwfp-smes business frequencies (%) procurement 98.9 processing 95.6 selling 68.1 business activity nwfps main/sole activity 73.6 coldstore 57.6 drying machine 74.8 average utilization of technological capacity equipment for other processing 70.8 old equipment and mechanization 14.6 dependence of weather conditions 78.7 working conditions inadequate legal framework 70.8 unqualified labour 22.0 insufficient labour 39.6 lack of training 14.3 unfair competition 60.4 lack of export 16.5 undeveloped national market 39.6 insufficient utilization of capacities 27.5 payments 39.6 clients 9.9 cooperation with other enterprises 11.0 problems in business other 14.3 fixed assets of expanded reproduction 74.1 product finalization 17.6 introduction of additional activities 7.1 marketing instruments 7.1 investments working assets 9.4 three types11 of enterprises are distinguished based on the characteristics (table 3): 1) “small rural” (50.6%); 2) “small urban” (29.9%); 3) “medium urban” (19.5%). table 3. types of enterprises in relation to the characteristics most smes belong to the type of “small rural enterprises”, which is understandable bearing in mind that the activities related to nwfps, particularly procurement of raw materials, belong to rural areas. this is because nwfps collection and purchase are performed in villages and their surroundings, as they are closer to the forest resources in comparison with urban areas. the results of χ2 goodness-of-fit test show a statistically significant difference between these types (χ2=11.64, df=2, p=0.003). “small rural” and “small urban” types are very similar (differ only in location). on the other hand, the “medium urban” type clearly differs, both in terms of the number of employees and in the number of seasonal workers. three types of enterprises are determined, based on smes business activities12: 1) smes engaged in procurement, processing and selling of nwfps (64.8%); 2) smes engaged in procurement, and processing of nwfps (30.8%); 3) smes engaged in procurement, and selling of nwfps (4.4%). the results of χ2 goodness-of-fit test show a statistically significant difference between these types (χ2=50.13, df=2, p=0.0). the majority of enterprises belong to the type engaged in all three activities. this is understandable if one takes into account the above results, which indicates that procurement and processing are present in almost all studied smes while selling is present in the majority of them. 3.2. characteristics and types of representatives of nwfp-smes the following characteristics of representatives of nwfp-smes were analysed (table 4): • position; • age; • gender; • education. in terms of positions in the enterprise, 69.2% of all representatives nwfp-smes are owners and/or managers (27.5% owners, 22.0% owner-managers and 19.8% managers). the presented results indicate that no position prevails. however, results of the χ2 goodness-of-fit test show a statistically significant difference between the observed variables (χ2=40.31, df=6, p=0.0). 76 2014/72management type of enterprise location number of employees number of seasonal workers small rural rural 11-50 16 small urban urban 11-50 17 medium urban urban 51-250 133 11 silhouette=0.5, bic=253.87, rdm=1.86 12 silhouette=1.0, bic=55.23, rdm=3.01 table 4. share of nwfp-smes representatives’ as regards the characteristic regarding gender, representatives of smes are mostly males (74.7%). the majority of owners and ownermanagers belong to the age group of 26-45 olds. in relation to education, the results of χ2 goodness-of-fit test reveal no statistically significant difference between education categories13, i.e. none of them can be described as prevailing. the following attitudes of nwfp-smes representatives, towards additional training were analysed (table 5): • importance of additional trainings; • previous trainings; • type of training; • interest in future training; • type of training required in future. table 5. share of nwfp-smes representatives as regards attitudes toward training 77 management 2014/72 owner manager owner-manager all respondents characteristics frequencies (%) owner 100 27.5 manager 100 19.8 owner-manager 100 22.0 employee 17.6 pr 1.1 consultant 1.1 position other 11.0 18-25 2.2 26-45 52.0 27.8 55.0 49.5 46-65 48.0 72.5 40.0 47.3 age more than 65 5.0 1.1 male 84.0 83.3 75.0 74.7 gender female 16.0 16.7 25.0 25.3 secondary school 40.0 22.2 55.0 41.8 high school 28.0 33.3 20.0 22.0 education faculty 32.0 44.4 25.0 36.3 owner manager owner manager all respondents attitudes frequencies (%) negative 8.0 11.1 5.0 7.7 indifferent 28.0 11.1 15.0 16.5 importance of additional trainings14 positive 64.0 77.8 80.0 75.8 yes 56.0 44.4 60.0 52.7 previous trainings no 44.0 55.6 40.0 47.3 informal 7.1 28.6 25.0 15.2 type of training formal 92.9 71.4 75.0 84.8 yes 80.0 72.2 80.0 79.1 interest in future trainings no 20.0 27.8 20.0 20.9 entrepreneurship 42.9 30.8 37.5 35.6 business administration 42.9 46.2 43.8 43.8 management 57.1 61.5 37.5 53.4 supply chain management 42.9 38.5 31.3 35.6 legislation 42.9 38.5 37.5 35.6 professional knowledge on nwfps 66.7 61.5 75.0 68.5 type of training required in future other 9.5 23.1 12.5 16.7 13 values of χ2 goodness-of-fit test are: owners-χ2=0.56, df=2, p=0.76; managers-χ2=1.33, df=2, p=0.51, owner-managers-χ2=4.3, df=2, p=0.12. 14 5-degree likert scale was applied for evaluation of additional training importance. in this paper, points 1 (very unimportant) and 2 (unimportant) are shown as negative, 3 (neither important nor unimportant) as indifferent, and 4 (important) and 5 (very important) as positive attitude. most respondents have a positive attitude towards the importance of additional training. also, most of them, except those in the position of managers, have attended some training courses, mostly formal. the majority of respondents, regardless of the position, showed an interest in attending training courses in the future. in relation to the type of training, 68.5% of respondents believe that they need professional knowledge on nwfp and 53.4% require training in management. types of nwfp-smes representatives (owner, manager and ownermanager), were distinguished on the basis of two groups of variables: basic characteristics and attitudes towards the type of training. as regards characteristics (table 6), the majority of owners (52.0%) and the highest number of ownermanagers (45.0%) are “younger secondary school graduates”, and 44.4% of managers are “older secondary school graduates”. common characteristics of these types are male sex and secondary education. table 6. share of types of nwfp-smes representatives as regards the basic characteristics however, the results of χ2 goodness-of-fit test indicates no statistically significant difference between these types (none can be described as prevailing), because: • for owners, χ2=0.04, df=1, p=0.84; • for managers, χ2=2.33, df=2, p=0.31; • for owner-managers, χ2=1.90, df=2, p=0.39. regarding attitudes toward type of training (table 7), nwfp-smes representatives are classed as follows: • “professional knowledge on nwfps“ – only professional knowledge of nwfps, related to the type of product, methods of collection, processing, etc. (75% owner-managers); • “broad managerial & professional knowledge” – knowledge in the field of management and related disciplines (entrepreneurship, business administration, etc.), and professional knowledge on nwfps; • “narrow managerial & professional knowledge” – knowledge in the field of management, and professional knowledge on nwfps (61.5% of managers); • “lack of interest in additional training in proposed fields” – no need for additional training in management and related disciplines, nor professional knowledge on nwfps, but still show interest in additional education (61.9% of owners). table 7. share of types of nwfp-smes representatives as regards the type of training 78 2014/72management owner manager owner-manager type 15 of nwfp-smes representatives frequencies (%) younger secondary school graduates 52.0 45.0 older secondary school graduates 44.4 older high school graduates 16 16.7 20.0 older with faculty 48.0 38.9 35.0 owner manager owner-manager type 17 of nwfp-smes representatives frequencies (%) professional knowledge on nwfps 75.0 broad managerial & professional knowledge 38.1 38.5 25.0 narrow managerial & professional knowledge 61.5 lack of interest in additional training in proposed fields 61.9 15 owners: silhouette=0.5, bic=99.85, rdm=1.81; managers: silhouette=0.6, bic=64.50, rdm=1.66; owner-managers: silhouette=0.5, bic=87.01, rdm=1.53. 16 types of managers and owner-managers “older high school graduates” are 46-65 years old, with high school education. the difference is in gender: managers are females and owner-managers are males. 17 owners: silhouette=0.7, bic=108.87, rdm=4.28; managers: silhouette=0.5, bic=93.01, rdm=2.56; owner-managers: silhouette=0.7, bic=101.37, rdm=2.32. however, the results of χ2 test for goodness-of-fit show that there is no statistically significant difference between these types (none can be described as prevailing, except in case of owner-managers), because: • for owners, χ2=1.19, df=1, p=0.28; • for managers, χ2=0.69, df=1, p=0.41; • for owner-managers, χ2=4.0, df=1, p=0.046. a common characteristic for owners, managers and owner-managers is that few of them show interest in acquiring “broad managerial & professional knowledge”. 4. discussion in relation to the basic characteristics of nwfp-smes, it can be seen that their location is both in urban and rural areas, and that they are small enterprises in terms of the number of employees. the most common nwfps are mushrooms and wbff. most nwfp-smes belong to the type of “small rural enterprises”. previous studies on forest-based enterprises indicate that small family enterprises (fao, 2005; usaid, 2008) located in rural areas (fao, 2005; niskanen et al., 2007; pettenella et al., 2007) are mainly engaged in these activities. regarding the characteristics of nwfp-smes business, it is noticeable that product sale is characteristic of most enterprises, while almost all of them are engaged in procurement and processing. the prevailing type of nwfp-smes, classified on the basis of their activities, is the one that integrates procurement, processing and selling. previous studies in the region of šumadija and western serbia showed similar results (nonić, ranković, & nedeljković, 2013b). most nwfp-smes representatives believe that working conditions are defined by weather. considering that nwfps are seasonal products whose yields depend on nature and weather “...their supply cannot be regular and fully reliable” (fao, 2005, p. 6). this is the reason why smes in this sector “...seldom rely on one product” (fao, 2005, p. 6). in this way, they are trying to minimize potential losses. unfair competition, insufficient labour, underdevelopment of national market and payments are important problems in business. although there are certain differences in attitudes, these problems are to some extent similar to those reported in the literature. research conducted abroad show that the main problems are: “…lack of capital investment and shortage of raw materials, skilled manpower and up-to-date information” (uddin et al., 2008, p. 147). also, problems can be caused by “…financial and technical limitations, (…), market insecurity (with large price �uctuations) and lack of research” (uddin et al., 2008, p. 148). despite appropriate technological equipment, most respondents believe that additional funds should be invested in fixed assets (cold-stores, drying machines, etc.). according to the results of previous research in serbia, representatives of nwfp-smes emphasize the need for additional financial support measures to be used for the purchase of new equipment and machinery (nonić, ranković, & nedeljković, 2013a). as regards the basic characteristics of nwfp-smes representatives, most respondents are owners and/or managers. the largest (but not prevailing) number of owners and owner-managers belong to the type of “younger secondary school graduates”. this means that all of them are males, 26-45 years old, with secondary school. these results are in line with previous studies that indicate that entrepreneurs are mainly males, 20-50 years old, and have secondary school education (ayala & manzano, 2014). most respondents have a positive attitude towards additional education and have attended some kind of formal training. in terms of types of nwfp-smes representatives, most owner-managers belong to the type being interested in professional knowledge on nwfps. on the other hand, most owners show a lack of interest in additional training in the proposed fields. the reason for this may be the fact that “owner-managers” in forestry “…see their businesses primarily as a source of revenue and a way to provide for their own employment” (st-jean, lebel, & audet, 2010, p. 212). the importance of additional education is emphasized in previous studies showing that “…certain factors such as human capital and characteristics (education, training, manager experience) have a direct influence on rural business growth” (st-jean et al., 2010, p. 213). 79 management 2014/72 references [1] andersén, j. (2012). a resource-based taxonomy of manufacturing msmes, international journal of entrepreneurial behaviour & research 18(1), 98-122. doi:10.1108/13552551211201394 [2] ayala, j.c., mazano, g. (2014). the resilience of the entrepreneur. influence on the success of the business. a longitudinal analysis. journal of economic psychology. advance online publication. doi:10.1016/j.joep.2014.02.004 80 2014/72management with regard to characteristics of nwfp-smes, the following conclusion can be drawn: • most enterprises have 11-50 employees and deal with mushrooms and/or wbff; • most enterprises have a van without refrigerator, weighing and drying machines, a machine for processing and cold-stores. with regard to characteristics of nwfp-smes business, the following can be concluded: • most enterprises are engaged in all three activities (procurement, processing, selling), and nwfps are a predominant/sole activity; • there is a high degree of utilization of drying machines and equipment for other processing; • working conditions are defined by the dependence on weather and inadequate legal framework; • the most important problem in business is “unfair competition”; • financial resources should be invested in fixed assets. research results show the following types of nwfp-smes: • in terms of basic characteristics of smes: 1) “small rural” (prevailing); 2) “small urban”; 3) “medium urban”; • in terms of business activities: 1) “procurement, processing, selling” (prevailing); 2) “procurement, processing”; 3) “procurement, selling”. the following can be concluded in relation to the characteristics of nwfp-smes representatives: • most are at the positions of the owner and/or manager, are 26-45 years old, male, with secondary school education; • most have a positive attitude towards the importance of additional training, have attended formal training courses and show interest in additional education, mainly in the field of management and professional knowledge on nwfps. the following types of nwfp-smes representatives are distinguished: • in terms of some basic characteristics (none is prevailing): 1) “younger secondary school graduates”; 2) “older secondary school graduates”; 3) “older high school graduates”; 4) “older with faculty”; • in terms of attitudes toward the type of additional training: 1) “professional knowledge on nwfps” (prevailing within owner-managers); 2) “broad managerial & professional knowledge” 3) “narrow managerial & professional knowledge” 4) “lack of interest in additional training in proposed fields”. these results can serve as a basis for further research on types of smes and opportunities for improvement of entrepreneurship in the nwfps sector. also, the need for specific support measures in relation to different types of entrepreneurs should be an object of study in the period to come. acknowledgment: this study was conducted within the project “sustainable management of the overall potential of forests in the republic of serbia” (no. 37008-tr) and the project “research on climate changes and their impact on the environment monitoring of impacts, adaptation and mitigation” (no. 43007), subproject “socio-economic development, mitigation and adaptation to climate changes” (no. 43007/16-iii), funded by the ministry of education, science and technological development. conslusion [3] dowell, d., dawson, c, fuller-love, n., & hopkins, b. 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(2011). mala i srednja preduzeća kao generatori održivog regionalnog razvoja [small and medium enterprises as generators of the sustainable regional development]. ekonomika poljoprivrede 58(sb1), 137-144. [22] ranković, n., nonić, d., nedeljković, j., marinković, m., glavonjić, p. (2012). mala i srednja preduzeća u timočkom šumskom području-sistem mera podrške i model organizovanja [small and medium enterprises in timok forest area – system of support measures and model of organization]. beograd: univerzitet beogradu-šumarski fakultet. [23] schwienbacher, a. (2007). a theoretical analysis of optimal financing strategies for different types of capital-constrained entrepreneurs. journal of business venturing 22(6), 753–781. doi:10.1016/j.jbusvent.2006.07.003 [24] st-jean, e., lebel, l., & audet, j. (2010). entrepreneurial orientation in the forestry industry: a population ecology perspective. journal of small business and enterprise development 17(2), 204-217. doi:10.1108/14626001011041210 [25] swoboda, b., & olejnik, e. (2013). a taxonomy of smalland medium-sized international family firms. journal of international entrepreneurship 11(2), 130-157. doi:10.1007/s10843-012-0101-x 81 management 2014/72 82 2014/72management [26] uddin, m.s., mukul, s.a., khan, m.a.s.a., alamgir, m., harun, md.y., & ala, m.s. (2008). small-scale agar (aquilaria agallocha roxb.) based cottage enterprises in maulvibazar district of bangladesh: production, marketing and potential contribution to rural development. small-scale forestry 7(2), 139–149. doi:10.1007/s11842-008-9046-2 [27] usaid (2008). herbs, mushrooms and forest fruit (medicinal and aromatic plants): value chain assessment. belgrade: usaid agribusiness project. [28] westhead, p., ucbasaran, d., wright, m., & binks, m. (2005). novice, serial and portfolio entrepreneur behaviour and contributions. small business economics 25(2), 109-132. doi:10.1007/s11187-003-6461-9 receieved: june 2014. accepted: september 2014. dragan nonić university of belgrade, faculty of forestry, serbia dragan.nonic@sfb.bg.ac.rs dr. dragan nonić is associated professor at the faculty of forestry, university of belgrade and head of forestry economics and organisation. he teaches the followng courses: organisation and management in forestry and nature protection, entrepreneurship and smes in forestry, and governance in forestry and nature protection at both bsc, msc and phd levels. as the author or co-author, he has published a textbook, several monographs and around 200 papers in national and international scientific journals. he has been coordinator of “tempus”, daad and european forest institute projects, and collaborates as an expert in fao, world bank and regional projects. he was a visiting researcher at albert ludwigs universität – freiburg, eth – zürich and boku – wien, and a visiting professor at the university in sarajevo and the university of banja luka. dr. dragan nonić is alexander von humboldt and daad foundation’s alumni. jelena nedeljković university of belgrade, faculty of forestry, serbia jelena.nedeljkovic@sfb.bg.ac.rs jelena nedeljković, graduate engineer, is research assistant at the faculty of forestry, university of belgrade. her fields of research interest are: organisation and management in forestry, entrepreneurship and smes in forestry and governance in nature protection. she has been a co-author of around 30 scientific papers and several national and international monographs, and also participated in international research projects. she was granted european forest institute (efi) scholarships for phd students and was a visiting researcher at efi mediterranean regional office – barcelona and boku – wien. nenad ranković university of belgrade, faculty of forestry, serbia nenad.rankovic@sfb.bg.ac.rs dr. nenad ranković is full professor at the faculty of forestry, university of belgrade, where he teaches courses in forest economics, forest policy, and trade and marketing of forest products at bsc, msc and phd levels. he has published, as author and co-author, 3 books, 4 monographs and more than 140 papers in national and international scientific journals. as coordinator or participant, he has been involved in several research projects. about the author 07_aleksic:tipska.qxd 75 vesna stojanović-aleksić, aleksandra bošković1 faculty of economics, university of kragujevac management: journal of sustainable business and management solutions in emerging economies 2017/22(3) what really drives corporate social responsibility? doi: 10.7595/management.fon.2017.0018 1. introduction the stakeholder theory (freeman, 1984) suggests that each corporation is a social institution that bears responsibility, not only towards shareholders, but towards other interest groups as well. a corporation is an integral part of the society and besides economic objectives, its impact on the internal and external environment must be taken into account. significant research efforts have been made in the area of corporate social responsibility (csr) (lopatta, jaeschke, chen, 2017; dare, 2016; brunton, eweje & taskin, 2015; pérez & rodríguez del bosque, 2015; martínez & rodríguez del bosque, 2013; devinney, 2009; aguilera, rupp, williams, & ganapathi, 2007; porter & kramer, 2006; kotter & lee, 2005; garriga & mele, 2004; carroll, 1999; davis, 1967; bowen, 1953), but there are still many dilemmas about the nature and the scope of this concept, both in scientific and professional communities. one of the current issues concerns the real reasons for companies to act in a socially responsible manner. is it ethics, philanthropy, or is it just a cover for the achievement of some other, primarily financial or market objectives? devinney (2009) believes that an enterprise cannot be truly socially responsible, even in the narrowest sense and that the concept of csr is an oxymoron, because companies must balance between different interests, which are conflicting by their nature and it is naive to believe that their activities are designed according to the requirements of the society. companies actually manipulate social interests, in order to achieve their own goals. the author presents a rather extreme position, believing that the paradigm do-well-by-doing-good reflects an unrealistic goal, a noble idea, which is infeasible in practice. other authors provide empirical evidence on the multiple benefits of csr, such as the improvement of competitive advantage (porter & kramer, 2006) or employee satisfaction (koh & boo, 2004). although the abstract: corporate social responsibility (csr) can be motivated either by instrumental, moral or obligatory factors. the paper aims to explore how these motives influence the level of csr. specific attention is paid to the csr in state-owned and private companies, since their motives are significantly different. in order to examine these relationships, an empirical study was conducted on a sample of 80 respondents, employed in 24 companies from several industries in the territory of the republic of serbia. the findings indicate that internal csr is more developed if moral motives are dominant. also, csr in general, internal csr and responsibility to customers, are higher in state-owned companies, compared to the private ones. the contribution of the paper is reflected in the discovery of new insights, which are the basis for future research, but also useful for directing the activities of management in the field of csr which is one of the key requirements for sustainable business. keywords: corporate social responsibility, motives, ethics, performance, obligation, state ownership, serbia. jel classification: m14, a13 1 corresponding author aleksandra bošković, e-mail: aboskovic@kg.ac.rs impact of social responsibility on the financial performance is difficult to measure, and previous studies lead to conflicting results (surroca, tribo, & waddock, 2010; mcwilliams & siegel, 2000), it is possible to identify a specific positive relationship (margolis, elfenbein, & walsh, 2007; stankevicienë & cepulytë, 2014). however, the real effects are indirect and can only be expected in a long term. also, if irresponsible behaviour finds the public condemnation, it causes high losses, which are then difficult to compensate. accordingly, the potential positive effects, even in a very long period, are far more profitable than any damage. all these reasons may be motives for csr. compared to the growing body of literature on the nature and consequences of csr, the issue of which factors determine the csr level, has received relatively limited attention. previous studies have dealt with csr motives (dare, 2016; petrenko, aime, ridge, & hill, 2016; aguilera, williams, conley, & rupp, 2006; munilla & miles, 2005), but there is a lack of empirical evidence on their connection to the level of csr development, particularly in terms of the internal and external dimensions. thus, this paper is driven by an aspiration to overcome this perceived gap. namely, it is necessary to further investigate the underlying factors that motivate management to take initiatives in this area, since it affects the course and the level of csr. there are different factors that determine both csr motives and the level of csr, one of which is the ownership type (dam & scholtens, 2012; oh, chang, & martynov, 2011). for decades, public and privatelyheld corporations have shown varying levels or degrees of commitment to csr (dare, 2016). the state as owner may be more prone to invest in csr, since one of the main goals of each government is the fulfilment of public interest. in addition, state-owned companies are more exposed to the public eye, so this can be a reason to engage in socially responsible activities (mohd ghazali, 2007, p.255). however, there is also a high level of csr in private companies who strive to improve clients’ trust and their own corporate image (pérez & rodríguez del bosque, 2015). due to the heterogeneity of existing evidence, the relationship between state ownership and csr should be further explored. according to the subject determined, the basic aim of the research is to determine the extent to which differences in the level of csr occur as a result of differences in terms of the key csr motives. specific goals are to explore how the underlying factors that motivate management to undertake csr activities determine the level of internal and external social responsibility, as well as to find out if csr is affected by ownership type, particularly taking into consideration state and private ownership. 2. literature review and hypotheses development attempts to define corporate social responsibility began in the mid-twentieth century, but even today there is no universally accepted definition. carroll (1999) gave a remarkable contribution to the literature in the field of csr by tracing the evolution of the definitional construct, from 1950s to 1990s. this period is characterized by significant differences in attitudes on the meaning and the validity of the concept. initial definitions explain social responsibility as an obligation to act in compliance with the values of society (bowen, 1953). however, modern approaches emphasize the voluntary nature of csr (carroll, 1991; european commission, 2011, p.3), referring to the activities that cross the border of law and are based on altruism or philanthropy. the company should be responsible to its internal and external environment, i.e., to all the stakeholders, such as employees (internal csr), business partners, suppliers, customers, governments, non-governmental organizations who represent the interests of local communities and the environment (stojanovic-aleksic & boskovic, 2015; commission of the european communities, 2001; hawn & ioannou, 2016; skudiene & auruskeviciene, 2012). in addition to internal and external dimensions, csr disclosure represents a significant area of responsibility. in contemporary literature, much attention has been paid to this issue, especially in recent years when information is more accessible, since companies pay more attention to publishing data on their environmental and accountability activities towards employees, clients and the community (gray, kouhy, & lavers, 1995; kuo, yeh, & yu, 2012). but above all, a company must be able to make a profit that allows a sustainable competitive position. in order to achieve this, csr must be effectively managed and supported by adequate organizational structures (vlastelica bakic, cicvaric kostic, & neskovic, 2015). representatives of the free market theory, such as friedman (1962), explicitly state that there is no other purpose of corporate social responsibility than to make as much money for stockholders as possible (carroll, 1999, p. 277). however, the link between csr and financial performance is difficult to measure and remains 76 vesna stojanović-aleksić, aleksandra bošković 2017/22(3) unclear. a group of authors conducted a meta-analysis that included 192 studies on the above relationship, and a survey showed the existence of a positive, statistically significant but small effect (margolis et al., 2007). another study has shown that csr has a positive effect on value creation (stankevicienë & cepulytë, 2014). still, the difficulties in quantifying this interdependence are primarily reflected in the fact that the financial effects of social responsibility are difficult to measure in the short term, and that this area of business, by creation of intangible resources, has many positive implications in the long term. an organization directly or indirectly generates a series of benefits through csr, including: strengthening the brand, improving the image (virvilaite & daubaraite, 2011) and the ability to attract, motivate and retain employees and consumers (kotter & lee, 2005, p.12), which in the long run leads to the reduction in operating costs and improvement of their competitive position (porter & kramer, 2006). in addition, studies have shown that involvement in socially desirable activities leads to greater employee satisfaction (koh & boo, 2004) and subsequently their positive emotions (onkila, 2015). therefore, social responsibility can play an important role in retaining existing human resources, but also in attracting new high-quality workers, since it can portray the perception of the company’s organizational culture as being friendly and humane. also, csr disclosure may be encouraged by state subsidies in some countries, e.g., china (lee, walker, & zeng, 2017). all of these motives, directly or indirectly related to reaching certain benefits by engagement in csr, can be labelled as instrumental (aguilera et al. 2006). on the other hand, motives can stem from the tendency to conform with emerging industry norms and standards (aguilera et al., 2006) or can be seen as a “tax” being mandated by ngos or other stakeholders (munilla & miles, 2005). we consider these factors as obligatory motives for csr. this group of motives includes different social and political, i.e., legal and regulatory drivers (stjepcevic & siksnelyte, 2017), such as laws or quality standards. in addition, according to gibson (2000), corporations actually have a moral responsibility to all the stakeholders. hence, there are managers, encouraged by moral motives, who engage in csr due to a higher purpose to help humanity. dare (2016) analyzed the impact of different motives on csr commitment and proved that firms with dominant moral motive tend to hold a higher commitment to csr than firms with a dominant instrumental motive. on the other hand, munilla and miles (2005) suggest that strategic motives, referring to csr as an investment in improving operations, can positively affect employees’ contribution to creating added value for customers and the local community, while csr as forced obligation may lead to the alienation of certain groups of customers. zhu and zhang (2005), on the other hand, have separated csr drivers into internal and external, with internal ones being related to governance and organizational structures, as well as a value systems on individual, group and organizational levels, while external drivers include normative, coercive and mimetic (competitive) factors. they found that chinese state-owned companies have high internal csr values which promote most csrs except those related to charity and employee rights. external institutional drivers for csr practices are relatively low. normative drivers motivate most csr practices while competitive drivers only motivate consumer issues-related csr practices. a study conducted in serbia by curcic, miletic & bjegovic (2016) has shown that companies are mainly emphasizing performance-driven motives for csr, but there is no data on how this affects the level of certain csr areas in serbia. starting from the theoretical foundations and the results of previous empirical studies, which show that csr motives are in correlation with the level of csr (dare, 2016; munilla & miles, 2005), we occupy a relatively different perspective on the problem aiming to find out which specific csr aspects vary depending on the dominant csr motives. we believe that companies, whose management is encouraged by moral motives (a tendency to increase employee satisfaction and the other motives of moral or ethical character), should have a higher level of internal csr, i.e., concern for the welfare of employees. hence, the first hypothesis is: h1: the level of internal csr will be higher if the motives are moral. instrumental motives, based on the principle of utility, can result in a greater involvement of a company in all aspects of external csr, since activities, such as humanitarian actions, activities with the aim of contributing to culture, sports, environmental protection and publication of information about csr, are often widely promoted and can directly affect financial results. therefore, we hypothesize: h2: the level of external csr will be higher if the motives are instrumental. 77 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) finally, the paper starts from the assumption that obligatory motives indicate an underdeveloped awareness of the importance of csr and can have a negative impact both on internal and on external social responsibility. thus, the third hypothesis is: h3: the level of csr will be lower if motives are solely obligatory. in addition to the aforementioned motives, it can be argued that there is a link between ownership and the motivation for csr (dam & scholtens 2013; oh et al., 2011; fernandez sanchez, sotorrio & diez 2011; aguilera et al., 2006). recent studies have shown that state ownership companies show significant engagement in csr (cordoba-pachon, garde-sanchez, & rodriguez-bolívar, 2014; zhao & patten, 2016; for example, cordobapachon et al. (2014) have found that senior managers in state-owned enterprises show awareness of and commitment to csr principles through a number of key static elements. also, a study conducted in china has shown that the managers of state-owned companies almost uniformly see social and environmental reporting as a tool of image enhancement (zhao & patten, 2016). however, these studies did not address the correlation between state ownership (as ownership type) and csr performance. there is still a research gap in this field, but some of the more recent papers have dealt with this issue. lopatta et al. (2017) used ownership data and csr data from 25 different countries and investigated the impacts of controlling shareholders on firms’ csr performance, where the controlling shareholders are defined as a single shareholder who owns more than 50% of shares in one firm. their results show that there is a positive relation between state-controlled ownership and the csr performance of firms, whereas the other types of controlling ownership (banks, industrial firms, institutional investors, and individuals) have no impact on csr performance. in fact, one of the major national objectives is sustainable development, which is based on three pillars economic, social and environmental. it may be noted that companies that act responsibly contribute to achieving the goals within all three basic pillars of sustainable development (stojanovic-aleksic & boskovic, 2016). compared to the private sector, state-owned companies are faced with various challenges in order to fully accept the strategic csr, whereby the most important ones refer to managing diverse stakeholders and their interests, support of managers’ discretion and community connection (cordoba-pachon et al., 2014). their important stakeholder is “the public” and accomplishment of public policy objectives, such as providing services to society, often becomes the most important issue. therefore, their management should be highly motivated to encourage csr, because, thus, they meet the expectations of different stakeholders, ensuring better living and working conditions in the community from which they draw the necessary resources. through an active involvement and promotion of socially responsible business, state-owned companies are gaining people’s trust, directly enhancing the corporate image and, indirectly, the political position and the power of governance. also, a study carried out in serbia in the field of local administration services, shows that customer orientation, which is closely connected to responsibility to customers, greatly affects citizens’ satisfaction nowadays (cicvarić kostić, okanović, milosavljević, & vukmirović, 2013). starting from the all aforementioned motives, we believe that stateowned comapnies care about csr more than private ones, so the fourth hypothesis is: h4: state ownership affects csr. 3. data and methodology 3.1. methods for data collection and processing in addition to an overview of the current domestic and foreign literature, and in order to develop an adequate theoretical basis as the starting point, we performed an empirical research by distributing a questionnaire in the period from march to june 2015. the sample consisted of 24 corporations, including 80 respondents, managers of various hierarchical levels in the corporate sector in the republic of serbia. as an instrument for data collection, we used an adapted questionnaire that consists of 30 questions. the empirical studies conducted by turker (2009), dam and scholtens (2012), oh, et al. (2011), sánchez, sotorrío and díez (2011) and the serbian chamber of commerce were used as a starting point. renovated structure of the questionnaire is the result of authors’ original scientific approach, according to a defined subject and objectives. the first part of the questionnaire includes questions on key csr dimensions. the respondents answered on the basis of the degree of agreement with the statements, using a five-point likert 78 vesna stojanović-aleksić, aleksandra bošković 2017/22(3) 79 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) scale. the second part consists of closed questions about a dominant csr motive. general information about respondents were collected by the five questions that make up the third part of the original questionnaire, and relate to gender, age, position in the organization, years of service and level of education. data on the ownership structure is taken from the database, available on the website of the central securities depository of the republic of serbia. data analysis was performed using relevant methods and techniques of the software statistical package for social sciences (spss) 20.0. we analyzed the structure and characteristics of the sample, using descriptive statistics. reliability of a scale was analyzed using cronbach’s alpha coefficient, which amounts to 0.890, indicating a high degree of reliability, since the questionnaire consists of 30 items. mann whitney u test was applied in order to test the hypotheses. 3.2. sample the sample consists of corporations listed at the central securities depository of the republic of serbia. there is a total of 1511 on the list of corporations, but 292 of them are in bankruptcy (), so we excluded those from the sampling procedure. after that, we completely randomly chose 80 companies from the list. however, 20 of them were very small stock companies (less than 10 employees) so they also were excluded because we targeted only large corporations, since small stock companies in serbia often do not even have corporate governance structure nor csr policy. also, csr in general may significantly vary depending on the size of the company, which is beyond the scope of our investigation. finally, 233 questionnaires were distributed to the remaining 60 corporations (3 or 4 managers per organization). however, 80 respondents from 24 companies agreed to participate. as mentioned, the size of all the corporations in the sample is large, but they belong to different industries (energy sector, banking and finance, food industry, manufacturing, agriculture and ict). the structure of the sample, in terms of ownership structure, is given in table 1, showing that corporations with ownership concentration are the dominant category (89% of respondents). minority ownership category is below 8%, confirming the fact that most companies in serbia are owned by large shareholders, as a result of methods of privatization applied as in the transition process. in terms of ownership type, 65% of respondents are managers of privately-owned and 35% of state-owned companies.2 foreign and domestic ownership are almost equally represented in the sample, given the 43.8% of respondents from foreign owned corporations, which are all multinational companies. table 1: structure of the sample source: own research 2 companies with more than 50% state’s share in ownership are considered state-owned. ownership concentration frequency percent more minority owners with the share of 10-30% 3 3.8 more minority owners with the share of 31-50% 6 7.5 majority owner with the share of 51-70% 19 23.8 majority owner with the share of 71-90% 7 8.8 majority owner with the share of 91-100% 45 56.3 total 80 100.0 state ownership frequency percent 91-100% 22 27.5 71-90% 6 7.5 31-50% 5 6.3 less than 10% 47 58.8 total 80 100.0 foreign ownership frequency percent 91-100% 35 43.8 10-30% 5 6.3 less than 10% 40 50.0 total 80 100.0 genders are equally represented in the sample (50% male/famale). the most numerous are the respondents in the age category 36-45 years (48.8%) and the sample mainly consists of respondents with 16-25 years of service (38.8%). as for formal position, operational managers (51.3%) are dominant in the sample, immediately followed by middle management (42.5%), while the top management constitutes 6.3 % of the sample. 4. results and discussion 4.1. testing the normal distribution of variables in order to carry out further data analysis, the normal distribution of variables was tested by means of kolmogorov-smirnov and shapiro-walk tests (table 2). according to the kolmogorov-smirnov test, the variables internal csr and the overall score of csr have a normal distribution (p> 0.05). however, the shapiro-wilk test did not comply with this finding. since the shapiro-wilk test is more stringent, it can be concluded that no variable has normal distribution. table 2: test of normal distribution of variables source: own research 4.2. csr motives and the level of csr first, we divided the respondents into three sub-samples depending on the three types of replies that they gave to the question “what are the most important motives for csr implementation in your company?“. out of the total number of respondents, only 4 respondents answered that the obligatory motives are the most important for csr implementation in their company. since this subsample is not representative, the hypothesis h3 cannot be tested. nevertheless, this result is significant because it implies that obligatory motives are not a frequent reason for corporate social responsibility in serbia. the remaining respondents opted for motives that belong to the group of instrumental motives (profit, brand, image, competitive advantage), 46 respondents, as well as moral motives (employee satisfaction and moral reasons), 30 respondents. since the variables are not normally distributed, we applied nonparametric statistical techniques to test the hypotheses h1 and h2. in order to compare statistically significant differences in the level of csr aspects, measured by the arithmetic mean, between two independent sub-samples, i.e., respondents with dominant instrumental motives and respondents with dominant moral motives, we applied mann whitney u test. it was impossible to form sub-samples in which companies would be units of observation, because not the same motives were dominant among all managers of the same company. therefore, the results are strongly influenced by personal perceptions of respondents, which may represent a limitation of research, but we do not observe it that way because the motives are individual by their nature and it is difficult to talk about the motives of the whole company in terms of csr because the concept does not only involve strategic decisions, but also a number of individual behaviours, practices, and beliefs. the most important results of mann whitney u test are presented in table 3 and discussed below. also, we derived conclusions about the relationship between the csr motives and the level of csr development, in accordance with the objectives of the research. 80 vesna stojanović-aleksić, aleksandra bošković 2017/22(3) kolmogorov-smirnov shapiro-wilk statistic df sig. statistic df. sig. internal csr 0.099 80 0.052 0.968 80 0.043 customers 0.119 80 0.007 0.952 80 0.005 environment 0.126 80 0.003 0.968 80 0.044 community 0.207 80 0.000 0.815 80 0.000 csr disclosure 0.138 80 0.001 0.965 80 0.028 csr total 0.090 80 0.164 0.969 80 0.048 table 3: differences between csr dimensions depending on csr motives source: own research *p<0.05 statistically significant differences were identified in one out of five observed csr aspects, namely internal csr (p<0.05). specifically, the level of internal csr is higher when managers are predominantly driven by moral motives, such as care for employees’ wellbeing and other ethical factors. thus, the hypothesis h1 is supported. this finding is in compliance with similar study of dare (2016) which shows that firms with a dominant moral motive tend to hold a higher commitment to csr and to involve it in their daily practices and decisions, both strategically and tactically, more than firms with a dominant instrumental motive. the contribution of our finding, however, is reflected in the specification of the internal dimension of csr, as an area where companies achieve better results, when managers are motivated by moral and ethical factors, rather than instrumental motives. a previous study shows that the factor of internal values has a greater effect on csr practices than external drivers (graafland & schouten, 2012; zhu & zhang, 2015). if corporate core values both at the manager personal level and the whole corporate level are consistent with csr, a company would more likely implement csr practices (hsu & cheng, 2012 as cited in zhu & zhang, 2015, p. 321). also, moral motives have a potential to influence employees’ participation in csr initiatives (aguilera et al., 2007). however, mann whitney u test did not reveal that there are statistically significant differences in terms of external csr aspects (customers, environment, community, csr disclosure), so we could not find the support for hypothesis h2. 4.3. state ownership and csr in order to compare the statistically significant differences between the two independent sub-samples, namely state-owned and private companies, mann whitney u test of independent samples is applied (table 4). the significant differences are identified in the following areas: internal csr (p=0.006), customers (p=0.029), and csr total (p=0.049). medians of the observed differences were calculated. as for the internal csr, respondents from majority state owned companies largely agree with the statements (median=3.67) compared to respondents from the companies with minority state ownership (median=3.00). also, there is a higher level of responsibility to customers in companies with majority state ownership (median=4.400) compared to those with minority state ownership (median=4.000). in addition, there is higher level of csr in general, in companies with majority state ownership (median=3.940) compared to those with minority state ownership (median=3.560). table 4: state ownership and csr – results of mann whitney u test source: own research 81 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) internal csr (employees) customers environment community csr disclosure csr total mann-whitney u 460.500 590.500 641.500 672.500 595.500 649.500 wilcoxon w 1541.500 1671.500 1106.500 1137.500 1060.500 1730.500 z -2.449 -1.064 -.518 -.191 -1.009 -.431 asymp.sig. (2-tailed) 0.014* 0.287 0.605 0.848 0.313 0.667 instrumental motives n 46 median 3.167 moral motives n 30 median 3.667 internal csr (employees) customers environment community csr disclosure csr total mann-whitney u 455.500 513.500 565.500 590.500 695.500 532.500 wilcoxon w 1833.500 1891.500 1943.500 1968.500 1101.500 1910.500 z -2.759 -2.178 -1.646 -1.420 -.329 -1.973 asymp. sig. (2-tailed) 0.006 0.029 .100 .156 .742 .049 majority state ownership 71-100% n 28 28 / / / 28 median 3.667 4.400 / / / 3.940 minority state ownership 0-50% n 52 52 / / / 52 median 3.000 4.000 / / / 3.560 82 vesna stojanović-aleksić, aleksandra bošković 2017/22(3) based on the results, we can conclude that csr is higher in two out of five relevant areas when the state is the majority owner. however, the csr total is higher in state-owned companies than in private ones. therefore, we conclude that h4 is partially confirmed. this result supports and extends the findings that were obtained in previous studies (e.g., li & zhang, 2010) and primarily refers to a general conclusion about the positive effect of state ownership on csr. the high level of csr in state-owned companies might be the reflection of differences in owners’ motives as well. as stated above, the specific role of the state as an owner of a company enables greater engagement in the pursuit of broader social interests, in addition to achievement of economic goals. still, the results indicate the need for state-owned companies to develop more community-related csr practices, which is also in accordance with previous research (zhu et al., 2016), as well as environmental and disclosure areas. it is possible to give a brief overview of the specific serbian context regarding csr. bearing in mind that the csr concept has only recently become widely accepted and begun to develop in domestic enterprises, it may be noted that government initiatives in this regard lead to positive results. particular progress the government of the republic of serbia has made in promoting social responsibility is the adoption of the strategy of development and promotion of corporate social responsibility in serbia for the period from 2010 to 2015. the importance of the strategy is reflected in raising awareness of domestic enterprises in terms of social responsibility, not only as an activity within marketing or public relations, but as a long-term strategic orientation that affects sustainable development of the country. in addition, this approach is one of the ways to improve the competitive position of local companies in foreign markets and the chance to achieve superior results. it can therefore be assumed that the state as the majority owner of companies is trying to achieve the goals set at higher levels. although awareness of the significance of csr has risen in recent years, csr is still regarded as a marketing tool and possibly a way to build a reputation (vukovic, mihic, miletic, & curcic, 2016). according to ivanovic-djukic (2009), a very small number of companies in serbia have csr managers and these activities are sometimes coordinated by a finantial director or incorporated in the public relations department. a recent study has shown that the most developed csr areas vary among different industries (krstic & trbovich, 2015). namely, they have found that the financial sector places most emphasis on its customers, whilst the construction sector (cement industry) sets the local community and employees in the cornerstone of its business operations, in line with international practice. however, public relations or the marketing sector are primarly engaged with stakeholders’ relationships in serbia. stojanovic-aleksic, eric nielsen & boskovic (2016) have found that banks in serbia devote more attention to customers and community, while internal csr and csr disclosure are on a lower level. also, csr performance is generally not included in the reports, so csr disclosure is still a challenge for both public and private companies in serbia. this is in line with previous research conducted by stojanovic-blab, blam, & spasic, 2016, who show that the level of sustainability reporting by serbian companies is low and not satisfactory. 5. scientific and practical implications the scientific contribution of the paper is reflected in shedding more light on the importance of understanding the nature of corporate social responsibility and focusing on various csr drivers, rather than effects solely. the study provides relevant insights into the interdependence of csr motives and the level of csr, as well as the level of state ownership and csr, thus expanding the knowledge base in this field and overcoming the observed gap. these findings provide the basis for identifying strengths and weaknesses in terms of csr in serbia, where empirical research in the field of csr motivation is lacking. the results have implications for managers as well. one important implication from our analysis is how managers perceive the csr influence their commitment to the csr initiatives. findings help managers understand the antecedents and consequences of their engagement in csr and contribute to raising the awareness of all the csr benefits, for the company and for the society, in order both to achieve sustainable competitive position and create value for stakeholders. considering the importance of the motives for the development of csr, some of the following steps that the senior management should make must be directed precisely towards educating and motivating the lower levels in terms of csr, developing positive expectations from the application of this concept, both in terms of a sense of justice to society and personal satisfaction for fulfilment of moral responsibility. csr scholars have argued for “the importance of employee participation in csr efforts (maclagan, 1999, as cited in aquilera et al., 2007), and it has been suggested that employees’ participation in csr planning, coordination, and decision making can contribute to their personal growth” (aguilera et al., 2006, p. 856). this is an important part of sustainable business and may cause many long-term positive effects that have been discussed in the paper. the paper provides insights into specific csr areas where further education and raising awareness about the importance of csr is necessary. also, the findings highlight the space for improvement of specific csr areas in domestic, private and state-owned companies. since the hypothesis h4, stating that the level of csr is higher in state-owned in comparison with private companies, is partially supported in serbia, we believe that the state should make greater efforts to promote and encourage csr in private enterprises, for example through subsidies as in the case of china (lee et al., 2017). also, policy makers who want to promote firms’ csr performance may consider increasing the state ownership in firms (lopatta et al., 2017). 6. limitations and future research the inevitable limitations of the research are identified. the first disadvantage stems from the limitations of the survey, as a technique for data collection, primarily from the subjectivity of respondents. this is particularly expressed in this kind of research connected to ethical issues. second, reluctance of representatives of companies to participate in scientific research demonstrates an underdeveloped cooperation between academic and professional public, which significantly complicates research in the fields of business and management. as a result, the generalizability of the conclusions may be advanced if the sample were larger. third, similarly to dare (2016), we included only large firms in the study, so the results may not hold with smaller or private firms. the findings may be supported with further statistical analysis and on a larger and more heterogeneous sample (e.g., in terms of company size and other general characteristics) in future research. finally, we have not evaluated all the possible csr motives within the firm, such as top-down influences (aguilera et al., 2007) or leaders’ personal needs for attention and image reinforcement (petrenko et al., 2016), as we only focused on external obligatory motives, such as pressures from market, ngo’s etc. in addition, some firms may engage in csr based on resource availability, rather than motive (dare, 2016). as new knowledge always leads to new relevant questions, the results of this study also encourage new ideas. in future research, it would be interesting to analyze these issues in more detail, considering the interdependence between motives, as well as other factors, besides state ownership, that mediate the observed relationship. also, general characteristics of companies, other than state-ownership might affect the observed relationship between csr motives and the level of csr. that should be further explored in future studies. due to the fact that the sample was drawn from one specific area, this research could be extended to other countries in order to make comparative analysis and to improve the generalizability of the conclusions. 83 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) conslusion this paper argues that the choice of which csr areas to commit to, depends on the corporate motivation for such engagement. the results are consistent with the initial proposal that if moral motives are dominant, the company will be more committed to internal csr (responsibility to employees). however, we did not find the answer to the questions of which csr areas are more developed when csr is seen either as an instrument for achieving other market or financial goals or as an obligation. the most important finding of this research is that responsibility towards employees is more developed if the managers have adopted csr as a value system based on morality and philanthropy, than if they use csr as a wealth enhancing mechanism. this relationship is significant because it may enhance the employee motivation in general, as well their willingness to engage in other csr areas (aguilera et al., 2007). the results also show that csr in general, internal csr and responsibility towards customers are more developed in state-owned compared to private companies. having in mind the results and the previous 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(2016). corporate social responsibility practices and performance improvement among chinese national state-owned enterprises. international journal of production economics, 171 (3), 417-426. doi:10.1016/j.ijpe.2015.08.005 received: 2016-07-27 accepted: 2017-09-13 86 vesna stojanović-aleksić, aleksandra bošković 2017/22(3) 87 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) about the author vesna stojanović-aleksić university of kragujevac, faculty of economics, serbia vesnasa@kg.ac.rs vesna stojanović-aleksić, phd, is an associate professor at the department for management and business economics. she holds a phd degree from the faculty of economics in kragujevac and teaches the following subjects at the same university: organization of enterprise, organizational behaviour and leadership. her research areas are: leadership, organizational culture, organizational change and organizational behaviour. she has published dozens of scientific papers. aleksandra bošković university of kragujevac, faculty of economics, serbia aboskovic@kg.ac.rs aleksandra boskovic, msc, is a teaching assistant at the department for management and business economics. she graduated and completed her master studies at the faculty of economics, university of kragujevac. currently, she is a phd student at the same university. she teaches the following courses: organization of enterprise and customer behaviour. the areas of her research interest are: organizational design, organizational change and corporate social responsibility. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04 85_2 stosic:tipska.qxd 41 danijela stošić panić* university of niš, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(2) current state and impact of strategic planning activities on entrepreneurs’ financial performance: case of serbia doi: 10.7595/management.fon.2019.0010 abstract: 1. introduction as an initial phase of the management process, planning is a complex managerial activity focused on building forces and developing strategic capabilities for establishing and improving competitive advantage (lerner & almor, 2002, p. 112). strategic planning is an activity of defining long-term goals, developing courses of * corresponding author: danijela stošić panić, e-mail: danijela.stosic@eknfak.ni.ac.rs research question: the study was designed to explore the current state and the importance of strategic planning for entrepreneurs in the republic of serbia. motivation: recognizing that different levels of sophistication of planning activity exist in small businesses (bracker & pearson, 1986), the positive impact of this managerial activity on entrepreneurial performance (gibbons & o’connor, 2005), as well as the fact that this is an underexplored research field (parnell, long & lester, 2015), the research was undertaken in order to address these issues in the serbian context. the paper aims to identify the features of strategic planning performed by serbian entrepreneurs and the relation of this activity to their financial performance. by exploring the current state of these issues, the paper will point out directions for its improvement. idea: the research has been conducted with a main goal to explore the characteristics of the strategic planning undertaken by serbian entrepreneurs and its impact on their financial performance. with an increasing importance of female entrepreneurship and going-on studies examining gender differences across different aspects of managerial behaviour of entrepreneurs, the paper investigates the existence of genderbased differences in strategic planning practice between female and male entrepreneurs in serbia. data: a random sample of 327 smes’ owners and individuals registered as entrepreneurs was drawn out of the serbian business register agency’s database. a questionnaire containing nine-itemed scale for evaluating the features of strategic planning of serbian entrepreneurs was developed using the online platform google docs. one hundred and one entrepreneurs from the sample responded, thus providing the data for further analysis. the data on financial performance of respondents were obtained from their publicly available financial statements. tools: several statistical methods were used for testing the proposed hypotheses such as descriptive statistics measures, cronbach alpha measure of scale’s internal consistency, one sample t-test, simple linear regression, shapiro-wilk test of normality and nonparametric mann-whitney u test. the data were analyzed in spss, version 22. findings: as it was expected, strategic planning is an underdeveloped activity among serbian entrepreneurs. but surprisingly, although hypothesized, there were no gender-based differences regarding this aspect of managerial behaviour of entrepreneurs. the study also suggests that strategic planning contributes to financial performance of serbian entrepreneurs. the results obtained on serbian sample are comparable with others presented in relevant literature and obtained in other contexts. by tackling these issues, the paper reveals some areas of the strategic management academic courses and training programmes for entrepreneurs that should be emphasized in order that the competitiveness of the small business sector should be improved. contribution: this paper contributes to both the strategic management and entrepreneurship literature, thus filling the research gap that exists regarding the strategic management practice in small businesses. keywords: strategic planning, entrepreneurship, smes, financial performance, gender jel classification: l26, j16, l25, m19 action and allocating the resources for their achievement (wang, walker, & redmond, 2007). in a word, the strategic planning process deals with both ends (or goals) and means (dibrell, craig, & neubaum, 2014) which are related to the firm’s competitive advantage. by enabling flexibility to external changes and reducing the uncertainty, roles that are becoming increasingly important in the rapidly changing environment (mckiernan & morris, 1994), strategic planning contributes to the business efficiency and allows firms to outperform their competitors. although competitive advantage may be more critical for small businesses and entrepreneurs (davis & olson, 2008), their behaviuor tends to be unplanned, informal, reactive or opportunistic (hagen, zucchella, cerchiello, & de giovanni, 2012). various reasons are identified that explain the absence or inadequate strategic planning in the small business sector. scarcity of human, financial resources and time is, broadly speaking, the main reason for an informal and unstructured strategic planning process performed by entrepreneurs (davis & olson, 2008; löfving, säfsten, & winroth, 2014; parnell, long & lester, 2015). at the same time, positive impact of the strategic planning activity on business success is well-documented in the literature (walker, wang, & redmond, 2007; donkor, donkor, & kwarteng, 2018). furthermore, the aim of here presented research is to explore the main features of strategic planning activity of serbian entrepreneurs and to identify its relations to business performance. a comprehensive literature review provided by reiche and reschke (2006) shows that the research on strategic planning in smes can be further enriched, while amonini and ogunmokun (2015) state that the majority of the research on strategic planning practices is done in the uk and usa and that it refers to large organizations. so, current study may be seen as one of the efforts to fill the aforementioned gaps. moreover, since female entrepreneurship is an increasingly significant economic phenomenon, gender differences regarding different variables are being considered. gender-based differences in various aspects of business behavior are recognized and approach to the strategic management is one of them (walker et al., 2007). therefore, an important aspect of the research presented by this paper is the gender-related issues regarding the strategic planning activities of serbian entrepreneurs. various issues related to gender of the entrepreneurs are in the focus of both academic researchers and policy makers. besides the supporting schemes developed for entrepreneurs in general, there is a stream of supporting programmes in serbia specifically tailored for women entrepreneurs. therefore, it seems reasonable to investigate whether there are some differences between female and male entrepreneurs regarding their need for support in the domain of building or improving their strategic planning competences. the remainder of the paper is structured as follows. after presenting the theoretical argumentation and proposing research hypotheses in the second section, the third section of the paper brings the methodological considerations of the study. results and their discussion are presented within the fourth chapter of the paper, which is then closed with certain concluding remarks. 2. theoretical background and hypotheses development planning in small businesses mostly focuses on activities such as environmental analysis, defining objectives, formulating a strategy, projecting financial indicators, measuring performance, and control and correction activities (bracker & pearson, 1986, p. 592). the strategic aspect of planning, as an expression of a proactive approach, is a central management activity which is strongly linked to different performance measures and contributes to the success of small businesses (lerner & almor, 2002). however, it is often concluded that strategic planning is generally underdeveloped in small businesses and that the lack of implementation of this fundamental management practice is one of the key reasons for the high mortality rate of these enterprises (bracker, keats & pearson, 1988; karami, 2007). analyzing 29 research studies, kraus, reiche and recshke (2007) find that results published in these studies suggest that there is a link between the type, degree of formality/intensity, the use of strategic planning instruments and the company size. all these variables are positively correlated with the size of the business. empirical studies examining the state and the effects of planning activity most often equalize this managerial activity with the existence of written planning documents (brinckmann & min kim, 2015). when measured like that, results indicate that the planning activity is not a frequent, consistent, or continuous management activity in small businesses (gibson & cassar, 2005). but not everything is that bad because it is argued that the absence of a formal planning process in small businesses is not caused by the fact that owners-managers do not recognize the significance of such process, because they usually do (siddique, 2015), but by the lack of time and other resources (kraus et al., 2007) or knowledge (klacmer calopa, 2017). nevertheless, in equalizing the existence of the formal plans as the outcome with the existence of the plan42 danijela stošić panić 2020/25(2) ning activity as a process, one should be careful. brinckmann, dew, read-mayer, haug and grichnik (2018) argue that the business planning process should be measured or judged upon two dimensions, one that measures the formality, and the other that refers to the substantive planning behaviour. this means that an entrepreneur can be engaged in planning in order to try to shape or control his/her business future, but never to develop a formal written plan. at the same time, an entrepreneur may develop a written plan perhaps just to satisfy some formal institutional obligation, but never to see and to understand the meaning and the importance of this activity. of course, an entrepreneur may do both or neither of the above mentioned. even in situations where it does exist, the planning activity in small businesses is not detailed and rarely does it have a strategic time horizon (frost, 2003; kraus et al., 2007). although one of the most common skills acquired in various entrepreneurial training programmes relates to the preparation of a business plan, empirical evidence shows that business plans of entrepreneurs are usually reduced to the description of tactics and concrete activities (frost, 2003). these business plans that are burdened by tactics often lack a strategic planning approach. a well-developed and sophisticated strategic planning presumes long-time horizon, objective data inputs and analysis and as such it addresses all functional areas of the business. although various empirical studies associate the strategic planning with the competitiveness and success of small businesses, donkor et al. (2018) suggest that a majority of small business owners and entrepreneurs do not recognize the benefits of this management activity for their businesses and that they perceive strategic planning as an activity adequate for large businesses only. building on the above, in the present study it is anticipated that: h1: strategic planning activity is underdeveloped in the management practice of serbian entrepreneurs. a business planning activity that has been adequately developed and implemented contributes to the success of small businesses (bracker et al., 1988; rue & ibrahim, 1998; lerner & almor, 2002; wijewardena, de zoysa, fonseka, & perrera, 2004; allred, addams, & chakrabotry, 2007; hodges & kent, 2007). allred, addams and chakraborty (2007) argue that both formal and informal planning is crucial for the success of small businesses. on the other hand, according to bracker et al. (1988) and welter (2003), the performance of small businesses is affected by the level of the complexity of planning, more than by the existence of this activity per se. different levels of sophistication of the planning activity can be identified depending on whether the manager analyzes external factors, quantifies business goals, defines budgets, prepares written plans, and whether he/she plans a comparison of planned and accomplished, as well as the mechanisms for filling the gaps (rue & ibrahim, 1998; hodges & kent, 2007). moreover, the degree of planning sophistication can be measured by the level of a detailed approach and scope of the planning activity, its formality and the period it covers (jorissen, reheul, laveren, & martens, 2009; schayek & dvir, 2011; mitchelmore & rowley, 2013). although much emphasis is put on the formal planning process, dibrell et al. (2014) warn that the formality of the planning process can result in rigidness which is incompatible with modern environmental dynamism. supporting the previous statement, these authors find that truly competitive are those firms who manage to find an optimal balance between formality and flexibility of the planning process. starting from the level of its sophistication, the planning activity in small businesses can be labelled as structured strategic planning, structured operational planning and intuitive planning (table 1). table 1: levels of sophistication of the planning activity in small businesses source: bracker & pearson, 1986, p. 507. 43 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) �������� ����� ��� � �� � ������� ��� ���������� ������ � ����� �� ������ ��� ��� � �� � �� �� ���� �� ��� � �� �� ������� ��� �������� ��� ������� ��� ������� � ��� � �� ���� ���� ��� �� ��� ���� ������� ��� ������ �� ��� ��� ������ ��������� ���� ���������� ������ ���� ����� �� !��������� ��� � �� �� �� ��� �� ��� ������ ��� ��� ������� ��� ��� � ���� � "���� ��� �� ���� � ��� � ��� �� ������� ��� �� � � ����� �� ����� � ��� ��� � #� $�� � ���� �� ��� �� �� ��� � �� � �� ���� ����� ���� ���� %��� � �� ����� �� &���� �� ��� � �� � �� � ���� � �� ��� ���� � ����� �� ���� ���� � �� ��� � �� �� �� ����� ����� ��� � �� ��� ���� �� ��� ����� strategic planning is important for providing information, scanning the external and internal environment and reducing uncertainty, and by doing this it contributes to business performance (kraus, harms & schwarz, 2006). small businesses that implement structured strategic planning are more successful, measured in financial terms (bracker & pearson, 1986; wang et al., 2007). the basis of the success of these businesses is the entire planning process; not only efficient planning procedures, but also an adequate implementation and control of the plans’ execution (wijewardena et al., 2004; arasa & k'obonyo, 2012; gomera, chinyamurindi, & mishi, 2018). the results of the meta-analysis of the relationship between planning activities and financial performance even indicate that the positive effects of planning on financial performance are more pronounced in small businesses in comparison with the large-scaled companies (fossen, rothstein, & korn, 2006). mitchelmore and rowley (2013) find that planning in various domains of business contributes to the business performance and that the longer the planning time-span is, the better the performance is. quoting several studies, gibbons and o’connor (2005) conclude that there are various results about the effects of strategic planning on performance, but that evidence does suggest that strategic planning is positively associated with business performance. similarly, gomera et al. (2018) find that two most important predictors of entrepreneurial financial performance are the existence of written strategic plans and the length of the planning horizon. taking the above into account the following hypothesis is defined: h2: strategic planning activity has a positive impact on financial performance of serbian entrepreneurs. different aspects of managerial behavior, such as management style, leadership aspirations, commitment to the organization, and the like, are studied in a gender context (nir, 1999; kot, meyer, & broniszewska, 2016). gender-based differences can be identified throughout the entire management process. female entrepreneurs prefer to personally perform and monitor daily business activities (cuba, denezo, & anish, 1983; hughes, 2005). they tend to hold the control over their businesses in their own hands (mukhtar, 2002; lim & envick, 2013). lerner and almor (2002) claim that strategic planning activities are more likely to occur in firms operating in an uncertain environment, while bracker et al. (1988) suggest that strategic planning is more likely to be performed by people who have internal locus of control and, thus, believe that determinants of success can be identified, understood, predicted, and controlled. if women tend to have external locus of control as argued by verheul et al. (2012), and if they are mainly operating in slow-growing, low-profit (bird & sapp, 2004; kepler & shane, 2007; aidis, 2016; terjesen, 2016; braches & elliot, 2017; henry, orser, coleman, & foss, 2017) and hence less uncertain industries, then it is justifiable to expect that strategic planning will be a feature of their management activities to a much lower extent. a number of studies suggest that women as entrepreneurs are less concerned with business growth (fleck, hegarty, & neergaard, 2011; reichborn-kjennerud & svare, 2014; ali, 2016). planning in general is vital for managing business growth (pasanen, 2003). moreover, orser, hogarth-scott and riding (2000) claim that strategic planning is positively linked to the entrepreneur’s intention to grow, while pasanen (2003) cites studies suggesting that fast-growing small firms perform strategic planning on regular basis. when the business goal is to remain small and preserve stability, then strategic planning is a relatively less important management activity. in line with this reasoning are costin’s (2012) findings that a majority of female entrepreneurs prepare informal plans with assistance of friends and family, rather than professional support agencies. similarly, mitchelmore & rowley (2013) reports that female entrepreneurs have very short planning horizons (even shorter than three months) and that the absence of longer-term planning could seriously affect their business performance and growth. the planning subject’s personal perception of time may determine the dominant time horizon in his/her planning activities (nir, 1999). so, the reason why female entrepreneurs are less involved in strategic planning can be caused by their shorter time perspective in the realization of activities (ibid.). this and similar reasons may explain the absence of a formal planning process in women-owned businesses and the fact that they generally lack written plans and policies (cuba et al., 1983; mukhtar, 2002). specifically, yusuf and saffu (2005) claim that planning is more sophisticated in men-owned and managed small businesses, in terms of formality, implementation of objective tools and techniques, time horizon and thoroughness of the planning activity. brinckmann and min kim (2015) find that higher entrepreneurial self-efficacy and the existence of the prefounding entrepreneurial experience contribute to the likelihood that an entrepreneur will engage in business planning activities. at the same time, compared to men, women have a lower level of entrepreneurial selfefficacy (spangoli, caetano, & santos, 2015; nowinski, haddoud, lancaric, egerova, & czegledi, 2019) and they rarely have prior entrepreneurial experience (stosic panic, 2017). 44 danijela stošić panić 2020/25(2) having in mind the above argumentation, it is hypothesized that: h3: strategic planning activity is less developed and implemented by serbian female entrepreneurs, relative to their male counterparts. 3. methodology the serbian business register agency’s data base was a frame for randomly drawing the sample of 327 smes' owners and individuals registered as entrepreneurs. after receiving completed questionnaires, the research was conducted on a reduced sample of one hundred and one respondents (34 female and 67 male entrepreneurs). the businesses from the sample were 13.93±11.12 years old, on average. the gender structure of the sample is comparable with one analyzed by babovic (2012) (binomial test: p=0.172, 1tailed), and by the national agency for regional development (2013) (binomial test: p=0.464, 1-tailed). a majority of the sample units (79.21 percent) operate in the service-sector businesses, which is comparable with data at the national level (binomial test: p=0.139, 1-tailed). a scale with nine items was developed to measure the strategic planning activity variable. this nine-itemed scale was defined to measure the time horizon, the content and the level of formality of the business planning activity. a reverse coding of the fifth item2 was performed in order to unify the scale measuring the level of development of the strategic planning activity. after doing this, a scale on which a higher score indicates a more developed strategic planning activity was obtained (cronbach α=0.750, without a possibility of improvement). respondents were asked to rate their level of agreement with each of these nine items on a fivepoint likert scale (1-strongly disagree, 2-disagree, 3-no opinion, 4-partially agree, 5-totally agree). the overall score indicating the level of development of the strategic planning was calculated as an average value of the scores given to each of the nine items of the scale. the financial performance of serbian entrepreneurs was judged upon net profits that they had realized. the central tendency measure coupled with one-sample t-test was used to explore the validity of the first hypothesis. the existence and the nature of the impact of the strategic planning activity on financial performance of serbian entrepreneurs was assessed by a simple linear regression model. finally, since the data on strategic planning variable in both gender groups failed to satisfy the assumption about the normality of distribution (shapiro-wilk<0.05), the mann-whitney u test of differences between these groups was run. the p-values are presented for 2-tailed tests, unless otherwise noted. 4. results and discussion the scale for measuring the level of development of the strategic planning activity was defined in such a manner that score 3 means that the respondent does not have an opinion about the item, while score 4 indicates that there is a partial agreement with the item. due to the nature of the scores defined by the scale, the value of 3.51 was chosen to be the threshold value, meaning that mean score higher than 3.51 indicates that the strategic planning activity is, at least partly, performed by an entrepreneur. of course, the higher the score, the more comprehensively is activity of strategic planning implemented by an entrepreneur. as it was expected, the strategic planning activity is not part of the managerial process of serbian entrepreneurs. the average score indicating the presence of this activity is somewhat higher than 3, and thus suggests that strategic planning is not entirely underdeveloped in the business practice of serbian entrepreneurs (table 2). nevertheless, given the nature of the scale developed for measuring this variable, the fact that the average score for the level of development of strategic planning activity is 3.37 and that it is significantly different from the test value, it may be concluded that strategic planning is not a fully developed and sophisticated component of the managerial activities of serbian entrepreneurs. 45 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) 2 i plan upon my personal experience, feelings and intuition. table 2: development of strategic planning activity in management practice of serbian entrepreneurs analyzing the subcomponents of the strategic planning variable in more detail, some valuable conclusions may be drawn. as results presented in table 3 show, the planning activity of serbian entrepreneurs certainly do not result in written plans, while the most pronounced feature of their planning activity is that it is short-term oriented and based on personal experience, feelings and intuition. these results are similar to welter’s (2003) suggesting that strategic decisions in smes are often based on the owner’s (manager’s) experience, intuition or even on guessing (as cited by kraus et al., 2007). moreover, scores higher than 4 are assigned only to those sub-components that are exactly the opposite of a well-developed and holistic activity of strategic planning (short time horizon and subjective approach). once again this supports the claim that strategic planning activity is not performed by serbian entrepreneurs in all its complexity. thus, the hypothesis h1 is confirmed. table 3: implementation of various aspects of planning activity by serbian entrepreneurs similar to the findings of stonehouse and pemberton (2002) and siddique (2015), results obtained on the serbian sample suggest that planning activity of entrepreneurs has a short-term horizon. as in the study of hodges and kent (2007), most of serbian entrepreneurs’ plans are operational rather than strategic. moreover, the results support reiche and rechke (2005) who analyzed 25 studies and have found that small businesses mostly do not plan sophistically and in a formal way. this does not mean that there is no planning activity, but that it is rather intuitive and informal. lerner and almor (2002) suggest that the age of the business may determine the level to which strategic planning is developed and practiced by its managers. bracker et al. (1988) even claim that the reason for the results to show that the strategic planning in small businesses is underdeveloped is the fact that a majority of the studies researching this issue use samples constituted out of businesses younger than five years. due to a short duration of their existence, strategic planning is mostly underdeveloped, which does not have to be the case in older, mature small businesses. however, the results of here presented study challenge this reasoning, because they suggest that the strategic planning activity is underdeveloped in small businesses whose average age is 13.93 years. the regression model which explains 4.9% (r2=0.049) of the profit variability (f(1.84)=4.31, p=0.041) is generated by introducing the mean score representing the level of development of the strategic planning as an independent variable (table 4). net profit is getting higher with every additional score for the development of the strategic planning. thus, the hypothesis h2 is confirmed. 46 danijela stošić panić 2020/25(2) ��������� ���� ��� �� �������� � �� �� ��� �� � � � ������� ��� ���� ������ ������� ����� �� ��� ���� ���� ���� ������ ��� ������ ��� � � � ����� ����� �� � ��� ������������ � ����� ������ ������� ������ ����� ������� � � � ��� ����� �� ��� ������ ��� ���� �������� �������� ���� �� � ��� � �� ����� ����� �������� � � �� � �� � �� ����� ����� ��������������������� ���������� ��� �������� �� �� ����� ��������� �� !" ���� �������������������� ���#� ����� ��������� ��$��� � ���� %� � �� &�� ����������������� �� ����� ����� ������������������ � $��� � ���'� ����� �������� ����� ��� � $��� � ��'�� ��� � �������$� ( ������ � $��� � �� #� ����� ��� ��� �$ ��� �!� �� ����� �� �� ����� table 4: simple regression model: impact of strategic planning on financial performance of serbian entrepreneurs the results obtained on the serbian sample add to the majority of those suggesting a positive relationship between strategic planning and business performance. for example, carland and carland (2003), as well as donkor et al. (2018) find that higher planning intensity leads to better financial performance. similarly, almost 80 percent of the studies analyzed by kraus et al. (2006) support the significant positive effect of strategic planning on business performance. research findings presented by wijewardena et al. (2004) show that planning sophistication in terms of the existence of formal, written and detailed plans is significantly correlated with higher sale performance of small and medium sized enterprises. further, based on results of their study, gomera et al. (2018) conclude that the strategic planning process is of great importance for financial performance of smes. complementing these research works, the current study suggests that small businesses’ performance can be enhanced by a planning activity which is formal, covers various functional aspects of the business and which has a long-term focus. finally, results do not validate the expectation that there is a gender-based difference regarding the strategic planning activities of entrepreneurs. although mean scores suggest that this activity is less developed in female entrepreneurs’ management practice (3.35 vs. 3.38, see table 2), the difference is very small and is without statistical significance (u=1,199.5, p=0.663). moreover, a statistically significant difference between genders was not found regarding any of the sub-components of the planning activity (table 5). table 5: implementation of various aspects of planning activity by serbian female and male entrepreneurs though unexpected, these results correspond to perry’s (2002) conclusion that gender is not related to planning activity in small businesses. likewise, boohene, sheridan and kotey (2008) find that in transitional economies, women and men owner-managers of small firms adopt similar approaches to strategic planning. similarly, walker et al. (2007) reveal that gender does not play any important role in the likelihood that the entrepreneurs may engage in planning, to have formally written plans, nor in their planning horizons. building on these notions, the research on serbian entrepreneurs’ planning activity shows that both men and women practice short-term and informal planning, consulting own experience, feelings and intuition rather than deploying objective data and techniques. 47 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) ������ � ���� ��������������� � � ��� �� ��������������� � � �� ������ � � ����� ��������� ����� ��� �������� ��������� �������� �������� �������� ������ ���� !��" � �# �$ � � ���#�� �� %�� �� & �� ��� '�( ������� � � � ��� ����� �� ��� ������ �� ����� �� � ���� ������ ���� �������� ���� �� � ��� � �� ����� ����� ���������������� �������� � � �� � �� � �� ����� ����� ���������������� ������������� !���!�� �"�!�����# �!! �������� ��$�� ��$�� ���������������� �������"� �� %& !�� ���!���������������� ����� ����� ������$��������� �������"� ��'��� � ���� (� � � �� � ������������!"�!� �� ����� ����� ���������������� ������������ ����� � '�� � ��)�� ����� �������������)�� �������� �" !� ��� � '�� � ��$�� ���)� �������������)$� �������'� * !����� � '�� � ��$�� ��$�� �����$������$��� ��� ��� �' ��" �%� �� ����� ��$�� ��$�� ������)�����$��� � references [1] aidis, r. (2016). business and occupational crowding: implications for female entrepreneurship development and success. in diaz-garzia, c., brush, c., gatewood, e., & welter, f. (eds.) women’s entrepreneurship in global and local contexts (pp. 43-62). cheltenham (uk), northampton (usa): edward elgar publishing. [2] ali, r. s. (2016). feminist theory and its influence on female entrepreneur’s growth intentions. paper presented at the conference: 8th international scientific entre conference on advancing research in entrepreneurship in the global context (pp. 969-982). krakow, poland, 07-08 april, 2016. [3] allred, a., addams, h. l. & chakraborty g. (2007). is informal planning the key to the success of the inc. 500? journal of small business strategy, 18(1), 95-104. [4] amonini c., & ogunmokun g.o. (2015). strategic marketing planning practices: a study of australian small business organizations. in: sidin s., & manrai a. 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(2017). articulating the entrepreneurship career: a study of german women entrepreneurs. international small business journal: researching entrepreneurship, 35(3), 535-557. doi: 10.1177%2f0266242616651921 48 danijela stošić panić 2020/25(2) this paper focuses on strategic planning practice of entrepreneurs and reports results of the research into the current state and the importance of strategic planning activity for financial performance of serbian entrepreneurs. moreover, it addresses the issue of gender-based difference regarding this managerial activity. the results obtained from the serbian sample of entrepreneurs confirm the expectation that there is a lack or, at best, low level of strategic planning in their managerial practice. although covering several functional areas (production, marketing and finance), planning performed by serbian entrepreneurs is otherwise short-termed, informal and it heavily relies on their personal experience, feelings and intuition instead of on gathered data and comprehensive analysis. challenging the anticipation, the results show that gender of the entrepreneur is not associated to the level of development of their strategic planning. in other words, strategic planning of both female and male entrepreneurs is unsophisticated, short-termed and informal. at the same time, it was found that the level of development of the strategic planning explains part of the variability in the financial performance of serbian entrepreneurs contributing to a higher level of profitability. in a word, serbian entrepreneurs, both men and women without difference, do not practice strategic planning, an activity which has a positive impact on their financial performance. however, it should be noted that these results are obtained on a relatively small sample, so the generalisability of the conclusions may be compromised. this study aims to contribute to the field of strategic management, and especially to the under researched field of strategic management process performed by entrepreneurs. in a more practical sense, the results of the presented research may direct the development of strategic management and entrepreneurial academic courses and training programmes. namely, it is evident that serbian entrepreneurs do not plan strategically. at the same time, those that do perform this activity achieve higher profits. some scholars suggest that the reasons for not being involved in strategic planning may be the lack of expertise or the entrepreneurs’ inadequate knowledge of the process (gibbons & o’connor, 2005; wang et al., 2007). moreover, hodges and kent (2007) find that small business owners think that their business performance will benefit from more knowledge of this discipline. so, the entrepreneurs should be able to see real tangible effects of the strategic planning in various training programmes which are tailored to their specific needs. both practical trainings and academic courses should underline the main features of a systematic and sophisticated process of strategic planning; basic techniques and tools of strategic planning should be stressed while the practical implications of strategic planning on entrepreneurial performance should be clearly outlined. whatever the form in which they are to be organized, education of business students and practitioners should encourage them to plan for a longer term, to set quantitative goals throughout the functional areas of their businesses, to formalize this activity to a certain extent and to do all that by using objective data inputs and analyses. conclusion [10] bracker, j., & pearson, j. 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(pp. 354-369). fremantle. curtin university of technology. retrieved from: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0ahukewigquavrzcahwhskqkhqfsa7qqfgg2mae&url=https%3a%2f%2fresearchoutput.csu.edu.au%2ffiles% 2f9708513%2fpid29953postpub.pdf&usg=aovvaw2sly5g5sle-0uuu3ely0sx [61] wang, c., walker, e., & redmond, j. (2007). explaining the lack of strategic planning in smes: the importance of owner motivation. international journal of organisational behaviour, 12(1), 1-16. [62] welter, f. (2003) strategien, kmu und umfeld – handlungsmuster und strategiegenese in kleinen und mittleren unternehmen. berlin: duncker & humblot. [63] wijewardena, h., de zoysa, a., fonseka, t., & perera, b. (2004). the impact of planning and control sophistication on performance of small and medium-sized enterprises: evidence from sri lanka. journal of small business management, 42(2), 209-17. doi: 10.1111/j.1540-627x.2004.00106.x [64] yusuf, a., & saffu, k (2005). planning and performance of small and medium enterprise operators in a country in transition. journal of small business management, 43(4), 480-497. doi: 10.1111/j.1540627x.2005.00148.x received: 2018-07-31 revisions requested: 2018-11-30 revised: 2019-06-16 (3 times) accepted: 2019-06-23 danijela stošić panić university of niš, faculty of economics, serbia danijela.stosic@eknfak.ni.ac.rs danijela stošić panić is an assistant professor for the scientific field of business management. her main research interests lie in strategic management, production management and entrepreneurship. danijela’s research results are presented in over 40 papers published in international and domestic scientific journals. she is an author of one university textbook and a co-author of a monograph. she was a visiting scholar at the vienna university of economics and business and at the karl franzens university of graz. as a phd student she received a national scholarship awarded by the serbian ministry of science and technological development. danijela is and has been involved in numerous domestic and international scientific projects. she is a reviewer in the process of accreditation and quality assurance of higher education institutions in the republic of serbia. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04 naumoski:tipska.qxd 35 aleksandar naumoski1*, peter juhasz2 1ss. cyril and methodius university in skopje, faculty of economics, skopje, macedonia 2corvinus university of budapest, corvinus business school, budapest, hungary management: journal of sustainable business and management solutions in emerging economies 2019/24(2) the impact of inflation and operating cycle on the corporate cash holdings in south-east europe doi: 10.7595/management.fon.2018.0026 abstract: 1. introduction what drives corporate cash holdings? in the classic baumol-tobin model (meltzer, 1963), only the daily cash burn, the interest rate level and the transaction costs determine the optimum, while the miller-orr model (miller &orr, 1966) adds minimum cash need and standard deviation of daily cash changes. while the importance of these parameters is widely accepted, when performing an outside analysis even today, most of these factors are extremely hard to estimate. thus, empirical papers usually focus on metrics that are easier to track. *corresponding author: aleksandar naumoski, e-mail: aleksandar@eccf.ukim.edu.mk research question: this paper investigates the influence of the inflation and operating cycle on the corporate cash holdings. motivation: in an early study, keynes (1936) provides a theoretical foundation for determining the optimal cash level as a balance of costs and benefits of cash holdings. however, the optimal corporate cash amount is not only dependent on many company-specific factors (opler et al., 1999), but it is also associated both with the corporate governance structure and the institutional and macroeconomic environment (ozkan and ozkan, 2004). anand et al. (2018) confirmed the impact of a set of macroeconomic factors, but recent studies distinguished inflation as a critical factor of the changes of the company cash holdings (curtis et al., 2017). idea: the main idea of the paper is to examine whether inflation as a crucial macroeconomic factor and the operating cycle as a vital microeconomic factor have substantial influence on the corporate cash holdings, and which direction this impact may take. data: we used company financial data from a sample of 868 publicly traded firms from ten south-east european countries between the years of 2006 and 2015, obtained from the thomson reuters datastream database.tools: we apply a balanced panel regression model involving the yearly change of the cash ratio as a dependent variable, and the country cpi, the operating cycle and other firmspecific control variables as explanatory variables. findings: results confirm that both the inflation and the operating cycle have a substantial influence on the change of the corporate cash holdings. the relationship of the change in cash and the inflation is non-linear and best described by a u-shaped curve. at the same time, there is a straight linear relationship between the change in cash holdings and the operating cycle. moreover, we have found that the changes in the corporate cash holdings are positively related with the size of the company, the operating cash flow and the capital expenditures, but inversely related with the change of the networking capital and the change of short and long-term debt. contribution: this paper reveals the effect of macro-control policies on corporate cash holdings, and, most importantly, it provides a reference for corporate managers to optimise the allocation of resources based on changes in the macro-financial environment and their own financial circumstances. keywords: cpi, liquidity, working capital, operating cycle, panel regression, corporate cash holdings jel classification: e31, g20, g32, g39 chief financial officers (cfos) play a significant and dynamic role in the company’s development and contribute to achieving all the company’s objectives (petkovic et al., 2018). cash management is one of the primary responsibilities of the cfo. there are four motives for firms to hold cash: a transaction motive, precautionary motive, tax motive, and agency motive (bates et al., 2009, p. 1988). managers trying to maximise the shareholder’s wealth should determine the optimal cash level, that is the cash level at which the marginal benefits of cash holding are equal to the marginal cost of cash holdings. the cost of holding cash is the opportunity cost since this asset earns low or zero return. the benefits of holding cash are more extensive. the most commonly stated are the following. i) cash is a safety reserve that can reduce the likelihood of financial distress and allows the firm to cover the unexpected loss; ii) it can be used to finance the firm’s activities and investments when other sources are restricted or costly; and iii) holding cash avoids the cost of raising external funds and the need to liquidate other assets for providing funds. keynes (1936) provides a theoretical foundation for determining the optimal holdings of liquid assets. in the period of economic instability, the rising inflation hurts liquid corporate assets. as the prices of the raw materials and other inputs rise, the company spends more on financing its operating activities. moreover, managers who anticipate further inflation build stocks of raw materials and other inputs to cope with the inflation risk reducing the cash holdings even further. when the nominal interest rates rise due to the higher inflation, managers are assumed to try to reallocate the cash holdings into interest-bearing assets that are cash substitutes and are also cash equivalents. thus, inflation may have an adverse effect on the corporate cash holdings. at the same time, current and anticipated inflation should have a positive effect on the liquid assets holdings as the loss in the purchasing power calls for more cash to cover payments due. furthermore, in the period of higher inflation, the restrictive monetary policy may come to the scene making external financing constrained, calling for more cash to mitigate the risk of financial distress. thus, inflation may have both a negative and a positive effect on the corporate cash holdings. wang et al. (2014) also state that as inflation starts to rise, corporate cash holdings decline to a certain level. after that point, as inflation further climbs, the corporate cash holdings begin to increase. that means that there is a u-shaped non-linear relationship between the inflation and cash holding. the operating cycle of the company starts with the purchase of raw materials, goes through the inventory conversion period, consecutive sales turnover days, and ends with the collection of receivables. the length of the operating cycle is influenced by the industry and several company-specific factors, such as the nature of the operating activities, its business models, and management efficiency. a longer operating cycle means more capital invested in current assets, which decreases the firm’s cash supply and reduces cash holdings. therefore, we can expect negative relations between the operating cycle and cash holding. wang et al. (2014) state that the relationship might be u-shaped. when the operating cycle extends, the cash holdings decrease. with further lengthening of the operating cycle, primarily if it is caused by a slower receivables collection, the company must increase its cash holdings and other liquid assets to overcome the negative consequences of the increased liquidity risk. this paper aims to investigate the influence of inflation and operating cycle on corporate cash holdings. moreover, we are also interested in what direction this impact may take. therefore, we state the hypotheses in the following form: h1: inflation has a statistically significant effect on the corporate cash holdings, but the relationship is nonlinear. h2: operating cycle has a statistically significant connection with the corporate cash holdings, but the relationship is non-linear. the link between inflation and the operating cycle is indirect. the managers who anticipate a further increase in inflation spend more money now and make a purchase of the raw materials in advance, build the inventory in order to avoid the increased cost and make excess reserves. this behaviour extends the inventory period and automatically lengthens the operating cycle. we can see that these three variables (inflation, operating cycle and cash) are tightly related. therefore, in this paper, we focus only on inflation as a curtail macroeconomic variable, and on the operating cycle as a curtail microeconomic variable to explain the corporate cash holdings. 36 aleksandar naumoski, peter juhasz 2019/24(2) the paper is organised as follows: part 2 offers a literature review, part 3 explains the methodology, part 4 presents the results, while in part 5 the main conclusions are presented. 2. literature review researchers have discovered a wide variety of variables with a considerable influence on cash holdings. company-specific factors with a significant effect on the cash level include, among others, a short-term debt to the total of assets ratio, short-term liabilities to assets, return on assets, firm size, working capital to assets ratio (hall et al., 2014), market value to book value and r&d/sales (wasiuzzaman, 2014), risk (cash flow volatility), and effective tax rate (bigelli & sanchez-vidal, 2012). it seems that strategy also counts. subramaniam et al. (2011) concluded that diversified companies hold significantly less cash than their focused counterparts, which they explained by the availability of the internal capital market. hall et al. (2014) showed that in central and eastern europe, companies in more marketoriented economies (based on ebrd transition indicators) held more cash than those in other countries. they also found that privately owned firms tend to carry more money than public ones. based on a sample from the us, gao et al. (2013) concluded that private firms held approximately half as much cash as public companies did. it seems that these differences result partly from management knowledge and experience. d’mello et al. (2008) investigated spin-offs to find that managers allocate higher cash ratios to smaller companies, and to firms with high research and development expense ratio, low net working capital ratio, and low leverage. boileau and moyen (2016) and azar et al. (2016) argue that the opportunity cost of holding cash has declined; nikolov and whited (2014) have found that agency cost affects corporate cash holdings, such as the private benefits of managers form excess perquisite consumption, and the insufficient managerial shareholdings are the reason for the recent increase in the cash levels. at the same time, we also know about some macro factors influencing the cash level. for example, chen and mahajan (2010) showed that firms tend to hold more cash when the economy expands (gdp grows), or the inflation and the credit spreads are on the rise. in contrast, budget deficit, corporate tax rate and leverage hurt corporate cash holdings. in addition to confirming these results, anand et al. (2018) identify interest rates, the stock market index, local currency depreciation and sudden jumps in oil prices as having a positive effect on the amount of cash held by firms. in the case of the us, graham and leary (2018) have found that cross-sectional relations between cash holdings and firm characteristics are stable throughout the century, though characteristics explain little of the trends in aggregate cash. macroeconomic conditions, corporate profitability and investment, and (since 2000) repatriation taxes explain aggregate cash over the last century. aside from examining the set of macroeconomic variables as determinants of cash holdings, some studies examine only the impact of inflation on cash holdings of the companies. thus, according to curtis et al. (2017), inflation is a key factor in the changes of the company cash holdings, which are imperfectly hedged against inflation, and hence, changes in inflation alter the real value of a firm’s liquid asset portfolio causing it to readjust these balances. in the case of brazilian companies, natke (2010) finds that interest rates have a strong and elastic impact on liquid asset demand when explicitly controlled for inflation and firms appear to conserve on liquid asset holdings as the rate of inflation increases, suggesting a more careful management of payments flows. wang et al. (2014) found a strong non-linear relationship between the inflation and cash holdings, and between the operating cycle and the cast holdings. table 1 provides a review of variables that are relevant to the cash holding decisions of firms based on our literature review. while most of the earlier papers focused on developed countries (us, uk) and asia (india, china), our knowledge is still limited concerning the emerging countries in europe. this paper uses data from ten southern european countries to learn whether some of the factors listed in the literature play a role in determining the corporate cash holdings in a region characterised by unique national development paths, limitedly developed capital markets, and particularly hit by the recent financial crisis. after reviewing the literature for the main factors and their theoretical effects, the paper presents the dataset and lists our most important findings. 37 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) table 1: summary of the variables and their effect on corporate cash holdings source: authors’ theoretical research results 3. description of the dataset to investigate the link between the listed factors and the change of corporate cash holdings we used a sample of publicly traded firms from the south-east european region (the see countries), from 2006 to 2015, obtained from the thomson reuters eikon and datastream database. the data on cpi were obtained from the international monetary fund international financial statistics. ten countries from the see region are included: bosnia and herzegovina, bulgaria, montenegro, croatia, greece, romania, macedonia, slovenia, serbia, and turkey. these data include both survivors and non-survivors that appeared on the eikon and datastream database at any time in the sample period. when designing the sample, we excluded: i) firms in the financial sector (because of their radically different business model, considerable holdings of marketable securities, and their statutory capital requirements); ii) utilities (their cash holdings and operation can be subject to regulatory supervision); iii) firms with negative sales and/or assets; iv) firms with operating cycles below zero; v) firms with missing observation for any variable. finally, our sample encompasses 868 companies and 8680 firm-year observations. the cash measure in this paper is defined broadly as cash and short-term investments, taken as a consolidated measure of cash holdings. following wang et al. (2014), the primary dependent variable used in the analysis below is the change in the cash ratio measured as the difference in cash and short-term investments between year t and t–1, divided by the total assets of year t. explanatory variables of corporate cash holdings are listed following the explanations of the transaction and precautionary motive of holding cash. the variables used are as follows: (1) inflation. we use the accumulated consumer price index (2005=100) for each country taken from imf international financial statistics. when interpreting the connection with a change in cash, we have to see that, as yearly inflation rates are mostly positive, some of the changes due to time passing might be allocated to this variable. (2) cycle. the operating cycle is measured as a sum of the inventory conversion period and the account receivables collection period. we divide this sum by 1000 for statistical calculations, but the interpretation is made in day terms. (3) account receivables period. we measure the period for collecting of receivables as (accounts receivable / sales) x 365. (4) account payables period. the ratio is calculated as (accounts payable/cost of goods sold) x 365. (5) inventory conversion period. it is obtained as (inventory / cost of goods sold) x 365. (6) δ net working capital ratio. we measure this ratio as the difference of nwc minus cash and shortterm investments, between year t and year t–1, divided by the total assets of year t. (7) δ leverage. this quantity is the difference of total (long-term plus short-term) debt between year t and year t–1 divided by total assets of year t. 38 aleksandar naumoski, peter juhasz 2019/24(2) �������� ���� �� ���� ������� ���������� ������� � � ���� � ��� ������ � ������ �� ��� ������������� ��� ����� � �������!�"" �� ��� ����#��$��� �� ��� ����%�����&� ������ '(������� )*)�� ������ � ������ ��� ����� � �������!�"" �� ��� ����#��$��� �� ��� ����%� ��� ��"� � ���� � ��� ������ � +����� ��� '�� ��,##��+������� ��,,��� ������ � ��� -�.�� ����/�� 0��)��* ��� 1 ��� ��,,2�� 0������ ��� ������ ��,,��� � ����� �� ��� ��,3���$����� ��,,�����""��� ��� �������� ��,,/�� 4� �� ��� ��,,3�� 0���� �� ��� ����,�� 5�� �� ��� $������ ��,33�� '"&�� ��,,#�� '(��� �� ��� ��,,,�� �������� ��� 6����� ����%�� ���*�� ����3� 7�8��� ����� ��9�������� ���� : �&��� )�(���� ���� � )���� ������ � 7��� �� ��� ��,,%� 7� ����� � ���� � ��� ������ � ! �� ��,,/�� 0��&�� ��,3��� 0���� �� ��� ����,�� ;)���*� �� ��� ������� '(��� �� ��� ��,,,���������� ��� 6����� ����%� ���� �� : � ���� � ��� ������ � 4� �� ��� ��,,3�� �������� ��� 6����� ����%�� 0���� �� ��� ����,�����*�� ����3� ������� ���9������� � ���� � ��� ������ � 4� �� ��� ��,,3�� �������� ��� 6����� ����%�� 0���� �� ��� ����,� ��(���� �<(��������� � ���� � ��� ������ � -����)& ��� $����� ����,�� 0���� �� ��� ����,�����*�� ����3� (8) δ current liabilities. the variable quantifies the difference of current liabilities between year t and year t–1divided by total assets of year t. (9) firm size. we measure this variable as the natural logarithm of total assets in the year 2015 using the consumer price index of the respective country. (10) cash flow ratio.this measure is defined as earnings before tax plus depreciation over the total assets in line with ozkan and ozkan (2004). opler et al. (1999) and bates et al. (2009) assess cash flow as earnings after interest, dividends and taxes plus depreciation, but due to insufficient data in our sample, we had to stick to the less sophisticated solution. (11) capital expenditures ratio. the ratio is measured as capital expenditures over the total of assets. 4. empirical findings recent studies show large amounts of cash held by companies in developed countries, especially in the us, and this large increase in corporate cash balances in recent years has garnered much attention in the academic studies. thus, according to graham and leary (2018) cash represents 15.69% of the total assets in the us, and in the uk companies it amounts to 9.9% (ozkan&ozkan, 2004, p.2117). the average cash to assets ratio for the see companies in the period 2006-2015 was 6.9% where a big difference among the countries presented in table 2 (lowest in b&h, 4.2% and highest in turkey, 9.5%). the cash holdings by the see emerging markets is much lower than those in the developed ones. to understand the corporate policy in emerging markets we must first point out that emerging markets differ significantly from developed markets. emerging markets are less developed, the companies have a lower quality of governance, they are facing illiquidity problems, the banking sector dominates in the structure of financial intermediation, unlike the us where financial markets have dominance in the financial architecture, and the emerging markets reveal big differences in the national characteristics and other macroeconomic factors (naumoski &nestiorovski, 2018, pp. 481). the corporate environment has an impact on cash policy. the change in the cash holdings to the total assets ratio (δcash) for the see countries for the years 20062015 averaged to 0.34% as presented in table 2. some small differences appear among the ten countries in the sample, where the lowest yearly cash change shows in the case of bosnia and herzegovina, with an average decrease of -0.03%, while the highest change came from turkey where the average increase was 0.79%. table 2: change in the cash holdings to total assets ratio, cpi, and the length of the operating cycle in the see countries (averages) *2005=100 source: authors’ calculations 4.1 results of the descriptive statistics in the period of the global financial crisis of 2007-2009 and afterwards, until 2010, the corporate cash holdings decreased (figure 1 and 2), then from 2011 onwards, the cash holdings started to increase. figure 1 depicts the relationship of the δ cash with the cpi. the average cpi in see countries was continuously rising, and the average inflation rate was 3.77% in the see region on a year-by-year basis. the cpi curve shows a constant upward trend with the highest increase in 2008 when the inflation rate is high in all countries, and in see on average amounts to 8.58%. afterwards, the rate of inflation continuously and slowly reaches 1.96% in 2015. 39 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) ������� � �� �� �� � � ��� � � �� ���� ���� ���� � � �� � ���� ���� �� ��� � ��������� � �� �������� ����� �������� ����� ����� ���� ��� ��������� ������ ������� ������ ������ ���� ���� ���� ��� ������ ������� ������ ���!�� ���� ��� "���#�� ������ ������� ������ ������ ���� �!�� $�#� ����� ������ �������� ������ ������ ���� ��� $�� ������� ������ ������� ����!� ���!�� ���� ��� %�&����� ������ ������� ������ ������ �!�� ��� '��(��� ������ ������� ������ ������ !��� �!� '�������� ������ ������� ������ ������ ��!� ��� )��*�+� ������ ������� ������ !����� ���� ���� ��� ��� ! �"��#$ %#$"& #"''( $%� ) ) figure 1: average δcash and accumulated cpi figure 2: average δcash and cycle figure 1 shows that when the inflation started to increase, the corporate cash holdings began to decrease. here, the cpi was continually rising at a different rate, and the cash was dropping until 2010, then from the year 2011, it started to increase. this result suggests that there is no linear relationship between the cash and inflation, and the relationship can be explained by the u-shaped curve. the operating cycle followed a similar trend to that of the change in cash (figure 2). it decreased in the period of the great financial crisis and rose in the period of the economic recovery. therefore, we can expect some positive association between the changes in cash and the length of the operating cycle. table 3 presents the descriptive statistics of the exogenous variables. based on table 2, we can notice that the average operating cycle in see countries was 410 days, which comes from the average inventory conversion period of 231.2 days and average account receivables collection period of 178.7 days. the average account payables period is 306 days and is much higher than the receivables period. also, we can notice that serbia and turkey are countries with the highest, while greece shows the lowest, average cpi and inflation. the highest average cycle measured was that of serbia amounting to 820 days (which is due to the extensive inventory period of 413.6 days, and also extensive account receivables period of 406.4 days). the lowest quantity, 108 days, was obtained for slovenia (which is due to the reasonably short inventory period of 52.7 days, and also quite short account receivables period of 55.3 days). table 3 also presents the summary statistics for the rest of the exogenous variables. table 3: descriptive statistics of the variables source: authors’ calculations 40 aleksandar naumoski, peter juhasz 2019/24(2) -0.010 -0.005 0.000 0.005 0.010 0.015 0.020 0 20 40 60 80 100 120 140 160 180 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 � c a s h c p i cpi � cas h �������� ��� ����� � ���� ������ ���� ���� ������� ���� � ������� ���� � ���� ��� ������� ���� � ��� �� � � ���� � ������ ����� ����� � ����� �������� ����� � �� � ��� ������ ������ �� ���� ������� ������ � ������� ���� �� ������� �� � ��� �� �������� ������ ������� ������������� �!����"����#� ���� �� ������� �������� ������� �� ���� ��������"���!����"����#� �� ���� ��� ��� � ������� ����� �� � ���� �� ���������� �������"����#� ��� ��� ��� � � ���� �� �������� ����� � �����$��%������� ��� ��� ��� ��� �� ��� ��� ���� ������� ��&���%��'��(���"����� ������� ������� ��� �� ��� � � ������� �������������!�������� ����� � ������� �� �� � � ��� �� ��� � � ��)� ���(�� ������� ������� ������� ����� � ���� �� ��"������*"��#������� ��� �� ����� � ����� � ������� ���� �� +�,�� ����� ����� ����� ����� ���� -0.010 -0.005 0.000 0.005 0.010 0.015 0.020 0 100 200 300 400 500 600 700 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 � c a s h c y c le cycle � cas h 4.2 regression analysis the determinants of the change in corporate cash holdings are investigated using a regression of δcash ratio defined above on the set of exogenous variables defined and described above. the analysis was done on a balanced panel of data. to test our hypothesis, we estimate the following equation: the analysis was performed using e-views. at the very least, using the hausman test, we examined which regression model was the most appropriate. the results showed that the fixed effects model is best for the given data sample. according to deloof (2003), fixed effects estimation assumes firm-specific intercepts, which capture the effects of those variables that are particular to each firm and that are constant over time. a disadvantage of fixed impact estimation is that it eliminates from the model any other factor that is timeinvariant. we have run three regression models. in the first one, we excluded the operational cycle to focus only on the influence of inflation on the change in cash holdings. in the second regression, we omitted the cpi to consider just the effect of the operating cycle. in the third case, we ran the regression analysis with all variables included. table 4 shows the results of the three regressions. table 4: regressions on the change in cash ratio including inflation and firm characteristics note: standard errors in parentheses. * significant at 10%, ** significant at 5%, *** significant at 1%. source: authors’ calculations �cash = �0 + �1cpii,t + �2 ����� + �3 cyclei,t + �4 ��� ��� + �5 cfi,t+ �6 sizei,t + �7 capexi,t + �8 �nwci,t + �9 �currliabi,t + �10 �leveri,t + �i,t(1)� 41 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) ������������ �� ���� ���������� �� ������� ��� ������ ������ ������ ��������� �� ����� � �� ��� �� ���� � � ���� � � ���� � � ���� ��� � � ����� � � ����� � � �� � � �� ���� � ��� � ��� � � � � � � ����� � � ���� � � � �� � � �� � � �� ������ � � � � � � � � ���� �!" � � ������ � � ������ � � ������ � � ��� � � ��� � � ��� #$%� � � � �� � � ���� � � � �� � � ��� � � ��� � � ��� ���$��� �&���'$�(��� � � � ��� � � �� ��� � � ����� � � ���� � � ���� � � ���� � )�� "!�*$�+ ���$��� �������� ���� ��� �������� � � ��� � � � � � � ��� � �(����� �$�,$�$�$�� � ������ � � ���� � ������ � � ��� � � ��� � � ��� � -�.���+� � ������ � � ���� � � ��� � � ��� � � ��� � � ��� /� ��� � ����� ��� � 0'1(���' /� � �� � ��� � �� 2�����$��$� ������ ������ ������ ��!,�2�����$��$�� � � � the results from the regressions confirm that the cpi and the operating cycle have a strong influence on the change of corporate cash holdings. also, the signs of the coefficient are according to our expectations. more precisely, we found that inflation has an adverse effect on the change of the cash holdings. however, since the squared cpi is also statistically significant and positive, it seems that the relationship is not linear, but there is a u-shaped curve that can explain the link, which is the effect of inflation on corporate cash holdings. this relationship confirms our hypothesis h1: inflation determines the corporate cash holdings, but there is a non-linear relationship. more precisely, empirical results confirm that when the inflation is rising the corporate cash holdings decrease to a certain level. after that point, the cash holdings are increasing together with the rising inflation. in the second regression, we excluded cpi to quantify only the effect of the operating cycle. the results from the third regression are similar. here we can see that the coefficient of the cycle is statistically significant, and the squared cycle is not significant. that indicates that the relationship among the operating cycle and the change in cash is linear and negative. this finding contradicts our hypothesis h2. wang et al. (2014) show a similar concave function on chinese data. the other results from the analysis show that the change in the corporate cash holdings is positively related to the size, the cash flow and the capital expenditures. it is negatively related to the change of the net workingcapital and to the shortand long-term debt ratios. the negative relationship with the operating cash flow means that the operating cash flow is a ready source of liquidity that see companies can have used for the financing of their operating activities, so it is considered a substitute of cash. the negative relationship with the company size can be explained by the economics of scale in cash management, the need for reducing the fixed cost of raising external capital. consequently, huge firms have a relatively modest rise in cash, while the smaller companies experience more extensive growth than the bigger ones. the negative relations between the cash change and capex can be explained by the fact that company investments lead to lower savings and less cash, while higher capital expenditure leads to a decrease in the cash holdings. the regression results indicate that cash holdings increased together with the net working capital. this result contradicts our expectations, but it is in line with what was found by guney et al. (2007) and wang et al. (2014). company borrowings also had a positive effect on the changes in cash holding, just as guney et al. (2007) explained. to the extent to which the leverage of firms can act as a proxy for their ability to issue debt, one would expect a negative (substitution effect) association between leverage and cash holdings. however, as leverage increases firms are likely to accumulate more substantial cash reserves to minimise the risk of financial distress and costly bankruptcy. thus, one would expect a positive (precautionary effect) relationship between cash holdings and leverage at high levels of indebtedness. 4.3 inflation effect on changes in cash holdings in the see countries the relationship between the cpi and corporate cash holdings at first glance is depicted in figure 1. the inflation rate in all see countries was higher before the global financial crisis reaching the highest level in 2008. the cash holdings of the companies in this period were reduced due to the higher cost of operation and the dynamic opportunities. afterwards, in expectation of inflationary conditions, where interest rates went up, firms probably invested in longand short-term deposits, so they held more marketable securities. thus the cash holdings are increasing. the results of the regression analysis have proven the existence of a non-linear relationship between inflation and cash holdings. both the cpi and the cpi2 are statistically significant, but with different signs. since the cpi is negative and the cpi2 is positive, which implies that in expectation of inflationary conditions, interest rates go up and firms hold more cash equivalents. the increase in inflation leads to a reduction in cash holdings to a minimum point, and then this effect will turn from negative to positive. we reran the regression with the cpi and the cpi2 as only independent variables and came to this expression of the relationship between cash and inflation: δ cash = 0.127607 – 0.001618 cpi + 0.00000495 cpi2. the relationship is a quadratic function that can be depicted in figure 3 with a u-shaped curve with the lowest point of cash decrease of -0.46%, when the cpi is 163 points. 42 aleksandar naumoski, peter juhasz 2019/24(2) figure 3: accumulated cpi and changes in cash holdings in see countries 43 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) -0.010 -0.005 0.000 0.005 0.010 0.015 0.020 95 195 � c a s h cpi the optimal cash level of the company is determined by a range of macroeconomic and microeconomic company specific factors. in this paper, we investigate the effect of inflation as a proxy for the macroand operating cycle as a comprehensive measure of the corporate specific factors on the cash holdings in the companies of the see region. more specifically, we examine how the companies adjusted their cash level under changing micro and macro factors. we analysed 868 companies from ten south-east european countries (bosnia and herzegovina, bulgaria, montenegro, croatia, greece, romania, macedonia, slovenia, serbia and turkey) for the period 2006-2015. we found that the corporate cash holdings increased slowly by 0.34% annually on average in the given period. the cpi and the operating cycle have a strong influence on the adjustment of cash holdings. the inflation (cpi measured as 2005=100) had a non-linear relationship with the change of corporate cash holdings,which could be expressed with a quadratic function and depicted with a u-shaped curve. thus, with the rise of inflation, corporate cash holdings decreased, probably because of rising prices of the inputs and spending on additional stocks to overcome future inflation risk. however, at a specific point, the corporate cash started to grow with the increase in inflation. that might be because corporate managers tried to shift toward interest-bearing cash equivalents to mitigate the loss of purchasing power and the rise of nominal interest rate. they might also build up a cash reserve to avoid the financial distress that could arise in the unfavourable economic environment. we identified a negative linear relationship between the change in cash holdings and the length of the operating cycle. that means that a lengthening operating cycle (either due to an extended production period or more likely in an unfavourable economic environment due to the lengthening of the collection period) implies a cash holding decrease. other firm-specific variables also had a strong influence on the adjustment of corporate cash holdings. we found that the change in the corporate cash holdings was positively related to the size of the company, the operating cash flow and the capital expenditures. at the same time, it was negatively related with both the change of the net working capital and the change of short and long-term debt ratio. acknowledgements some parts of the paper have been presented at the 2nd international scientific conference on economics and management eman 2018, ljubljana, slovenia (www.eman-conference.org) conclusion references [1] 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(2014). analysis of corporate cash holdings of firms in malaysia. journal of asia business studies, 8(2), 118–135. doi:10.1108/jabs-10-2012-0048 [44] whited, t. (1992). debt, liquidity constraints, and corporate investment: evidence from panel data. journal of finance, 47(4), 1425–1460. doi: 10.1111/j.1540-6261.1992.tb04664.x received: 2018-07-13 revisions requested: 2018-09-05 revised: 2018-10-02 accepted: 2018-10-30 45 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) 46 aleksandar naumoski, peter juhasz 2019/24(2) aleksandar naumoski ss. cyril and methodius university in skopje, faculty of economics, skopje, macedonia aleksandar@eccf.ukim.edu.mk aleksandar naumoski, phd., is an associate professor in finance and a head of the department of corporate financial management at the faculty of economics at the ss. cyril and methodius university in skopje. at the undergraduate studies he teaches financial management, capital investments and risk management. also, he teaches corporate financial strategy, corporate risk management and financial management at the master studies. he earned his phd in finance from the ss. cyril and methodius university in skopje, faculty of economics. in 2009 he was a visiting scholar at the george washington university, school of business washington dc, usa. before he started his academic career, he worked for the national bank of the republic of macedonia in the banking supervision and banking regulation departments. he works for the center of excellence in finance, ljubljana, slovenia as a trainer in the pact and tiaps certification programs in macedonia under the curriculum developed by the chartered institute of public finance and accountancy (cipfa) from london, uk. he provides lectures in financial management, financial accounting and public sector accounting and financial reporting. his scientific interest is focused on corporate finance and investments, particularly on the equity risk premium, risk management, financial engineering, investments and financial management. péterjuhász corvinus university of budapest, corvinus business school, budapest, hungary. peter.juhasz@uni-corvinus.hu péter juhász, phd, cfa, is an associate professor at the department of finance of the corvinus university of budapest. he received his msc in economics and phd in business administration from the same university, and his primary research fields include business valuation, financial modelling, corporate finance, enterprise risk management, and business performance analysis. he is cfa charter holder and has served as a board member and secretary of the cfa society hungary for almost a decade. in addition to his research and teaching activity, he also regularly acts as a consultant for smes and trainer of various finance related courses both in the cee region and the middle east. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 08_book review:tipska.qxd book review doi: 10.7595/management.fon.2018.0020 the remarkable academic activity of yuichi tei / ung-il chung (professor of department of bioengineering at the university of tokyo), a bioengineer and philosopher, as well as a scientific researcher, in clarifying the mechanism and the origin of morality, in parallel with the creation of devices to measure and visualize moral levels using voice recognition, together with the research interests in engineering, psychology and brain science of shunji mitsuyoshi, project assistant professor in mathematics & computer scientist and mathematical engineering of morality emotions, at the same prestigious university in japan, have laid their overwhelmingly significant print on their original approach to diversity and morality on the pages of this book. the earnest, freshly sincere nature of the investigational approach is proved in the afterword, through a set of illuminating questions that represented the beginning of a complex and innovative process (chung, 2017, pp. 179-180): “is the definition of good and evil something arbitrarily determined by someone? does morality vary along with areas, cultures, and eras? does morality, after all, have any common principle? do studies of morality, such as moral philosophy and ethics, end up in mere descriptions of different, miscellaneous moral systems?” the book synthesizes, in a unique and, at the same time, essential answer, the quest for a response close to the true face of morality, a response that is constantly simplified and continually redefined, in order to be easily (re)told or explained to the children, or otherwise written for the new generations as “the true nature of the principle in distinction between good and evil”. in this sense, the discourse generating the contents of the book, architecturally supported by an argumentation of really impressive philosophical and religious wealth, is structured in six sections, which are perfectly crystallized, both for the introductory section (s1. – presentation of problems: analyzing the current status of morality), and for the final section (s6. – simulations and prediction: how should we live?), benefitting from a pre-requisite, indispensable prior review of several previous similar attempts, in fact a literary review of major significance and millennial temporality (s2. previous studies: studying prior moral thoughts), which inevitably leads to a principle-based and logical modelling that gives the image of an authentic researcher (s3. – construction of models: modeling the basic principles of morality), without however being deprived of the aristotelian argumentation of ethics, pragmatized in two revealing applications, based on rigorously systematized and inter-, transand multidisciplinary arguments (s4. – development of applications 1: do animals have “morality”?, and respectively s5. – development of applications 2: relationship between morality and language). what is, in a synthetic view, the exceptional creative contribution of the authors of this impressive book? as they were suggesting as early as 2016, in their book how to reconcile morality and diversity in globalization and multidisciplinary integration, the human community feels a permanent need for a continuous review and reshaping of its moral standards, for harmonizing the rules of the main religions in the perspective of redefining morality in a recognized process of globalization. the goal is realistic, and it leads, through systematic restructuring, to a minimum of three common moral rules, a pure extract from the classic decalogue: “do not kill others; do not steal from others; do not deceive others”, or only one rule, “do not harm others”, centred on a single, all-encompassing moral principle, “be fellowish”, which is itself ultimately structured in just two aspects: 1) “do not harm other fellow human beings”; 2) “think and behave in a manner similar to other fellow human beings.” (chung, mitsuyoshi, tokuno, 2016; chung, mitsuyoshi, 2017). finally, the book’s 85 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) gheorghe săvoiu university of pitesti, faculty of economics book review of: diversity and morality: crossing borders with engineering approach by yuichi tei / ungil chung m.d. phd. in collaboration with shunji mitsuyoshi phd. book lab., tokyo. 2017. 192 pp. isbn: 979-11-5987-771-11 jel classification: y30 option reduces everything to a universal principle that gives substance to the morality of the human, academic, research, managerial, etc. community: “be fellowish”, as soon as it is thus generalized and validated for the entire human community, it represents the moral principle of a future human society whose creativity and morality will survive regardless of global economic, social and religious changes and diversity (săvoiu, iorga – siman, 2017). certainly, in the reader’s mind there pre-exist many other questions, which such a succinct presentation of the book cannot give an answer to, nor can it break the curiosity of their own reading and their own meanings given, nor the spiritual depths reached following the reading. why does such a synthetically simplified vision of the conceptualization of morality and moral values come from japan, intersecting the philosophy and religion of the world in an optimistic manner? which are the main recognized factors of morality in terms of global impact and consequences? how does language and its dynamics in modern internet networks influence the evolution of morality? is there a distinct morality visibly manifested in virtual encounters? how will such a type of morality, redefined and simplified, influence the humankind’s view of xenophobia and ethnocentrism, the feeling of alienation and capital punishment in the near future? how can the morality of the future contribute to negotiations of any kind, or to negotiation in international disputes? why does this book presentation appear in a management journal? – and so on. the answers usually await the fervour of the reader’s turning the pages, the eagerness to browse the pages of the book, and especially the meditating respite after every important or deeply impressive passage... the sincerity and modesty of the authors, whom we have known through the happy chance of the lucky encounters that can occur in the life of each of us, and whom we are now proudly welcoming as good friends, are also expressed at the end, again revealing, if need be, quality and objectivity of this unique book: “please accept only ideas that you can believe to be true after examining the contents by yourself and construct your own discussion scheme with your children.“ (chung, mitsuyoshi, 2017, p.181) accepted: 2018-08-18 references [1] chung, u.,/tei, y., mitsuyoshi, s., tokuno s. (2016). how to reconcile morality and diversity in globalization and multidisciplinary integration, esmsj, vol. 6(1), pp. 4-7. [online] available at: http://esmsj.upit.ro/no14_2016.html [accessed in july 24th, 2018] [2] chung, u.,/tei, y., mitsuyoshi, s., (2017). diversity and morality, tokyo: book. lab. [3] săvoiu, g., iorga – siman, i.(2017). creativity and morality, esmsj, vol. 7(2), pp. 38-41. [online] available at: http://esmsj.upit.ro/no17_2017.html [accessed in july 21st, 2018] 86 gheorghe săvoiu 2018/23(2) gheorghe săvoiu university of pitesti (romania), faculty of economics e-mail: gheorghe.savoiu@upit.ro or gsavoiu@yahoo.com gheorghe săvoiu, phd, is associate professor at the department of accounting, faculty of economics, university of pitesti (romania). gheorghe săvoiu graduated with mba from the bucharest academy of economic studies (commerce department – commerce section), and acquired a phd degree in economic sciences from the faculty of economic cybernetics, statistics and informatics, bucharest academy of economic studies (romania). besides pedagogical activities, he held a position of manager at the general board of statisticsargeş county – pitesti. he held a position of dean of the finance – accountancy faculty, to constantin brâncoveanu university in pitesti, between 2003 and 2006. since 2014, he has also been an associate researcher at ince “costin c. kiriăescu” of the romanian academy, part of the new centre of mountain economics ce-mont. he is a (co)author of more than 30 books, of 20 papers isi thompson (web of knowledge), with hindex isi thompson = 4 and of more than 200 indexed journal and conference papers. he was also engaged as a project manager or member of a project team in more than 10 projects. the major domains of interest: statistics, econometrics, econophysics, sociophysics, logic, philosophy, economics, marketing research, human ecology, management methods, demography, price universe and interpreter indices, rural tourism. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08_nikolic:tipska.qxd 88 dragana makajić-nikolić 2017/22(3) dragana makajić-nikolić faculty of organizational sciences, university of belgrade, serbia udc: book reviews doi: 10.7595/management.fon.2017.0025 over the past two decades, the use of business analytics (ba) in organizations grew steadily until it became “a revolution that is impossible to miss” (acito& khatri, 2014). the first-order effects of business analytics on improvements of organizational performance are superior decision-making processes (sharma, mithas, &kankanhalli, 2014). those processes include problem solving activities that are necessary steps from ba use to organizational benefits from ba (seddon, constantinidis, tamm, &dod, 2017). in addition, these activities open up a wide area of academic research. however, the more sophisticated the research methods and techniques become, the more difficult their use for solving the practical ba problems proves to be. consequently, the shortage of knowledge of analytics methods and approaches has grown into a key challenge to practitioners in their efforts to build business analytics and data driven organization (vidgen, shaw, & grant, 2017). this makes the gap between researcher and practitioners bigger (rynes, bartunek, & daft, 2001). the book “metaheuristics for business analytics. a decision modeling approach” is a contribution to overcoming this gap, particularly in the field of prescriptive analytics the final phase of ba which refers to solving optimization problems. the authors of the book are professors in the fields of operations research, statistics, and computer science and the members of the optsicom project (optimization of complex systems) that deals with the development of optimization tools based on metaheuristic procedures. metaheuristics are efficient ways for solving hard optimization problems and, in addition to mathematical programming, most commonly published and surveyed approaches (gorman, 2016). since they represent a high-level algorithmic framework, the application of metaheuristics requires knowledge and experience in their design and implementation which make them difficult to use for the practitioners. this book introduces metaheuristics thought spreadsheet modelling and makes them more accessible to practitioners. the book is organized in five chapters. the first chapter introduces the basic concepts of ba, describes its phases: descriptive, predictive and prescriptive analytics, and defines the role of metaheuristics in ba. a concise overview of the principles of spreadsheet modelling and optimization makes this book fairly self-contained and therefore useful for practitioners. finally, this chapter introduces the main idea of search for a solution in a solution space, local and global optimum and the use of metaheuristics in “intelligent” search. the second chapter gives general concepts in metaheuristics search focused primarily on single-solution based metaheuristics. through numerous hypothetical examples, the main issues in metaheuristics application are introduced: how to represent the solution; how to define the decision choices (variables), how to formulate the objective function and constraints, and how to tune the parameters. the third chapter describes the designing of heuristic procedures for solving combinatorial optimization problems that are relatively easy to formulate, but can be very difficult to solve using exact algorithms. the authors show how relatively simple constructive heuristic based on the grasp (greedy randomized adaptive search procedure) methodology is able to provide high-quality solutions. since the book relies on spreadsheet modelling, more specific modelling with ms excel, the code of grasp constructive method is implemented using the visual basic macros. the fourth chapter is dedicated to tabu search, one of the most widely used metaheuristics, which is illustrated on the clustering problem in this book. after introducing some classic clustering methods, the authors show how clustering problem can be defined as an optimization problem. further, again using the visual basic macros, the authors conduct the reader through all the elements of the tabu search methodmetaheuristics for business analytics. a decision modeling approach by abraham duarte, manuel laguna,and rafael martí. springer international publishing, series: euro advanced tutorials on operational research, 2018, 136 pp. hardcover isbn: 978-3-319-68117-7, ebook isbn: 978-3-319-68119-1 ology such as forming an initial solution and defining short and long term memory structures. finally, in the fifth chapter, entitled “black-box solvers”, the authors start from the well-known dilemma: create a mathematical model that is not an accurate representation of the real system and find its optimal solution or create a mathematical model that is a good representation of the real system but for which only inferior solutions can be obtained. the distinction between general-purpose and black-box solvers is introduced and some black-box solvers such as excel’s evolutionary solver, localsolver and optquest are analyzed. the book certainly deserves recommendation, primarily to the practitioners and organizations that intend to include overall business analytics features into their business processes. as the authors state: “..this book is meant to fill the gap between traditional textbooks and research papers”, i.e., it fills the gap between researchersand practitioners. references [1] acito, f., & khatri, v. (2014). business analytics: why now and what next? business horizons 57(5), 565– 570. [2] vidgen, r., shaw, s., & grant, d. b. (2017). management challenges in creating value from business analytics. european journal of operational research, 261(2), 626-639. [3] seddon, p. b., constantinidis, d., tamm, t., &dod, h. (2017). how does business analytics contribute to business value?.information systems journal, 27(3), 237-269. [4] sharma, r., mithas, s., &kankanhalli, a. (2014). transforming decision-making processes: a research agenda for understanding the impact of business analytics on organisations. european journal of information systems, 23(4), 433-441. [5] gorman, m. f. (2016). a “metasurvey” analysis in operations research and management science: a survey of literature reviews. surveys in operations research and management science, 21(1), 18-28. [6] rynes, s. l., bartunek, j. m., & daft, r. l. (2001). across the great divide: knowledge creation and transfer between practitioners and academics. academy of management journal, 44(2), 340-355. accepted: 2017-12-11 dragana makajić-nikolić faculty of organizational sciences, university of belgrade, serbia e-mail: gis@fon.bg.ac.rs dr dragana makajić-nikolić is an associate professor at the university of belgrade, faculty of organizational sciences, serbia, where she acquired her ph.d. 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 08_book review sandra:tipska.qxd 72 sandra jednak, elisabeth schulte 2018/23(1) sandra jednak1, elisabeth schulte2 1university of belgrade, faculty of organizational sciences, serbia 2school of business & economics, university of marburg, germany book review doi: 10.7595/management.fon.2018.0010 the price is the key determinant of the allocation on many markets, in particular on commodity markets, where essentially “the price does all the work” (roth, 2015, p.19). however, there are also markets where the role of prices is limited, or where prices may even be completely absent. an obvious example is the marriage market: the allocation does not (only) depend on the market participants’ willingness to pay for the available alternatives, but on the attractiveness of the transaction partners for each other on both sides of the market. alvin e. roth who won the nobel prize in economics in 2012, in the book, who gets what ― and why: the new economics of matchmaking and market design shows how matchmaking and market design could contribute to enhance the efficiency of market processes and market allocations. roth demonstrates how practical problems that occur in the establishment of matches in everyday life, like matchmaking between medicine students and hospitals, between students and schools, and between patients and organ donors, can be mitigated by a clever design of the algorithm that underlies the matching process. the book covers the theoretical base of the market design, but also its applications in particular markets. the book consists of four parts: 1) markets are everywhere, 2) thwarted desires: how marketplaces fail, 3) design inventions to make markets smarter, thicker, and faster and 4) forbidden markets and free markets. the following issues are explored: how markets operate, why some markets operate well, while others fail, what preconditions for the successful market are there and how repugnant transactions can influence the market design. the issue of this book is matching markets, i.e., market design and the matching process. on matching markets, prices have little (if any) impact on who gets what. instead, recourses are allocated by a particular matching process. according to roth (2015, p.18) “matching is economist-speak for how we get many things we choose in life that also must choose us”. the design of the matching process contributes to the efficiency of the allocation of scarce resources. monitoring the existing state of the market, “we start to understand better how markets and marketplaces work, we realize that we can intervene in them, redesign them, fix them when they’re broken, start new ones where they will be useful” (roth, 2015, p.201). according to roth, the marketplace is successful and has optimal outcomes if it is thick, uncongested, safe and simple. in order to make a market work, many participants are needed. however, a lot of participants make a market thick, which is followed by congestion. congestion raises competition, which may trigger early “exploding” offers, by actors on the one side of the market (for example, colleges), and signalling activities by the participants on the other side of the market (for example, students). it is a way to deal with competition. in such a situation, participants make strategic decisions that depend on what others do. they do not have enough time for carefully evaluating offers and making an informed decision. also, they are often not safe to reveal their true preferences. as a consequence, bad matches are reached if the decision on a transaction is made too soon, too fast and too risky. besides, repugnancy of transactions (“transactions that some people don’t want others to engage in” (roth, 2015, p.23)) influence the market design, because they limit the scope for prices to coordinate supply and demand. market design “helps to solve market issues that could not be solved naturally” (roth, 2015, p.20). it observes market failures and finds solutions how to fix them. furthermore, it modifies and adjusts market rules from time to time in order to make the market operate better. the applicability of the theory is demonstrated by a number of real-life examples. as examples, how market forces push the market participants to successfully deal book review of: who gets what ― and why: the new economics of matchmaking and market design by alvin e. roth. an eamon dolan book houghton mifflin harcourt. boston new york, 2015. 248pp. isbn: 9780-544-29113-3 jel classification: d47 with issues of thickness, congestion and safety of doing business, the cases of amazon, the internet, smart phones, computers, and credit cards are illustrated. furthermore, the examples of airbnb, uber, ebay and paypal show how markets change while business evolves and how these companies solve problems of thickness, congestion and safety. the problem of matching and market design are exemplified by the school choice systems in new york city and boston (children to public/high schools, students to colleges), labour market (students/interns to hospitals, and us new ph.d. economists to us colleges and university), dating and marriage, and organs transplantation (kidney donors to patients). the deferred acceptance algorithm and clearinghouses are used for making the match. it collects the preferences from both, demand and supply side, and stepwise establishes a stable matching. the complex theory and the working of the algorithm are explained in an accessible, nonformal way, and their usefulness is apparent through the discussion of real problems. based on the characteristics of the particular market and its development, the algorithm has been modified in many directions. for example, the deferred acceptance algorithm has been applied for decades for the medical match. however, when women have started to enter into the market, and couples cared not only for their match, but also for the one of the partners, the algorithm needed to be adjusted in order to provide better matching. roth and his colleagues have done an important job, helping to install a market design that should overcome market failures and obtain better market operation. one particularly problematic case of matching and market design is kidney exchange. exchanging a kidney for transplant concerns many people and societies because it saves lives. despite (or maybe because of) the market participants’ high willingness to pay for a kidney donation, the exchange of money in this context is illegal (and considered repugnant) in most parts of the world. a kidney could only be given as a gift. however, often a willing donor and the designated patient are incompatible, such that a possibility for the exchange of willing donors’ kidneys arises. however, the enforcement of a contract is not possible, so that simultaneity of the exchange becomes a crucial feature of the transaction to establish trust. roth and his colleagues have created a long-running kidney chain starting with a single kidney donation. they made possible 2-paired and 3-paired kidney exchange, i.e., donations. the book is interesting and easy to read and understand. it provides an insight into how the market works. it can be a useful resource for participants in matching markets. moreover, the design developed for the explored case studies in the book shows that matching processes can bring benefits to both sides of the market and to society as a whole. accepted: 2018-04-23 sandra jednak university of belgrade, faculty of organizational sciences, serbia sjednak@fon.bg.ac.rs sandra jednak is employed at the faculty of organizational sciences, university of belgrade as an associate professor. she has published scientific research papers in international and national monographs, journals and conference proceedings. her teaching areas are introduction to economics, macroeconomics, microeconomics, economic development and the eu. her research focus is on the economic growth and development of see countries. besides, her research interests are knowledge (based) economy, energy economics, international economics and higher education. elisabeth schulte school of business & economics, university of marburg, germany elisabeth.schulte@wiwi.uni-marburg.de prof. dr. elisabeth schulte is a professor of institutional economics and the director of the marburg centre for institutional economics (macie) at the university of marburg, germany. she obtained her doctoral degree from the university of mannheim, germany, in 2006. the areas of her research interests are in the fields of institutional economics, in 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08 zoran radojicic_bookreview:tipska.qxd udc: 316.323(049.32) 316.334:330(049.32) book reviews doi: 10.7595/management.fon.2017.0008 who is the richest person in the world? does the place where you were born have an impact on how much money you will earn over a lifetime? how can we know? are these questions important at all? in the book global inequality: a new approach for the age of globalization, branko milanovic explains these and other less well-understood theses of wealth that are unevenly distributed throughout the world, both now and throughout the history. milanovic is a serbian-american economist and the world bank specialist in the development, one of the world’s leading experts on wealth, poverty and the gap between them. the author begins with historiography, literature and stories from newspapers and continues to explain one of the largest divides in our society: the one between the rich and the poor. he reveals how truly anna karenina earned from her love, how to compare rich romans with today’s super-rich, how we should pondr on marxism in the contemporary world and in which way the place of birth determines one’s assets. milanovic is not surprised with a large number of immigrants from the third world countries who risk their lives to boost the domestic life of the first world. a recent survey by the world bank suggests that “less developed countries of the world, if the migration is free, will lose half or even more of their population.” attempts to mass migrations were barred by the closed boundaries of the developed world, resulting in the deaths of thousands of anonymous poor that on their journey to the promised land. a global survey of households shows that from 1988 to 2008, the real income of the poorest 50 percent of americans increased by only 23 percent, while even worse results were documented for the poor in germany and japan. at the same time, the wealth the one percent of the richest americans grew by an impressive 113 percent and does not exclude the possibility that they grow even more. “inequality has risen almost everywhere in the world, except in latin america.” in his book milanovic maintains that the poor willd continue to strive to become richer, and if they cannot stay at home, they will seek happiness abroad. he also addresses the problem of delamination in the future and how migration can be the answer to alleviating inequalities. a brief glance at the photography shown in the book, shows the most obvious reduction of the middle class in the us and the uk, however, it remains at a lower level in western europe. if the middle class, as it is conventionally done, is defined as those with an income around the median (middle) distribution, then their number is reduced to about one-third of the population in the united states in 1979 to 27 percent today. also, their shares decrease the total national income from 32 percent to only 21 percent. this process continued and in the times of crisis: the average real income has stagnated so that the layering is now more evident than before. 86 zoran radojčić 2017/22(1) zoran radojičić university of belgrade, faculty of organizational sciences, serbia book review of: global inequality: a new approach for the age of globalization by branko milanovic. harvard university press, cambridge, massachusetts, 2016. 320pp. isbn: 978-0-674737136 jel classification: y30 corresponding author: zoran radojičić, e-mail: radojicic.zoran@fon.bg.ac.rs the author states that the layering is the result of three factors: first, the type of technological progress that valorizes highly educated workforce and owners of capital, secondly, the globalisation of business moves to “cheaper” countries, and third, changes in the fiscal system. only the latter is subject to possible political decisions. one such decision is to increase taxes and social contributions. we live in a world of growing political power and influence of the wealthy, who have an interest that the process of globalisation continues. that interest exhibits in developing countries, but they are not voters in the united states or in other wealthy countries. that can lead to a kind of rule of the rich, plutocracy, and continuing globalisation. however, on the other hand, there is a reversed process and dangers of political populism in some countries of europe which are these days quite clearly seen in the anti-immigration decisions in switzerland, britain, france, italy, greece, etc. the book examines the attitudes of the french economist piketty who produced excellent and quite unambiguous data showing that the number of people who can live well without working is continuously increasing. that is primarily a social and moral problem. it opens pretty uncomfortable comparisons with early capitalism. however, the situation today is somewhat different, because, in addition to high income from capital, there is a very high income from work, which was not the case in the 19th century. in other words, the fact that someone is a capitalist and that their revenues put them into the group of rich, does not make their position as strong as it was a hundred years ago. however, if these negative trends of stratification and inequality continue, this may happen. the main problem of inequality is based on the taxation of capital income or the wealth. such action cannot be carried out by any country alone, not even the most powerful as the united states. that would be possible only through collaboration with a group of countries thus acting globally. the author gives us a view of the whole of eastern and central europe. objectively speaking, inequality is relatively moderate in this region; even in slovenia and slovakia, countries with almost the lowest coefficient of inequality in the world, sensitivity to inequality is quite pronounced, for two reasons. the first is that the previous system, socialism, insisted on equality and i think that is still reflected in the minds of many people. the other reason is that the transition was characterised by blatantly obvious fraud and illegal appropriation of property, so that almost every inequality now is connected with something illegal, almost stealing. the author goes beyond mere entertainment explaining why it is important to discuss the inequalities, since they undermine our economic prospects, and how they can threaten the very foundations of the social order which we take for granted. the bold, interesting and instructive book, global inequality: a new approach for the age of globalization teaches us not only how to think about inequality, but also why it initially occurs. finally, we come to ask ourselves whether we are in the 21st century that took place in the 19thcentury. (received/accepted ) (march 2017 / april 2017) zoran radojičić faculty of organizational sciences, university of belgrade, serbia e-mail: radojicic.zoran@fon.bg.ac.rs 87 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) 88 zoran radojčić 2017/22(1) << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /none /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /error /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /cmyk /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 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/hrv (za stvaranje adobe pdf dokumenata najpogodnijih za visokokvalitetni ispis prije tiskanja koristite ove postavke. stvoreni pdf dokumenti mogu se otvoriti acrobat i adobe reader 5.0 i kasnijim verzijama.) /hun 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/pdfxoutputintentprofileselector /documentcmyk /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /usedocumentprofile /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [612.000 792.000] >> setpagedevice 09_bernarda miklavc:tipska.qxd 97 management 2014/71 introducing social responsibility in local government bodies and the golden thread project udc: 005.35:330.101.32 ; 005.95/.96 doi: 10.7595/management.fon.2014.0017 1. introduction social responsibility is not defined as such by laws, directives or national regulations. it is, however, the subject of numerous discussions, for example in the green paper promoting a european framework for corporate social responsibility published by the european commission in 2001. along with the other fields, the green paper defines the internal dimension of social responsibility, which relates above all to investment in intellectual capital and the health and safety of employees. many organisations publicly set out their corporate social responsibility policy in their mission statement, where the concept and practice of corporate social responsibility relates to the entire range of activity of the organisation and the relations that are established in this context. the purpose of the article is to present an example of a slovenian approach to changing the attitude of employers towards their employees and to examine the possibility of applying this approach in the field of local government. introduction of the methodology of the golden thread project in the wider environment would also enable a comparison (from the point of view of the model) of relevant results between organisations in the private and public sectors (businesses, state administration and local government). although several key differences exist between them, it is true for all of them that the introduction of those aspects of social responsibility relating to employees, partners and the wider community make it easier for them to achieve their goals – greater profits in the case of businesses and better quality work and efficiency in the case of the public administration. the concept of social responsibility in connection with the field of human resource management affects both economic and social relations and also the ways the problems that arise in local and broader communities are addressed. socially responsible behaviour, which is also promoted by the european union, can bring a competitive advantage to organisations in various branches of economy, while in the public sector it ensures effective and high-quality services for citizens, and, consequently, a reduction of costs for the state. the article presents the golden thread project (“zlata nit” – a media-supported nationwide research project designed to find slovenia‘s best employers). the project, or rather the model developed, focuses on the quality of the relationship between organisation and employees. the model follows the guidelines of modern approaches in the field of employment and human resource management and can be applied both to business organisations and to the non-business sphere. since the project is both a research project and a media campaign, one of its aims is the promotion of those organisations that are identified as an example of a good (or best) employer in slovenia from the point of view of human resource management and social responsibility. the article also considers the possibility of transferring the project to the public administration and, in particular, to the field of local government. keywords: employee satisfaction, best employer, social responsibility, human resource management. bernarda miklavc1, janez stare2 1 ministry of economic development and technology, republic of slovenia, market inspectorate 2 university of ljubljana, faculty of administration, slovenia 2. an attempt to define the situation in the field of social responsibility and employees in the public sector in slovenia: the golden thread project when we talk about the internal dimension of corporate social responsibility, we have in mind above all the attitude towards employees (or human resource management), health and safety at work, adaptation to changes and the attitude towards protection of the environment in so far as this relates to the management of natural resources used in production. socially responsible activities can bring an organisation many “internal” advantages. these activities help develop new resources and possibilities connected with knowledge and corporate culture. if an organisation manages human resources effectively, this can mean a reduction of costs and an increased employee productivity. socially responsible activities, which include fair pay, a clean and safe working environment, training opportunities, flexible working hours, etc., can bring a direct benefit to the organisation because they increase employee satisfaction and in this way increase productivity and reduce sick leave and employee fluctuation (branco and rodrigues, 2006, 121). similarly, socially responsible activities contribute to increasing the attractiveness of an organisation as an employer, allowing organisations to develop their competitive advantages (greening and turban, 2000). studying employees frequently stops at the level of identifying their demands with regard to corporate social responsibility and the categorisation of socially responsible policies or practices. this means, however, that the question of the perceptions that employees have of these practices, and their impact on employees in relation to the organisation, remains relatively unresearched. the behaviour of an organisation (or the perception of it) can influence the behavioural, cognitive and affective responses of its members. the behaviour which employees value can thus lead to employees being satisfied with their work and committed to the organisation (ellemers et al. 2011). employee satisfaction is the foundation for the development and success of every organisation and it is therefore no surprise that social responsibility is an increasingly frequent topic of discussion. the lisbon declaration, adopted in 2000, contains the ambitious goals of the european union to increase social security while at the same time ensuring a competitive and dynamic knowledge-based economy capable of sustainable economic growth with more and better jobs and greater social cohesion (green paper, 2001, 6). there is no doubt that a shift to a new paradigm is needed, which means that managers need to look again at their approach to organising, directing and motivating employees. excellent organisations are distinguished from average ones by the fact that they understand their employees, adapt to them and cultivate an organisational culture which increases employees’ sense of belonging. employees who are satisfied feel loyal to the organisation and can identify with its goals, values and interests. they are also more effective and more efficient (erickson and gratton, 2007). ideas about transferring social responsibility models to the public sector have been appearing in slovenia for more than a decade, with researchers frequently drawing attention to the firmly entrenched positions that impede their introduction. these include, on the one hand, a belief in legal determinacy, and, on the other, a belief in the urgent need for a transformation of such definitions. to this end a pilot version of the golden thread project was tested in 2009 in the public administration (specifically in local administrative units, which are that part of the state administration of slovenia that provides services to citizens at the local level). the idea is that the state, as an employer, should attempt to develop an environment that does not only realise its mission by meeting the needs of citizens, but also develops in the direction of employee satisfaction. satisfied employees (in this case public servants) would in this way be able to effectively direct their knowledge, talents and abilities towards developing the state administration. local government organisations provide services to citizens in the same way that administrative units do, and since both are part of the public administration we would also like to test the potential contribution of the golden thread project in the field of local government. it is important that individual municipal administrations, just like businesses and the state administration should be good employers. the golden thread project involves identifying and promoting the best employers and examining the quality of the relationship between organisations and their employees. the project follows guidelines in the employment and workforce field and corresponds to the european criteria, innovative thinking, the knowledge economy and creativity. 98 2014/71management the methodology of the project also takes into account the success of the organisation as a criterion for finding the best employer in the sense of corporate social responsibility. the model covers five dimensions of selection (kuhelj krajnović in krmelj, 2007): 1. measurement of the quality of the employee-organisation relationship 2. success of the organisation 3. identifying leadership of the organisation 4. opinion of the general public – readers’ votes 5. final assessment of selection committee the project methodology is based on the belief that the connection between employee satisfaction and the success of an organisation is an extremely important one. for this reason the best employer is not defined merely on the basis of the relationship between employee and organisation. the assessment also takes into account success, which is determined both by commercial success and by success (recognisability, desirability) as perceived by customers. the content-based part of the selection process focuses on establishing the quality of the employee-organisation relationship. this is established by surveying employees. the questionnaire consists of 39 questions and takes into account not only concepts of motivation but also internal exchange relationships and the design of work. on the basis of the statements included in the questionnaire on the quality of the relationship between employees and organisations, the values of six dimensions are verified (assessed), which together with the analysis of individual answers from the organisation formed the triangle “investment – human being – marketing”, and in this way places the employee (indirectly and directly) at the centre of innovative and marketing changes. these dimensions are: • the fundamental relationship between the organisation and the employee; • the role and quality of the work of the individual in the organisation; • organisational culture, climate and relations; • quality of the working environment; • personal growth and development; and • enterprise and innovation. the questionnaire, which is completed by the specialist services of the participating organisations, consists of 20 questions. the assessment of success is complemented by indicators of return on equity, growth of operations and added value per employee, all of which are available in annual reports and specialist financial databases. on the basis of the first two phases, taking the average of the results from the employee questionnaire (60%), the bsc questionnaire (20%) and financial indicators (20%), the list is drawn up of the 101 best employers, who represent the finalists. 3. an attempt to define a broader applicability of the golden thread project methodology the attempt to define a broader applicability of the methodology of the golden thread project has been carried out for the purpose of using methodology in the field of public administration and, in particular, local government. when carrying out the study we were first interested in differentiating (in the sense of statistically significant differences in the answers to individual questions) between organisations in the business sector and administrative units, as representatives of the public restriction. although research into the situation was carried out within the context of the project, correlations between the two sectors were not identified. a comparison was made of the results of research carried out in businesses and in the public administration in order to identify statistically significant differences in the answers to individual questions. the principal problem and the subject of study in the context of the research was to establish whether the golden thread questionnaire is suitable both for the business sector and for the public administration, and to identify the differences that appear within the public administration, i.e. between the state administration (administrative units, which were already included in the project) and local government. 99 management 2014/71 a questionnaire on the quality of the employee-organisation relationship prepared according to the methodology developed specially for the golden thread project was used for the needs of the research. the questionnaire consists of 39 questions divided into six thematic categories as follows: • the fundamental relationship between organisations and employee – represents one of the essential relationships in an organisation. within this dimension we find answers to the questions of whether employees know what is expected of them at work. • the role and quality of the work of the individual in the organisation – this is that part of the “mosaic” that leads to satisfaction and the fulfilment of the vision and goals of the organisation. • characteristics of organisational culture, climate and relations – “soft” aspects of the organisation represent one of the important factors of its operations. • enterprise and innovation – the spirit of enterprise and innovation of every link in the organisation and of the organisation as a whole are verified in the following dimension, where autonomy at work is established along with choices of ways and means to achieve work goals and the existence of the possibility of contributing to improvements and new approaches; … • quality of the working environment – this dimension refers above all to ascertaining the situation as regards the distribution of working hours, work outside normal working hours, duration of working hours. • personal growth and development – within this dimension answers are sought with regard to the implementation of suitable measures for the personal growth and development of employees. table 1: number of questions by individual dimensions source: own material each set of questions comes with a five-point scale which employees use to express their agreement or disagreement with the statements. a score of 1 means that the respondent strongly disagrees, while a score of 5 means that the respondent strongly agrees. if a respondent is unable to answer a specific question, he or she may choose a sixth possibility – don’t know/cannot answer. the questionnaire includes six dimensions (table 1) containing a total of 39 questions. 4. study of the applicability of the methodology of the golden thread project to local government the study designed to establish whether the methodology of the golden thread project could be applied to local government ran from october 2009 to november 2012. the study took into account various sources: for the business sector and administrative units, research was carried out in 2009; and for the local government, our own research was carried out in 2011. the study covered 9,082 employees in all three sectors, 88 of them in urban municipalities, 7,350 in the business sector and 1,742 in administrative units. although there are 211 municipalities in slovenia, those selected for the study were all urban municipalities,1 which 100 2014/71management dimension no. of questions % fundamental relationship between organisation and employee 5 12.8 role and quality of the work of the individual in the organisation 9 23.1 some characteristics of organisational culture, climate and relations 8 20.5 enterprise and innovation 7 17.9 quality of the working environment 6 15.4 personal growth and development 4 10.0 total 39 100 1 an urban municipality is a municipality that includes a large town/city. in slovenia, article 16 of the local government act provides that a town/city can obtain the status of urban municipality if it has at least 10,000 inhabitants and is the geographical, economic and cultural centre of its gravitational area. under exceptional circumstances, a town/city may obtain the status of urban municipality for historical reasons. the state may transfer to the urban municipality specific functions from its own competence relating to the development of the town/city. are mutually comparable and differ significantly in terms of functions and size from the other municipalities in the country. the questionnaire designed to study the fundamental employee-organisation relationship was the same as in the previous study covering the business sector and administrative units. all urban municipalities were invited to take part in the study following talks between the researchers and municipal chiefs. of the 11 urban municipalities in the country, five agreed to take part. by agreement with the directors of the municipal administrations, we sent each municipality an individualised link to an online questionnaire. the directors of the municipal administrations then forwarded the link to their staff by e-mail. the completion of the questionnaire was anonymous. the completion was expected to take 10 minutes. the links to the online questionnaires for each individual municipality were accessible to all participants from 6 to 20 may 2011. the study carried out in urban municipalities represents the first study of its kind, with the exception of one urban municipality which, at its own request, took part in the golden thread project in 2009 and used the results for internal purposes. 4.1 assessment of results by individual dimensions and comparison between sectors the article presents an analysis of the selected six dimensions of relations between employees and organisations with regard to sector.2 in order to identify statistical differences between business sector organisations, the state administration and local government, individual pairs were formulated. thus, for example, comparisons were made between the business sector and local government, between local government and the state administration, and between the business sector and the state administration. a comparison was also carried out between the business sector and the non-business sector, i.e. the public administration, in which the results for the state administration and local government were combined. table 2: mean values by dimensions source: own material table 2 shows the mean values from the study by dimensions and the total mean value for an individual sector. it can be seen that the lowest total mean value (3.39) is achieved by urban municipalities, with the business sector scoring a total mean value of 3.67 and administrative units achieving 3.86, which is also the highest total score in the study. the mean values of individual dimensions are lowest in urban municipalities for all dimensions. the share of statements in which statistically significant differences appear ranges, for the individual compared pairs, from 46.15% to 92.3%, while in the comparison between the business sector and the non-business sector statistically significant differences appear in 87.17% of statements. when reviewing variances in the comparisons of variables by individual dimensions, statistically significant differences are not perceived between the comparison of the business sector and other municipalities in the first, fifth and sixth dimensions. in the second, third and fourth dimensions, on the other hand, the results in all observed pairs in all dimensions are almost identical and statistically significant differences appear. 101 management 2014/71 dimension business sector administr ative units urban municipa lities fundamental relationship between organisation and employee 3.85 4.04 3.72 role and quality of the work of the individual in the organisation 3.74 3.93 3.48 some characteristics of organisational culture, climate and relations 3.72 3.87 3.26 enterprise and innovation 3.56 3.71 3.19 quality of the working environment 3.64 3.91 3.49 personal growth and development 3.40 3.64 3.17 total mean score 3.67 3.86 3.39 2 figures for the business sector and administrative units were obtained for the purposes of the study by the project coordinators. table 3: variances between compared samples by dimensions source: own material the occurrence of statistically significant differences (graph 1) also differs by dimensions across the compared pairs. in the first dimension, which defines the basic employee-organisation relationship, statistically significant differences are not present in 33.33% of all questions in the dimension in question in the comparison of statements between urban municipalities and the business sector. the second dimension covers a set of nine statements defining the field of the role and quality of work of the individual in an organisation. statements for which statistically significant differences do not appear represent 22.22% of all statements in this dimension. graph 1: statistically significant differences in dimensions the third dimension contains eight statements defining the field “some characteristics of organisational culture, climate and relations”. verification reveals that between individual pairs of variables statistically significant differences may be seen in the majority of cases, and are only not present in 12.5% of all statements. the fourth dimension includes seven statements relating to enterprise and innovation. statements for which statistically significant differences do not appear represent 19.04% of all statements in this dimension. within the fifth dimension we find five statements from the field of quality of the working environment. statements for which statistically significant differences are not present account for 33.33% of all the statements in this dimension. the sixth dimension contains four further statements defining personal growth and development; statements in which statistically significant differences are not present account for 33.33% of all the statements in this dimension. in view of the fact that the business sector and the non-business sector are separated by a number of significant differences, the comparison between these two sectors carried out in the study is also interesting. scores range from 1.29 to 4.73. testing with a t test showed that statistically significant differences can be seen between the two variables in the majority of cases. taking all 39 statements, statistically significant differences are not present in only five statements. these five statements represent 12.8% of all statements 102 2014/71management dimension bs–um um–au bs–au bs–pa 1 0.116 0.001 0.000 0.000 2 0.001 0.000 0.000 0.000 3 0.000 0.000 0.000 0.000 4 0.000 0.000 0.000 0.000 5 0.081 0.000 0.000 0.000 6 0.079 0.000 0.000 0.000 total 0.000 0.000 0.031 0.008 table 4: t test of comparison between business sector and non-business sector in the case of the business sector and non-business sector pair, the comparison of the six dimensions involves two samples that are not homogeneous, and the differences in scores for an individual dimension are statistically significant at the selected 5% level of risk. regardless of the fact that the differences are statistically significant, we can confirm that golden thread is suitable for all types of organisations, both in the business sector and in the non-business sector, and reflects the actual situation assessed according to identical criteria. 4.2 findings and proposals the total values by dimensions for relationships with the employees and organisations range, in urban municipalities, from 3.17 and 3.72. of the six dimensions, the dimension assessing the field of personal growth and development was the one that scored lowest. the second lowest score was for the enterprise and innovation dimension, with a score of 3.19. this was followed by the dimension describing the characteristics of organisational culture, climate and relations (3.25), after which came the role and quality of the work of the individual in the organisation (3.48), quality of the working environment (3.49) and, with the highest score, the dimension relating to the basic relationship between organisation and employee (3.72). 103 management 2014/71 homogeneity of the sample statistically significant difference sg >0,05: no significant differences within samples sg >0,05: no significant differences between samples s ta te m e n t sg <0,05: significant differences within samples statistically significant difference between samples sg <0,05: significant differences between samples 1 no 0 yes, the difference is statistically significant. non-business sector respondents – 4.02, business sector respondents – 3.85. 2 no 0 yes, the difference is statistically significant. non-business sector respondents – 3.91, business sector respondents – 3.74. 3 no 0 yes, the difference is statistically significant. non-business sector respondents – 3.84, business sector respondents – 3.72. 4 no 0 yes, the difference is statistically significant. non-business sector respondents – 3.6, business sector respondents – 3.56. 5 no 0 yes, the difference is statistically significant. non-business sector respondents – 3.89, business sector respondents – 3.64. 6 no 0 yes, the difference is statistically significant. non-business sector respondents – 3.62, business sector respondents – 3.40. total no 0,008 yes, the difference is statistically significant. non-business sector respondents – 3.84, business sector respondents – 3.67. graph 2: values of dimensions of employee-organisation relationships in urban municipalities the results of the study enable us to identify the current situation in the urban municipalities. judging from the results, the two most critical dimensions are those relating to personal growth and development and to enterprise and innovation. the effect of the study conducted is apparent, in the first phase, in the perception of the problem, and, in the following phase, in the introduction of methods to improve the situation in those dimensions that proved in the study to be the weakest. enterprise and innovation, which represent the willingness of employees to contribute their share to overall success, are the two factors that contribute significantly to the performance of an organisation. the effect of the proper measures, carried out on the basis of the results obtained, will be apparent in employee satisfaction, which will consequently mean an increase in the efficiency of local government bodies. by repeating the verification using the same methodology, the urban municipalities will be able to check actual progress and identify those dimensions in which further measures will be necessary. the findings of the study are intended to aid the further introduction of social responsibility in local government bodies, and at the same time represent an attempt at defining whether it is reasonable to implement the golden thread project in all organisations, regardless of whether they are part of the business sector, the state administration or local government. a subjective assessment of the results, i.e. the average values for individual statements, reveals that at least in the majority of cases these do not differ to the extent that the golden thread methodology would not be suitable for local government. the average values of the total mean scores are 3.39 for urban municipalities, 3.67 for the business sector and 3.86 for administrative units, where urban municipalities stand out with the lowest score (1.22) and administrative units with the highest score (4.73), although these two scores appear in different dimensions and with regard to different statements. the difference between the highest and lowest average scores is 0.468. in this regard, the scores range within comparable averages, which means that the methodology is also suitable for local government. the study carried out within the administrations of urban municipalities shows that the total average score of respondents from municipalities which decided to participate are lower than the results of administrative units and organisations within the business sector, which indicates a greater need to study human resource management and employee satisfaction in the field of local government. the results of the study point to further research which could define in more detail the differences between the sectors, what causes these differences and what explains them. essentially, the study has given answers to fundamental questions of which the common element is employee satisfaction, irrespective of whether this regards the business sector, the state administration or local government. 104 2014/71management references [1] aon hewitt (2012). best employers study. retrieved 9 june 2013 from: http://was2.hewitt.com/bestemployers/slovenia/pages/pressroom2006.htm. [2] branco, m., rodrigues, l. (2006). corporate social responsibility and resource–based perspectives. journal of business ethics, vol. 69, no. 2, 111–132. [3] ellemers, n., kingma, l. , van de burgt, j., barreto, m. (2011). corporate social responsibility as a source of organization morality, employee commitment and satisfaction. journal of organizational moral psychology 1 (2):97-124. [4] erickson, t., gratton, l. (2007). what it means to work here. harvard business review, vol. 3, no. 85, 104–112. [5] european commission (2001). green paper: promoting a european framework for corporate social responsibility. retrieved 4 june 2012 from: http://eur– lex.europa.eu/lexuriserv/site/en/com/2001/com2001_0366en01.pdf. [6] eurofound (2006), european foundation for the improvement of living and working conditions. fourth european working conditions survey. retrieved 9 june 2013 from: 105 management 2014/71 our own study carried out in urban municipalities as a supplement to the research carried out within the project represents an experiment in applying the golden thread project to different environments. the golden thread project is well established in the business sector, while within the state administration it has been tested in administrative units. this was, however, the first time it was implemented in the sphere of local government. the use of a uniform method to establish the situation in as many organisations as possible, for which the uniform golden thread methodology would be used, would enable a uniform approach to promoting the introduction of social responsibility in an individual organisation on the basis of a uniform model, developed from research. when comparing three different pairs of variables, statistically significant differences do not appear in the comparison between urban municipalities and businesses in as many as 21 statements. in the comparison of administrative units and urban municipalities they appear in four statements, while in the comparison of administrative units and businesses they appear in three statements. in view of the fact that, on an average, statistically significant differences do not appear in 23.9% of all statements, we might conclude on the basis of the study that across the compared variables, given the 76.01% share of all statements in the area of statistically significant difference, the methodology is not suitable for local government. however, there are fewest statistically significant differences (46.15%) between urban municipalities and businesses, even though these are two completely different sectors. it is therefore possible to conclude that the methodology is suitable for local government, even taking into account the fact that the differences may be statistically significant, while the practical importance of differences does not appear to be so great that these would mean that the methodology is unsuitable. a subjective assessment of the results for individual statements reveals that, at least in the majority of cases, these do not differ to the extent that we could say that the golden thread methodology is not suitable for local government. a precise confirmation of the suitability of the methodology could be provided by in-depth statistical processing of the results, with an identification of the size of the effect that would point to the practical importance of the results, although the study as such would not indicate statistically significant differences and vice versa. the statistically significant deviations that appear in individual statements following a general assessment of the comparison of variables represent differences between the sectors. in a comparison of the results between urban municipalities and the business sector, the share of statements in which statistically significant differences appear is 46.15%, while in the comparison between the business sector and the non-business sector this figure is 87.2%, which points to differences between the sectors. the research points to the need for further steps, since if in its first phase it identifies statistically significant differences between the sectors, the next logical step and continuation of the research is to ask why these differences occur or how they can be explained. statistically significant differences represent, as well as an opportunity to research what causes these differences, the chance to identify the areas in which one compared sector is better than another and can represent an opportunity to transfer good practices. the methodology presented here represents a new approach to changing the attitude of employers towards their employees and long-term guidelines for the development of human resource management in the broader field of human activity. conclusion 106 2014/71management [7] http://www.eurofound.europa.eu/pubdocs/2006/78/sl/1/ef0678sl.pdf [8] eurofound, european foundation for the improvement of living and working conditions. changes over time – first findings from the fifth european working conditions survey. résumé. retrieved 9 june 2013 from: http://www.eurofound.europa.eu/pubdocs/2010/74/en/3/ef1074en.pdf. [9] http://www.eurofound.europa.eu/ewco/surveys/index.htm. [10] greening, d. w., turban, d. b. (2000). corporate social performance as a competitive advantage in attracting a quality workforce. business and society, vol. 3, no. 29, 254–280. [11] kuhelj krajnovič, e., krmelj, t. (2008). metodologija zlate niti, izbora zaposlovalca 2007/2008. in: zlata nit 2007. dnevnik d.d. ljubljana, 17. [12] makovec brenčič, m., rašković, m. (2008). trikotnik zadovoljstva, uspeha in rasti. in: zlata nit 2007. dnevnik d.d. ljubljana. 21–23. receieved: may 2014. accepted: june 2014. bernarda miklavc ministry of economic development and technology, republic of slovenia, market inspectorate bernarda miklavc completed her post-graduate studies, a master study programme in administration at the faculty of administration, university of ljubljana, slovenia. her research investigates the potential contribution of the golden thread project to the introduction of social responsibility in the local government. she is especially interested in employee satisfaction, human resource management, the social responsibility of business organisations and in the non-business sphere. janez stare university of ljubljana, faculty of administration, slovenia janez stare is assistant professor of the public sector organisation at the faculty of administration, university of ljubljana, slovenia. he holds a master’s degree in hrm and a doctorate in leadership in public administration. his main research interests are current issues in human resource management, leadership and public sector organisation. he participates as a head or a member in a variety of projects (innovative solutions for a better work environment, leadership competence model for public administration). he is a member of the officials council of the republic of slovenia and a member of professional bodies of the slovenian association for human resource management and industrial relations. about the author 01p_faff:tipska.qxd 1 rebecca hale, andrew kilner, rebecca nucifora, caitlin plath, elvis wu, xinyuan zhang, robert faff* university of queensland, australia management: journal of sustainable business and management solutions in emerging economies 2018/23(2) applications of ‘pitching research’ in an emerging economies research journal: insights and reflections doi: 10.7595/management.fon.2018.0012 1. introduction this paper outlines two ‘reverse engineering’ applications of ‘pitching research’ (faff, 2015 & 2017a) designed to help readers and researchers better understand and describe academic literature. ‘reverse engineering’ is a concept explored by previous student scholars at the university of queensland (faff et al., 2017e). it is further investigated in the present paper with a new group of winter research program students using a ‘pitch sparring’ approach. further, the ‘400 word pr template tool’ was developed as a new application, designed by the winter research scholar team. this was further refined to a slightly more focused version, that has since been newly adopted by the current journal as its ongoing article abstract design requirement. the winter research program at the university of queensland offers non-research students the ability to develop their analytical, critical thinking and communication skills through research. students are matched with * corresponding author: robert faff, e-mail: r.faff@business.uq.edu.au abstract: research question: can we create a highly structured (but practical) abstract, which communicates the essential elements demanded by an expert scholarly reader? motivation: a key aim of this journal is to enable “relevant information exchange and communication”. information overload means that readers are easily lost. right at the start, poorly designed abstracts can fail to “hook” readers. lost readers: this is bad for authors, editors and for the journal. what’s new? while structured abstracts are not new, the “synergistic” combination of elements, combined with succinct guidance on content, is where the novelty lies. so what? engaging readers in this way should lead to more journal activity – more readings, cites, submissions – and, ultimately, to an enhanced profile/reputation in the scholarly community. idea: building on faff (2015, 2017) and faff et al. (2017e) [“reverse engineering” and “pitch sparring”], we adapt the “pitching research” [pr] framework to create a structured and engaging abstract. data: the “experimental” setting involves a sample of six high-performing non-research students, who signed up to an intense 4-week “research scholar” programme over winter 2017, at the university of queensland. tools: the “winter scholars” are first taken through an “immersion treatment” on the pr framework. during this process, the students form three teams and each team is assigned an article to “spar” a reverseengineered pitch summary-abstract. there are several iterative rounds of abstract design. findings: the original pitch is limited to 1,000 words, an initial condensed abstract aims for 400 words and the final version is modified to 350 words. three examples of the final structured abstract are created in accounting, finance and management, providing “soft” “proof of concept”. contribution: by creating a simple, focused and structured new abstract design adopted by this journal, we enhance the ability of the journal to meet its primary aim of enhancing “relevant information exchange and communication”. over time, with growing use and application in this journal, the reach of this contribution grows too. more generally, we argue that this novel abstract design increases awareness of the broader pr framework, helping readers and especially novice researchers better understand, describe and ultimately design their own scholarly research. keywords: pitching research; new research ideas; pitching; template; research proposal; novice researcher; reverse pitching; pitch sparring; pitching abstract. jel classifications: g00, m00, b40, a20, b00, c00, d00, e00, f00, h00, i00, j00, l00, q00, r00, z00 a supervisor to work on a chosen research project, which provides synergies between research leaders and ambitious, high-performing students willing to learn. students are offered a brief ‘insight’ into research and academia. in 2017, six winter scholars (all co-authors on the current paper) took on a project within the uq business school, to work with and develop applications of faff’s (2015, 2017a) ‘pitching research’ tool.1, 2 as stated on this journal’s website, the aim of management: journal of sustainable business and management solutions in emerging economies (mjsbmsee) is: “ … to enable relevant information exchange and communication between scientists, researchers, managers, and people in different business areas, coming from universities, institutes, companies and public services. it represents an open discussion arena for new views, experiences and ideas concerning problems and management development tendencies in national and international perspective, with the aim of giving support to economic and social development.”(emphasis added) two aspects of the above quoted journal aim have been highlighted since they provide two important general motivations for the current paper. first, enabling relevant information exchange and communication is easier said than done. information overload, the technology explosion and ever-growing demands on our time in the 21st century mean that readers are impatient, “fickle” and easily distracted (newman, 2010; shatto & erwin, 2016). central to the current paper is a simple but powerful framework; namely, faff’s (2015, 2017) pitching research tool, for igniting communication and knowledge exchange that arguably counters these three “demon” characteristics of our readers. to do this, the innovation developed and described herein is to “morph” faff’s (2015, 2017) original 1,000-word planning framework into a condensed reverse-engineered format, customised to operate as an actual journal abstract design. indeed, it was applied as the newly adopted abstract design of mjsbmsee, as part of the submission process (http://management.fon.bg.ac.rs/index.php/mng/about/submissions). second, giving support to economic and social development with the explicit focus is signalled in the journal’s name: emerging economies while “emerging economies” is best illustrated by the “home” serbian context, and actions to advance serbian economic status toward this category (stone, yehoue& ishi, 2009; vamvakidis, 2009; soskic, 2015;sun, wang& luo,2018). also, it is reflected both in the mjsbmsee’s journal archives of past articles and by its diverse editorial board; importantly, the “emerging economies” theme is credibly not limited to just serbia. historically, serbia has a proud tradition of frontier scholarly research, with several prominent scientists of serbian origin (e.g., nikola tesla, milutin milankovic, mihajalo pupin, mihajlo petrovic), but it suffered significant “political” setbacks over several decades in the 20th century. the 21st century heralds a time of careful “catch up”, necessarily requiring speed while avoiding counterproductive “short cuts”. we argue that our paper aids this very cause. through the agency of the new abstract format that we develop and explain, motivated by the information exchange and communication imperative, we primarily illustrate in the context of a prior article of this journal: milinkovic et al. (2017). as illustrated in the abstract online (http://management.fon.bg.ac.rs/index.php/mng/article/view/17), and in the appendix, the abstract explores the relationship between students’ life goals and their career preferences, in the serbian setting. we argue that the new-format abstract enhances information exchange and communication, thereby helping to better engage future readers interested in research relevant to emerging economies. but crucially, even in the current journal, this impact goes beyond the serbian setting – the research door is wide open, as reflected in the “new form” abstracts of recent articles of this journal: e.g., lima et al. (2018) on the brazillian football league and petrovic et al. (2018) looking at the eu digital agenda. the remainder of this paper is organised as follows. section 2 presents a brief overview of the “reverse engineering” [re] application of the pitching research framework. section 3 provides a brief coverage of the 2 rebecca hale, andrew kilner, rebecca nucifora, caitlin plath, elvis wu, xinyuan zhang, robert faff 2018/23(2) 1 since the launch of the original version of “pitching research” on ssrn 3.5 years ago, feedback received has helped to motivate the development of a range of supplementary material, support and initiatives, much of which is captured by twenty one companion papers, mostly available on ssrn: faff (2016a, b, c); faff (2017a, b, c); faff (2018); faff, et al., (2016a, b, c); faff, et al., (2017a-2017j); faff and kastelle (2016); hale, et al., (2017); nguyen, et al., (2017); teng and faff (2017). 2 interested readers are encouraged to view the short animation youtube video that gives an entertaining and informative primer on the basic pr framework: http://bit.ly/2gzd6eg “sparring” application of the re process. section 4 considers the pitching research abstract application developed by the 2017 uq winter research scholars, while section 5 presents the scholars’ reflections of their experience in the programme. section 6 concludes. 2. overview of pr ‘reverse engineering’ process faff developed the ‘pr’ framework in 2013, providing a structured template with which to clearly and comprehensively design and interpret research. it acts as a catalyst to condense and synthesise ideas during the research development phase and promotes efficiency and transparency in the research process. the two-page (1,000 word) pitching template begins with standard research ‘preliminary’ context-setting information: working title, research question, key papers and motivation for the study. following this, the ‘32-1’ countdown represents the core of the template, namely three (3) elements – idea, data tools; two (2) questions – ‘what’s new?’ and ‘so what?’ the template ends with one bottom line for the study – its contribution. the ‘reverse engineering’ process is based on the ‘pitching research’ template developed by faff (2015).3 in order to complete the ‘re’ exercise, the original ‘pr’ template requires two slight modifications. for the first item (a), the full, published reference was listed instead of a ‘working title’; and for the final item (k), participants identified three key findings of the study, rather than highlighting potential ‘other considerations’. winter research participants were paired with another scholar based on compatible interests, and assigned a paper to reverse engineer into the pr framework. the use of cued sub-questions in each of the sections in the template provided helpful direction for students’ first time using the tool. ‘reverse engineering’ is an application that utilises the pr framework to give students practice working with scholarly research. one team of students was assigned an article previously published in this journal: milinkovic et al. (2017) and this team’s original ‘reverse-engineered’ pitch is shown in figure 1. the online appendix (appendix a) shows counterpart “re” efforts produced by two other teams of research scholars relating to albu et al. (2016) and maricic et al. (2017). 3. the ‘sparring’ process ‘pitch sparring’ is an application of the ‘pr’ template, designed to facilitate discussion between “pitching” readers, in order to generate a better understanding of the pr framework.4 during the 2017 winter research program, the paired ‘pr sparring’ exercise was completed as one overall task, integrating the previous ‘three round’ model outlined in faff, carrick, et al (2017a and 2017c). the approach comprised two phases for each item (a) – (k) in the pr template: in the first phase, participants constructed an independent ‘partial pitch’, used during sparring and cross-collaboration in the second phase. participants completed both phases for each item before progressing to the next. during the sparring exercise, participants were able to openly discuss differences in their approach and their ideas, in order to come up with a final response that was entered in the ‘pr’ reverse engineering template. in addition to the paired ‘pr sparring’ exercise, some of the scholars completed a ‘pr sparring’ exercise individually. each scholar took a slightly different approach to complete this exercise and in some cases was able to make contact with an author of their chosen empirical paper in order to clarify any queries they had with regard to the paper and to gain feedback on their pr sparring’ exercise. a summary of ‘pitch sparring’ notes for one of the teams have been included in the online appendix in exhibit 1 (appendix b) to illustrate the process. 4. the “pitching research” abstract exercise 4.1 initial abstract design a 400-word “pitching research” abstract was developed by the 2017 winter research scholars under the leadership and direction of professor robert faff, based on the existing “pitching research” template tool (faff, 2015). the structure primarily follows the pitching research template (faff, 2015) with minor 3 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) 3 interested readers are encouraged to view the short animation youtube video that gives an entertaining and informative primer on the basic re version of the pr framework: http://bit.ly/2dnxmbx 4 interested readers are encouraged to view the short animation youtube video that gives an entertaining and informative primer on the “sparring” application of the pr framework: http://bit.ly/2rxxj4q adjustments. the “so what” and “what’s new” sub-sections of the “pr” tool have been included as part of the “motivation” for the structured abstract, along with the “3 key papers” sub-sections. the goal of faff’s “pitching research” 400-word abstract is to provide a more detailed and descriptive research overview to readers, without increasing complexity or compromising clarity. the structured nature of the abstract provides readers with a simple and direct approach to interpreting the contents, which allows for easier reading of the abstract material. during the winter research program, students created a ‘mock-up’ 400 word abstract for each of the three ‘reverse engineered’ papers which followed the ‘400 word abstract’ writing guidelines. the completed ‘400 word abstract’ sections written by each of the three pairs are shown in the online appendix (appendix c). 4.2 revised abstract designfor journal adoption after the completion of the uq winter scholar program in 2017, engagement occurred with the editor of management: journal of sustainable business and management solutions in emerging economies. we discussed the potential for the 400 word ‘pr’ abstract framework to be combined with the writing guidelines for the journal. it was proposed that by integrating faff’s framework with the existing instructions, the journal could generate more direction and clarity for their authors. it was anticipated that the inclusion of a structured framework, specifically designed for abstract writing, would help guide the contribution of authors and academics. in order to finalise a 400 word ‘pr’ abstract template for mjsbmsee, there were a number of revisions that took place. building on the initial version of the 400 word abstract guidelines, the finalised version remained relatively true to the ‘pitching research’ template form, with minor modifications. suggested word lengths have been cut down in each section, reducing the overall word count in order to suit a traditionally less lengthy academic summary of 300-350 words. discarding the ‘contribution’ section was also discussed; however, it was deemed to play a significant role in understanding the value and real-world application for academic work. a finalised set of the writing guidelines for the ‘structured abstract’ adopted by the journal is shown in the online appendix (appendix d). 4.3 examples of the “pitching research” inspired abstract design adopted by this journal we offer three examples of the newly designed structured abstract. the first example is lima et al. (2018) on the brazilian football league, displayed in exhibit 1.the other two examples are: milinkovic et al. (2017), which explores the relationship between students’ life goals and their career preferences in the serbian setting and petrovic et al. (2018), looking at the eu digital agenda. these examples are available in the online appendix (appendix e). 5. personal scholar reflections 5.1 structure abstract exercise in assisting to develop the ‘pr 400 word abstract’, a number of key strengths and potential limitations were identified while working with the first prototype. the first model proposed by professor faff followed the exact outline of the ‘pr’ template. authors were to first explain a research question and outline the general motivation for the study. following this, the idea, collected data and tools used were described, as well as both the ‘what’s new?’ and ‘so what?’ sections, before the key contributions of the study were considered. after completing an initial pilot for this abstract, the six scholars highlighted that the lengthier abstract model allowed for the inclusion of additional material improved information transparency without compromising clarity. however, the overlap of detail across a number of sub-sections rendered the model inefficient as it was not ‘mutually exclusive and collectively exhaustive’. as a result of this, a new model was proposed. the “so what” and “what’s new” sub-sections of the “pr” tool have been included as part of the “motivation” for the structured abstract, along with the “3 key papers” sub-sections. this was done to avoid redundancy of information across the abstract. although “so what” and “what’s new” sub-sections are helpful in framing initial ideas and design considerations, an abstract is written post study completion. upon obtaining results, what the study had planned to add, forms part of the motivation, whereas any new insights given by results are described as part of “findings” in the structured abstract. the “findings” section also provides an indication of what implications this may have in a ‘realworld’ context. 4 rebecca hale, andrew kilner, rebecca nucifora, caitlin plath, elvis wu, xinyuan zhang, robert faff 2018/23(2) 5 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) 5.2 individual scholar experiences in the program scholar 1: this research programme helped me understand and appreciate the often slow-moving nature of research, and the importance of patience – especially when co-authoring. the ‘team-based’ activities, such as the ‘pitch-sparring’ sessions allowed me to develop willingness and want to co-operate and understand the viewpoints of others. individual writing tasks enabled me to gain experience writing in a clever and concise academic style. these skills will be of great value to me if i choose to continue to pursue academic research into the future. scholar 2: by working as a winter research scholar on the pitching research, i have been able to gain a high-level knowledge about research in a short amount of time. as opposed to peers who worked on specific projects, i was able to understand more about how the research process develops from an initial idea all the way to devising an empirical framework and then to publication – whilst peers were tasked with lab experiments and data analysis. for an undergraduate i believe that is a great benefit and the experience has allowed me to have richer discussions with various postgraduate research students, many of whom are my respective tutors for undergraduate coursework. it has also given me ample time to begin to investigate various pathways for my own honours thesis which will begin eighteen months from now. scholar 3: various aspects in the template became clearer when reverse engineering was performed for the second time. this included things as simple as highlighting important information and findings before inputting it into different sections of the template. more specifically, it became evident how and where to find relevant information for the 11 sections that form the template. reflecting on my experience as a uq winter research scholar, i have realised the challenges and benefits of research, and the endless career prospects it offers. more specifically, i believe the pitching research template can be used as a tool to better understand papers by breaking them down through reverse engineering, as well as its sole purpose, to help novice researchers commence their research project. scholar 4: after completing the 1000 word reverse engineer task professor faff asked us to rank how confidently we felt that we had captured all the dimensions of the assigned paper. this exercise was helpful as it enabled me to reflect on how well the 1000 word template was able to capture the paper and highlight all the key dimensions of the research paper. overall, i felt that the winter research program provided me with an invaluable experience, as i was able to develop critical thinking and presentation skills and the ability to write in a more succinct manner. after completing the reversed pitches i now appreciate how useful the pitching research tool is, especially for novice researchers. scholar 5: most importantly, i was exposed to how academics read articles and gained insight into how they generated their own ideas. this has been a valuable experience for me as i intend to complete a ph.d. in the future. the template works well because it provides a general way for novice researches to generate their ideas and take their first steps in academic research. however, in my opinion, it doesn’t fit for mature researchers because the template takes time and it does not provide a specific way for developing further research. scholar 6: the winter research program at the university of queensland was an amazing and unforgettable experience. the activities i participated in involved both individual and group work and enabled me to developed academic writing and presentation skills. thanks to professor faff’s guidance and my fellow scholars suggestions and feedback i felt like i gained more than i anticipated and i truly feel more confident about my future academic endeavours. conclusion following the direction of professor robert faff, six 2017 uq winter research scholars utilized the ‘pitching research’ tools (faff, 2015, 2017) as part of their research experience. they were encouraged to think critically and further develop both written and oral communication skills, working with academic literature. by way of practical examples, students examined, interpreted and synthesised the existing academic work. they completed both individual and group activities across a variety of project-based work. in addition to working with the pitching tool itself, students were given the opportunity to help develop additional learning applications for ‘pitching research’. establishing a condensed structured abstract framework was one of a number of key tangible takeaways from this winter research experience. evident through the reflections provided by the scholars, the project offered insight and practical guidance for working with research, assisted by the pitching research tool and its further applications. references [1] albu, n., calu, d.a. &guse, g.r. 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(2009). convergence in emerging europe: sustainability and vulnerabilities. eastern european economics, 47(3), 5-27.doi: 10.2753/eee0012-8775470301 received: 2017-05-11 accepted: 2018-06-13 rebecca hale university of queensland, business school rebecca36hale@gmail.com rebecca hale is a bbusman/bsc (honours) student at the university of queensland (uq). she has a passion for learning and development and a growing interest in consulting and organizational psychology. her research interests include; learning and development, management, inter-group relations, leadership and change management. rebecca completed a winter research scholarship program with uq in 2017 and has continued her passion for research with honours in psychology. in 2017, rebecca was admitted to the faculty of business, economics and law dean’s honour roll for outstanding academic excellence. about the author 8 rebecca hale, andrew kilner, rebecca nucifora, caitlin plath, elvis wu, xinyuan zhang, robert faff 2018/23(2) andrew kilner university of queensland, business school andrew.kilner@uq.net.au andrew kilner is a student at the university of queensland, studying a bachelor of advanced finance and economics (honours). andrew has experience within asset management and economic consulting. the pitching research program was andrew’s first experience in academic research and he hopes to complete a thesis within the finance honours program through uq business school in 2019. rebecca nucifora university of queensland, business school rebecca.nucifora@uq.net.au rebecca nucifora is a student at the university of queensland. she currently studies a bachelor of business management (majors in business economics and human resources) and a bachelor of commerce (major in accounting). her research interests include business risk and controls, restructuring organisations and people management. caitlin plath university of queensland, business school cplath95@gmail.com caitlin plath is a graduate of the university of queensland where she obtained a bachelor of economics and a bachelor of commerce. caitlin is currently working as an analyst at deloitte in the assurance and advisory team where she plans on completing her ca in the coming years. wenhao (elvis) wu university of queensland, business school adl.wawh@gmail.com wenhao wu is a bachelor student at the faculty of business, economics & law. he is a novice researcher working on the finance area. his research interests include banking and finance, investment and portfolio analysis, and risk management. xinyuan zhang university of queensland, business school xinyuan.zhang.ny@gmail.com miss xinyuan zhang graduated from the university of queensland with a bachelor of commerce. during the undergraduate period, she was an exchange student in boston college. her research interests include market management, risk management, corporate valuation, and investment and portfolio analysis. she has had a number of internships for a variety of public and national securities institutions and cross-border banking. she will soon begin studying applied analytics at columbia university with a concentration on data analytics in modern internet finance. robert faff university of queensland, business school r.faff@business.uq.edu.au robert faff has an international reputation in finance research: securing 14 australian research council grants (> $4 million); >300 refereed journal publications; career citations >11,000; h-index of 53 (google scholar). his particular passion is nurturing and developing the career trajectories of early career researchers. robert has supervised more than 35 phd students to successful completion and examined 50 phd dissertations. building on a 35-year academic career, his latest focus is “pitching research” [https://ssrn.com/abstract=2462059], now gaining great traction domestically and worldwide as exemplified by: >12,200 ssrn downloads; >250 pitching talks/events; at 37 australian universities; and spanning >50 countries. 99 f ig u re 1 : c o m p le te d ‘p r r e ve rs e e n g in e e re d t e m p la te ’ o n “ w h a t d o f re sh m a n w a n t? ” � �� � � � � �� � � � � � � � �� � �� �� � � � �� � � � � � � �� �� � � �� � � � � � � � � � �� � �� �� � � � �� �� � � � � �� �� � �� �� � � � �� �� � � �� �� � �� �� � � � � ��� � � � �� � �� �� �� � �� ! � �� � �� �� �� � �� � ��� �� � �� " �� #� � � $� �% � � �� " � �& � '� � � � �% � � �( �) � � � � * � �� �* � +� � � � � '� , � � � � �� �� � � �' �� � � � � � � � � � � �� �� � � � � � �� � �� � � �� � �� � � �� � � � � � � � � � � � � � � � � ��� � � �� � � � �� �� � � � � � � � �� �� � � #� $� �. � /0 1 �� �� �� � �� �� � � �� � � � � �� � � � �' �� � � � �� � � �� ��� � '� �2 �3 � �4 � � � �' �� � � �' 5� ��+ � �� � � �' �� � �2 � +� � � � � '� +� � � � � � � �� 2 � ��� �� � � �+ � �� � ( � �� �� ! � � �� � � �� �� " � � ��� 6 �� 7 �� �� �8 �� � �� 8 �� �� #� � � � $� �� � �+/ � �� � �� � ��� � �� � � � � 9� , �� � � � �� � � � �� +� � � � � 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journal of sustainable business and management solutions in emerging economies 2018/23(2) exhibit 1: example of new-form structured abstracts the influence of expenditures in football industry results: case study of the brazilian football league abstract: reserarch question: the paper investigates the influence of football clubs investments on their performance in the first division of the brazilian league. motivation: given that football is the most important sport in brazil, representing a cultural symbol of the country, a better understanding of it becomes necessary. therefore, it is necessary to investigate the financial amounts involved in the management actions to try to understand the influence of the investments that the clubs put into marketing and championships improvement and, consequently, to be able to delineate the relation between investment and success in football. idea: in this perspective, the central hypothesis of this study is that the clubs that present the highest expenditures on soccer will also present the best classifications, since these expenses are related to better training conditions and salaries, which may contribute to the recruitment of the best athletes. data: the study was conducted using the data collected over the internet, the data disclosed by clubs. only the clubs belonging to the first division were used, a total of 19 clubs, divided into 3 groups, according to the investment value in football. tools: this study presents descriptive and inferential analyzes, since the qualitative-quantitative approach was assumed as a way of understanding the data. assuming the number of clubs participating in the study, we chose non-parametric inferential analyzes in the intraand inter-group evaluations, using the alpha value of 0.05 as a criterion. findings: the results showed that clubs in groups g1 and g2 had similar expenditure dynamics, while g3 group clubs had a slight swing. in addition, clubs in groups g1 and g2 had the largest amounts of expenditures, while g3 clubs had the lowest expenditure during the period analyzed. these results demonstrated that the clubs of the g1 and g2 groups achieved the best positions in the championships, corroborating the research hypothesis. contribution: one can conclude that the investment of the clubs directly influences the classification in the championships, large investments obviously being necessary to conquer the championship. however, this study has some limitations, such as sample size (19 teams only). therefore, we emphasize the need for new studies. key words: football, brazilian football league,football clubs, classification of clubs, sports administration. jel classification: z23 << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 08_83(3)book review_panic:tipska.qxd book review doi: 10.7595/management.fon.2018.0031 according to the classical economic theory, people behave rationally and logically. in reality, human beings are sometimes irrational, driven by emotions, but are also sometimes unable to solve complicated problems. instead of studying “humans”, the most of economic models study “econs”. it is unrealistic to expect people to use complex analysis and behave as if they were experts, so unlike econs, humans use heuristics to help them make decisions and economists consider that as supposedly irrelevant factors (sfi). to deal with that how people actually make, rather than ought to make decisions, behavioural economics has arisen as the new field of economy. the point of behavioural economics is to highlight behaviours that conflict with the standard rational model. “humans do not have the brains of einstein (or barro), nor do they have the self-control of an ascetic buddhist monk. rather, they have passions, faulty telescopes, treat various pots of wealth quite differently, and can be influenced by short-run returns in the stock market. we need a model of these kinds of humans.” “a theory of the behavior of econs cannot be empirically based, because econs do not exist.” (thaler, 2015) richard thaler divided the book into eight chapters that take us chronologically through the history of behavioural economics as well as of him as a critic, but also through his career as a research professor and stories of other economists he met such as daniel kahneman and amos tversky. more than a book about the making of behavioural economics, this book is a personal history. the book includes many concepts such as prospect theory, transaction utility, self-control, sunk costs, endowment effects, mental accounting… thaler introduces the prospect theory with a statement: “build descriptive economic models that accurately portray human behavior”. according to this theory, people’s happiness increases as they get wealthier, but at a decreasing rate changes in wealth matter more than levels of wealth. humans will be risk-averse for gains, but risk-seeking for losses. “people who are threatened with big losses and have a chance to break even will be unusually willing to take risks, even if they are normally quite risk averse.” it is well known in the psychology and motivation theory that people estimate unpleasant feelings as much stronger than positive and unpleasant moods impact people more than pleasant, so we feel the loss more strongly than the gain. acquisition utility is a surplus remaining after the utility of the object gained is measured and then the opportunity cost of what has to be given up subtracted. humans perceive the quality of the deal, transaction utility. it is defined as the difference between the price paid and the expected price. in the classical economy, preferences are defined by what we choose and there is no distinction between what we want and what we choose because we do not have enough self-control. the author offers this dialogue: “econ: why did you remove the cashews? human: because i did not want to eat any more of them. econ: if you did not want to eat any more nuts, then why go to the trouble of removing them? you could have simply acted on your preferences and stopped eating. human: i removed the bowl because if the nuts were still available, i would have eaten more. econ: in that case, you prefer to eat more cashews, so removing them was stupid.” we have more self-control when it comes to the future than the present. thaler proposes that an individual consists of two selves a forward-looking “planner” who has good intentions and cares about the future, and 93 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) biljana panić university of belgrade, faculty of organizational sciences, serbia book review of: misbehaving: the making of behavioral economics (2015). by richard h. thalerw.w. norton company, inc. 500 fifth avenue, new york, ny 10110, 434 pages, isbn 978-0-393-08094-0, isbn 978-0393-24677-3 (e-book) a devil-may-care “doer” who lives for the present, and he formulates this problem using principal-agent model from the game theory. if humans paid for tennis lessons in advance, he or she will think that it is necessary to attend classes so as not to waste money, but when some money has been spent and it cannot be retrieved, that is considered a sunk cost. playing tennis cannot help their financial situation. thaler has mentioned one other example of sunk cost describing his friend who was fighting with her six-year-old daughter about what she should wear to school. the girl decided not to wear dresses, but her mother insisted that she had to wear three dresses that had been already purchased. thaler said that money was gone, and wearing the dresses would not get it back and would not help their financial situation. but this is not completely true. if the girl would not wear dresses, she would wear down the rest of her clothes and she would need new clothes earlier. experiments have shown that humans value things that they already own or feel connected to (their endowment) more than things before they own them and this is endowment effect. people tend to stick to what they have because of loss aversion, but also because of inertia they stick to what they have unless there is some good reason to switch. thaler introduces the idea of “narrow framing” which is related to a mental accounting question: “when are economic events or transactions combined, and when are they treated separately”. the book can be very useful for people who do not know anything about behavioural economics because it is well structured, easy to read and understand, and very entertaining. at the same time, it seems too extensive because of a lot of anecdotes and personal memoirs. on the other hand, behaviour economics has nowadays gained wider acceptance. some of the concepts become mainstream and this book does not offer new results of research, so for people who are familiar with behaviour economics, the recommendation is to read only some specific chapters they are interested in. the book does not provide a new economic theory or new economic models either. accepted: 2018-11-25 biljana panić university of belgrade, faculty of organizational sciences, serbia panic.biljana@fon.bg.ac.rs biljana panić is an assistant professor in the laboratory of operations research at the faculty of organizational sciences, university of belgrade, where she acquired her ph.d. (2012) degree in operation research. the areas of her research include: supply chain management, mathematical modelling, business analytics. besides, she is transactional analyst -psychotherapist under supervision. 94 biljana panić 2018/23(3) about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 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/includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02 jelena ruso:tipska.qxd 15 1jelena ruso, jovan filipović, gordana pejović 1university of belgrade, faculty of organizational sciences, serbia udc: 378.014.5 005.94 the role of higher education in national quality infrastructure policy-making doi: 10.7595/management.fon.2017.0003 1. introduction in the modern business world quality and standards are extremely important instruments for the achievement of an organization’s competitive advantage. most countries have developed an entire industry of service providers that specialize in the diffusion of quality and standards. hence, the modern university faces the challenge of adjusting to a complex world with new demands for professions and skills associated with quality. also, universities have a unique role in deepening and expanding human knowledge (through learning and research) (ferrer-balas et al., 2010). at the same time, it is important to remember that faculties are the places where future leaders, entrepreneurs, policy-makers, and scholars are being prepared (lozano, 2006). through the development of higher education in serbia, from the first step in the history of higher education, the main goal was to produce experts to meet the needs of industry and society (slavkovic and eisuke, 2009). quality is definitely given due consideration in the higher education process in serbia and there are also faculties which develop the quality management and standardization courses. however, education in the qi field is a basic prerequisite for the successful building and improvement of the national quality infrastructure (hereinafter referred to as: nqi) in every country and an essential policy-making impact factor. the extent to which qi is important in the processes of policy-making and political decision-making, subsequently emphasizes the importance of policy makers’ knowledge and expertise. this article, which addresses the role of higher education in the serbian quality infrastructure policy-making, is an analysis of qi related contents of higher education institution curriculum (see lozano, 2010). hence, we analyze the titles and contents of compulsory and optional subjects using faculties’ official web pages. although the results show that the concepts of quality and standards are widely recognized as an important and popular topic, only a few departments develop and offer compact and recognizable qi modules focused on quality, standards, accreditation, metrology and conformity assessment. the aim of the paper is to raise awareness of the importance of the policy makers’ knowledge and expertise about quality infrastructure for the successful policy-making. if the quality infrastructure is not treated in the right manner, quality in the whole country will suffer. management: journal of sustainable business and management solutions in emerging economies 2017/22(1) abstract: the aim of the paper is to raise awareness of the importance of the policy makers’ knowledge and expertise about quality infrastructure (qi) for the successful policy-making. this article, which addresses the role of higher education in serbian quality infrastructure policy-making, is an analysis of qi related contents of higher education institution curriculum. the target institutions are public faculties from whose official websites the data were collected. depending on the keywords, the analysis was performed in order to classify the faculties into three categories. after reviewing the 307 subject titles and descriptions of undergraduate courses, the results show that the concepts of qi are widely recognized as an important and popular topic. the analysis of the qi adoption and diffusion indicates that although some of the faculties might be ‘leaders’ in a particular dimension, they still do not necessarily fall into the ‘leader’ category. keywords: higher education, syllabi, knowledge, quality infrastructure, policy-making, serbia jel classification: i21, i23, h54, l15 1corresponding author: jelena ruso, e-mail: jelena.ruso@fon.bg.ac.rs 16 jelena ruso, jovan filipović, gordana pejović 2017/22(1) the paper is organized into five sections. after the introduction, the second section briefly introduces national quality infrastructure policy-making and describes policy makers’ knowledge, explaining to what extent their educational background impacts decisions and policy making processes. the research methodology used in the study is explained in section three, while the fourth section includes the results and the discussion. finally, the fifth section offers some concluding remarks and guidelines for future research. 2. national quality infrastructure policy-making and application for years, policy makers’ misuse of information regarding different issues (including quality), along with a lack knowledge and experience, has undermined public trust. this is especially true in relation to policy makers’ capability of perceiving and dealing with real-world problems and important issues, such as quality infrastructure. in today’s business environment, a functioning qi is a prerequisite for an access to regional and global markets. “quality infrastructure is the totality of the institutional framework (public or private) required to establish and implement standardization, metrology (scientific, industrial and legal), accreditation and conformity assessment services (inspection, testing, and product, system certification) necessary to provide acceptable evidence that products and services meet defined requirements, be it demanded by regulatory authorities (technical regulation) or the market place (contractually or inferred)” (kellermann, 2011). the mentioned activities “provide an essential link to global trade, market access and export competitiveness as they contribute to consumer confidence in product safety, quality, health and the environment” (pejovic et al., 2011). also, nqi is important for the international recognition of products and services and their further competitiveness and, correspondingly, it is significant for exports. therefore, we can say that establishing a good quality infrastructure is a step towards good governance which creates a favourable trade climate in the region. “good governance is understood as good political framework conditions, rule of law and the responsible handling of political power and public resources by the state and thus an important precondition for poverty alleviation and ensuring sustainable development” (physikalisch technische bundesanstalt, 2007). accreditation plays a vital role in the nqi system. it is a formal confirmation that a body is competent enough to perform certain tasks (shaukat, 2010), or what makes the certifications, and thus the quality, trustworthy. it builds confidence in the work of testing laboratories, certification and inspection bodies, and facilitates mutual recognition of certificates, in addition to the promotion of trade (ibid.). no less important qi elements are „metrology“, which ensure that measurements are made with appropriate accuracy and reliability (choi et al., 2014), and “standards“, as a tool in free trade and conformity assessment. “standards are a significant factor in who wins and who loses in the global market place” (bhatia, 2011; cited by mijatovic, 2014) and the standardization strategy for developing countries is to adopt standards first and improve capabilities. “conformity assessment is associated with quality and it can be used to assess the quality if explicit requirements for product quality exist” (liepiòa et al., 2014). ribeiro et. al, (2016) stress that conformity assessment is needed to verify the compliance with standards. it is necessary that all these qi elements are connected through qi institutions that communicate with regional and international ones, thus making an invisible global network (see figure 1). figure 1: the quality infrastructure global network (ruso et al., 2016) 2.1 knowledge and policy makers lee et al. (2011) claim that “knowledge is what shapes the beliefs and drives the decisions” of policy makers. the prerequisite for nqi policy-making and a country’s successful development is policy makers’ generalized as well as specialized knowledge. similarly, knezevic and veselinovic (2015) state that “competitiveness of the economy primarily depends on outcomes of education, in the sense of shaping such innovative and creative capacities among individuals who are profiled through education and are enabled for fast adjustment to global technology development trends”. therefore it is important to investigate where and how this knowledge is gained. hulnick (1986) defines policy makers as government officials (institutions) who formulate, choose, and implement policy, and newman et al. (2016) describe policy makers as „action oriented, practical persons concerned with obvious and immediate issues“. in the decision making process, policy makers’ education and professional experience are important because they are more likely to distinguish good advice from bad and might be more able to resist the pressure of lobbying groups. in the article “how are serbian politicians tempered“, radun (2013) claims that our political elite are semieducated regardless of formal education, that they lack experience and usually do not confer with science, whereas only a few people involved in politics are from practical spheres. similarly, lammintakanen and kinnunen (2004) interpret that “politicians have limited knowledge about what constitutes true efficiency or quality…and what knowledge they have is seldom based on scientific research”. turner (1980) also argues that lack of knowledge has made policy makers unfit to address major national issues. nonetheless, guasch (2007) states that a deficiency in one factor, such as education, cannot always be compensated with quality awareness. it is a mix of different factors such as knowledge, experience, skills, political position, ideology and interest which run initiatives and shape policy makers’ views. however, quotations from pitman (2012) are especially selected in order to illustrate the educational visions of australian federal politicians in their first speeches to parliament. interestingly, he observes that political speeches about education are connected to different themes, one of them being ‘quality’. in favour of the research, pitman (2012) shows that although politicians have struggled to define what exactly quality in education is, they are very definite that it needs to be improved. analyzing whether the educational and professional backgrounds of heads of government influence the implementation of reforms, dreher et al. (2009) show that reforms are significantly more likely when the politician has an entrepreneurial or scientific background and vice versa. they claim that entrepreneurs are strong leaders and have a proven record of experience in leading a company and have basic knowledge of the issue, while trained and educated policy makers are more rational and less emotional in decision making. however, the research was limited to heads of government in the economic field. similarly, jones and olken (2004) find a positive relation between the education of leaders and the rate of growth, and besley et al. (2011) find that more educated politicians generate higher growth. mikosch and somogyi (2008) quoted by dreher et al. (2009), find that political leaders with an educational background in economics generate significantly lower budget deficits than those educated in the field of law. accordingly, we can say that “more educated politicians are better” (world bank, 2005) in the policy-making process. in reality, such a knowledge base allows them to locate that knowledge in a broader social and political context. all this indicates that education in the quality infrastructure field is essential, because uneducated or incompetent policy makers in this area may lead to an increase in the number of inappropriate decisions. hence, in the next section we will position faculties within the qi network. 3. higher education in relation to serbian quality infrastructure policy-making dramatic and drastic changes in social circumstances and the tempting idea of european integration provided an appropriate setting for higher education reform (despotovic, 2011). higher education institutions are public institutions that represent an important link in improving and building national quality infrastructure (see ruso et al., 2015). the modern university faces the challenge of adjusting to a complex world with new demands for professions and skills associated with the knowledge society. academic community must quest after an innovative way of connection between higher education institutions and the community, predominantly through the modernization of curricula (milutinovic and nikolic, 2014). to successfully meet these important challenges, it is fundamental that universities’ governing bodies have good relations with the academic community in order to respond to the social and productive needs of its environment (espinoza 17 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) and gonzález, 2013). the idea of institutions of higher education working on producing quality management experts is paramount (milosevic et al., 2013) and crucial for the success of nqi policy-making. figure 2 illustrates qi institutions and the relationships among them. the principal institutions in the qi network are the directorate of measures and precious metals, the accreditation body, the institute for standardization, the ministry of economy (qi department) and conformity assessment bodies. the institutions involved in the periphery (dashed blue line) are the ministry of trade, tourism and telecommunications, the ministry of finance, the ministry of agriculture and environmental protection, the ministry of education, science and technological development, the chamber of commerce and industry and faculties. the connections between faculties and other institutions are multiple. for instance, faculties educate people (future societal leaders, decision-makers and intellectuals) in the qi field who are employed in other relevant institutions in figure 2. the mobility of students, experts and lecturers should be encouraged. qi experts can be engaged in teaching, whereas institutional cooperation allows students to work as interns and volunteers in quality management and standardization sectors. also, universities shall promote networks of qi stakeholders with the aim of collaborating on common qi national and international projects in both research and education. finally, many initiatives at the national level should be launched by university lecturers (policy initiatives as well). figure 2: quality infrastructure institutions and the integration role of faculties (source: authors’ presentation) although universities may not be the cause of many of our current problems, they may contribute to them, especially through the production of knowledge and education (conceiçao et al., 2006; quoted by ferrerbalas, 2010). people who have degrees in qi are more competent to plan, control, improve and assure quality, take initiatives and make policy at all decision making levels. therefore, quality infrastructure and its elements should be recognized as a crucial topic of study in the republic of serbia. with the aim of investigating the current state, we carried out research to show whether the serbian higher education system recognizes qi as an important and necessary part of the syllabus. 18 jelena ruso, jovan filipović, gordana pejović 2017/22(1) 4. methodology the subjects of analysis were the titles and descriptions of 307 syllabi from 19 public faculties including only undergraduate courses (the university of belgrade, university of novi sad, university of kragujevac and university of niš). to avoid any attempt to rank faculties according to the results, their names were not published. one of the selection criteria for public faculties were courses accreditation, because good practice has shown that the accreditation system is an appropriate way to organize a national educational system and „to improve and assure the quality of the services” (cerqueira, 2006). the accredited courses provide that higher education institutions satisfy specific standards of educational quality (mekasha, 2005). the data were gathered from the official web sites chosen according to the appropriate category, using publicly available information. depending on the qi keywords, the analysis was performed in order to classify the faculties into three categories (table 1) (similar to arafeh, 2016). table 1: categories and key words in category i we grouped those faculties whose subject titles directly indicate qi elements such as metrology, standardization, quality and accreditation (curricula that contain a minimum of 5 subjects). the faculties whose subjects are also important for this issue were grouped within category ii (curricula that contain a minimum of 10 subjects). the subjects from this category shape perception about qi as they provide enough knowledge to understand and manage problems related to the topic. however, the titles of these subjects do not contain qi elements therefore they are not recognised as a group of faculties which directly indicate qi components. finally, category iii included those faculties which provide basic knowledge of the issue at an introductory level (curricula that contain a minimum of 4 subjects). 5. results and discussion the qi issues are incorporated in curricula of almost every university in serbia. the results show that the courses with ql contents are present at a number of engineering departments and at some humanities, but still lacking at humanistic departments. similar to wilkinson and yussof (2005) we include fields of study (table 2).the results show that faculties from categories i and ii belong to the technical and technological group of faculties, whereas within category iii there are present technical and social faculties. this, however, is expected since “the first standard of quality assurance (bs 9000) was developed for the electronics industry” (cevere et al., 2008). one faculty is present in both categories (i and ii) due to the distribution of the subjects according to the keywords in table 1. this is not surprising because, according to students’ rewards and successes (the case study show, 2016), perennial awards for the best institution for the education of managers (promulgated by the serbian association of managers, 2016) and the ranking list of the best faculties in serbia (students’ ranking of faculties, 2014), this faculty is the leading public higher education institution in the field of management. the analysis of the education curriculum and syllabi is widely studied in different areas such as sustainability (milutinovic and nikolic, 2014; poon and poon, 2017; dmochowski et al., 2016), environment (lammel et al., 2014), and chemistry (glassey and haile, 2011). similarly to arafeh (2016) and perera and hewege (2016), we also measured the frequency of appearance of the keywords in the course titles. for example, out of the 307 syllabi reviewed, ‘quality’ was mentioned 65 times, ‘standard/standardization’ 5 times and accreditation only 3 times. within category ii ‘control’ was mentioned 67 times, ‘management’ 45 times and ‘inspection’ 28 times. 19 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) categories key words category i quality, standard, standardization, accreditation, metrology category ii control, measure, production, technology, management, business, environment category iii marketing, sales, trade, market, transport, and trade laws table 2: faculties and subjects (bachelor programmes) however, the key point from the results is that although some schools indicate ‘leaders’ in the qi dimension they are not necessarily the only ones in the overall higher education system. the reason for that is that some faculties offer qi subjects that are probably not obvious at first glance. this does not mean that they do not directly target qi subjects, and in that sense, some of the faculties from category ii could be classified in category i. therefore, we observe that the results are methodology dependent. they just show approximately where the topic is studied, and the keywords do not allow us to penetrate the subjects’ content more deeply. 20 jelena ruso, jovan filipović, gordana pejović 2017/22(1) categories faculties subjects fields of study category i 5 technical and technological faculties − standardization, − metrology, − accredited laboratories, − quality control, − quality planning, − quality costs, − the fundamentals of quality, − quality systems, − quality control of industrial products, − quality assurance systems in production, − quality control of the environment, − quality inspection and environment control, − quality standards, − statistical quality control, − techniques for quality improvement, − normative regulation of quality, − quality control in agribusiness, etc. engineering and technology category ii 5 technical faculties − production systems, − management of key production performance, − cost control, − risk control, − sales management, − packaging and food packaging, − the management of the food industry, − business management systems, − production management, − process management, − merchandising, − measurement and control processes in the metallurgical industry, − protection management systems, etc. engineering and technology category iii 2 technical faculties; 2 faculties of social sciences − transport of goods, − the fundamentals of logistics, − supply chains, − serbia’s economic relations with foreign countries, − trade marketing and sales management, − international business and management, − foreign trade operations, − international commercial law, − trade law, etc. economics, law, medicine references [1] arafeh, s. (2016). curriculum mapping in higher education: a case study and proposed content scope and sequence mapping tool. journal of further and higher education, 40(5), 585-611. doi: 10.1080/0309877x.2014.1000278 [2] besley, t., montalvo, j. g., and reynal-querol, m. (2011). do educated leaders matter?, the economic journal, 121(554), f205-227. doi: 10.1111/j.1468-0297.2011.02448.x. [3] bhatia, j., (2011). summary report of 2011 joint meeting of the apec sub-committee on standards and conformance (scsc)‘s in apec sub committee on standards and conformance (scsc) apec committee on trade and investment. apec scsc education guideline 4 case book teaching standardization in universities: lessons learned from trial program [4] cerqueira, m. (2006). a literature review on the benefits, challenges and trends in accreditation as a quality assurance system. victoria, british columbia: ministry of children and family development. [5] cevere, r., sproge, s., and arhipova, i. (2008). how to use an experience of the development of iso 9001 sertified quality system in study process improvement. in proceedings of the international scientific conference, jelgava, latvia, 10-12 april, 2008 .126. 21 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) depending on their educational and professional backgrounds, policy makers manage to deal with real-world problems and important issues such as quality infrastructure. establishing a good qi is a step towards good political framework conditions and the rule of law. also, it leads to the responsible handling of political power and public resources. we will agree that acquired knowledge is what shapes the beliefs and drives the decisions of policy makers. better-educated policy makers cope better with the implementation of reforms and they are more rational and less emotional in decision making. therefore it is important to investigate their educational background, which is of high importance to qi policy-making in serbia. higher education in serbia has rarely been the subject of systematic research and consequently there is a lack of data related to the issue. most articles have been written recently and have been clearly connected to quality assurance in higher education. hence, with the intention of investigating the role of higher education in nqi policy-making, we analyzed curricula and indicated the importance of educated policy makers. the subjects of analysis are public universities from whose official web sites the data were collected. depending on the qi keywords, research was carried out in order to classify the faculties into three categories. the results show that only three faculties offer more than five qi subjects within category i. those faculties which indirectly target qi elements are grouped into category ii and also include five technical faculties. ultimately, category iii includes subjects at the introductory level that refer to market, marketing, trade, trade laws, supply chains, logistics etc. in a nutshell, the results suggest that the greatest number of subjects belongs to category ii. only a few faculties have a department with a large number of mandatory subjects connected to quality infrastructure. we need to keep in mind that the results are methodology dependent, providing us with a basic insight into the current situation in the republic of serbia, while the keywords selection might be a limiting factor too. additionally, the results have certain limitations due to the availability of syllabi. for example, some faculties do not have all syllabi available on their web site. also, the research does not include master and phd studies and focuses only on the state faculties. therefore, the limitations are suggested as an area for future research. likewise, there is a possibility of carrying out new research studies in the balkans and comparing them with the serbian higher education program related to qi elements such as quality, standardization, certification, accreditation and conformity assessment. in addition, the students from the quality management and standardization departments could be interviewed and asked for their opinions about the subjects in comparison with market needs for expertise in the above mentioned fields. quality experts could also express their attitudes about the education system in serbia and these could be compared with the students’ opinions. the output and outcome of this research could help policy makers, politicians, scholars, experts, organizations as well as investors to understand how quality and standards are perceived and considered in higher education in serbia, and how important they are in nqi policy-making. acknowledgements parts of this paper have been presented at the xv international symposium symorg 2016 “reshaping the future through sustainable business development and entrepreneurship”, zlatibor, serbia, 2016. conclusion [6] choi, d. g., hyun, o. s., hong, j. i. and kang, b. g. 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(received/accepted) (september 2016 / march 2017) 23 management: journal of sustainable business and management solutions in emerging economies 2017/22(1) 24 about the author jelena ruso university of belgrade, faculty of organizational sciences jelena.ruso@fon.bg.ac.rs msc jelena ruso is a phd student he faculty of organizational sciences, university of belgrade – department of quality management and standardization. she has published several scientific research papers in international and national journals and conference proceedings. jelena has primarily focused on quality management aspects in public administration. also, she has participated in several national and international projects (e.g. tempus, wus). since 2012, she has been engaged in project of the ministry of education, science and technological development. moreover, jelena teaches courses on fundamentals of quality and quality control. jovan filipović university of belgrade, faculty of organizational sciences jovanf@fon.bg.ac.rs dr jovan filipovic is a quality management lecturer and head of the quality management and standardization department at the belgrade university, faculty of organizational sciences. he earned his ph.d. and msme from purdue univesity (usa), school of mechanical engineering and bsme from the belgrade university school of mechanical engineering. he also earned another ph.d. from the university of ljubljana (slovenia), faculty of public administration. gordana pejović university of belgrade, faculty of organizational sciences pejovic.gordana@fon.bg.ac.rs dr gordana pejović is assistant professor at the faculty of organizational sciences, university of belgrade – department of quality management and standardization. she earned a b.sc and m.sc degrees at the faculty of pharmacy, university of belgrade, and a ph.d. degree at the faculty of organizational sciences, university of belgrade. currently, she also holds the position of the quality management manager at the 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can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /converttocmyk /destinationprofilename () /destinationprofileselector /documentcmyk /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure false /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles false /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /documentcmyk /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /usedocumentprofile /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [612.000 792.000] >> setpagedevice 03_qadir:tipska.qxd 27 imran qadir1, amjad ali2 1department of management sciences, university of haripur, haripur, pakistan 2comsats institute of information technology, abbottabad, pakistan management: journal of sustainable business and management solutions in emerging economies 2017/22(3) research question: this study examines the relationship between logistics processes, customer service and firm performance in the furniture industry of pakistan. motivation: furniture industry in pakistan comprises small and medium enterprises wherein production is mainly labor intensive. therefore, the currentstudy also investigates the mediating role of manufacturing flexibility for the relationship of logistics processes and customer service. the paper applies the logistics models developed by bowesox (1974), green et al. (2008), and tracey (1998) to furniture industry. idea: the core idea of the paper is to measure the effects of logistics process on customer service and the performance of furniture manufacturing firms. the study takes the logistics process as an independent variable, the customer service as the first dependent variable and manufacturing performance as a moderating variable. data: primary data on logistics, customer service, manufacturing flexibility and firm performance were conveniently collected through a questionnaire from owners/managers of 61 furniture manufacturing firms. tool: descriptive statistics, correlation and regression analyses were run to draw the results. findings: logistics processes positively affect customer service and firm performance. customer service also exerts a positive effect on firm performance while the moderating role of manufacturing flexibility was not supported for the relationship of logistics processes and customer service. contribution: through efficiency in logistics processes, furniture manufacturing firms can serve customers in a superior way to ultimately achieve improved firm performance. the framework being restricted to efficiency of logistics processes only constitutes an important limitation of the study. keywords: logistics processes, customer service, firm performance, furniture industry jel classification: l25, l68, m11 importance of logistics processes for customer service and firm performance: evidence from furniture industry of pakistan doi:10.7595/management.fon.2017.0026 1. introduction logistics is the management of flows – products, finance, information between business functions . logistics forms the core part of the supply chain along with procurement, new product development, marketing, operations, finance and customer service . in the past, logistics was considered to perform a supportive role to these functional areas but now it has been given a far-reaching strategic role . the importance of logistics has increased immensely with advancements in communication and transportation technology . logistics has a crucial role to play even in realizing the goal of regional economic integration and development (tongzon, 2011). logistics has a broader impact than just transaction cost and on-time delivery (kumar, andersson, & rehme, 2010). hence, when process, market and information strategies are coordinated with overall logistics strategy with a clear focus on customer service, then logistics contributes to organizational competitive responsivenessas well . so, a well-coordinated logistics strategy improves customer service effectiveness as well (kohn, mcginnis, & kara, 2011). traditionally, companies tried to keep fully owned supply chains with the concepts of forward and backward vertical integration . due to intense competition, businesses are now targeting specialized fields to build core competencies in specific areas and strive to gain competitive advantage by delivering better solutions to customers . logistics management is vital for organizations that strive to achieve competitive advantage (, build core competencies, expand business through strategic alliances and accomplish customer value addition . it can be a unique resource for organizations that is difficult to be copied by competing firms (leuschner, charvet, & rogers, 2013). it helps to attain a desirable firm performance . the use of the latest logistics management practices results in the reduction of stocks, cost of production and lead time. moreover, it increases the supply chain efficiency, ability to focus on core business, quality, expansion of production flexibility, and accelerated capital turnover . this results in lowered production costs and enhanced customer satisfaction through high quality delivery . to increase the efficiency of logistics processes, the role of different variables has been investigated, for instance, frequent delivery, smaller lot size, lower on-hand inventory, reduced production cycles and efficient inventory management . to build responsive supply chains, firms must have to work on to get enhanced commitment from top management and trust based relationships with supply chain partners . in pakistan, researchers have examined the relationships of uncertainties , human resource management practices , transportation outsourcing , supply chain management competence and supply chain strategy with the supply chain effectiveness or performance. researchers have also investigated the supply chains of aviation , dairy , textile , and pharmaceutical industries from various aspects. furthermore, concluded that customer satisfaction can be enhanced by improving the effectiveness of supply chain management in the airline industry of pakistan. however, little is known about the furniture industry in pakistan. this study aims to examine the relationship between logistics, customer service and firm performance in the furniture industry of pakistan. 2. literature review best value supply chains practice strategic supply chain management to excel in terms of speed, quality, cost and flexibility . logistics management positively affects the supply chain management because advanced logistics processes help companies to streamline desired operations and processes. this makes them more flexible and adaptive to the changing demands of customers (. but, use of advanced logistics practices requires proper planning as it does not always bear positive results . entrepreneurial supply chain management (scm) competence of manufacturing firms results in the development of better scm strategies, which leads to improved performance . the efficiency of outbound flows depends upon inbound logistics of the same supply chain . companies that consider logistics while outsourcing various projects improve their time efficiency . productivity of manufacturing organizations increases by reducing through put time in logistics chains . nowadays, logistics is practiced as an integrated system/process developed through collaboration of different activities . internal integration within organizations promotes external integration with customers and suppliers as well . similarly, coordination between marketing and logistics functions is a prerequisite in making a supply chain a success .i ntegrated supply chain management allows organizations to deliver products to customers in a more timely and effective manner (tan, 2001). organizations need to keep their customers satisfied by approaching them before and after sales . proficiency in inbound logistics, outbound logistics, spanning processes and communication enhances the efficiency of overall logistical processes. all of these four variables are responsible for smooth working of inbound and outbound flows. smooth logistics flow results in timely delivery, on-time order fulfillment and quicker fill rate. different performance measures have been used to calculate the value created by logistics processes – customer satisfaction, customer value added, total cost analysis, profitability analysis and shareholder value. customer satisfaction is the most commonly used measure to judge the innovation and performance of logistics (lambert& burduroglu, 2000). thus, the need for a high level of customer service motivates the management to develop a well thought-out and coordinated logistics strategy that optimizes efficiency, customer focus and information flow throughout the channel (kohn et al., 2011). improvement of delivery punctuality in logistics chains eventually leads to higher customer satisfaction . manufacturing firms that aspire to become leaders in customer service must sustain certain types of capabilities regardless of the industry they compete in. and efficient logistics processes are critical in sustaining high levels of customer service . 28 imran qadir, amjad ali 2017/22(3) h1: there is a positive effect of logistics processes (h1), inbound logistics (h1a), outbound logistics (h1b), logistical spanning processes (h1c), and communication (h1d) on customer service. customer service has been critical in developing positive goodwill among customers and an important source of customer satisfaction . in the value chain concept, porter (1991) shows the role of customer service along with other primary activities of supply chain to enhance firm performance. various studies used different parameters to measure firm performance, for example,profitability, return on investment, productivity, sales per employee, capacity utilization and efficiency . furthermore, specific parameters for logistics performance include logistics costs, delivery service, capital tied up in logistics, logistics cost per unit sold and cycle time . customer service interventions exert a positive effect on customer satisfaction which in turn affects sales performance (sulek, lind, & marucheck, 1995). additionally, customer service interventions such as order fulfillment exert a direct effect on sales performance as well . improvement in customer service creates goodwill of the company among customers, which makes them more loyal. enhanced customer service also keeps customers more satisfied. consequently, they buy more of its products/services, which results in increased sales volume and profit . it increases the company’s market share and improves its competitive position. the ability of firms to offer excellent customer service results in developing loyal customers, additional business through recommendations and improved financial performance . hypothesis 2: there is a positive relationship between customer service and firm performance betterment in customer service of a company results in the improvement of firm performance . the progress in customer service, however, is actually due to efficiency of logistical processes . logistics activities influence firm performance mainly in terms of cost and inventory control (). research also shows positive effect of supply chain fit and collaboration on financial performance of firms (cao, & zhang, 2011; wagner, grosseruyken, & erhun, 2012). highly performing firms are superior in terms of delivery of service and product variety in comparison with low performing firms (tracey & tan, 2001). this implies that the efficiency of logistical processes actually dictates firm performance . research studies prove a significant impact of logistics service performance upon firm performance ). internal collaboration affects logistics performance which further improves marketing performance (. firms that have gained logistical competitive capability show higher financial performance (ojha, gianiodis,& manuj, 2013). the concept of value chain also highlights the role of inbound and outbound logistics to create value to achieve better firm performance (porter, 2008). h3: there is a positive relationship between (h3) logistics processes, (h3a) inbound logistics, (h3b) outbound logistics, (h3c) logistical spanning processes, (h3d) communication and firm performance the importance of manufacturing to organizational performance is of critical significance . quesada-pineda and gazo (2007) report a positive relationship between best manufacturing practices and firm performance in furniture industry. for logistics firms, flexible capacity management has been suggested as a fundamental strategy (delfmann, albers, & gehring, 2002). so, manufacturing flexibility is crucial for customer service and consequently a competitive position of an organization . flexibility was solely considered as an adaptive response to environmental uncertainty . but gerwin (1993) suggests that manufacturing flexibility is not only an adaptive response but also a proactive function in creating uncertainties that competitors cannot deal with. one way of achieving flexibility is through advanced process technology. earlier research on manufacturing flexibility concentrated only on production planning, scheduling, control and investment, especially for advanced process technology. however, gerwin proposed a conceptual model which serves as a foundation to work on strategic aspects of flexibility. manufacturing ability of a firm to produce a variety of quality goods in minimum time affects the capacity of logistics processes to enhance customer service. firms with flexible manufacturing approach fulfill changing customer demands by producing a variety of products in lesser time . an advanced process technology makes flow of material and goods through input, transformation and output stages much more efficient. the efficiency of logistical processes is enhanced by manufacturing flexibility which in turn has a significant positive effecton customer service. however, benefits gained through advanced process technology can easily be neutralized if logistical processes are inefficient . h4: manufacturing flexibility moderates the relationship between logistics processes and customer service. 29 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) figure 1: theoretical framework based on bowersox (1974), green et al. (2008) andtracey (1998) 3. research methodology the population of the study comprises furniture manufacturing firms in pakistan. primary data were collected from firms located in gujrat, chiniot, islamabad and some other cities. the questionnaire was distributed to 100 conveniently selected companies, out of which only 61 companies provided useable data. priority was given to get data from firm owners, otherwise senior managers were requested. a total of 34 items were asked to measure logistics processes that comprise four sub variables inbound logistics, outbound logistics, spanning processes and communication (bowersox, 1974). customer service was measured through15 questions . firm performance was assessed through seven self-reported questions on profit growth, profitability, market share, sales volume growth, return on investments, return on assets and competitive position of the firm. manufacturing flexibility was computed through six questions . two different five-point likert type scales ranging from ‘strongly disagree’ to ‘strongly agree’ and ‘never’ to ‘always’ were used to tap responses against logistics processes, customer service and manufacturing flexibility . an extra option of ‘not applicable’ against these questions was also provided to respondents in case a question was not relevant to their firm, market or industry . another five-point likert scale ranging from ‘well below industry average’ to ‘well above industry average’ was used to measure firm performance ). 4. results the age of the respondents varied from 20 years to 60 years, with a mean value of 37 years of age. almost all of the respondents (60) were male. nearly half of the respondents (49.2%) had earned at least a bachelors degree while the rest of the respondents were ‘intermediate, matriculation or below’. the average length of service in the current firm was 9 years while an average length of total experience was 16 years. a majority of the respondents (44.3%) were owners, 24.6% were senior level managers, 18% middle level managers and 13.1% were operational level managers. out of 61 firms, 32.8% of were form chiniot, 24.6% from islamabad, 18% from gujrat, 11.5% from peshawar, and 13.1% were from other cities. the average number of employees in a given firm was 41 and the average age of firms was 18 years. descriptive statistics and correlation among all the variables are shown in table 1. the results show a moderate correlation of logistic processes with firm performance (.498**), customer service (.556**) and manufacturing flexibility (.566**). there is a weak association (.32*) of customer service with firm performance. manufacturing flexibility has a moderate association (.542**) with firm performance. 30 imran qadir, amjad ali 2017/22(3) the first hypothesized relationship of logistic efficiency with customer service was found to be highly significant with the beta value of .556 and r square value of .309 as shown in table 2. the beta value shows that a one unit change in logistics processes brings about .556 unit change in customer service. the r square value asserts that 30.9 % of the variation in customer service can be explained by the corresponding changes in logistics processes. among the sub indicators of logistics processes, inbound logistics has the highest beta of .490, followed by .439 of outbound logistics and .438 of communication with customer service. spanning processes were not a predictor of customer service. this supports hypotheses h1, h1a, h1b and h1d while h1c was not supported. table 2: regression analyses the second hypothesized relationship of customer service with firm performance was found to be significant with a slope of .320 and r square value of .102. it means that a one unit change in customer service brings about .32 unit change in firm performance and 10.2% of the variation in firm performance can be accounted for by the respective changes in customer service. so, h2 of the study was also supported. the third hypothesis of logistics processes with firm performance was also confirmed with a beta value of .498 and r square value of .248. this reveals that a one unit change in logistics processes brings about .498 unit change in firm performance and 24.8% of the variation in firm performance can be explained by the corresponding changes in logistics processes. all the sub hypotheses of h3 (h3a, h3b, h3c and h3d) were also confirmed. for the fourth hypotheses, step-wise hierarchal regression analysis was performed to test a moderating role of manufacturing flexibility for the relationship of logistic processes and customer service. the beta value for interaction term (logistics processes x manufacturing flexibility) is not significant in model 3 (see table 3). so, the moderating role of manufacturing flexibility was not supported. somehow, .043 change in r square was found when interaction term was added in model 3. 31 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) � ������� ������ ����� � �� ����� ��������� �� ����� ������������ � ��� � � �������� ���������� ����������� ��� �������� �� ��������� ������������� �!� � "� �� � � � #������������� �"� �!!� �$!%&&� �� � � ����� �������� $��#� � #� �""'&&� � #(&� �� � $���� ��������� $��#� �'$� �"''&&� �"$#&&� ��'!� �� &&����� ����� �� ��(��)#* �����+�&����� ����� �� ��("�)#* �����+� �������� � � � � � ����� � ��� ��������� ��� ��� ��� �� ���� ��� ���� ����������� � ��� ���� ���� ���� ���� ������������ � ��� � �� ���� �� � ���� ���������� � � ��� ��!� � �� ���� ���� ��""���������� ��� � !� ���� ���� ��� ��� #�� ��� ���� ���� � � ��� #�� ��!� ���� ��!� � �� ����������� � #�� �$� ���� � $� � �� ������������ � #�� $� ��!� ���� � �� ���������� � � #�� � � ���� � � � �� ��""���������� #�� ���� �� � �!�� 32 imran qadir, amjad ali 2017/22(3) ������� ��������� � �� ��� ������� ����� � �������� � ���� �� �� �������� � ���������� � � ����� � ������� ������� �� ��� � ������ ������ ������ �������� !�������� ��"�� ����� ���#� $� �� %���� &��"� &��## ��� '����$� �� %���� &��## � ()���� �#"* �#�" �#+# ,�-� � ()���� ��*. �#�. �#�" � ()���� ��� �� �#"* �"#� �"�# (��� % ��� �� �""" ��"# �"�� /�!� �� � 0�������1 �������� ���2��� � (�� �� �"� 5. discussion based on findings of previous research, it was hypothesized that logistics efficiency exerts a positive effect on customer service. the results of the study prove that logistics efficiency positively affects the customer service of furniture manufacturing firms. the finding is consistent with earlier research . this shows that companies that are proficient in their logistics processes can deliver and maintain higher levels of customer service . results also confirm that the indicators of logistics processes inbound logistics, outbound logistics and communication exert a significant effect on customer service. however, the study could not prove a significant effect of spanning process on customer service. literature articulates that spanning processes are related to strategic management of firms and they have to do more with performance of firms as compared to its customer service . multiple studies establish that companies with superior customer service show excellent results in their financial and marketing performance . viewing this, a significant relationship between customer service and firm performance was hypothesized. the results concluded that customer service exerts a positive influence on firm performance. satisfied customers of a firm buy more of its products which leads to increased sales volume, profit and market share . researchers are of the opinion that logistics processes are highly important in achieving outstanding results in terms of firm performance . the current study confirms a positive effect of logistics processes on firm performance. thus, firms which ensure higher efficiency in logistics processes tend to achieve higher firm performance . it is advocated that manufacturing flexibility plays a moderating role in the relationship between logistics processes and customer service . however, the study could not prove a moderating role of manufacturing flexibility for the said relationship. a plausible reason is maybe that roles of advanced technologies and flexible processes are not crucial in the furniture industry of pakistan because it is a labor-intensive industry and emphasis is given to handmade wooden furniture. similarly, cho et al. (2008) could not prove an interactive effect of logistic outsourcing for the relationship of logistics capability and firm performance. conslusion the study concludes that furniture firms that have developed proficient logistical processes deliver a superior customer service.this helps them to retain existing customers and tempt more potential customers in comparison with their competitors. the study also proves positive effects of inbound logistics, outbound logistics and communication on firm performance. it is also proved that customer service positively impacts firm performance. hence, companies having efficient logistics processes and quality customer service experience high returns in performance both financially and competitively. similarly, argued that to achieve increased sales and larger market share, firms need to develop such logistics processes that are responsive to customers when taking orders, communicating with them and making timely deliveries. the study could not prove a relationship of spanning process with firm performance, either. the study also failed to establish a moderating role of manufacturing flexibility for the relationship of logistical processes and customer service. references [1] akbar, i., muzaffar, m., & rehman, k. u. 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(2015). identification and assessment of supply chain risks associated with dairy products sector. journal of basic and applied sciences, 11, 167–175. received: 2017-06-24 accepted: 2017-11-21 imran qadir university of haripur, haripur, pakistan. imran@uoh.edu.pk imran qadir is a lecturer of marketing and entrepreneurship at the department of management sciences, university of haripur, pakistan. he is also the departmental focal person for entrepreneurship and business incubation. he did his ms in management sciences from comsats institute of information technology, pakistan. his research interests include entrepreneurship, effectuation, marketing, supply chain, business models and business startups. amjad ali comsats institute of information technology, abbottabad, pakistan amjad@ciit.net.pk amjad ali is assistant professor at the department of management sciences, comsats institute of information technology, abbottabad campus, pakistan. he holds a phd in management sciences from foundation university, islamabad, pakistan. he has ample experience in teaching and managing academic and marketing research. his research areas include supply chain management, organizational behaviour, knowledge sharing, emotional intelligence, and employee performance. 36 imran qadir, amjad ali 2017/22(3) about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02_84_3 mrdjan:tipska.qxd 21 mrdjan m. mladjan1*, dušan z. marković2 1ebs business school, germany 2 faculty of economics, university of belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(3) diagrams of power and strategic decision making: the case of strategic alliances in the automotive industry doi: 10.7595/management.fon.2019.0015 abstract: 1. introduction the relative power of different individuals, companies, organizations, or even nations is one of the key determinants of the dynamics of their relationships. moreover, given that actions of one side can be perceived as pre-emptive or reactive to the actions of the other side, the changes over time in their relative power can be seen as dynamic games of incomplete information. the insights derived from extracting the most important determinants of interaction to reduce its complexity to such games may occasionally offer an advantage over one’s competitors. in order to choose the actions that are most likely to lead to such sustainable equilibria that can be characterized as personal, corporate, or national success, it thus becomes crucial to understand well both the current and the expected future power of oneself vis-à-vis the others. this * corresponding author: mrdjan m. mladjan, e-mail: mrdjan.mladjan@ebs.edu research question: this paper, on the example of strategic alliances in the automotive industry, investigates how diagrams could be useful in studying complex power relationships. motivation: the relative power of individuals and institutions is a crucial driving force of their interactions. it is however hard to evaluate because the interactions can take place simultaneously or sequentially in different markets or forums. diagrams of power, that this study introduces, help us abstract the relative power of agents. this enables us to use insights of decision and game theory, especially those from the literature, in strategic decision making under uncertainty (courtney, kirkland, & viguerie, 1997), to arrive at successful and sustainable solutions. they enable us to view relationships between firms as security dilemmas (posen, 1993), which can explain why emerging market multinationals (emms) treat the acquired companies as strategic partners (kale, singh, & raman, 2009). idea: diagrams of power and security dilemma help us better understand strategic alliances in the automotive industry. moreover, we believe that diagrams of power could both offer new insights to scholars and represent an intuitive tool for businessmen and policy makers less experienced with advanced mathematical methods. data: to quantify the power of several automotive producers, we have used selected contemporary data items from their annual reports and the international organization of motor vehicle manufacturers. tools: the tool we introduce to better understand power relationships between automotive producers are the diagrams of power. we then apply them to two cases from the industry to better understand the strategic interactions within alliances. findings: we demonstrate that diagrams of power can help managers define the goals of strategic alliances, minimize the risks of their establishment and management, and recognize the problems and opportunities that arise in strategic partnerships due to security dilemmas, a concept that originated in the study of wars. diagrams of power enrich the analytical toolkit of the existing literature, enabling faster understanding of the relationship between agents as well as decision making based on more complete information. contribution: this paper introduces diagrams of power – a tool for study of strategic interactions – and applies the concept of security dilemma to the study of the automotive industry. keywords: decision making under uncertainty, power relationships, diagrams of power, security dilemma, strategic alliances, automotive industry, emerging market multinationals. jel classification: b40, c73, d74, d81, f21, f23, f60, h12, m16, m21 realization allows one to correctly estimate the payoffs to the game in all potential outcomes and so better inform one’s decisions on when and how to act. the relative power is however frequently hard to estimate. this is because individuals interact in various spheres of life, firms compete in different markets, and countries cooperate or fight on various fronts. in this paper, we argue that a way to summarize and better understand the power relationships that surround us is to use a new type of diagrams. we propose to name them diagrams of power. to the best of our knowledge, this is a novel type of venn-like diagrams to describe power relationships, although variants of the term itself already exist in several other disciplines2. to illustrate how they could be used to deepen our understanding of strategic decision making under uncertainty, we apply them to the study of strategic alliances in the global automotive industry. we moreover illustrate that decision making of firms in this context can be perceived as driven by security dilemma, a concept that originates from the realist school of international relations (herz, 1950; posen, 1993; tang, 2009). the concept emphasizes that a build-up of power that one pursues to insure one’s own security, because of indistinguishability of defence and offense, may be perceived by others as a potential threat. this could trigger a chain of events that could lead to a conflict even without original aggressive intentions. in cases when one wants to avoid a conflictual scenario it thus becomes crucial to understand the concerns of others and to choose the type and timing of moves that build mutual trust instead. in this paper, we demonstrate how diagrams of power allow us to better understand the interests and concerns of the various agents, and to identify the course of action that can lead to a desired outcome. our paper most closely relates to the pioneer work of shenkar and arikan (2009) who first called for the use of insights from nation-state to inter-firm alliances suggesting that, among other concepts, security dilemma could become part of shared base for theory development. our paper builds on this idea and proceeds to show how security dilemma can help us better understand inter-firm alliances, and how diagrams of power can effectively summarise the relationships and options available to firms. in extending the use of the concept of security dilemma from politics to business, it more broadly relates to the literature on competitive wars of attrition between firms (bulow & klemperer, 1999; takahashi, 2015). in introducing venn-like diagrams of power, it most closely relates to brams (1968) who uses arrow-like diagrams of power structures to simplify relational power structures before proceeding to develop a quantitative index measuring the concentration of power in a political system. this paper also relates to the literature on the motives for the formation of strategic alliances (e.g., gundolf, jaouen & gast, 2018), to das and teng (2000) who view strategic alliances as a tool for gaining strategic intangible resources, and luo and tang (2007) who discuss how companies from emerging markets use strategic alliances. relatedly, hennart and zeng (2002) discuss how differences in the culture, politics, and economics of the partners’ nations can determine the success of their alliance. more specifically, it relates to the literature on the strategic alliances in the automotive industry: that on the motivation for forming alliances (e.g., wang, nguyen & nguyen, 2015) and the effect of alliances on industry’s development (e.g. samsunlu & akdemir, 2007). our paper is also related to savoiu, jasko, dulanovic, cudanov, and craciuneanu (2008), who emphasize the importance of new integrative techniques and methods for improving the effectiveness of management. vojtek (2018) similarly emphasizes the importance of novel techniques that can deal with uncertainty in managing business processes. by proposing a diagrammatic representation of the relative power of agents, our paper enables us to better understand their expected payoffs from various actions and the likely strategic interactions. for this reason, it relates to the business and economics literature on strategic decision making under uncertainty (courtney, kirkland, & viguerie, 1997). it thus also relates to decision theory (simon, 1979), game theory and, in particular, dynamic games of incomplete information (gibbons, 1992; popovic, kuzmanovic & andric gusavac, 2012), real options (trigeorgis, 1996), and real option games of strategic competition (grenadier, 2000; aguerrevere, 2003; baldursson, 1998). the following chapter introduces diagrams of power and uses them to define and distinguish between several different types of domination. chapter 3 uses examples from the automotive industry to demonstrate how diagrams of power can be used to first better understand the reasons for the formation of strategic alliances and then to observe the strategic alliance itself as a security dilemma. the final chapter concludes. 22 mrdjan m. mladjan, dušan z. marković 2019/24(3) 2 the term “diagrams of power” was also used by the french philosopher paul-michel foucault but in a very different context, to refer to different forms of power (foucault 1979; 2004). the phrase “diagrams of power” can also be encountered in various fields of engineering (e.g., sekine and beaumont, 2000), while “power diagrams” is another name for the laguerre–voronoi diagrams used in computational geometry (aurenhammer, 1987). 2. diagrams of power in a multi-agent setting to be able to better understand the relationships of power between agents of different strength, that also have an ability to form alliances, we propose to use venn-like diagrams of power. if both agents could hurt, but not fully destroy each other, we represent this as shown in figure 1, and say that neither agent is dominant. if agent 1 could not be significantly hurt by agent 2 and could hurt agent 2 but not fully defeat it, we represent this as shown in figure 2, and say that agent 1 partially dominates agent 2. notice that, in figure 2, agent 1 is described with a thicker line than agent 2. if, however, agent 1 could fully defeat agent 2, we show this as in figure 3, and say that agent 1 fully dominates agent 2. figure 1: no domination figure 2: partial domination notes: authors’ original diagram. notes: authors’ original diagram. figure 3: full domination notes: authors’ original diagram. diagrams of power could also be used to summarize relationships of power that involve more than two agents. figure 4 illustrates one such multi-agent power relationship. it shows that agent 1 is fully dominated by agent 2, which is in turn fully dominated by agent 3, while agent 4 fully dominates all. in this case, we say that agent 4 is absolutely dominant while agent 2 is relatively dominant (over agent 1) and agent 3 is also relatively dominant (over agent 1 and agent 2). figure 4: absolute and relative domination notes: authors’ original diagram. 3. diagrams of power and security dillema in the study of strategic alliances having shown how various types of domination could be represented using diagrams of power, in this chapter we demonstrate that management is one of the academic disciplines in which diagrams of power could be applied in practice. using examples from the global automotive industry, we first show that 23 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) diagrams of power can be used to better understand the motivation for formation of strategic alliances. we then explain how security dilemma could arise within strategic partnerships and illustrate that diagrams of power could help us understand the problems and identify ways to overcome them. moreover, we show that a similar type of considerations is causing emerging market multinationals’ (emms) to treat their acquired targets as equal strategic partners. 3.1 diagrams of power and the reasons for creating strategic alliances competitive rivalry has frequently been analysed in economic literature and is considered to be one of the main determinants of industry profitability (porter, 2008). severe competition forces companies to expand business operations abroad and to heavily invest in research and development (r&d). however, given that most companies are not capable of simultaneously achieving both of these goals independently, they resort to acquisitions and the formation of strategic alliances (barney & tong, 2006). broadly classified, strategic alliances can be motivated by: risk management, creation of new and the additional exploitation of the existing capabilities, and reaction to competitors’ actions (weston, siu & johnson, 1997, p. 417). in this section, we proceed to illustrate each of these motives on the example of the strategic alliance between renault, nissan, and mitsubishi. moreover, we show how diagrams of power – succinctly depicting the competitive landscape of the industry before and after the alliance was formed – can help us better understand the motivation of these three companies. the french automotive company renault and the japanese automotive company nissan established a strategic partnership in 1999. in the past, they both had bad experience with strategic partnerships; renault-volvo and nissan-daimler partnerships resulted in divorces and business failures. contemporary data of the analysed companies reveal the drivers for making the alliance. in 1999, nissan’s financial situation was critical, the company had not produced profit for eight years. the company posted almost 1 billion net loss in the year (nissan motor corporation, 2001). due to continuous poor performance corporate debt rose to more than usd 22 billion and the company was on the brink of bankruptcy (gill, 2012). overcapacity was the major problem for the company since the production volume had decreased by 20% cumulatively since 1992, even though the company had a foothold in both the us and asian markets (segrestin, 2005). at the same time, renault had healthy finances and a high rate of utilization of production plants but was focused and over dependent on the domestic and the western european markets. understanding that the automotive industry would be consolidated, the two companies decided to form a strategic partnership so as to deal with current and future risks. after mitsubishi, another japanese company, joined the alliance in 2017, and the largest auto producer was born. mitsubishi’s market position was weakening and its production dropped by 13.5% from 2014 to 2016 (mitsubishi motors, 2018). in 2016, the company admitted it had rigged fuel efficiency tests for the past 25 years. due to the scandal the company lost more than 50% of its market value and recorded 1.7 billion usd net loss. nissan acquired the largest single stake in the company, about 34%, and help it to avoid bankruptcy. the diagram of power shown in figure 5 summarizes the market power relationship in the auto industry before the establishment of the alliance: renault on the one hand, and nissan and mitsubishi on the other, were largely competing in different markets. as “local players”, controlling less than 5% of the global market each, all three were dominated by “global players”. the largest two producers at the time were general motors and ford, controlling 15% and 12% of the global market each (oica, 2018). while in this environment survival and corporate success would be clear reasons for forming an alliance, we can identify the finer underlying motives in each of the three mentioned categories. figure 5: power relationships before the strategic alliance in 1999 notes: authors’ original diagram. 24 mrdjan m. mladjan, dušan z. marković 2019/24(3) the first motive for the formation of strategic alliances is a proper management of political and business risks. strategic alliances motivated in this way are frequent in markets characterized by high political risks and inefficient institutions. the probability of asset nationalization and business constrains by local governments are lower when multinational companies (mncs) embed local partners in their own business network. undoubtedly, mncs may have enough knowledge and resources to defeat the local competitors, but they have to be careful about the possible reactions of the local governments. such reactions can cause serious obstacles to business and even result in termination of business projects abroad. on the other hand, the local governments do not have an interest in preventing the strategic alliances of the local companies with their multinational partners, because cooperation with global industry leaders improves the formers’ competitiveness. to explain the afore described situation, we can resort to a simple diagram of power of embedded circles similar to the one shown in figure 4. the local governments are absolutely dominant, while mncs relatively dominate the local companies who in turn enjoy the support of their governments; this forces the mncs to be considerate of their local counterparts. similar considerations motivated renault to form an alliance with nissan, even though it was financially capable of simply acquiring it. what renault knew is that the japanese government is not fond of foreign investments, especially in such an important sector, and could create obstacles for the acquisition. by instead forming a strategic partnership with nissan, renault managed to both achieve local market presence and avoid a hostile intervention from the japanese government. the second motive for strategic alliances is the creation of new capabilities. companies that try to independently innovate may overcommit resources, or disperse them across too many projects, consequently facing higher business risks and operating costs. this can be avoided by either narrowing the area of research and development (r&d) efforts or by establishing strategic alliances with key customers, suppliers, or even competitors. knowledge and capabilities created together with its strategic partners could enable a company to sustain a “no domination” position inside its industry, or even to dominate the non-partner competitors. the complementarity of resources and potential for synergies in creating new capabilities also motivated renault and nissan to form an alliance. while renault had capabilities in r&d, design and marketing, nissan was strong in engineering technology. by joining their capabilities they developed a production platform that enabled them to achieve a cost synergy in r&d, production, logistics and supply. after both renault’s and nissan’s production plants were equipped with the same platform, they could share their production plants and so better manage regional fluctuation in demand. by sharing their research capabilities they also created a new capability to develop electric cars. after joining the strategic alliance, mitsubishi accepted the same platform and brought in additional capabilities in the production of crossovers, pickups, and hybrid vehicles. due to sharing of both risks and costs, the renault-nissan-mitsubishi alliance emerged as one of the leaders in the production of green autos, controlling more than 10% of this small but growing market segment. the third and last motive for forming a strategic alliance is the protection from aggressive actions of incumbents and from new players in the industry. the incumbents and late followers sometimes create disruptive innovations which cause industry reshaping, or even termination, and can lead to defeat of reactive competitors (downes & nunes, 2013). disruptors’ innovations could reshape both industry structure and customer preferences. because the traditional competitors with considerable sunk costs may frequently not have enough resources and adequate competencies to compete against the disruptors, they could be forced to unite their efforts and resources, similar to that what happened to renault and nissan. before they formed a strategic alliance, they focused their marketing efforts on their respective domestic regions, europe and asia. they did not have the capabilities and resources to significantly increase their r&d investment and expand operations outside of these regions. in turn, they faced the risk of being squeezed out and overrun by industry leaders with global market presence, such as toyota and volkswagen. this led renault and nissan to join their efforts in protecting themselves from the aggressive leaders. they had to create a joint business vision and coordinate business activities so as to compete as a single entity in the global market. to overcome the differences in language and culture, they chose english as the official language of the alliance. they were also committed to preserving partners’ business autonomy and to holding stakes in each other, with the aim of creating trust and strengthening their business relationship. the diagram of power shown in figure 6 summarizes the market power relationship in the auto industry after the establishment of the alliance. the increase in power of renault, nissan, and mitsubishi after formation of the alliance, evident when comparing figure 6 to figure 5, demonstrates the benefits of the alliance. while renault and nissan were originally smaller players in the industry, forming a strategic alliance allowed them to challenge the global leaders. moreover, from 1999 to 2016, their combined global market share increased from 8.6 to 10.7 percent, in spite of the entry of new competitors (oica, 2018). after their alliance was further strengthened by mitsubishi joining in 2017, the triple alliance controlled 12% of the global market, placing them on an equal footing with the two contemporary global leaders, toyota and volkswagen, which controlled around 11% of the global market each, as shown in figure 6. 25 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) figure 6: power relationships after the strategic alliance in 2017 notes: authors’ original diagram. 3.2 strategic alliance as a security dilemma while thus far we explained how strategic alliances can be used to gain a competitive advantage, we now proceed to illustrate how such alliances could present the partners themselves with a security dilemma. such dilemmas are an additional aspect of alliances that lend themselves to a better description of using diagrams of power. they arise because the partners’ access to a company’s strategic intangible resources could be abused. the two strongly connected processes of which the alliances comprise, value creation and value division, are frequently described separately, but diagrams of power allow us to analyse them simultaneously. this is illustrated in figure 7. if firms a, b, and c form an alliance, they could be strong together, just like renault, nissan and mitsubishi in figure 6. their overlap, however, shows that, if their cooperation breaks, they could potentially endanger each other by using the former access to partners’ strategic resources to better compete against each other. note moreover that the partners’ circles overlap in a diagram of power even if they operate in different markets. this holds because a company could hurt a former partner by offering the information collected during the partnership to its direct competitors, or because the knowledge acquired through the partnership could allow it to enter the home market of its former partner. figure 7: security dilemma within a strategic alliance notes: authors’ original diagram. in case both sides in a partnership are aware of the risk that a partner could use the knowledge acquired from the alliance to turn, or turn back, into a competitor, a possible outcome could be that both attempt to acquire the desired knowledge as soon as possible and leave the partnership (ireland, hitt & vaidyanatah, 2002; haisu, chengli, xu & malter, 2010). it is thus evident that the prospect of such a “learning race” could create a security dilemma within a strategic alliance. the stronger partner could use the alliance to gain knowledge about the business model, technology, and customer relations of the weaker partner, which could in turn make the takeover and the management of the post-acquisition process easier (porrini, 2004, yang, zhiang & peng, 2011). aware that the uncertainty within partnerships could cause its members to focus on achieving short-term goals at the expense of the long-term ones, the members of the alliance may look for ways to instead reduce the relationship risk and ultimately prevent such a development. the perceived relationship risk itself is in turn determined by written agreements, reputation of the partner, and trust-building measures (xu, mei, 26 mrdjan m. mladjan, dušan z. marković 2019/24(3) shanzing, yongchuan & feifei, 2013). given the dynamic nature of the business environment, formal and detailed agreements cannot however fully protect the partners, while they can limit the efficiency of doing business. another important factor limiting the likelihood a partner may cheat is his reputation (baughn, denekamp, stevens & osborn, 1997; schilke & cook, 2013). nevertheless, relying solely on reputation may not be enough to protect a strategic partnership. for this reason, companies frequently opt for trust-building measures as a way to manage and limit the relationship risk. a partner’s previous reputation represents an initial input in the process of building trust. trust, as a ‘‘soft” element of strategic partnership, is then further built through phases of negotiation, agreeing to specified actions, and honouring one’s promises, which also further develops one’s reputation (boersma, buckley & ghauri, 2003). trust contributes to an easier exchange of resources within a partnership which affects the improvement of the partners’ performance (das & teng, 2001; costa e silva, bradley & sousa, 2012). some research however shows that improved performance increases trust, while the effect of trust on performance is not as strong (mohr & puck, 2013). how the initial reputation and its further development through the trust-building process can deter a firm from abusing the access to partners’ strategic resources is shown in figure 8. while the potential predator partner partially dominates the vulnerable partner, corporate ethical norms, strengthening the potential predator firm if honoured (in “carrot” role), could also hurt its future if breached (in “stick” role). if the dominant partner decides to act as predator towards the vulnerable partner, his business reputation will be tarnished. due to damaged reputation, forming new strategic alliance in the future will become costly, inefficient, or impossible. if the dominant partner instead decides to respect the corporate ethical norms, this will endow him with an intangible asset – reputation – which he could use as an input in future strategic alliances. figure 8: the power of corporate ethical norms in preventing the abuse of a partnership notes: authors’ original diagram. a similar security dilemma is identified in cross-border acquisitions of emms. many recent studies that analysed emms argued their motives to internationalize business are different from those of mncs from developed economies (chattopadhya, batra & ozsomer, 2012; mathews, 2006; rugman, 2009). they go abroad to acquire the missing intangible resources (luo & tang, 2007) and accept the risk of cross-border acquisitions to overcome their late followers’ disadvantage in the global market (markovic, rakita & filipovic, 2015). the main challenges for emms are how to retain key managers and employees, and how to preserve brand image and relationships with stakeholders in the post-acquisition period. they use a unique restructuring strategy to achieve that aim. the acquired companies are treated like partners in a strategic alliance because synergies originate from complementarities of resources rather than economies of scale (kumar, 2009; kale, singh & raman, 2009). targets’ management teams are retained and given independence. such a trust-building and long-term oriented approach assures a smooth transition and preserves and eases the sharing of strategic resources, thus resulting in benefits from the current acquisition. moreover, it improves the acquirer’s reputation, enabling future cross-border acquisitions that add further value. the acquisition of swedish volvo by the chinese car producer geely can be seen as an example of such a partnering approach. it is illustrated in the diagram of power presented in figure 9. it shows how respect for volvo’s autonomy could strengthen geely if respected, as if geely is forming an alliance with it, or weaken geely if disrespected, as if it is a competitor who partially dominates geely. in reality, geely took the former approach, respecting volvo’s autonomy. figure 9: the power of the respect for target’s autonomy to strengthen or weaken the acquirer notes: authors’ original diagram. 27 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) prior to the acquisition, geely’s image was very different from that of volvo. it was a producer of low-cost vehicles and completely depended on domestic market. but financially, it was strong: it earned 3.23 billion usd and had a profit margin of more than 7% in 2010. on the other hand, volvo was ford’s subsidiary with a strong brand associated to safe cars and innovative capabilities. despite that the company suffered 650 billion usd net loss in 2010. its sales dropped by more than 20% compared to three years before, at the onset of the great recession (markovic, acimovic & mijuskovic, 2016). the new owner made only small changes in the target’s management team, preserved volvo’s identity and autonomy, and provided ample financial support. gradually developed trust resulted in a strong commitment of both parties to share technology achievements, marketing, and management knowledge. volvo’ successful integration improved geely’s reputation as an acquirer and made easier the acquisition of two british firms: the maker of sports cars lotus and the electric-vehicle startup emerald automotive. the acquisition approach proved to be successful due to smooth sharing of resources. geely sold more than 1.5 million vehicles, earned almost 16 billion usd and generated 1.9 billion usd profit in 2018 (geely auto, 2018). at the same time volvo sold almost 650 thousand vehicles, earned 29 billion usd and generated 1.1 billion usd profit (volvo cars, 2018). 4. conclusions and future research in this paper, we introduced diagrams of power into use. we first presented how these venn-like diagrams can help us summarize relative power of various agents vis-à-vis each other, the options available to each of the agents, and differentiated between different types of domination: partial, full, relative, and absolute. we believe that diagrams of power are an intuitive tool that could offer new insights to scholars, businessman, and policy makers. they could help analyze motives, interests, and risks affecting different agents, and identify actions that result in improvement of their performance. to illustrate how they could serve to better understand complex power relationships and inform strategic decision making, we used the example of strategic alliances in the automotive industry. applied to the case of the alliance between renault, nissan, and mitsubishi, diagrams of power helped us identify the main reasons for the formation of strategic alliances, and the ways to establish and manage relationships with partners. we then proceeded to argue that interactions within strategic alliances could present individual firms with a security dilemma. using the example of the acquisition of swedish volvo by chinese geely, we illustrated how diagrams of power could be used to identify security dilemmas in relationships between firms, and how the latter can explain the way emms treat their partners. while shenkar and arikan (2009) first suggested that security dilemma, a concept that originated in the study of international relations, could also be applied to the study of firms, our paper is, to the best of our knowledge, the first one that presents one such application. diagrams of power made it easier to spot the analogy in relationships between nations and between firms, facilitating the application of security dilemma to business interactions. the avenues for future applications could relate to the study of strategic interactions both in business and in other disciplines. firstly, diagrams of power allow us to clearly observe the possible alliance-forming patterns and indicate the directions for the most effective actions. they could thus be used to better understand even the aggressive moves that are not based on a security dilemma, be it in business, politics, or elsewhere. by expanding the concept of security dilemma, a more general concept of dilemma over power could be used to understand any actions that attempt to achieve or prevent changes in relative power. in other words, any potential change in diagrams of power could be a motivator for actions based on such a dilemma. secondly, diagrams of power could in the future be used to understand strategic interactions in a number of other contexts. they could, for instance, be used to understand the interactions of different political parties, where the “area” they cover may be different political ideas for which they stand. they could also be used to inform crisis management in real wars. in a similar vein, but in a different discipline, diagrams of power could serve to better understand, and potentially prevent, competitive wars of attrition in business. more broadly, the relative power of firms that compete in different markets – in which decisions on successive investments in r&d and production capacity, decisions on output, and on price, take the form of any real option game – could be represented using diagrams of power. such diagrams may be able to serve as an additional tool for scholars of business games. moreover, they should also be able to summarize the insights obtained through game-theoretical research, but in a 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(2011). behind acquisitions of alliance partners: exploratory learning and network embeddedness. academy of management journal, 54(5), 1069-1080. doi: 10.5465/amj.2007.0767 received: 2018-04-04 revisions requested: 2018-09-24 revised: 2019-07-23 (2 times) accepted: 2019-08-06 mrdjan m. mladjan ebs business school, germany mrdjan.mladjan@ebs.edu mrdjan mladjan received his phd in economics at the universitat pompeu fabra. during his phd studies he was a visiting scholar at the ucla anderson school of management. he holds a bsc in economics degree from the massachusetts institute of technology. mrdjan’s research is characterized by interdisciplinarity at the intersection of finance, economics, history, and management. dušan z. marković university of belgrade, faculty of economics, serbia dusanm@ekof.bg.ac.rs dušan marković is associate professor at the faculty of economics, belgrade university, where he also received his phd in business. he has published in the areas of cross-border acquisitions, strategic alliances, emerging market multinationals and business strategies in the auto industry. marković has rich practical experience in capital and asset valuation, financial due diligence, business and financial restructuring, and has previously worked as financial advisor for grant thornton serbia. 31 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 02 24_1 avlijas:tipska.qxd 11 goran avlijaš* singidunum university, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(1) research question: this paper investigates whether the monte carlo simulation can be widely used as a practicable method for the analysis of the risks that impact project duration. motivation: the main goal was to explore the use of the monte carlo simulation for project time management, and shed some light on the key benefits and drawbacks of this method. the paper reviewed the existing literature considering traditional use of the monte carlo for quantitative project risk analysis (such as kwak & ingall, 2007; hulett, 2017) and elaborated the issue by suggesting potential improvements in terms of method modification for schedule management, such as event chain methodology proposed by agarwal & virine (2017). another goal was to examine the capability of user-friendly software to provide project managers with some of these benefits. idea: the core idea of this paper was to evaluate the value of the monte carlo method for project time and schedule management, by matching traditional foundations with modern techniques. data: the paper used the secondary data extracted from relevant literature and project examples. a literature review reveals how the application of the monte carlo simulation evolved as a project management tool, along with specific benefits and concerns for its application. tools: a detailed application of the monte carlo in predicting project duration is provided, and the applicability and viability of the method are proven through a case demonstration. following the presentation of a practical example and discussion of the main features, some limitations and potential improvements to the monte carlo method are suggested. findings: even with the existence of certain limitations, the monte carlo simulation remains the primary method for quantitative analysis of project risks. despite the monte carlo having been found to be applicable, adaptable and predictive of total project duration, it is found to be insufficiently used by practitioners. contribution: the paper urges the need for research on successful diffusion of the monte carlo simulation and helps practitioners to understand the adaptability of the monte carlo simulation as a tool for risk quantification and its use for effective duration planning of their projects. keywords: monte carlo, time management, project duration, critical path, beta distribution jel classification: c53, c63, o22 examining the value of monte carlo simulation for project time management doi: 10.7595/management.fon.2018.0004 abstract: 1. introduction the knowledge area of risk management has received an increasing attention from academics and practitioners in the field of project management in recent times (kwak & stoddard, 2004). projects are characterized by uncertainty, which often leads to schedule overruns, regardless of industry (hulett, 2017). merrow (2011) estimates that roughly two-thirds of the oil industry’s megaprojects come in late, over-budget or fail in other key metrics. thibodeau (2013) states that more than half of the large it projects fall behind schedule or fail to meet user expectations. also, bisaccia (2014) has found that more than half of capital construction projects fail to meet schedules. * corresponding author: goran avlijaš, e-mail: gavlijas@singidunum.ac.rs while a project manager may be able to reduce uncertainty, it cannot be eliminated. in order to be able to develop efficient response to risks, make contingency plans and complete their projects within time and budget limits, project managers should be able to identify, analyse and quantify most of the project risks (charette, 1996). this systematic approach of risk management should enable project managers to cope with complex situations that are inevitable in the today’s dynamic project environment (kwak & ingall, 2007). one of the methods that can provide significant help in the process of risk and schedule analysis is the monte carlo simulation. from its early introduction in the first half of the twentieth century, it has been improved by academics and often proposed by standard project management curricula, such as a guide to the project management body of knowledge (project management institute, 2017). however, despite many improvements and applications, the monte carlo has not yet received wider application “on the field” by practitioners and project managers (agarwal & virine, 2017; kwak & ingall, 2007). the main goal of this paper is to review the application of the monte carlo simulation in project management and its relevance for time management in particular. it should investigate the pros and cons of the use of the monte carlo analysis for schedule management, using a case demonstration in a well-known software environment: oracle crystal ball, an add-in for microsoft excel. finally, the paper concludes with potential improvements and limitations to the monte carlo simulations, as well as with recommendations for project managers who should take advantage of the benefits that such a simple and useful tool can provide. 2. application of monte carlo in project time management kroese et al. (2014) define the monte carlo method as a wide class of computational algorithms that rely on repeated random sampling to obtain numerical results, often used for sampling, estimation and optimization. the method was named after the casinos of monaco, since the model random outcomes seem very similar to games like dice, roulette and slot machines. the technique was first developed by stanislaw ulam, a mathematician who worked on the manhattan project (eckhardt, 1987). the first paper on the monte carlo method was published in 1949 (metropolis & ulam, 1949). in the project management literature, the monte carlo simulation is defined as a technique in which the project model is computed many times (iterated), with variable input values (e.g., cost estimates or activity durations). values are chosen at random for each iteration from the probability distributions of these variables (project management institute, 2017). despite the fact that the monte carlo mainly deals with problems of schedule and cost management, it is generally considered as a risk management tool. the project management institute (pmi) recommends the use of the monte carlo in risk quantification processes in order to deal with the issues that could adversely affect a project and justify a schedule or budget reserve. although the monte carlo is clearly documented in project management industry standards (such as a guide to project management body of knowledge), it is insufficiently applied in real-time situations. kwak and ingall (2007) state that the primary reasons for the limited use of the monte carlo simulation are the lack of understanding of the method by project managers and the discomfort with advanced statistical approaches. therefore, the monte carlo is often perceived as an aggravating factor, rather than a benefit that can help organizations in meeting budgets or schedules. despite its generally rare application in project management, the monte carlo is still applied in some project management practices. its use is mainly connected to knowledge areas of cost and time management in order to quantify the level of risk on a projected budget or competition time (acebes et al. 2015; hazir, 2015). therefore, the monte carlo simulation can help to reveal the probability of meeting a planned finish date, or to point to the expected results in terms of time and cost, with a certain degree of reliability, for example 90% confidence (williams, 2003). when it comes to time management, the monte carlo can be used in the process of schedule development to quantify the confidence of meeting a targeted completion date. the simulation of project schedules using the monte carlo method is one of the foundations of quantitative risk analysis (salkeld, 2016; vanhoucke, 2016; wanner, 2013). in order to get the best possible activity duration estimates, industry experts assign a certain probability distribution function to each project activity. the use of the three-point estimate (optimistic, most likely, pessimistic) represents a simplified way of assigning probability distributions to each activity. once defined, these measures are usually fitted to normal, beta or triangular distribution for each project activity. this is done by the project manager, who is then able to calculate the probability of achieving the planned date or completing the project in any other time period. this type of risk quantification enables 12 goran avlijaš 2019/24(1) setting schedule reserves on a more objective basis. the execution of the monte carlo simulation can be done with one of the project management software packages (such as primavera project planner or microsoft project), with software specialized in project risk analysis (such as tamara or safran risk) or with some simulation add-ins (such as oracle crystal ball, modelrisk or @risk). 3. case study and data analysis a simple case will be used to illustrate how uncertainty in scheduling projects can be managed with the use of monte carlo simulations. the key advantages of a simulation approach include the use of optimistic, most likely and pessimistic values for each probabilistic input and standard distributions for the events, which would otherwise need to be divided into a limited number of categories. the definition of distributions is followed by a random selection of inputs (usually thousands of times) in order to generate a frequency distribution of the outcome variable. this outcome should provide the probabilities of meeting the deadline or finishing the project earlier than planned, as well as much other useful information for the decision-making process. in order to apply a proper risk analysis, certain assumptions need to be made about the probability distributions that describe key parameters and independent variables. these are usually very difficult to define, which makes this step one of the most significant in the whole process. in order to estimate the probability of the outcome variable and different risk profiles, a simulation software is used. the simulation software (in this case the oracle crystal ball) represents the decision support system, which uses a mathematical model and selects samples from the assumed distributions for each input. selected inputs are then plugged into the model thousands of times, and the outcomes are calculated and displayed. the key output represents the distribution of the outcome variable. table 1: activities and their attributes for selected project the described process will be illustrated using fictive project data, adapted from meredith and mantel (2011). it was chosen due to its capability to illustrate the key benefits and drawbacks of such an approach in a simplified way. table 1 includes information regarding dependencies, durations and other derived values, such as total slack (float), expected durations, and variance for each project activity. finding the duration of the critical path, as well as the durations of other paths in the network, is based on an analytical approach, and on the assumption that probability distribution for activity duration is best described as beta distribution. although the beta distribution was used for illustration purposes, the oracle crystal ball software allows the use of a wide variety of probability distributions to generate random numbers for the simulation. expected durations for each activity (te) are calculated using three time estimates (a–optimistic, b– pessimistic, and m–most likely time estimate or mode), which indicate the risk associated with the time required to complete each activity. expected durations (te) are calculated using the formula based on the beta statistical distribution (eq. 1). the beta statistical distribution is used more often than a common normal distribution, as it is very flexible in form and is able to deal with extremes such as when a = m, or b = m. in other words, the expected duration (te) represents a weighted average of three values (a, m, b) with associated weights 1-4-1, respectively. (1) the process of estimating the activity duration has been criticized by a number of academics. a general opinion is that estimated activity times are often considered as targets, and the success of the critical path method (cpm) or the program evaluation and review technique (pert) is attributed to the process of time 13 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) id activity name predecessor id optimistic duration (a) most likely duration (m) pessimistic duration (b) expected duration (te) variance ( 2) total slack 1 a 10 22 22 20 4 0 2 b 20 20 20 20 0 1 3 c 4 10 16 10 4 4 4 d 1 2 14 32 15 25 0 5 e 2;3 8 8 20 10 4 5 6 f 3;2 8 14 20 14 4 9 7 g 2;3 4 4 4 4 0 1 8 h 3 2 12 16 11 5.4 4 9 i 8;7 6 16 38 18 28.4 1 10 j 4;5 2 8 14 8 4 0 estimation rather than to the estimates themselves. therefore, duration estimates often become “self-fulfilling prophesies”. additionally, due to the impact of parkinson’s law, which states that work tends to expand to the maximum time allowed, actual activity durations are rarely shorter than the estimate of the mode. in most of the cases these estimates are greater, which accounts for the right skew of the distribution (williams, 1995). figure 1: the “activity-on-node” network diagram for selected project also included in table 1 and in the nodes in figure 1 are measures of the uncertainty related to the duration of each project activity: the variance and the standard deviation (eq. 2). the calculation of the standard deviation(σ) is based on the assumption that the standard deviation of a beta distribution is approximately one-sixth of its range . using the numbers given in the table, variance can be used to calculate the probability of completing the project in time (for example 89% for competition of critical path within 50 days). the last column in table 1 represents the total float or slack, i.e., the difference between the late start (ls) and the early start (es) for an activity. (2) the use of the monte carlo simulation for project time management, besides sound statistical background, requires knowledge in key project management concepts, such as the cpm/pert. the cpm is a scheduling algorithm, which calculates early and late start and finish times of each project activity, as well as determines a critical path, activity floats, and other schedule parameters (east, 2015; plotnik & o’brien, 2009; kerzner, 2017). as can be seen from figure 1, the critical path consists of activities a-d-j, and the shortest time in which the entire project with predefined dependencies can be completed is 43 days. nevertheless, noncritical paths that include activities with large variances or durations close to critical (activities with little slack) should also be monitored. a situation in which two or more paths come together or merge is known as the “merge bias” problem (hulett, 2012). the probability of both paths finishing on time is equal to the product of probabilities for each individual path. in case one of the alternative paths has a low slack and/or significant path variance, it should not be ignored, and a simulation approach should be used. the use of simulations is one of the best ways to investigate the nature and interactions between probabilistic paths in a network diagram. in earlier times, simulation processes were difficult and time consuming, but available software has significantly simplified the procedure. as stated by levine (1996), although there are many software environments in which simulations can be performed, they are most commonly performed in extensions or add-ins to a well-known spreadsheet or project management software. the crystal ball was chosen as it allows simple simulations of interactions within project networks, provides data on probability of completing paths by specific deadlines and includes results of potential path mergers. ; 14 goran avlijaš 2019/24(1) start 0 0 0 0 c, 10, 4 0 10 4 14 b, 20, 0 0 20 1 21 a, 20, 4 0 20 0 20 g, 4, 0 20 24 21 25 f, 14, 4 20 34 29 43 e, 10, 4 20 30 25 35 d, 15, 25 20 35 20 35 h, 11, 5.24 10 21 14 25 i, 18, 28.4 24 42 25 43 end 43 43 43 43 j, 8, 4 35 43 35 43 legend es ef ls lf figure 2: defining assumption for activity “i” in order to make a model that simulates project completion times, firstly labelling columns for each activity, each path through the network diagram and “completion time” needs to be done. one of the most difficult tasks is identification of all paths, and project management software can be of major assistance. the next step consists of defining assumptions, which includes a selection of the appropriate probability distribution for each project activity, and entering of parameters (as shown in figure 2). for this purpose a betapert probability distribution was used, which represents a special case of the beta distribution that takes three parameters (minimum, maximum, and mode). unlike the triangular, the betapert uses these parameters to create a smooth curve that fits well to the normal or lognormal distributions (davis, 2008). in total, eight paths through the network were identified (a-d-j, b-e-j, b-f, b-g-i, c-e-j, c-f, c-g-i, c-h-i), and formulae that sum up the duration for each of identified paths were defined. path durations represent the sum of tes for project activities on each path (sum function). the last step includes definition of forecast (project completion time), given as the formula which finds the longest of the paths for each executed simulation (max function). in other words, this variable represents the critical path for any of 1,000 executed trials. since centraltendency statistics such as mean, median, and mode usually stabilize sufficiently at 500 to 1,000 trials per simulation, the number of trials was set at 1,000. this is also the default number of trials in the oracle crystal ball. figure 3: frequency chart for project completion time after running the simulation for 1,000 trials, the statistical distribution looks like the project completion time frequency chart depicted in figure 3. the statistical distribution has a mean of 45.89 days and a median of 45.67 days. the expected critical path completion time, calculated earlier with the beta distribution, was 43 days. the simulation found greater mean time due to the impact of path mergers. the percentiles data in table 2 show the percent of the trials completed at or below days shown. 15 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) table 2: summary statistics and percentile probabilities of completing the project in “n” days another useful output of simulation is finding out the likelihood of completing the project in a specific timeframe. the probability of completing the project in 50 days, for example, appears as a certainty value, and in this case it amounts to 77.69%. adding another dependent variable in terms of the longest path, the simulation enables gathering interesting information regarding the critical path change. if each path (a-d-j, b-e-j, b-f, b-g-i, c-e-j, c-f, c-g-i, c-h-i) were denoted as a number from 1 to 8, respectively, the frequency output after 1,000 iterations would look similar to figure 4. figure 4: critical path frequency chart from figure 4, it can be seen that the most important path through the network is path 1 (a-d-j), which accounts for 55% of all critical paths identified during simulations. this path was originally identified as critical using the beta distribution and expected completion time. besides the critical path a-d-j, one needs to take into account paths b-g-i and c-h-i, since they become critical in around 40% of cases when pessimistic scenarios concerning the activities that comprise these paths come true. 16 goran avlijaš 2019/24(1) statistics project completition time percentiles project completition time trials 1,000 0% 33 base case 24.00 10% 39 mean 45.89 20% 41 median 45.67 30% 43 mode --40% 44 standard deviation 5.17 50% 46 variance 26.73 60% 47 skewness 0.16 70% 49 kurtosis 2.55 80% 51 coeff. of variation 0.11 90% 53 minimum 33.04 100% 61 maximum 60.52 -- range width 27.48 -- mean std. error 0.16 -- figure 5: activity and project duration correlation chart the best way to illustrate the interdependence between the total project duration and individual activity duration is by using the scattered diagram, as shown in figure 5. the greatest impact on the total project duration can be that of the activities “i” and “d”, since these activities have the largest duration variance. these correlations are significant and should be closely monitored during project execution, as these activities will most likely become part of the critical path. 4. discussion of the potential benefits and limitations this example has demonstrated some of the most common benefits of simulation when it comes to project time planning: expected critical path completion time, likelihood of completing the project in a specific timeframe and significance of certain activities and paths through the network. using analytical methods in a traditional environment for dealing with large amounts of data, calculation of path mergers and probabilities of completion for different project durations and calculation of impact of different assumptions about activity distributions can be very difficult. on the other hand, simulations deal with these problems very easily. project managers tend to disregard the benefits of simulations by suggesting that the only significant pieces of information they need are the expected, fastest and longest possible times of completion (meredith & mantel, 2011). these can easily be found by examining optimistic and pessimistic durations for each activity. in that sense, the shortest time in which the illustrated project can be completed is 30 days (critical path be-j), and the longest is 70 days (critical path c-h-i). the probability of either of these two scenarios (b-e-j to take the minimum values or c-h-i to take maximum values at the same time) is so small that it is often ignored. the probability that the activity will take longer than pessimistic, estimated at 3 level, is equal to 0.0013 (1 0.9987). similarly, the probability that these three activities will simultaneously take values above their estimates is 0.000000002 (0.00133). it should also be considered that all other activities should simultaneously maintain required values, which is even less likely. other scenarios in which the project can be extended to last beyond 70 days, caused by external factors, are also possible, regardless of insignificant probability. this is the reason for continual risk identification and analysis throughout project execution. 4.1 limitations of the monte carlo method in earlier years, among the most significant obstacles concerning the use of monte carlo simulations were the lack of computer power and the amount of time required to execute the simulation activity (williams, 2003). another drawback was the lack of easy-to-use software environments in which simulations could be performed. as demonstrated by the case study, these concerns became obsolete and lost their foundations when different add-ins to traditional scheduling software and spreadsheet tools were introduced (such as the oracle crystal ball). 17 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) one of the key drawbacks of the monte carlo use is the selection of appropriate probability distribution for each activity (williams, 2004). if the activity duration distribution is inadequate, simulation results will be inadequate as well. therefore, the activity duration estimation process normally requires prior experience and expert knowledge. even when duration is given by an expert in the form of a three-point estimate and applied into the model, there is still some residual uncertainty, which might cause a longer or shorter duration than expected. data and experience from similar projects in the past are crucial assets in obtaining correct probability distribution and mitigating uncertainty in time estimates. the sample project in this study used a three-point estimate based on expert knowledge and historical information. however, these data are often not available (agarwal & virine, 2017). and the project team must build the model with caution in terms of definition of estimates and choosing appropriate probability distribution in order to get the most useful information for the simulation process (davis, 2008). another potential drawback of the monte carlo is the use of very wide project duration distribution and the presence of managerial interventions along the way (williams, 2003). simulations execute each iteration according to defined parameters and selected distribution, assuming that there will not be additional management action. in reality, managers faced with severe delays will execute different actions in order to recover the lost time and put the project back on track (vanhoucke, 2013). there were attempts in the past to build such simulation models with integrated management action, but their application was almost impossible in practice due to high complexity (williams, 2003). the monte carlo can serve as a very powerful tool, but only as long as the model and information used reflect the actual situation in the field. in cases where the project network or model used deviates from reality, simulation results will be inaccurate and of little use to the project team. 4.2 improvements of monte carlo method in order to improve the performance of the monte carlo approach in practice, many researchers have investigated these drawbacks and suggested various modifications. graves (2001) investigated different probability distributions that can be used for project activity duration, and proposed the use of lognormal distribution. instead of close-ended distributions, he suggested the use of open-ended distributions, which allow for the occurrence of the never-expected scenario that the activity will be completed beyond minimum and maximum values. another improvement related to real-life situations was proposed by button (2003), who stated that organizations rarely execute single projects and suggested an improved model for a more complex programme environment. in order to account for multi-project organizations and non-project work, he modelled a periodic resource output for each resource across all project activities using predefined priority rules. although the model proved to be more accurate for multi-project organizations where resources are used on many different activities, it did not experience a wider use. the main reason was its complexity and incompatibility with the commercially available software environment. some improvements of the monte carlo simulation have aimed at being industry-specific, such as for finance and investment risk analysis (arnold & yildiz, 2015). hurley (1998) investigated simulation of net present value (npv) and suggested the use of martingale, in order to shrink variance and reduce the error in each successive period of the project. balcombe and smith (1999) proposed easy-to-use models that included trends, cycles, and correlation matrices, which would lead to a more accurate quantification of investment risk in regard to traditional npv simulation. javid and seneviratne (2000) developed a model of the monte carlo to examine the impacts of uncertainties of cash flow on project feasibility and to provide a sensitivity analysis. several studies have tried to overcome the problem of defining statistical distribution that characterizes the duration of a project activity. in cases where there are not enough empirical data or where expert judgment is not sufficient to define statistical distribution, one of the solutions can be to combine risk events with statistical distributions. the analysis of project risks with events, also known as “risk events,” has been used since early 2000s (virine & trumper, 2009, 2016). the intaver institute (2017) defines the event chain methodology as uncertainty modelling and schedules an analysis technique that aims at identification of management events and event chains that affect schedules. 18 goran avlijaš 2019/24(1) 19 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) the event chain methodology is an extension of traditional event-based quantitative risk analysis, as it provides modelling and analysis of a variety of problems related to project schedule risks. according to this methodology, project activities are affected by risk events that transform them from one state to another (excitation process), which means that activities will perform differently if the event occurs. events are characterized by probability, impacts, excited state and moment of event, and can be related not only to project activities, but also to project resources. in order to visualize how event chains affect the project schedule, event chains are usually created. for the last 10 years, the event chain methodology has been used in many actual project schedules of different sizes and industries. these have included private companies, government agencies and non-profit organizations in construction, pharmaceutical, aerospace, information technology, oil and gas and other sectors. in many of these cases, it was possible to compare the performance of the traditional monte carlo method and risk-adjusted schedules using the event chain methodology. agarwal and virine (2017) concluded that risk-adjusted schedules performed better and were much closer to actual performance in comparison with schedules created using the traditional monte carlo method. conslusion this paper has investigated the use of monte carlo simulation, primarily focusing on project time management. taking into account the inseparable relationship of time management with project cost and risk management, and the nature of the monte carlo methodology, most of the findings related to schedule management and time reserves can also be attributed to management of potential risks, budget and cost reserves. in order to make these benefits and drawbacks of the monte carlo method more tangible, practical use was illustrated using a short example. the practical example has shown that monte carlo simulations can handle analysis of schedule risk very easily. the monte carlo proved to be a significant tool that project managers can use to incorporate uncertainty into their project schedules and networks, in order to obtain reasonable duration expectations. the results monte carlo provides are purely quantitative and provide a sound basis for contingency decision making. advances in information technology allowed implementation of simulation much more easily than before. building on a practical example and the main features, some limitations and potential improvements to the monte carlo simulation have been reviewed. even with the existence of identified limitations, the monte carlo simulation remains the primary method for quantitative time and schedule analysis. additional value can be obtained using different improvements on the traditional approach, such as the use of risk-adjusted schedules and event chain methodology. the future implementation of these improvements mostly depends on industry and individual project requirements, so their applicability needs to be carefully considered before practical use. the development of easy-to-use tools and their integration with traditional project scheduling environments narrows the gap between required and existing statistical knowledge that project managers usually face during risk and time management processes. as more studies propose applicable and practical improvements, it is expected that the monte carlo simulation will become more popular and experience a wider use in practice. in order to realize the full advantages of the monte carlo simulation, another important activity would be the development of quality training programmes which demonstrate hands-on experience for practitioners. references [1] acebes, f., pereda, m., poza, d., pajares, j., & galan, j. m. 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[35] williams, t. m. (1995). what are pert estimates?. journal of the operational research society, 46(12), 1498–1504. doi: 10.1057/jors.1994.209 [36] williams, t. (2003). the contribution of mathematical modelling to the practice of project management. ima journal of management mathematics, 14(1), 3–30. doi: 10.1093/imaman/14.1.3 [37] williams, t. (2004). why monte-carlo simulations of project networks can mislead. project management journal, 35(3), 53–61. received: 2017-08-25 accepted: 2018-02-06 goran avlijaš singidunum university, belgrade, serbia gavlijas@singidunum.ac.rs goran avlijaš holds the position of assistant professor at the singidunum university, where he teaches project management and entrepreneurship courses. he has obtained his bachelor’s and master’s degree from the faculty of organizational sciences, and his phd degree from the singidunum university. he has worked in distribution sector, project management and management consulting in several multinational companies. he is also a certified project management professional (pmp), the author of two textbooks and numerous scientific papers, as well as a visiting lecturer within the erasmus+ mobility programme. 21 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) about the authors << /ascii85encodepages false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08 kauppinen_book review:tipska.qxd 85 antti kauppinen rmit university, australia book review doi: 10.7595/management.fon.2018.0030 abstract: since the early conceptualizations of the social entrepreneurship concept (e.g., mort, weerawardena& carnegie, 2003), the scholars have been offered an alternative model to consider entrepreneurial behaviour. in fact, social entrepreneurship is a phenomenon in which individuals (i.e., social entrepreneurs) strive for a social mission, which aims at a lasting benefit to society (dees, 1998). potentially one of the most known examples of such social entrepreneurs is muhammad yunus, who had a mission to help people in their attempts to acquire microcredits (i.e., small loans that these people could not otherwise get) (martin &osberg, 2007). one reason why the free market cannot always solve such social initiatives is the economic rationality: an incentive to strive for a social benefit (i.e., a benefit, which primarily helps society, but not the actor, who runs after it) does not make sense, because the actors are selfish (chen, yao &kotha, 2009). cable and shane (1997) found an extreme nature of selfishness in their sample testing the famous prisoner’s dilemma in the entrepreneurship context, and suggested that entrepreneurs should cooperate with venture capitalists in order to gain mutual benefit. this type of a selfish benefit-seeking is encapsulated with most of the models of the current entrepreneurship and social entrepreneurship theory (bacq& janssen, 2011). because entrepreneurship has been considered as an individual’s (or a team’s) wealth-generating machinery, social entrepreneurship has sometimes been considered as voluntary work (shaw & carter, 2007). however, the definition of social entrepreneurship is not actually restricted to the idea that a social entrepreneur should be a voluntary worker. by contrast, a social entrepreneur is defined as “a pathbreaker with a powerful new idea, who combines visionary and real-world problem-solving creativity, who has a strong ethical fiber, and who is totally possessed by his or her vision for change” (bornstein, 1998, p. 37). therefore, instead of only being considered as a person who tries to compromise his or her personal wealth creation with the social values that his or her social enterprise is targeted to produce (which can surely be a form of social entrepreneurship [see thompson,alvy& lees, 2000]), a social entrepreneur can also be considered as a game-changer in his or her industry (i.e., a label often used when considering a pure economic logic of one’s business model, for example [see osterwalder &pigneur, 2010). one of the newest approaches considering those situations, in which both economic and social logics function alongside each other, is called transformational entrepreneurship. although miller and collier (2010, p. 85) defined transformational entrepreneurship as “the creation of an innovative virtue-based organization for the purpose of shifting resources out of an area of lower and into an area of higher purpose”, the development of the concept has not been particularly active. ratten and jones’ (2019) book transformational entrepreneurship is a positive exception to that trend. ratten and jones (2019) have collected and edited interesting chapters together, which offers new insights on the topic traditionally known as social entrepreneurship. ratten and jones’ (2019) approach is interesting, because it challenges the traditional triple bottom line model, in which its elements (i.e., economic, social, and environmental) are often seen as complementary. although the triple bottom line model is definitely important, it still suggests that economic and social targets are contradictory in business (see frederick, o’connor &kuratko, 2016). ratten and jones’ (2019) book offers an alternative view on this topic. after defining the concept of transformational entrepreneurship as a phenomenon (in the opening chapter of their book), in which both targets (economic and social) are strived for simultaneously, ratten and jones (2019) give a couple of interesting examples where they consider innovation to be one of the most important denominators. in the second chapter, baraibar-diez, odriozola, ladislao, and sotorrio offer an example of the big picture: a topic important for transformational entrepreneurship. in fact, we should not only try book review of: transformational entrepreneurship by vanessa ratten and paul jones. routlege frontiers of business management, routlege, london and new york, 2019. 210pp. isbn-13: 978-1-138-48475-7 management: journal of sustainable business and management solutions in emerging economies 2019/24(2) to measure, for example, how many meals a transformational entrepreneur could deliver to homeless people, but particularly concentrate on how much this transformational and entrepreneurial activity reduces hunger in total. in the third chapter, ratten, duarte, marques, and braga write about geoparks (for example those of the unesco), which are spaces for generating multiply value types: educational, science, culture, and socio-economical (again: as an illustrative example of the situation where many aspects are not only complementary, but also symbiotic). ratten and jones’ (2019) next chapter (chapter 4) offers a more traditional case of social entrepreneurship: the handicraft industry. even from that more traditional case, hernández, moreno, and hernández found that economic and cultural values can support each other. additionally to that social entrepreneurship case, david and terstriep (in chapter 5) show how opening the eu-borders can be analysed from the entrepreneurship point of view. although the opening the eu-borders is often a political debate, in which the feelings can escalate (for example in germany that a part of this case considers) (more details of the literature on this topic described in the chapter), david and terstriep show how a less-studied form of entrepreneurship (i.e., informal ethnic entrepreneurship) can particularly benefit from those political circumstances and how individuals can become really entrepreneurial just because of those situations. it seems that the ethnic entrepreneurship topic could be highly interesting for the future research as part of the legitimate vs. illegitimate vs. legal vs. illegal discourse in the entrepreneurship field (see webb, tihanyi, ireland &sirmon, 2009). transformational entrepreneurship is not only about new and small ventures. as entrepreneurship itself, there is a version of the phenomenon that takes place in already existing organizations (see burgelman, 1983). in fact, the sixth chapter of ratten and jones’ (2019) book informs about this topic. in it, barrenamartinez, lopez-fernandez, and romero-fernandez explain how a company that takes transformational entrepreneurship seriously can offer new methods of communication, for example an employees’ breakfast or an innovative two-day-long strategy formulation event, which helps employees to get more involved in a company’s activities that can affect their commitment level positively. furthermore, in the seventh chapter, miller and poyago-thetoky keep developing the inside-organization version of transformational entrepreneurship in the context, which is not traditionally considered very entrepreneurial: the mining sector. miller and poyago-thetoky found innovation practices, which can be beneficial in understanding mining as a business, but also as a method for developing innovations in other organisations. a book considering an entrepreneurial topic would be distorted without a view on individual. the eighth chapter of ratten and jones’ (2019) book considers innovativeness, highlighting its qualities for individuals. in this chapter, omri takes a novel perspective linking entrepreneurial creativity and religious capital. with a case of muslim religion and its positive values and practices, omri conducts a statistical analysis and shows that following such a code of conduct may result in more entrepreneurial practices. in the similar vein, cultural practices are considered in the ninth chapter of the ratten and jones’ (2019) book. in that chapter, torres and augusto explicate that culture may explain some of the variance of women’s self-employment rate. as ratten and jones (2019) explain in their book, it is critical to understand the details ofculture, because it has a direct connection to how transformational entrepreneurship and its principle of maximizing multiply values (e.g., those of social, economical, and environmental) can function in theory and practice as a symbiosis. the three final chapters of ratten and jones’ (2019) book highlight companies’ innovative capabilities. in the tenth chapter, zheng and laurin explain how open innovation is a platform that may enable knowledge creation and capacity building in corporate life. zheng and laurin use illustrative examples of alibaba group and shop.com/market america in order to point this out.those examples highlight two strategies, insideout capability (applied at alibaba) and inside-out/outside-in capability (applied at shop.com/market america) of which both offer interesting insights for companies and their founders, who want to take transformational entrepreneurship seriously. the final aspect of the book, sport innovation, scrutinized by tjønndal, is an important aspect of the social element of human life. in fact, as tjønndal explains, collaboration of any sort is a key in an efficient innovation practice at organizations, and the practices derived from sport may help in making this target happen.tjønndal uses an interesting case which illustrates that innovation is an outstanding challenge to organisations as a constant practice instead of a one-time-event. ratten and jones (2019) have started an interesting conversation of transformational entrepreneurship in their book. according to their final chapter,ratten and jones share their insights on the concept of transformational entrepreneurship: it might give most of its value as an engine that takes the social aspects into consideration without losing the benefits that a highly-performing firm founder aims at when trying to enter the market. as a multiply level phenomenon, transformational entrepreneurship offers new perspectives into theory and practice, and its conceptualisation has got an interesting beginning with this book, especially as an extension to what we already know from the social entrepreneurship literature. 86 antti kauppinen 2019/24(2 references [1] bacq, s.& janssen, f(2011). the multiply faces of social entrepreneurship: a review of definitional issues based on geographic and thematic criteria. entrepreneurship and regional development, 23(5-6), 373 – 403. [2] bornstein, d.(1998). changing the world on a shoestring. the atlantic monthly, 281(1), 34 – 39. [3] burgelman, r. a.(1983). corporate entrepreneurship and strategic management: insights from a process study. management science, 29(12), 1349 – 1364. [4] cable, d. k.& shane, s. (1997). a prisoner’s dilemma approach to entrepreneur-venture capitalist relationships. academy of management review, 22(1), 142 – 176. [5] chen, x-p, yao, x.&kotha, s.(2009). entrepreneur passion and preparedness in business plan presentations: a persuasion analysis of venture capitalists’ funding decisions. academy of management journal, 52(1), 199 – 214. [6] dees, g.(1998). enterprising non-profits. harvard business review, 76(1), 54 – 56. [7] frederick, h., o’connor, a.&kuratko, d. f. (2016). entrepreneurship: theory, process, practice. cengage learning: south melbourne, victoria, australia. [8] martin, r. l.&osberg, s.(2007). social entrepreneurship: the case for definition. stanford social innovation review, springissue, 29 – 39. [9] miller, r. a. & collier, e. w. (2010). redefining entrepreneurship: a virtues and values perspective. journal of leadership, accountability and ethics, 8(2), 80 – 89. [10] mort, g. s.,weerawardena, j.& carnegie, k.(2003). social entrepreneurship: towards conceptualisation. international journal of nonprofit and voluntary sector marketing, 8(1), 76 – 88. [11] osterwalder, a. &pigneur, y. (2010). business model generation: a handbook for visionaries, game changers, and challengers. new jersey: john wiley & sons, inc. [12] ratten, v. & jones, p. (2019). transformational entrepreneurship. routlege frontiers of business management, routlege: london, uk and new york, usa. [13] shaw, e.& carter, s.(2007). social entrepreneurship: theoretical antecedents and empirical analysis of entrepreneurial processes and outcomes. journal of small business and enterprise development, 14(3), 418 – 434. [14] thompson, j. l.,alvy, g.& lees, a.(2000). social entrepreneurship – a new look at the people and the potential. management decision, 38(5), 328 – 338. [15] webb, j. w.,tihanyi, l., ireland, r. d.&sirmon, d. g.(2009). you say illegal, i say legitimate: entrepreneurship in the informal economy. academy of management review, 34(3), 492 – 510. accepted: 2018-11-01 antti kauppinen rmit university, australia antti.kauppinen@rmit.edu.au dr. antti kauppinen works as a lecturer of entrepreneurship at the rmit university in melbourne, australia. he did his phd at oulu business school, finland, and also visited copenhagen business school, denmark, when studying opportunity creation and the process of becoming an entrepreneur, in particular. afterwards, he has been working in numerous countries (e.g., uk, usa, netherlands, germany, and italy) as an external lecturer and researcher. his current research considers nascent entrepreneurs’ (e.g., business students, incubator participants, freelancers, and athletes’) activities, cognitions (e.g., emotions, cognitive capabilities, decision-making, attitudes to failure etc.), and narratives which are related to their start-up business creation/development and which are often antecedents of these individuals’ firms market entries. he has experience in coaching start-ups and sportsmen, and he also has an experience as an athlete himself. his published work can be found in ephemera, international journal of entrepreneurial venturing, journal of international entrepreneurship, and international journal of sport management and marketing. 87 management: journal of sustainable business and management solutions in emerging economies 2019/24(2 about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04_vukmirovic:tipska.qxd 37 valentina vukmirović1, dejan petrović2, milica kostić-stanković2 1phd student, faculty of organizational sciences, university of belgrade 2faculty of organizational sciences, university of belgrade management: journal of sustainable business and management solutions in emerging economies 2017/22(3) abstract: according to the available data on economic trends in serbia, it is noticeable that companies in wood industry do not use their capacities to the maximum. furthermore, a significant number of newly founded small enterprises, shortly after their establishment, go bankrupt or go into liquidation. research works that have been conducted so far have indicated that, most commonly, company deterioration is caused by a lack of strategic approach in business management and company development. the aim of this paper is to gain an insight into the extent to which wood industry enterprises apply strategic approach (their vision, mission and development strategies) when making business decisions, as well as the effects of such approach. this will be achieved by analyzing collected questionnaires and interviews with competent experts from wood industry monitoring institutions. besides, swot and pestle analyses of the surveyed companies will be conducted. furthermore, possible solutions for overcoming weaknesses and threats emerging in serbian wood industry development will be indicated. likewise, the possibilities for encouraging industry development and increasing its competitiveness level will be presented. key words: strategic management, serbian wood industry, swot, pestle, competitiveness. jel classification: l10, l60, d81 strategic management and its effects on serbian wood industry doi: 10.7595/management.fon.2017.0027 1. introduction primary wood processing and secondary furniture production are industry branches of strategic importance for creating gross domestic products, employment, exports etc. (glavonjic et al., 2009). serbia abounds in high quality forest resources which, supported by long tradition of wood processing, present significant developmental potential for numerous industrial sectors, as well as promotion of overall economic situation in serbia. according to reports of serbian development agency, direct foreign investments into wood industry amount to €250 million, accomplishing a growing surplus in terms of commodity exchange with foreign countries. (forest based industry, 2016) however, studies indicate that the dynamics of wood industry development is not homogenous, which is best shown in the example of significant differences regarding the level of technological development, implementation of innovation, investment into development and research activities, applying knowledge and internationalization. (id:wood, 2014) additionally, the structure of wood industry production indicates that export of raw materials and semi-finished products dominate with over 70%, while finished products, such as furniture, that, owing to quality raw materials and production technology could have much more important role by establishing premium prices, participate with less than 30%. (forest based industry, 2016) also, imbalanced territorial distribution of production capacities often located remotely from the source of the raw materials, which largely increases transport costs, indicates that wood industry development is not considered strategically. results of the research presented in this paper are in favor of this statement. 32 serbian wood industry enterprises were surveyed. the research has indicated that domestic companies have access to high quality raw materials, are well-equipped technically, and have highly qualified and experienced staff. however, only a small number of them do business successfully. therefore, the authors of this paper have attempted to provide the answer to the question of why the vast majority of domestic enterprises in wood and furniture industry are not competitive in domestic and foreign markets. the main assumption presented in this paper refers to the lack of strategic management concept in domestic enterprises as a primary issue in achieving competitive position in the market. in this paper, proposals on how to promote competitiveness of domestic enterprises based on the implementation of the clustering concept at the industry level, as well as the implementation of strategic management concept to the individual company level, will be elaborated. 2. theoretical framework – the role of vision, mission and strategic planning in the success of entrepreneurial venture numerous authors (chun and davies, 2000; mullane, 2002; ingenhoff and fuhrer, 2010) emphasize the importance of mission and vision as strategic tools in organization management, as well as in achieving specific goals such as maintaining and promoting competitive advantage, positioning and differentiating, and creating corporate identity and reputation. peters (1997) claims that company can survive only if all of its employees are aware of the importance of a vision for the company’s success, whereas kotter (1996) puts emphasis on the motivational influence of a vision upon the employees. according to dess et al. (2007), the vision can present the most important asset of an individual entrepreneur or organization. wickham (2004) claims that vision transforms into target results by creating strategic aims which present the manager’s statement that specific results will be accomplished in a given time period. additionally, the author emphasizes that strategic aims are tightly related to the company’s mission and vision and that these focus on values, market and customers that differentiate the company in relation to its competition. while the vision represents a desired future position of the company (ingenhoff and fuhrer, 2010), the mission refers to organizational management current issues, such as existence purpose, competitiveness basis and competitive advantage. (dess et al., 2007) biloslavo and lynn (2006) claim that mission statements are short documents in which purpose and function of a specific organization are expressed. therefore, a mission statement is an organizational and cultural symbol, as well as a technical element of the organizational strategy. flashaw et al. (2006) state the opinion given by strategic management theoreticians (greenley, 1994; sinha, 1990; ramanujam and venkatraman, 1987) who emphasize the positive association between strategic planning and company’s business performances. according to the above mentioned authors, the key points of strategic management are mission creation and objectives setting, as well as implementation of strategies needed for accomplishing objectives and for their monitoring. also, flashaw et al. present us with boyd’s opinion (1991) who states that an effective system of strategic planning, which connects long-term strategic goals with middle-term and operational plans, enables organizations to achieve better results compared to competition that does not apply the process of strategic business planning. certain authors, such as dermol (2012) share opinions expressed by other authors (bart et al., 2001; bartkus et al., 2000) who claim that managers consider a mission statement as one of the most important management tools. furthermore, dermol presents other authors’ opinion (musek lesnik, 2008; stallworth williams, 2008) who claim that mission encourages strategy implementation, promotes organizational climate, external communication and company management. moreover, dermol (2012) directly relates the company’s mission statement with its business success, taking financial results into particular consideration. cambell et al. (2001) state that mission consists of five elements: business argumentation, corporate values, standards, behavior and strategy. those five elements, if symbiotically related, can create a strong mission. other authors emphasize that a carefully designed mission statement can be a key factor of strategic planning, as well as the starting point of a successful competitive strategy. (fink and kraus, 2009) in exploring export strategies of forest products in the context of transition, brodrechtova (2008) states that one of the greatest challenges which enterprises must cope with in domestic and especially foreign markets is environmental insecurity. this can be confirmed by spetic et al. (2016) who discuss the critical factors of competitiveness for the british columbia secondary wood products industry. the authors corroborate the opinion of drejer (2002) and harris and twomey (2010) that strategic management has to result in solutions for adjusting to the “rapidly evolving, complex external environments and trends related to internationalization, technology, and sustainability” in addition to integrating strategic frameworks. this claim can be confirmed by parobek et al. (2016) who state that globalization has affected all industries, including forest based industry as well. this implies that, in order to face international competition, “new strategies and advantages are required”. furthermore, brodretchova (2008) quotes the opinions of other authors (barney et al., 2001; eisenhardt and martin, 2000; makadok, 2001) who claim that, in order to formulate and implement appropriate strategic solutions, companies must not only be in possession of resources and capabilities, but must have the knowledge of how to organize them. using a sample of 394 slovene enterprises, dermol (2012) established that having a clearly defined vision directly influences vae (value added productivity per employee) indicator of company business performance. amran (2012) cites research results of other authors (rarick and vion, 1995) who established that having a 38 valentina vukmirović, dejan petrović, milica kostić-stanković 2017/22(3) mission directly influences the increase in stockholder’s equity, whereas collins and porras (1991), as well as hamel (2009) determined that company mission has a very significant motivational effect on employees and influences the company competitiveness. alawneh (2015) states other authors’ opinion (bart et. al, 1998), who emphasize the positive correlation between company mission and non-financial business indicators, whereas sufi and lyons (2003) perceived a strong influence of mission on financial results. kim and maubornge (2005) made a special contribution to analyzing mission and vision significance for the purpose of selection of appropriate strategies and strategic plans in creating new market space. the above mentioned claims can be confirmed by the results of a scientific research conducted by rajnoha et al. (2015), among 34 wood processing enterprises from slovakia, which have indicated that the system of strategic performance management is an important tool for improving the overall business performance in slovak wood-processing enterprises. furthermore, kauskale et al. (2016) conducted a research amongst wood manufacturing enterprises in latvia that indicated that implementing strategic and tactic managerial decisions can lead to improvement in enterprise competitiveness. according to the results of sthendahl and roos (2008) empirical research conducted among wood industry enterprises in sweden and finland, the authors claim that the issue of increased competitive pressure from low-cost economies can be solved by developing and implementing new strategies which are focusing on product differentiation. furthermore, toivonen et al. (2005) conducted a research about the significance of intangible quality dimensions of nordic wood industry in the german market. the results of the research indicated that by enhancing their intangible assets, nordic wood industry companies could improve their competitive position in the observed market. bearing in mind all the above mentioned claims, the authors of this paper conducted a research among serbian wood industry enterprises, regarding the significance of strategic management in achieving preferable business results as well as improving their competitive position in local and foreign markets. the research was conducted in order to obtain an insight on the impact of strategic management tools, such as vision, mission, strategic plans and objectives on business results and competitiveness of domestic enterprises. the results and conclusions of this research will be presented in the following sections of this paper. 3. a brief overview of wood based industry in serbia according to the results of the research conducted by glavonjic et al. (2016) presented in the action plan for support to serbian wood industry, at the end of 2014., 2,540 enterprises were active in serbian wood industry. within this number, 1,786 enterprises were engaged in wood processing, while 754 enterprises were engaged in furniture production. the majority of enterprises in the segment of wood processing, 668 of them, were engaged in the production of sawn wood, followed by 434 enterprises engaged in the production of joinery. among enterprises engaged in furniture production, 419 produce other furniture, followed by 199 enterprises producing office furniture and 106 enterprises producing kitchen furniture. in the structure of wood processing and furniture production enterprises, micro and small enterprises are most numerous, while medium and large enterprises participate with 3 and 5 percent in overall structures. the authors of the action plan suggest that this structure is rather unfavorable in terms of export competitiveness and positioning in foreign markets. according to the statistical yearbook of the republic of serbia from 2016, the total number of employees in serbian wood industry in 2015 amounted to 22,711. considering the research conducted by vasiljevic (2015), it can be concluded that territorial distribution of wood processing enterprises is not in accordance with availability of wood raw materials. the results of the research have indicated that the largest number of enterprises and employees (37.1%) in wood industry are concentrated in the city area of belgrade, even though its afforested area totals in 2.3% of the overall afforested areas in serbia. on the other hand, in the regions of south and eastern serbia which total 46% of afforested areas, only 13.6% of wood industry employees were concentrated. according to the data provided by the statistical office of the republic of serbia in 2016, the overall achieved operating income of companies and entrepreneurs in the wood industry of serbia in 2014 amounted to € 787 million. according to glavonjic et al. (2016), even though the number of enterprises engaged in furniture production is 2.3 times smaller than the number of wood processing enterprises, their generated revenues are almost equal to the operating income of enterprises engaged in wood processing activities. this piece of information can lead us to a conclusion that domestic wood industry enterprises should focus on producing products with high added value rather than on export of raw materials. 39 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) 4. results of the research 4.1. research methodology simple random sampling was used to create a study sample in this research. the enterprises that took part in this research were randomly selected from the serbian business registers agency (sbra) business entities database. nevertheless, the study sample was created in order to include enterprises of different sizes (micro, small, medium and large) from different regions of serbia, and from different wood processing sectors. in order to conduct the research in this paper, the authors created a questionnaire that consisted of 17 close-ended and open-ended questions. the questionnaire was created in order to provide an insight into strategic management policies amongst serbian wood processing enterprises. the research questions scope included inquiries about enterprises’ attitude towards creating and implementing strategic management elements to their business practice, such as creating a mission, vision, strategic plans and aims, development and action plans, competitive strategies as well as questions related to strategic units responsible for their implementation. furthermore, research questions adressed enterprises representatives’ attitude towards main strengths and weaknesses of their business, as well as towards external opportunities and threats based on which a swot analysis was created. likewise, the research participants were asked about their opinions on political, economic, sociocultural, technological, legislative and environmental issues related to their business in order to realize development potentials and methods for removing obstacles towards achieving business development and growth. the results of this part of the questionnaire were presented in a form of pestle analysis. in this research, 60 questionnaires were forwarded electronically during october-november 2016, while 14 questionnaires were delivered directly during the belgrade furniture fair in november 2016. the response rate was 48.65% 36 out of 74 enterprises completed the questionnaires. out of 36 completed questionnaires, 4 were only partially completed and were not taken into consideration. the remaining 32 fully completed questionnaires were analyzed. descriptive and analytical statistical methods were used in this study. absolute and relative numbers (n,%) were used in the descriptive analysis. for the analysis of the differences in frequencies, analytical statistical methods fisher’s exact test and chi-squared test, were used. all data were analyzed using the ibm spss statistics 22 (ibm corporation, armonk, ny, usa) software package. statistical hypotheses were tested at the level of statistical significance (alpha level) of 0.05.the results were tabulated and graphically presented. based on the research results, the authors proposed a possible solution to enhancing domestic furniture based industry competitiveness and provided implications for further research. 4.2 surveying the enterprises observing the enterprises according to their size, 19 of the analyzed enterprises (59.4%) belong to the group of micro and small enterprises, whereas the remaining 13 are medium-sized or large enterprises (40.6%). according to the type of activity they perform, enterprises were divided into four categories: furniture production – 13 companies (40.6%), production and sales 13 companies (40.6%), parquetry and joinery production – 4 companies (12.5%), production, engineering and designing – 2 companies (6.3%). picture 1: types of activity by category (source: authors’ research) 40 valentina vukmirović, dejan petrović, milica kostić-stanković 2017/22(3) taking into consideration the region in which enterprises perform their activities, the largest number of surveyed enterprises are from: vojvodina – 9 companies (28.1%), central serbia – 7 companies (15.6%), southern serbia – 4 companies (12.5%), city of belgrade – 3 companies (9.4%), eastern serbia – 2 companies (6.3%) and sandžak – 2 companies (6.3%). table 1: strategic categories according to the size of the enterprise (source: authors’ research) the table presented above summarizes the attitudes of interviewed enterprises about implementing strategic management documents in their business processes. as it can be observed, not a single micro or small-sized enterprise had a clearly defined mission (0.0%), while 53.8% of medium-sized and large enterprises had a mission, which is a significant difference, viewed statistically (p<0,001). this points to the fact that entrepreneurs establish small enterprises without market research and strategy creation for their further development. entrepreneurs mainly start small-sized enterprises by taking the existing small enterprises from wood processing industry as role models, which negatively reflects on their further development opportunities. when it comes to medium and large enterprises, the situation is much more favorable. most medium enterprises have grown from small enterprises due to clearly defined mission, vision, strategy and strategic development plans. regarding a clearly defined development strategy for individual sectors, important differences between micro and small enterprises, on one side, and medium and large enterprises, on the other, have been noticed. 63.2% of small and micro companies and 92.3% of medium and large enterprises had a clearly defined strategy. picture 2: relation of implemented strategy according to size of the enterprise (source: authors’ research) the results of the responses to the question on whether surveyed enterprises develop competitive strategies, as a strategic method of distinguishing their offer from competitors and creating a sustainable market niche, indicate that the largest percentage of micro and small enterprises (42.1%) as well as medium and large enterprises (61.5%) opt for the differentiation strategy. when it comes to the focusing strategy, the situation is reversed. 42.1% of small enterprises and only 7.7% of the large enterprises apply the focusing strategy. small enterprises are mostly focused on lower level of wood processing, i.e., producing semi-finished 41 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) ������� ���� �� �������������� ����� � ������ ���������� � �� �� � �� ���� ��� � ���������� ���������������� � ������ � �� ���� �� ����� ���� � ����� � �� ���� �� ��� ����� � ���� ���� ��� ����������� �� ���� �� ���� �� � � ����������� � ��� �� ��������������� �� � ��� �� ���� ����� � ����� �� � � �� ���� � ��� � ����� � ���� ���� ��� �������� �� ���� �� ��� ������ ������������������� ���� ������ � �� ��� � ���� � ��� � ������ 42 valentina vukmirović, dejan petrović, milica kostić-stanković 2017/22(3) products, which results in lower employment and achieving less value added and hence lower profitability of the company. 26.3% of small and micro enterprises and 92.3% of medium and large enterprises had a clearly defined strategic plan and strategic objectives, which is a significant difference, viewed statistically (p<0,001). therefore, the largest number of large enterprises have strategic plans that help them achieve long-term objectives in accordance with their vision statement, whereas small enterprises that do not have a vision, most commonly do not have a strategic plan either. 10.5% of micro or small enterprises and 92.3% of medium and large enterprises had defined action plans, which is a significant difference statistically (p<0,001). 94.7% of micro or small and 100% of medium and large enterprises defined their development projects. the existence of an organizational unit dealing with the realization of strategic projects has been noted in 5.3% of micro or small and 46.2% medium and large enterprises, which is a significant difference statistically (p<0,05). large enterprises with organizational units that deal with strategic projects realization, have 7 times larger percentage share in the structure of interviewed enterprises in comparison with small enterprises. these enterprises apply good practice of contemporary enterprises from developed countries, which consists of efficient cooperation between internal organizational units. (logan, stokes, 2003) with the aim of performing a deeper and more complex analysis of the role and significance of strategic approach to enterprise development, a connection and mutual influence of key factors in the enterprises (swot analysis) as well as influence of external factors on enterprises in wood industry (pestle analysis) have been established. some of the most important issues which provide us with additional insight into the state of wood industry and possibilities for its further development are presented below: • 70.8% of enterprises with a defined vision also have strategic plan and strategic aims, and 29.2% have no clearly defined vision, nor the strategic plan and strategic objectives. • 38.6% of enterprises with clearly defined vision apply a low cost strategy, 35.3% apply a differentiation strategy, whereas 26.1% use focusing as their competitive strategy. • 74.2% of the enterprises which have an organizational unit for strategic projects have achieved business results in accordance with their business objectives, while 25.7% of the interviewed enterprises do not have an organizational unit dealing with strategic projects. • out of 64.2% of enterprises that perceive inadequate technology as a major weakness, 15.4% consider the availability of high quality raw materials as their biggest advantage and remain at the lower level of wood production. • from a total of surveyed enterprises, 28.2% considered lack of competitiveness to foreign products as a main threat to sustainable business, while 21.6% of them considered availability of raw materials as their greatest strength. • 70.3% of surveyed enterprises that did not have a vision and a development strategy, claimed that most of their business problems would be solved by independent appearance in foreign markets with significant financial support from the state. only a small number of enterprises realizes that state authorities have no such ability and seek for business problems solving in creating clusters, i.e., creating common technical services and costs share as in developed countries (bouman, 2003) as well as certain developing countries such as chile, bolivia and columbia, which implement the porter clustering model. (porter, 2007) swot analysis of the surveyed enterprises in order to uncover the opportunities that surveyed enterprises could exploit and point out to their weaknesses and external threats that should be forestalled in order to achieve business growth, the authors of this paper created a swot analysis. the analysis was created based on the questionnaire answers that referred to interviewed enterprises’ perception of their internal advantages and drawbacks, as well as external opportunities and threats. as it can be seen in table 2 presented below, domestic enterprises have mostly recognized the availability of high-quality raw materials as their advantage, which cannot be the base for sustainable competitive strategy. on the other hand, high costs of production that can be related to the inadequate technology implemented are seen as a major drawback, which implies that surveyed enterprises should focus on implementing development strategies whose main aim is to encourage improvement of technological processes through innovations. nevertheless, the lack of strategic orientation on both internal and external level was seen as one of the main drawbacks, which has confirmed the authors’ presumptions that strategic management improvement is the basis for business improvement at the enterprise as well as at the industry level. table 2: swot analysis (source: authors’ research) 4.3 interviewing the experts besides interviewing wood industry enterprises representatives, experts from five public institutions that are competent for wood based industry development were interviewed. those were: serbian chamber of commerce, vojvodina chamber of commerce, agency for wood, wood industry cluster and the faculty of forestry at the university of belgrade. experts interviewing was conducted using the same questionnaire which was delivered to the companies with the aim of obtaining and comparing their answers to the answers obtained from enterprises’ management. the interviewed experts agreed on a number of claims, such as: 1) only a small number of wood industry enterprises (mainly large enterprises) have clearly defined vision, mission and development strategy; 2) enterprises that have clearly defined vision, mission and development strategy develop much more dynamically than those that have not; 3) small enterprises should be encouraged to cluster and thus increase their competitive ability in domestic and foreign markets; 4) processing capacities should be located near the sources of raw materials as much as possible; 5) the wood processing sector deserves a larger social significance and financial support; 6) non-material assets (design, quality, service, innovation, software, brand etc.) should be more prominently emphasized in furniture production activities. based on the data collected from interviewing public institutions representatives as well as desk research which included analyzing strategies and action plans for developing serbian forest based industry, the authors of this paper created a pestle analysis. the aim of this analysis was to provide an insight into the external forces that influence the wood processing industry and the enterprises of this sector, since tracking changes in the environment is necessary for providing an adequate response to them. furthermore, before making a proposal on possible development strategies, which was presented in the following part of this paper, authors had to provide a situational analysis on which the proposal would be based. table 3: pestle analysis 43 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) ������� � ������ ������������������������� ���� � ������ ����������������������� • �������� ����� � ��� � ��� • � ����� ����������� • � ����� ���� �������� • ����� ������� ������ • � ���� ����� ��������� • ������ ������ • ���������������������� • �������� �������������� ����� • ��������� ���� ��� ����� ��� • ������ � ������ ������������ � ������ � ����� � ����� ���������������� ���������� ����������� ��� ������� • !� � ��� � ��������� • "�� ������� ��� �� ��� • �� � � ��� ��� ���� � ����� ����� • #����� � ������������ �� ��� • �� ���� ������� � • # ��� $�� ������� ����� • ��������� ���� ��� ����� ������ ����� ���� ��� • ������ � ���� ����� �� � ��� ������ ���� ������ ����� � ��� � ��������� � � �� �� ������� ������ ���������� �������� � � ������� � �� �� ����� � ������� • ������� ��� �� �� �������� ���� ����� • ������� ��� ��� ��� � �� �� ������ � �� �� ��� �� �� ������������ ���� ������� ���� � �������������� • ������ ��� ���� �� � �� ������������������� ������� ��� � �� • � ���� � ����� ����������������� ��� �������� �� � ��� �� � ��� • ������� ��� �� ��� �� ��� � �� ��������� ��� • �� �� �������� ����� � �� ������� • ������ ��� � � ��!"������ � ��#������������ ���� �� ��� � �$� • ���� ������� ����� • %�������� �������������� ������������ � �� ��������� • &� ������� �� ��� � �� ���� ��������� • '��� �������� � ���� � ���� �� ���� ������� ���� � �� ������� � ���� �� ���� • & �� ���� � ���� ������� �������������� ��� ��� � �� ��� � � ������� � � � ��� • & �� ���� � ���� ���������� ���� � � � ������� �� �����������!��� �� �����(��� �� �� ��������� �$� ����� � ����� • ���� � � ����� ���� �� ������ ������� • �������� ���� ������� �������� • �� ������� ���� � �� � �� � �� ��������� �� ���� !� ��� ������ � �� � ��������(���� �� � �� �� ���(� ��� ���$� (source: authors’ research) 5. development of strategic management and clustering as a solution for promoting competitiveness of wood processing industry in serbia some authors claim that serbian industrial enterprises’ products are not competitive, neither by price nor by quality, which has limiting influence on export augmentation as a consequence. (jugovic, jasko, 2015) furthermore, authors hold the view that characteristics of industrial development in serbia are a clear indicator of industry crisis, neglect of its development, low level of competitiveness, modest exports and unfavorable technological structure. therefore, the authors stress the need for clusters development as a factor of contribution to the enhancement of productivity and specialization, added value creation, increase in innovation which results in competitive advantage promotion of individual enterprises, industry sectors, as well as the overall industry. this can be confirmed by reports of european union institutions, which indicate that the economic activity located within clusters results in over 39% of overall employment and 55% of overall revenue at the european level. additionally, the significance of clusters for the european market is illustrated by the following facts: business activities within clusters result in 87% of all patents, they achieve a higher level of productivity and increase in productivity rate, ensure higher salaries for the employees, as much as 11% higher when compared to business activities outside clusters, noting that their potential growth is not conditioned by the size of the local market. (smart guide to cluster policy, 2016) furthermore, in paper on the typology for the strategic moves of the finnish forest based industry, rusko (2011) elaborates that the main characteristic of finnish forest based industry is the production of low value added products on small domestic markets. the author adds that this sort of economic challenges increases the importance of introducing strategic decision making processes in order to improve the situation in finnish forest based industry. therefore, the author proposes the implementation of the coopetition concept among companies, with the aim of creating greater value and improving firm performances through mutual cooperation and competition. since serbian forest based industry is predominantly focused on small domestic or regional market and mostly produces low value added products, this concept could possibly be a good solution to improving its competitive position in both local and global markets. despite these recommendations, the results of the research conducted in this paper indicate that domestic enterprises show insufficient willingness for mutual cooperation and collaboration in participation in both domestic and foreign markets. instead of linking in clusters, the interviewed enterprises prefer independent participation in foreign markets, even though very few of them possess necessary resources and capacities to perform such activities. the research indicated that, due to meager purchasing power of the native population, a significant number of enterprises is focused on implementing low cost strategies, due to lack of financial means. the low cost strategy directly influences the possibility of developing product design activities, which makes their products uncompetitive in local and foreign markets. even though majority of enterprises included in this research claimed that they apply differentiation strategy, unfavorable sales figures indicate that enterprises are not familiar with market needs. furthermore, the results of the research indicated that domestic enterprises are mostly focused on production in large series. most of the interviewed enterprises are not specialized in any certain type of production activity, but tend to produce numerous sorts of furniture. instead, the authors of this paper suggest that domestic enterprises could achieve a better competitive position through orienting 44 valentina vukmirović, dejan petrović, milica kostić-stanković 2017/22(3) ��������� � � �� �� ������� ������ ���������� �������� � � ������� � �� �� ����� $ ��������� � • �� ������ ����� � �� ����� �������� � �� • (��������� ��������������� �� ��� ��� ���� ������������ • %�� ���������������� � �� �� ���� ���� ��! ����� ��� ��� ����������� � �$� • ) ������� ��������� �� � �� �� ����� ������������� ���� �������� ��������������� • ������� ��� � ���� �� � ���� ��*��� ������������� � �� �� � �� ����������� ���������� � ���� �� �� ������� • ���� � ����� �� ����� � �� • +���������� � ��� ��� ���� �� ������� �� ��� � ������ ��������� • ,������������������ ����� �� ������ ����� ��� � � �� • �� �� ���� � ������ �� ������ 45 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) towards specialized production, high quality furniture production in optimal series, greater flexibility in adjustments to market changes, investment into production development, particularly into product design improvement, with the aim of retaining their position in the existing markets and entering new ones. references [1] adizes, i. 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(2012). relationship between mission statement and company performance. scientific annals of the „alexandru ioan cuza” university of iaşi economic sciences. 59 (1), 321-336. doi 10.2478/v10316-012-0022-9. this paper investigated the impact and significance of the strategic approach to business activities in domestic wood based industry enterprises with the aim of promoting their competitiveness. the results of the research conducted in this paper implied that domestic entrepreneurs insufficiently apply strategic tools in business operations, which results in unconformity of production program to local and foreign market needs. furthermore, the authors noticed that the main reasons for an unsatisfactory competitiveness level of serbian wood industry can be classified in four groups: a) production fragmentation and insufficient connection between producers, b) insufficient recognition of wood products exported from serbia, c) institutional disorganization which is a consequence of lack of clear strategy for wood industry development, d) technological development, production modernization and investments are slow and insufficient. therefore, the authors proposed enterprises clustering as well as change of focus from raw materials export, as a primary activity, to manufacturing high added value products as possible manners in which competitiveness of domestic wood industry could be enhanced. the study limitations of the empirical research in this paper have to be taken into consideration before interpreting its results. the limitations refer to possible subjectivity of interviewed enterprises’ management representatives as well as the experts in the field, lack of external ideas due to closed circle and study sample which was created by random selection. nevertheless, with the support of results presented in this paper, obtained by empirical and desk research, other researchers should be encouraged to provide more detailed studies on the strategic development of individual sectors amongst wood industry enterprises. this implies that special attention should be paid to developing strategic plans for marketing, research and development and product design activities in domestic enterprises in order to enable production of contemporary programs of specialized products. furthermore, bearing in mind the significance of this industry for the economic growth of serbia, the authors emphasized the need for identifying and removing obstacles for its sustainable development as well as proposing new solutions for improvement of its competitive position. amongst other, this implies focusing on emerging markets and strategic adjustment of production to market needs. conslusion [11] dess, g.g., lumpkin, g.t., eisner, a.b. 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(2016). competitiveness of central european countries in the eu forest products market with the emphasis on slovakia. actafacultatis xylologiae zvolen. 58(1). 125−136. doi: 10.17423/afx.2016.58.1.14 [33] rajnoha, r., lorincová, s., bego, m. (2015). strategic business performance management system in wood processing industry in slovakia. drvna industrija, 66(2), 137-146.doi:10.5552/drind.2015.1504. [34] rusko, r. (2011). exploring the concept of coopetition: a typology for the strategic moves of the finnish 46 valentina vukmirović, dejan petrović, milica kostić-stanković 2017/22(3) 47 management: journal of sustainable business and management solutions in emerging economies 2017/22(3) forest industry. industrial marketing management. 40. 311–320. doi:10.1016/j.indmarman.2010.10.002. [35] serbian business registers agency. (2016). internal reports. retrieved from:http://ras.gov.rs/uploads/2016/11/sector-fbi.pdf. [36] statistical yearbook of the republic of serbia. 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(2004). strategic entrepreneurship, 3rd ed. harlow, england: prentice hall. received: 2017-02-08 accepted: 2017-09-27 valentina vukmirović university of belgrade, faculty of organizational sciences msc valentina vukmirović is a phd student at the faculty of organizational sciences. she has published numerous papers in refereed journals and participated in many scientific conferences in the country and abroad. her research interests include marketing management, brand management and visual communications. dejan petrović university of belgrade, faculty of organizational sciences, serbia dr. dejan petrović is a full professor and head of department of management and specialized management disciplines at the faculty of organizational sciences, university of belgrade. he is also a visiting professor at several universities in the country and abroad. his research interests include management, project management, strategic management, project appraisal and change management. he has been a consultant for a wide variety of public and private organizations, and has published books and articles in refereed journals. milica kostić-stanković university of belgrade, faculty of organizational sciences, serbia dr. milica kostić-stanković is a full professor and head of department of marketing management and public relations. she is also a visiting professor at several universities in the country and abroad. her research interests include marketing management, public relations and business communication. she has been a consultant for a wide variety of public and private organizations, and has published books, practicums and articles in refereed journals. she is a winner of numerous awards and honors in serbia and abroad. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 06_manic:tipska.qxd 53 ljubinka joksimović, slavica manić*, danica jović university of belgrade, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2018/23(1) abstract: research question: this article considers the problems of measuring public sector innovation by asking the question whether and why interpretation of the achievements regarding the public sector innovativeness might be questionable. motivation: the most recent literature on public sector innovation reveals two perspectives. one of them is assertion that the public sector suffers an innovation deficit, while the other claims that it is actually more innovative than a common credit. insights in the results from recent large studies of measuring public sector innovation have shown very high rates of innovations, higher than in private sector (between 50 % and 80 % of respondents have recorded at least one type innovation during the period of two years). the lack of a uniquely, or at least dominant, attitude regarding the above-mentioned standpoints represents the basic inspiration for the actualization of this problem. idea: the aim of the paper is twofold: 1) to offer an overview of three established theoretical attempts (assimilation, demarcation and integrative) dealing with public sector innovation, in order to present the evolution of the issue; 2) to prove that the inclination to more general over contextually specific understanding of innovation (and vice versa) has an impact both on its operationalization and on the interpretation of the achievements. findings: in spite of the fact that theoretical considerations show noticeable detachment from assimilation perspective, empirical studies still copy this approach and the associated methodology. surveys introduced subjectivity through arbitrary interpretation of the innovation concept, choice of research techniques and respondents and using of non-measurable goals as indicators of innovation outputs. since this has affected and overrated their outcomes, we have found that empirical studies have not provided reliable depiction of the state of affairs regarding the psi. contribution: having presented theoretical and methodological arguments why relying on the assimilation approach is neither the only nor even the most adequate way to answer the question whether the public sector is more innovative than the private one, we point to the necessity of using the other two approaches, particularly integrative one in order to find a coherent method of psi measurement. key words: innovation, innovativeness, public sector, private sector, measuring jel classification: o30, o35, o38, h83 public sector’s innovativeness: theoretical and methodological perplexities doi: 10.7595/management.fon.2018.0001 1. introduction although the global competition imposed the necessity of continuous improvement of the innovative capacities of all market participants (sørensen & torfing, 2012), apparent and rapidly increased focus on public sector innovation nowadays is conditioned by the following factors: first, during the last ten years governments all over the world have been faced with considerable economic constraints. the private sector growth is not enough to haul european economies out of the recession, and governments at central and local levels increasingly view the public sector innovation as one of key means * corresponding author: slavica manić, e-mail: slavica@ekof.bg.ac.rs for solving pressing economic and social problems (bekkers, tummers & voorberg, 2013; head & alford, 2013; pollit, 2015). second, most western countries still rely on the new public management concept with the purpose of reforming the public sector. however, from the innovation perspective, it is a tool for rationalizing work processes rather than an attempt to produce innovative services or policies or create entirely new service systems (hartley, sørensen & torfing, 2013; dunleavy & carrera, 2013) hence, governments at different levels are under pressure to enhance the public sector innovation to be able to deal with the problems which are beyond the realm of regular expectations. at the same time, they are obliged to do this under the circumstances when their resources are reduced, believing that the public sector innovation promises to deliver more with less. is the public sector’s innovativeness a substantial and rational institutional response to contemporary problems and challenges or a buzz word? the purpose of this review article is twofold: a) to summarize the insights about the existing nonconformity between opposite strands through the systematization of recently published literature on the public sector innovation; b) to present theoretical and methodological arguments why interpretation of the achievements regarding public sector innovativeness might be questionable. the structure of the paper is adapted to the stated goals and consists of the following sections. first, it offers an overview of three established theoretical attempts (assimilation, demarcation and integrative) dealing with the public sector innovation, in order to present the evolution of the issue. second, the article considers the problems of memasuring the public sector innovation by commenting results of recent surveys and particularly by pointing to several conceptual and methodological shortcomings noticed in the reports. finally, the paper concludes with remarks sublimating key insights, suggesting that the findings of empirical studies using the assimilation approach are not sufficiently reliable to answer the question of whether the public sector is more innovative than the private one. 2. challenges of understanding public sector innovation the public sector has always been innovated (at least occasionally if not continuously), and yet serious academic research of the public sector innovation (psi) has (just) 30 years old tradition. during the eighties and the nineties of past century, owing to contributions made by a new public management paradigm, research was mostly directed to organizational changes in hierarchical structure of the public sector in terms of applying forms which have been already introduced in the private sector. it has claimed that these changes are a solution to a noticeable lack of the psi. the balance has swung in favour of the psi in the first decade of xxi century, becoming particularly attractive for researchers during the last ten years, when the number of articles devoted to this issue has increased 3 4 times at the annual level. in spite of the above mentioned, studies on innovation in the private sector are still prevailing (rivera leon, simmonds & roman, 2012). although the literature dealing with the psi tries to move away from the private sector shumpeterian approaches towards discussions about innovation genuinely attributable to the public sector (i.e., innovations in public services, policies and governance: hartley, 2005; moore & hartley, 2008; pollitt & hupe, 2011), three concepts have been established: assimilation, demarcation and integrative approaches (morrar, 2014; biege, lay, zanker & schmall, 2013; de liso & vergori, 2017; witell, snyder, gustafsson, fombelle & kristensson, 2016). all three perspectives have something in common – they use the term “new” whenever they speak about innovativeness. however, “new” is a relative concept (toivonen & touminen, 2009), since it incorporates radical as well as something quite different – incremental innovation; also newness can mean new to the firm or to the society. that is why we need to make distinctions between these approaches. the assimilation approach insists on the similarities between the private and the public sectors (both respect the logic of productivity and principles of efficiency), emphasizing the necessity of the introduction of liberalization and marketisation in the public sector in order to foster innovation and increase efficiency. included into assimilation perspective is bjork (2014), who explicitly uses terms like products, services, systems and processes, as well as osborne and brown (2014) who referred to products, processes, ideas or procedures and giannopoulou, gryszkiewicz & barlatier (2014), who did it implicitly by specifying product innovation as completely new or significantly improved “with respect to its characteristics or to its intended uses” (p. 25). since the definition is transferred from the literature dealing with private innovations, the benefit of innovation (seen as the outcome) is measured in the same way in economic value (exchange value) for firm developing. 54 ljubinka joksimović, slavica manić, danica jović 2018/23(1) the proportion of papers representing the concept of assimilation today is relatively smaller due to the penetration of the other two concepts (witell et al., 2016). however, it is still significant: a) being present in recent theoretical literature (björk, 2014; giannopoulou et al., 2014); b) dominating in practice, judging by the preferences of empirical studies devoted to the issue. the demarcation perspective expanded assimilation definition of innovation, considering it insufficient for understanding innovativeness in the public sector since the psi fundamentally differ in its character from the private ones. having introduced a very important dichotomy (the firm and the customer one – witell et al., 2016), they emphasize that the psi should bring something new or some sort of change (again in outcome) for either the firm or the costumer. this concept is supported by authors like jian and wang (2013) who, apart from customer needs, speak of maintaining competitive advantage (this way they incorporate both use and exchange values), making only a partial departure from the assimilation approach, but also salunke, weerawardena & mccoll-kennedy (2013) who spoke of the value for the firm and its clients. in general, they less often analyze the intended benefit of the innovation (just 17% of definitions use the term “value” – wittel et al., 2016). and by pointing at the significance of use value, they leave aside the importance of exchange value. so does the integrative (synthesis) approach. the synthesis viewpoint criticizes the previous research, trying to capture new as the degree of newness (toivonen & touminen, 2009) as well as to define even broader – value-oriented – concept (bennington & moore, 2011). this perspective includes, for example, toivonen & touminen (2009) emphasizing the following things: renewal becomes an innovation if it is broadly new (and not only to its developer); only then does the renewal bring the benefit to the developer and provide added value to the customers. also, it refers to bekkers et al., (2013), understanding innovativeness as capacity of public organizations to learn and to implement radical changes. since arguing that the process of developing new services cannot be separated from implementation and value creation, skalen, gummerus, koskull & magnusson (2014) understand innovativeness as creation of new value through the integration of practices and resources in new ways. this concept differs from the traditional perspective, because the benefit of innovation was observed through the lens of final user and his wellbeing – it provides substantial value to individuals and society (lusch & nambisan, 2015). it is similar to the demarcation perspective: both of them understood innovation as something new for the firm which brings some change and use value for the customer. at the same time, the emphasis on the benefit (such as value) is higher in comparison with the demarcation approach. in fact, value proposition represents the platform for analysis; they speak about opening an innovative process (that is why the public sector organizations are suggested to maintain awareness of who is involved, because open innovation for them is not solely concerned with users or customers, but with wider public organizational goals and values and the need to create public, not only private value (hernandez, sanders & tuschke, 2015; pahnke, mcdonald, wang & hallen, 2015)) and value co-creation with the help of users (yan, yang & dooley, 2017, kankanhalli, zuiderwijk & tayi, 2017); and also about an equal importance of the process of innovation and its outcome (bekkers et al., 2013). demarcation and integrative approaches altogether emphasize that insufficient attention was paid to the evolutionary character of the changes described as psi (kattel, cepilovs, drechsler, kalvet, lember & tonurist, 2013). they claim that the scope of the psi has changed, both in respect to what is understood by the psi and where it occurs. in fact, innovations are more ambiguous in the public than in the private sector: they need not be a physical artifact, but usually relate to change in relationships between providers of services and policies and their users. that is why it is suggested that innovation be defined as an idea, practice or object that being perceived as new, is brought into implementation (hartley, 2008; mulgan, 2009; osborne & brown, 2011, 2014). this definition emphasizes that an innovation has to be considered as specific outcome in terms of newness, but also in terms of transformative learning process – its wider impact upon the organization, existing policy, sector or community (bekkers et al., 2013). emphasizing the importance of the transformative learning process is nothing more than pointing to the fact that the understanding of contradictory issues is enhanced through cooperation and inter-organizational learning of several actors (crespo, griffith & lages, 2014). and these inter-organizational processes have just launched collaboration as a potential driver of innovation and established a reform wave known as new public governance (hartley et al., 2013). certainly, the insights that dominate the literature of the integrative approach in recent years, have contributed to this. they claim that the main driver of the psi is to create public value, which is more than sheer efficiency (bommert, 2010; moore & hartley, 2008; bekkers et al., 2013; bao, wang, larsen & morgan, 2013). 55 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) according to bennington & moore (2011), public value has two dimensions: what the public values (which is different from what it wants or needs) and also what adds value to the public sphere. apart from goods, services, rights, benefits and obligations that the public collectively value and which contribute to the public sphere, it refers to the rules and governance arrangements that impact the way in which a society conducts itself and therefore includes fairness, social justice, confidence and effectiveness. noticing of the importance of multiple values is also recognized in business literature. since generating innovations, in accordance with an integrative approach, involves various external and internal stakeholders relying on diverse approaches (brainstorm, networking, open innovation), a new, flexible methodological tool is proposed (value creation wheel or its light version value creation radar), adaptable to problems and context of implementation (lages, 2016). in essence, the central normative debate moves around the proper place of productivity among others public values and whether the technical (assimilation) approach is at all useful for the public sector. and although various camps of scholars sometimes advocate for one value or a set of values, most of them following the integrative approach agree that public managers predominantly have to realize multiple democratic values rather than base their tasks on productive rationality, as the assimilation standpoint insists on (andrews & entwistle, 2013: dunleavy & carrera, 2013). insights from literature indicate that understanding of the psi has undergone substantial changes. innovation understood only in general terms neglects that the very concept depends on the context where it is created and developed (i.e., what innovation is in one context need not be so in another one and vice versa). the evolution of psi definitions (from unconditional identifying with private ones to focusing on public value) shows that we currently have a box of concepts consisting of different purposes, expectations, interests and outcomes, becoming even more difficult to be understood and handled. it is noticeable, too, that most of the changes were products of theoretical research, and very rarely arose as a result of a wider consultation process of interested participants (particularly the users of public sector innovation), on which the integrative approach insisted so much (ccic, 2013). it is for this reason that claims that integrative concept is prevailing and replacing the other two (carlborg, kindstrom & kowalkowski, 2013) seem to be exaggerated. it is more certain that this approach is growing and gaining strength, and yet a number of articles adopting the other two perspectives has neither decreased nor disappeared (witell et al., 2016). if these three approaches are equally present and represented in the literature, why is the assimilation concept used in empirical studies? is its choice objectively conditioned? finally, can we unwittingly believe in the conclusions about the public sector innovativeness derived from the use of the assimilation approach? we will try to answer these questions in the next section. 3. measuring psi – theoretical and methodological reconsideration surveys trying to measure the psi have started to appear during the recent years. these studies mainly focused on public administration in developed economies. the most famous project among those covering the psi in europe are: mepin project (measuring innovativeness of the public sector in nordic countries and denmark; bugge, mortensen & bloch, 2011); nesta (public innovation index dealing with local government and health in uk; hughes, moore & kataria, 2011); innobarometer surveys of the european commission (european commission, 2011; european commission, 2012); trends and challenges in the psi in europe (rivera leon et al., 2012) and european psi scoreboard (the european commission, 2013). all these reports confirm that innovativeness of the public sector increased under pressures of citizens and businesses (due to their requests to improve and redesign old or introduce new services). this was not the result of innovation process opening (as the integrative approach expected it to be) since the above mentioned requirements did not represent the main drivers of innovations. in fact, they were either externally imposed or initiated internally by higher levels of management (gemmell, nolan & scobie, 2017; ccic, 2013). still, insights in the results have shown very high rates of innovations, higher than in the private sector (between 50 % and 80 % of respondents have recorded at least one type innovation during the period of two years), which corresponds to theoretical claims about the public sector’s responsiveness in regards of innovation fostering (jain & jepensen, 2013). however, results presented in the surveys should be taken with a certain degree of caution. 56 ljubinka joksimović, slavica manić, danica jović 2018/23(1) in the light of new theoretical developments in psi literature, choosing the approach and consequently performance indicators meant to measure innovativeness turns out to be a conceptual problem above all, and then a technical one. as we have already mentioned, the focus of the analysis has shifted to a discussion of public values and compromises that should be made when choosing among multiple values (bennington & moore, 2011). resolving value conflict has particularly become popular in the public policy discourse because of the recognition that a volatile environment requires more than continuous improvement in existing policies, services and governance arrangements (osborne & brown, 2014; hartley, 2012). this consequently imposed the need to distinguish productivity (i.e., efficiency, since these terms are used interchangeably in the literature) from other related concepts (effectiveness, value for money) when we are interested in the public sector performance (dunleavy & carrera, 2013; djellal & gallouj, 2010). however, effectiveness in the public sector is seen in theory as value creation to the citizen, which has no real maximum and thus is very hard to quantify (kattel et al., 2013). in fact, as many of the effects may be not directly visible to individual service users, they cannot be singularly captured in individual satisfaction surveys (kattel et al., 2013). some authors argue that it is better to incorporate the fundamental values into the existing concept of efficiency. their claims stem from the position that “public service efficiency is essentially a product of the proper functioning of democratic institutions” (andrews and entwistle, 2013, p. 258). these normative claims that call for a much broader efficiency definition in the context of the public sector (i.e., efficiency plus public values) would require a considerable broadening of the scope of measurement as well as assuming that outcomes and processes were incorporated into the efficiency calculations (kattel et al., 2013). if measurement of public values and/or their harmonization is controversial, than measurement encompassing the efficiency and public values must be even more! therefore, there is an objective reason lack of systemic framework for monitoring and measuring of previously mentioned changes in the psi concept – why the researchers have opted for the assimilation perspective. in addition, the choice of this approach is argued by the claims that during the last two decades, the public sector has increasingly imported various performance instruments from the private sector (bugge et al., 2011), making comparison of their innovativeness possible. it is worth noting (although not being the subject of our analysis) the attitudes which confront the above mentioned argument. as casebourne (2014) claims, given the very different institutional environment and diverse incentives to innovate, simply transforming lesson from the market driven model into the public sector was unlikely to be an effective and functional approach for studying the actual state of affairs in the domain of the psi. however, attitudes like this did not receive adequate support and / or were ignored. accordingly, empirical studies either explicitly (european commission, 2011; bugge et al., 2011) or implicitly (the others that we cited) identify innovativeness with perceived changes in the domain of services, products, business processes, organizational methods and ways of communication with users. this teoretical definition must also be followed by an operational one that translates the verbal meaning into a prescription for measurement to enable empirical research (witell, et. al., 2016). that is why public sector productivity is mostly regarded as a technical term, which refers to the ratio of outputs to inputs in producing public services (andrews & entwistle, 2013; dunleavy & carrera 2013). this could be treated as measured fixation when outcomes are difficult to measure, there is a natural tendency to use performance indicators based on measurable outputs (pidd, 2005). still, problems related to output valuation remain, so reports show no conformity regarding performance criteria. quite the contrary – they include a wide variety of indicators (dunleavy & carrera, 2013). it turns out, therefore, that even if the assimilation approach was not questionable per se, the way of its application may contain several conceptual and methodological shortcomings noticed in the literature: (1) public sector organizations might interpret the concept of innovations arbitrarily, thus reporting a high level of innovativeness (snyder, witell, gustafsson, fombelle & kristensson, 2016). some literature (ccic, 2013) reveals that the typical idea of innovation in the public sector is rarely the implementation of completely new services or a delivery method. more often it is the adoption and adaption of technological innovations created by the private sector (for example, ict), since technology influences the private sector innovations more directly than the public sector ones (kattel, et al., 2013). this is consistent, as witell et al., (2016) noticed, with early studies belonging to the assimilation approach claiming that service firms are passive recipients of technological innovation from other sectors (witell et al., 2016). obviously, it is still happening, just being interpreted differently. the surveys often keep on reporting the electronic availability of public services, on-line platforms, administrative simplifications, e government (i.e., changes in service delivery initiated by the implementation 57 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) of technology imported from the private sector) as the embodiment of high innovation in the public sector. in order to justify the results, only proper methodological remark is missing. they have come to it owing to convenient methodological explanation made by the ec (2013): speaking about initiatives that would be readily considered innovations inside the public administrations, they emphasized the shift to ict tools as the example. (2) another issue concerns methodological issues of psi measurement. studies dominantly relied on interviews (mepin) and surveys (nesta, innobarometer), sometimes being supported by case studies or hard data. these research techniques are, as a rule, used to analyze attitudes and perceptions of the public sector managers. subjectivity in analysis (made by the selection of techniques and respondents) is thus further enhanced (duplicated), since the use of the same research techniques on the sample of the private sector companies produced different comments and results regarding the public sector innovativeness (european commission, 2012). (3) indicators measuring effects and impacts have encountered the same challenges in almost all surveys therefore suggesting using objectives as indicators for outputs (which is not in accordance even with restricted – technical definition of productivity). goals (objectives) are often vague and call for success, but not determined precisely (mihaiu, opreana & cristescu, 2010). thus, the reports contain the following type of findings: 76% of respondents argue that the public sector innovations (which were, in fact, the private sector innovations) enable better access to information, 71% of them think that customer satisfaction is more pronounced, and 61% consider it facilitated (faster) service delivery (european commission, 2011). these claims are normative, which is expected, as being based on soft data (opinions of those surveyed and interviewed). also, they are disputable since opinion-based indicators do not measure the actual quality of public services, but changes in its level. this means that a good result is interpreted as a higher rate of change, which could be the result of a low-level starting point (kattel et al., 2013). if innovation is understand as a goal per se (as it actually is in the above mentioned example), then it contains something normative and is a priori comprehended (perceived) as a ‘good thing’ – a change impossible to oppose, always to be encouraged (pollitt & hupe, 2011; pollitt, 2015). under these circumstances, any (even an incremental or ordinary) change can be understood, announced or reported as a semi-miracle innovation, which is a mode of transforming potential innovation into a rhetorical one (potts & kastelle, 2010). surveys have, therefore, introduced subjectivity and other non-trivial challenges which certainly have affected their outcomes. this could be labelled as misrepresentation, since performance data are either misreported or distorted to create a good impression. it confirms claims that exaggerated respect for performance indicators and/or their inappropriate use (pidd, 2005) can easily lead to virtual rather than real performance achievements. without any intention to underestimate the general importance of conducting large and comprehensive empirical studies, we find that due to the above-mentioned failures, their insights do not provide a sufficient amount of evidence that we have got the most accurate and reliable depiction of the state of affairs regarding the psi. 58 ljubinka joksimović, slavica manić, danica jović 2018/23(1) conslusion in the literature dealing with the innovativeness of the public sector, there are three differentiated and established approaches: assimilation, demarcation and integrative ones. the assimilation approach insists on the similarities between the private and the public sector, innovation being perceived and measured in an identical way in the economic (exchange) value for the organization. owing to the demarcation approach the research focus has changed towards discussions about innovation genuinely attributable to the public sector innovations in public services, policies and governance. that is why the benefit of innovation is viewed through the prism of the user, whereby the use value becomes a priority over the exchange value. the synthetic concept goes a step further, emphasizing the specificity of innovation not only as an outcome, but as a process that produces a wider impact and profound change in organizations and society. insights from literature, therefore, indicate that understanding of the psi has undergone substantial changes. speaking of theoretical consideration, its evolution shows a noticeable departure from the assimilation perspective. however, judging by empirical studies, its conceptualization still copies this approach. during the recent years a number of large and comprehensive empirical studies have been carried out in order to measure the innovation of the public sector more accurately. it is noticeable that the starting point of these research remains a 59 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) references [1] andrews, r., & entwistle, t. 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(2017). a theory of supplier network-based innovation value, journal of purchasing and supply management, 23 (3), 153-162 doi: 10.1016/j.pursup.2017.02.002 received: 2017-07-28 accepted: 2018-01-20 ljubinka joksimović university of belgrade, faculty of economics, serbia joka@ekof.bg.ac.rs ljubinka joksimovic is a full professor at the faculty of economics, university of belgrade, at the economic theory and analysis department, where she teaches the following courses: comparative economic systems, economics of the european union, institutions and economic development, competitiveness policy, theory and analysis of the public choice. she is the author and co-author of numerous monographs, textbooks and papers in leading national and international scientific journals. the key areas of her scientific research interest are institutional economics, public policy and comparative economics. 61 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) about the authors 62 ljubinka joksimović, slavica manić, danica jović 2018/23(1) slavica manić university of belgrade, faculty of economics, serbia slavica@ekof.bg.ac.rs slavica manic is an associate professor at the faculty of economics, university of belgrade, at the economic theory and analysis department. her teaching commitments refer to the following courses: methods of economic analysis, competitiveness policy and economics of transition. she has published (as author and co-author) numerous papers in national and international scientific journals, some of them presented at relevant conferences. she participated in the realization of tempus programme, ceepus activities and many national research projects. the main fields of her interest and research are economic development and methodology of economics. danica jović university of belgrade, faculty of economics, serbia dana@ekof.bg.ac.rs danica jovic has graduated, earned the msc degree and obtained the phd degree from the faculty of economics, university of belgrade, where she teaches financial accounting. she is an authorized accountant and member of the association of accountants and auditors of serbia. danica jović has published scientific and professional papers primarily in the areas of financial reporting and corporate governance. she participated in national and international conferences, as well as in the scientific projects of the ministry of science and technology of the republic of serbia. the main fields of her interest are public sector reforms and their impact on evaluating performance and financial reporting of public sector entities. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01_lima:tipska.qxd 1 eric matheus rocha lima1, vivian de oliveira2, vladan pavlović3, carlos norberto fischer1, afonso antonio machado1, ivan wallan tertuliano4* 1são paulo state university at rio claro (unesp), rio claro, brazil 2university center fieo, osasco, brazil 3university of pristina, faculty of economics, kosovska mitrovica, serbia 4adventist university center of sao paulo (unasp), sao paulo, brazil management: journal of sustainable business and management solutions in emerging economies 2018/23(1) abstract: reserarch question: the paper investigates the influence of football clubs investments on their performance in the first division of the brazilian league. motivation: given that football is the most important sport in brazil, representing a cultural symbol of the country, a better understanding of it becomes necessary. therefore, it is necessary to investigate the financial amounts involved in the management actions to try to understand the influence of the investments that the clubs put into marketing and championships improvement and, consequently, to be able to delineate the relation between investment and success in football. idea: in this perspective, the central hypothesis of this study is that the clubs that present the highest expenditures on soccer will also present the best classifications, since these expenses are related to better training conditions and salaries, which may contribute to the recruitment of the best athletes. data: the study was conducted using the data collected over the internet, the data disclosed by clubs. only the clubs belonging to the first division were used, a total of 19 clubs, divided into 3 groups, according to the investment value in football. tools: this study presents descriptive and inferential analyzes, since the qualitative-quantitative approach was assumed as a way of understanding the data. assuming the number of clubs participating in the study, we chose non-parametric inferential analyzes in the intraand inter-group evaluations, using the alpha value of 0.05 as a criterion. findings: the results showed that clubs in groups g1 and g2 had similar expenditure dynamics, while g3 group clubs had a slight swing. in addition, clubs in groups g1 and g2 had the largest amounts of expenditures, while g3 clubs had the lowest expenditure during the period analyzed. these results demonstrated that the clubs of the g1 and g2 groups achieved the best positions in the championships, corroborating the research hypothesis. contribution: one can conclude that the investment of the clubs directly influences the classification in the championships, large investments obviously being necessary to conquer the championship. however, this study has some limitations, such as sample size (19 teams only). therefore, we emphasize the need for new studies. key words: football, brazilian football league,football clubs, classification of clubs, sports administration. jel classification: z23 the influence of expenditures in football industry results: case study of the brazilian football league doi: 10.7595/management.fon.2018.0006 1. introduction football clubs are seen as a kind of business that needs not only reach victories, but also have a good financial development (guzman, 2006). even though the sporting success is more relevant than the economic situation, the relation between both terms is evident (haas, kocher, & slitter, 2004). according to haas (2003), a club just survives if it triumphs in looking for good economical results, which might be improved because of the results obtained (titles, tv rights, tickets, among others). this need of investments also highlights the involvement of external collection agents (companies) that allow clubs to make improvements, such as investments in new hires or better salaries (nascimento, nossa, *corresponding author: ivan wallan tertuliano, e-mail: ivanwallan@gmail.com bernardes, & sousa, 2015), in addition to exercising a social function while generating jobs and entertainment. these companies are releated of services (food, transportation and marketing, for example), industry (shirts, sport articles, bands, among others) and entertainment (games broadcasting, computer games, debating programmes, and so forth) (nascimento et al., 2015). as regards these incoming possibilities, soriano (2013) says that with the structure improvement, the income generated by the stadiums rises, with good prices and discrimination by offering popular and luxury options. this author highlights the existence of other incoming sources, since the clubs own tv channels today and can extend the tv broadcast by radio, the internet, mobile phones and also through the marketing, merchandising, stadium tours and friendly games. this reality expands the scenario from 1980’s, for example, when the income used to be obtained only from the supporters. also, only in the 1990’s the private tv networks came to fight for the broadcasting match rights, which initiated a possibility for the clubs to sign contracts with more players and to pay higher salaries to their respective squads. marketing is also one of these income sources of the clubs, since their exhibition might increase their profits chances (soriano, 2013). on this line, the marketing and the club exhibition is, in majority, conditioned by the players renown, which demonstrates that only clubs with famous players might take advantage of their highest potential of marketing and exhibition effects (pavlovic, ljumovic, & knezevic, 2014). in this perspective, it is understood that, in football, the richest clubs may use their income in a better way to hire the best players and, this way, generate the highest commercial returns and success in this sport (pavlovic, milacic, & ljumovic, 2014). thereby, anderson & sally (2013) reinforce that rich clubs invest their capital in essential technologies and in clubs for their best performance against the opponents. according to the same authors, rich a sporting club invests more in its football club, provision of better equipment and, with those, structures the training sessions in the best way possible, besides giving support to a good condition, an adequate rehabilitation, etc. hence, the justification for this manuscript is based on the fact that football clubs represent a kind of business that aims to achieve success and good economical balance (guzman, 2006). however, to achieve success and the financial balance as well, the club needs strategic investments in order to make itself interesting to the investors (anderson & sally, 2013). considering that football is one of the main brazilian symbols (santos & greuel, 2010), studying this cultural manifestation makes itself necessary. besides, studies about football must take into account the financial amounts involved in management actions (nascimento et al., 2015), since the literature points to the clubs’ capital influence on their marketing actions and their investment management to improve the image and sports success (anderson & sally, 2013; haas et al., 2004; pavlovic, ljumovic, et al., 2014; pavlovic, mijatovic, & milacic, 2013; pavlovic, milacic, et al., 2014). following what has been said so far, the objective of this manuscript is to investigate the influence of the general expenditures of the football clubs (such as salaries, debts, taxes, among others) on final results of the clubs from season 2011 to season 2016 in the first division of the brazilian football league (série a). 2. methodology to meet the objective of this study, the research method “explanatory documentary research” was used. this method aims to identify, register, analyze and interpret observable facts and their possible causes (lakatos & marconi, 2011). the data about football expenditures presented in this study were obtained from the internet, from the clubs league table positions in the brazilian league. the websites visited to get these information were:lance (somoggi, 2017a, 2017b), slide share (somoggi, 2017c) and espn (2016). it is highlighted that “lance” and “espn” are internationally recognized websites and the author amir somoggi has investigated the brazilian clubs finances for more than a decade, being a researcher recognized nationally and internationally. all information obtained and analyzed is available on the above sites. to relate the expenditures of football and the performance in the first division of the national league, the data about the positions were obtained from the league table of the clubs between 2011 and 2016. this information was found in the brazilian football confederation (confederação brasileira de futebol – cbf), the institution responsible for football in brazil (http://www.cbf.com.br/competicoes/). 2 eric matheus rocha lima, vivian de oliveira, vladan pavlović, carlos norberto fischer, afonso antonio machado, ivan wallan tertuliano 2018/23(1) it should be noted that the first division of the national league consists of 20 clubs, thus, this is one of the limitations to enlarging the list of participating clubs in the present study. in addition, regarding the choice of clubs, the final classification in 2016 was taken into account, that is, only clubs that were in the first division of the national league participated in the present study, even if in other years they were in the second division of the national league. in this way, the information on expenditures used refers to clubs that were in the first league in 2016. all expenditure values were obtained from the aforementioned sites. after collecting all the data from those websites, the total of clubs used was 19 since 1 of them presented missing data, which threatened to compromise the analysis of the results. the clubs were divided into 3 groups, according to the total expenditures (in millions dollars, with some cases involving trillions dollars) that are disclosed between 2011 and 2016 (table 1). the expenditures that the paper deals with are all the expenses that the club has concerning its football section, such as salaries, equipment, travel and lodgings for sportsmen. so, the 19 clubes of football were divided into 3 groups according to the total expenditures in football (values of player salaries, staff, transfers, image rights, etc.) between 2011 and 2016. in this article the expenditures are interpreted as the cost the club had in the observed period of time. so, the values allowed the delimitation of three groups of investigation: g1 with 5 clubs, g2 with 6 clubs and g3 with 8 clubs. the groups formation criteria were: �group 1 (g1): teams that spend more than 320 million dollars; �group 2 (g2): teams that spend between 190and 310 million dollars; �group 3 (g3): teams that spend less than 189 million dollars. table 1: annual expenditures of each football club (n = 19) source: brazilian football confederation *in millions of dollars (us currency). **expenditure averageto the period 2011-2016. ***standard deviation of the expenditure in the period 2011-2016. 3 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) group club expenditure in 2016 in millions of us$ expenditure in 2015 in millions of us$ expenditure in 2014 in millions of us$ expenditure in 2013 in millions of us$ expenditure in 2012 in millions of us$ expenditure in 2011 in millions of us$ total expenditures g1 corinthians 94.6 79.0 75.3 78.3 73.6 62.3 463.2 palmeiras 92.3 77.7 63.9 42.2 44.1 36.6 356.8 são paulo 83.7 86.4 74.3 78.3 59.8 46.1 428.6 cruzeiro 61.0 96.7 61.1 49.7 31.3 28.0 327.8 internacional 55.4 67.9 61.0 66.7 60.7 46.6 358.3 total 386,9 407.6 335.6 315.3 269.7 219.5 1934.6* average 77,4 81.5 67.1 63.1 53.9 43.9 386.9** standard deviation 16,2 9.6 6.4 14.8 14.7 11.5 50.5*** g2 atlético-mg 73.7 52.6 59.8 46.2 39.7 28.8 300.9 flamengo 63.4 46.4 53.6 56.8 0.0 34.3 254.5 grêmio 60.0 55.1 48.6 49.3 42.4 30.4 285.9 fluminense 57.1 38.5 25.7 25.9 24.1 20.3 191.5 santos 55.4 54.6 51.8 52.9 42.6 44.9 302.2 botafogo 31.7 24.1 38.3 52.9 31.0 18.8 196.8 total 341,4 271.3 277.8 284.1 179.8 177.5 1531.9* average 56,9 45.2 46.3 47.3 36.0 29.6 255.3** standard deviation 12,7 11.1 11.3 10.1 7.3 8.8 46.0*** g3 bahia 20.2 15.1 19.8 19.0 17.0 12.3 103.4 coritiba 19.5 17.3 22.5 20.7 19.5 15.9 115,4 vitória 18.8 13.5 14.7 15.1 12.9 7.4 82,4 sport 18.5 18.4 16.1 14.4 14.5 11.8 93,6 figueirense 17.5 10.9 11.9 10.0 11.8 11.3 73,4 goiás 15.8 10.0 9.2 13.3 11.3 8.5 68,1 vasco 38.3 32.3 24.5 35.9 29.8 24.8 185,5 atlético-pr 33.5 33.9 25.9 28.4 22.5 17.6 161,8 total 182,1 151.3 144.6 156.8 139.4 109.5 883.6 average 22,8 18.9 18.1 19.6 17.4 13.7 110.5** standard deviation 7,8 8.6 5.7 8.1 5.9 5.3 39.7*** 3. analysis procedures this study presents descriptive and inferential analysis because it assumes the qualitative-quantitative approach as the way of understanding the data and, with this, pursues the study’s objective that involves investigating the influence of the expenditures of the football clubs on final results of the clubs from season 2011 to season 2016 of the first division of the brazilian football league (série a). the descriptive statistics is not sufficient to give significance to the findings, given that it does not have the “power” of comparison that mathematics has and, therefore, cannot give significance to its findings, as accurately as inferential statistics can. thus, it is necessary to use inferential statistics, since it can demonstrate if there is a significant difference and, consequently, a causal difference (p <0.05) and not a chance difference. according to the theory of the central boundary, the bigger the sample, the closer a normal distribution of the averages will be. green, salkind and akey (2000) suggest that in a group with more than 30 participants, it is possible to assume normality and homogeneity of variance without the use of tests. since the number of participants in this study was less than 30, there was a need to test the normality and the homogeneity of the variance. the normalitywas tested using the kolmogorov-smirnov (k-s) and to test the homogeneity of variance, the levene test was used (field, 2009). in relation to the normality, the k-s test demonstrated p<0.05, in other words, there is no normality in the investigated variables. in case of the homogeneity of the variance, levene test showed p<0.05 demonstrating no variance homogeneity. adding to this, torman, coster and riboldi (2012) recommend, for small samples, the use of non-parametric tests for analysis, where testing variance normality and homogeneity is not necessary. through the results and literature suggestions (field, 2009; thomas, nelson, & silverman, 2012; torman et al., 2012), the non-parametric tests were used to analyze the data and the alpha value of 0.05 was used for significant differences. in the between groups analysis, the kruskal-wallis test was used. in intragroup analysis, friedman and pearson correlation were used. when significant differences between groups were found, the post hoc u of mann-whitney was used. in case of significant intragroup differences, the post hoc wilcoxon was conducted (field, 2009).to fail’s control type 1, the sequential procedure of holm de bonferroni (green et al., 2000) was applied. all analyses were made with the use of the ibm spss statistics, version 20. 4. results it must be understood that in this case study, the results of the analysis apply only to the clubs and context involved, thus limiting its power of generalization. firstly, the expenditure (cost) of the football clubs groups were analyzed, verifying if there were differences among the groups. in this analysis, when some significant difference was found, the alpha value (0.05) was divided by the number of comparisons made to find the difference (green et al., 2000). in a qualitative analysis, it was seen that the g1 had the highest amount of expenditure over the whole period (2011 to 2016) and that the g3 group had the lowest expenditure value among the football clubs. those findings were supported by the inferential analysis, conduced with the kruskal-wallis, since significant differences where found between groups and among all the years (p<0.05) according to table 2. in locating of the difference, the u test of mann-whitney was used. a bonferroni correlation was applied to control the fail type 1 and all effects were tested on the significance level of 0.0167 (p value adjusted because 0.05 was divided by the number of comparisons, which was 3 in this case). the results demonstrated that the difference between groups g1 and g2 in seasons 2015 and 2014 is (p<0.0167), between groups g1 and g3 over all the years is (p<0.0167) and between groups g2 and g3 in the entire period is (p<0.0167). those results suggest that the g3 group was the one with a smaller amount of expenditure made by the football clubs, that expenditures made by the football clubs in groups g1 and g2 were effected in a similar way, except in 2015 and 2014, when clubs in the g1 group spent more than clubs in the g2 group, that is, there was no difference in expenditure on football between groups g1 and g2. thus, the results showed that the 2 groups presented similar expenses, with the exception of the 2015 e 2014, corroborating the qualitative analysis. 4 eric matheus rocha lima, vivian de oliveira, vladan pavlović, carlos norberto fischer, afonso antonio machado, ivan wallan tertuliano 2018/23(1) table 2: comparison of the football club groups expenditure determined by using kruskal-wallis test. (groups = 3, n = 19). source: authors’ calculations. concerning the expenditure (costs) evolution by the football clubs, an intragroup analysis was conducted with the friedman test. from a qualitative analysis, it can be seen that the g1 group showed values rising until 2015, with a drop in the expenditures in 2016 (table 1). these results were confirmed since the friedman test showed significant differences in the g1 group (x2 (5) = 18.829; p < 0.002). as regards the location of the difference, the wilcoxon test with the sequential procedure holm de bonferroni was not able to identify the differences among the observed years when the adjusted alpha value was used (p≤0.0033). however, when it was analyzed by the points of higher and lower values (friedman), it was seen that the difference lies between the initial years (2011 and 2012) and the last ones (2015 and 2016). these results indicate that there was a significant increase in the amount of expenditures from 2011 to 2016, demonstrating that clubs spent more money each year. in the g2 group, the same expenditure evolution dynamics as in the g1 group can be observed. in other words, they increased the amount of expenditures until 2013, but in 2014 and in 2015 they reduced it, and increased it once more in 2016 (table 1). this information was confirmed since the friedman test showed significant differences in the g2 group (x2 (5) = 23.048; p < 0.001). concerning the location of the difference, the wilcoxon test with the sequential procedure of holm de bonferroni was not able to identify the differences among the years, when the adjusted alpha value (p≤0.0033) was used. however, analyzing the highest and lowest values of the friedman test, it was seen that the difference is between the initial years (2011 and 2012) and the other ones (2013 to 2016). these results indicate a dynamics of expenditures by the football clubs similar to those of the g1 group. as regards the g3 group, and using qualitative analysis, it can be seen that the amount of expenditures paid by the football clubs increased until 2013, dropping in 2014 to rise once more in 2015 and in 2016 (table 1). this information was confirmed because the friedman test showed significant differences for the g3 group (x2 (5) = 21.264; p < 0.001). in relation to the location of the difference, the wilcoxon test with the sequential procedure of holm de bonferroni was not able to identify differences among the years, when the adjusted alpha value (p≤0.0033) was used. however, when analyzed by the highest and lowest values (friedman), the difference is found among the initial year (2011), from 2012 to 2016 and between 2015 and 2016. these results indicate that the year in which clubs had smaller expenditures was 2011, but there was a significant increase in football club expenditures in 2012 and then in 2016. in summary, the above results demonstrated that all groups increased their football club expenditures and that groups g1 and g2 showed similar dynamics of expenditure rise. moreover, the inferential analysis did not demonstrate significant differences between groups g1 and g2. added to this, the g3 group was the group with the lowest amount of football club expenditures, being significantly inferior to the other groups. lastly, the results showed that, over the years, all clubs increased their football club expenditures, perhaps trying to achieve the highest possible positions in the league table. however, some planetary famous football clubs sometimes can invest significantly, even if they are already first-placed on the table, in order to increase commercial and marketing revenues. (see more: pavlovic, ljumovic, knezevic, 2014). thus, with the intention of investigating the influence of expenditure on league table positions in serie a, the groups were also analyzed as regards their final positions in the league (categories). for this, the groups remained the same and the clubs were divided into sub-divisions within the group (categories). at this stage 5 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) expenditure 2016 in millions of us$ expenditure 2015 in millions of us$ expenditure 2014 in millions of us$ expenditure 2013 in millions of us$ expenditure 2012 in millions of us$ expenditure 2011 in millions of us$ qui-square 13.075 14.958 15.372 12.774 13.411 13.405 degrees of freedom 2 2 2 2 2 2 asymptotic significance 0.001 0.001 0.000 0.002 0.001 0.001 exact significance 0.000 0.000 0.000 0.000 0.000 0.000 of the analysis, the criteria used were: the top-4 was considered as “elite”; clubs between 5º and 10º were classified as “continental competition”; between 11º and 16º were classified as “neutral”; lastly, from 17º to 20º the clubs belonged to “relegation + serie b (second division)”, according to table 3. in summary, in these analyzes, the clubs were reorganized into sub-categories within the groups, which corresponded to their final classification in the year evaluated. table3:categories of the analysed groups (g1, g2 and g3) in the brazilian football league (serie a) (n=19). source: brazilian football confederation *category of higher occupation to each group. in table 3, it can be seen that the g1 group had the majority of its teams inside the “continental competition” group, from 2011 to 2016, presenting, on average, 40% of its clubs in this category. added to this, the g1 group always presented teams in the “elite” category, having, in 2014, 80% of its clubs in this category. when these 2 categories are added, the g1 group has 73,33% of its teams in “elite” or in the “continental competition”. these results demonstrate that the g1 clubs had high expenses to maintain their classifications in the evaluated championships, which was justified by their placement in the evaluated championships, since they were in most cases between the elite categories and the intercontinental championship. in relation to the g2 group, clubs were positioned, in majority, within the “continental competition” category (38.89%) as in the g1 group. moreover, a large number of these teams were also present in the “elite” category (33.33% of clubs). when both categories are added, the g2 group is present in 72.22% of the occasions. different from the g1 group, the g2 group had a lower percentage of relegated teams (33.33%). relegation, with the evolution of league table’s positions as well, might justify the expenditure evolution by the football clubs in this group. as regards the g3 group, as expected for the group being one with the lowest football club expenditures, 47.92% of its clubs, on average, it finished the league in “relegation + série b” category. added to this, the g3 group had 77.08% of its clubs in the last two categories (neutral and relegation + série b), which can also justify the increase in football club expenditures. proceeding with the analysis, the variables on league positions were transformed, using the following rule: “elite” teams received punctuation 4, “continental competition” ones received 3, “neutral” teams had punctuation 2 and “relegation + série b” teams received 1. to verify if there was a significant difference among groups concerning clubs evolution, considering the league position, the kruskal-wallis test was conducted. the qualitative analysis mentioned above was partially supported by the test (table 4), since in 2011 and in 2013 there was no significant difference among groups. 6 eric matheus rocha lima, vivian de oliveira, vladan pavlović, carlos norberto fischer, afonso antonio machado, ivan wallan tertuliano 2018/23(1) group categories league table position série a 2016 in % league table position série a 2015 in % league table position série a 2014 in % league table position série a 2013 in % league table position série a 2012 in % league table position série a 2011 in % average g1 elite 20.00 40.00 80.00 20.00 20.00 20.00 33.33 continental competition 40.00 60.00 0.00 40.00 60.00 40.00 40.00* neutral 20.00 0.00 20.00 20.00 0.00 40.00 16.67 relegation+ série b 20.00 0.00 0.00 20.00 20.00 0.00 10.00 g2 elite 50.00 33.33 0.00 33.33 50.00 33.33 33.33 continental competition 33.33 16.67 83.33 33.33 33.33 33.33 38.89* neutral 16.67 33.33 0.00 33.33 16.67 33.33 22.22 relegation+ série b 0.00 16.67 16.67 0.00 0.00 0.00 5.56 g3 elite 0.00 0.00 0.00 12.50 0.00 12.50 4.17 continental competition 12.50 25.00 12.50 25.00 12.50 25.00 18.75 neutral 37.50 25.00 50.00 25.00 25.00 12.50 29.17 relegation+ série b 50.00 50.00 37.50 37.50 62.50 50.00 47.92* table 4: results of kruskal-wallis test to between groups comparisons concerning teams league position (groups = 3, n = 19). source: authors’ calculations in relation to the location of the difference, a u test of mann-whitney was used. a correlation of bonferroni was applied to control fail type 1 and all effects were tested on significance level 0.0167 (adjusted p value since 0.05 was divided by the number of comparisons, 3 in this case). the results demonstrated no significant difference between groups g1 and g2, but there was a difference between groups g1 and g3 in 2014 and 2015 (p<0,0167) and between groups g2 and g3 in 2016, 2014 and 2012 (p<0.0167). these results suggest that groups g1 and g2 present similar dynamics of league positions, besides having no significant differences in expenditures. moreover, the g3 group presented the lowest league positions in 2012, 2014, 2015 and 2016 when compared with the other 2 groups. in 66.66% of the tournaments, the g3 was the least successful group. these results may be explained by the findings about the expenditures of the clubs. in other words, clubs that spent more obtained the best league positions, while the ones that spent less, finished at the bottom of the league table. however, this information is only an explicative hypothesis. aiming to verify the intragroup evolution, inferential analysis was made, conducted by the friedman test, which did not present significant differences in the g2 group over all the years (x2 (5) = 8.733; p > 0.120). in other words, clubs in the g1 group, even by increasing the amount of their football club expenditures, did not improve their league positions, remaining, in majority, in the “continental competition” category (g1 group had an average of 3.02 in the categories). however, it was already expected, since the g1 group was always in the best league positions, dropping the chance of increase. as regards the g2 group, the same analysis was conducted and, as in case of the g1 group, there were no significant differences among the observed years (x2 (5) = 2.909; p > 0.714). the g2 group, even by increasing the amount of football club expenditures, did not improve the league positions, its clubs remaining, in majority, in the “continental competition” category as is the case with the g1 group (g2 group had an average of 3.00 in the categories). concerning the g3 group, the inferential test did not show significant differences among the analyzed years (x2 (5) = 2.899; p > 0.716). even increasing the football club expenditures, clubs in the g3 group could not improve their league positions, always remaining in the lower positions and, in all years, with one or more teams in the second division of the brazilian league (the g3 group had an average of 1.74 in the categories). in order to correlate both variables (football club expenditures and league position), the pearson correlation was used. in this step, the values of r > 0.700 (positive or negative) were considered to accept the correlation. the values used in this step were transformed in the previous analysis (table 4). correlation analysis was conducted at the same year (ex. expenditure 2016 x league position 2016), aiming to test the hypothesis that football club expenditure is related to the club’s league positions. the g1 group, the one that obtained 3.03 on average in the categories, in the pearson correlation the results demonstrated strong correlations between expenditures and league position in 2016 (r = 0.911, p<0.031). it happened also in 2011 (r = 0.971, p<0.006). however, results can be seen in a different way; by having a correlation in only 2 years, it is not possible to claim that there is, for this group, a correlation between football club expenditures and the highest league positions. hence these correlations corroborate, partially, with the hypothesis that clubs with highest football club expenditures occupy the highest league positions, since pearson test only showed a strong correlation in only 2 years. however, the g1 was the group that was found in the “elite” and “continental competition” groups more frequently (73.33%), indicating that teams with highest expenditures can take the best positions. 7 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) league position 2016 league position 2015 league position 2014 league position 2013 league position 2012 league position 2011 qui-square 8.116 6.906 9.396 2.213 9.113 3.166 degrees of freedom 2 2 2 2 2 2 asymptotic significance 0.017 0.032 0.009 0.331 0.010 0.205 exact significance 0.012 0.026 0.004 0.342 0.005 0.214 concerning the g2 group, results did not demonstrate a correlation between expenditures and the league position, with an exception in 2015 (r = 0.886, p< 0.019). those data suggest that the g2 group oscillated with frequency in the league positions, independent of the costs, but remaining in the “elite” and “continental competition” categories (72.22%). even by expenditure more, the football clubs from this group could not achieve better league positions, thus corroborating the intragroup analysis about league positions and correlation analysis of the g1 group. however, the lack of improvement was also expected, since once as the g1 group, they occupied the highest league positions and, added to this, the g2 group represented the group with a smaller number of teams relegated (33.33%). lastly, the g3 group did not present strong correlation between expenditures and league position. those findings, while not having correlations to confirm the hypothesis for this analysis, indicate that clubs with lowest expenditures appear in inferior league positions, since the g3 presented clubs in 100% of the seasons analyzed in the relegation zone, even with spending more money for their football clubs. in summary, correlation results were able to explain the hypothesis that clubs with highest expenditures achieve the highest league positions because, even without correlations, the results demonstrated that clubs with highest expenditures (in the g1 group and the g2 group) were the ones with the highest positions in the league in all analyzed years. 5. discussion the fact that the g1 group presents the highest expenditure group through all the years may be related to superior resources availability, revenues and investors, which may allow signing the best players and keeping the best structure needed to work, which might be something that increases the chances for success. on this line, the premier league appears as an example that illustrates well this higher likelihood of success. from 2002 to 2010, the club with the most expensive line-up won the title in 66% of cases and only once, having the most expensive line-up, or the second one, did not guarantee the title (tomkins, riley, & fulcher, 2010). the english football has also shown that success has an important impact on revenues (dobson & goddard, 1998; szymanski & smith, 1997), with national success being mainly driven by team investments (kuypers & szymanski, 1999; szymanski & smith, 1997). there is also an influx of private investors into european top clubs (rohde & breuer, 2016; scelles, helleu, durand, & bonnal, 2016), for example, which tend to have superior resources and are gaining importance in order to stay competitive in elite football (kuper, 1999). the g2 group presents a similar dynamics of expenditure of football clubs as the g1 group. this might occur with the intention of keeping the respective clubs in the highest league positions, as it happens with the g1 group. the g2 group faces troubles because of the competence of the g1 group, which is able to make bigger investments, also paying higher salaries to the best players. on this line, it is claimed that the investment in salaries explains more than 90% of the position variance in a football league (kuper & szymanski, 2014); in the premier league, the likelihood is also considered to be 81% (anderson & sally, 2013). dietl, franck & lang (2008) determine that clubs compete by investments and the competitive interaction among clubs leads to an overinvestment scenario, what results in a dissipation of overall league revenues. moreover, the top 30 elite football clubs in europe (most originating from english, italian, spanish, german and french leagues, ranked by revenues) has won 90% of the national league titles in those leagues from 2004 to 2013 and 88% were half finalists in the uefa champions league during the same period (rohde & breuer, 2016). according to the same authors, the last non-top 30 club to win the champions league was fc porto in 2004, and villarreal in 2006 was the last non-top 30 club to achieve the semi-finals, which corroborates our results about the competence that the g2 groups has in comparison with the g1 group. it is understood that the increase in the g3 group investments is in line with those of the g2 group increase, but it is also considered that the g3 group cannot invest much when compared to the other groups that may earn more revenues. there are not many financial resources, which can help to understand the expenditure oscillation in 2013 and 2014, besides the possible unfair competition in games and also in the economical aspect, with the g3 group not being able to collect and invest in the same level in which groups g1 and g2 do, having to adapt themselves to survive in the first division. on this line, even though expenditures do not present so dangerous a scenario, some teams, like wigan, are remembered for surviving in those difficult conditions. this team managed to survive in the premier league even with a relegation likelihood of 95% and wages 4 times lower than the manchester united (anderson & sally, 2013). however, the literature also highlights that revenues can present a significant impact on teams performance. according to rohde & breuer (2016), the top 30 european revenue-generating football clubs have grown, on average, by 6% per year, while the top 15 clubs have grown by 7.9% per year, the top ten clubs have grown by 9.5% per year and the top five clubs have grown by 11.7% per year, demonstrating a big difference from the bottom 15 8 eric matheus rocha lima, vivian de oliveira, vladan pavlović, carlos norberto fischer, afonso antonio machado, ivan wallan tertuliano 2018/23(1) clubs (4.3% per year), bottom ten clubs (4% per year) and bottom five clubs (3.8% per year), which also corroborates our results. comparing the football club expenditures with the league position, the fact that the g1 had, in majority, its teams in the “elite” and “continental competition” categories may be related to the increase in the football club expenditures and, accordingly, to better conditions for investment, allowing the clubs to bring the best players, offering higher salaries and enjoying a high quality level to achieve high objectives, such as titles and classification in continental competitions. those clubs can use strategies to accumulate financial resources, which may be based on owning a global brand powerful enough to generate revenues from merchandising, ticketing and broadcasting (gladden & milne, 1999; pawlowski & anders, 2012) and the “sugar daddies”, attracting financial resources from private majority investors (franck, 2010; kuper, 1999), motivating investments into the teams (rohde & breuer, 2016). the presence of the g2 group teams, in high frequency, in the “continental competition” category, might be related with the g1 group’s financial power, which allows them to get the best quality in the market and apply it on their teams, having better conditions to win more matches than the g2 group teams, which can make some good investments, but not in the same proportion as the g1 group teams do. however, even with different levels of investments, the g2 group could also reach the “elite” category, which shows that, even in a different reality than that of the g1 group, with lower expenditures but with similar football club dynamics of expenditure, the g2 group, with the right movements in the football club can anjoy good seasons and overcome the competition. on this line and over a long period, teams that win in majority are the ones that pay highest salaries and sign the best players in the market, but surprises might arise, as porto (a portuguese team) winning the champions league in 2004 and real sociedad being close to win the spanish league in 2003 (soriano, 2013). football movements, such as passing rate, shots, tackles and intercepts have already been measured to assess performance in this sport (rampinini, impellizzeri, castagna, coutts, & wisløff, 2009), since football is also seen as indeed characteristic of a complex sociotechnical system, with performance aspects not currently measured (e.g., adaptability, communication), with a minimal knowledge (e.g., tempo, regaining possession), or not measured in an appropriate context (e.g. pitch area where important actions occur) (mclean, salmon, gorman, read, & solomon, 2017)., the fact that the g3 group, in majority, is in the last two categories (neutral and relegation + série b), may be related to the fact that its teams do not have high resources to invest in their football clubs, which might make the competition with the other groups unfair; the latter are able to invest more and acquire more adequate conditions to compete than the g3 group. football can be seen as a war, because the ones with thinner chances try to fight harder, while the best teams may consider situations under lower pressure (kuper & szymanski, 2014). according to grossmann (2015), team investments exceed profit-maximizing levels through evolutionarily-stable strategies in the competition among clubs to survive in the elite. not having significant differences between groups g1 and g2 might be explained by the fact that those teams are the ones able to make more investments in the brazilian league, and also by taking into account that groups g1 and g2 presented similar dynamics of expenditure in the football club, which brought some balance to league position results among those teams. corroborating our results, rohde & breuer (2016) bring their study of financial success in elite football clubs in europe as an example, since the richer clubs are peculiar due to their higher revenues and growth rates, with brands achieving global reach, also dominating performance in national and continental competitions. according to them, national success has a significant impact on revenues too. however, the differences between groups g1 and g3 and between groups g2 and g3 might be justified in the opposite way. in these cases, there is a big difference in football club investors, resources, expenditure and, consequently, in the level of footballers signed and in the teams’ quality in general, which may have serious influences on performance as well as on the league position in the end of the seasons. financial resources have been demonstrated to be a scarce resource in both amateur and professional football (gerrard, 2005; wicker & breuer, 2011), and the teams financial performance is significantly affected by their ownership status (gerrard, 2005). moreover, private majority investors have been argued to have superior incentives to invest in their teams compared to clubs with dispersed ownership or owned by member associations (franck, 2010). as already mentioned and following the last two paragraphs, the richest clubs pay the highest salaries aiming to win trophies, also enjoying the preference by the media, since the football growth is closely related to the tv, which uses the sport as a knowledge producer (kuper & szymanski, 2014). for the disadvantaged ones, it remains to fight to sustain themselves in the elite, since the difference in money received is high when first and second division are compared. to exemplify it, anderson & sally (2013) mention premier league values: not being relegated to the second division represents a 45 million difference to the clubs. 9 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) 10 eric matheus rocha lima, vivian de oliveira, vladan pavlović, carlos norberto fischer, afonso antonio machado, ivan wallan tertuliano 2018/23(1) it can be concluded that teams from all groups increased their football club expenditures in the entire studied period. groups g1 and g2 presented similar dynamics because they are normally in the highest league table positions and the g3 group demonstrated a light oscillation, which is a fact that might be explained by the fact that it is the group with less resources and that tends to suffer more in the competition with groups g1 and g2. the g1 group teams remain, in majority, in the “elite” category. it may be understood by the fact that they have a better ability to collect resources and invest, which in turn makes them able to bring more quality to the squad and fight for big objectives. the group g2, with similar financial development, was mainly present in the “continental competition” category, because of the competition with the richest teams in the g1 group, but it is also remembered that the g2 group presented potential to cause troubles to the g1 group’s hegemony, since they could reach the “elite” category in some of the evaluated years. the g3 group, as predicted, was positioned, in majority, in the “neutral” and “relegation + série b” categories, possibly because of a lower availability of resources to invest by the football clubs and also because of the competition with the stronger teams in groups g1 and g2. the significant differences occur among groups because of the expenditures made by football clubs, with groups g1 and g2 appearing in more favorable economic conditions than the g3 group, which needs to fight and adapt itself constantly to remaain in the brazilian first division. lastly, it is suggested 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(2012). normalidade de variáveis: métodos de verificação e comparação de alguns testes não-paramétricos por simulação. revista hcpa, 32(2), 227–234. [36] wicker, p., & breuer, c. (2011). scarcity of resources in german non-profit sport clubs. sport management review, 14(2), 188–201. doi:10.1016/j.smr.2010.09.001 received: 2017-10-13 accepted: 2018-01-28 11 management: journal of sustainable business and management solutions in emerging economies 2018/23(1) 12 eric matheus rocha lima, vivian de oliveira, vladan pavlović, carlos norberto fischer, afonso antonio machado, ivan wallan tertuliano 2018/23(1) about the authors eric matheus rocha lima são paulo state university at rio claro (unesp), rio claro, brazil e-mail: ericmrl@hotmail.com eric matheus rocha lima was born on 17th october, 1991 in araras. he graduated from são paulo state university at rio claro (unesp) rio claro, earned his master’s degree from são paulo state university at rio claro. he is a member of the laboratory of studies and research in sports psychology (lepespe) unesp rio claro. vivian de oliveira university center fieo, osasco, brazil e-mail: vivian_oliveira58@hotmail.com vivian de oliveira was born on 04th september, 1991 in vinhedo. she received her bachelor and msc degrees from são paulo state university at rio claro. she is a member of the laboratory of studies and research in sports psychology (lepespe) unesp rio claro. she is a lecturer professor at university center fieo. vladan pavlović university of pristina, faculty of economics, kosovska mitrovica, serbia e-mail: vladan.pavlovic@pr.ac.rs vladan pavlovic was born on 16th december, 1971 in belgrade. he received his bachelor and msc degree from the faculty of economics in subotica, and a phd from the faculty of business studies, megatrend university, where he was appointed an assistant professor and associate professor in the field of accounting and auditing. he was appointed a full time professor in 2012 at the faculty of economics in pristina (kosovska mitrovica). he has published numerous papers in international and national journals. carlos norberto fischer são paulo state university at rio claro (unesp), rio claro, brazil e-mail: carlos@rc.unesp.br carlos norberto fischerwas born on 12th december, 1958 in piracicaba. he graduated in electrical engineering from the federal university of juiz de fora, earned his msc and phd at the university of são paulo.he has a postdoctoral degree from the university of warwick, coventry, england and claude bernard lyon 1 university, villeurbanne, france. he is a professor at the state university of são paulo. he completed his post-doctoral studies at the university of warwick, coventry, england and claude bernard lyon 1 university, villeurbanne, france. he is a professor at the são paulo state university at rio claro (unesp) rio claro. afonso antonio machado são paulo state university at rio claro (unesp) rio claro – brazil e-mail:afonsoa@gmail.com afonso antonio machado was born on 21th deember, 1959 in lins. he earned his post-doctoral degree from the faculty form lisbon and university of minho, his master and doctor degrees from the university of campinas (unicamp), he graduated in physical education from pontifical catholic university of são paulo, he also graduated in philosophy and pedagogy from unicamp. he works as an adjunct professor at the são paulo state university at rio claro. he is a coordinator of the laboratory of studies and research in sports psychology.he has published numerous papers in international and national journals. ivan wallan tertuliano adventist university center of são paulo (unasp), são paulo, brazil e-mail: ivanwallan@gmail.com ivan wallan tertuliano was born on 12th september, 1981 in são paulo. graduated in physical education from universidade nove de julho. he obtained his master’s degree in physical education from the university of são paulo and a phd degree from the são paulo state university at rio claro (unesp) rio claro. he completed his postdoctoral studies at the unesp rio claro. he is a professor at the adventist university center of são paulo and a member of the laboratory 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 03 24_1 milenkovic:tipska.qxd 23 marina jovanović milenković1, aleksandra vukmirović2, dejan milenković3 1 university of belgrade, faculty of organizational sciences, serbia 2 higher education school for applied studies belgrade business school, serbia 3 serbian armed forces general staff, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(1) big data analytics in the health sector: challenges and potentials doi: 10.7595/management.fon.2019.0001 abstract: 1. introduction in modern business, organizations are increasingly introducing the big data concept globally. several definitions of big data have been put forth to date. one of them is that big data involves data storage, management, analysis, and visualization of very large and complex datasets (russom, 2011). the term big data cannot be identified only with a large amount of diverse data, but rather with the techniques used in the processing of these data and ways of making important business decisions (chen, chiang & storey, 2012; martin-sanchez & verspoor, 2014). due to these characteristics the more often used term is big data analytics or “analytics of large amounts of data” because its purpose is the application of advanced technology and statistical techniques for finding hidden patterns in data and generate information for making important business decisions (mikalef, pappas, krogstie, & giannakos, 2017; chawla & davis, 2013). the big health data analytics often has a predictive purpose: in a way, the use of relevant predictive analytical tools makes it possible to find the cure before people get affected by a specific disease (khennou, khamlichi, & chaoui, 2018). the health system involves large amounts of data records of patients, management of data, analysis... (choong & hyung, 2017). by definition, big data in the healthcare system relates to electronic health data, which are so large and complex that it is difficult (or impossible) to manage data on the basis of traditional software and/or hardware (raghupathi & raghupathi, 2014; groves, kayyali, knott & van kuiken, 2013). 1 corresponding author: marina jovanović milenković, e-mail: marinaj@fon.bg.ac.rs research question: the introduction of the big data concept in the healthcare sector points to a major challenge and potential. motivation: our goal is to indicate the importance of analyzing and processing large amounts of data that go beyond the typical ways of storing and processing information. тhе data have their own characteristics: volume, velocity and variety. there are different structures. analysis of these data is possible with the big data concept. its importance is most evident in the health sector, because the preservation of the health status of the population depends on adequate data analysis. idea: the idea of the paper is that big health data analytics contributes to a better quality provision of health services. the process is more efficient and effective. data: health analytics suggests that more and more resources are being utilized globally. in order to achieve improvements, health analytics and big data concepts play a vital role in overcoming the obstacles, working more efficiently and aiming at providing adequate medical care. tools: the big data concept will help identify patients with developed chronic diseases. big data can identify outbreaks of flu or other epidemics in real time. in this way, they are managed by the healthcare system, reducing overall healthcare costs over time, and increasing revenues. findings: a key policy challenge is to improve the outcomes of the healthcare system, data collection and analysis, security, storage and transfers. big data are the potential to improve quality of care, improve predictions of diseases, improve the treatment methods, reduce costs. contribution: this paper points to the challenges and potentials of big health data analytics and formulates good reasons to apply the big data concept in healthcare. keywords: healthcare, health analytics, big health data analytics, challenges and potentials, quality and efficiency of care. jel classification: i15, m15, p47 big data in the health sector bring challenges and potentials. many authors have written on this topic, so this paper gives an overview. the study section 2 will discuss health analytics. then in section 3 big health data analytics will be presented. after that, section 4 will present challenges and potentials for big data in health care. at the end of the paper, the conclusion is given along with the recommendations and suggestions. 2. aspects of health analytics health analytics is a tool that is used to make decisions about health care based on health data. while such aspects of health analysts, such as the use of statistical models, data mining and support for clinical decisions, existed for decades, the availability of large amounts of data contributed to an integrated process of decision-making. aspects of healthcare analytics are: • provide a combination of financial and administrative data, • identify areas to simplify operations and thus reduce costs, • research and development monitor, evaluate and analyze new solutions, • clinical data provide information on the effectiveness of treatment, • doctor’s understanding of what patients feel and how they react to treatment contributes to the expansion of services, • optimize efforts in managing hospital and foundation donations and grants, allows hospitals to track physician records, patient histories, and needs to ensure the right doctor is deployed to the patients most in need, • provide an easier approach to track existing claims, clients, and premiums for insurance companies. healthcare industry worldwide has recently been faced with various challenges such as a high cost of providing health services, a high percentage of aging population, patients with chronic diseases, a significant shortage of medical experts... (krumholz, 2014; bates, saria, ohno-machado, shah & escobar, 2014). for example, the cost of health care spending amounted to $ 2.6 trillion in 2012, in the us, an estimated 17.6% of the gross domestic product (gdp), while in 2016 it amounted to about $ 4.1 trillion. in the report, ims research shows that the costs for pharmacy drugs increased to $ 1.2 trillion in 2016 (ims institute, 2012; chen, mao, & liu, 2014). figure 1 shows a summary of the total costs by region and by year. total operating expenses in 2006 amounted to $ 658 billion, the sum in 2011 amounted to $ 956 billion and in 2016 there was an increase of 1.175-1.205 billion dollars. the us has participated in costs from 41% in 2006, followed by 34%, and then 31% in 2016. the states of the european union participated in the costs with 19% in 2006, followed by 17%, while in 2016 they covered 13% of the total costs (ims institute, 2012). figure 1: cost of drugs by years and regions (adapted from ims institute, 2012) 24 marina jovanović milenković, aleksandra vukmirović, dejan milenković 2019/24(1) further analysis shows that the health industry is large, but also critical. constant investment in the health sector leads to inefficiency. according to the institute of medicine, one-third of health spending (about 750 billion dollars) today is lost and does not contribute to improving the health care of patients (ims institute, 2012; meeker & hong, 2014). this refers to the various inadequate services, administrative work, unproductive work processes, inefficient service delivery, the high price of health care services, deception and missed opportunities for providing prevention (alyass, turcotte & meyre, 2015; kim & groeneveld, 2017). costs relating to the inefficient delivery of health services are (groves, kayyali, knott & van kuiken, 2013) as follows: • 130 billion dollars for an inefficient provision of health services, • 105 billion dollars for prices that are too high, • 190 billion dollars for excess administrative costs, • 210 billion dollars for the unnecessary service, • 75 billion dollars for fraud, • 55 billion dollars for missed prevention opportunities. the big data concept is as potential way to go in the quest for better efficiency of the healthcare sector (choong & hyung-jin, 2017; sanskruti & atul, 2016). however, the concept also contributes to better decision-making in relation to the patient’s health status, accurate diagnosis, effective treatment and better management of health data. 3. big health data analytics big data related to healthcare have rapidly expanded with the development of the internet. management and analysis of voluminous and varying big data is possible using the information-communication technology (ryu & song, 2014). such data include basic patient data, various analyses, laboratory reports, medical images, a register of doctors and nurses. many healthcare institutions from different countries have successfully applied solutions of big data in traditional healthcare. the processes that occur are improving the quality of care, increasing the effectiveness and efficiency of healthcare (ryu & song, 2014; moon-koo & jong-hyun, 2016; witjas-paalberends, laarhoven, burgwal, feilzer, swart, claassen & jansen 2017). the effectiveness and efficiency of healthcare is the application of big data analytics to improve healthcare: 1) predictive modelling for risk and resource use; 2) population management; 3) drug and medical device safety surveillance; 4) disease and treatment heterogeneity; 5) precision medicine and clinical decision support; 6) quality of care and performance measurement; 7) public health; and 8) research applications (rumsfeld, joynt & maddox, 2016). the concept of big data in the health care system is characterized by several features: the volume, the variety and the velocity (ganjir, sarkar & kumar, 2016; &, 2013). according to data from mckinsey global institute, the amount of data generated globally is expected to grow at an average annual rate of 41%. in the period from 2008 to 2020, this amount will increase by 44 times, from 0.8 zettabytes in 2008 to 35 zettabytes in 2020 (nasscom and crisil global research & analytics, 2016). this is supported by the fact that every day on facebook 10 terabytes of data and on twitter 7 terabytes of data are generated (groves, kayyali, knott & van kuiken, 2013). the highest volume of health data is collected in north america (nasscom and crisil global research & analytics, 2016). new data are generated at high speed, which is far greater than the speed of data processing. health data by various sources can be collected by monitoring the health status of individuals or of the entire population (kyoungyoung & gang, 2013). however, different stakeholders have different goals and hopes for big data analytics (jovanovic milenkovic, milenkovic, vukmirovic & radojicic, 2016): • physicians – to improve better medical care; • patients want daily use of new technologies in order to get better care with the proper diagnosis; • providers want access to data of the clinic, the patients, in order to improve decision making, achieving efficiency in the work without error; • researchers want a new tool to improve the quality and quantity of the workflow. these include the various statistical tools and algorithms; • pharmaceutical companies they want to better understand the causes of disease and thus get a safer drug market; 25 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) • mobile devices producers – data provided by the various mobile health applications integrated into the mobile devices (heart beep, physical activity, sports and recreation, sleeping habits etc.) • government trying to reduce costs, enforce regulations; • company’s software development see the opportunities to serve the wholesale market, to develop software that will find application in the health system. the us health care system faces the problems of the health insurance. resolving these problems has been described by the former us president barack obama, who states that the affordable care act has made a significant progress towards solving long-standing challenges related to access, affordability and quality of care (barack, 2016). in march 2012, the former us president barack obama and his administration launched an initiative to approve $200 million for the project “big data research and development initiative” whose main objective is to transform the use of big data for scientific discovery and biomedical research, with the participation of several federal departments (kyoungyoung & kim, 2013; weiss & zgorski, 2012; chen, mao & liu, 2014). the obama administration proposed a program “health 2.0” for efficient data management: patients, medical institutions, health insurance. one of the proposed models in the “health 2.0” is a pillbox. pillbox involves providing accurate information about specific drugs that the patient is interested in. the aim of pillbox is to reduce costs in the sale of drugs to keep medical records in order to avoid inadequate selling of drugs. it is believed that the service is necessary for the elderly (sagiroglu & sinanc 2013; kyoungyoung & kim, 2013). a report by mckinsey global institute suggests that if the us healthcare were to use big data creatively and effectively, the sector could create more than $300 billion in value every year. two-thirds of the value would be in the form of reducing the us healthcare expenditure (manyika chui, brown et al., 2011; belle, thiagarajan, soroushmehr, navidi, beard & najarian, 2015) by applying the big data analytics, physicians can make timely decisions. the big data concept will help identify patients with developed chronic diseases, such as diabetes, heart failure or chronic obstructive pulmonary disease (fong, ng & yuen, 2017). in this way, the data are connected, identifying patients who need additional care (nasser & tariq, 2015). an early prevention of diseases start with a change of the lifestyle. management of these diseases is significant because they are the most costly to treat. big data can be tracked by software and thus identify outbreaks of flu or other epidemics in real time. in this way, they are managed by the health system, reducing overall healthcare costs over time, and increasing revenues (murdoch & detsky, 2013). 4. challenges and potentials a key policy challenge in both developing and developed countries is to improve outcomes of the healthcare system while containing cost pressures. furthermore, health care costs are rising rapidly, driven by population ageing and rising relative prices. to improve public healthcare spending projections and meet a rapidly growing health care demand, efficiency gains in health care will be crucial (mitrovic, vujosevic & savic, 2016). the potential of the big data concept can help healthcare organizations improve quality and efficiency in the following (luna, mayan, garcía, almerares & househ, 2014): • it leads to new knowledge, based on the analysis of data, that can provide solutions to some of the problems that cannot otherwise be detected in clinical conditions; • disseminating knowledge, helping physicians through clinical decision support systems, which can provide suggestions and predictions in real time based on the personal data of patients; • translating personalized medicine initiatives into clinical practice by providing the opportunity to use analytical capabilities; • empowering patients patients can be informed of their health and healthcare; • improving epidemiological surveillance: some tools are developed and keep track of the highly prevalent or deadly diseases in the population. big data have the potential to improve patient care, save lives and reduce healthcare costs (srinivasan & , 2013; koumpourosm, 2014). the potential health lies in combining traditional details with new forms of data at the individual level and at the population level. in table 1, the differences between traditional analytics and big data analytics are shown in relation to the data sources, processing techniques, intensity, time and purpose of data processing. 26 marina jovanović milenković, aleksandra vukmirović, dejan milenković 2019/24(1) table 1: traditional vs. big data analytics (lazarevic, 2015) table 1 shows that big data analytics reveals many advantages. big data in the health sector mainly consist of huge amounts of digital health data such as electronic health records (ehr), computerized physician order entry (cpoe), picture archiving communications system (pacs), clinical decision support systems (cdss), and laboratory information systems. the following factors lead to the improvement of quality of healthcare (archenaa & anita, 2015): • providing patient centric services: this involves detecting diseases at the earlier stages based on the clinical data available, minimizing drug doses to avoid side effects, and reducing cost for the patients. • detecting spreading diseases earlier: predicting the viral diseases earlier before their spreading, based on the live analysis. preventive measures shall be taken in a particular geo-location. • monitoring the hospital’s quality: all hospitals must apply the norms issued by the medical council. this periodical monitoring indicates necessary measures against disqualifying hospitals. • improving the treatment methods: customized patient treatment doctors monitor patients suffering from certain diseases. based on the analysis of data, doctors can give the persons who may suffer from the same symptoms, the same drugs that lead to healing. in the literature, many authors gave their views on the challenges and potentials provided by big data. electronic health records are designed and implemented to move data between disparate organizations, provide a follow up of patients, and develop strategies to improve overall outcomes. cloud storage is increasingly used, because costs drop and reliability grows. a large number of healthcare organizations use some sort of cloud-based health it infrastructure, including storage and applications. the security rule includes a long list of technical safeguards for organizations storing protected health information, including transmission security, authentication protocols, and controls over access, integrity, and auditing (alekxandru, radu & bizon, 2018). table 2 lists the main challenges and potentials for big data in health care. table 2: the challenges and potentials of health big data analytics 27 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) challenges • data structure data are unstructured and in large volumes. • storage and transfers high data costs occur when data are transferred and stored. • security there is concern for data confidentiality. • inadequate knowledge individuals need to be further educated with the development of technologies. potentials • improve quality of care by applying the big data concept, the quality and efficiency of care is improved. analytics can indicate the number of chronic diseases and epidemics. • prediction big data allow for the prediction of diseases. big data analytics can also help in the prevention of deadly illnesses and personalized monitoring and disease management. management challenges related to big data are a group of challenges encountered, for example while accessing, managing and governing the data. data warehouses store massive amounts of sensitive data such as financial transactions, medical procedures, insurance claims, diagnosis codes, personal data, etc (sivarajah, kamal, irani & weerakkody, 2017). the health information scientists and computer scientists discussed big data in medicine. they focused on how to collect, store, integrate, and manage data. however, the future of big data in health sector is in using new analytic techniques such as machine learning to answer clinical questions, educating doctors and policy makers to understand big data, and promoting the use of tools generated by big data and big data technologies that support clinical decision making. in the future, it is important to discover the challenges and potentials that health big data analytics provides (zhang, wang, zhan & zhan, 2018). big data technologies have the potential to transform the way healthcare providers use sophisticated technologies to gain insight from their clinical and other data repositories and make decisions based on collected information. in the future, we will see rapid, widespread implementation and use of big data analytics across the healthcare organization and the healthcare industry. big data analytics and applications in healthcare are at a nascent stage of development, but rapid advances in platforms and tools can accelerate their maturing process (vukmirovic, rajnai, radojicic, vukmirovic & jovanovic milenkovic, 2018). 28 marina jovanović milenković, aleksandra vukmirović, dejan milenković 2019/24(1) challenges • data standardization data are not standardized, which leads to data transmission problems. • regulatory compliance legal considerations should be taken when big data are analyzed. potentials • upgrade operational proficiency early analysis is important in offering better attention and care. • data quality, structure, and accessibility rapid capture of data and converting primary, raw and unstructured data into meaningful information. the data is transparent and accessible. • improve decision making health care providers make more informed decisions. this, in turn, improves the quality of care provided to the patients. • cost reduction big data reduce costs and increases revenue. • patient-centric care the big data concept introduces the patient into active part in his healthcare. • globalization by globalizing data, big data are available to all regions. the goal of the health system is a healthy population (jovanovic milenkovic, radojicic, milenkovic & vukmirovic, 2009; jovanovic milenkovic, jeremic & martic, 2014). due to the expansion of information and communication technologies in all spheres of life, especially in the field of health care, the importance of theories that predict and explain the factors that influence the adoption and use of information and communication technologies in health care is growing (rodic trmcic, labus, bogdanovic, babic & dacic-pilcevic, 2016). the concept of “big data” is not new; however, the way it is defined is constantly changing. the introduction of big data concepts in the health system contributes to better health care characterized by speed, accuracy and timeliness. health analytics and big data concepts play an important role in overcoming obstacles in order to a more efficient and faster medical care. the application of new technologies is essential. medical and health technology is used by everyone: patients, physicians, health workers, end-users, engineers, clinics and hospitals. in this paper, our systematic literature review revealed both challenges and opportunities that big data offers to the health care industry. the literature listed the challenges of data structure, storage and transfers security and standardization. the literature also listed the opportunities of increased quality, better management of population health, prediction of diseases, cost reduction and globalization. conslusion references [1] alekxandru, a.g., radu, i. m. , bizon, m. l. 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(2017). challenges and best practices for big data-driven healthcare innovations conducted by profit–non-profit partnerships – a quantitative prioritization, international journal of healthcare management, 1-11, doi: 10.1080/20479700.2017.1371367 [49] zhang l., wang h., li q. zhao, m.h. & zhan, o.m., (2018). big data and medic research in china, british medical journal, 360:j5910, doi: 10.1136/bmj.j5910 received: 2017-12-08 revisions requested: 2018-02-10 revised: 2018-12-28 (3 times) accepted: 2019-01-09 30 marina jovanović milenković, aleksandra vukmirović, dejan milenković 2019/24(1) 31 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) about the authors marina jovanović milenković university of belgrade, faculty of organizational sciences, serbia e-mail: marinaj@fon.bg.ac.rs marina jovanović milenković is an associate for ph.d.studies within the department of ph.d. studies at the faculty of organizational sciences, university of belgrade. she completed her phd thesis in the field of information and communication technology in health care management in 2011. her major interests are e-health, ict implementations in health systems and business decision making. aleksandra vukmirović higher education school for applied studies belgrade business school, serbia e-mail: aleksandra.vukmirovic@bbs.edu.rs aleksandra vukmirović is a lecturer at the belgrade business school, higher education institution for applied studies. she is the author of several scientific studies of national and international importance. she participated in and managed a number of projects in the fields of e-business and marketing research. dejan milenković serbian armed forces general staff, serbia e-mail: dejan.milenkovic@vs.rs dejan milenković is a professional officer in the serbian armed forces general staff. he completed his phd thesis in 2013 in the fields of statistical management, electronic documents management and repositories of 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 07_85_1:tipska.qxd 67 veljko marinković1*, darko dimitrovski2, vladimir senić2 1university of kragujevac, faculty of economics, kragujevac, serbia 2university of kragujevac, faculty of hotel management and tourism, vrnjačka banja, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(1) towards developing a sustainable tourism destination: understanding motives of gold panning on the river pek doi: 10.7595/management.fon.2018.0013 1. introduction the demand in the global market for interesting and unique tourist activities that foster establishing sustainable tourist destinations – in terms of environment, society and economy – continues to rise annually. thus, a new type of tourism known as ‘special interest’ tourism (or ‘niche’ tourism) has emerged in recent years. the special interest tourism comprises different activities in the tourism context such as visits to wine-producing regions, adventure tourism and volunteering. it is among these activities that gold panning can be included. throughout history, humans have been fascinated with gold. this fascination is not easy to explain and it has inspired both creativity, and art-making, just as much as it has greed and the most ferocious of crimes. the precious metal was always – for the most part – mined, but with the introduction of gold panning, the quest for gold became a global phenomenon. the initial gold rushes were geographically linked to california, but in modern times, this fever-like state is found all over the world, including serbia. unlike in days gone by, gold panning today does not have extensive commercial characteristics, it rather emerges as a popular leisure activity, mainly being engaged in by those who live in urbanized areas. gold panning in this sense is usually undertaken in more remote and economically passive, rural areas. as a result, it has inevitably grown into a component of tourist itineraries, either as an individual, stand-alone excursion or as part * corresponding author: darko dimitrovski, e-mail: darko.dimitrovski@kg.ac.rs abstract: research question: the aim of the paper is to identify the statistically significant drivers for gold panning revisit intention at the river pek in serbia as one of the key factors in determining a positive effect on the destination’s economic sustainability. motivation: the paper measures the effects of learning, socialization, nature and prestige and their influence on revisit intention. idea: the core idea of this paper was to empirically evaluate the relationship between recogized tourism motivation as an independent variable and revisit intention as a dependent variable, given that revisit intention represents an important indicator regarding the sustainablity of an emerging tourist destination. data: empirical research was conducted on a sample of 230 respondents. a convenience sample was used and was constructed of people who had visited the river pek as members of organized groups. tools: analysis of the data was conducted in spss and amos. the statistical analysis was implemented in two steps. since this model contains one dependent and four independent variables, its validity has been tested by means of a confirmatory factor analysis. in order to test the significance and strength of the effects independent of the dependent variable, a structural equation model was applied. findings: the findings of the research suggest that two variables are statistically significant triggers of revisit intention – nature and prestige. obviously, tourists are likely to engage in the activity of gold panning due to having a desire to experience something new and exciting, which is considerably different from their everyday activities, as well as from other types of tourism. contribution: the main contribution of the study is to describe in more detail the concept of gold panning and its potential – as a form of niche tourism – to contribute towards establishing the river pek as a sustainable tourist destination. the study also contributes to existing literature through the implementation of quantitative research of the motives for gold panning. keywords: gold panning, learning, socialization, nature, prestige, revisit visit, serbia jel classification: m31, z30. of a larger organized tour. over a prolonged period of time, the promotion of gold panning as a tourist activity could provide a significant stimulus to a local economy, as well as contribute to the preservation of local non-material heritage. in addition, gold panning can be considered as being a physical activity that could have a positive influence on improving mental and physical health. it certainly contains elements of adventurism, which is particularly evident when deciding upon the correct location to undertake the activity, as well as the adrenaline rush at the moment when gold in first glimpsed at the bottom of the pan. there is a lot of potential for serbia to develop a number of unique and sustainable tourist destinations, while allowing national tourist authorities to position serbia even better on an already competitive global tourist market map. as a result, there is a need to determine the basic factors that motivate tourists into deciding to initially participate in the activity, and then opt to revisit the sites where they can engage in gold panning. thus, the objective of the paper is to determine the statistically relevant triggers that lead a tourist to decide to make a repeated visit to the river pek for gold panning. the main contribution of this research is its study of one particular type of special interest tourism activity, as well as the use of quantitative research with the goal of defining the motives behind gold panning. 2. literature overview 2.1. motivation in tourism given that the motivation for participation in gold panning, as a type of special interest tourism, is not yet adequately researched (marinkovic et al., 2017), it is necessary to gain a better insight into the wider context of motivation that is specific to tourism and leisure. people usually decide to travel for various reasons and motives, explaining them as forces that reduce the state of tension (correia et al., 2007). the tourist motivation is a “multi-faceted” (mccabe, 2000) phenomenon, given that tourists have different motivations, even when concerning a single journey. the heterogeneous nature of tourist motivation is recognized by many researchers (cohen, 1972; plog, 1974; dann, 1977), which has resulted in the development of different typologies of tourists based on the relationship between personality and tourist activity. pizam et al. (1979) mention that motivation in tourism is related to a set of needs that cause a person to engage in a certain tourist activity. the identification of the motives that lead to participation in a given tourist activity can be viewed as a vital variable, which, when understood, can generate a satisfactory tourist experience (crompton, 1979; fodness, 1994). therefore, only a complete understanding of the key motives for participating in a given tourist activity can ensure an adequate management of it and thus lead to the feeling of confidence that visitors are more likely to have the experience they desire and their needs satisfied (beh & bruyere, 2007). in academic literature, a number of theoretical frameworks are used for explaining tourist motivation. these include dann’s (1979) ‘push’ and ‘pull’ factors, which interprets tourist motivation through the notion of unevenness (crompton, 1979); complexity theory (mayo & jarvis, 1981); the dichotomous model (personal and interpersonal dimension) iso-ahole (1983); and the travel career ladder (tcl) – an approach introduced by pearce et al. (1988). dann (1977) introduces perhaps the most frequently used approach to investigating motivation in tourism (cohen, et al., 2014; prayag & hosany, 2014). the method involves researching into two different but related aspects – ‘push’ and ‘pull’ factors. push factors represent a tourist’s intrinsic motivation, while pull factors are related to characteristics of the destination itself. push factors have an impact on creating a need for traveling, while pull motives are responsible for selecting the destination to which to travel (uysal & jurowski, 1994). hall and page (2014) refer to tourism and leisure as activities among which there is no clear distinction, so the motives for these activities are viewed as similar. therefore, in the research on the motivation underlying activities related to tourism and leisure, it is possible to employ a similar methodology (moore et al., 1995). people practice certain activities in their spare time in order to satisfy certain needs which are also at the core of tourist activities (driver & tocher, 1970). the similarities between tourism and leisure are bound to rooted habits related to leisure activities that tourists engage in during their travel, thus representing the ‘leisure tourism continuum’ (carr, 2002). the four types of motivation (nature, prestige, social interaction and learning) that are recognized as significant for the purposes of the study will be clarified in more detail as separate concepts. 2.2. key motives for gold panning as a tourist activity the overview of tourist literature has identified some factors that have an impact on the decision whether to participate in a given tourist activity, among which ‘learning’, ‘socialization’ and ‘prestige’ are specifically stressed (kim & prideaux, 2005). the motives previously identified are mentioned by other authors (cromp68 veljko marinković, darko dimitrovski, vladimir senić 2020/25(1) ton, 1979; fodness, 1994; pearce & lee, 2005). the need for spending time in the countryside and nature leans on these same motives, and is just as important from the perspective of tourism and leisure. interestingly, kozak (2002), based on the results of his study, concluded that certain nationalities are more inclined to favor tourist activities in natural settings. in the light of this, a number of motivations have been recognized as significant to the study and will be further discussed. nature pearce et al. (1998) suggest the ten most important travel motives, of which four are related to nature. beh and bruyere (2007) refer to nature as one of the motives when it comes to visiting national parks. driver (1976) stresses the significance of recreation in nature as an important type of human need. also, thompson (2002) mentions an approach to nature as important human need, especially if the positive effects that result from direct contact with nature are taken into consideration. nature is an important characteristic of an activity such as gold panning, especially because it is exclusively available in areas with outstanding natural beauty. to a great extent, direct contact with nature, which in this case is realized by being centered along the river and being at the waterside, determines the satisfaction level with the activity itself. activities in the natural environment provide psycho-physical benefits (kim & eves, 2012), have a positive effect on stress (ulrich et al., 1991), and generally have a positive effect on health. given that these areas are usually inaccessible, the negative effect of human factors is diminished, thus instilling nature as a significant motive in deciding to participate in gold panning activity. prestige riley (1995) defines prestige within the framework of tourist consumption as a motivation used by individuals as a means of getting respect from the wider community, by consuming tourist experiences that are seen as prestigious. crompton (1979) and dann (1977) were among the first authors to identify prestige as an important factor of motivation in tourism. in general, people have a need to distinguish themselves from others, and one of the ways to do so is related to how they use their spare time and what tourist/leisure activities they indulge in. o’reilly (2006) has concluded that certain types of tourism are not that accessible to a wide range of potential tourists, and therefore constitute tourist activities that point to prestige. a tourist’s desire to be acknowledged by society, as well as a motive to strengthen their social status, self-esteem and ego (dann, 1977; iso-ahola, 1983) are important reasons as to why tourists decide to participate in unusual tourist activities. gold panning is certainly an activity that is not mainstream or widely available and as such, it can be viewed as a status symbol or simply a matter of prestige. participating in this activity can be used by an individual to distinguish themselves in their own social environment and attract certain attention and recognition. social interaction socialization in spare time and tourism is an important aspect of previously mentioned activities (ryan & deci, 2000). park et al. (2009) refer to socialization as an essential factor when it comes to activities in nature. gathering of people with shared interests is the core of tourism, as it gives rise to the possibility of meeting others, sharing experiences and making new friends (ryan and glendon, 1998). gold panning is a dynamic activity that involves a large group of people who actively participate in the process itself, but also communicate with one another and share experiences. this provides them with a sense of being part of a team. given that gold panning is likely to attract individuals with similar interests, socialization surfaces as an important factor in the decision-making process as to whether to participate in the activity. learning educational components have always gone beyond the framework of formal education (broomhall et al., 2010), hence the possibility of learning in the informal context of activity is a very important aspect of the tourism experience. a possibility to learn and find out something new has always driven the desire for travel. pearce and lee (2005) maintain that learning might not only be a key motivational factor for tourism at a young age, but also for those who are older. activities which share similar characteristics to gold planning are found in other leisure time pursuits (stebbins, 1982), which can be classed as ‘serious leisure’ – that is, activities which involve gaining experience and obtaining skills and knowledge. so gold panning naturally fits into this category. according to pine and gilmore (1999), learning is viewed as a critical element of tourist experiences which demand active participation – another important characteristic of gold panning. the activity of gold panning itself can also be viewed in the context of heritage tourism within which learning represents the essence of travel itself (moscardo, 1996; poria, et al., 2004). in that context, gold panning locations can be used as educational sites where a local instructor actively involves tourists in a certain activity, but also promotes the cultural heritage of the local community. given that the location and the history 69 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) of the activity itself are closely intertwined with myth and legend, the significance of learning again comes to the fore (rid et al., 2014). with this being the case, the well-known legend of the argonauts and the golden fleece can therefore be linked with the river pek and used as one of many examples of potential use of education related to gold panning as a tourist experience. 3. the methodology and results of the empirical research empirical research of the factors which have an impact on tourists’ willingness to visit the river pek for the purpose of gold panning activity was conducted on a sample of 230 respondents. a convenience sample was used and was constructed of people who had visited the river pek as part of organized groups. the river pek is a suitable location within serbia for monitoring tourist activity related to gold panning and interviewers approached respondents who had completed a visit to the river pek. the respondents were serbian tourists who were nature enthusiasts who had visited the river pek with the aim of engaging in gold panning activity, as well as to rest and enjoy the environment surrounding the river. given that the river pek is mainly visited by smaller groups of tourists, the data gathering was conducted on a number of occasions during the spring and summer of 2015. the sample is mainly comprised of males, given that males show a stronger interest in gold panning activity than females. male respondents accounted for 61.7% of the sample, with females accounting for 38.3%. the majority of the sample belonged to the 18-to-24-year age group (40.9%). the three other age groups account for similar proportions of the remainder of the sample, accounting for 18% to 21% of the sample. regarding the education level of respondents, the majority of the sample had previously obtained a high school diploma (50.9%), followed by a bachelor degree (30.4%) and associate degree (18.7%). regarding marital status, the majority of respondents were single (61.7%) and 38.3% of the sample were married. the data were gathered by conducting a personal interview with the respondents. interviewees expressed their attitudes on a seven-point likert scale. all statements were grouped within five variables (learning, socialization, nature, prestige and revisit intention) where each variable was measured by a set of statements that reflect its essence. such an approach is commonly employed in field marketing surveys. the research model involved four independent variables (learning, socialization, nature, prestige), whereby the significance and strength of their impact on the dependent variable (revisit intention) were tested. the overview of the model variables, as well as sources from which the statements were taken and adapted from for the purpose of the research is given in table 1. table 1. model variables the analysis of the data was conducted in spss and amos. the statistical analysis was implemented in two phases. first, the reliability and validity of the model were tested. the internal consistency of the statements used for measuring the model’s latent variables was checked based on cronbach’s alpha values. then, by employing confirmative factor analysis, the overall fit of the model was tested. in that respect, the indices’ values as to the suitability of the research model were calculated (chi-square / df; rfi relative fix index; nfi normed fit index; cfi comparative goodness of fit; tli tucker-lewis index; ifi incremental fit index; rmsea root mean square error of approximation). secondly, the individual impacts were calculated through the use of the structural equation model (sem). the internal consistency of the model variables was analyzed based on cronbach’s alpha values. in case of all the variables, the cronbach’s alpha values are above the minimum threshold of 0.7 (nunnally, 1978). the highest level of internal consistency is found for the ‘prestige’ variable, where cronbach’s alpha value is 0.91. the results of the analysis of internal consistency are shown in table 1. additional testing of the fit of the suggested research model was completed by employing the confirmative factor analysis. this analysis assumes calculation of a series of indices whose values determine the adequacy of the designated model. based on all the indices calculated, adequate values were obtained for the model (table 2). value χ2 / df is 1.36 and this value is below the threshold of 3.0 as suggested by carmines and mciver (1981). the values of the rfi, nfi, cfi, tli and ifi indices are all above the threshold of 0.9 (byrne, 1998). finally, the 70 veljko marinković, darko dimitrovski, vladimir senić 2020/25(1) ������� � ��� � ��� ������� ��� � ������ � � ��� ��� � ��� � �������� ��� � ��� ������ ���� ������������� ���� � ������� � ���� ���� !��"�� #�$ � #�"���� ����%� ���� ��&���� '������ � (���� ��� �� ��� ��)�&�� ��������� *�+����)&�� � '��&,�-.���/��� ��� %� ��� rmsea is lower than 0.1 (steiger, 1990). additional tests of model validity were performed by the analysis of confirmative factor loadings. namely, these values for each individual statement are higher than 0.6 and statistically significant at the level of 0.05. table 2. indices of model fit the results of the sem analysis are presented in table 3. in accordance with the concept of the suggested model, a total of four relationships were tested. the research model is concerned with four potential factors that will trigger revisit intention in case of the river pek. two of the four effects emerged as statistically significant. these two effects are ‘nature’ and ‘prestige’, which were revealed to be significant triggers of revisit intention for the river pek. the strongest impact on tourist revisit intention, related to the river pek for the purpose of gold panning, comes from enjoying the natural environment and landscape (β = 0.225, p < 0.05). evidently, tourists visit the river pek not only for gold panning, but also in order to relax in the countryside and escape from everyday life. table 3. results of sem analysis ** β value is significant at level of 0.01; * β value is significant at level of 0.05; n.s. – β value is not statistically significant the impact of prestige on the revisit intention is significant (β = 0.187, p < 0.01). gold panning is evidently also a matter of prestige – a more unusual and specific activity that offers a tourist an opportunity to experience something that their friends have not had the chance to experience. therefore, the respondents believe that this type of tourism represents an opportunity to create a better personal image for themselves in the eyes of friends and acquaintances. on the other hand, the research did not confirm that learning and socialization had a significant impact on the revisit intention. this implies that tourists are not motivated to visit the river pek and engage in gold panning in order to learn more about the history of the area or for the purpose of socialization. in this case, these motives are of no considerable significance. 71 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) ��������� � � �� �� ������ � ���� ������ � �� �� �������� ���� ��� � �� ��� �� � � �� � �� ��� �� � ���� � �� ��� �� � ���� ���� ��� �� � ���� � �� ��� �� � ���� ������ ��� � � ���� � ������� � ����� ���� �� ��� � ��� ��� �������� � ����� �� �� ��� ����� ���� ��������� ��� � ����� �� �� ��� ����� ���� �� ��� � ����� �� �� ��� ����� � ���� ��� � ����� �� �� ��� ����� �� theoretical implications the study addresses the phenomenon of gold panning in the context of special interest tourism, which had not been adequately explored in the existing literature. the study contributes to the literature in the sense that it involved conducting quantitative empirical research and the use of the sem analysis in order to understand the motives behind choosing gold panning as a tourist activity. the findings of the research suggest that two variables are statistically significant triggers of revisit intention – which often represents one of the major components of a destination’s long-term sustainability – are nature and prestige. obviously, tourists are likely to engage in the activity of gold panning due to having a desire to experience something new and exciting, which is considerably different from their everyday activities, as well as from other types of tourism. for the respondents interviewed, gold panning is viewed as a matter of prestige. prestige has previously been noted as an important motive for tourism (o’reilly, 2006), for female tourists in particular in destinations that are characterized with untouched and unspoiled natural environments (meng & uysal, 2008). namely, they perceive that this specific type of tourism offers possibilities to experience something that most of their friends and acquaintances have never had the opportunity to experience themselves. respondents are also willing to engage in this type of tourist activity due to the natural environment. conclusion and implications references [1] bagozzi, r.p., & yi, y. 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(2014). consumer behaviour in tourism: concepts, influences and opportunities. current issues in tourism, 17(10), 872–909. doi: 10.1080/13683500.2013.850064 72 veljko marinković, darko dimitrovski, vladimir senić 2020/25(1) therefore, it can be inferred that respondents prefer to spend their time in nature and enjoy its beauty. the results obtained are in accordance with the conclusions made by luo and deng (2008), who stress that tourists are primarily motivated by experiencing closeness to nature and learning more about nature while they are still physically active. these findings have also been confirmed in many other studies (weaver 2002; tao et al., 2004). managerial implications the research findings have managerial implications to travel agencies that plan to offer gold panning to tourists. these could include day trips or overnight excursions to the river pek for this purpose. in their promotional campaigns, these travel agencies could stress the feeling of excitement, the possibility of prestige and the pristine natural surroundings that can be experienced as a result of taking part in gold panning. emphasizing adventurism and the opportunity to try something new and exciting that is quite different from conventional excursions may likely prove to be something that interests some groups of would-be tourists and act as a motive to participate in the activity. certainly, consideration should be given as to whether it is better to include gold panning as a short excursion, which is further complemented by time spent on the river, or as part of a longer itinerary such as a threeor five-day tour. without doubt, this type of tourism is worthy of further consideration, attention and promotion by the national tourist organization of serbia, while respecting all necessary criteria related to developing a sustainable tourist destination. it is recommended that the natural beauty of the area and the excitement that can be found in visiting the river pek are highlighted in promotional literature such as brochures and flyers. definitely, gold panning is a type of tourist activity that can be considered unique, and one that could attract the attention of international tourists. when visiting a new country, many international tourists wish to experience something new that differentiates that country from others. in this sense, a tourist is looking forward to participating in something unusual or unique. as a result, it is important that this type of tourism is actively promoted and the natural environment and adventurism elements emphasized to potential tourists. research limitations and suggestions for further research there are a number of limitations with regard to the research that was conducted. for one, it was only undertaken in one country. in that respect, the results cannot be generalized and widely applied to other populations and countries. in future studies, it may prove useful to undertake a cross-cultural analysis in order to compare the results of different nations. additionally, it would be desirable to investigate the attitudes of both domestic and foreign tourists. a further analysis can also include demographic variables in order to determine the most important discerning factors between different genders, ages and education levels. acknowledgments the earlier version of the paper was selected as the best paper at the conference “challenges and problems of contemporary marketing” (izazovi i problemi savremenog marketinga), zlatibor, serbia, 17-19 november 2017. this research has been supported by the serbian ministry of science and technological development – grant number 41010. 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(2002). hard–core ecotourists in lamington national park, australia. journal of ecotourism, 1(1), 19–35. doi:10.1080/14724040208668110 received: 2018-02-09 accepted: 2018-04-10 veljko marinković university of kragujevac, faculty of economics, serbia vmarinkovic@kg.ac.rs veljko marinkovic is an associate professor of marketing research and consumer behaviour at the faculty of economics, university of kragujevac, serbia. he holds a phd in business management from the faculty of economics, university of belgrade, serbia. he is a member of the presidency of the serbian marketing association (sema). veljko has authored a number of articles in the leading international journals (international journal of information management, online information review, international journal of tourism research, leisure studies, total quality management and business excellence, international journal of consumer studies). his major interests are related to service quality, customer satisfaction and loyalty. he was member of the programme or organizing committees of several serbian or international conferences. he was also a researcher in several projects in the field of marketing. about the authors 75 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) darko dimitrovski faculty of hotel management and tourism in vrnjačka banja, university of kragujevac vojvođanska bb, 36210 vrnjačka banja, serbia darko.dimitrovski@kg.ac.rs darko dimitrovski is an assistant professor at the faculty of hotel management and tourism at the university in kragujevac, serbia. he holds a ph.d. in geography from the university of belgrade. he is a member of a number of international associations (association of critical heritage studies, regional studies association, serbian marketing association, etc). he has authored a number of articles in the leading peer reviewed international journals (cities, tourism geographies, journal of travel and tourism marketing, leisure studies, british food journal, tourism management perspectives, tourism review, journal of convention and event tourism and marketing intelligence & planning). his research interest is largely focused on special interest tourism. he was engaged as a researcher in several international tourism related projects. vladimir senić faculty of hotel management and tourism in vrnjačka banja – university of kragujevac vojvođanska bb, 36210 vrnjačka banja, serbia vsenic@yahoo.com vladimir senić is a full professor with the faculty of hotel management and tourism in vrnjačka banja, university of kragujevac. he completed his undergraduate and graduate studies at the david eccles school of business – university of utah and obtained a phd at the faculty of economics, university of kragujevac. the main focus of his scientific work is primarily related to topics involving service quality, customer satisfaction, customer loyalty and recently the use of geographic information systems in everyday 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false 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possible future sequences, which is the starting premise of this paper. in today’s modern business era, auditing becomes an ever more demanding task. auditors meet some regulatory requirements, face new data analysis, transform the audit process, the balance between own activities, and, due to dynamic and changing environments, they are forced to expand the scope and purpose of the audit work, respecting new risks that are usually changing. the space for new challenges for using auditing methods is open as presented by the research of dopuch, holhausen and leftwich (1987); kirkos, spathis and manolopoulos (2007) or kirskos (2012) and kim and upneja (2014). the toughest task is to find a technique that will be able to timely, accurately and with the least waste of resources, respond to the challenge. * corresponding author: nataša spahić, e-mail: natasa.spahic@dmi.uns.ac.rs abstract: research questions: this paper investigated whether there is a possibility for predictions of an auditor’s opinion that can be used to predict, in an extremely accurate way, future developments in one company. motivation: the research of dopuch, holhausen and leftwich (1987); kirkos, spathis and manolopoulos (2007) or kirskos (2012) and kim and upneja (2014) open space for new challenges for using auditing methods.the most trying task is to find a technique that will be able to timely, accurately and with the least waste of resources respond to the challenge. the fact that auditors are forced to expand the scope and purpose of the audit work, respecting new risks that are continually changing represents the primary inspiration for this paper. idea: our goal was to explore whether one of the possible techniques for prediction the auditor’s opinion – multivariate discriminant analysis – can precisely predict a correct future audit opinion and whether this analysis is useful for finding solutions to performing predictions. data: the analysis was conducted using data from financial statements of 4 serbian tobacco companies of years 2011, 2012, 2013, 2014 and 2015 published by the serbian business registers agency. tools: the presented research, based on theoretical and mathematical support, uses statistical software tools statistica. findings: the application of discriminant analysis in serbian tobacco companies showed statistically major variables of the balance sheet, manely “intangible assets”, “supplies” and “liabilities”. following these variables, we obtained results which we used as the predictors. the outcome of our preliminary investigation presented accurate and correct prediction which is also confirmed by historical data. the result of this investigation can be used for further more complex investigations when using some variables that will lead to discriminatory analysis for more classification groups to mark and rank the most significant variables for expressing the audit opinion. contribution: provided information is important for every business, because every entity that is listed on the business market aims to be as better as possible, and find out and exploit the possibility of avoiding a negative result. keywords: multivariate discriminant analysis, financial statements, auditing, the tobacco industry jel classification: m42, c35 the papers’ goal is to present one of the possible techniques for predicting the auditor’s opinion – multivariate discriminant analysis, explaining the use of mahalanobis distance, as well as decision trees. the paper presents the assumptions of discriminatory analysis and problems in its implementation. also, the paper shows the application of multivariate discriminative analysis itself in the process of auditing the financial statements of tobacco companies in the republic of serbia. the purpose of the investigation is to present the results which can be interpreted as a regular basis for further research and predicting outcomes. also, on the basis of presented results, there is a possibility to choose the manner for future proceeding to mitigate the consequences and mistakes in business decisions and reduce them to a minimum. 2. method according to tabachnick and fidell (2007), the application of multivariate discriminant methods began during the 30s of the last century as a statistical category. in time, it came to be used in economics as showed by holdsworth, tan and chung (2008) or zhou, lu and fujita (2015),and in the analysis of bankrupt corporations as showed by altman (1968) or sudjianto, yuan, and cela-diaz (2010). also it was used in determining creditworthy clients as showed by maddala g. s. (1992) or sun, huang and he (2014). similarly, drury (2005), debrecenyb and gray (2010), albashrawi (2016) or amania and fadlallab (2017) came to the same conclusions during the classification of potential accounting errors. the techniques that make up this analysis can be divided into two groups: dependence and interdependence techniques. using dependence techniques we can see the relationship between variables, where, on one side, we have dependent variables influenced by independent variables. multiple regression and correlation, logit analysis, discriminant analysis, canonical analysis, and conjoint analysis belong to this group. in contrast, interdependence techniques are characterised as defining all phenomena observed in the same way to determine the pattern of behaviour of the variables, i.e., to determine which variables are similar to each other and which are not. the factor analysis, cluster analysis, correspondence analysis, multidimensional scaling, structural equations belong to this group. from all the above-mentioned dependence techniques, we highlight the application of discriminant analysis, because according to sharma (1996) it “is the most stable method” from the group of dependence techniques. this technique allows for the identification of precisely those variables which contribute the most to separating groups and predicting the probability that the object belongs to one of these groups by a set of values for independent variables. according to kovacic (1994) “the multivariate analysis method which deals with the separation of the different groups and the allocation of observations in predefined groups is called discriminant analysis.” it is very important to point out that there are set problems which will arise in case of assumptions be abandoned. with each statistical process, it is necessary to determine whether given parameters are statistically significant. with significance testing procedures, we define how many discriminant functions are required for further analysis and how many variables will turn up. naturally, the question arises whether all the variables are necessary to perform the most optimal separation of groups or observation allocation. it is also required to consider whether these variables are qualitative or quantitative. one way to determine the degree of contributions of a variable in group separation is to view the discriminant coefficient of the variable. therefore, if the number of a specific variable is close to zero, then we can leave this variable out from the discriminant function. apart from this method, according to kovacic (1994), this can also be approached from the standpoint of the “separation of two groups where on the basis of fisher’s discriminative approach a result obtained that the maximum value of fisher’s criterion is equal to the square of mahalanobis distance between the two groups.” if by leaving out particular variables, the new value of mahalanobis distance is unchanged or is only slightly different from the previous, then we conclude that the omitted variables do not contribute to the separation of groups. however, just as we check how an existing variable is enclosed, we can also introduce an additional variable in addition to the previously included variables. this procedure is implemented using the wilk’s lambda. in addition, since it is well-known that the discriminant analysis method is, in fact, a method of dependence, and we know that a dependent variable is of a qualitative type, the thing which is important to us is what if a qualitative variable included in an independent variable, or what if all independent variables are of that type. in these cases the application of the discriminative logistic analysis is suggested. if it happens that all independent variables are qualitative, or if there is a mixed case where some of the independent variables 48 nataša spahić, bojana vuković 2018/23(3) 1 689,511 4,942,207 3,251,774 13,572,140 1,900,303 1 2 0 1,793,333 4,066,425 0 306,898 5 3 1,174 2,638,659 1,957,554 2,844,475 1,411,948 5 4 589 165,77 15,946 252,948 25,755 1 1 682,472 4,691,889 2,990,171 11,741,260 1,585,287 1 2 0 825,242 8,624,124 0 596,446 1 3 1,549 2,071,759 2,397,732 3,407,903 407,498 5 4 595 175,684 24,1 224,923 11,332 1 1 697,514 3,546,548 2,704,902 11,509,543 1,060,225 1 2 25,414 512,89 5,999,750 0 279,154 1 3 1,806 2,010,706 2,492,189 1,190,490 423,179 5 4 601 175,684 45,766 214,785 201,696 1 liabilities audits' opinion * 2013 2012 2011 year firm intangible assets supplies receivable capital management: journal of sustainable business and management solutions in emerging economies 2018/23(3) 49 are qualitative, then it is not reasonable to assume the normalcy. in this case, fisher’s discriminative function gives poor classification results. therefore, if a normal distribution may not be supposed, the use of discriminative logistic analysis is recommended. taking into account available techniques, we consider that is useful to use them to examine whether it is possible to determine the auditor’s opinion. 3. application of multivariate discriminative analysis in the process of auditing the financial statements of tobacco companies in the republic of serbia the tobacco industry is one of the older productions which, in addition to growing and processing tobacco, also manufactured tobacco products. in the republic of serbia, cigarettes are produced by: • niš tobacco industry philip morris company, (1.) • vranje tobacco industry british american tobacco, (2.) • japan tobacco international, senta, (3.) • coka tobacco industry (4.) and • monus indjija. (5.) monus has not been included in this analysis as it is a small legal entity and thus is not required to conduct an audit of its financial statements. the data used for this analysis refer to 2011, 2012 and 2013; they were officially published and are publicly available by the law the republic of serbia on the website of the serbian business registers agency. the balance sheet positions analysed are: “intangible assets”, “supplies”, “receivables”, “capital” and “liabilities”. taking into account the five account balances from the balance sheets of the above-mentioned tobacco industries, by previous years (2013, 2012 and 2011), we will try to find out which of these positions affects the auditor’s opinion the most. table 1: data from the balance sheet (in 000 dinars) note: the auditor’s opinion has been replaced by numbers to make managing data easier. 1=positive (unqualified opinion); 5=qualified opinion source: authors’ calculation in this paper, multivariate discriminant analysis is applied during the audit process, by using the auditor’s opinion for grouping observations which are based on historical data. in the case of the tobacco industry in the republic of serbia, this is either “unqualified” or “qualified”, while the variables used for separation of observations are positions from the balance sheets taken by the highest value. the discriminant function is a linear combination of variables, in this case, a linear combination conditioned by the data obtained from the balance sheet. specifically, by using the specified data, the following results are obtained: table 2: summary of discriminant analysis (calculated in the programming tool statistica) source: authors’ calculation statistically significant variables are shown in bold; in fact, these are the variables that will contribute most to the discrimination between groups. it can be seen that for “intangible assets”, “supplies” and „liabilities “ partial lambda has the lowest values compared to the others. also, the p-values are less than 0.05 which means that they really are statistically significant (there is a statistical significance for group separation and it is evident that the expected average of all independent variables is not equal). the f value of a certain variable indicates its statistical significance in the discrimination between groups. it is a measure of a variable’s unique contribution in the process of predicting the belonging to a group or an object, where it can be observed that the highest value(s) is/are for “supplies”, “intangible assets” and “liabilities”. tolerance is the coefficient of determination between the dependent variable and the other variables included in the model. that is, therefore, a measure of redundancy of a given variable. if the tolerance of some of the variables entered into the equation which describes the model is lower than the default tolerance which is 0.01, this means that the variable is 99% superfluous. in this example, this is not the case, given that they all have a tolerance higher than 0.01. the prediction of belonging to a group conducted with the help of the mahalanobis distance. this distance is quite similar to the squared euclidean distance of the respective case (object) from the centroids for each group. a classification is performed so that the object is assigned to a group according to mahalanobis distance (object from centroid). in this example, there are two groups g_1:1 and g_2:5 where the first represents a case when the auditor’s opinion will be unqualified, and the other instance will be a qualified opinion. table 3: squared mahalanobis distance source: authors’ calculation for further analysis, we need to consider a correlation matrix which shows to what extent two individual variables are in correlation, i.e., which variables in their mutual relationship have a high, and which show a low correlation coefficient. the correlations between independent variables (with outliers which appeared in these correlations) are represented graphically in figure 1. 50 nataša spahić, bojana vuković 2018/23(3) dis crim inant funcion analys is sum m ary no. of vars in m odel: 5; grouping: opinion (2grps ) wilks ' lamda: .06984 approx. f85.6)=15.982 p<.0021 wilks ' lam da partial lam da f-rem ove (1.6) p-value toler. 1-toler (r-sqr.) intangible ass ets 0.153882 0.453849 7.22027 0.036194 0.018753 0.981247 inventory 0.479963 0.145509 35.23446 0.00102 0.01093 0.98907 supplies 0.075966 0.919343 0.5264 0.495439 0.64315 0.35685 equity 0.071074 0.982631 0.10606 0.755736 0.01844 0.98156 liabilities 0.146855 0.475566 6.61654 0.042206 0.0661 0.9339 n=12 ����� �� � ����� �������������������� ���� � ������ ����� ��������������� ����� ����� ��������������������� ���� ���� ��������������� �� ! � �"#$$$$%� ��&!'� �"#(((((� �� ������ �� � �� ���� � � � �� ��� � �� �� � ��� � � � �� ��� ����� � � ��� ���� �� ������ �� �� ������ �� �� ������ �� ����� ������ � �� ������ ����� �� � �� ��� �� �� ��� � �� ���� �� �� �� ������ � ���� ���� ���� � ������ �� ����� � ���� ��� ������ �� �� ������� � ��� �� ��� ������� � ���� � � � ������ � � ��� ��� �� �� the highest coefficient of correlation is found between the variables “capital” and “intangible assets”, and immediately after that, between the “supplies” and “capital” as well as “supplies” and “intangible assets”. finding the correlation between each of these two variables helps us predict with greater certainty how the value of another variable will change if the first one changes. contrary to this, the correlation for variables “capital” and “receivables” is negative. figure 1:correlation of all variables in case of the value analysis of the five balance sheet positions, we receive a statistically significant variable which poses the question for further data categorisation. the following decision tree is obtained by using these data: figure 2: decision tree based on intangible assets we can see that there are one major node and four child nodes. depending on the number of intangible assets, the rectangles contain a “1” if the opinion is unqualified and a “5” if the opinion is qualified. therefore, if intangible assets equal zero or are between 601 and 1806, then the opinion will be qualified, while in other cases it will be unqualified. what can also be noticed is that on the first node, within the given node, there are rectangles that represent a percentage of the groups of dependent variables. colours separate groups related to different opinions, while the height of the rectangle notes how often a particular group occurs. therefore, via these rectangles, each subsequent node (“answer node”) points out to which group the observed object will belong in comparison to the observed independent variables. 51 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) the decision tree provides a geometric framework for organising decisions. every decision tree provides us with an alternative to the next step. in addition to “intangible assets”, the decision tree is used to present positions under “supplies” and “liabilities”. figure 3: decision tree for supplies the amounts of supplies smaller than 2.638.659 and higher than 512.890 (in thousands of dinars) reflect the qualified audit opinion. figure 4: decision tree for liabilities the interpretation of the tree graph “opinion” for liabilities shows that there exists a total of six nodes, more precisely one root node and the other five nodes of the response. it means that all amounts larger than 279.154 and smaller than 423.179 (thousands of dinars), as well as higher than 1.060.225 and smaller than 1.411.948 (thousands of dinars), show a qualified audit opinion. all others will show an unqualified audit opinion. the chaid method (chi-square automatic interaction detector) was used for the previous three decision trees. components used in this method can be continuous, sequential and nominal. the chaid tree is a decision tree built by dividing the subsets into two or more answer nodes, on many occasions, starting with the entire data set. it is important to note that the chaid is not the only method that can deliver results. there is also a possibility for using the c&rt (classification and regression tree) method as presented in huberty and olejnik (2006), james and witten (2013) or shaikh, adi and logrippo (2017). its purpose is to use the tree construction algorithm to determine a set of if-then logical conditions that allow precise estimates for the classification of 52 nataša spahić, bojana vuković 2018/23(3) the observed object (statement). it creates interactive regression trees for continuous and categorical predictors; building an optimal tree structure and also providing incessant dependent variables, as presented in detail by wang (2007), gepp (2010) and clemen and reilly (2014). however, it should be noted that if some of the discriminatory analysis conditions is broken, then it cannot be applied, and some other techniques have to be used. these are the lack of multipolarity between independent variables, the presence of an independent multivariate normal distribution; the matrices of variance and covariance of independent variables between groups are equal and similar. 4. results and discussion the primary conclusion arising from this paper is that there is a real basis for further and extensive research that will consider the use of multivariate discriminant analysis to predict the auditor’s opinion regarding the business of a particular company. through the specific analysis and computer data processing, we concluded that the statistically most material positions in the balance sheet of the tobacco producing companies are “intangible assets”, “supplies” and “liabilities”. with further processing, we arrived at the discriminant function coefficients through which we obtained additional information about the significance of independent variables. given that the discriminant analysis seeks to predict future developments through data clustering, a variable with greater discriminant abilities accompanied by a coefficient with higher values issupporting that. with the help of centroids, representing the matrix discriminant scores for each group, we managed to, making use of the value of the “cutting score”, predict what the character of the auditor’s opinion will be in the analysed tobacco industry companies. the results showed that in a situation when the value of the obtained discriminant functions was below the “cutting score” the auditor’s opinion was qualified and if the value was above them, it was unqualified. based on the received values and the presence of “concentration of tobacco market” as quoted in vukovic, mijic, spahic (2015), the auditor’s opinion from previous years is undisputed in predicting future outcomes, in addition to the values of significant balance sheet positions. in this manner predictions, with some speculations, can be made for the following year. but, would we be mistaken if we were to expect that all auditors’ opinions for 2013 would be same in 2014? we assessed that the results from the application of multivariate discriminant analysis could best be viewed by applying the results for the upcoming 2014 and on the balance sheet of the above-mentioned companies. if we look at it from the company point of view, with the help of discriminant functions that have already been calculated by historical data, f= 0,00001887 * x1 – 0,00000511 * x2 + 0,00000014 * x3 + 0,00000019 * x4 + 0,00000434 * x5+2,6494 (1) variables x1, x2, x3, x4 and x5 are independent variables, and they represent the corresponding amounts from the 2014 balance sheet more accurately. table 4: values of independent variables (for 2014) source: authors’ calculation 53 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) 1 594,581 5,604,441 4,234,617 13,395,080 2,615,566 2 0 1,167,752 1,303,318 0 142,209 3 728 2,257,507 1,718,557 2,381,255 608,17 4 583 260,392 15,946 252,473 26,751 firm x3 receivable x4 capital x5 liabilities x1 intangible assets x2 supplies the calculated value of the discriminatory function of the tobacco industry (1) is equal to -0.28008202, for the tobacco industry (2) is -2.51816114, for the tobacco industry (3) is -5.54022918, and for the tobacco industry (4) is 1.49609974 after calculating the value of the discriminant functions for each company, the resulting value is compared with the previously determined “cutting score”. if the value for a specific company is below -1.178, then the opinion will be a qualified opinion and if it is above those values then the opinion will be unqualified. the results are as follows: figure 5: values of discriminant functions presented on a number line therefore, the tobacco industry (2) and the tobacco industry (3) have a value of the function below -1.178, so they can expect a qualified opinion while the tobacco industry (1) and tobacco industry (4) have a value above -1.178 and can expect an unqualified opinion. after the conducted audit for 2014, the results publicly disclosed during 2015 confirm the results predicted by discriminant analysis. according to the data from the website of the serbian business register agency, we had access to the audit reports of tobacco companies and confirmed that tobacco companies (2) and (3) acquired a qualified audit opinion, while the tobacco companies (1) and (4) actually obtained an unqualified audit opinion. 54 nataša spahić, bojana vuković 2018/23(3) in today’s world that is continuously and persistently progressing in technological terms, feeding on a daily basis we are forced into finding methods to take better advantage of the time and place for making timely business decisions and acting adequately. this claim has a stronghold in a multitude of published papers such as pasiouras; gaganis and zopoundidis (2007); li, huang and shi (2008); mojtaba, sarikhani and ebrahimi (2012) and saif, sarikhani and brahimi (2012). it is very important to be able to, by perfecting techniques and methods, predict the future outcome with particular precision. one of the answers to predicting outcomes and the manner of proceeding, so that the consequences and mistakes in decisions should be reduced, is the presented analysis where we use historical data to look for some consistency in behaviour, in order that we be able to see what we can expect. in particular, the focus of this paper was the application of multivariate discriminant analysis as a method for data manipulation, the essence of which is the proper classification of observations. by relying on discriminant analysis, during the auditing process, we obtained some significant results. however, naturally, we cannot ignore the fact that it is hard to avoid deviation in this analysis so that every result and outcome should be taken with a grain of salt – seeking new, better and more applicable techniques. the presented research, based on theoretical and mathematical support, using statistical software tools, managed to apply discriminant analysis on the data from the financial statements of the tobacco industry in the republic of serbia. the aim was to predict the success of a business in the future and what kind of opinion will be given by the auditor. concretely, we used the following positions from the balance sheet for the predictors: “intangible assets”, “supplies”, “receivables”, “capital” and “liabilities”. the application of discriminant analysis showed that major variables are “intangible assets”, “supplies” and “liabilities”. following these variables, we obtained certain results on which we were able to make the predictions. also, the given variables were entered into the discriminatory function, so we calculated the values of the given function and precisely located the membership of a particular group. groups of dependent variables were the opinions of the auditor. according to the data from the website of the serbian business register agency, we had access to the financial statements of tobacco companies through the officially published data. it should be noted here that the auditor’s opinions varied between “positive (unqualified)” and “positive with distraction (qualified)”, so the classification was established on the basis of that existing situation. the result of our preliminary investigation presented accurate and correct prediction and can be used for further complex investigations. the presented results allow us to continue our research to make the discriminatory analysis as credible as possible. the study will be continued in a way that the number of cases in the smallest group will be superior to the number of independent variables. it means that we will have some variables that will lead to discriminatory analysis for more conclusion -5.5402 -2.51816 -1.178 -0.28 1.496 references 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(2015)., the performance of corporate financial distress prediction models with features selection guided by domain knowledge and data mining approaches, knowledge-based systems, 85, 52-61. doi: 10.1016/j.knosys.2015.04.017 received: 2017-09-07 accepted: 2018-05-30 nataša spahić university of novi sad, faculty of sciences, serbia natasa.spahic@dmi.uns.ac.rs ph.d. nataša spahić is a associate professor at the faculty of sciences, department of mathematics and informatics, university of novi sad. she teaches at the basic and masters studies in subjects closely related to her scientific interests: audit, accounting and analysis of balance sheet. besides to the professors’ engagement she performs the function of director of internal audit in otp bank serbia ad novi sad. bojana vuković university of novi sad, faculty of economics, subotica, serbia bojanavuk@ef.uns.ac.rs bojana vuković, ph.d is a assistant professor at the faculty of economics, subotica, department of finance, banking, accounting and auditing. she teaches auditing, analysis of financial statements and auditing of public sector entities. the teaching activity is combined with the applied activity working auditing of financial statements and providing consulting services in different projects. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 05_83(3) vukovic:tipska.qxd 57 ana jovičić vuković1*, jelena damnjanović1, nataša papić-blagojević1, ivana jošanov-vrgović1, snježana gagić2 1novi sad school of business, novi sad, serbia 2university of business studies, faculty of tourism and hotel management, banja luka, bosnia and herzegovina management: journal of sustainable business and management solutions in emerging economies 2018/23(3) impact of leadership on innovation: evidence from the hotel industry doi: 10.7595/management.fon.2018.0008 1. introduction implementing innovations, companies try to create and maintain their competitive advantage. innovations are important for all sectors of economy, particularly the hotel industry. innovations help the hotels differentiate in terms of category, which may significantly affect the choice of hotel as well as a higher level of guest satisfaction. the hotel employees may provide support in introducing innovations, but they may also be the obstacle. modern work conditions demand a new approach in management, wherein the manager’s main goal is to inspire the employees, create a clear vision and working climate, which will encourage the employees to accept changes, generate new ideas, acquire new skills, apply, transfer and transform them into new products, services or processes. new theories, which have been created as a response to challenges the companies face in changing business environment, indicate that leadership is a complex relationship between the leader and the follower, wherein transformational and transactional leadership styles are key to accelerating the changes (northouse, 2008). the transformational leadership style within organizations is a factor of creating a climate that is supportive of changes, minimizes the employees’ resistance and affects the employees in order for them to feel significant in making the changes which take place within the organization by motivating them to have better, * corresponding author: ana jovičić vuković, e-mail: dr.ana.jovicic@gmail.com abstract: research question: the paper investigates a relationship between innovation and transformational/transactional leadership, as well as the impact of these two leadership styles on innovation. motivation: as there is a small number of studies that have examined the impact of transformational and transactional leadership on innovations within the hospitality industry and in serbia, the need for investigation is obvious. the paper draws on methodology and works of bass and avolio (1997), hogan et al. (2011) and nasution et al. (2011) which are, in this paper, applied to the context of hotel industry. the results of this study will expand theory in this field and can be used as a significant practical guide for hotel management in order to achieve business improvement. idea: in today’s turbulent business environment the ability of the organization to innovate has been a decisive factor of surviving, creating and maintaining competitive advantage on the market and also a critical factor in improving what the organization does. the aim of this research is to determine the predictive effect of transformational and transactional leadership on innovations within hotel industry in serbia. data: the study included 512 employees in 57 tree, four and five-star hotels in serbia. a convenient sampling method was applied. the questionnaire used measured the employees’ attitude towards innovations and transformational and transactional leadership, as well as sociodemographic variables tools: the data were prepared and analysed using statistical software ibm spss 24.0. statistical data processing methods used in this paper are descriptive statistics, the reliability of the instrument, correlation and regression analysis. findings: the research results show that both transformational and transactional leadership styles predict innovations, where transformational leadership style is a stronger predictor and better correlates with innovations. the results show that transactional leaders may also encourage innovativeness, but within the frames of the tasks already set. they can also motivate the employees by using different methods such as stimulative rewards, however, they are primarily focused on task execution. contribution: the results can be used in making future decisions, measures and standards related to human resource management, as well as the development and promotion of innovative activities in hotels. keywords: transformational leadership, transcational leadership, innovation, hotel industry, serbia jel classification: m54, o30, z31 higher quality engagement and innovative behaviour (bass, 1985; bass & avolio, 1990; bass & riggio, 2006). unlike the transformational leadership, the transactional leadership does not take into consideration the employees’ needs nor their personal development; it is based on a concept of exchange between the leader and the follower, which may negatively affect the creativity which is key to innovations (burns, 1978; bass, 1985; 1990; 2000; 2008). considering a small number of studies which cover the above mentioned topic, particularly within the hospitality industry, this paper is meant to determine a predictive effect of transformational and transactional leadership styles on innovations in the first, second and third category hotels in serbia. the main objective of the research is operationalised through the following hypotheses: h1: transformational and transactional leaderships predict innovations. h2. transformation leadership is a better predictor of innovation than transactional leadership. 2. literature review in today’s turbulent business environment the ability of the organization to innovate and take advantage of innovations has been a decisive factor of surviving, creating and maintaining competitive advantage on the market and also a critical factor in improving what the organization does. innovations are new or improved products, services, processes or improved organizational or marketing strategies. innovation involves transformation of an idea into a marketing product or service, new or improved production or distributive processes or a new way of providing social services (mortensen & bloch, 2005). innovations may be present in various forms, which is why there are different types of innovations. innovations are the basis for the success of organizations in the hospitality industry as they provide organizational efficiency, improvement of product quality, reduction of costs, higher customer satisfaction, increased sales and profits, increased market share and differentiation in relation to the competitors (jones, 1996; ottenbacher, gnoth & jones, 2006; chang, gong & shum, 2011). research has shown that leadership is a significant factor in hotel innovativeness (sundbo, johnston, mattsson millett, 2001; orfila-sintes, crespi-cladera & martinez-ros, 2005; martinez-ros & orfila-sintes, 2009). the concept of transformational leadership is one of the modern and often used theories of leadership (day & antonakis, 2012).transformational leadership was originally introduced by burns (1978) and further developed by a number of authors (bass, 1985; bass & avolio 1990; bennis & nanus,1985; kouzes & posner, 2006). the essence of transformational leadership rests on the inspirational abilities of the leaders, whether they express them through words, vision or other activities. transformation leaders are recognized as change agents, visionaries who trust people, leaders guided by values, oriented towards lifelong learning, able to cope with complexity, ambiguity and uncertainty (peterson, walumbwa, byron & myrowitz 2009; judge & piccolo, 2004). four characteristics distinguish transformational leadership from other leadership concepts, and they are the following: individualised consideration or compassionate leadership, intellectual stimulation, inspirational motivation, idealized influence or charismatic leadership (bass & avolio,1990; bass & riggio, 2006). charisma implies that the leader has a vision and enjoys a high degree of trust and respect by the followers. inspiration means that leader communicates great expectations and uses symbols and emotional appeals to focus the members’ efforts towards achieving more than their own interest. intellectual stimulation represents the promotion of intelligence, rationality, and careful problem solving. individual consideration points out that the leader gives importance to each individual, with whom he builds a special relationship, advises them and directs them. transformational leadership in the hospitality industry has been covered in several studies (e.g., hinkin & tracey, 1994; tracey & hinkin, 1996; gill, flaschner & shachar, 2006; chiang & jang, 2008; erkutlu, 2008; hinkin & schriesheim, 2008; scott-halsell, shumate & blum, s. 2008; patiar & mia, 2009; khalili, 2016; liang, chang, ko & lin, 2017). transformational leadership has a two-way effect: leaders directly affect individuals by inspiring them, while their effect on the culture of the organization directly affects motivation and behaviour of the employees. in other words, a transformational leader must instill a new approach to the culture and motivate the followers to improve their performance. the leader demonstrates the strategic vision, determines the new approach to culture and leads the followers as the launchers of changes. in order for the changes to take place, it is necessary for the transformational leader to be able to gather the leading coalition around him/her but also 58 ana jovičić vuković, jelena damnjanović, nataša papić-blagojević, ivana jošanov-vrgović, snježana gagić 2018/23(3) to develop strategies for realizing the vision. furthermore, the transformational leader must be able to remove any obstacles and resistance towards changes; the leader must be able to change the whole system as well as the structures which threaten the vision of change (kontic, 2008). the influence of the transformational leader stems from his/her behaviour, i.e., the ability to inspire the followers with the vision and make radical changes. four characteristics differentiate transformational leadership apart from other leadership concepts, and they are the following: individualized consideration or compassionate leadership, intellectual stimulation, inspirational motivation, idealized influence or charismatic leadership (bass, 1990; avolio, 1999). transformational leaders influence the followers and encourage them to be creative, innovative and motivate them to work harder than it is expected of them (zetie, sparrow, woodfield & kilmartin, 1994; xenikou & simosi, 2006; boerner, eisenbeiss & griesser, 2007). a research conducted by clark, hartline, & jones (2009) determined a positive correlation between transformational leadership and mutual values shared by all employees which affect the understanding of their own role within the organization, job satisfaction and commitment to quality service. the concept of transactional leadership has been shaped together with transformational leadership by burns (1978). the tthe ransactional leadership is different from transformational style as it does not take the followers’ needs and personal growth into consideration. the transactional leadership is based on the concept of exchange between the leader and the follower – the leader provides the followers with the necessary resources and rewards in exchange for motivation, productivity and effective task execution (burns, 1978; bass, 1985; 1990; 2000; 2008). in addition, transactional leadership allows the followers to fulfill their own self-interests, minimize workplace anxiety, and concentrate on clear organizational objectives such as increased quality, customer service, reduced costs, and increased production (sadeghi & pihie, 2012). whittington, coker, goodwin, ickes & murray (2009) indicate that the exchange denotes that both the leader and the follower have a value that is being exchanged. transactional relationship implies an immediate and short-term goal that will result in benefits for both parties. transactional leadership may appear in two forms: the concept of potential reward and management by exception (bass, 1985; bass & avolio, 1990). in this leadership style leaders are passive and indifferent towards the employees and their tasks. leaders rely on discipline and punishment which is used to correct the employees’ behaviour. although the employees are free to make their own decisions until they make a mistake, the absence of support and positive working environment is prominent and puts great pressure on the employees. although in a small number of cases this concept proved to be successful, there is an even larger number of organisations where transactional leadership is responsible for minimal performance and low motivation. according to trmcic, milinkovic & trmcic (2013), transactional leadership is inspiring only in a short term and its results are temporary. transactional leaders view the organization and the employees more traditionally and use power in order to ensure that the employees are executing the tasks set before them. research (hinkin & tracey, 1994; tracey & hinkin, 1996) has shown that senior managers in hotels use the transactional leadership style more often and that they can ensure satisfactory results within a stable working environment. research in the hospitality has shown that the application of transactional leadership may result in a lower job satisfaction and lower commitment to the organization, low service quality and low performance (lockwood & jones, 1989; zohar, 1994). this is because transactional leadership dismisses the followers’ development and does not contribute to development of innovativeness and new skills (banker, khosla & sinha, 1998; boerner et al., 2007). relations between transformational and transactional leadership, on the one hand, and innovations, on the other hand, have been analysed in numerous studies. it has been found ,that transformational leadership encourages innovations by introducing the system of the employees’ personal values (bass, 1985; gardner & avolio, 1998) which in turn increases the level of motivation of the employees (shamir, house, & arthur,1993) as well as creativity in completing everyday job tasks (sosik, avolio & kahai, 1997; jaiswal & dhar, 2015; wang, tsai & tsai, 2014). transformational leadership is oriented towards the future, planning, freedom of thought and energy. the characteristics of transformational leadership that are related to intellectual encouragement as well as supporting the employees in their attempt to be creative and give innovative solutions to the tasks given to them proved to be the factors that are related to organizational innovations the most (henry, 2001; bundy, 2002; jung, chow & wu, 2003). numerous studies have shown a positive impact of transformational and transactional leadership styles on innovations. (jung et al., 2003; politis, 2004; gumusluoglu & ilsev, 2009a; gumusluoglu & ilsev, 2009b; choi et al., 2016). however, some studies have shown that there is no relation between transformational leadership and innovation (krause, 2004). the results of a study by bono & judge (2004) indicate that transactional leadership has a more negative effect on the employees’ creativity and that there is a negative correlation between transactional leadership and innovative 59 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) behaviour, or that the relation between transactional leadership and innovation does not exist (iþcan, ersarý & naktiyok, 2014). transactional leadership may affect the innovative behaviour of the employees, but the development of such behaviour is mostly related to realizing the goals and tasks set beforehand. 3. methodology the study included 512 employees in 57 hotels in serbia, formally categorized with tree-stars, four-stars and five-stars. a convenient sampling method was applied. the average number of respondents per hotel was nine. out of the total of 702 questionnaires that were distributed, 512 were validly completed questionnaires (84.9%). the study included a questionnaire which consisted of two parts. the socio-demographic variables of respondents were measured in the first part: gender, age, education and hierarchical level of the work (table 1). the second part of the questionnaire consisted of two instruments that measured the attitude of the employees towards innovations and transformational and transactional leadership. table 1: socio-demographic variables of respondents source: jovicic, 2015 the instrument for measuring innovations included 28 items divided into six dimensions (hogan, soutar, mccoll-kennedy & sweeney 2011; nasution, mavondo, matanda & ndubisi, 2011), products/services innovations (five items), process innovations (five items), administrative innovations (five items), customerfocused innovations (five items), marketing innovations (four items), and technological innovations (four items). transformational and transactional leadership styles were measured by the instrument multifactor leadership questionnaire (mlq) developed by bass and avolio (1997). due to the length of the original questionnaire the research used the representative items of the original questionnaire, 12 items for the transformational leadership and three items for the transactional leadership. the respondents were expected to express their level of agreement with the statements on a five-point likert scale, where 1 signified total disagreement, and 5 signified full agreement with the items. the data were prepared and analysed using statistical software ibm spss 24.0. statistical data processing methods used in this paper are descriptive statistics, the reliability of the instrument, correlation and regression analysis. 4. results and discussion the cronbach’s alpha coefficient showed a very high value of 0.91 on a scale which measures transformational leadership and a somewhat lower value on a scale concerning transactional leadership, where α is 0.81, which indicates that the two constructs are highly reliable. higher mean values are found 60 ana jovičić vuković, jelena damnjanović, nataša papić-blagojević, ivana jošanov-vrgović, snježana gagić 2018/23(3) variable category number of respondents percentage of respondents (%) gender male 229 44.7 female 283 55.3 age 20 7 1.4 21 30 221 43.2 31 – 40 128 25.0 41 – 50 91 17.8 51 – 60 62 12.1 61 1 0.2 missing 2 0.4 education secondary school 253 49.4 college/faculty 224 43.8 master 31 6.1 missing 4 0.77 hierarchical level of work top management 47 9.2 middle management 93 18.2 lower management 51 10.0 non-management staff 321 62.7 in transformational leadership compared to the scale which measures transactional leadership (table 2). the results indicate that the employees think that managers trust them and that there is mutual respect, but that there is no friendly closeness between the employees and the supervisors. the employees are aware that, depending on their effort, they will gain certain benefits and vice-versa, although the employees think that extra effort sometimes goes unnoticed by the supervisors. the cronbach’s alpha coefficient was = 0.975 for the innovations scale. the total innovative activity is estimated by the mean value m = 3.57 (table 2), which indicates that the analysed hotels are moderately innovative. relatively similar results were obtained in the study of the hotel sector in croatia on a sample of 68 hotels (pivcevic & garbin pranicevic, 2012). the problem of moderate innovativeness can be explained through main problems innovative individuals face, and they are related to bureaucracy, unfavorable organizational climate or lack of motivation. potential innovators may abandon ideas and already started projects too early as they cannot ensure the support or finances. for this reason, it is very important that hotels bring a quality program of encouraging innovations and rewarding creativity on an internal level, which is essential for an innovative culture of any organization. table 2 shows the correlation matrix as well. the pearson’s correlation coefficient has been used as an indicator (r). there are statistically significant (р<0.01), high (>0.50), positive correlations among all variables, where transformational leadership shows a higher correlation coefficient with innovations compared to transactional leadership, which is in accordance with the studies (henry, 2001; bundy, 2002; jung et al., 2003). table 2: descriptive statistics, reliability and correlations matrix source: jovicic, 2015 using the standard multiple regression it was analysed to which extent transformational and transactional leaderships contribute to innovations. transformational and transactional leaderships were the independent variables in the model, while innovations were the dependent variable. the model proved to be statistically significant f(2.509)=181,339; p=0.000. the determination coefficient r2 indicates how much of variance of the dependent variable explains the model. the model explains 41.6% of the variance (table 3). both predictors give a statistically significant contribution (table 3), which confirms hypothesis h1. the transformational leadership (β=.453) is a better predictor of innovations than the transactional leadership (β=.275), which confirms hypothesis h2 and it is in accordance with the results of some studies (kanter, 1983; larsen, o’driscoll, & humphries, 1991; jung et al., 2003; politis, 2004; gumusluoglu & ilsev, 2009a; gumusluoglu & ilsev, 2009b, choi, kim, ullah & kang, 2016). the transformational leadership proved to be an effective leadership style in terms of encouraging organizational innovations (howell & avolio, 1993; lowe, kroeck & sivasubramaniam, 1996; gardner&avolio, 1998; jung et al., 2003; parry& proctor-thomson, 2003; crossan & apaydin, 2010; rosing, frese & bausch, 2011; işcan et al., 2014; weng, huang, chen, & chang, 2015) li, mitchell, & boyle (2016) in similar research indicate that transformational leadership has positive influence, while transactional leadership has no influence on organizational innovation. table 3: results of the regessional analysis for innovations source: jovicic, 2015 61 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) � �������� � � � � � � � � �������� ���� ������������ �� ���� ����� ����� ����� �� � � ����������� ������������ �� ���� ����� ����� ����� ������� �� � ������ ��� ��� � �� ��� � � �� �� �� ������� ������� �� ������� � � � �� ��������� ��� ������� �� �� ����������� � ������� �� �� ����� ���� � �������� ����� � ������ � � ��� � ����� ��������� ���� � � �� �� � ����� � � ��� ���� ��������� ���� ����� �� � ����� � � ��������� ����� �� ��������������������������������� � � references [1] avolio, b. j. (1999). full leadership development. thousand oaks, ca: sage. [2] banker, r., khosla, i, & sinha, k, (1998). quality and competition. management science 44 (9), 1179– 1192. [3] bass, b. m. & avolio, b. j. (1990). transformational leadership development: manual for the multifactor leadership questionnaire. palo alto, ca: consulting psychologists press. [4] bass, b. m. & avolio, b. j. (1997). full range leadership development: manual for the multifactor leadership questionnaire (43-44). palo alto, ca: mind garden. [5] bass, b. m. (1985). leadership and performance beyond expectations. new york: free press. these results were expected considering that the characteristics of transformational leaders is to encourage innovativeness of the employees. kouzes and posner (2006) have developed a model where one of the characteristics of transformational leaders is to reassess the processes which involve the willingness to change the existing state and step into the unknown. this involves the readiness to innovate, grow and improve (northouse, 2008). transformational leaders wish to experiment and try new things, which is what they expect of their followers. similarly, transactional leaders may also affect innovativeness in some settings (liu, liu, & zeng, 2011), and within the frames of the already set tasks. furthermore, they can motivate the employees in various ways and with different rewards, but they are primarily focused on executing the tasks in a stable environment, which is also indicated in other studies (hinkin & tracey, 1994; tracey & hinkin, 1996). 62 ana jovičić vuković, jelena damnjanović, nataša papić-blagojević, ivana jošanov-vrgović, snježana gagić 2018/23(3) the research results show that both transformational and transactional leadership styles do predict innovations in hotels in serbia; however, the transformational leadership style is a better predictor of innovations than the transactional leadership. adopting the transformational leadership style by hotel managers is important in creating a climate where creativity is being encouraged, ideas are being developed, where there is learning and where changes are readily welcomed. these may in turn affect employees’ and guests’ greater satisfaction, as well as greater business and financial results of the hotel. transformational leadership within the organisation defines the course of further development of the organisation through collaboration with the employees, gives energy and strengthens the team spirit, promotes professional development of an individual which is a significant support to the process of change. furthermore, by adopting such leadership style the hotel managers will provide their employees with support in their attempts to be creative and come up with innovative solutions to the task given to them and create a supportive environment where individual needs of the employees are being carefully considered. through the process of delegation, transformational leaders may help the employees face the challenges and improve, by encouraging them to learn form their own mistakes. the results show that transactional leaders may also encourage innovativeness, but within the frames of the tasks already set. they can also motivate the employees by using different methods such as stimulative rewards, but that they are primarily focused on task execution. a large number of new hotels are being opened and reconstrution and privatisation of the existing facilities in the recent years indicates that the hotel sector in serbia is not only facing qualitative and quantitative changes in the accommodation capacities, but also the challenges of transforming traditional styles of the hotel management into modern forms. the leader’s role is particularly important as it is the managers who are to start the organizational transformation. by their own example and by changing and adopting modern elements and management styles, the managers will ensure higher satisfaction, creative and innovative activities of the employees in order to create superior values, high quality service and exceed the guests’ expectations. the results of this study are new scientific information within hotel industry and may be a significant practical guide for hotel management, hotel owners, employees and other stakeholders. scientifically relevant results can be used in making future decisions, determining measures and standards related to human resources management, removing obstacles, the development and promotion of innovative activities in hotels. acknowledgements some parts of this paper and results have been presented in the phd thesis of ana jovičić (2015). conclusion 63 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) [6] bass, b. m. 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(1994). analysis of job stress profile in the hotel industry. international journal of hospitality management, 13(3), 219-231.doi: 10.1016/0278-4319(94)90022-1 received: 2017-10-02 accepted: 2018-03-20 ana jovičić vuković novi sad school of business, novi sad, serbia dr.ana.jovicic@gmail.com ana jovičić vuković is a lecturer at the novi sad school of business. she completed her phd studies in tourism and hospitality management at the university of novi sad, faculty of sciences. the she acquired a bachelor ‘s and a master ‘s degree at two different faculties in the fields of tourism and hotel management and business economics. she worked as a research associate in projects funded by the ministry of education, science and technological development, the republic of serbia. as a result of the projects she published more than 50 scientific papers in international journals and conferences in the field of tourism and hotel management. her research interests are hr management, innovation management and sustainable toruism. 65 management: journal of sustainable business and management solutions in emerging economies 2018/23(3) about the author 66 ana jovičić vuković, jelena damnjanović, nataša papić-blagojević, ivana jošanov-vrgović, snježana gagić 2018/23(3) jelena damnjanović novi sad school of business, novi sad, serbia jdamnjanovic5@gmail.com jelena damnjanovic, phd, was born in 1975 in serbia. as the best student in her generation at the department of economics jelena was the winner of the royal norwegian award for the highest academic achievements in 2000. following her undergraduate studies in pristina, she completed her graduate studies in international economics (ma and phd) in belgrade. currently, she is the director of the novi sad school of business (novi sad, serbia) and the professor of international business at the same school. her major academic interests are in international economics, european union and its enlargement, transnational corporations, foreign direct investments, globalisation, international trade and competition. jelena is the author and co-author of four textbooks, more than 40 academic papers (including contribution to the palgrave encyclopaedia) and a participant in international and government projects. nataša papić-blagojević novi sad school of business, novi sad, serbia npapic.blagojevic@gmail.com nataša papić blagojević, phd, is a professor of applied business studies and deputy director for student affairs at the novi sad school of business, the republic of serbia. her fields of occupational interest are economic statistics and application of statistical methods in economic research. as a professor, she teaches several subjects, such as quantitative methods in business, financial and actuarial mathematics and business statistics. she completed her phd studies at the university of niš, faculty of economics, in june 2015. ivana jošanov-vrgović novi sad school of business, novi sad, serbia josanov.vrgovic@gmail.com ivana josanov-vrgović is a lecturer at the novi sad school of business. she is the author of a large number of scientific papers and the author of numerous seminars and trainings in the field of communication, human resource management and organizational behaviour. also she is an active participant in numerous domestic and international conferences. in scientific research, she tries to prove the correlation between different aspects of individuals, groups and organisations and organisational performance, as well as the connection between high-quality human resource management practices and organizational performance. snježana gagić university of business studies, faculty of tourism and hotel management, banja luka, bosnia and herzegovina gagicsnjeza@yahoo.com snježana gagić, phd, is an associate professor at the university of business studies, faculty of tourism and hotel management in banja luka as well as a professor at college of management and business comunications in sremski karlovci. she is an independent expert and founder od five star experience counsulting agency for the horeca sector with expertise in: restaurant staff training, setting the restaurant service standards, and food and wine pairing, as well.she earned her phd in the filed of tourism from the university of novi sad, department of geography, tourism and hotel management. her major in the research is catering industry.she is an author of forty papers published in international and national journals. she has over forty presentations at international and national scientific conferences. furthermore, she is an author of two books: basis of hospitality (2014) and food and beverage service (2016). << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 07 24_1 bozovic:tipska.qxd 63 jelena božović1, ivan božović1, isidora ljumović2 1university of pristina temporarily seated in kosovska mitrovica, faculty of economics, kosovska mitrovica, serbia 2institute of economic sciences, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(1) impact of hrm practices on job satisfaction of employees in serbian banking sector doi: 10.7595/management.fon.2018.0035 abstract: 1. introduction as one of the most important phenomena for the country’s economy employment is important from various aspects. it is a way to earn income and provide for living, it enhances socializing, creates and increases self-confidence, morale integrity, enables independence, increases ability to enhance and develop skills, 1 corresponding author: jelena božović, e-mail: jelena.bozovic@pr.ac.rs research question: the study aims to identify the level of effectiveness in human resource management (hrm) and its impact on employees’ satisfaction in the banking sector of serbia. motivation:the aim of this research is to measure the satisfaction of employees in the banking sector of serbia. in addition to the overall goal of this study, it is necessary to list some specific objectives: to provide human resource management (hrm) analysis, to focus on the main dimensions of hrm in practice, to present a test for measuring employee satisfaction in practice, to identify weaknesses in management that affect employee satisfaction and to propose measures to improve employee satisfaction and increase motivation. the research attempts to point out the basic driving factors for better work and effects, as common motives for all workers, such as salary, job interest, the opportunity of further progress, the degree of autonomy in the performance of tasks, and the possibility of personal affirmation. the challenge that puts the management of human resources and its application into practice becomes a very relevant field of inquiry. it is important to know the answer to the research question in order to arrive at a response to whether or not to comply with pareto optimum: “when we know where and why we are headed, little things can point us to the right direction” (debreu, 1954). the novelty in the study is that some aspects (career improvement and job security) bring employees a greater degree of satisfaction, while others (salary and business climate) are rated as bringing significantly lower levels of satisfaction. the work is based on the applied kruger study (kruger et al., 2008). it is used for research, because in this specific case it makes it possible to collect the results of mortgage execution on a sample of employees of 10 banks, whose results would be useful at the level of the banking sector in serbia. idea: the basic idea of this paper is to evaluate different levels of employee satisfaction with different dimensions of quality of work in banking institutions. the study involves analyzing the level of satisfaction from the aspect of selection and selection of employees, job security, employee salaries, career advancement, professional training and professional development, management style, job responsibilities, awards and recognitions and, finally, business climate as key dependent variables. the key independent variables are gender, age, education and length of service, as demographic characteristics of the respondents. data: the analysis was carried out through a questionnaire sent to the employees of the bank. the target population is employed in the banking sector on the territory of serbia. among the different banks, this study takes into account ten banks. 93 questionnaires were available for statistical analysis. tools: statistical analysis of all collected data (z-test, correlation analysis) were used to draw conclusions about relationships between variables, specifically what employees start in the organization. with the help of the pierson correlation coefficient, statistical significance is determined, which shows motivational effects in the behavior of employees. findings: the findings revealed a high level of effectiveness of all hrm practices. a strong positive relationship has been identified between the effectiveness of hrm and employees’ satisfaction. the study recommended improving financial compensation system of banks, which would positively increase the level of employees’ satisfaction. contribution: this paper expands the existing research related to the developing employee motivation in the banking sector and formulates practical suggestions for increasing motivation and avoiding its relativization. promoting transparency and publicity and an effective system of rewards, compensation and salaries according to merit and contribution to work tasks should be promoted. it is possible to achieve a business climate by respecting the individuality and dignity of each employee, and thus to build trust among employees and loyalty to the institution. keywords: human resources management, banking sector, motivation, business climate, professional training jel classification: m21, m14, o15. competences and knowledge and contributes to the society and public finances. a low level of employment and/or salary boosts migrations towards those areas that offer employment under better conditions, such as employment in the financial sector that is traditionally recognized as one with the highest salaries. according to the latest data from the statistical office of the republic of serbia, the unemployment rate was 12.3% at the end of the second quartile of 2017. turning these percentages in to a number, there were more than 384 thousands of unemployed in serbia at the end of the second quartile of 2017. there are estimates that more than 60,000 persons do not receive a salary or any kind of payment for their work. the problem of black market economy is huge and a number of employees receive only a part of their salary through legal channels, where the employer pays taxes and contributions only to a proportion, not to the full amount of salary. research from the project “needs of the labour market and the position of young unemployed” provides an insight into the needs of the employers in the financial services industry. according to the survey conducted as one of the project activities, only 38% of employers organize professional practice, but every third young person sees this practice as a chance for better positioning in the labour market. the majority of employers (54%) that participated in this research stated that they do not plan to hire new employees. employers also tried to identify problems with employing youth persons. macro(rising unemployment, structural unemployment, rising cost of living) and microeconomic aspects (hiring freezes, low salaries, layoffs) affect employees in serbia in a negative way, increasing the disincentive of employees, fear, uncertainty and stress. in such circumstances, there is an important question: “how to motivate employees”? do we need to comply with pareto optimum: “when we know where and why we are headed, little things can point us to the right direction”. or we do not see any sense in this, there is no need for motivation, because employees experience a high level of fear for their job (kilenthong & townsend, 2011). in the countries with major structural reforms, initially, there is a relatively dynamic growth in all sectors, especially the financial sector, including the banking system. such dynamic growth is usually followed by an increase in capacity including the number of employees. the serbian banking sector has gone through significant changes since 2000, with two major characteristics: ownership transformation and consolidation. owner transformation was manifested primarily as significant changes in the ownership structure of banks, increased private sector participation (primarily foreign investors) and changes in the number and relative importance of banks. there are numerous research works that confirm the fact that the ownership structure in the banking sector of the countries that went through the process of transformation, significantly changed in favour of banks with domicile foreign capital (for details see: claessens & van horen, 2008; degryse et al., 2012; detragiache, tressel & gupta, 2008; beck & peria 2010). the share of foreign ownership in the banking systems of the countries that joined the european union significantly exceeded half of the total banking sector, while the banking sector of serbia, by the origin of ownership, is a typical representative of a group of countries related by historical heritage and geo-political characteristics (marinkovic, ljumovic & zivkovic, 2011). another very important feature of the internationalization process is the consolidation of banks. in the period after 2000, 68 banks disappeared and to this day their number is constantly decreasing. during 2001, a large number of banks were liquidated, among them the four largest state banks (jugobanka, investbanka, beobanka and beogradska banka), at that moment employing 36.5% of workforce in the banking sector. a large-scale liquidation of the banks decreased the number of employees in the banking sector for more than 8,000 at the moment they were liquidated. on the other hand, entry of new banks had a highly positive effect on the growth of employment, reducing the effect of large-scale restructuring of the banking sector since 2000. the period after the structural reforms in the banking sector led to an evident increase in the number of employees per year, where the most dynamic growth took place in the early years of banking sector internationalization. this process had a strong positive impact to the growth of employment during the first years. however, during the financial crisis certain negative effects were manifested and since 2009 there has been a constant decrease in the number of employees in the banking sector of serbia (figure 1). the economic crisis in general, and especially the global financial crises (2007 and the present one) led to bankruptcy, and thus to a loss of funds of many businesses and individuals. large companies create frameworks that use social and human values as decision-making criteria (kanter, 2011). 64 jelena božović, ivan božović, isidora ljumović 2019/24(1) figure 1: number of employees in the banking sector and the number of banks 2004-2016 source: annual reports from national bank of serbia 2004-2016 the aim of this paper is to measure the satisfaction of employees in the banking sector in serbia. our main goal was to provide an overview and analysis of human resource practices that focuses on the main dimensions of hrm, to propose a test to measure employee satisfaction in practice, to detect weaknesses in the management that affect employee satisfaction and to propose measures to improve employee satisfaction and increased motivation. these activities are all linked by a concern for employee well-being and ensuring organization treats employees in a way that provides mutual benefit for both the employee and the organization. 2. literature review management of human resources is a hot topic as an expression of the necessity arising from the group lifestyle and work. more than ever, relationships in the group are constantly changing and improving over time. along with these changes the process of managing people is evolving over time. it started with robert owen and an experiment in his own factory, throughout industrial revolution and finally is developing with the current global technological revolution. the relations of superiority and inferiority observed for thousands of years, slowly but surely, are replaced with relations of cooperation and creativity in setting goals, recognizing the importance of integrity, initiative and individual in a group. it became clear that employees do not engage in work activities only to carry out duties and receive a salary, but also to express their skill, knowledge, prove their quality and reaffirm personality. only if there is sufficient respect, adequate reward and full satisfaction with the status in the organization, the employee will be ready to accomplish his work task to a full extent. managers must use both organizational and psychological knowledge to build a quality motivational content and combine those motivational techniques that match the specific situation, in order to create a favourable organizational climate and the conditions in which employees can satisfy their own needs and desires, and thus give maximum contribution to the company’s success (popovic, maletic & paunovic, 2017). the effectiveness of the management concept is reflected in the harmonious functioning of the organization. however, a large number of problems is the result of cultural chaos that is reflected in the general leisure, inconsistent business practices and the lack of business ethics. it adversely affects the efficiency of the organization, leading to the engagement of additional resources, longer working hours, overtime work, which ultimately raises the question of organizational success. motivation is the result of the interaction of a person’s internal needs and external influences, which determine how a person will behave. with a well-rounded, people-centred philosophy, a manager is ready to motivate by creating a positive, supportive work environment (robbins, 1989). motivation is usually defined as the process of activating, directing and maintaining human behaviour toward a specific goal (ivancevich, konopaske & matteson, 2005). goals initiate human activity in a certain direction and keep it there until the 65 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) � � �� �� �� �� �� �� �� �� �� � ���� ����� ����� ����� ����� ����� ����� ���� ���� ���� ��� ��� ���� ���� ���� ���� ���� ���� ���� ���� � ����������������������������������� � ������������� goal gets fulfilled. there are a number of motivation theories, explaining what motivates employees, and how it motivates them in the management literature. basically, motivation theories can be divided into: content and process theories. content theories are aimed at discovering the needs and motives that drive to a certain behaviour, trying to provide an answer to the question: what drives human activity? in practice, these theories stipulate that if one manages to discover the answer to the question how to stimulate people to act, he is on the right path to motivate them to make additional efforts. so far, the economic literature has allocated several theories: maslow’s hierarchy of needs, alfredfer`s erg model, mccllelandova theory of needs and hertzberg theory of two factors. maslow (maslow) finds that people in the organization are motivated by five groups of needs that are hierarchically arranged: physiological, safety needs, social belonging, esteem, and self-actualization. alderfer’s erg model does not have any assumptions about the hierarchical relationship of human needs. alfred only claims that people in organizations are motivated by three types of needs: existence (maslow correspond to basic needs), relatedness (the same as the needs of connection and love) and growth (related to the desire for people to develop, to learn new things, improve their abilities, do interesting and challenging jobs and achieve results). the hertzberg theory of motivation is a dual-factor theory consisting of two groups of factors: hygiene and motivation. hygienic factors (wages, working conditions, business policies, and relationships with management) are the ones that determine the level of dissatisfaction, while the motivational factors (possibility of promotion, prizes and awards) determine the level of satisfaction. mcclelland differentiates three kinds of different needs that people need to satisfy in their organizations: the need to affiliate (corresponding to those needs that have been identified with other needs motivation), needs for achievement (a need to achieve job success) and the needs for power or influence to other people. contrary to theories of content, process theories are trying to reveal the process by which a person is motivated to undertake certain activities. these theories seek to answer the question of how to run human behaviour? the most important theories include goal-setting theory, the theory of equality and expecting. the basic idea of this theory is that goal setting is a mechanism of motivation because it puts one in a position to compare their skills with those needed for achieving the goal. intrinsic motivation refers to doing something for its own sake, such as interest or enjoyment, whereas extrinsic motivation refers to doing something for instrumental reasons. these motivations fall in a continuum, ranging from acts done for the pleasure of it (intrinsic) to acts done to gain rewards or to avoid punishment (extrinsic). importantly, a persons’ motivation for a task can be changed. situations that are perceived as more controlling (for example, because of deadlines, external rewards, or potential punishments) may reduce intrinsic motivation and lead to a more extrinsic orientation (nix et al., 1999). according to the theory of equality or fairness, motivation of employees is not influenced only by the efforts/awards trade-off, but also by the comparison of their own effort/rewards to the efforts/rewards of others in the organization. it is obvious that the motivation of employees is not influenced by the actual reward, but the perception of fairness and rewards which in turn arises from its similarity to the other rewards. the theory of expectations is based on the assumption that the behaviour of the employees can be explained by their free choice. the motivation is observed as a cognitive process in which the individual rationally and freely decides whether and what behaviour to take, depending upon its assessment of the effects of such behaviour. there is a vast literature explaining job satisfaction in banking institutions. usually these studies connect job satisfaction with other dimensions of human resource management. job satisfaction is generally understood as an attitude towards one’s job. it simply indicates one’s contentment with the job. the most widely accepted meaning in literature, according to cranny et al. (1992) is the degree to which one enjoys doing his /her job (cranny et al., 1992). early research on job satisfaction suggested that a productive working environment promotes specific organizational culture and increases employees’ job satisfaction (schneider & snyder, 1975). another study suggests that the measurement of individual dimensions of job satisfaction enables researchers to identify factors related to certain dimensions of job satisfaction (mccormick & ilgen, 1987). some authors maintain that job satisfaction is basically an evaluation of organizational culture (hutcheson, 1996). according to durai (2010), performance evaluation seeks to achieve variety of objectives including: defining the performance gaps, identifying employees who deserve promotion, transfer or termination, defining compensation and incentives plan, improving employees’ effectiveness and enhancing employees’ relationship with the management. others claim that satisfaction is the only way you can ensure a stable high level of creativity and productivity of employees (oldham & cummings, 1996). the aim of motivation is to transform desire into concrete action, undertake activities that lead to the revitalization of motivation (national employment service, 2015). organizational culture is a good motivator. 66 jelena božović, ivan božović, isidora ljumović 2019/24(1) some recent research shows that employees of different sectors of the bank had different levels of job satisfaction and job-related stress (george, 2015). some other factors such as internal marketing can have highly significant positive effects on job satisfaction and employee commitment to the bank (bailey, albassami & al-meshal, 2016). in addition, authors claim that internal marketing also impacts employee identification with the bank indirectly through its impact on both job satisfaction and employee commitment. a study conducted on the sample of a greek bank confirms findings according to which role conflict is negatively correlated with job satisfaction (belias et al., 2015a). in addition, findings suggest that the results from the study should be taken into serious consideration by superiors and managers. another research on greek bank employees has found a significant difference between all aspects of organizational culture types among employees of greek banking institutions. the majority of employees would prefer to work in a more friendly environment, where mutual trust and informal relationships among colleagues are dominant, personal ambitions are taken into consideration and teamwork is rewarded (belias et al., 2015b). the research based on a survey conducted in canara identified factors including salary of employees, performance appraisal system, promotional strategies, employee’s relationship with management and other coemployees, training and development program, work burden and working hours as the most important for improving job satisfaction of bank employees (chowdhary, 2013). jeet and sayeeduzzafar (2014) examined the impact of human resource management practices on job satisfaction of the private sector banking employees. (jeet & sayeeduzzafar, 2014). sehgal (2012) studied job satisfaction in banking employees in shimla as the capital and largest city in northern india. in this study job satisfaction between private and public banks is compared. also it is explained that it is important to manage human resources effectively to reach an acceptable job satisfaction and have a success banking as a result. bowra and nasir (2014) explored the impact of fairness of performance appraisal on employee motivation and job satisfaction and the endeavours to influence the banking sector in pakistan. in their published work panghal and bhambu (2013) conclude that job satisfaction is closely related to the nature of work, the quality of management, supervisor behaviour, coworker behaviour, pay, promotion, organizational aspects, and working environment. the research analyzing the banking sector outreach in serbia showed that investments in the development of the distribution network, standardization of procedures and changes in working time, precede the development of those quality elements that predominantly depend on the level of competence and motivation of the staff. banks appear to have given priority to building quality services that have a more direct effect on profitability (marinkovic & ljumovic, 2010). during the crisis period, motivation should be developed as moments of positive thinking, as an instrument to reward success and learn from failure. the top management plays a key role in fostering motivation and coping with unmotivated employers. behaviour based on mutual exchange of ideas between management and employees promotes continuous improvement of these relations invigorating them and creating reciprocal value: attitudes based on trust that include other employees as well as measuring the level of employee satisfaction and identifying areas that need improvement. in transition countries including serbia, where highly educated staff are faced with poverty and unemployment, financial institutions expect their employees to suppress or subordinate private life to the bank. this new trend is increasingly breaching on privacy and in turn offers a number of privileges. 3. research methodology the study has incorporated a descriptive analytical approach to detect the impact of the effectiveness of hrm practices on employees’ satisfaction. the data have been collected from various secondary sources such as books, articles, dissertations, journals, the internet and periodic reports issued by the serbian banking sector. primary data was obtained through a questionnaire related to the variables. the research and measurement of motivation and employee satisfaction can be carried out according to different methodologies. it is possible to use direct methods, indirect methods and combinations of these two. indirect methods, such as the circulation of staff, interest in training, comparison of salaries, increase in earnings in a given period, operating results, improved working conditions, proposals for improving the system and similar methods can be used but their reliability is extremely limited. direct methods (questionnaires and interviews) bring a lager quantity of information for drawing conclusions, but also there are limitations that should be taken into consideration. if the survey is anonymous, it is very difficult to assign the results to certain categories of employees that should be the focus of various measures of motivation. on the other hand, a public survey raises the question of sincerity and openness of respondents. when choosing the methodology to analyse motivation and employee satisfaction, the management needs to adjust the method in order to decrease negative effects to the lowest level. 67 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) employee motivation varies among and is influenced by different factors. human resource management, as the management of the most important resources of an organization, is a very complex and multi-dimensional process (piderit, 2000). if an employee satisfies one need, other needs emerge and have to be satisfied. investment in human resource activities has a significant impact on the effectiveness of investment in human capital in commercial banks in jordan. moreover, the study findings showed a significant impact of staffing, training & development, incentives and retention policy on the effectiveness of investment in human capital. on the other hand, training & development and employee incentives systems have a direct impact on the human capital return on investment and human capital added value. investing in human capital is one of the factors that have a direct impact on minimizing the turnover rate, through preparing and implementing a retention policy to focus on building professional loyalty among employees (al-ghazawi, 2012). the training and development are the continuous efforts aimed to improve employee capability and organizational performance by providing employees with the required knowledge and skills to perform their jobs (mondy & mondy, 2014). however, common factors that influence most of the employees are the amount of salary, interest in the job, the likelihood of career promotion, degree of independence, the opportunity for personal affirmation. these factors depend on the qualifications, expertise and personal preferences of each employee. based on various biophysical, psychological and social factors, there is a need to explore pull factors for better performance and effects. this is a preventive measure, since employees tend to express their desires and needs rather than to express their dissatisfaction. based on literature review and the paper from kruger and his associates (kruger at al., 2008) we have developed the following hypotheses: h1: employees “are satisfied” with the process of selection in employee recruiting; h2: employees “are satisfied” with salaries and other income; h3: employees “are satisfied” with job security; h4: employees “are satisfied” with career advancement; h5: employees “are satisfied” with professional training and development; h6: employees “are satisfied” with the management style; h7: employees “are satisfied” with responsibility at work; h8: employees “are satisfied” with the rewards and motivation; h9: employees “are satisfied” with the business climate. the purpose of this statistical analysis is to reject the null hypothesis (two tailed test). in this research, this methodology is useful, because it allows us to accept the results of the hypotheses made on a sample of employees from 10 banks. having in mind the defined hypotheses, identified constrains and literature review, we have structured questionnaires. the target population were employed in the banking sector in serbia. in order to ensure a reliability of the collected data, we used a personal approach to 100 employees in ten chosen banks. a direct contact with them assured a high respondent rate and none of the employees refused to participate in the study. out of 100 questionnaires 93 were correctly filled and were available for statistical analysis. questions included in the questionnaire were stipulated in a way that allows further processing and statistical analysis. the questionnaire consisted of two parts. the first part of the questionnaire contained questions that were used to test the employees’ work satisfaction and to identify possible problems regarding motivation. there were nine different types of questions designed to test the process of recruiting and selection of employees, job security, salaries, career advancement, professional training and development, management style, job responsibility, rewards and recognition and business climate. in order to determine the degrees of agreement with the statement given in the questionnaire, we used a five-level likert scale (1 = very dissatisfied, 2 = largely not satisfied, 3 = undecided 4 = partly satisfied; 5 = very satisfied). each question in the questionnaire was given together with a concise explanation, in order to eliminate possible errors and ambiguities of the respondents. in the second part of the questionnaire, respondents gave answers to the questions that determined their basic characteristics and identity: gender, age, level of education and years of experience. table 1 shows the distribution of basic characteristics of the sample. data suggest that the banking sector is dominated by women, middle-aged employees, aged between 29 and 39, with high education and over 10 years of experience. 68 jelena božović, ivan božović, isidora ljumović 2019/24(1) table 1: frequencies of the basic characteristics of the sample source: authors’ own calculation based on the survey 4. results and discussion “job satisfaction” represents the extent to which individuals are satisfied with their job and love it. many organizations determine job satisfaction levels of their employees from their attitude. motivation and job satisfaction are not synonymous with each other. namely, motivation and job satisfaction are sharing similar dependant variables but they will not guarantee the same impact on organizational behaviours. job satisfaction is an emotional response that will results in broad behavioural actions towards working environment, while motivation is a behavioural action that may return with specific emotional response. numerical values obtained by the survey were statistically processed and for each variable (question) the mean value and standard deviation were calculated. values are given in table 2. the statistical characteristics of the variability of the collected responses indicate the uniformity of the answers to the questions asked. the variation interval, which represents the difference between maximum and minimum value, is relatively low (0.68) with acceptable values of standard deviation. according to the data from table 2, the greatest satisfaction is found in the dimension related to the career advancement, 52.39%, and job security, 52%. at the same time these are the only dimensions that exceed 50% of the level of satisfaction. they are followed by professional training and development with 45.22%, job responsibility and system of awarding share the same percent, 38.97% each. the process of recruiting and selection of employees account for 38.59%, management style of bank accounts for 37.07%, business climate 33% and finally, employees are least satisfied with earnings, 28.43%. further processing required analyses of each question separately. table 2: aspects of employee satisfaction source: authors’ calculation based on the survey h1: employees “are satisfied” with the process of selection in employee recruiting. the assumption for this hypothesis is that employees are satisfied with the process of selection of employees and recruiting. the hypothesis is accepted and therefore we can conclude that employees in the banking sector are satisfied with the selection and recruiting of employees (figure 2). however, 61.41% (57 out of all employees that participated in the research) of respondents are not satisfied with this dimension of motivation and rated it lower than 3. more than 38% of employees have higher satisfaction than average. 69 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) question answer frequency percent gender women 64 69% men 29 31% age 19 28 32 34% 29 39 35 38% 40 50 19 20% over 50 7 8% education level higher education including msc and phd 76 82% secondary education 17 18% years of experience 1-5 10 11% 5-10 35 38% 10-20 30 32% over 20 18 19% no n mean std. deviation std. error mean z-score computation of z value probability 1 the process of recruiting and selection of employees 93 2.97 1.026 0.106 0.29 p(x<3)=p(z<0.29)= 0.61409 2 job security 93 3.06 1.258 0.130 -0.05 p(x<3)=p(z<(-0,05))= 0.48006 3 salaries 93 2.40 1.044 0.108 0.57 p(x<3)=p(z<0.57)= 0.71566 4 career advancement 93 3.08 1.361 0.141 -0.06 p(x<3)=p(z<(-0.06))= 0.47608 5 professional training and development 93 2.83 1.348 0.140 0.12 p(x<3)=p(z<0.12)= 0.54776 6 management style 93 2.54 1.411 0.146 0.33 p(x<3)=p(z<0.33)= 0.62930 7 responsibility at work 93 2.60 1.408 0.146 0.28 p(x<3)=p(z<0.28)= 0.61026 8 awards and recognition 93 2.70 1.061 0.110 0.28 p(x<3)=p(z<0.29)= 0.61026 9 business climate 93 2.45 1.256 0.130 0.44 p(x<3)=p(z<0.44)= 0.67003 figure 2: distribution of the “the process of recruiting and selection of employees” dimension h2: employees “are satisfied” with job security. the assumption for this hypothesis is that employees are satisfied with job security. the hypothesis is accepted and we can conclude that employees in the banking sector are satisfied with job security. higher satisfaction than average was reported by 52% of respondents (figure 3). 48% (45 out of all employees that participated in the research) of respondents rated this dimension lower than three points. figure 3: distribution of the “job security” dimension h3: employees “are satisfied” with salaries. the answer for the question whether employees are satisfied with the salaries is positive, because 28.43% of employees reported higher satisfaction than average. the assumption of this hypothesis is that employees are satisfied with their salaries. the hypothesis is accepted and therefore we can conclude that employees are satisfied with the salaries and other earnings in the banking sector. higher satisfaction than average was reported by 28.43% (67 out of all employees that participated in the research) respondents (figure 4). however, 71.57% of employees are not satisfied with their earnings. figure 4: distribution of the “salaries” dimension h4: employees “are satisfied” with career advancement. the assumption for this hypothesis is that employees are satisfied with their career advancement. the hypothesis is accepted and we can conclude that employees are satisfied with the career advancement in the banking sector. however, 47.60% (44 out of all employees that participated in the research) of respondents are not satisfied with this dimension of motivation and rated it lower than 3. higher satisfaction than average was reported by 52.39% of employees (figure 5). 70 jelena božović, ivan božović, isidora ljumović 2019/24(1) figure 5: distribution of the “career advancement” dimension h5: employees “are satisfied” with the professional training and development. the assumption for this hypothesis is that employees are satisfied with the professional training and development. the hypothesis is accepted and we can conclude that employees are satisfied with the professional training and development in the banking sector. however, 54.78% (51 out of all employees that participated in the research) of respondents are not satisfied with this dimension of motivation and rated it lower than 3. higher satisfaction than average was reported by 52.39% of employees (figure 6). figure 6: distribution of the “professional training and development” dimension h6: employees “are satisfied” with the management style. the assumption for this hypothesis is that employees are satisfied with the professional management style. the hypothesis is accepted and we can conclude that employees are satisfied with the professional management style in the banking sector. however, 62.93% (58 out of all employees that participated in the research) of respondents are not satisfied with this dimension of motivation and rated it lower than 3. higher satisfaction than average was reported by 37.07% of employees (figure 7). figure 7: distribution of the “management style” dimension h7: employees “are satisfied” with responsibility at work. the assumption for this hypothesis is that employees are satisfied with teamwork and assigned responsibilities. the hypothesis is accepted and we can conclude that the employees are satisfied with teamwork and assigned responsibilities in the banking sector. however, 61.03% (57 out of all employees that participated in the research) of respondents are not satisfied with this dimension of motivation and rated it lower than 3. higher satisfaction than average was reported by 38.97% of employees (figure 8). 71 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) figure 8: distribution of the “teamwork and given responsibilities” dimension h8: employees “are satisfied” with the rewards and motivation. the assumption for this hypothesis is that employees are satisfied with the system of awarding. the results for this dimension are the same as in the previous one. the hypothesis is accepted and we can conclude that the employees are satisfied with the system of awarding in the banking sector. however, 61.03% (57 out of all employees that participated in the research) of respondents are not satisfied with this dimension of motivation and rated it lower than 3. higher satisfaction than average was reported by 38.97% of employees (figure 9). figure 9: distribution of the “system of awarding” dimension h9: employees “are satisfied” with the business climate. the assumption for this hypothesis is that employees are satisfied with the business climate. the hypothesis is accepted and we can conclude that employees are satisfied with the business climate in the banking sector. however, 67% (62 out of all employees that participated in the research) of respondents are not satisfied with this dimension of motivation and rated it lower than 3. higher satisfaction than average was reported by 33% of employees (figure 10). figure 10: distribution of the “business climate” dimension 72 jelena božović, ivan božović, isidora ljumović 2019/24(1) 73 management: journal of sustainable business and management solutions in emerging economies 2019/24(1) conslusion the study only includes serbia as a population area, while future studies should attempt at a comparative analysis by undertaking middle eastern countries to provide differences between their hrm practices. all indicators of the serbian banking sector, including employment, have developed and have had growth since 2000. however the consequences of global financial crisis manifested in serbia too. although some other indicators, such as total assets or credit activity did not decrease or had a minor decrease over the years after the crisis, the number of employees in the banking sector decreased to a larger extent. having this in mind it is extremely important to analyse the current status of employee satisfaction. using a nine key factor model that represents the basis of human resource management, we analysed employees’ satisfaction in the banking sector in serbia. analysing the respondents’ replies from the survey we found that the results were mixed and all employees in banks were not equally satisfied. in some aspects (career advancement and job security), the respondents show a higher level of satisfaction. in other aspects of satisfaction, such as salaries and business climate, the dimensions were rated showing a much lower satisfaction. table 2 shows the different levels of employee satisfaction in the banking institutions. the data show that employees are not fully satisfied with all analysed dimensions of employee motivation in banking institutions. the best rated dimensions are career advancement and job security, while the respondents are least satisfied with salaries and business climate. however, the results obtained by the model we used indicate that the banks operating in serbia need to review their policies towards motivating employees and to create them based on clear, realistic and understandable framework. they should put focus on both the financial and non-financial benefits that employees can utilize, which can in turn lead to an increase in their satisfaction. compensation systems are necessary that recognize and encourage individual and team performance, satisfying internal customer needs and requirements, by applying adequate and equitable payments (khasawneh & mdanat, 2018). the prioritization of the system for human resource management should start from the financial motivation of employees, improving the business climate, changes in the management style, adequate process of selection and recruiting of employees, job responsibility and system of awards. a good team of bank employees need support from their management and need to be motivated in various ways. to be more specific, correct incentive mechanisms include adequate earnings and other benefits. transparency and the open and efficient system of remuneration, benefits and salaries is very desirable. it is possible to create business climate by respecting individuals and thus build confidence among employees and loyalty to the institution. protectionism, abuse and discrimination of employees should always be prevented. the importance of this study is in that it highlighted the effectiveness of a crucial, fundamental hrm function, that is compensation. however, banks’ management may show concern for both financial and non-financial compensation as financial compensation seems to have an increasing impact on employees’ satisfaction. consequently, it is indispensable for jordan’s banks to consider and engage in a process of redesigning and reengineering their pay systems along with financial compensations in other fast-growing sectors. although the present study was confined to identify the impact of hr practises on job satisfaction, it may be appropriate to state briefly the policy implications for the study. in this context, the following policy actions may be considered worthwhile: organizations should offer extensive training and development programmes for the employees, organizations should go for thorough hr planning, organizations should offer at least reasonable compensation to the employees, organizations should develop good working conditions, organizations should induce employees to perform well, organizations should implement equal employment opportunities, organizations should design work procedures including work hours, over time payment and hourly payment, proper working environment should be designed, organizations should design good grievance procedure, disciplinary procedure and separation procedure etc. this can be achieved by providing reward, motivations, and other benefits etc. (absar et al., 2010). since the majority of banks in serbia are part of international banking groups, they should also follow the example of their host institutions. although financial motivation is effective, other various techniques and activities could be used to strengthen team spirit, because the collective is the main driver of positive and negative motivation. there is a fine line between what people see as the support and motivation, or as an offer 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(2012). job satisfaction of bank employees in shimlaa comparative study of private and public sector bank (axis bank and uco bank). international journal of marketing, financial services and management research, 1(7), 124-146. received: 2018-06-21 revisions requested: 2018-10-18 revised: 2018-11-26 accepted: 2018-12-18 jelena božović university of pristina temporarily seated in kosovska mitrovica, faculty of economics, kosovska mitrovica, serbia e-mail: jelena.bozovic@pr.ac.rs jelena božović, phd, is a full professor at the university of priština with a temporary seat in kosovska mitrovica, faculty of economics. she earned her masters and doctoral degrees in the field of banking. she has actively participated in implementation of several domestic and international projects. she has published three monographs, a workbook, a textbook, a collection of exercise books, questions and answers from banking and a handbook of key insurance terms. she has published numerous scientific papers in domestic and international journals and has participated in domestic and international conferences. about the authors ivan božovic university of pristina temporarily seated in kosovska mitrovica, faculty of economics, kosovska mitrovica, serbia e-mail: ivan.bozovic@pr.ac.rs ivan božović, phd, is a associate professor at the university of priština with a temporary seat in kosovska mitrovica, faculty of economics. he has earned a masters and doctoral degrees in the field of macroeconomics. he has actively participated in implementation of domestic projects. he has published a monograph and a workbook in the field of macroeconomic analysis. he has published several papers in domestic journals and has participated in domestic and international scientific conferences. isidora ljumović institute of economic sciences, belgrade, serbia e-mail: isidora.ljumovi@ien.bg.ac.rs isidora ljumović, phd is employed as a research associate at the institute of economic sciences in belgrade. she graduated in the field of organizational sciences, and she got her masters and phd degree in the field of banking. she is engaged in several domestic and international projects, among which the projects that are financed by the mestd ros, the world bank, the european union ant other international donors. she has published two monographs, numerous scientific papers in domestic and international scientific journals and has participated in a scientific conferences in serbia and abroad. 76 jelena božović, ivan božović, isidora ljumović 2019/24(1) << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 01_84_3 albors garrigos:tipska.qxd 1 jose albors-garrigos1, antonio collado2 1universitat politecnica de valencia, 46022 valencia, spain 2ford españa s. l. – polígono industrial, 46440 almusafes, valencia, spain management: journal of sustainable business and management solutions in emerging economies 2019/24(3) success and threats in the clustering of the automotive industry in spain: the role of public and private agents. doi: 10.7595/management.fon.2019.0002 abstract: 1. introduction it is interesting to note that spain has become the leading producer of commercial vehicles and the second largest car manufacturer in the european union as well as the 12th largest in the world. in 2017, the number of vehicles manufactured in spain exceeded 2.8 million. also, the automobile and components sector has a commercial coverage abroad of 150%. the industry accounts for 17.6% of spanish exports, 8.6% of 1 corresponding author: jose albors-garrigos, e-mail: jalbors@doe.upv.es research question: this article clarifies the role of clusters in industry agglomeration efficiency as well as the role that public and private agents play in their efficiency. motivation: the automobile industry in spain is an exception to the industrial decline suffered by the secondary sector since the economic crisis exploded in spain. employment in the vehicle manufacturing industry has recovered significantly in spain in 2017, with a significant growth bringing it closer to 2008 levels. the sector accounts for 8.6 % of the country’s gnp. how can we explain this success? are there new threats (technology, environmental standards, emerging economies, etc.) menacing the sector? based on value chain and cluster theories we explain its success and how new threats could be managed? the response lays in analyzing the role of cluster agents in the various clusters dynamics. the research shows how the openness of clusters plays a crucial role in their sustainability. idea: based on value chain and cluster theories we explain their success and how new threats could be managed? the response lays in analyzing the role of cluster agents in the various clusters dynamics. the research shows how the openness of clusters plays a crucial role in their sustainability. data: primary data was collected in two surveys and interviews campaigns during 2013 and 2017. furthermore, secondary data from national, regional and sectoral sources were analysed. tools: the research is based on a series of interviews and visits to the automotive clusters in spain. additionally, the authors have analyzed abundant secondary information and web contents available on the clusters agents: manufacturers, suppliers, unions, associations, etc. findings: the paper concludes that regional and national policies are relevant but that consensus between clusters’ agents is essential for their success. however, will the existing agents be able to withstand new threats? .contribution: the article contributes to clusters literature and the clusters’ role of the agents in the global value chain context. it also sheds light on public policies to support automotive industries. limitations are linked to resource limitations. keywords: automotive industry, clusters, cluster agents, global value chain, industry public policies. jel classification: l52, l62 gnp and 9.6% of employment in 2017 (anfac (2018;). this development has taken place in spite of the 2008-09 economic crisis that affected the automotive industry in europe as well (sturgeon & van biesebroeck, 2010; pavlinek, 2015). how can this situation be explained when we have not had a spanish car manufacturer with its technology for many years? this circumstance must be considered in spite of argumented theoretical shortcomings about the european automotive industry (laux, 1992, p.13; welfens, 2014, p.53). the first reason is that the group of actors in this sector have been acting together for a long time, which has allowed them to develop strategies and promote policies that have been able to convince the various governments adequately, which has forced them to implement very active industrial policies, unlike in other similar sectors. this fact has proved to be a powerful magnet for attracting the attention of foreign multinational companies that have found spain to be an exciting place to practice their industrial actvity. it must be stressed as well that at the time this article was written a number of global threats were menacing the industry situation. but within these factors, the role that clusters play in this industry cannot be forgotten. two seminal publications (sturgeon and lester, 2004; sturgeon, van biesenroeck & gereffi, 2008) point to how the automotive industry was configured globally following a series of guidelines within which a wave of offshore investments, mergers, alliances, and acquisitions were fundamental, especially in the 1990s. these developments have contributed to the present value chains configuration, within a strong current of globalization, made up of large companies that are firmly related to each other at a global level and where delocalization has played a fundamental role in achieving flexibility. leading large enterprises have exercised strong governance in their global value chains and have influenced this current of offshoring (sturgeon, van biesebroeck, & gereffi, 2008; sturgeon & van biesebroeck, 2010; rutherford & holmes, 2008). in this direction, particular attention has been paid in the academic literature to the situation and context in emerging countries (evren & sakarya, 2017; taura & watkins, 2014; dibben et al., 2016). there is also a particular strain between the subcontracting or not subcontracting of value-added activities such as design and r&d between car assemblers (oem “original equipment manufacturers,” from now on) and others, with trends towards modularity playing a fundamental role (laseter & ramdas, 2002; bierau et al., 2016). the analysis of the latter gives a significant role to regional and national structures that appear to support the coherence of the industry. this situation explains why economic geography plays a different role depending on the segments of the value chain: design, component manufacturing, assembly, etc. in this context, at the micro level, regional clusters are fundamental and, in spain, they have developed providing critical competitive advantages that have favoured the development of the industry at the national level (schulze, macduffie&täube, 2015; bierau et al., 2016). 2. theoretical context the clusters we are dealing with here would respond to porter’s (2000) classical viewpoint.the governance of global automotive value chains plays an essential role in shaping these regional agglomerations. more recent approaches applied mainly in the automotive industry, where spatial and virtual proximity play significant roles (brenner, 2017). however, recent competitive movements among main oem players question the part of emerging countries’ agglomeration challenging their advantages (dibben et al., 2016). the school of the value chain theory (gereffi, humphrey, & sturgeon, 2005; gereffi & fernandez-stark, 2016) proposes that the tension between centralization of assembly and fragmentation of production is coordinated through governance of global value chains (gvc). the gvc literature identifies a typology of five governance structures: markets, modular, relational, captive, and hierarchy. these compositions are measured and determined by three variables: the complexity of the information shared between actors in the chain; how the knowledge for production can be codified; and the level of supplier competence (gereffi et al., 2005; gereffi & fernandez-stark, 2016). the degree of coordination regulated by the power asymmetry between actors (oem vs. suppliers) will depend on various factors as noted in the attached table (nyaga et al., 2013). it can be observed that in the automobile industry, situations often occur that vary from modular to hierarchical governance, depending primarily on the capacity of the suppliers and the hierarchical orientation of the oem depending on the transactions, complexity, the coordination, and power symmetry (gereffi et al.,2005). some regions may present a different governance profile from others depending on the leadership exercised by the oem (plum & hassink, 2013; hassink, plum, & rickmers, 2014). other actors play important roles as well in the governance profile of the value chain. 2 jose albors-garrigos, antonio collado 2019/24(3) within this context, one of gvc and automotive clusters, this paper will analyze the roles that cluster agents: oem manufacturing companies, component suppliers, institutions, associations, universities, central and regional governments, and public research bodies, etc. have played in the configuration of clusters. the cluster environment facilitates the quality of interaction between value chain actors, thus leading to the responsive value chain paradigm. this paradigm has been defined as a network of companies able to create wealth to all their components in a competitive context by reacting quickly and effectively in costs and technology to changes and market demands. (gunasekarana, 2008; lau & lee, 2000). this paradigm is valuable when it comes to explaining the advantages of cooperation between actors in the chain, the cluster, and the industry leaders. the quality of the links between the various actors in the cluster also shapes their development and orientation according to our field study. but which are the critical elements that compose this relationship? according to oh and rhee (2010) and dyer and chu (2003), they could be summarized as follows. on the side of the supplier: modularity, flexibility, and engineering skills, as well as an effective cost management. on the other hand, there are the relationships between the supplier and the customer demand that could be due to five dimensions: personal contact, the permanence of the relationship, supplier selection routines, support of supplier development and a process of new product development. the advantages for the oem would be a reduction in costs and time, reduction in changes and re-engineering, information and reduction of uncertainty, continuous improvement, solving design and process problems, as well as strategic alignment. knowledge is a valuable asset to be taken into account when we consider the activities of the oems in their areas of influence. two basic configurations of knowledge have been proposed: analytical and synthetic; the former, mainly related to r&d; the latter synthetic, primarily related to engineering and design. thus, these activities ultimately influence the value-added tasks of the other components or agents of the cluster: tier 1 and others. unfortunately, automotive companies rely heavily on the latter, the synthetic knowledge base while their analytical knowledge base is rather weak and this affects their innovative capacities (plum & hassink, 2013). this knowledge interexchange contributes to oem coping with the turmoil caused by globalization, new governmental regulations, and advances in new technologies (pérez & sanchez, 2002; schulze, mac duffie, & täube, 2015). additionally, the oem competition and cooperation dynamics affect the automotive agglomerations, and their mutual influence as the new examples of acquisitions show, in particular in the spanish case, as it will be examined later (akpina r& vincze, 2016). eisingerich et al. (2010) have proposed a model to analyze the sustainable performance of a cluster. we can define this performance by specific measures recognized by the academia, i.e., the rates of technology transfer local employment share and the growth, regional percentage of gnp, and production growth (spencer et al., 2010). this model considers three essential factors: (a) the strength of the networks that support it considering the trust between its members, the frequency, and intensity of exchanges as well as the duration of the relationship, also pointed out by welfens (2014) in the case of the automotive industry; (b) the openness of its networks and their diversity, which facilitates cluster members access to new knowledge and skills. it is a function of network membership diversity, willingness to accept new members, and the extent to which there are ties to organizations outside the cluster; (c) the uncertainty of the environment. this factor, according to eisingerich et al. (2010) has a moderating effect on the former. the uncertainty is a function of market turbulence, the intensity of competition, and the technological changes. the latest news related to the new european regulation changes, ownership evolution, increasing competition of emerging african industry, european de-investment of certain american brands are clear examples of these uncertainties. technology threats and opportunities have been cited as one of the most potential radical changes in the automotive industry which are requiring road mapping exercises from oems and suppliers (förster, (2015). this model considers that both network openness and strength are contingent with the network uncertainty. the positive effects of network openness are likely to increase as environmental uncertainty increases, while the positive impact of network strength on cluster performance tends to decrease as environmental uncertainty increases. moreover, similar approaches have recently been proposed in the automotive industry in emerging countries (nedelcu, 2015; bhaskaran, 2014). 3 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) thus, in the model shown in figure 1, we can summarise the commented paradigms that relate the essential elements to consider in the sustainability of clusters as those that concern us and that constitute the basis of our analysis. figure 1: essential elements required for the cluster sustainability (authors based in eisingerich et al 2010). we can conclude that there is a stream of thought in the academic literature that has analyzed clusters and, specifically, automotive clusters concerning the factors that impact their performance. however, there is limited literature analyzing the relevance of the various actors in this process. this field is the research gap that this article tries to fill. 3. the context. the automotive industry in spain. geographic agglomerations. since the introduction of the various vehicle manufacturers in the 1960s, the industry has been grouped around the geographical areas of influence of these locations. thus, if we consider the geographic distribution of industrial activity centres in the automotive sector, table 1shows the weight of industries with more than 200 employees, employment in the industry, the number of suppliers, car manufacturers (oems) and the percentage of turnover over the national total in each region. it can be observed that these agglomerations are mostly concentrated around the leading car manufacturers in spain and that these regions have formally formed cluster-type industrial associations. subsequently, we will analyze the weight and dynamism that these organizations have implied in each area. 4 jose albors-garrigos, antonio collado 2019/24(3) network strength network openness environment uncertainty cluster performance table 1: socioeconomic influence of the spanish automotive industry according to clusters distribution (anfac 2018). 3.2. main agents in the clusters. morosini (2004) postulates that the structure of economic and social agents in the cluster is what binds the cluster’s network and serves as the “institutional and virtual glue” of the agglomeration. therefore, this same author identifies five necessary skills in the cluster to develop a competitive dynamism: leadership, a stock of knowledge that constitutes the building blocks of its structure, communication rituals, interactions of knowledge exchange and the rotation of professionals within it. other authors have recognized the role of agents in structuring the cluster’s knowledge architecture (sureephong et al., 2007). these authors coincide with plum and hassink (2013) in their study of german car clusters where they assigned an essential role to knowledge generation. these agents, in the specific case of automotive and truck clusters, would be the following. manufacturers of automobiles (original equipment manufacturers or oems of cars and trucks, anfac) or (oems of buses (ascabus). this is how significant the number of them is, their seniority over time, the participation, commitment or role they acquire in the cluster, their policy of selection and support of suppliers in which decision-making may be vital if it is local or centred in the multinational’s headquarters and, finally, if they have value-added activities such as r&d or design in the area. here we must stress the percentage of production volume of these segments for 2017. as table 2 shows, the automotive segment (including light vans) amounts to almost 98 % of the total sector. however, the statistics discussed in this article frequently refers to the totality of the industry. 5 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) table 2: production volume of various automotive segments in spain for 2017. (anfac and ascabus, 2018). component manufacturers. they make up the value chain upstream and downstream of manufacturers (oems). according to their proximity to these they are called tier 1, 2, 3, etc. they have a fundamental role and their number, dimension, and level of internationalization are a symptom of the dynamism of the cluster where they have developed. it should be noted that the existence of a secure network of component manufacturers is one of the elements that have contributed to the health of the national automotive industry (sturgeon et al., 2008). cluster associations. academic literature is scarce regarding this type of agents; some authors call them cluster development agencies (sureephong et al., 2007). this is a kind of partnership with a dynamic role. it may have been promoted by management, an oem or other regional associations. a recent study (beldarrain & clemente, 2011) analyses how the various offices in spain work carrying out communication, purchasing, projects, etc. although they rely on public financing, the percentage of private funding is a symptom of their dynamism. universities. universities are knowledge-generating agents with a specific role in the cluster in which they are integrated. they can collaborate in generating analytical and synthetic knowledge in the cluster. also, they can be training agents for the local industry. there are success stories in europe such as slovakia, gratz, bavaria or canada (rutherford and holmes, 2008). other authors have outlined this role in emerging countries (cabelkova, normann & pinheiro, 2017). r&d centres, technological institutes. some clusters have private or public centres, as well as technological institutes specializing in the automobile industry, which contributes to the knowledge of the automobile industry. some of them are a consequence of the cluster’s activity (cabelkova, normann & pinheiro, 2017; morosini, 2004). labour unions.they have been ignored by academic cluster literature. they collaborate on advanced legislation and collective bargaining. a good working environment and cluster-level cooperation will be hampered by overcapacity and the reduction of costs that reverberate across global value chains (rutherford & holmes, 2007). two levels should be considered. first of all, the multinationals (oems), assemblers and the large national and multinational tier 1 component manufacturers, where there is a flexible and agile communication between unions and management with well-articulated labor relations. secondly, the smes, in the auxiliary industry, where union membership is lower. some authors point to shifting cost cuts down the chain, as we move in that direction with lower value-added jobs and more impoverished working conditions (banyuls & lorente campos, 2010). local government and administration. regional governments are contributing to supporting industry and local clusters. with a greater or lesser prominence, they have promoted cluster offices and regional support policies. there are numerous programmes to help this clustering in the sector. however, industrial policy is somewhat reactive to the proposals of employers. national industry associations. the spanish components manufacturers association (sernauto), the spanish national automotive and truck manufacturers association (anfac) or regional associations such as chambers of commerce or cooperation institutes are critical to cluster dynamics. 6 jose albors-garrigos, antonio collado 2019/24(3) 3. methodology of research. field study 3.1. information sources. this work is based on the collection of secondary information from multiple sources: academic publications, business publications, websites of the various clusters and business associations, statistics, etc. additionally, and as primary sources, information was obtained from more than 50 interviews with managers of multiple clusters as well as component manufacturers and heads of the ministry of industry. moreover,50 questionnaires were collected directly from cluster agents in the various clusters. 3.2. questionnaires and interviews. the aim was collecting ratings for the various variables of the proposed model. primary and secondary information was standardized and transformed in likert scale variables. the network strength is composed of four dimensions: components and oem relationships in the line of the responsive value chain paradigm, the oem leadership, the union coherence with the cluster goals, and the and coordination of the cluster. these variables are graded through the questionnaire responses, based on a likert scale. the network openness was composed of four factors: network membership diversity which implies the existence of a variety of agents including all those involved in the automotive value chain, willingness to accept new members, and the extent to which there are ties to organizations outside the cluster. we have selected four proxies for these variables: (a) whether the cluster has agents covering all aspects of the value chain (oems, components, r&d agents, governance, training or ties with associations) and a certain excellence level; (b) whether there has been new members (agents) in the past five years; (c) members turnover growth in the same period, and (d) whether there are organized and permanent ties with other european networks. these variables have been measured with a mix of secondary and primary information (questions). environment uncertainty has three components: threats of oem divestment; environmental standard threats and technology turbulence. the three variables are established on questions (again, likert scale) in the survey. finally, cluster performance was composed of three variables: production growth % employment and % region gnp. this was measured by analyzing the statistics of a five year period (2012-2017) and the standardized coefficients were applied a 1-5 scale. 4. discussion and analysis. next, we analyze the dynamics of the different agents in the various clusters from different perspectives according to the information collected. manufacturers of automobiles (oems), trucks or buses. renault. renault built its factory in valladolid in 1951, and its plant in palencia in 1978. it has an uncritical r&d department. in seville it manufactures gearboxes. it has a substantial involvement in the castilla león cluster with four production plants. its industrial plan contemplates an investment of 600 million euros between 2014 and 2016. it has recently announced an additional investment in spain of 600 million euros and the development of an r&d centre in valladolid. psa citroen the vigo (northwest of spain) factory was built in 1958. it is the most productive factory of the multinational (14% of psa production) with the export of 85%. it inaugurated a new modular platform in 2014 after investing 1,062 million euros in 2009-2013. it has an active involvement with ceaga, the vigo cluster. its production in 2017 was 424,000 units.the recently signed partnership with gm will undoubtedly affect their operations in spain due to the presence of opel (gm europe) in zaragoza. 7 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) the madrid plant was inaugurated in 1952 by a famous spanish entrepreneur, eduardo barreiros (garcíaruiz & santos-redondo, 2002). in this plant vehicles were successively manufactured for simca, chrysler, talbot, peugeot, and citroën. the psa produces some models exclusively for the whole world. actually, they produce the citroen cactus and a new model is foreseen for 2021. its actual output was of 81,000 vehicles during 2017. due to the acquisition of general motors by the psa group, its role may be changing shortly. ford since its construction in 1976, this valencia plant has been one of the most active in recent years. since 2011 it has invested 2,300 million euros in expansion and improvements. ford’s purchasing policy does not favour the valencia automotive components environment. it is, above all, a very flexible production plant; it does not try to lead a cluster. the firm has cooperation on a permanent basis with a local university. recent problems with the european branch of ford are threatening its immediate future. general motors opel’s figueruelas plant (zaragoza) has been operating since 1982. it accounts for 20% of gm’s manufacturing workforce in europe. since its launch, opel has invested more than 4.3 billion euros. in 2014, they invested more than 210 million euros. the recent acquisition merge between psa citroen and general motors has affected recently the cluster situation where workers were forced to accept new salary restriction agreements given the potential production movements of the opel corsa model. recently, the manager of the gm plant in zaragoza made public their request of a 20% cost reduction to their suppliers to keep their competitiveness. nissan nissan built its barcelona factory in 1971 which is also being threatened. it has tier 1 and two suppliers located within its plant, which includes an r&d centre in which 70 million euros are invested annually in r&d. it built the ávila factory in 1955 to produce industrial truck models. there, it has invested 430 million euros between 2014 and 2015. volkswagen audi the landaben factory was started in 1965, first as authi (morris, mg, mini,austin and victoria) and later as seat. since 1983, the volkswagen polo has been produced in landaben, the volkswagen factory in navarre. since the end of 2018, a second model with the same platform, the new small suv, the volkswagen t-cross audi uses the martorell seat plant in barcelona to produce audi with a capacity of 100,000 vehicles per year, and it has been planned to build the a1 from 2019 (anfac, 2017). seat (second brand of volkswagen) seat was a spanish brand licensee of fiat. later, in 1986, it was acquired by vw. the martorell plant was built in 1993.together with audi, it is the most important the brand in the world, the only installation in spain with an r&d and design centre with 900 engineers and a prototype centre. this company has invested more than 2.6 billion euros in the last five years. it also has a production centre for stamped parts and another where it has been manufacturing gearboxes since 1980. seat has played a relevant role in the barcelona cluster evolution (catalan, 2017). this firm has set an exportation record during the first quarter of 2018 with 139,200 cars sold, an increase of 18.7% on the previous year’s figure. daimler mercedes they own a van factory in vitoria, inaugurated in 1954. through its subsidiary, evo busibérica manufactures bus chassis in cantabria. the company invested billions in the last five years. iveco (former fiat trucks) the valladolid truck factory was inaugurated in 1957 and the firm has invested more than 105 million euros for the new light van daily model. the plant has a potential production of 48,000 vehicles. irizar it is a cooperative that has manufactured buses since 1928 (40% of its world production). a company with a substantial investment in r&d is an example of an oem bus chassis manufacturer. in 2016, they sold the first three electric buses. they have specialized in electric buses which they export with success. 8 jose albors-garrigos, antonio collado 2019/24(3) we can summarize that spanish automotive plants have a relevant production capacity. but what do investments in r&d of these agents record? cdti (national centre for technology development) has provided us with investment in cdti projects from oems and component manufacturers. given the selection and monitoring of projects by this body it is a very reliable reference. table 3 presents the r&d investment into automotive industries (oems) by communities over the period 2006-2014. this chart shows the clear leadership of the clusters of castilla león, catalonia, and madrid. this investment corresponds to renault, nissan, and seat and is consistent with the information provided by these firms and reflected in the preceding paragraphs. table 3. assigned budget for r&d projects of automotive production plants (mill. euros, 2006-2015, cdti, 2015). component manufacturers the spanish components industry is another of the sector’s key competitiveness agents, being the 4th largest component producer in europe. in 2016, components were produced amounting to 34,000 million euros, surpassing the historical maximum of 33,000 million euros of 2007, with 60.3% being exported, 26.3% to the domestic oems market and 13.4% to the national aftermarket. on the other hand, components worth 22,950.76 million euros had to be imported, of which 68.8% was allocated to domestic oems, 23.0% as input for component manufacturers and 7.4% to the domestic aftermarket. the level of investment in turnover was 6.1% and in the r&d it was 3%. the industry had employed 215,000 workers in 2016, a figure that before the crisis (2006) reached almost 250,000. these figures give an idea of the degree of internationalization of the sector, its impact on the national economy, the level of investment in capital and r&d required and, in short, the added value generated (sernauto estimates 3.2% of the gross national value added and 58% of the gva of the automotive industry). the contribution of the auxiliary sector to export is more than 90% of the volume produced (sernauto, 2018). the sector is made up of some 1, 200 companies that manufacture automotive equipment and components, installed throughout the country, belonging to various multinational business groups as well as smes. only 38 companies (3.17%) are of considerable size and, of these, only 5 are spanish (gestamp, grupo antolín, cie automotive, ficosa y mondragón automoción), with an ample size and internationalization, since the rest are subsidiaries of foreign multinationals in the sector. these have been attracted by the activity of oems as pointed out by academic literature (sturgeon et al., 2004, 2008). a recent thesis defended in the upv pointed out that the strategy of implementation of oems was the only determining element of the localization strategy of tier1 and tier2 (ferrari, 2014). to determine the distribution of companies in this sub-sector by size according to the various clusters, we have analyzed the population by autonomous community in the sabi. the data are shown in table 4. we have selected the data for companies with more than ten employees, so the sum is different from that presented in the table above. both adjustments have been made in both cases to include some of the matrix companies that were included in the sabi in different naces (components 29.3). 9 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) table 4: analysis of the firm´s geographic distribution population and size of the automotive components sector (source sabi, 2017). in general, oem purchases are based on global platforms; competitiveness and quality criteria, but there are also certain trends to establish closer relationships with suppliers (cusumano and takeishi, 1991; pilkington and pedraza, 2014). therefore, even if decisions are made at oem sourcing headquarters, local oem assembly facilities in clusters can have some influence on these decisions. this situation has also influenced the dynamics of growth and internationalization of some spanish component companies that are occupying leadership roles at a global level. we can point out that the presence of component companies of a larger size determines leadership in the largest cluster of this agent for its ability to develop r+d activities and internationalize its operation having customers, not only outside the cluster but outside the country. in this sense, the components sector has larger companies mainly in the following industries. a survey of 55 suppliers conducted by the authors ranked spanish oems as follows (see table 5) according to their collaborative relations with suppliers (according to the responsive value chain concept). table 5: classification of spanish based oems according to their cooperative level with national suppliers (survey by authors) just as we have done with oem assemblers, table 6 shows the r&d investment of component manufacturers in the period 2006-2014 disaggregated by the autonomous community. a clear leadership of the basque country and catalonia is noted here, closely followed by navarre, castilla-leon, and madrid. 10 jose albors-garrigos, antonio collado 2019/24(3) table 6: assigned budget to r&d projects of automotive components production plants (mill. euros, 2006-2015, national development office for technology or cdti, 2015). clusters industry associations. currently, there are 11 automotive clusters, some of them in the association acrea, and with different levels of success and growth, depending on the local circumstances of each case (beldarrain & clemente, 2010). in figure 2 we present the geographical location of the automotive clusters in spain. figure 2: geographical location of automotive clusters in spain (source authors, based on anfac and ascabus). in 1993, the basque country automotive cluster (acicae) was created. it has about 151 members. the oems active in this geographical area are daimler benz vitoria and irizar, with r&d and the collaboration of other centres such as ceit, ik4, and tecnalia. among the most crucial tier 1 companies, tenneco, zf, gestamp, etc. are worth mentioning. the second one created in spain was the galician automotive business cluster (ceaga) in 1997. one of the most active in the country, it currently has about 103 members. the active oem is psa-citroën, with a well-known galician automobile technology centre (ctag) and the technical centre of the psa group located in vigo. among the most critical tier 1 companies, acs, autoneum spain, s. a., benteler, borg warner emissions, faurecia, coperma, denso, rubi, gestamp, gkn, antolín, inergy, plasto, etc. should be highlighted. 11 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) in 2001 the castilla y león automotive forum (facyl) was created at the request of oems such as renault, nissan, and iveco. it currently has about 30 members. its projects are based on the collaboration of the cidaut foundation and the university of valladolid. the valencia association of automotive auxiliary industry (avia) was created in 2003 under the auspices of the generalitat valenciana and the impulse of the region’s oem, ford españa, s. a. this cluster currently has about 69 members, although with low activity. among the most important tier 1 companies, we should highlight faurecia, grupo antolín, autoliv-bki, ochoa, copo, tmd, tenneco, etc. faurecia has recently inaugurated an r&d centre in paterna with an investment of nearly €3 million and 330 employees. in 2005, the cantabria regional automotive initiatives group (gira) was formalized, a small cluster with some 30 partners and generated under the auspices of an oem such as mercedes. today it represents 30% of the regional gnp. the navarra automotive cluster was created in 2007 and currently has 120-130 companies. the active oem is volkswagen, with the r&d capabilities of citean and the universities of navarra and navarra public university. the most essential tier 1 companies that belong to it are skf, frenosiruña, kwd-schnellecke, kyb, gan technologies, etc. the automotive cluster of the madrid region (mca) was also created in 2007. it currently has 26 partners, of which the psa peugeot and citroën group companies stand out as the leading oems, as well as iveco, heir to the former enasa. the most important tier 1 companies in the cluster are robert bosch, valeo, faurecia, eaton, april, trw, etc. the aragon automotive cluster was created in 2008 with a series of companies linked to general motors. it has 28 companies, including oems such as tata and zytel . the innovative business association of the automotive sector of jaen (aei jaen) was born under the umbrella of oem suzuki in 2008 (today extinct). finally, in april 2013, the catalan automotive cluster was born. it has about 251 companies and is the largest in spain. it was created under the auspices of oem seat and nissan and tier 1 ficosa, doga and gestamp. the participating oems also include the vw-audi group. different technology centres belonging to the oems, as well as other centres such as idiada, participate in r&d support (alaez et al., 2018). the strength of some clusters is determined, for example, by the existence of links between agents before their constitution, as in castilla león, galicia and the basque country (beldarrain & clemente, (2010). one aspect common to most associations is their economic dependence on public support for their subsistence, which shows a significant weakness. all of these offer r&d services in their respective portfolios of activities, but no statistics or data on the r&d projects they lead are published, but are limited to the description of the r&d activities of the associated technological centres. in most cases, r&d in cluster partner universities is not related to their technical interests. the activities most valued by the partners are as follows: advice to companies on the management of public aid; training in lean manufacturing; purchasing centre; internationalisation; cooperation networks; management training; r&d in electric vehicles; r & d work groups; groups for the improvement of the quality of the services provided by the company. universities the analysis of the various clusters shows a low participation of universities in these clusters, even in areas of training as evidenced by the closure of ford’s university school in 2013. the spanish automotive industry is mainly based on the manufacture and assembly of vehicles. the r&d link is the only one missing to complete the value chain. the spanish university has not been concerned with the training of engineers specialized in the automotive sector; this has also been enhanced by the fact that many oem companies have their decision centres, and therefore development centres, connected to other countries, further distancing the university from companies (albors-garrigós, collado & dolz, 2017). in some cases, their contribution has been important in logistics and production r&d and training as the case of valencia `polytechnic university shows. 12 jose albors-garrigos, antonio collado 2019/24(3) r&d centres, technological institutes. in principle, technology centres play an intermediate role between universities and industry (albors-garrigós & rincon diazl., 2014). given the situation described above, certain aaas have set up technical centres, with the aim of leading r&di in the automotive sector in their geographical area of influence. although most rely on public funds and subsidies, some of them, such as ctag, founded in 2002 (300 employees), stand out for generating funds from their resources. an essential role of these centres is their accreditation as vehicle and component homologation laboratories (inta and idiada) which give them some economic sustainability. the rest, dependent on services to oem or tier 1,2 and 3 will depend on their competitiveness. the fact that some oems have their r&d technology centres, as has already been pointed out, raises the question of whether there will be a spillover of knowledge in the cluster itself as pointed out by academic literature (audretsch & feldman, 2004) in the face of the trend of appropriateness. the challenge is the empowerment of these centres and their collaboration with the component industry whose r&d capacity is limited by their size. unions. the role that trade unions play in the sustainability of the automotive industry in general, oems and auxiliary industry, can be considered of great importance through their industrial observatories and their participation in the improvement and stability of labour relations. for this reason, in those autonomous regions where there is a strong union presence due to the presence of oems and large companies tier 1 and tier 2, their influence will be more significant. local government and administration. public administrations play a fundamental role in promoting r&d through public-private collaboration. the central government has played a reactive role in the reactions and suggestions of the industry agents and supporting the r&d efforts of the sector. other local and regional public administrations have played a lesser role by supporting the cluster organizations, the innovative developments, the training programmes, etc. the european union has also played a support function by organizing and promoting clustering activities or through the financing of r&d through the european commission research programmes (albors-garrigoa & rincon diazl., 2017). 5. discussion and analysis the dynamism of the various actors involved in clusters has been analyzed, assigning values to the different variables that make up the dynamic elements pointed out in fgure 1. strength and openness have been standardized according to the averages obtained between the various clusters, with performance as shown in table 1. table 7 below presents the values obtained in each cluster by the dynamism of the different agents. it can be noted that cluster leadership can be attributed primarily to oems, component manufacturers and the interaction between them. measurement and appraisal of the model the partial least squares (pls) method was used for this analysis. the data do not have to meet the requirement of normality. indeed, this is one of the motivations for using pls path modelling (henseler, ringle, & sinkovics, 2009, p. 277-319). pls can appraise both the consistency and soundness of the instrument. according to hair, hult, ringle & sarstedt (2013), the sample size should be ten times the most significant number of formative indicators used to measure a single construct or ten times the most substantial part of a structural path directed at a particular construct in the structural model. thus, the more significant number of structural paths directed to a specific construct is 4, and therefore the minimum sample size required would be 40 samples. in this case, the sample size used in the model (99) is much higher than needed to run the pls with confidence. however, the subsample sizes (regions) are not acceptable according to the cases per dependent variable. additionally, no missing data have been reported on the completed surveys. as suggested by chin (2001), we used separate item loadings to appraise individual item reliability. values with loadings higher than 0.7 are considered acceptable, meaning the subject explained about 50% of the variance in a particular element. this precaution ensures that items in the measurement construct measure the same model. composite reliability evaluated the internal consistency of each construct. the minimum acceptable composite reliability level is 0.7 for each item loading (nunnally & bernstein, 1994). finally, the discriminant validity was checked using the average variance extracted (ave) and the squared inter-corre13 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) lations. the ave values should be higher than 0.5, and the crossed correlations among the latent variables should not exceed the square root of the ave values to justify the discriminant validity (chin, 2001). the ave is reported in table 7. the results shown demonstrate that the measurement models are assessed with confidence. when using pls, leading statisticians communicate, the correlation matrix (with the square root of ave on diagonal) is used to check for discriminant validity of the measures. table 7: reliability measurements figure 3 shows the results of the structural model proposed for the sample. observable questionnaire items are represented in rectangles and unobservable latent factors with circles. partial regression coefficients, corresponding to endogenous variables, are indicated next to the arrows and the ratio of determination (r2) for the corresponding regressions is inside the circles. the standardized betas or path coefficients indicate the strength of the causal associations between two latent variables. to test the significance of these relationships, we estimated regression coefficients between latent factors, their t-statistics, and p-values, using bootstrapping and blindfolding procedures with 5,000 samples (see table 4 and table 5). the stone geiser coefficients (q2) are more significant than zero indicating that the model has a positive predictive relevance. it can be observed that the experimental model indicates a more relevant role in the environment uncertainty factor than the proposal by eisingerich et al. (2010). cluster openness seems to affect uncertainty in 90,9 % and influences cluster performance through the uncertainty variable. on the other hand, environment uncertainty affects cluster strength in 73.9 %. its effects on cluster performance are 0.532/0,759 (70.0 %) while the influence of cluster strength is 0.278/ 0,759 (30.0%). in this case, environment uncertainty plays an important role in the model. concerning the four variables considered for the cluster strength, both the responsive value chain and the oem leadership have the most substantial effects while the cluster governance and the union’s coherence have lower results. cluster openness reflective variables have high loads except for new members who have a lower weight. as regards the environment uncertainty factors, the oem de-investment threats have a lower impact while technology and environmental turbulence have a very high impact. expert reports have outlined many necessary changes in the automotive .sector which will have an effect in its near future development. they predict a reduction in ownership in favour of vehicle sharing; more autonomous and connected vehicles will be running on the roads, actual conventional combustibles are questioned; the productivity ratios are being challenged by emerging producing countries and new technology paradigms such as industry 4.0. a new concept of remanufacturing to facilitate a car shorter life has developed as well. these threats pose hurdles that can only be surmounted by more open networks and collaborative schemes and this explains the critical role shown by uncertainty in the research model. finally, the cluster performance variables have in general a lower impact since most cluster regions have a high weight of their automotive industry and therefore the variance is moderate. 14 jose albors-garrigos, antonio collado 2019/24(3) figure 3: estimated structural equations model using the sample. table 8: matrix of correlation between latent variables. note: square root of ave on diagonals in bold. table 9: direct effects, explained variances and stone geiserq2 test for the endogenous variables. *** significant at p<0.001, ** significant at p<0.01, *significant at p<0.1 table 10 shows the average value of the various factors considered in the research. as mentioned the size of the sample did not allow us to analyse the model region by region. however, the strongest clusters show higher figures of cluster strength, openness and a higher resilience towards uncertainty threats. 15 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) table 10: influence of diverse agents and factors in the spanish automotive clusters (1 minimum, five maximum, mean values). 16 jose albors-garrigos, antonio collado 2019/24(3) it can be deduced that, by confirming what academic literature points out, automotive clusters should be analyzed from the perspective of the global value chain in this sector and the technology predictions by experts. therefore, and given the above analysis, it is worth highlighting, in comparison with other types of industrial clusters, the critical and fundamental role of car manufacturers and the degree to which they carry out value-added activities (r&d, design) in the cluster. this role explains the dynamism of clusters such as cataluña, galicia or castilla león. this dynamism has also led to the emergence of large component companies, which in turn have grown and become internationalized. on the other hand, the policies of the oem companies and their involvement and commitment to the region (the cluster) are fundamental, and this can explain the case of galicia or madrid and the role that some spanish production managers played in this process. component companies are a vital link in complementing oems in their development. on the one hand, as a large part of the academic literature has pointed out, the strategies of multinational companies of tier 1 and 2 components are attracted by the outsourcing strategies of oem companies and the new trends in the sector encourage greater collaboration between oem and suppliers. on the other hand, the opportunities generated in the cluster can be taken advantage of by entrepreneurs to grow and internationalize, and that is the case of the companies already mentioned. here, the context and industrial culture of the region is essential, hence the dynamics of cataluña and the pais vasco. in case of madrid, it should be remembered that enasa (empresa nacional de autocamiones) was founded in 1946 and barreiros diésel in 1954 (garcía-ruiz & santos-redondo, 2002). in this sense, it is worth highlighting the success story of galicia and castilla león, where this traditional industry did not exist. the component industry will play a critical role in new car future to facilitate the radical technology changes to come. electrified, autonomous, shared, connected and yearly updated. concerning industrial associations of automotive clusters, they are a relatively different figure in the cluster literature, they play an important role but, from the authors‘ point of view, primarily when there was already a seed and a previous collaboration between the agents of the cluster. perhaps their fundamental task is that of formation, at all levels, in which they play a significant role. r&d centres are relevant as knowledge generators and transfer agents, but there are few examples of success. it is problematic,and sustainability approach is common to that of technology centres (albors et al., 2014). cluster associations can be an essential support for the cluster sustainability, such as ceaga. universities, with some exceptions already mentioned, are far removed from the automotive sector and do not seem to respond to the demands of it. conslusion references [1] akpinar, m., & vincze, z. (2016). the dynamics of coopetition: a stakeholder view of the german automotive industry.industrial marketing management, 57, 53-63. doi: 10.1016/j.indmarman.2016.05.006 [2] alaez aller, r.; longas garcia, j.c.; ullibarri arcer, m.; bilbao ubillos, j.; camino beldarrain, v.; & clemente, g. (2010). “los clusters de automoción en la unión europea”. revista economía industrial. 376, 97-104 [3] albors-garrigos, j., collado, a., & dolz, f. (2017). factores de éxito de la clusterización de la industria del automóvil en españa. el rol de los agentes en el clúster. economía industrial, 403, 125-134. [4] albors-garrigos, j.; rincon-diaz, c.; &igartua-lopez. j. (20149. research technology organizations as leaders of r&d collaboration with smes: role, barriers,and facilitators. technology analysis & strategic management, 26, 37-53. doi: 10.1080/09537325.2013.850159 [5] anfac (asociacion nacional de fabricantes de automoviles y camiones; national association of automobiles and trucks manufacturers), annual reports, 2015-2018. madrid. [6] ascabus (2018), national association of bus chassis manufacturers, madrid. [7] audretsch, d. b., & feldman, m. p. (2004). knowledge spillovers and the geography of innovation. handbook of regional and urban economics, 4, 2713-2739. doi: 10.1016/s1574-0080(04)80018-x [8] banyuls, j.m. y lorente campos, r. (2010) la industria del automóvil en españa: globalización y gestión laboral. revista de economía crítica, 9, 31-52. [9] bcg. (2013). estudio para el fortalecimiento y desarrollodel sector industrial en españa. the boston consulting group. ministerio de industria, energía y turismo. madrid. [10] bhaskaran, e. (2014). the productivity analysis of chennai automotive industry cluster. journal of the institution of engineers (india): series c, 95(3), 239-249. doi: 10.1007/s40032-014-0120-6 17 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) trade unions, and this is also a peculiarity of this sector, have a specific role to play in improving industrial relations in the clusters, but their influence seems limited to large oems and tier 1 companies. examples of human resource conflicts (eres, closures) in smaller businesses seem to illustrate this conclusion. in some cases, they have limited themselves to subsidizing industry and oem investment plans, among others; they have supported clusters and the component industry even by launching regional strategies for the sector. in any case, budget cuts have considerably limited its scope. recently, anfac has requested support from the national government for a new strategic plan for automotive manufacturers. finally, the role of central and regional administration seems to differ. the national industry associations such as sernauto and anfac have shown a strong cohesiveness. as a consequence, the central government has acted more reactively. first, it is by limiting them to accept the sector’s proposals regarding support for investments in production infrastructure and r&d and, second, by implementing incentive plans for the purchase of new vehicles. the latter has been useful in articulating a minimum demand of the national market that would make the arrangements for outsourcing of the oems to spain viable. the work of the cdti with a particular tradition must be highlighted. the attitude of the involved regions’ administrations has been different. a critical role of public administration will be to administer and support new regulations in a flexible way. the paper has relevant implications for public policies in emerging countries. among others: promoting and supporting the automotive industry requires the specific support of the automotive components firms, supporting networking and collaboration among public and private agents with the focus on helping the establishment of higher value-added activities in the country’s automotive value chain and, finally, supporting the cooperation of r&d organizations with the industry. in case of spain, the eu clustering support has been useful diverging from what has been pointed out in other european emerging economies (welfens, 2014, p.78). in general, the development of, at least, a minimum size of local components industry is essential for the cluster development and this questions some propositions of academic literature (welfens, 2014, p. 113). the limitations of this paper lie in the extension of the sector and the need of more resources to deepen these studies, given the relevance and future of the automotive industry which will be the object of future research. acknowledgments this research study has been supported by various national organizations (minetur; cdti; anfac, sernauti) as well as regions such as clusters associations around spain. 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(2007, december). knowledge management system architecture for the industry cluster. in industrial engineering and engineering management, 2007 ieee international conference on (pp. 1970-1974). ieee. [56] taura, n. d., & watkins, d. (2014). counteracting innovative constraints: insights from four case studies of african knowledge-intensive metalworking and automotive clusters–‘the akimacs’. entrepreneurship & regional development, 26 (3-4), 313-336. [57] welfens, p. j. (ed.). (2014). clusters in automotive and information & communication technology: innovation, multinationalization and networking dynamics. new york. springer science & business media. received: 2018-02-01 revisions requested: 2018-04-03 revised: 2018-10-15 (2 revisions) accepted: 2018-12-12 19 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) jose albors-garrigos universitat politécnicade valencia e-mail: jalbors@doe.upv.es emeritus professor at the universitat politécnica de valencia (upv) in spain. dr. albors is an industrial engineer from univ.pol. de madrid where he was awarded a phd degree and an mba. with more than 25 years professional experience in engineering dr. albors joined the upv in 1995 becoming full professor in 2010. he has ample academic and research experience in the fields of innovation and technology management as well as knowledge management where he has been consultant and researcher. he has published more than 80 articles in international journals and 150 papers in international conferences. antonio collado ford spain e-mail: acollado@ford.com phd estudent at the universitat politécnica de valencia (upv) in spain. a. collado is an industrial engineer from u. l. de tarragona. he was awarded an mba degree at the anglia ruskin university, chelmsford campus in uk. antonio has more than 40 years professional experience in engineering and quality systems management at the ford motor co. in spain. he is now working on a research in the spanish automotive industry in partial fulfillment of the requirements for the phd degree at the universitat politécnica de valencia (upv) in spain. appendix 1: abbreviations anfac spanish association of automotive and truck manufacturers oem original equipment manufacturers gvc global value chains gm general motors psa peugeot ccaa regional autonomy offices iveco italian truck vehicles corporation vw volkswagen ascabus national association of bus manufacturers minetur ministry of industry & tourism r&d research & development sernauto national association of components manufacturers gnp gross national product. ere temporary employment suspension ceaga galician automotive cluster tier, 1, 2, 3 oem supplier of 1, 2 or 3d.order cdti national development office for technology nace national classification of economic activities facyl castilla leon automotive association avia valencia automotive industry association cidaut castilla leon research & development charity ctag galician technology automotive development office gnp gross national product enasa national truck manufacture corporation acrea alliance of regional automotive clusters detailed notes on automotive industry data have been deleted due to shortage of space. refer to the author if you are interested. 20 jose albors-garrigos, antonio collado 2019/24(3) about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01 85_3 zakic:tipska.qxd 1 nebojsa zakić 1*, jovanka popović2, miroslav miškić3 1 union – nikola tesla university, belgrade, faculty of entrepreneurial business, serbia 2 union – nikola tesla university, belgrade, faculty of management, serbia 3 university novi sad, faculty of technical sciences novi sad, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(3) the linkages between investments in innovation and business performance in serbia doi: 10.7595/management.fon.2019.0017 abstract: 1. introduction the main aim of this paper is to demonstrate the ability of the enterprises in serbia to use bank loans as a source for financing new product development among other investment needs, and to examine the impact of sources, conditions of such financing to business revenues and market success. i addition to the literature review, the next section describes the data, the methodology and empirical findings, discussion, conclusions and references used in the elaboration of the hypothesis. driven by an increasingly competitive marketplace, the savviest businesses have been investing heavily in corporate innovation as a kind of competitive intelligence that has given them what they need to operate with poise and precision in recent years. havas (2018) suggests that putting innovation alone as a business * corresponding author: nebojša zakić, e-mail: nebojsa.z@fpb.edu.rs motivation: driven by an increasingly competitive marketplace, the savviest businesses invest heavily in corporate innovation as a kind of competitive intelligence that gives a business what it needs to operate with poise and precision. the strategy of investments in innovation by firms can potentially explain the heterogeneity of their income increase based on market success. such a stimulus for growth has been a motivation for the research question being examined in this paper, namely the link between corporate financing and investment decisions of serbian firms based on the bank loans as sources of innovation and hence improved enterprise performance. the paper is based on the research of hottenrott et al. (2014), together with ferrando & preuss (2017) and aerts & schmidt (2008) concerning the relationship between external finance and business innovation activities. this paper provides information about a bank loan as a financing source that firms use to fund their innovative activities, with the research question whether that has the subsequent impact on the company's performance. the idea of the paper is that investments of enterprises in innovation significantly affect their revenue. data: empirical research was provided by a survey in serbia in 2017. the sample comprised 152 enterprises, mostly privately owned, of all sizes. descriptive statistics: cronbach's alpha coefficient, regression analysis is used as the research tool and method. the link between business finance and innovation, and furthermore the link between innovation and income of serbian firms have been investigated. three groups of factors show that the degree of income and market success of the enterprise increases with the level of investment in innovative activities. these are: sources of financing and financing conditions as independent variables, and company's income revenues, as the dependent variable. findings: firms that use bank loans as financial instruments for innovation activities and investments are more likely to develop new products, methods and processes, and successfully increase their revenues and income based on developing this kind of added value. the findings indicate that tangible asset investment of smes is positively related to the use of bank finance, to new product development and to enterprise performance improvement. contribution: results of the research show that financial investments in business innovation directly contribute to the business sector performance improvement. they also demonstrate the theory of innovative enterprise, the significance of financing, and the impact of banking on the overall development of the economy. the results point to the need for further research in the area of access to finance, as well as in the parallel development of non-banking sources of financing. keywords: innovation, bank loans, innovation in the business sector, economic development jel classification: 031, 032, g21, l2, m21. driver into practice aids the uncertainty inherent in a time of political upheaval. improvement of innovation performance at different levels, or national (regional) innovation systems are described by many authors, as: freeman (1995), lundvall (1992) and nelson (1993). strategic performance management overall demands an approach that is more oriented towards financial measures, whereas investments in science and technology are more the challenge of developed countries. according to kim (2013) there is much to discover and learn from the experiences of non-oecd countries, on which this paper presents some results of such investments in see countries, mainly from the west balkans. innovation enterprises are the main force of technological innovation domestically. recently, serbia has been characterized by rapid economic growth, has entered a new period of normality with moderate, sustainable growth, ongoing optimization of the economic structure (however, not enough) and investment in technology innovation. under these circumstances, implementing innovation-driven development strategies, supporting the development of innovative enterprises to accelerate the commercialization of scientific and technological achievements and promotion of the transition to economic growth momentum are particularly important. the technology sector in serbia exhibits a healthy degree of innovation such as several health and agriculture sector technology hardware projects with success in commercialization, and software development outsourcing companies. the number of support service providers for smes in serbia was estimated by the european union to be about 500. during 2015 the government adopted a new national strategy for the development of small and medium-size enterprises. the problem that companies encounter in seeking external sources of financing for their innovations is still serious and evident in ensuring capital from favorable sources. this is an obstacle to the development and innovation of companies in serbia, as is a limited and expensive source of funding, linked to a number of problems: interest rate; collaterals; operating costs; bank procedures. companies most often use their own funds, including the common assets of the owners and their families or friends in the early stages of the business, which are limited. smes in serbia can also apply for participation in the fund for innovation activity resources, international programs in the seventh framework program, eureka program, european investment bank programs, world bank, european bank for reconstruction and development, etc., but the level of information about domestic companies on possibilities of obtaining funds through these programs is extremely low. the use of alternative securing funds such as venture capital funds, private investment, equity funds and business angels are not developed enough in serbia, nor is the collection of capital of the stock exchange, where the initial public offer of shares is also problematic due to the lack of vision of these investment companies. table 1 presents the indicator scores for the innovation in serbian firms in 2017, as an illustration of the general support to business innovation in serbia. table 1: innovation in serbian firms, indicator scores (2017) source: oecd (2018). competitiveness in south east europe. frameworks to support innovation in firms are still at an emerging stage in see countries, as can be seen in figure 1, their average scores ranging between 1 and 2. their quantitative indicators indicate a very low capacity for innovation, limited company spending on innovation and access to loans (grozdanic et al., 2012). 2 nebojsa zakić , jovanka popović, miroslav miškić 2020/25(3) ���������� ���� ����� � �� � ����������� ���� ����� ������� ��� �� ��� ������ � ���������� �������� �� ������������ �� ��������� �������� �� ��������� �� ���� ��� ������� ������ ��� ��� �� �������� �� !��� ������ �� ���� " ������ ���������� ��� ��� �� #���$���� �� ���%� && ������������� �� ���� ���������� ��$ ������������ '�� (� ����� ��� ���������� � ������������� �� ���� ���)������ �*������� �������� �� (�� ��� � ��$��� �� ��� �� +����� ���������� ��� ���������� ��� ���������� �� ���������� �*�)����� �, figure 1: business expenditure on rdi in see, 2010-2016 source: european commission (2017). european innovation scoreboard 2017 firms in serbia reported 10% of their sales originate from innovative products in 2016 (eu-28 average 15%, european commission, 2017). figure 2: firms introducing innovations in see, 2016 source: european commission (2017). european innovation scoreboard 2017 table 2: serbia, types of business innovations, 2014-2016 source: statistical office of the republic of serbia. (2017). science, technology and innovation statistics. statistical release, 197/ia01. although serbia has accepted the national strategy on scientific and technological development for the period 2016 – 2020, it can be concluded that the excellence of scientific research and its relevance to the economic and social development of the country and society as a whole are not sufficiently supported through the system of research funding. also, there are still no adequate financial instruments, nor the institutional framework for linking science with industry and the public sector. the system of management of the scientific and innovation systems is not sufficiently effective, and there is little coordination of work in the relevant institutions and different stakeholders. the lack of adequate human resources in scientific research organisations, industry and the public sector is also evident, and there are also no long-term measures to address this problem. 3 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) � ������� � ���� ������������ ������� ����� ��������������� � ��������� �������� �������� ��������� � ������� ��� ��� ���� �� � �������� ������� ��� ��� ���� �� � ��� ������������ ���� ���� ���� � � ���� ������������������� ����� ���� ���� � ��� ����� ������������ ����� � ��� ���� ����� ����� � 2. literature review definition of innovation and performance. schumpeter (1934) had a broader view of innovation. he included the opening up of a new market, the conquest of a new source of supply of raw materials or semimanufactured goods and the carrying out of the new organisation of any industry (creation of a monopoly or breaking up of a monopoly). according to him, the cyclical process is almost exclusively the result of innovation in the organisation, both industrial and commercial. according to the eurostat definition (oecd/eurostat ,the oslo manual, (2005), from the aspect that can be measured at the level of the firm, business innovation means the implementation of a new or significantly improved product (goods or service), or process, a new marketing method or a new organisational method in business practices, workplace organisation or external relations. the transformative business processes, organisational planning and models enable an enterprise to operate better and be more efficient in the market, thus increasing its income. innovation in the business enterprise sector is used in a different context to refer to either a new organisation, business model and process or to an output. activities include commercial innovation, as well as development, finance and strategy, and firms’ innovation. functional categories for identifying the type of business process innovations are presented in the glossary of statistical terms (eurostat, 2018). as a special type of external finance related to innovative activity, grants have received a great deal of interest in the literature. generally, several country-level studies of carboni (2017), savrul & incekara (2015) have found that a positive impact on the level of innovativeness of the economy can be observed due to the participation of the private sector in the financing of r&d. czarnitzki & lopes-bento (2014), and hottenrott et al. (2017), together with ferrando & preuss (2017) are the authors whose research concerns external finance related to business innovation activities. the link between corporate financing and investment decisions of european firms has been examined by aerts & schmidt (2008). by using a multinomial fractional response model, the authors estimate the finance-investment link. their findings indicate that smes’ tangible asset investment is positively related to the use of bank finance, whereas internal finance is the preferred option for intangible asset investments. how the results can be measured. for the purpose of measurement of innovation activities vs. performance, adams et al. (2006), and singer & peterka (2012) all involve composite indicator usage for benchmarking performance. marinkovic et al. (2016) have focused on measuring outputs at the level of industry, academia and government, but independently of each other and with much less systematic approaches. the results of innovation performance measurement are presented through the european innovation scoreboard (eis), which provides data for international comparison, covers a relatively long period, has a strong bias towards r&d-based innovation and focuses on inputs and activities, using the summary innovation index, the share of innovative enterprises, turnover from innovation, labour productivity etc. the mentioned manual provides the guidelines on the methods and questions to be included in innovation surveys. the importance of measuring innovation performance, according to ettlie (1983), can be seen through the information derived from measurement as it serves as feedback on a firm’s current standing in innovation as well as on showing a systematic process of continuous improvement. without performance measurement, the process of innovation will not be managed effectively and improvement will be sporadic. the innovation performance measurement framework was presented in the research of voss et al. (1993), chiesa et al. (1996) and stosic et al. (2016). this methodology provides the benefit of being able to identify the processes that drive innovation, combining the core processes (product generation, product development, production process innovation and technology acquisition) with the enabling processes (leadership, human and financial resource management, the adoption of systems and tools for innovation). the development of performance measures for each of the processes of innovation is valuable in as much as the overall impact of innovation on competitiveness can be assessed. according to jevtic et al. (2013), grozdanic at al. (2012a) and curcic et al. (2017) the ability to innovate has a direct impact on the competitiveness of a firm and thus its performance. the connection of business innovation and the success of a company in the market has been discussed in literature. so, ezzi & jarboui (2016) suggest that innovation is closely linked to business performance, as the production of new products or processes strengthens a firm’s competitive position in relation to its rivals. innovating firms are able to achieve a larger market share and higher growth rates and profits; dodgson & rothwell (1994), hoflinger, et al. (2018), and campart & pfister (2013), have shown that the technological performance of the firm is positively associated with its market value. franko (1989) and dave et al. (2013) demonstrated the link between 4 nebojsa zakić , jovanka popović, miroslav miškić 2020/25(3) r&d expenditure and subsequent sales revenues of a firm. archibugi & michie (1997) and vanderpal (2015) have confirmed that investment in technology and performance are related. the way of financing firm performance. the generation of innovation requires efforts starting from r&d, development of new techniques and products to market penetration. one important element of the overall process is the availability of either internal or external sources of funding. as the innovation imperative is placed in the centre of the policy agendas of many emerging challenges in technology, the economy and the environment, business innovations play an increasingly important role in all sectors. the mentioned manual opened the way for measuring key dimensions of innovation and technology and encouraged the systematic monitoring of investment in research and development around the world. a business enterprise seeks to transform productive resources into goods and services that can be sold to generate revenues. lazonick (2002) provides explanations on the ways that productive transformation occurs and the revenues are obtained. a company’s strategy, organisation and finance are, in theory, generic activities in which the business enterprise engages. through these resources investments are allocated to innovation, organisational transformation of technologies and value creation capabilities in order to generate new products and services for the market. from the time at which investments in productive resources are made to the time at which financial returns are generated through the sale of products, finance is needed to sustain the process of technology development and market assessment. the hypothesis of the research is based on the idea that a certain financial commitment can transform finance (in this case bank loan) into innovation. the allocation of funds, in the form of the so-called patient capital, helped by internal strategic and organisational controls sustains the process of innovation until it generates returns. the distinguishing characteristics of a particular industry derived from its competitors, markets and its specificities, indicate where resources and finance should be allocated, along with how the organisation of the company should be adjusted to achieve a successful innovation strategy. the income that the innovating firm generates can be critical to sustaining its business, to make it grow or increase success. financial resources for the innovating firm not only fund new investment, but also enable the firm to keep its learning organisation intact. 3. materials the purpose of this empirical research is to express the views of the representatives of enterprises about the investments of bank loans in innovations and their impact on the income and business of the given company. the entire territory of serbia was covered in 2017. the main hypothesis, an idea of the work, is: h1: business innovation investment affects the company's performance and increases its revenues to secure sufficient evidence of the main hypothesis, empirical research was conducted by the questionnaire tool examining the views of the representatives of 152 companies about the following input factors, which are essential for investing banks' credit funds in business innovation and their further impact on the revenues and business performance of the company itself: − group of factors: sources of financing of business innovations, includes the impact of: the level of loan funds required from the bank, the level of funds earmarked for investments in business innovation, the development of new products and services in comparison to the total investment funds in fixed and working capital in the company, human resource development and settlement of legal obligations. this group of factors, abbreviated as “cfs”company's financial sources, presents an independent variable in this model; − group of analyzing factors concerning the conditions for financing business innovation of the company includes: the level of interest rates, collaterals, credit repayment period, banking procedure, the level of trust in the banking system and the availability of subsidized funds with tax incentives for innovation. this group of factors, abbreviated as “cfc”company's financial conditions, presents another independent variable in this model; and − group of analyzing factors concerning the business revenues, abbreviated as "cr"company's revenues, one that includes: the level of finding clients, level of business competition, general access to financial resources, costs of production of new products and services, and the level of corruption, the level of investments in the country, presents a dependent variable in the model. 5 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) 3.1. data collection descriptive statistics of the research sample are presented in the following table 3. table 3: descriptive statistics of the research sample 3.2. tools in the research presented in this paper, statistical, mathematical and data collection methods were used. in the collection of empirical research data, the survey method with questionnaire was used with the questions divided into three sections: details about the enterprise, characteristics of any bank loan as a source of funding with conditions of the funding and factors related to the revenues. for obtaining key results the following was used: cronbach’s alpha coefficient to ensure consistency and a correlation analysis that determined the interconnections between phenomena. in this case, the relevant phenomena were the company's sources of financing of innovation (“cfs”), conditions of financing (“cfc”) and business revenues of the company (“cr”), as the result of the impact of these two variables. also, regression analysis, linear regression, anova test, person’s correlation were used for the interpretation of the possible links between independent and dependent variables. a multiple linear correlation and regression analysis were further used to show the influence of several independent variables of sources of financing of innovation and the conditions of financing of innovations on the dependent variable revenues of the company. 3.3. key findings independent variables in this research are: the sources of financing (“cfs”, company financial sources) and the conditions of financing (“cfc“, company financial conditions) the business innovation, and the dependent variable is the company revenues ("cr"). descriptive statistics of the analyzed model "cfs”, “cfc” and “cr" are given in table 4. table 4: statistics for variables „cfs“, „cfc“& „cr“ 6 nebojsa zakić , jovanka popović, miroslav miškić 2020/25(3) level sub-level count prob the business sector of the company production 106 0.6909 services 46 0.3091 total 152 1.0000 the legal form of the company private-owned 128 0.8421 part of a larger system 34 0.1578 the respondent's position in the company owner 48 0.3333 directors 31 0.4469 manager 48 0.1212 consultant 25 0.0984 the number of employees in the company < 10 to 49 employees 95 0.6315 from 50 to 249 employees 45 0.2894 over 250 employees 12 0.0789 the company's revenues origin domestic market 125 0.8223 foreign market 27 0.1776 the level of the company's income in 2017 < from €100.000 40 0.2302 from 100.001 to €500.000 44 0.2631 from 500.001 to €2.000.000 68 0.4473 the bank loan invested in the business innovation impact on company's revenues in 2017: revenues increase 53 0.2894 revenues sustainability 66 0.4013 revenues decrease 13 0.3093 statistics cfs cfc cr n valid 152 152 152 missing 0 0 0 mean 3.8575 3.7773 3.8701 std. error of mean .05660 .05963 .07438 std. deviation .69779 .73522 .91708 the views of the respondents from the model created through the interpretation of person’s correlation, are given tabulated in table 5. the directions of all possible links between independent and dependent variables are positive, which means that there is a positive correlation between these variables (the positive impact of the sources and conditions of financing the company’s innovation on the company’s revenues). table 5: correlation coefficients the large variability is identified between the independent variables the conditions of financing of innovations ("cfc") and the dependent variable income the business of the company ("cr") and amounts to 0.718 or 71.8%. then comes the variability between the independent variable sources of financing innovation ("cfs ") and independent variables the conditions of financing innovation ("cfc ") amounting to 0.543 or 54.3%. the variability between an independent variable sources of innovation financing ("cfs") and dependent variables "cr”) amounts to 0.438 or 43.8%. multiple correlation coefficient r is 0.850, and multiple determinations of r amount to 0.722. this means that 72.2% variability of independent variable “cfs” and “cfc” impacts the dependent “cr” variable, as it is displayed in table 6. table 6: model summary 3.4. multiple correlation and regression analysis for all three variables of the model "cfs”, “cfc” and cr" the statistical significance score is shown in table 7, by the anova test of the main hypothesis, h: that r2=0 is confirmed, because the statistical significance is [f (2,149) =193.265 p<0, 0001]. table 7: anova for variables „cfs“, „cfc“& „ cr“ table 8 specifies the size of the contribution of independent variables: "cfs”, “cfc" in the prediction of dependent variable "cr". in this case, this most contributes to the independent variableconditions of financing innovation ("cfc"), which is 0.788. on the basis of the obtained results, the h: can be confirmed: that the levels of sources, and financial conditions for the company's innovation investments significantly affect the business of the company and its respective revenue increase. 7 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) �������� � �� � ���� ���� ��� ���� �� �� ��� �� ��� � �� ������� ������� ��������� ������ � ����� ����� �� ���� ���� ���� ���� �� �� ��� �� ��� � ������� �� � ! ��� ��������� ������ ����� � ����� �� ���� ���� ���� ��� �� �� ��� �� ��� � ������� � ! ��� �� ��������� ������ ����� ����� � �� ���� ���� ���� ������ �� ��� ������� �"�# �� ���$���������%������� ������� � ������� �� �� ����� �� �� �� �� ����������� �� �� ����� � ����������������� ������� ���������� �� �� ��������� ����������� ���� ������������ �� �� !� �"��� �"��� �#�$%"� �"��� �%&��$ � ���#%� �!!!� ���' ������ �(�)��������*+����+��� � ,��-�.�������/� ��,��(���� ������� ������ � ������ ���� ��� �� ���� ��� �� ����� �� ����������� ������� �� ������� �������� ������ ����� �� ������� ���� ��� � !�" �� �������� ���� ��#�$�����"�% �� ���&�'�� ���(����)"���&�*'���" �"+,�'�',�'��� � table 8: coefficients for variables „cfs“, „cfc“&„cr“ for the compilation of the regression equation, the non-standard coefficients from (table 8) are used and the equation reads (1) and (2): (1) or (2) in diagram 1, partial diagrams of regression equations for the formed model "cfs, “cfc and “cr" are given, and in diagram 2. multiple regression equation for the formed model "cfs”, “cfc“& “cr" is given. diagram 1: partial diagram of regression equations of influence for the formed model "cfs”, “cfc” and “cr" diagram 2: multiple regression equation for the formed model "cfs”, “cfc” and “cr" 8 nebojsa zakić , jovanka popović, miroslav miškić 2020/25(3) ���������� �� ������ � �� �� ��������������� � � ��� �� ��������������� � � �� ����� �� ������ � � ����� �� ��� �� ��� ������ ����� � ���� � ��!�� �"�� �� !� � #�� � #�� ���!�� �� �� �"�� �$#�� � # � �!##� ����� � � � ���%�&� �� ��'� ��(��)��*� � references [1] adams, r., bessant, j., & phelps, r. (2006). innovation management measurement: a review. international journal of management reviews, 8(1), 21-47. doi: 10.1111/j.1468-2370.2006.00119.x [2] aerts, k., & schmidt, t. (2008), two for the price of one? additionality effects of r&d subsidies: a comparison between flanders and germany, research policy, 37(5), 806-822. doi: 10.1016/j.respol.2008.01.011 [3] archibugi, d., & michie, j. (eds.). (1997). technology, globalisation and economic performance. cambridge, uk: cambridge university press. isbn: 9780521556422 [4] campart, s. & pfister, e. 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(2013). the impact of research and development of the financial sustainability of information technology (it) companies listed on the s&p index, journal of sustainable development, 6(11), 122-138, doi: 10.5539/jsd.v6n11p122 [10] dodgson, m. & rothwell, r. (eds.) (1994). the handbook of industrial innovation, cheltenham, uk: edward elgar, isbn: 9781858984452 [11] ezzi, f., & jarboui, a. (2016). does innovation strategy affect financial, social and environmental performance?, journal of economics, finance and administrative science, 21(40), 14-24. doi: 10.1016/j.jefas.2016.03.001 9 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) discussion and conclusions in this paper the results of the empirical research on the attitudes of 152 companies in serbia in 2017 on their activity of financing innovation from bank loans and the impact of these investments on increasing revenues are presented. the research involved owners, managers and consultants of manufacturing companies of all sizes. among them there were 46 companies from the high-tech sector. the effects of 3 groups of factors in these investments were divided into sources of financing, terms of financing and income of enterprises. the results of the research confirmed the validity of the scientific hypothesis of the work, determined on the basis of the statistical significance analysis by the anova test of the hypothesis that r2=0, and the statistical significance which did not exceed the limit p<0.0001. h: can be confirmed: that the levels of sources, and financial conditions for the company's innovation investments significantly affect the business of the company and its respective revenue increase. since the development of new products, business models, organizational and modern production processes are crucial for improving the competitiveness of the economy, investment in innovation within the business sector is extremely important. the present data of eurostat, oecd and eib on enterprise investment in innovations in see countries, where serbia belongs, confirms that these activities are in development. key findings from the field research on business innovation investments show that these investments are still low and are not on the priority list of enterprises in serbia, but even so, they have a positive impact on business revenues, and income increase, and more than 28.94% of researched enterprises believe that they have helped them increase their revenues and competitiveness in the market. in this regard, this research points to the positive impact of these investments on the company's performance and the need for further research for a more favourable access to financial sources and services for investment needs in innovation. the availability of sources of funding for innovation of smes is influenced by numerous factors in the offer as well on the demand side. challenges also can be seen in the development of the investment and lending linkage business which can lawfully and effectively increase the source of funds for commercial banks to offset the credit risk of loans to technology innovative small and medium enterprises. the challenges that commercial banks face in the field of product design (investment subsidiaries for innovation) in their business concept and model are even higher. [12] ettlie, j. e. (1983). organizational policy and innovation among suppliers to the food processing sector, academy of management journal, 26(1), 27-44. [13] european commission. (2017). european innovation scoreboard 2017. luxembourg. retrieved from https://ec.europa.eu/docsroom/documents/24829 [14] eurostat. (2018). glossary of statistical terms. louxembourg. retrieved from https://ec.europa.eu/eurostat/statistics-explained/index.php/glossary:business_functions [15] ferrando, a., & preuss, c. (2017). investment and investment financing patterns in europe, a surveybased approach, european investment bank group. retrieved from https://eventi.uniurb.it/sbbfig/wpcontent/uploads/2017/04/1-ferrando-preuss_urbino_presentation_final.pdf [16] franko, l. g. (1989). global corporate competition: who’s winning, who’s losing, and the r&d factor as one reason why, strategic management journal, 10(5), 449-474. doi:10.1002/smj.4250100505 [17] freeman, c. (1995). the ’national system of innovation’ in historical perspective, cambridge journal of economics, 19 (1), 5-24. [18] grozdanic, r., radovic-markovic, m., papic, z., kvrgic, g., & jevtic, b. (2012). investment in innovation of smes, evidence from balkan countries, metalurgia international, xvii (10), 176-179. [19] grozdanic, r., radovic-markovic m., vucic m., jevtic b., & jovancevic d. (2012a). links of smes innovation to export, in: catalin, m., druica, e. (eds.), international conference: entrepreneurship education a priority for the higher education institutions, october 8-9, 2012, 99-103, bucharest. [20] havas, a. (2018). social and business innovations: close links in practice –but two worlds apart in theorising? , bridging social and business innovation isirc 2018, heidelberg, 3–5 september 2018. retrieved from https://www.isircconference2018.com/media/presentation_attila_havas_isirc_2018_heidelberg.pdf [21] hoflinger, p. j., nagel, c., & sandner, p. (2018). reputation for technological innovation: does it actually cohere with innovative activity?. journal of innovation & knowledge, 3(1), 26-39. doi: 10.1016/j.jik.2017.08.002 [22] hottenrott, h., lopes-bento, c., & veugelers, r. (2017). direct and cross scheme effects in a research and development subsidy program, dusseldorf: dusseldorf university press, isbn 9783863041519. [23] jevtic, b., dedjanski, s., beslac, m., grozdanic, r., & damnjanovic, a. (2013). sme technology capacity building for competitiveness and export evidence from balkan countries, metalurgia international, xviii (2013), special issue no. 4, 162-170. [24] kim, s. j. (2014). government r&d funding in economic downturns: testing the varieties of capitalism conjecture, science and public policy 41(1):107-118, doi: 10.1093/scipol/sct040 [25] lazonick, w. (2002). innovative enterprise and historical transformation, enterprise & society: the international journal of business history, 3(1), 3-47, doi: 10.1017/s1467222700005589. [26] lundvall, b.-a. (ed.) (1992). national systems of innovation. towards a theory of innovation and interactive learning. london: pinter publishers, isbn 9781855670631. [27] marinkovic, s., rakicevic, j., & levi jaksic, m. (2016). technology and innovation management indicators and assessment based on government performance, management: journal of sustainable business and management solutions in emerging economies, 21(78), 1-10. doi: 10.7595/management.fon.2016.0001 [28] nelson, r.r. (ed.) (1993). national innovation systems: a comparative analysis. oxford: oxford university press. isbn: 9780195076172. [29] oecd. (2018). competitiveness in south east europe: a policy outlook, oecd publishing, paris. . [30] savrul, m., & i̇ncekara, a. (2015). the effect of r&d intensity on innovation performance: a country level evaluation. procedia social and behavioral sciences, 210,388-396 doi: 10.1016/j.sbspro.2015.11. [31] schumpeter, j.a. (1934). the theory of economic development: an inquiry into profits, capital, credit, interest and the business cycle. cambridge, ma: harvard university press, isbn 9780674879904 [32] singer, s. & peterka, s. o. (2012). triple helix evaluation: how to test a new concept with old indicators? ekonomski pregled, 63 (11), 608-626. retrieved from https://hrcak.srce.hr/93446 [33] statistical office of the republic of serbia. (2017). science, technology and innovation statistics. statistical release, 197, ia01. retrieved from https://pod2.stat.gov.rs/objavljenepublikacije/g2017/pdfe/g20171197.pdf. [34] stosic, b., mulutinovic r., zakic, n., & zivkovic, n. (2016). selected indicators for evaluation of ecoinnovation projects, innovation: the european journal of social science research, 29 (2), 177-191. [35] oecd/eurostat (2005). oslo manual: guidelines for collecting and interpreting innovation data. paris: oecd, doi: 10.1787/9789264013100-en retrieved from https://ec.europa.eu/eurostat/documents/3859598/5889925/oslo-en.pdf 10 nebojsa zakić , jovanka popović, miroslav miškić 2020/25(3) 11 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) [36] vanderpal, g. a. (2015). impact of r&d expenses and corporate financial performance. journal of accounting and finance, 15(7), 135-149. [37] voss, c. a., chiesa, v. & coughlan, p. (1994). developing and testing benchmarking and self-assessment frameworks in manufacturing, international journal of operations & production management, 14(3), 83-100. doi: 10.1108/01443579410058540 [38] world economic forum. (2017). the global competitiveness report 2017-2018. geneva: wef. retrieved from https://www.weforum.org/reports/the-global-competitiveness-report-2017-2018 received: 2018-12-05 revisions requested: 2019-04-06 revised: 2019-04-22 (3 times) accepted: 2019-09-02 nebojsa zakić union – nikola tesla university, belgrade, faculty of entrepreneurial business, serbia nebojsa.z@fpb.edu.rs nebojsa zakić, phd, is a full professor at the “union – nikola tesla” university, faculty of entrepreneurial business in belgrade. he earned his phd degree from the faculty of organizational sciences in belgrade. prof. nebojsa zakic has published more than 60 works, including 3 monographs, and had been engaged in research projects. his research areas of interest include organizational change, innovation management, project management, entrepreneurship and agribusiness. jovanka popović union – nikola tesla university, belgrade, faculty of management, serbia jovanka.popovic@famns.edu.rs assistant professor jovanka popović, phd works at the faculty of management, university union nikola tesla in belgrade, serbia. she has got a large number of research papers published in scientific journals and international conferences monographs. she has been a member of 12 international project teams and some national studies. her main research fields are: innovation and entrepreneurship, economics and production business systems and quality management. she has a national accreditation for the realization of trainings of local government employees. miroslav miškić university novi sad, faculty of technical sciences novi sad, serbia miroslav.miskic@uns.ac.rs assistant professor miroslav miškić, phd., works at the faculty of technical sciences novi sad, chair of production systems, organization and management at the university of novi sad. his scientific work and research fields of interest are: insurance industry, infrastructure, organisational and engineering managemnt in which he has written and 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05 85_3 rizkalla:tipska.qxd 43 nosica rizkalla*, trihadi pudiawan erhan universitas multimedia nusantara, indonesia management: journal of sustainable business and management solutions in emerging economies 2020/25(3) sustainable consumption behaviour in the context of millennials in indonesia – can environmental concern, self-efficacy, guilt and subjective knowledge make a difference? doi: 10.7595/management.fon.2020.0001 abstract: 1. introduction consumption is deemed to be one of the main contributors of environmental problems. along with other production activities, consumption activities have been acknowledged as the main contributors of various environmental issues (stern et al. in tanner & kast, 2003). after all, consumption is the main reason of the * corresponding author: nosica rizkalla, e-mail: nosica.rizkalla@umn.ac.id research question: this paper assesses the effect of environmental concern, self-efficacy, subjective knowledge and guilt on sustainable consumption behaviour. motivation: this study focuses on predicting and explaining sustainable consumption behaviour by proposing a model comprised of environmental concern, self-efficacy, consumer guilt and subjective knowledge as predictors. environmental concern is an important element in vbn theory proposed by stern (1999). meanwhile, self-efficacy is part of sct theory by bandura (1997); as for subjective knowledge, it is deemed to be a better predictor of environmental behaviour (kollmuss & agyeman, 2002). guilt is included in this model as it is an important emotion that can affect sustainable consumption behaviour, especially in the context of collectivist culture country like indonesia (lee et al., 2012). all these factors have been proven to be able to influence sustainable consumer behaviour. however, there are still a few studies that explore these factors altogether simultaneously, especially in the context of a developing country. thus, this study tries to examine sustainable consumption behaviour by incorporating these factors altogether. idea: the main idea of this study is to empirically assess the influence of proposed independent variables, namely environmental concern, self-efficacy, subjective knowledge and guilt on sustainable consumption behaviour. this study also tries to assess whether there is a significant difference of sustainable consumption behaviour among demographic groups such as gender, education and age. data: the model is tested by conducting a survey using a self-administered questionnaire on 200 respondents. the respondents are younger millennials aged between 17-27. the questionnaire consists of questions about demographic profile and about the research instruments. tools: this study uses descriptive research design and purposive sampling to collect the data. research hypotheses were tested by multiple regression analysis. findings: the result of this study shows that environmental concern, self-efficacy and environmental knowledge have an influence on sustainable consumption behaviour, where environmental knowledge contributes the most in predicting the aforementioned behaviour. meanwhile, this study also finds that consumer guilt has no impact upon this behaviour. contributions: this study gives additional insight and understanding of sustainable consumption behaviour in the context of millennials in a developing country. the findings of this study can be used by the government to formulate environmental policies as well as for businesses to formulate strategies to promote their environmentally-friendly products. keywords: sustainable consumption behaviour, environmental concern, self-efficacy, consumer guilt, subjective knowledge jel classification: m83, m12 products being produced, which makes it the source of man-made stress and natural environment problem (heiskanen & pantzar, 1997). this also occurs in indonesia, where many of its environmental problems are the direct and indirect consequences of irresponsible and excess consumption. one of the most concerning environmental problems in indonesia is related to waste (widjaja, 2014). currently, indonesia is on the 2nd position on the ranking of countries with most plastic waste thrown to the sea (adharsyah, 2019). another agenda regarding excess consumption in indonesia is related to energy consumption. in 2016, indonesia’s energy consumption was the highest in southeast asia (tempo.co, 2016). this high consumption can be a problem as the source of energy resources is mostly unrenewable (nordlund & garvill, 2003). it is even mentioned that indonesia is predicted to suffer from energy deficit by 2021 if it does not find a way to utilize energy effectively and efficiently (valenta, 2019). since consumption is considered as one of the major causes of these problems, the role of consumers as the main actors of consumption behaviour is needed. according to berglund & matti (2006), the main responsibility for environmental degradation lies in the hands of consumers as main agents of consumption. therefore, consumers’ role is really significant in sustainable consumption behaviour approach. here, sustainable consumption itself is perceived to be an effective solution since its goal is not only encouraging the consumption of environmentally-friendly products, but also reducing the consumption rate and changing consumers’ lifestyle (biswas & roy, 2015). many studies have tried to discover what factors can affect sustainable consumption behaviour and this also becomes the objective of this study. it is mentioned that individual-related factors play a significant role in explaining an individual’s sustainable consumption behaviour (kostadinova, 2016). these factors include environmental concern (hedlund, 2011), self-efficacy (straughan & roberts, 1999), consumer guilt and environmental knowledge (mostafa, 2009). heo and muralidharan (2017) studied environmental knowledge, environmental concern and self-efficacy by using the belief-attitude-behaviour approach, in which belief is represented by self-efficacy and attitude is represented by environmental concern. these 2 variables then acted as mediators of environmental knowledge to sustainable consumption behaviour. for this study, these 3 variables will be investigated as independent variables, without mediator. this study will also add consumer guilt as one of the predictor as according to antonetti and maklan (2013), self-conscious emotions such as guilt can play an important role in influencing behaviour, whether directly or indirectly through self-efficacy. thus, this study tries to examine sustainable consumption behaviour by incorporating these factors altogether. moreover, as most of the past studies were conducted in the developed countries, it is necessary to examine whether these aforementioned factors would also have effect on sustainable consumption behaviour in indonesia, as the developing country. these factors may already be proven in the context of developed countries. however, the role of these factors in the developing countries, in which the condition and situation is completely different in comparison with the developed countries, is still undetermined (handique, 2014). as for the subject, this study would investigate sustainable consumption behaviour of millennials in indonesia. millennials are chosen since their proportion is the biggest in indonesia, they comprise of 33.75% of indonesia population or approximately 88 million people (badan pusat statistik, 2018). moreover, millennials are known to be a more environmentally-friendly generation (sheahan, 2005 in muralidharan et al., 2016). 2. literature review 2.1 sustainable consumption behaviour sustainable consumption behaviour (scb) is a type of consumption which tries to balance the social, economic and environmental needs of both current and future generations (luchs et al., 2011). according to biswas and roy (2015), sustainable consumption behaviour can also be referred to as “the pattern of reduced consumption of natural resources, changing lifestyle and consumption of environmentally-friendly products in order to meet the present needs and aspirations of the future generations” (p.464). wang et al. (2014) grouped scb into 5 categories: improving quality of life, meeting the needs sustainably, improving resource efficiency, reducing the waste and promoting the use of renewable sources. there are a lot of factors identified as predictors of scb. these factors can be categorized into individualrelated factors and context-related/situational factor (kostadinova, 2016). individual-related factors consist of attitudes, values, beliefs, demographic characteristics and other variables that can influence individuals’ behaviour (kostadinova, 2016). meanwhile, contextual-related or situational factors are external forces, such as product value, brand popularity, environment, regulation and other factors that can affect individuals’ behaviour (kostadinova, 2016). this study will try to explain the scb of younger millennials of indonesia from the individual-related factors perspective. 44 nosica rizkalla, trihadi pudiawan erhan 2020/25(3) 2.2 environmental concern one of the models used to explain sustainable consumption behaviour is the value-belief-norm (vbn) theory developed by stern in 1991 (phipps et al., 2013). according to vbn theory, if an individual possesses strong altruistic and biospheric values, he/she tends to easily accept the beliefs of the nep worldview (phipps et al., 2003). the nep scales are often used to measure the degree of individuals’ environmental concern (fransson & garling, 1999). environmental concern itself is defined as a general attitude, which centers on the cognitive and affective evaluation of the environmental protection of the object (bamberg, 2003). environmental concern has a huge impact in motivating individuals to make an environmentally-friendly decision (sguin et al., 1998). this impact is proven by many studies examining the relationship between environmental concern and environmentally related behaviour, such as purchasing environmentally-friendly product (kim & choi, 2005) and willingness to pay more for an environmentally-friendly product (bang et al., 2000) which indicates that a strong environmental concern increases the likelihood of pro-environmental behaviour (hedlund, 2011). based on these notions, the following hypothesis is proposed: hypothesis 1 environmental concern has a positive effect towards sustainable consumption behaviour 2.3 self-efficacy another theory explaining sustainable consumption behaviour is the social cognitive theory (sct). under sct, an individual is an agent who is capable in controlling his/her own functioning and environmental events (bandura, 1997). in this sense, an individual’s interpretation of his/her own behaviour would influence self-efficacy or competence, which in turn impact incoming behaviour (bandura, 1997). self-efficacy itself is a measure of an individual’s evaluation of his/her ability in influencing environmental problems (kang et al., 2013). self-efficacy is an important element of consumers’ decision regarding their sustainable consumption behaviour. according to roberts (1996), before conducting a certain behaviour, consumers have to possess beliefs that their actions would make an impact. these beliefs result from consumers’ own values which provide the ground for their action. self-efficacy has been consistently linked to sustainable or social consumption behaviour. cleveland et al. (2005) also state that environmental concern alone is not enough. consumers need to feel empowered in order to be able to convert this concern into actual behaviour; therefore self-efficacy is needed along with environmental concern (cleveland et al., 2005). based on these arguments, the following hypothesis is proposed: hypothesis 2 – self-efficacy has a positive effect towards sustainable consumption behaviour 2.4 subjective knowledge fryxell & lo (2003, p.45) defined environmental knowledge as ‘‘a general knowledge of facts, concepts, and relationships concerning the natural environment and its major ecosystems”. tanner & kast (2003) differentiated environmental knowledge into two categories: factual knowledge (objective knowledge) and action-related knowledge (subjective knowledge). it is suggested that action-related knowledge or subjective knowledge plays a bigger role in predicting environmental behaviour compared to the other type of knowledge. therefore, this study will focus on this type of knowledge to explain sustainable consumption behaviour. according to kollmuss & agyeman (2002), subjective knowledge is one of internal factors that can influence sustainable consumption behaviour. subjective knowledge is considered to be a distinguishing factor between an individual who is more actively involved in environmental action compared to an individual who is less actively involved (stern, 1992). the individual will be more inspired to behave responsibly towards environment if he/she is more aware of environmental issues and their sources (kollmuss & agyeman, 2002). based on these notions, this study proposes the following hypothesis: hypothesis 3 – subjective knowledge has a positive effect towards sustainable consumption behaviour 2.5 consumer guilt according to tracy & robins (2004), self-conscious emotions are activated when people compare their behaviour to their own personal or social norm. on the subject of sustainable consumption behaviour, recent studies increasingly focus on two particular emotions – pride and guilt (schneider et al., 2017; onwezen et al., 2014). these two emotions are considered to be relevant in sustainable consumption behaviour as they can affect individuals’ social concern and moral consideration (schneider et al., 2017). 45 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) though both emotions are relevant in influencing sustainable consumption behaviour, the effect is different across the culture (onwezen et al., 2014). according to lee et al. (2012), the effect of guilt on sustainable consumption behaviour is stronger in a collectivistic culture rather than in an individualistic culture. as indonesia is partly a collectivistic country, this study will only employ guilt as one of suggested sustainable consumption behaviour predictors. according to watson & spence (2007), guilt is a subjective feeling resulting from an individual’s realization of having violated his/her own personal or social moral standards. guilt occurs when individuals feel that they fail to meet their moral standard. preserving the environment has been considered a right thing to do, hence sustainable consumption behaviour can be considered to be a moral standard. when an individual fails to act sustainably, the anticipated guilt is likely to occur (basil et al., 2006). several studies have proven that guilt plays an important role in predicting pro-environmental behaviour (tracy & robbins, 2006; brennan & binney, 2010). based on these notions, the following hypothesis is proposed: hypothesis 4: guilt has a positive effect on sustainable consumption behaviour 2.6 research framework based on research hypotheses proposed earlier, a research model is constructed. this model tries to predict sustainable consumption behaviour by employing 4 individual-related factors as predictors as can be seen in figure 1 below figure 1: research framework 3. methodology 3.1 sample and methodology the subject of this study is a younger millennial, aged between 18 and 27. younger millennials are chosen due to their influence upon the family’s decision making, both directly and indirectly (fry, 2015). in relation to environmental issues, millennials are known as environmentally-conscious consumers (sheahan, 2005 in muralidharan et al., 2016). it is mentioned that 33.75% of indonesian population are millennials, with an estimated total number 88 million people (badan pusat statistik, 2018). since there is no available sampling frame for millennials in indonesia, this study uses non a probability sampling method, specifically the convenience sampling method to acquire the sample. the total number in the sample in this study is 200 respondents. in this study, both descriptive and inferential statistical analyses are administered. as for statistical analysis, it is concerned with assessing the measurement scales and testing the research hypotheses. validity and reliability analyses are used to assess the measurement scales. for the purpose of testing the research hypotheses, multiple regression analysis is employed. 46 nosica rizkalla, trihadi pudiawan erhan 2020/25(3) sustainable consumption behavior h1 h2 h3 h4 environmental concern self-efficacy environmental knowledge consumer guilt 3.2 measurement all latent variables in this study were measured using multiple statements on five-point likert scale ranging from (1) “very disagree” to (5) “very agree”. in this study, the scale to measure environmental concern was modified from nep scale developed by dunlap et al. (2000). self-efficacy was measured by a scale adopted from heo & muralidharan (2017). the scale for environmental knowledge was adapted from mostafa (2009). then, to measure consumer guilt, this study adapted the scale developed by theotokis & manganari (2015). for sustainable consumption behaviour, this study used the measurement from wang et al. (2014). 4. results and discussions 4.1 characteristics of sample as can be seen from table 1, the sample comprises 59% female and 41% male respondents. in the demographic section, we also collect information about respondents’ age, occupation and education. a majority of the respondents are students, followed by office workers and entrepreneurs, with the percentage of 37% and 13% respectively. regarding the age, the majority of respondents are in the 24-25 age group, scoring 38.5%. as for the education, most of the respondents are undergraduates, and they make up 69.5% of the sample. table 1: descriptive data 4.2 validity and reliability of measurement this study conducted validity and reliability analyses to evaluate the applicability of multi-item scales used to measure each variable employed in this study (knapp & mueller, 2010). the study employed the factor analysis for assessing validity of the measurements. the measurements are deemed valid if factor loading is ≥ 0.5 (stevens, 2009). as can be seen from table 2, all measurements used in this study are deemed to be valid as they already fulfill the minimum criteria used in this study. meanwhile, the reliability analysis of this study is based on alpha or cronbach’s alpha where the value of 0.6 or above is considered favourable (malhotra, 2010). as presented in table 2, all measurements are considered reliable as all of them exceed the minimum criteria used in this study. 47 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) table 2: validity and reliability 4.3 hypotheses testing and result regression analysis was conducted to test the research hypotheses as well as to examine the relationships between the dependent variable and its predictor. in the context of this study, the purpose of the regression analysis is to investigate the influence of environmental concern, self-efficacy, environmental knowledge and consumer guilt towards sustainable consumption behaviour. based on the result presented in table 3, it can be concluded that the model is significant with f-value of 33.527 and adjusted r2 of 0.395. this indicates that 39.5% variance of sustainable consumption behaviour can be accounted for by its predictor, which are environmental concern, self-efficacy and environmental knowledge. on the other hand, the remaining 60.5% of the sustainable consumption behaviour is explained by external factors which are not captured by this study. as mentioned before, sustainable consumption behaviour can be explained from the contextual factor perspective and the individual-related factor perspective (kostadinova, 2016). here, the unexplained variance might be attributed to the contextual factors like product attributes, regulation or other individual related factors that were not included in this study, such as values, norms and demographic characteristics. at a 95 percent confidence interval, environmental concern (ß = 0.118, p < 0.05), self-efficacy (ß = 0.139, p < 0.05) and environmental knowledge (ß = 0.465, p < 0.05) are proven to have significant effects on sustainable consumption behaviour. on the other hand, consumer guilt (ß = 0.061, p > 0.05) has no significant effect on sustainable consumption behaviour. 48 nosica rizkalla, trihadi pudiawan erhan 2020/25(3) table 3: summary of regression analysis note: *p < 0.05 4.4 discussion this study has found environmental knowledge to be the biggest predictor of sustainable consumption behaviour in this model. an individual who feels that he/she understands a lot about environmental issue will have a bigger tendency to perform a sustainable consumption behaviour act (mostafa, 2009). thus, it is suggested that the environmental knowledge be incorporated into the education program as early as possible due to the reason that the attitude of individuals is developed during childhood and adolescence (mcguire, 2015) it is also important to determine the type of environmental knowledge to be applied. knowing about environmental issues alone is not enough; an individual also has to possess understanding and confidence towards the issue. understanding and being confident that he/she understands about the environmental issue will create personal connection and involvement between an individual and the environmental issue (mostafa, 2009). based on this result, it is suggested that subjective knowledge should be incorporated in environmental education, along with the traditional approach, which is objective knowledge. rather than only learning about environmental problems in class, it is better to also bring the students directly to the field, for example visiting the recycling site, visiting a polluted river etc. if the students are learning about environmental issues right at the site, it would be more likely for them to engage in sustainable consumption behaviour. ahmad and nordin (2004) also suggested that experiential learning is better to be applied as it is more effective in transferring knowledge and altering behaviours. as also asserted by kollmus and agyeman (2002), the use of a non-traditional way of learning, such as experiential learning, may be more effective in encouraging the change in behaviour. with regard to environmental concern, the result indicates that the higher concern an individual attaches to environmental condition, the higher the likelihood for him/her to conduct a sustainable consumption behaviour. this result is in line with the study by follows & jobber (2000), asserting that when consumers are highly concerned about environmental condition, they will be more likely to evaluate their decisions. based on this result, it is suggested for the marketer to incorporate environmental concern into the marketing campaign for the environmentally-friendly product. the campaign should not only intend to promote the green product, but also highlight consumers about the seriousness of environmental issues we are facing right now. nevertheless, according to cleveland et al. (2005), environmetal concern alone is not enough. consumers also need to feel empowered in order to be able to convert this concern into actual behaviour, therefore selfefficacy is needed (cleveland et al., 2005). this study has found that self-efficacy significantly influences sustainable behaviour. and similarly to findings reported by roberts (1996), straughan & roberts (1999) and tan (2011), this study has found that self-efficacy is a better predictor for sustainable consumption behaviour than environmental concern. based on this result, in promoting green product the marketer should not only explain the feature of the product, but also highlight the role of the green product in combating environmental problems. the campaign has to be tailored so that it can showcase both the seriousness of the environmental problem (to affect consumers’ environmental concern) and the contribution the consumers will make if they buy the product (self-efficacy). the same message can also be applied to the campaign to encourage other pro-environmental behaviours such as reducing the usage of energy, recycling, and separating the waste. as for consumer guilt, this study has found that consumer guilt has no significant effect on the sustainable concern. it is similar with the study from bissing-olson et al. (2016). the possible reason for this insignificant result is perhaps in that individuals find alternative ways to alter their guilt and release themselves from the need to act sustainably. moreover, according to bissing-olson et al. (2016), the feelings of guilt cannot be translated to sustainable consumption behaviour due to the contextual constraints such as low physical access (lack of public transportation, limited availability of environmentally-friendly product) and high cost of conducting such behaviour (high price of environmentally-friendly product, high switching cost of envi49 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) ronmentally-friendly product). these constraints can make individuals develop arguments and reasoning as to why they cannot engage in sustainable consumption behaviour (bissing-olson et al., 2016). 4.5 limitations and suggestions this study still has several limitations, hence several suggestions for future studies are thereby proposed. first, as this study employed the non-probability sampling, the result may only be applied to the sample of the study and cannot be generalized to the whole population. next, it is suggested that the objective knowledge variable should also be included in order to get a clear comparison between objective knowledge and subjective knowledge. additionally, future research can also focus on a specific type of sustainable consumption behaviour, for example focusing only on the buying behaviour or the curtailment behaviour. regarding methodology, incorporating triangulation is encouraged in order to gain more insight into what factors may be relevant in influencing sustainable behaviour. next, the study sample is limited to jabodetabek area only. we suggest that the research should be conducted in other areas of indonesia as well. future research is also encouraged to conduct a longitudinal study to capture the actual behaviour as well as the continuity of the behaviour. 50 nosica rizkalla, trihadi pudiawan erhan 2020/25(3) this study gives an insight regarding the role of individual-related factors in influencing sustainable consumption behaviour in the context of millennials in a developing country the findings of this study highlight the importance of incorporating subjective knowledge in environmental education, the importance of making the millennials aware and have concern for the environmental problems, as well as the importance of making the millennials feel needed as regards tackling environmental problems. this study shows that rather than make the millennials feeling guilty about the consequences of their unsustainable act, it is better to boost their morale by showing how important their roles in environmental perseverance are. the government and the company have to able to convince the millennials that every action they take, no matter how little they may be, will make a difference in the environment perseverance. conclusion references [1] adharsyah, t. 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(2019), indonesia diprediksi defisit energi pada 2012. beritagar.id. retrieved from <accessed on 07 october 2019> [50] widjaja, e. (2014), sweeping opportunities in indonesia’s waste management industry: a global business guide. retrieved from <accessed on 2 october 2019> [51] wang, p., liu, q., & qi, y. (2014). factors influencing sustainable consumption behaviours: a survey of the rural residents in china. journal of cleaner production, 63, 152-165. doi: 10.1016/j.jclepro.2013.05.007 [52] watson, l., & spence, m. t. (2007). causes and consequences of emotions on consumer behaviour: a review and integrative cognitive appraisal theory. european journal of marketing, 41(5/6), 487-511. doi: 10.1108/03090560710737570. received: 2019-05-01 revisions requested: 2019-09-30 revised: 2020-01-08 (3 revisions) accepted: 2020-01-15 nosica rizkalla universitas multimedia nusantara, faculty of business, indonesia e-mail: nosica.rizkalla@umn.ac.id nosica rizkalla, s.e., msc works as a lecturer at universitas multimedia nusantara. she teaches marketing-related subjects such as marketing management, business communication and marketing research. she earned her bachelor’s degree from universitas indonesia and master’s degree from university of nottingham, united kingdom. her current research is focusing on sustainable consumption behaviour and ethical consumption. trihadi pudiawan erhan universitas multimedia nusantara, faculty of business, indonesia e-mail: trihadi.pudiawan@umn.ac.id trihadi pudiawan, s.e., m.s. trihadi pudiawan erhan is currently a lecturer at the faculty of business, universitas multimedia nusantara. he earned his master’s degree in economic science from universitas indonesia and a bachelor’s degree in marketing from prasetiya mulya business school. aside from lecturing, he is also actively engaged in doing research that is funded internally by the university as well as by the government of indonesia. he is also a certificate facilitator from markplus institute that are specializing in the field of branding and marketing. 53 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08 85_3 book review_chung:tipska.qxd 74 yuichi tei/ung-il chung 2020/25(3) yuichi tei/ung-il chung, m.d., ph.d. department of bioengineering, graduate schools of engineering and medicine, the university of tokyo, tokyo, japan; school of health innovation, kanagawa university of human services, kanagawa, japan book review doi: 10.7595/management.fon.2020.0017 consideration for globalization and diversity is becoming common among all organizations that face international competition. for such organizations, including companies and universities, the top priority in management is to enhance their values sustainably; if they are too particular about nationality, ethnicity, religion, or gender of their members, they will immediately lose international competitions. in order to increase productivity and achieve results, they need to be tolerant of these attributes and to focus solely on the appropriate abilities of members. globalization and diversity require us to cross borders. crossing borders, in turn, put our morality to the test by exposing us to a different set of moral rules. therefore, in order to achieve sustainable business in the globalizing and diversifying world, it is quintessential to reconcile morality and diversity, which often conflict with each other. we need to know human morality well for sustainable business. in this book, the author tries to elucidate the origin and mechanism of human morality. the book is composed of three parts. in part i, first he discusses the origin of morality. after mentioning the two most common answers (the nativist answer and the empiricist answer), he especially focuses on the rationalist answer that morality is selfconstructed by children on the basis of their experiences with harm. he rejects this idea based on his observations that the moral domain varies from culture to culture, that while the moral domain tends to be narrower in western, educated, and individualistic cultures, society-centered cultures tend to have a broader moral domain that covers more aspects of life, and that people sometimes have intuitions that can drive their reasoning; therefore, cultural learning or guidance must play a larger role than rationalist theories had given it. he concludes: “if morality doesn’t come primarily from reasoning, then that leaves some combination of innateness and social learning as the most likely candidates.” although he sounds as if he had found something original and novel, i would like to point out this tendency can be obviously seen in human language (crystal, 1997; hauser, 1997), and he could mention a possible close relationship of human morality and human language because the comparison will substantially help improve his theorization. second, he discusses the relationship between reasoning and moral intuitions (including moral emotions). he mentions 3 representative ideas: plato’s belief that reason can and should be the master, jefferson’s belief that the two processes are equal partners (head and heart) ruling a divided empire, and hume’s belief that reason is the servant of the passions. he concludes that hume is right, that the mind is divided into 2 parts, like a rider (reason, controlled processes) on an elephant (intuition/emotion, automatic processes), that people have strong intuitions about what is right and wrong, and they struggle to construct post hoc justifications for those feelings. thus, he draws the first principle of moral psychology as follows: “intuitions come first, strategic reasoning second.” hume’s belief seems most convincing based on reality among the three. however, all three beliefs are based on the assumption of the dichotomous structure of mind (reason vs. intuition/emotion). this dichotomous assumption has never been tested. is it really appropriate to dichotomize this way? what is reason anyway? the definition is vague. if we observe carefully, as long as we use human language, we in a sense follow some social/cultural framework (chung, mitsuyoshi, 2017). since we reason using language, the reason is also restricted by language that follows a framework set by a certain society/culture. the reason, therefore, should have automatic processes as well as controlled processes, both of which are likely to be influenced, at least partly, by language. therefore, automatic and controlled processes have, at least partly, the similar origin and mechanism of action; therefore, we do not have to and cannot effectively dichotomize. in a similar line, in traditional western philosophy, free and rational individabstract: book review of: “the righteous mind-why good people are divided by politics and religion” written by jonathan haidt (2012). new york: pantheon books. eisbn: 978-0-307-90703-5. uals are presupposed (macintyre, 1984; russel, 1994; kenny, 2012). however, as long as we speak human language, we are never free from restrictions of society/culture, and the term is self-contradictory. third, he reviews 6 areas of experimental research supporting his principle: brains evaluate instantly and constantly, that social and political judgments depend heavily on quick, intuitive flashes, that our bodily states sometimes influence our moral judgments; bad smells and tastes can make people more judgmental, that psychopaths reason but don’t feel (and are severely deficient morally), that babies feel but don’t reason (and have the beginnings of morality), and that affective reactions are in the right place at the right time in the brain. i have a comment on his third argument. bad smells and tastes differ from culture to culture, at least partly; examples to the point are fermented foods including swedish fermented herring, french cheese, and japanese fermented soybeans. in the last example, japanese people in eastern japan like it in general, while japanese in western japan do not. however, if kids born to parents from the western part migrate to eastern japan and grow up eating it in a daily life, most of them come to like it. thus, the third argument does not necessarily endorse his principle. i strongly disagree with his fourth argument, which i think is oversimplification based on a wrong assumption. affectively, psychopaths lack appropriate emotional responses, and any emotional responses are limited and short-lived (patrick, 2006). some psychopaths become emotional when they talk about their family, showing that they also feel, but the subject of their morality is severely distorted and restricted (shunji mitsuyoshi, unpublished data). in traditional moral philosophy, we are taught to judge how moral people are by looking at what people do (macintyre, 1998). if we, however, observe carefully, we treat fellow human beings roughly equally well or ‘humanely’. on the other hand, we treat nonfellow human beings indifferently or sometimes cruelly, as if they were not human beings. these findings show the level of morality depends not on what people do, but on who they think their fellow human beings are (chung, mitsuyoshi, 2017). morality levels are determined not by the content of deed, but by moral coverage (coverage of fellow). the more diverse the coverage of fellow, the higher the morality level. fourth, the author reviews 5 areas of research showing that moral thinking is more like a politician searching for votes than a scientist searching for truth: that we are obsessively concerned about what others think of us, although much of the concern is unconscious, that conscious reasoning functions like a press secretary who automatically justifies any position taken by the president, that with the help of our press secretary, we are able to lie and cheat, and then cover it up so effectively that we convince even ourselves, that reasoning can take us to almost any conclusion we want to reach, and that in moral and political matters, we are often groupish rather than selfish. he concludes that the worship of reason, which is sometimes found in philosophical and scientific circles, is a delusion. he urges instead a more intuitionist approach to morality and moral education, one that is more humble about the abilities of individuals, and more attuned to the contexts and social systems that enable people to think and act well. on these points, i generally agree with him. however, it all started by dichotomizing our mind into reason and intuition, which turns out to be unnecessary. if we abandon this dichotomization, his conclusion is self-evident. the key here is to take into consideration the significant role of human language as one representative example of capacity unique to human beings. if we think about human language and its effect on reason, we can obviate unnecessary detour. the author does not have to presuppose two agents to explain our morality; it can be explained by one agent, our unified mind. to avoid this confusion, we should not use the word ‘reason’ without clear definition and criticism. in part ii, he first claims that the second principle of moral psychology is: “there’s more to morality than harm and fairness.” he raises arguments supporting this claim: that people who grow up in western, educated, industrial, rich, and democratic (weird) societies are statistical outliers on many psychological measures, including measures of moral psychology, that the weirder you are, the more you perceive a world full of separate objects, rather than relationships, that moral pluralism is true descriptively; as a simple matter of anthropological fact, the moral domain varies across cultures, that the moral domain is unusually narrow in weird cultures, where it is largely limited to the ethic of autonomy; it is broader—including the ethics of community and divinity—in most other societies, and within religious and conservative moral matrices within weird societies, that moral matrices bind people together and blind them to the coherence, or even existence, of other matrices. i agree that the moral domain varies across cultures; however, pointing out just variation does not suffice. the moral domain can be divided into two distinct domains: one common to all societies and one specific to each society (chung, mitsuyoshi, 2017). the first one tells us not to harm other fellow human beings; the second tells us to think and behave in a manner similar to other fellow human beings. finding both commonality and specificity is quintessential for modelling human morality. pointing out just difference and variation does not help complete. second, he explains what more there is to morality: that morality is like taste in many ways—an analogy made long ago by hume and mencius, that deontology and utilitarianism are “one-receptor” moralities that are 75 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) 76 yuichi tei/ung-il chung 2020/25(3) likely to appeal most strongly to people who are high on systemizing and low on empathizing, that hume’s pluralist, sentimentalist, and naturalist approach to ethics is more promising than utilitarianism or deontology for modern moral psychology; that 5 good candidates for being taste receptors of the righteous mind are care, fairness, loyalty, authority, and sanctity. i must say that his comparison of morality to taste is a bit far-fetched. morality is like tastes in many ways, but also unlike tastes in so many ways. although harm and fairness is insufficient to explain the whole picture of human morality, their central role is evident. i strongly disagree with him to increase the number of receptors to help explain minor details, which will ruin the efforts to clarify the essence of human morality by coarse-graining. in the process of coarse-graining, we inevitably lose some resolutions but instead become able to grasp the core. we should not lose the priority ranking. third, the author proposes that moral foundations are innate. he claims that particular rules and virtues vary across cultures, so people will get fooled if people look for universality in the finished books, that people will not find a single paragraph that exists in identical form in every human culture, but that if people look for links between evolutionary theory and anthropological observations, people can take some educated guesses about what was in the universal first draft of human nature. five such guesses are: 1. the care/harm foundation evolved in response to the adaptive challenge of caring for vulnerable children, 2. the fairness/cheating foundation evolved in response to the adaptive challenge of reaping the rewards of cooperation without getting exploited, the 3. loyalty/betrayal foundation evolved in response to the adaptive challenge of forming and maintaining coalitions, 4. the authority/subversion foundation evolved in response to the adaptive challenge of forging relationships that will benefit us within social hierarchies, 5. the sanctity/degradation foundation evolved initially in response to the adaptive challenge of the omnivore’s dilemma, and then to the broader challenge of living in a world of pathogens and parasites. he shows how the two ends of the political spectrum rely upon each foundation in different ways, or to different degrees. i strongly disagree with him to his claim that there is no universality in human morality. his failure to find universality stems from his classification of 5 components of human morality. these five aspects are not mece, and can be explained by fewer principles in a more comprehensive, exhaustive way. as i already pointed out, if we observe carefully, we can find moral rules common to different culture and societies that can be condensed to: “do not harm other fellow human beings.” on the other hand, we have rules specific to different cultures and societies that can be condensed to: “think and behave in a manner similar to other fellow human beings.” the author just enumerates different rules, mixes them up and fails to differentiate commonality and specificity. these two common and specific sets of rules can be integrated and further condensed to a basic principle of human morality: “be fellowish.” (chung, mitsuyoshi, 2017). the key to successful classification is to categorize human beings into fellows and non-fellows, rather than a single group of whole biological human beings. without doing so, it is not possible to find and differentiate universality and commonality. fourth, using his taste theory, the author tries to explain why the democratic party has had so much difficulty connecting with voters since 1980. he claims that republicans understand the social intuitionist model better than do democrats, that republicans speak more directly to the intuitions/emotions, that republicans also have a better grasp of moral foundations theory; they trigger every single taste receptor, and that his theory, with some revisions, better explains some voting behaviors that were not easy to explain before. again, i would like to say there is a much simpler way to do the same job, as mentioned in the previous paragraph. in part iii, the author introduces that darwin believed that morality was an adaptation that evolved by natural selection operating at the individual level and at the group level. this idea was once denied, but in recent years, new scholarship has emerged that elevates the role of groups in evolutionary thinking. he organized such scholarship into four “exhibits” that collectively lead to a defence of group selection: exhibit a: major transitions produce superorganisms; the history of life on earth shows repeated examples of “major transitions”, exhibit b: shared intentionality generates moral matrices; the rubicon crossing that let our ancestors function so well in their groups was the emergence of the uniquely human ability to share intentions and other mental representations, exhibit c: genes and cultures coevolve; once our ancestors crossed the rubicon and began to share intentions, our evolution became a two-stranded affair, exhibit d: evolution can be fast; human evolution did not stop or slow down 50,000 years ago, but rather it sped up. he claims that although most of human nature was shaped by natural selection operating at the level of the individual, we have a few group-related adaptations too, that we humans have a dual nature—we are 90 percent chimp and 10 percent bee. in general, i agree with him. as for his comparison of human beings to bees, i find the analogy inappropriate. workers of beehive are genetically related to each other closer than human sisters are. therefore, it is more appropriate to compare workers to cells in our body, and hive to our body, than to compare workers to individuals and hive to our society (chung, mitsuyoshi, 2017). therefore, cooperation and division of labour among bee workers are quite natural as those of our cells in our body. on the other hand, in typical human society/culture, especially in gigantic groups unique to human beings like religions, ethnoses and cultures, members are not genetically related. it is inappropriate and too naïve to directly compare human society and bee hive without mentioning this huge difference in genetic backgrounds. this inappropriate comparison was made partly because the author did not differentiate different levels of the coverage of fellows by taking genetic background into consideration. i would like to repeat that morality levels are determined not by the content of deed, but by moral coverage (coverage of fellow); the more diverse the coverage of fellow, the higher the morality level. we need to differentiate different levels of morality and treat each level appropriately. then, the author presents the hive hypothesis, which states that human beings are conditional hive creatures. he claims that people have the ability (under special circumstances) to transcend self-interest and lose themselves (temporarily and ecstatically) in something larger than ourselves. he called this ability the hive switch. he mentions that the hive switch is another way of stating durkheim’s idea that we are homo duplex; people live most of their lives in the ordinary (profane) world, but people achieve their greatest joys in those brief moments of transit to the sacred world, in which they become “simply a part of a whole.” he describes 3 common ways in which people flip the hive switch: awe in nature, durkheimian drugs, and raves. he also describes recent findings about oxytocin and mirror neurons that suggest that they are the stuff of which the hive switch is made and that oxytocin bonds people to their groups, not to all of humanity. i generally agree with him to his descriptions, but again, there is a much simpler and more coherent way to explain the whole picture by focusing on the contrast between commonality and specificity and the distinction between fellows and non-fellows. i would like to point out again that he better mention the importance of human language (crystal, 1997; hauser, 1997). his theory of the dual nature of human morality could be more effectively strengthened by taking into consideration the characteristic of human language, not just oxytocin and mirror neurons. the author interprets that religious practices have been binding our ancestors into groups for tens of thousands of years; that binding usually involves some blinding—once any person, book, or principle is declared sacred, then devotees can no longer question it or think clearly about it, that only groups that can elicit commitment and suppress free riding can grow; this is why human civilization grew so rapidly after the first plants and animals were domesticated, that religions and righteous minds had been coevolving, culturally and genetically, for tens of thousands of years before the holocene era, that both kinds of evolution sped up when agriculture presented new challenges and opportunities, and that humans have an extraordinary ability to care about things beyond ourselves, to circle around those things with other people, and in the process to bind ourselves into teams that can pursue larger projects. he claims that with a few adjustments, it is what politics is about too. generally, i agree with him to his descriptions. but again and again, his explanation could use the consideration of human language for improvement. lastly, the author tries to interpret the whole landscape of american politics using his theory. he claims that people whose genes gave them brains that get a special pleasure from novelty, variety, and diversity, while simultaneously being less sensitive to signs of threat, are predisposed (but not predestined) to become liberals; they tend to develop certain “characteristic adaptations” and “life narratives” that make them resonate—unconsciously and intuitively—with the grand narratives told by political movements on the left (such as the liberal progress narrative), that people whose genes give them brains with the opposite settings are predisposed, for the same reasons, to resonate with the grand narratives of the right (such as the reagan narrative) and that once people join a political team, they get ensnared in its moral matrix; they see confirmation of their grand narrative everywhere, and it is difficult to convince them that they are wrong if you argue with them from outside of their matrix. he suggests that liberals and conservatives are like yin and yang—both are “necessary elements of a healthy state of political life,” as john stuart mill put it. he says that liberals are experts in care; they are better able to see the victims of existing social arrangements, and they continually push us to update those arrangements and invent new ones and that libertarians (who sacralize liberty) and social conservatives (who sacralize certain institutions and traditions) provide a crucial counterweight to the liberal reform movements that have been so influential in america and europe since the early twentieth century. he defines moral capital as the resources that sustain a moral community; specifically, he says: “moral capital refers to the degree to which a community possesses interlocking sets of values, virtues, norms, practices, identities, institutions, and technologies that mesh well with evolved psychological mechanisms and thereby enable the community to suppress or regulate selfishness and make cooperation possible.” i am afraid that there is nothing new and original in this analysis and i am disappointed with his remarks condoning status quo, although current american political system fails to address many problems and need some serious reform. is it not a time for quitting two-big-party system? is not there any suggestion for another better choice? in conclusion, he recaps the content of the book and closes by citing rodney king: “we’re all stuck here for a while, so let’s try to work it out.” i would like to ask: “who is ‘we’ anyway? does it contain how many and how diverse people?” this is the key question. using “we” without criticism, it ends up providing just a pep talk. 77 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) overall, his descriptions are detailed and instructive, deserving respect, but theorization needs substantial reform. theorization should start from and aim at simpler and fewer principles that cover the whole coarsegrained picture. in his extracting the essence of human morality, the role of language is belittled and should be given more value and incorporated. identification of such essence will help us find the way to reconcile it with diversity and to enable sustainable business in a globalizing and diversifying world. references [1] chung, u., mitsuyoshi, s.(2017). diversity and morality: “crossing borders with engineering approaches. amazon services international inc. [2] crystal, d. (1997). the cambridge encyclopedia of language. new york: cambridge university press. [3] hauser, m.d. (1997). the evolution of communication. cambridge and london: mit press. [4] kenny, a. (2012). a new history of western philosophy. oxford: oxford university press. [5] macintyre, a. (1984). after virtue. notre dame: university of notre dame press. [6] macintyre, a. (1998). a short history of ethics. notre dame: university of notre dame press. [7] patrick c.j. (2006). handbook of psychopathy. new york and london: the guilford press. [8] russel, b. (1996). history of western philosophy. london and new york: routledge. accepted: 2020-07-12 yuichi tei/ung-il chung, m.d., ph.d. professor, department of bioengineering, graduate schools of engineering and medicine, the university of tokyo, tokyo, japan dean, school of health innovation, kanagawa university of human services, kanagawa, japan dr. chung graduated from university of tokyo school of medicine to obtain md in 1989. after working as resident and clinical fellow in internal medicine at university of tokyo hospital, he entered and graduated from university of tokyo graduate school of medicine to obtain phd in 1997. in 1998, he was appointed instructor in medicine, harvard medical school, and then assistant professor of medicine in 2001. in 2002, he came back to his alma mater to work at graduate schools of medicine and engineering. in 2007, he became professor, graduate school of engineering; in 2013, deputy director and research leader, center of innovation “self-managing healthy society”; and in 2019, dean and professor, school of health innovation, kanagawa university of human services. he specializes in skeletal biology/regenerative medicine and biomaterial science. in center of innovation, he promotes industry-academia cooperation projects to measure and visualize health status of each individual for health personalization and behavior change. in kanagawa university of human services, he attempts to systematize and academicize me-byo concept for social implementation. he also studies the role of morality in innovation management. 78 yuichi tei/ung-il chung 2020/25(3) about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07 milena vucinic:tipska.qxd 67 milena vučinić atlas mont investment funds management company udc: 336.01 005.311.6 behavioural finance and its postulates doi:10.7595/management.fon.2o16.0020 introduction behavioural finance deals with the influence of psychological factors on the behaviour of individuals who make decisions in the field of finance and consequences such a behaviour causes on the market (sewell, 2010). its most important contribution to finance and economics reflects on its help while determining the reasons responsible for inefficient markets, and while defining ways this inefficiency is specified. the classical finance theory treats all market participants as rational individuals making their decisions in order to maximize their personal financial benefits. however, practice has shown that there are a big number of cases where emotions and psychology influence the decision making process, pointing out that decision makers behave unpredictably, sometimes even irrationally. behavioural finance is a relatively new scientific discipline based on the combination of behavioural and cognitive psychological theories, on the one hand, and conventional economics and finance, on the other. the latter has the task to explain the reasons responsible for irrational financial decisions some people make (hellmann, 2016). the literature that deals with the problems of behavioural finance can be divided into two main areas: identification of anomalies in the hypotheses that classical market theories are based on (bondt & thaler, 1985) and identification of behaviour of individual investors or their preferences which are not in accordance with classical economic theories of rational behaviour (odean, 1999). with its approach behavioural finance sets a challenge for the prospect of efficient markets, putting an accent on the ways in which investors interpret information at their disposal. it enables a better understanding of investors’ behaviour and events taking place on financial markets. the use of behavioural finance helps investors make better decisions concerning their investments on financial markets that are becoming more complex and challenging. behavioural researchers barberis and thaler have defined the behavioural finance research direction as follows: ‘’we have now started with the important job of recording and understanding how investors, both amateurs and professionals, make their decisions while choosing their portfolio. until recently such researches were absent from the toolbox of financial economists, perhaps due to the mistaken belief that asset value can be defined without any knowledge about elements of behavioural economics’’ (barberis & thaller, 2003). management 2016/80 the reasons for dealing with the chosen topic can be found in the fact that there is a certain number of anomalies, system errors and conduct leaving the frames of rational behaviour, not being included and presented synthetically within a concise scientific work. instead, the analysis deals with definite, already identified postulates of behavioural economics and finance. during the research, induction, deduction, comparative and abstraction methods are used. the challenge of the research lies in the identification of those system errors, partialities and behaviours deviating from postulates of rational, typical for classical finance, not being covered by standard behavioural, economic and finance literature. however, the challenge is even bigger because of the fact that it deals with answers to demands of universality and conciseness. its greatest importance is reflected in the extent of identified and processed anomalies decision makers face, as well as in the identification and description of factors implying absence of rationality during the decision making process. keywords: behavioural economics, bihevioural finance, decision making, system errors, anomalies, partialities. the previous starting points in this work can be summarized as follows: the focus is mainly on partiality and irrationality of decision making individuals. the subject, which determines the direction of the research and analysis, can only ostensibly induce readers to think that the idea of financial participants being exceptionally rational represents the author’s attitude. however, it is not the case. most of the attitudes and activities undertaken by individuals are upstanding. market participants predominantly behave acting and living, taking advantage of impressions and feelings, while trust in their intuitive judgements and propensities in most cases will be justifiable. yet, the analysis, decomposed through various smaller thematic statements in this work, leads to the conclusion that it is not always the case. system errors typical of financial market participants relate to partialities and appear if definite conditions are met. although humans are not aware of it, their mind is permeated with mental processes taking place in silence and consequently, and these processes lead to impressions, intuitive judgements and various decisions. bihevioural authors in economics and finance have systematized some knowledge. however, some new knowledge that leads to deviations from the rational in the decision making process is not systematized, so the aim of this work is to obtain as much systematization as possible. behavioural economics as a scientific discipline tends to explain everything that traditional economics has not explained using the knowledge of social psychology and economics. one of its goals is to point to some constraints of traditional economics as well. according to anger and loewenstein (2007), behavioural economics deals with ‘’the manner with which emotions and structure of human mindset influence the decision making process’’. (p. 64) according to todorović (2011), behavioural finance ‘’strives to add some cognitive psychological elements, based on observation and examination of conduct of investors and managers, using sophisticated mathematical-statistical models of modern corporal finance’’. (p. 5) as such, they warn and point to the fact that mathematical techniques and models applied in finance and economics should be made different from the techniques and models formed in physics, or other natural sciences. 1. pillars of behavioural finance in accordance with the theory of limited arbitrage it is said that in case when irrational traders cause deviations of fundamental value, the fortune of rational traders lies in their helplessness to do anything about that. aiming to explain the structure of deviation better, behavioural models often assume specific forms of irrationality. the crucial component of any kind of finance market models is the specification of methods on which financial agents form their expectations. what follows below is the summarization of psychological researches on forming attitudes and beliefs in practice. excessive self-confidence. there is a lot of evidence that humans evince excessive self-confidence while forming their attitudes. two cases are significant: the first one is a rather narrow interval of trust people assign to their assessments. the second characteristic is the fact that people are not predestined to assess the probability of events. thus, when people think some events are certain to happen, they in fact happen in 80% of cases. on the other hand, events they consider to be impossible, happen in 20% of cases. optimism and ‘’wishful thinking’’. in most cases people will give voice to unreal viewpoints concerning their abilities and perspectives. generally speaking, according to tvede (2005), more than 90% of people consider themselves above average, especially in terms of skills such as driving, social abilities, creating good relations with others or having a good sense of humour. big misapprehensions occur while planning, because people often believe that a project will have been finished in the future long before it is really completed. representativeness. kahneman and twersky have explained the representativeness principle as strategies individuals use during cognitive processes aimed to solve a problem. on the basis of our previous experiences, knowing that events that occur often are more likely to happen than events that occur rarely, we choose the option we consider is more likely to take place. kahneman and twersky have shown that in case when people are trying to determine the probability that data a are defined on the basis of model b, or that the object a belongs to the class b, people often use the 68 2016/80management 69 management 2016/80 representativeness heuristics (frankfurter and mcgoun, 2000). it means that they determine the probability having in mind the extent by which a reflects the essential characteristics of b. in most cases representativeness can be of some assistance, but it often influences the forming of certain partialities in the assessment process. sticking to beliefs. a great deal of evidence has shown that people, once they form their opinion, stick to it persistently. two effects are concerned. firstly, people are not willing to look for the evidence contradicting their attitudes. secondly, if they find such evidence, they are still sceptical. in some studies even stronger effects known as confirmation partiality have been found, where people misinterpret the evidence against their hypothesis, wrongly claiming that the evidence supports it. within the context of academic finance sticking to beliefs is manifested in a simple way, i.e., people who believe in emh will continue to do so long after some evidence against it appears. affiliation. kahneman and twersky claim that, once people form their assessments, they often start the process with some initial, possibly arbitrary number or value, slowly adjusting it and modifying the value. experimental proofs often show that these variations are insufficient. in other words, people ‘’affiliate’’ the initial value in their mind and contribute too much importance to it (ariely, 2008). partiality of availability. while judging the probability of an event, people often search for their memories looking for relevant pieces of information. although it is a completely rational procedure, it can cause partiality in assessing because not all reminiscences are equally ‘’available’’. financial experts are quite careful in accepting experimental proofs because they believe: 1) that, by repeating, people will learn to distance themselves from partionalities; 2) that experts in the field, such as marketeers, will make fewer mistakes, and 3) that, due to strong incentives, these effects will disappear 2. making offers and the winner’s curse stock exchange processes are part of auctions where excessive prices are paid. when some companies buy other firms, a system error called the winner’s curse takes place. in more than 50% of those transactions, it turns out that new investments do not bring the buyer as much money as he has invested, which means that the purchase has not been profitable at all (dobelli, 2013). 3. aversion to loss and sunk cost fallacy in function of additional waste of money by financial decision makers in the decision making process, awareness of this fallacy enables decision makers to make sure not to rely on previous costs or price that an investment or security buying (the price they have been bought at) has had, but to take into account only the relevant future costs. or, the principle refers to the fact that, according to dobelli (2013), people ‘’should treat the problem equally, having in mind risks they are exposed to, regardless of whether they obtained something for free or purchased it. it is irrelevant for the risk’’ (p.67). it is emphasized that this is not a mere hypothetical thinking, but the whole series of studies and experiments leading to the same conclusion.1 traditional theory suggests that economic actors should take into consideration only the future costs. on the other hand, dobelli (2013) points out that ‘’in the finacial sphere this phenomenon results with an individual’s willingness to take bigger risks if it means avoiding certain loss, or bigger investment conservatism when having a chance to obtain earnings’’. at the same time, this explains the situation when 1 one of the examples supporting this theory can be found in a study titled ‘’the psychology of sunk cost’’, published in the magazine organisational behaviour and human processes’’, by hal r. arkes and catherine blumer. downtrend shares are retained, and those with better prospects are sold. long-termed, aversion to loss worsens an individual’s financial situation, if it is his landmark decision. the best way to lessen the risk of investments is to diversify it. 4. mental accounting – one different and one same account mental accounting or mental categorization of accounts refers to a special way of formulation which means that people separate some decisions as if they are of completely different categories, even though it is not the case. namely, an investor can make a decision to take a bigger risk by using resources from an investment account, while having at the same time a special savings account with minimal risk, intended for his child’s education. if he were rational, the decision would mean that both accounts are seen as part of his overall portfolio. it also means that properties of both accounts, in terms of risk and profit, would be integrated into a sole framework. the effect of mental accounting helps in explaining the inertion in share price fluctuations. on the other hand, the effect of someone else’s money refers to the gamblers’ willingness to accept new odds, even though they are currently winning. they perceive that with such odds they only risk their winnings, or the casino‘s money respectively. since it is not their own money, they are ready to take a bigger risk. belsky and gilovich (2002) explain that this ‘’leads to a conclusion that gambling winnings are not considered to be genuine winnings – or it is not the winner’s money, anyway the loss is not the real loss’’ (p.32). this concept has been shaped by richard thaler and, according to him, mental accounting is based on, as belsky and gilovich point out (2002), ‘’the fact that money is treated differently depending on where it comes from, where it is kept or how it is spent’’ (p.32). 5. the role of magical thinking or ‘’this action is lucky’’ psychologists define magical thinking as a kind of arbitrary behaviour generated with an experience from a situation when one type of behaviour precedes a positive outcome. here, individuals will repeat that pattern of behaviour, having in mind that they will conclude that there is a connection between their conduct and the very outcome, even though it does not have to be so. therefore, it has been proven that in case of investment and managerial decisions or behaviour preceding the sale or profit boost, a tendency of repeating the behaviour will appear. it is interesting that in the period of profit boost, when the whole economy gets out of recession, magical thinking reaches its pinnacle, given that companies are alike and observe each other in a similar way. thus, magical thinking is manifested as a social, not individual phenomenon. namely, in his hubris hypothesis in corporate acquisitions, roll (1978) points out that bidder company managers often show excessive self-confidence while assessing other companies, mainly due to their luck in initial acquisitions. 6. quasi magical thinking shaffir and tversky are the first ones to talk about quasi magical thinking (1992), explaining the cases in which people believe that something they will do later can change the outcome of what is determined in advance, i.e., they behave as if they can affect the past. quattrone and tversky wrote about that as well (1984). experiments show the trend of self-deception. it is interesting that quasi magical thinking is mainly manifested in situations with outcomes of future events, rather than historical ones. langer (1975) draws attention to the fact that individuals are willing to invest more money in tossing a coin odds, i.e., the scenario when the coin is not tossed yet, unlike the scenario when it has been already tossed. it suggests that they are convinced they can affect the outcome. from the previously mentioned reason, by means of quasi magical thinking, we can explain why people vote in elections or why shareholders use their rights of first refusal while voting for certain decisions. even the very effect of acquisition can correlate with quasi magical thinking. namely, a tendency of holding loss-share assets and sell profit shares is emphasized as a type of quasi magical thinking. holding shares whose value goes below the value they have been purchased at, is justified by the conviction that, by keeping shares, the fact that the loss has already occurred can be eliminated. 70 2016/80management 71 management 2016/80 7. how organizational culture directs all management decisions the same way scrutinizing pension fund managers and using personal interviews and anthropological methods, o’barr and conley (1992) have concluded that every pension fund has its own culture which can be connected to the various history of origin of their company. this way they find similarities with myths created by primitive people. namely, the pension fund culture is a system of beliefs in terms of their investment strategy, and this culture manages the investment fund. cultural factors are significant due to the tendency to transfer the decision making responsibility to the organization and maintain personal connections with the organization.2 it means that cultural contamination has got a role of a guideline or landmark during the decision making process, and these decisions neither have objective character nor is their validity based on objectivities a concrete situation abounds with. 8. global culture – sociological phenomenon with economic consequences it is a big challenge to determine which direction global culture effects are taking. namely, hannerz (1999) points out that ‘’world culture exists, but we are not aware what it really means. it is marked by the organization of diversity rather than the replica of uniformity... the world has become a social relation network, and in its various regions there is a moving of ideas, people and goods’’ (p.237). profound economic implications are found in a study written by robert meson, a sociologist, who dealt with the nature of interpersonal effects which resulted in his categorization of people. he came to the conclusion that people can be classified into two categories: locals (they are interested in local news and they derive their status from their connectivity with others) and cosmopolitans (they are oriented to the world news and they derive their status regardless of their community). he also concluded that cosmopolitans have transcendental influence on locals, which means having provisions of useful pieces of information. global culture can explain why real estate market in many cities all around the world boosted during the late eighties and declined during the early nineties. therefore, if a global nature of culture exists, there is no reason to link these events with some information concerning the very fundamentals of economics. 9. the importance of irrelevant information in decision making behavioural economists’ research has shown that people are mainly incited by irrelevant pieces of information while making decisions. the problem lies in the fact that individuals are not aware of this. a study carried out by gregory northcraft and margaret neale from arizona university refers to this trend of managing supporting information. hereupon, behavioural economists have issued a warning about this. potentially, there is a problem in decision making on the basis of irrelevant information when someone shows excessive self-confidence while negotiating and bargaining. the same problem occurs when someone makes decisions about consumption and investments based on inconsiderable monitoring. 10. authority bias in the context of global financial crisis this is about the system error described as the authority bias (dobelli, 2013.), and it represents the practice or trend of respecting authority with almost biblical significance. or, disrespect of authority presumes some kind of moral, corporal or financial punishment. due to the authority bias two problems occur. despite the fact that there are about one million of economists on this planet, none of them predicted the financial crisis. apart from that, they did not predict that this crisis, together with the real estate market crisis, would cause the disturbance on a global economic level and gain the status of a global crisis. in addition, in the presence of authority, individuals usually express less critical and independent opinions. people show deficiency of 2 in 1972. psychologist janis documented a series of cases showing that social patterns (groupthink) in decision making process can lead to making catastrophic decisions by highly intelligent people. caution while adopting certain attitudes or information, unlike situations when the same information is gained, for example, from an ordinary individual. more serious implications occur due to the fact that one shows obedience to authority, even in a situation where there are not any moral or rational reasons for that. such behaviour is the essence of this bias. the very financial crisis manifests the authority bias. having in mind which models have been used in the market liberalization, all financial actors believed that such models could not be faulty. a critical approach was of less quality considering the fact who the creators of this model were. 11. decision making under uncertainty – how to make decisions when not all pieces of information are available nowadays, a large number of financial decisions are made on the basis of beliefs about a probability of an uncertain outcome such as, for example, the future value of some shares or currencies. in certain cases beliefs about uncertain events are expressed quantitatively as chances or subjective probabilities. generally speaking, individuals rely on certain limited number of heuristic principles thanks to which complex probability assessment tasks and value predictions are reduced to simple decision making operations. therefore, heuristics are useful to a certain extent, but can often lead to serious and system errors. we talk about conclusions based on the data with limited reliability, whereby they are processed in accordance with heuristic rules. for example, the similarity factor is important for representativeness heuristics, often with a certain stereotype. another heuristics observed refers to the outcome probability. one factor that does not have any consequences for representativess but is expected to create most of the probability consequences, is in fact the prior probability or the so called basic frequency of outcome. when the assessment by means of representativeness is carried out, prior probabilities are neglected in most cases. people usually rely on the representativeness heuristics with a sample derived from a certain population. the respondents do not take into consideration the sample size when assessing whether similarity between sample statistics and population parameters should exist or not. therefore, when probabilities are assessed on the basis of representativeness, the sample statistics probability assessment will be independent of the sample size. 12. trust as decision making factor financial decision making is affected by trust in the financial system. with a low level of trust loan placement decision makers choose to freeze the loan market, which was the case in 2008. trust as such is not included into the standard economic and financial theory. trust in the financial system is always shattered during financial crises. 13. fairness as a decision making factor fairness is perhaps as much important as economic motivation economists and financial experts pay much more attention to. however, fairness research shows it is absolutely realistic to expect that taking fairness into consideration would throw the economic motivation back. experiments about this are very interesting, probably the most important among them being the one carried out by ernst fehr and simon gachter (2000). therefore, if individuals are noticed cheating, after a certain longer period everyone becomes selfish. experiments carried out by fehr and gachter have shown that subjects were willing to pay in order to punish bilkers, which also means that subjects paid special attention to fairness. 14. stories as factors that influence the economic behaviour of individuals it is typical of the human mind to be created to think in stories or series of events characterized with their inner logic and dynamics, acting like a whole. the most typical examples of stories affecting the behaviour of individuals in terms of decision making are stories about bank insolvency. spreading these stories is like a virus, i.e., very fast. these stories lead to a bank bankruptcy because account holders withdraw their deposits. in rational exuberance shiller (2000) reveals the role of the story about using the internet in causing security market boom. 72 2016/80management 15. the black swan or the impact of the highly improbable nassim taleb is credited with developing the expression black swan (brunaker, 2013). namely, in his second book black swan: the impact of the highly improbable taleb (2004) explains the black swan in detail, based on the three criteria determining it: unpredictability (rarity), extreme impact and retrospective explanation, all of which are pointed out by brunaker (3013). firstly, it is about an atypical event having in mind that it is out of usual expectations and regarding the fact that there were no convincing evidence about it in the past. secondly, it is an effect with extreme impact. thirdly, despite of its atypical status, the human nature manifests a tendency to explain itself afterwards thus making it predictable, which is a kind of fallacy, as taleb warns (2009). nothing from the past can be used to prove the existence of the black swan (estrada, 2009). it is useful to point out that scientific research on rare events, especially in economy, is prevented due to a mechanism known in psychology as late realization. it starts with the assumption that after real events takes place, something suddenly becomes convincing, even obvious (taleb, 2003). there are five peculiarities of human behaviour bearing responsibility for blindness to black swans (nafday, 2009). in fact, it is the underestimating of the impact of black swans, as well as an occasional underestimating of an individual black swan (taleb, 2009). these five human behaviours include narrative and madman fallacy, tunnelling and self-affirmation, as well as innate human nature and silent evidence. the first of the above mentioned problems refers to the narrative fallacy or human weakness emphasized while being interpreted. it also has the tendency of giving certain priority to the stories rather than the real truth or facts (stojanović, 2011). 73 management 2016/80 thanks to the behavioural theory of decision making which collected a huge number of experimental evidence, it has been shown that it strictly limits the maximum acheivements of homo economicus, so it can be said that he does not even feel confortable on markets where he used to be earlier. the limitations of this theory are mainly determined by perceptual and process conceptions of rationality. the question is what to do in terms of this disbalance? by creating a hybrid model, it is necessary to make some modifications of the standard economic model in favor of the behavioural one. the research results, not coinciding with claims and postulates of the traditional economic theory, focus on the fact that during theoretical and empirical studies of economic behaviour more attention should be paid to the methods of forming perceptions and their impact on decision making processes. mcfadden (2004) points out that if ‘’cognitive anomalies appearing during cognitive analysis originate from perceptual errors, then the conventional instruments of economic analysis will survive in most cases, although it will be in the form in which the events and experiences from the past are much more important than it is traditionally allowed’’ (p. 474). behavioural and financial experts have given their biggest contribution, both theoretical and practical, to the field of financial decision making and financial market roles. however, in some other fields, for example corporate finance, behavioural theoreticians have not shown any particular interest and they have not made any remarkable contribution (thaler, 1999). it is necessary to emphasize that the critique of behavioural finance is considered to be the critique of the standard financial theory and that it does not have any big status (bodie, 2009). however, behavioural finance has made much more important contribution in comparison with mere critique of the standard financial theory, which implies their both theoretical and practical values. yet its limitations can be described in a way that it offers less than a concrete independent scientific discipline providing complete and consistent explanations from the financial sphere. by all odds, it has not been the main inclination of the theory author. nevertheless, opting for the final conclusion or judgement, providing that some ‘’superficial’’ errors caused by partiality, perception or wrong formulation of cognitive tasks are eliminated or accepted, the author of this work holds an attitude that it is possible to systematize a large number of principles, attitudes and preferences a new financial analysis can be built upon, which could be the subject matter for some other work. on the basis of the previous analyses and reports it can be clearly concluded that system errors and anomalies are more diversiform and manifested which suggests that traditional finance and economics strongholds are additionally threatened, in terms of limitations in explaining economic and financial phenomena. conslusion literature [1] anger e., loewenstein, g. (2007). behavioural economics, gabby d., thagard p., handbook of the philosophy of science. [2] akerlof, g.¸kranton, r. (2000). economics and identity, quarterly journal of economics, 115 (3), 71553. [3] akerlof, g.¸kranton, r. (2002) identity and schooling: some lessons for the economics of education, journal of economics literature, 40(4), 1167-201 [4] akerlof, g.¸kranton, r. (2005). identity and the economics of organizations, journal of economic perspectives, 19(1), 9-32. [5] arijeli, d. (2008). (ne)logičan izbor. [6] belsky, g., gilovich, t. (2002). why smart people make big money mistakes – and how to correct them. [7] bodie z., kane, a. (2009). osnovi investicija. [8] brunaker, f., nordqvist, a. (2013). a performance evaluation of black swan investments. bachleor thesis. [9] dobeli, r. (2013), veština jasnog mišljenja – pedeset dve greške u mišljenju koje je bolje prepustiti drugima. [10] estrada, j. (2009). black swans in emerging markets, journal of investing. 18(2), 50–56. [11] fehr, e., gachter, s. (2000). cooperation and punishment in public goods experiments, american economic review, 90 (4), 980-991. [12] frankfurte, g. m., mcgoun, e. g. (2000). market efficiency or behavioural finance: the nature of the debate. the journal of psychology and financial markets,vol. 1, nos. 3&4, 200–210. [13] hannerz, u. (1990). cosmopolitans and locals in world culture, theory, culture and society, 7, p.p. 237-247. [14] langer, e.j. (1975). the illusions of control. journal of personality and social psychology 32, p.p. 341-353. [15] nafday, a. m. (2009). strategies for managing the consequences of black swan events, leadership and management in engineering, 9(4), pp 191–197. [16] nofsinger, j. (2002). the psihology of investing. [17] o'barr, w.m., conley, j.m. (1992). fortune and folly: the wealth and power of institutional investing. [18] quattrone, g.a., tversky, a. (1984). causal versus diagnostic contigencies: on self deception and on the voter's illusion, journal of personality and social psychology, 46, 237-249. [19] roll, r. (1986). the hubris hypothesis of coporate takeovers, journal of business, 59, 541-547. [20] shaffir, e, tversky, a. (1992). thinking through uncerainty: nonconsequential reasoning and choice, cognitive psychology, 24, 449-459. [21] shiller, r. (2000). irrational exuberance. [22] sniedovich, m. (2012). black swans, new nostradamuses, voodoo decision theories, and the science of decision making in the face of severe uncertainty. international transactions in operational research, 19(1-2), 253–281. [23] stojanović, b. (2011). dalekosežni uticaj nepredvidivog i neočekivanog, filozofija i društvo, 22(1), 279–290. [24] tahler r. (1999). the end of behavioural finance, financial analyst journal. november/december, 12-17. [25] taleb, n. n. (2004). few and far between: black swans and the impossibility of prediction, change this, 33(4), 1–16. [26] taleb, n. n. (2003). the black swan: why don’t we learn that we don’t learn. [27] taleb, n. n. (2007). the black swan: the impact of the highly improbable, get abstract. [28] taleb, n. n. (2009). crni labud: utjecaj krajnje nevjerojatnog. [29] vissing-jorgensen, a. (2004). perspectives on behavioural finance: does "irrationality" disappear with wealth? evidence from expectations and actions, 32-49. [30] tvede, l. (2005). the psychology of finance. [31] sewell, m. (2010), behavioural finance, http://www.behaviouralfinance.net/behavioural-finance.pdf, posećeno 15.6.2016. [32] hellmann, a. (2016), the role of accounting in behavioural finance, journal of behavioural and experimental finance, volume 9, march, p. 39.-42 74 2016/80management 75 management 2016/80 about the author [33] de bondt,w. i thaler, r. (1985), does the stock market overreact?, journal of finance, 40, p. 793−808 [34] odean, t. (1999), do investors trade too much?, american economic review, 89, p. 1279−1298 [35] barberis, n. i thaler, r. (2003), a survey of behavioural finance, in constantinides, m. harris, m. & stulz, r.m., handbook of the economics of finance, vol. 1b, p. 1053-1123, elsevier north holland receieved: june 2016. accepted: september 2016. milena vučinić milena vučinić is a master of technical sciences – field of organizational sciences for the financial risk management. she is a licensed broker, dealer, portfolio manager and pr consultant. vucinicm@t-com.me she has fifteen years of work experience on the capital market, she worked as an authorized broker and dealer in monte adria broker diler – podgorica, and for the last nine years she has been working as a portfolio manager at atlas mont investment fund in podgorica. apart from that, she also works as a deputy officer for money laundering prevention.in the period from 2006 to 2009 she worked as an editor of economy programme at atlas television, as well as an author and presenter of ‘’business, money and profit’’ tv programme where she prepared reports and presented events from montenegrin stock exchange. her programme and stock exchange reports were taken and broadcast by a business television kapital tv from zagreb, croatia. while working she improved her professional knowledge and skills by visiting significant financial institutions and corporations in europe where she attended numerous seminars and lectures. 76 << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 04_85_1:tipska.qxd 37 katarina njegić1*, ines djokić2, vesna milanović3 1faculty of business economics and entrepreneurship, belgrade, serbia 2university of novi sad, faculty of economics in subotica, serbia 3“union nikola tesla” university, faculty of business and law, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(1) testing mktor scale properties in serbian exporters’ context doi: 10.7595/management.fon.2019.0011 abstract: 1. introduction market orientation (mo) is a central concept in the marketing management theory. because of its fundamental importance, mo is constantly attracting attention of the researchers (cacciolatti, & lee, 2016; acosta, et al., 2018). there were numerous attempts to define this significant concept (shapiro, 1988; ruekert, 1992; deshpande, & farley, 1998), but only two of them gained wide acceptance of the scientific community. the first one is the concept proposed by kohli and jaworski (1990) which is often referred to as a behavioural perspective. narver and slater (1990) presented the second approach, which is often called cultural perspective. these two seminal works were a turning point in the marketing research literature because not only did the authors propose definitions of mo, but they also developed scales for measuring the level of implementation of mo in practice. this way they shifted the focus from descriptive explanation to empirical testing of the mo concept. kohli and jaworski defined markor scale (kohli, et al., 1993) while narver and slater (1990) designed a 15-item scale, which they called the mktor. * corresponding author: katarina njegić, e-mail: radosavljevic.k@gmail.com research question: this paper investigates whether the narver and slater’s market orientation scale (mktor scale) is reliable, valid and applicable in the serbian exporters’ context. motivation: previous studies that examined the applicability of the mktor scale report inconsistent results (matsuno, mentzer, & rentz 2005; ward, girardi, & lewandowska, 2006; rojas-mendez, & rod, 2013) and the studies that use mktor scale in export performance research are scarce. therefore, the aim of this paper was to examine psychometric properties of the mktor scale based on the data gathered from serbian exporters. idea: the core idea of this paper was to empirically evaluate reliability, convergent, discriminant and nomological validity of the the mktor scale. data: in order to collect data for the analysis, an on-line survey was conducted which related to the business year 2017. it involved 60 managers of exporting firms in the republic of serbia. tools: the statistical methods used were exploratory factor analysis, confirmatory factor analysis and path analysis through partial least squares. findings: the obtained results indicate that the original the mktor scale satisfies the reliability and convergent validity criteria. since the mktor scale did not demonstrate adequate discriminant validity, a refined scale was proposed. the results of the research shown that the mktor consists of three separate components that can be used as independent measurement scales. a statistically significant positive relationship was found between market orientation measured with the mktor scale and the overall satisfaction with export performance, which demonstrates the nomological validity of the examined scale. the obtained results contribute to the external validation of the mktor scale. the results are valuable since they provide researchers from serbia with the reliable measurement instrument that can be used for the empirical investigation of market orientation and its various influential factors. contribution: this paper contributes to the existing literature by providing the evidence from the context in which the scale was not tested before. the paper demonstrates the usefulness of the mktor scale in predicting export performance. this paper expands the existing research related to the applicability of the mktor scale and it formulates practical suggestions of the way market orientation can be operationalized in export performance research. keywords: market orientation, mktor scale, export performance, validity jel classification: m31, f23 since the scales were developed based on business practice of firms operating in the united states, studies of kohli and jaworski and narver and slater encouraged researchers to evaluate the applicability of these scales in different macroeconomic environments. moreover, the development of measuring instruments inspired a plethora of new empirical studies as it enabled the investigation of antecedents and consequences of mo. at first, the emphasis was on determining the impact of mo on business performance (cano, et al., 2004; frosen, et al., 2016; takata, 2016). however, in the last decade, mo especially attracts attention of the researchers in the field of export performance (ep), and today mo is considered as one of its main determinants (sousa, 2008; chen, et al., 2016; he, et al., 2018). in previous research on the relationship between mo and ep, the cultural perspective has been neglected and the researchers mainly use the behavioural approach (radosavljevic, & milanovic, 2017), regardless of the fact that both perspectives are recognized as equally important (deshpande, & farley, 1998; shoham, et al., 2005). a specific concept developed for testing the mo in export context (cadogan, et al., 1999) is also behavioural in its essence (radosavljevic, 2017). therefore, the applicability of the mktor scale in ep research is not sufficiently explored. findings from previous studies indicate potential validity issues of the mktor scale (ward, et al., 2006; rojas-mendez, & rod, 2013). there is also a question regarding the dimensionality of the scale (siguaw, & diamantopoulos, 1995; hooley, et al., 2000; ward, et al., 2006). the majority of the studies that explore antecedents and consequences of mo in domestic context, as well as the studies on the relationship between mo and ep, were conducted in western countries (radosavljevic, & milanovic, 2017; njegic, & djokic, 2018). therefore, there is little research from developing world, especially from eastern european countries. the purpose of this paper is to analyse psychometric properties of the mktor scale based on the data gathered from serbian exporters. the contribution of this kind of research is twofold. first, the examination of the mktor scale properties will be performed in the context in which it was not performed before. moreover, this research can demonstrate whether the mktor is useful for predicting ep. from the practical point of view, establishing reliability and validity of the mktor scale will provide researchers from serbia with the reliable measuring instrument that can be used for empirical investigation of mo and its various influential factors. this can stimulate and facilitate further research in the field of mo in serbia and in other developing countries. the paper is organized as follows. in the second section, the theoretical background for the research is presented along with the review of previous literature in the related field. in the third section the applied research methodology is explained. the fourth section presents the results of the conducted research. implications of the results are described in section five (discussion). in the sixth section, conclusions are drawn along with the limitations and directions for future research. 2. theoretical background and the review of previous empirical research narver and slater emphasize that the ability of a firm to achieve superior performance depends on its ability to create sustainable competitive advantage (narver, & slater, 1990). furthermore, they state that if a firm wants to achieve this goal, it has to possess an organizational culture that stems from the desire to create superior value for its consumers. according to the authors, mo consists of three separate dimensions: customer orientation, competition orientation and interfunctional coordination. narver and slater formulated mo as “one-dimensional construct consisting of three distinct equally important components” (1990, p.22). they also state that there is “a strong correlation among the three components of mo which indicates that they are converging on a common construct” (1990, p.25). however, empirical studies that examined the applicability of the mktor scale report on some validity issues and the results regarding dimensionality of the scale are inconsistent. siguaw and diamantopoulos (1995) were among the first authors who investigated the validity of narver and slater’s mo construct. while reliability tests showed internal consistency of all three dimensions, confirmatory factor analysis (cfa) that authors conducted did not give satisfactory results. neither onefactor model (which represented unidimensional construct) nor a three-factor model (which represented mo as three separate dimensions) showed an adequate data fit. by conducting an exploratory factor analysis (efa) they have discovered that some of the items that represent competitor orientation and interfunctional coordination did not load well on the related factors or that the items that represent different dimensions cross-loaded heavily. 38 katarina njegić, ines djokić, vesna milanović 2020/25(1) farrell and oczkowski (1997) conducted their analysis in australia on a sample consisting of firms different in sizes and from different industries. the results of the cfa indicated that the original model of mo proposed by narver and slater (1990) was not appropriate. the authors managed to obtain an adequate model fit by removing some items from the scale. hooley and his colleagues (2000) tested the mktor scale in slovenia, hungary and poland. reliability analysis in this study showed that competitor orientation and interfunctional coordination are unreliable as separate scales. the authors’ further analysis revealed that the mktor scale is reliable only when it is used as one-dimensional construct, computed as the average score of all items. matsuno, mentzer and rentz (2005) compared the markor (kohli, et al, 1993), emo (cadogan, 1999) and mktor scales. their cfa at first-order level did not produce acceptable general fit indices. when they formulated the mktor as a second-order construct, they got an excellent fit statistics. however, they reported that the reliabilities of customer orientation and competitor orientation sub-scales were not high. they concluded that from the three compared scales, the mktor was the most efficient in predicting performance measures and that it was superior on the criterion of variance extracted. one of the main questions ward, girardi and lewandowska (2006) posed was the dimensionality of the mktor scale. they have found that it is a three-dimensional construct rather than one-dimensional construct. ward and his colleagues had to drop a few items from the scale to improve the model fit and to establish a discriminant validity of the scale. rojas-mendez and rod (2013) investigated psychometric properties of the markor and mktor scales. they first conducted efa, which did not generate a clear pattern matrix. after they removed indicators with low factor loadings, 10 items remained, and this refined scale they used in further analysis. for the refined scale, they established a reliability and discriminant validity. they also presented evidence of a good predictive validity of the mktor scale. regarding the applicability of the mktor scale in the export context, there is little research. few studies that used the mktor in examining the relationship between mo and ep report on positive results (behboodi, & shagerdi, 2013; julian, et al., 2014; zehir, et al., 2015; olabode, et al., 2018). thus, it can be assumed that the nomological validity in the serbian context is going to be confirmed, i.e., that the relationship between mo and ep is going to be positive and statistically significant. the presented literature review suggests that there is a dilemma regarding the applicability of the mktor scale and that additional research is needed. therefore, the aim of this paper is to add to the existing gap in the literature by providing answers to the following questions: 1) is the mktor scale reliable and valid in the serbian context? the answer to this question will contribute to the validation of the scale in the new context. 2) is it a one-dimensional construct or rather a three-dimensional construct? this will add to the evidence about the dimensionality of the scale. 3) could the scale be used to predict ep of serbian exporting firms? from the answer, it will be possible to establish its nomological validity in the serbian context. 3. research methodology 3.1 sample and data collection the data were collected through structured questionnaire. the survey was conducted on-line (using google forms) at the beginning of 2018, and it related to the business year 2017. the firms that exported from serbia in the year 2017 formed the target population. the contacts of the managers responsible for exporting were acquired through the suppliers’ database on the website of the development agency of serbia (http://www.ras.gov.rs/en/export-promotion/serbian-suppliers-database, accessed on: 22nd nov.2017). those were the key respondents. firms from different sectors and different sizes were selected for the sample. a multi-industry sample was used in previous research and it is stated that this allows the generalizability of the results (farrell, & oczkowski, 1997; hooley, et al., 2000; matsuno, et al., 2005). there were 321 manufacturing firms available in the database and they were selected for the survey. in order to inform the participants about the content and purpose of the research, they were primarily contacted by telephone. a total of 305 participants gave their consent to participate in the survey, and immediately after 39 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) the telephone call, they were sent an email with a link to the electronic questionnaire. from the 305 questionnaires sent, 60 complete questionnaires returned which makes the response rate of 19.7%. a similar response rate appears in other studies in this area (see literature review: chen, et al., 2016). out of 60 firms in the sample, the majority are from the food, beverage and agriculture sectors (26 firms). there are 15 firms from the plastics, chemistry and rubber industry, and nine firms from the textile and clothing industry. the remaining firms in the sample are from the wood and paper industry (6 firms), as well as from other industries (furniture-2, leather -1, footwear -1). small and medium-sized firms prevail in the sample (small-29, medium20, large -11). although the sample size is modest, the sample can be considered relevant, since previous studies report on similar sample size (see: ward, et al., 2006; rojas-mendez, & rod, 2013). 3.2 constructs’ measurements the original mktor scale consisting of 15 items was used for measuring mo (narver, & slater 1990; 1994). the customer orientation sub-scale (custor) is composed of six items; competitor orientation sub-scale (compor) includes four items and interfunctional coordination sub-scale (ifc) contains five items. following the previous research (hansen, et al., 2006), items were listed randomly in the questionnaire (see appendix). the respondents were asked to what extent they agree with the presented statements (1-do not agree at all; 5-completely agree). relying on previous research (racela, et al., 2007; julian, et al., 2014; fuchs, & kostner, 2016), ep was measured as the level of overall satisfaction with export performance (1-not satisfied at all; 5completely satisfied). 3.3 data analysis the data were analysed using different techniques, depending on the objective. reliability analysis was conducted by estimating cronbach’s alpha in spss 25.0. in order to explore the dimensionality of the scale first the exploratory factor analysis (efa) in spss 25.0 was conducted. the efa is a good technique for preliminary testing of the scale construction, but it is not sufficient and subsequently the cfa is recommended (gerbing, & anderson, 1988). therefore, confirmatory factor analysis (cfa) in amos 22.0.0. was conducted. convergent and discriminant validities were assessed based on the results obtained through the cfa. for the assessment of predictive power of mktor scale, a partial least squares technique (pls) was used and the analysis was conducted in software smartpls 3.7.7. pls was shown to be a reliable technique when dealing with small samples (hair, et al., 2019). 4. results reliability of the scale. the reliability of all three sub-scales was tested, as well as the reliability of the mktor scale as a whole. the obtained results indicate that there are no reliability concerns (custor=0.916, compor=0.863, ifc= 0.896, mktor=0.947), since cronbach’s alpha for all scales is above the required threshold of 0.7 (churchill, 1979; cortina, 1993). dimensionality of the scale. the first objective was to investigate the underlying factor structure of the mo construct. for these purposes, efa was conducted. the number of factors was fixed to three in order to examine whether the items load well on the factors that they were supposed to load on considering the theoretical framework. the principal component analysis (pca) was used as the extraction method and promax as the rotation method. the narver and slater’s model assumes three distinct dimensions that are highly correlated. it is suggested that oblique rotation methods be used if the underlying factors of the examined construct are correlated (hair et al., 2010). moreover, the combination of pca and promax was used in previous research (zehir, et al., 2015). in order to ensure that the data set is adequate for performing efa, kaiser-meyer-olkin (kmo) measure of sampling adequacy was analysed and the bartlett’s test of sphericity was performed. the level of the kmo index was shown to be high enough (0.908) suggesting that the data may be grouped into a smaller set of underlying factors (kaiser, 1974). the result of bartlett's test (sig.=0.000) indicted that the variables do relate to one another enough to perform a meaningful efa (nunnally, 1978). the three extracted factors explained 73.195% of the total variance in the model. however, the generated pattern matrix did not show good results. the majority of the item loadings were high (above 0.5, except for one item), but there were some items that cross-loaded. following previous research (farrell, & oczkowski, 1997; ward, et al., 2006; rojas-mendez, & rod, 2013), the scale was refined by deleting the items that loaded on more than one factor. the cleaner version of the pattern matrix was accomplished by deleting four 40 katarina njegić, ines djokić, vesna milanović 2020/25(1) items. three extracted factors together explained 76.413% of the total variance in the refined model. the results are presented in table 1. following the suggestions in the literature (hair et al., 2010), minimal adjustments of the original scale were done, in order to remain true to the theoretical model. thus, even though more items could be deleted based on the factor loadings (custor3 and ifc4), they were retained in order to preserve the content validity of the scale. for further analysis, the refined scale was compared with the original in order to further investigate the dimensionality through the cfa. all of the items that formed the refined scale, as well as deleted items are given in the appendix. table 1: pattern matrix generated for the refined mktor scale *factor loadings above 0.5 are highlighted. source: authors’ research relying on the theoretical framework (narver, & slater, 1990) and previous research (ward, et al., 2006), four competing models were defined. the aim was to compare which of the defined models best explains the real nature of the mo construct. the original model (scale composed of 15-items) was compared to the refined scale (11-items) and both of these models were examined as a one-factor model and a three-factor model. the results of the cfa are given in table 2. table 2: the comparison of mo measurement models ²chi-square; df-degrees of freedom; ²/dfnormed chi-square; srmr-standardized root mean residual; rmsea-root mean square error of approximation; cfi-comparative fit index; pnfi-parsimony normed fit index. source: authors’ research based on the indices presented in table 2, the fourth model (three-factor, 11-items) has the best fit. basic goodness of fit measures (chi-square, degrees of freedom and p-value) and absolute fit indices (normed chisquare, srmr, rmsea) are acceptable for all models except for the third model (the thresholds were taken from hu, & bentler, 1999; hair et al., 2010). however, the cfi index should be above 0.9 (hair et al., 2010; brown, 2014) and for m1 and m3 it is unacceptable, which is a clear indication that these two models are not suitable. comparing pnfi for m2 and m4, it can be concluded that m4 overperformed m2, since the higher value of this index is preferable (hair et al., 2010; brown, 2014). validity of the scale. convergent and discriminant validity of the original and the refined scale were estimated based on the results obtained through the cfa. the composite reliability (cr), average variance extracted (ave), maximum shared variance (msv) were calculated as well as the correlations between constructs. the results are presented in table 3. the values on the diagonals (bold values) are square root of constructs’ aves and the values below the diagonals represent inter-correlations between constructs. 41 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) ������ � � ������ � �� �� �� � ������ ����� ����� ����� � ������ ����� � ��� ������ � ������ ����� � ��� ����� � ������ ������ ����� ����� � � ���� ������ ����� � � � � ����� ������ ����� � ��� � � ���� ����� ������ ����� ����� � �� ������ ������ ����� � �� ������ ����� ����� ����� ����� ������ ����� � ��� ����� ������ ������� ����� � ���� �������������������� �χχ�� ��� ��� ��� χ� ��� ����� ������ ���� ����� ����� ��������� ���� ������������ ��� !�"� "�� � �#$� � �%�� � ��"� � �%"� � ���� � �&�� ����'(����������� ���� ������������ &! "��� &!� � %�$� � ���� � ���� � ��$� � "#�� � �!�� �$��� ��������� ���� ������������ !$ �%�� %%� � ��%� � ##�� � �$�� � ��#� � $#�� � ��&� �%��'(����������� ���� ������������ %� ��!� %�� � �"�� � ���� � ���� � �%$� � "��� � %�&� table 3: convergent and discriminant validity of the original and refined mktor scale source: authors’ research both original and the refined scale did not demonstrate convergent validity issues. standardized loading estimates for both scales were all above 0.7, which shows that items load well on the dimensions they were assigned to (carmines & zeller, 1979; bacon, et al., 1995; hair et al., 2010). as it is presented in table 3, ave values for all constructs and for both scales were greater than 0.5 and cr values were all above 0.7, which suggests an adequate convergent validity of both scales (nunnally, 1978; hair et al., 2010). however, the results show that the original 15-item scale did not satisfy requirements regarding discriminant validity. in the case of original scale, msv values were higher than ave values for all constructs. in addition, the square root of the ave for custor is lower than its correlation with compor and the square root of the ave for compor is lower than its correlation with ifc. on the other hand, the refined scale satisfies the discriminant validity criteria (msv<ave; square root of ave>inter-construct correlations; see: fornell, & larcker, 1981; hair et al., 2010). another important finding of the conducted analysis is that the components of mo are shown to be highly correlated (p < 0.001). in order to ensure that the elimination of the items in the refined scale did not change its reliability, cronbach’s alpha was calculated for the refined scale and its components. the reliability analysis gave satisfactory results (α>0.7 for all constructs: custor=0.879, compor=0.851, ifc=0.883, mo=0.922). since the original scale demonstrated discriminant validity problems, the refined scale was used for nomological validity assessment. the mo construct was defined as second-order formative construct consisting of three first-order constructs custor, compor and ifc. those first order constructs were defined as reflective. this is in line with the results of the cfa previously conducted which shown that the threefactor model with 11 items had the best fit. in order to examine whether the defined dimensions can form a formative mo construct, bootstrapping with 5000 sub-samples was performed (two-tailed t-test; significance level=0.05). the obtained results showed significant relationship between all three dimensions and mo construct (compor → mo: β=0.308, t-value=13.241, p=0.000; custor → mo: β=0.425, t-value=17.799, p=0.000; ifc → mo: β=0.412, t-value=15.688, p=0.000) which confirms that mo can be formulated as formative construct on the second level. in order to test the relationship between the mo and the ep, the repeated indicator approach was used (byrne, 2009; hair et al., 2010). the results of the bootstrapping (5000 sub-samples; two-tailed t-test; significance level=0.05) showed that there is a statistically significant positive relationship between mo and ep (β=0.341, t-value=3.206, p=0.001). the coefficient of determination (r2) was used as a measure of predictive accuracy. it shows the proportion of the variance in the endogenous variable (in this case ep) that can be explained by the change in exogenous variable (mo). the obtained value of r2 was 0.116, which means that mo explained 11.6 percent of the variance in ep. there is no unique rule of thumb for acceptable r2 value since its value depends on the number of exogenous variables under consideration and the research discipline (hair et al., 2017). in the field of ep, r2 values that are higher than 10 percent are considered satisfactory (falk & miller, 1992; navarro, et al., 2010; sousa, et al. 2014). statistically significant positive relationship between mo and ep as well as the obtained value of r2 indicate that mo measured with a refined mktor scale can predict ep, which confirms the nomological validity of the scale. 5. discussion in order to contribute to the validation of the mktor scale and to explore the possibility of its application in the export context, a survey was conducted on the sample of exporters from serbia. the results of the conducted research indicate that the original scale developed by narver and slater is reliable, as well as its three sub-scales. the original mktor scale also showed an adequate convergent validity. the results of the 42 katarina njegić, ines djokić, vesna milanović 2020/25(1) �������� ��� ����� ���������� ������������ ������ � �� !� �"���� ���#�� $%� ������� �� � � � �� � &'(()� � � ������� � �� ���� �� � � ���� &'(*+� � ���� �� � � � � � ������� ������� &'(�*� ������ ��� ����� ���������� ������������ ������ � �� !� �"���� ���#�� $%� ������� �� � ��� ���� &'(+� � ������� ���� ��� ���� ������ &'(�+ ���� ���� ��� ���� ������ � ����� &'(�, � efa and cfa revealed that the items converge well to the dimensions they were assigned to. these results are in line with the findings of previous research (matsuno, et al., 2005; behboodi, & shagerdi, 2013; julian, et al., 2014; zehir, et al., 2015). however, the research conducted revealed a poor discriminant validity of the original mo construct. the results obtained through efa and cfa revealed that the dimension competitor orientation overlaps with customer orientation and interfunctional coordination. previous studies report on the same problem (siguaw, & diamantopoulos, 1995; ward, et al., 2006; rojas-mendez, & rod, 2013). in order to obtain a useful scale, the items that overlap were removed. the refined scale was tested and compared with the original mktor scale. the comparison of four different models showed that a threedimensional factor model with 11 items best fits the data, which suggests the existence of three separate dimensions (sub-scales). these findings are consistent with the findings of ward and his colleagues (2006), but they are opposite to the findings of hooley and his colleagues (2000). it was also found that the mo components are highly correlated, which corresponds to the initial premise of narver and slater. the examination of nomological validity confirmed that the mktor scale can be successfully used to predict ep, which was also verified in other similar studies (julian, et al., 2014; zehir, et al., 2015). presented findings have important implications for the researchers in the field of international marketing and management. on the sample of exporters from serbia, it was demonstrated that the mktor in general is a reliable concept that can be used in international context when cultural perspective of mo is implemented. concerning the dilemma about the dimensionality of the scale, it was shown that narver and slater’s mo concept is composed of three separate and highly correlated components. this suggests that the subscales can be used separately, as independent scales. moreover, this finding implies that mo can be formulated as a second-order formative construct that is determined by three first-order reflective constructs. since the dimensions are not interchangeable, it is advisable to formulate mo as a formative construct on the second level. it is not recommended to formulate mo as one-dimensional construct, since the results showed inadequate data fit for one-dimensional model. references [1] acosta, a. s., crespo, á. h., & agudo, j. c. 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(2015). the mediating role of innovation capability on market orientation and export performance: an implementation on smes in turkey. procedia-social and behavioral sciences, 207(1), 700-708. doi: 10.1016/j.sbspro.2015.10.141 received: 2019-02-15 revisions requested: 2018-05-05 revised: 2019-06-24 (2 times) accepted: 2019-07-01 katarina njegić faculty of business economics and entrepreneurship, belgrade, serbia adosavljevic.k@gmail.com katarina (radosavljević) njegić is an assistant professor at the faculty of business economics and entrepreneurship, at the department of economics and finance, where she has been emplyed since 2010. she received her bachelor's and master's degrees from the faculty of organizational sciences in belgrade, and her ph.d. from the faculty of international economics (megatrend university). her research interests include internatinal business, strategic management, and international marketing, with the focus on firm's export performance. about the authors ines đokić university of novi sad, faculty of economics in subotica, serbia mines@ef.uns.ac.rs ines djokic is an assistant professor at faculty of economics in subotica, university of novi sad. she teaches marketing communications and product design. she is an author and co-author of a number of papers published in journals of international and national importance as well as in proceedings of international scientific conferences. she is also a member of the serbian marketing association (sema). vesna milanović “union nikola tesla” university, faculty of business and law, belgrade, serbia vmilanovic555@gmail.com vesna milanović graduated from the faculty of economics at the university of belgrade in 1989, got her master’s degree in 1994 and her phd degree in 2003. she worked at the megatrend university from 1999 untill 2017. since 2017 she has been a full-time professor (scientific field of economics-marketing) at the faculty of business and law, “union nikola tesla” university. her research areas are marketing, international marketing, management, international business, and nanotechnology. prof. milanović is a researcher (project iii 45003) and she has over 100 published papers. she is a member of the scientific society of economists of serbia. she is also a member of the association of economists and managers of the balkans. appendix market orientation measurement scale developed by narver and slater (1990) customer orientation *custor1: we measure customer satisfaction systematically and frequently *custor2: we constantly monitor our level of commitment and orientation to serving customers’ needs custor3: we give close attention to after-sales service custor4: our business objectives are driven primarily by customer satisfaction custor5: our strategy for competitive advantage is based on our understanding of customer needs custor6: our business strategies are driven by our beliefs about how we can create greater value for customers competitor orientation compor1: top management regularly discusses competitors’ strengths and strategies compor2: we rapidly respond to competitive actions that threaten us *compor3: we target customers where we have an opportunity for competitive advantage compor4: our salespeople regularly share information within our organization concerning competitors’ strategies interfunctional coordination ifc1: all the departments in our company are responsive to each other’s needs and requests ifc2: all of our business functions (e.g., marketing/sales, manufacturing, etc.) are integrated in serving the needs of our target markets *ifc3: our top managers from across the company regularly visit our current and prospective customers ifc4: we freely communicate information about our successful and unsuccessful customer experiences across our company ifc5: our managers understand how everyone in our business can contribute to creating customer value *items deleted in the refined scale 46 katarina njegić, ines djokić, 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02_jelena minovic:tipska.qxd 15 jelena minović1, marija lazarević – moravčević2, isidora beraha3 2belgrade banking academy, faculty for banking, insurance and finance, union university 1,3institute of economic sciences, zmaj jovina 12, belgrade management 2016/81 udc: 005.521:334.7(497.11) 005.21 strategic orientation of smes: empirical research doi: 10.7595/management.fon.2016.0026 1. introduction micro, small and medium-sized enterprises (smes) represent a significant economic force that contributes to income growth, new job creation, total turnover and export generation. in fact, the sme sector in serbia accounts for 99.8% of all active enterprises, it contributes up to 2/3 of employment in the non-financial sector of the economy and generates almost 30% of serbia’s gdp (national agency for regional development, 2013). despite the role that smes play in fostering economic growth and development, their operation in serbia is constrained by numerous external factors. business environment for smes in serbia is still rather inconvenient. the key factors causing the uncertainty of the business environment refer to the inefficiency of state bureaucracy, limited access to financing and corruption (wef, 2016). according to the doing business report 2016, serbia is ranked 59th out of a total of 189 countries in terms of the quality of business environment. in comparison with the previous year, serbia has made progress by moving up 9 positions. serbia’s highest rank is in terms of international trade (23th), while its lowest ranking for many years now has been in terms of getting construction permits (139th) (world bank, 2016). stosic&minovic (2014) analysed the relative positions of the western balkan countries and determined the differences or similarities in the results based on the survey data (of international institutions: ebrd, world bank, world economic forum, and heritage foundation). they empirically found that the relative position of a certain country in a region the main objective of the paper is to identify the sources of competitive advantage of small and medium-sized enterprises in serbia. gaining a competitive advantage is the key priority of market-oriented enterprises regardless of their size and sector. since business environment in serbia is not stimulating enough for enterprises’ growth and development, the paper highlights the role of strategic orientation in business promotion and development. in order to identify the sources of competitive advantage, the empirical research is conducted by using the survey method. the research sample is created by using a selective approach, namely, the sample includes enterprises with more than ten employees, and enterprises identified to have the potential for growth and development. the research results indicate that small and medium-sized enterprises in serbia are generally focused on costs as a source of competitive advantage, i.e., they gain competitive advantage in a selected market segment by offering low price and average quality products/services. in addition, the results of the research point out that the serbian small and medium-sized enterprises are innovation-oriented. organizations qualifying as middle-sized enterprises are predominantly focused on process innovations, while small businesses are primarily oriented towards product innovations. one of the limitations of the research refers to the small presence of the research sample within the category of middle-sized enterprises. the smaller sample presence than it was previously planned is mostly due to the lack of managers’ willingness to participate in the research, as well as to the fact that these enterprises account for the smaller share in the total number of enterprises in the small-and medium-sized enterprises’ sector. taking into account that the sector of small and medium-sized enterprises generates around 30% of the country’s gdp, we consider the research results to be beneficial for both scientific and professional communities, as well as for economic policy makers in serbia. keywords: strategic orientation, sme, competitive advantage, competitive strategies, costs, differentiation, innovation. (in this case the western balkans) cannot be determined only by a single methodology and approach. this finding by stosic&minovic (2014) is particularly important since estimations of the relative position and economic progress are often easily made solely on the basis of judgements of international institutions. considering the effects of the above mentioned, as well as many other factors from external environment that have a negative impact on growth and development of enterprises, this paper starts with the assumption that the key factors of business growth and development can be found in internal forces, and particularly in the area of management skills. the subject of the paper is to analyse approaches, i.e., sources that small business systems in serbia use to create competitive advantage. the empirical research was based on the assumption that due to certain specifics of the business environment, the choice of a competitive strategy for smes in serbia is limited and implies the use of a focus strategy. the key research question is whether smes in selected markets are focused on costs or on differentiation. the research started from the following hypotheses: • smes in serbia carry out innovative activities. • the type of innovation carried out by an enterprise (product innovation or process innovation) is aligned with its competitive strategy. the paper is structured as follows: the first chapter contains an introduction and motivation for research, the second section gives an overview of the literature relevant to the field of research, the third chapter describes the research methodology, the fourth section presents research results and discussion, while the fifth chapter brings conclusions to the paper. 2. literature review literature dealing with strategic orientation of smes in both developed and developing countries is very extensive. gatignon&xuereb (1997) explored which of the three different strategic orientations (customer, competitive, and technological) is suitable for an enterprise. however, a significant number of research papers are related to commercial innovation and innovative performance, whereby some of them refer to the work of the following authors: zhou et al. (2005), verhees&meulenberg (2004), lukas & ferrell (2000) han et al. (1998), hurley &hult (1998), atuahene-gima (1996), greenley (1995), and others. the authors who put the focus of their research on the impact of knowledge and learning orientation upon firm innovativeness are calantone et al. (2002), and zack (1999). however, keskin (2006) tested the combined effect of marketorientation and learning-orientation on firm innovativeness and performance in smes in turkey. he has performed a questionnaire-based survey of managers from small-sized firms operating in turkey, and received a total of 157 usable questionnaires from managers.the results of keskin (2006) showed that firm innovativeness affected firm performance in a positive manner; firm learning-orientation positively influenced firm innovativeness; firm market-orientation positively impacted firm learning orientation; firm learningorientation mediated the relationship between firm market-orientation and firm innovativeness; and firm market-orientation indirectly impacted firm performance via firm innovativeness and learning. zhou et al. (2005) examined the effects of market and innovation orientations in transitional economies. based on the survey of 2754 employees from 180 firms in china, they found that both market and innovation orientations strongly improve employees’ attitude to job. furthermore, these authors discussed implications of developing strategic orientations in transitional economies. the results of the model developed by verhees&meulenberg (2004) that explores the existence of a combined effect of market orientation and innovativeness on product innovation indicate that the owner’s innovativeness has a positive influence on market orientation, innovation, and performance. additionally, verhees&meulenberg (2004) identified that product innovation is affected by customer market intelligence either in a positive or a negative manner depending on the strength of the innovativeness of the owner in the new product domain. lukas & ferrell (2000) investigated the relationship between market orientation and product innovation. they used a sample of u.s. manufacturing companies. lukas & ferrell’s (2000) results showed that product innovation varied with market orientation. han et al. (1998) tested the following chain: market orientation-innovation-performance. these authors examined how the three core components of market orientation (customer orientation, 16 2016/81management competitor orientation, and inter-functional coordination) affected the two core components of organizational innovativeness (technical versus administrative) on route to affecting corporate performance. han et al. (1998) used banking industry data, and they showed that in the banking industry, a service sector, administrative innovation may assume a relatively equal importance to its technical counterpart in influencing performance, as compared to its role in the manufacturing sector. in order to analyse the impact of market orientation on innovation characteristics and performance, atuahene-gima (1996) conducted an empirical research based on 158 manufacturing and 117 service firms in australia. the results indicate that there is a significant relationship between market orientation and innovation characteristics, i.e., innovation-marketing fit, product advantage, and inter-functional teamwork but not product newness and innovation-technology fit. in addition, the findings of atuahene-gima (1996) fail to confirm his hypothesis that a market orientation influences service innovation performance more strongly than it influences product innovation performance. greenley (1995) researched a relationship between market orientation and performance in the uk and found that the impact of market orientationon performance was moderated by environmental variables. moreover, the evidence of greenley (1995) pointed out that in certain market conditions such as highly turbulent markets, low customer power and high technological change, no advantages might occur as a result of market orientation. hurley&hult (1998) tested a sample of 9648 employees from 56 organizations in a large agency of the u.s. federal government in order to incorporate constructs that pertain to innovation in market orientation research. they found that higher levels of innovativeness in the firms’ culture were associated with a greater capacity for adaptation and innovation (number of innovations successfully implemented). additionally, hurley &hult (1998) pointed out that higher levels of innovativeness were associated with cultures that emphasize learning, development, and participative decision making. todorovic et al. (2013) states that the uniqueness of contemporary business environment implies a need for a flexible, yet integrated management system that will provide strategic, as well as operational excellence in organizations. atuahene-gima&ko (2001) analysed market and entrepreneurship orientations and reported the results of a study designed to investigate their effects on a firm’s product innovation. these authors classified a sample of 181 firms into four categories labelled as market/entrepreneurship orientation (me), entrepreneurship orientation (eo), market-oriented (mo), and conservative (co) firms. atuahene-gima&ko’s (2001) found that there was a significant difference between these groups of firms in terms of subjective and objective measures of performance of new product, as well as in terms of innovation strategies and activities related to market entry timing, product quality, marketing synergy, proficiency of market launch, and management support for innovation. wiklund& shepherd (2003) argue that a firm’s entrepreneurial strategic orientation (eo) captures an important aspect of the way a firm is organized. they have found that there is a positive relationship between knowledge-based resources (applicable to discovery and exploitation of opportunities) and firm performance, as well as that this relationship is improved by eo. anderson et al. (2015) introduced entrepreneurial orientation (eo) reconceptualization by empirical measurement. they presented an empirical illustration of their eo reconceptualization. covin&slevin (1989) investigated the effective strategic responses to environmental hostility among 161 small manufacturing firms and found that in such an environment there was a positive relationship between small firms’ performance and their organic structure, entrepreneurial strategic posture, competitive profile characterized by a long-term orientation, high product prices, and concern towards predicting industry trends. berman et al. (1999) empirically researched the effect of stakeholder management on corporate performance, and they found support for a strategic stakeholder management model but no support for an intrinsic stakeholder commitment model. based on surveys of u.s. and u.k. firms, brouthers et al. (2015) found that international performance of smes depended on entrepreneurial orientation (eo) and the type of alliance (research or marketing). omerbegovic-bijelovic et al. (2016) surveyed entrepreneurship in the public sector of serbia. they found that it was necessary to stimulate the development of the entrepreneurship concept in the public sector, primarily by further informing management and employees of the public sector about the potentials of entrepreneurship, and also educating them to use the possibilities and opportunities for the application of this concept (omerbegovicbijelovic et al., 2016). however, zack (1999) claims that knowledge is considered the strategically most important resource and that learning the strategically most important capability for business organizations. he thinks that many managers intuitively believe that strategic advantage can come from knowing more than competitors although they are unable to explicitly articulate the link between knowledge and strategy. zack (1999) provides a framework for making that link and for assessing an organization’s competitive position regarding its intellectual resources and capabilities. calantone et al. (2002) studied the components of learning 17 management 2016/81 orientation using data from a broad spectrum of us industries. they examined the effect of learning orientation on firm innovativeness, which in turn affects firm performance. veselinova&samonikov (2012) analysed the most important factors for smes’ performance, survival and growth in the eu. they considered what determined the potential failure of young companies to innovate and grow. the results by veselinova&samonikov (2012) showed that the age of the firm (which reflects its reputation) was important to the degree to which the firm felt financially constrained. veselinova&samonikov (2012) pointed out that the ability of smes to grow depended highly on their potential to invest in restructuring, innovation and qualification. in their attempt to determine the most important financing obstacles for smes in serbia, eric et al. (2012) carried out a survey among 600 domestic smes. on the basis of the survey results, the authors pointed out that only 39% of smes recognized that using strategic orientation when deciding on how to acquire necessary financial resources were highly associated with improved financial performance. gatignon&xuereb (1997) found that developing superior innovations required that a firm should have a strong technological orientation. in addition, they found that when performing in high-growth markets, competitive orientated firms developed innovations at lower costs, when performing in markets characterized by relatively uncertain demand, consumer-and technology-oriented firms achieved better preforming products and better market innovations thus making superior performances, and that competitive orientation lead to better market innovations in markets with relatively certain demand; also, it was less emphasized in highly uncertain markets. milutinovicet al. (2015) analysed a concept of strategic innovation given the impact it has on competitiveness, creation of growth strategies, new product categories and business models, as well as on changing the rules of the game on the existing market. starting from the strategic positioning map, milutinovic et al. (2015) give some of the possible answers to the question of how smes in serbia can improve their business, i.e., how the national innovation system (nis) can influence smes in terms of increasing business success. milic (2013) presented strategic implications of innovation management in the time of economic crisis. milic (2013) discussed whether and how managers should implement innovation management strategies, in order to set up a strong base and precondition for future business growth, after the crisis is over, but also during the crisis itself. 3. theoretical analysis of competitive advantage there is a large body of literature and a significant number of extensive research on the subject of gaining competitive advantage. in this field, the work of porter (1980, 1985, 2007) has been recognized as the most significant since he provided the most complete conceptual framework for the formulation of competitive strategies. otherwise, keskin (2006) states that: “innovation is the name of the game for competition…”. furthermore, he explains that increased competition, ceaseless turbulence, change and uncertainty have forced organizations to embrace innovation as an integral part of their corporate strategy (keskin, 2006). in order to remain competitive, firms must continuously develop and adapt their business models (wirtz et al., 2010). additionally, milutinovic et al. (2015) stated that if companies want to be successful they have to discover and exploit new strategic positions that emerge from time to time as industry evolves. according to porter (2007), competitive advantage comes from the ability of a company to create value for its buyers which is higher than the costs of creating it. value is what buyers are willing to pay and it stems from offering lower prices than competitors for equivalent benefit or providing unique benefit which largely neutralizes its higher price (porter, 2007, p. 20). coulter (2010) states that competitive advantage requires that an organization should either have something that others do not, do something better than others, or do something that other organizations are not capable of. it is the essence of strategic management (coulter, 2010, p. 41). strategic management is a process that consists of analysis, decisions and actions that an organization undertakes to provide and maintain a competitive advantage (dess et al., 2007, p. 9). evidence shows that small-scale organizations often lack strategic orientation. due to a lack of knowledge on strategic management techniques, lack of appropriate skills, uncertainty and being mainly focused on operating activities, the managers/owners of small-scaled enterprises often avoid long-term planning (farhad&karami, 2003). the fact that small organizations are not minimized copies of large systems leads to the conclusion that small-sized enterprises cannot use the same strategic solutions as their larger counterparts do. the 18 2016/81management differences between small and large organizations can be seen not only in their size, but also in terms of organizational structure, management style, their impact on the environment. along with the growth and development of enterprises, i.e., the transformation from small to medium-sized enterprises, a change in the nature of management problems occur, as well as knowledge and skills necessary for their solving. the professionalization of management by hiring highly educated and skilled managers is the most significant change following the growth of an organization (paunovic, 2012). as an enterprise becomes large and diversified it begins to reap the benefits related to its size (effects of economies of scale, strategic orientation, access to finance, etc.). on the other hand, many new problems occur which require appropriate strategic solutions. the main problem is how to provide synergistic effects based on the size and dispersion of activities (todorovic, 2003). based upon all previously stated, it can be concluded that small business operations are to a large extent determined by internal factors, particularly knowledge and skills of their managers/owners. given the fact that small business owners are also the managers, their level of motivation for operational efficiency is higher than that of managers of large companies (paunovic, 2012). the significance of the role of human factor in creating competitive distinctiveness was recognized by stoner (1987). according to stoner (1987), the key distinctive competencies of small businesses are to be found in experience, knowledge and skills of their managers. in organizations that use a simple organizational structure, the owner/manager is engaged in many different roles, approves every decision and controls all activities (dess et al., 2007, p. 357). dependence on knowledge, capabilities, professional and personal characteristics of one or very few people can become a serious shortage of small businesses (paunovic, 2012). given the fact that the essence of strategic management refers to creating and maintaining competitive advantage, smes need to be strategically directed and guided. however, due to certain specifics, the process of strategic planning in small organizations should be less formalized than it is the case in larger ones (callahan&cassar, 1995). according to coulter (2010), even if small organizations attempted to transfer the practice of large business systems, their key values, and particularly their flexibility, would be at risk. consequently, strategic management in smaller enterprises must be less formal, more flexible and primarily oriented towards action (coulter, 2010, p. 316). furthermore, coulter (2010) believes that strategic choice is the same for small and large organizations, although small ones face limitations as to what activities they can engage in, and to what extent. coutler (2010) also states that, when formulating a strategy, smaller organizations can implement the same strategic directions (namely, growth, stability, recovery) as large systems do but under particular limitations referring to the choice of strategic alternatives within the selected directions. most small organizations will decide to implement a concentration growth strategy since other strategic options (diversification, vertical integration, horizontal integration, etc.) require significant investment. lazarevic-moravcevic et al. (2015) find that growth strategy is a dominant strategic orientation of business managers/owners in serbia. the research results obtained by these authors show that around 70% of surveyed managers plan to expand their business in the future. lazarevic-moravcevic et al. (2015) find that despite many internal and external problems, the serbian owners/managers are rather optimistic and have a clear vision in what direction they want to develop their businesses. human resource management is one of the key strategic issues that small businesses face during their operation. the recruitment, motivation and retention of employees are among the biggest problems of small organizations (coulter, 2010, p. 319). small organizations often deal with high employee turnover rates since they lack strategic approach in hiring human resources, and do not have effective systems for employee’s motivation and performance monitoring. when implementing the activities of recruitment, selection and human resources development, standard methods which do not require high costs and can be controlled directly by the owner/manager of the company are usually used (cardon&stevens, 2004). the common practice in the selection of candidates is to use more simple and cheap methods and to give priority to the criteria of loyalty to the company (pks, 2012). preferring the criteria of loyalty to the company excludes the possibility of hiring employees with the best qualifications and experience. the main objective of strategic orientation is to create competitive advantage. according to porter (2007, p. 31), a competitive advantage can be created by cost leadership or differentiation, i.e., by using one of three generic strategies: cost leadership, differentiation, and focus (porter, 2007, p. 31). the term generic refers to the fact that these strategies can be used in organizations of all types and sizes no matter of the size and type of a particular business sector (coulter, 2010, p. 211). 19 management 2016/81 the main objective of the cost leadership strategy is to have the lowest costs in a given industry. organizations with the lowest cost of operation can establish prices that are lower than the average market prices. differentiation means directing activities towards achieving superior performance in an important customer area valued by a large chunk of the market (kotler, 2006). the focus strategy has two variants. in the cost focus a firm seeks a cost advantage in its target segment, and in the differentiation focus a firms seeks a differentiation advantage in its target segment (porter, 2000, p. 35). porter (1985, p. 17) points out that it is desirable for a company to make clear choice about its strategic orientation, i.e., to have a clear attitude on how it wants to be seen by its buyers – as a producer offering cheap and standard products or offering unique products (services). the firm’s success on the market is determined by its commitment to make the choice of a generic strategy it will follow (porter, 1985, p. 17). ebben&johnson (2005) emphasized that small firms which combined the efficiency strategy (low cost) and the flexibility strategy (differentiation) did worse than firms that used only one particular strategy. the porter’s (1985) opinion had prevailed in the scientific community for a long period of time. however, porter’s exclusiveness was questioned by numerous examples of good practice, e.g., mcdonalds, google, toyota which gained and maintained a competitive advantage by integrating elements of both low cost and differentiation strategies. the advanced technology, i.e., the flexible production system, the just-in-time inventory system, and integrated information systems enabled companies to achieve low costs and develop unique products and services (coulter, 2010, p. 219). 4. methodology of research in order to identify the basic strategic orientation of smes regarding the choice of their competitive strategy, a survey was conducted on the sample of 102 enterprises in serbia, out of which 77 belong to the sector of small and 25 to the sector of medium-sized enterprises. the categories of enterprises were classified according to the number of employees. the category of small enterprises is comprised of economic enitities employing up to 50 people, while the category of medium-sized enterprises includes firms employing between 50 and 250 people.the research sample was created by using a selective approach. consequently, the sample consisted of enterprises with more than 10 employees, enterprises with positive business result and enterprises identified to have growth and development potential. the research was conducted on the basis of a survey through the use of an electronic questionnaire. a survey is an important data collection method based on the pre-prepared questionnaire which gives respondents the ability give an answer within the previously prepared range of possible answers. this envisages the option that respondents give answers which are outside the defined range. given that the questionnaires were filled out by the owners/managers of enterprises, the level of competence of respondents is considered high. as in draskovic&minovic (2013), the survey designed in such way offers the option of being anonymous in the sense of expression, without noting any personal data of surveyed persons. one of the limitations in this research refers to the small presence of the research sample within the category of middle-sized enterprises. the smaller presence of the sample than it was previously planned is mostly due to the lack of managers’ willingness to participate in the survey, as well as to the fact that these enterprises account for a smaller share in the total number of enterprises in the sme sector. the questions relating to the main characteristics of products/services and the type of innovation implemented by smes are set in the questionnaire with the intention to identify the sources of competitive advantage. an innovation classification used in this survey includes product innovations and process innovations. it is assumed that product innovation is associated with the differentiation strategy, while process innovation is associated with the cost leadership strategy as it was stated by desset al. (2007). data processing, statistical analysis and numerical expression of the results were carried out by using spss software, microsoft excel and google drive support. draskovic and minovic (2013) stated that the use of survey methods represents a useful combination of research techniques and methods. susnjic (1977, 1999) pointed out that economic research should rely on 20 2016/81management techniques and methods such as survey. this technique is available as a method for collecting reliable scientific information relating to subjective views, opinions and attitudes of value on different social and economic facts and factors. nevertheless, their range and reliability have certain limitations. the limitations lie primarily in the complexity of the survey content, the selected sample and the impact of pooling errors, which should be kept at the lowest possible level (susnjic, 1977, 1999), (draskovic and minovic, 2013). 5. results and discussion figure 1 presents the response frequency to the survey question in which the respondents were asked to state the basic characteristic of their product (service). the respondents had the possibility to choose between the following two answers: • a price lower than the competition along with an average product (service) quality • an extremely high quality with a price higher than the competition the results indicate that the answers of serbian smes to this question converge. therefore, 45% of small business managers believe that a lower price is the main characteristic of their product/service, while more than 30% believe that it is the high quality. similarly, approximately 30% of managers in medium-sized enterprises believe that high quality is the basic characteristic of their product/service, while some 70% believe that it is the lower price (see figure 1). the results show that smes generally seek competitive advantage in costs, i.e., they achieve competitive advantage in chosen market segments by using the cost focus strategy. figure 1: basic characteristic of product-service source: authors’ calculation also, the survey found that smes were entrepreneurial-minded and very active in the field of innovative activities. speaking of the small enterprise level, approximately 85% of the sample carried out product or process innovation in the previous couple of years, while in the category of medium-sized enterprises the number amounted to around 96% of the sample. the question in which respondents were asked to identify the dominant type of innovation was set in order to determine whether innovation carried out by an enterprise followed the chosen competitive strategy. the research is based on the assumption that enterprises using low cost strategy focus on process innovations, while enterprises using differentiation strategy focus on product innovations. the results of this empirical research show that product innovation is the dominant type of innovation in small enterprises (more than 50% of answers). it is more than 30% and fewer than 50% of managers in medium-sized enterprises who believe that the dominant type of innovation refers to product innovation and process innovation, respectively (see figure 2). 21 management 2016/81 22 2016/81management figure 2.types of innovation in small and medium-sized enterprises source: authors’ calculation empirical results show that innovative activities of medium-sized enterprises are mainly related to processes, i.e., to the improvement of technological processes in order to reduce production cycle time and costs, and that is in line with the cost leadership strategy. on the other hand, activities of small enterprises are focused on product innovations, i.e., on the development and modification of existing products (services) with an aim to improve their quality, design and functionality. since small enterprises use costs as their main source of competitive advantage, while their innovative activities are mainly related to product differentiation, it can be concluded that innovative activities of enterprises do not follow their basic strategic orientation, i.e., small enterprises attempt to achieve their competitive advantage by combining elements of both cost and differentiation strategies. the research results show that the first hypothesis which stated that smes in serbia carry out innovative activities cannot be rejected. additionally, the second hypothesis based on the claim that the type of innovation corresponds to a competitive strategy can be confirmed in case of middle-sized enterprises, while in case of small enterprises it cannot be rejected under the assumption that they combine elements of both cost and differentiation strategies which is known as integrating competitive strategy. the absence of a strong strategic orientation towards the source of competitive advantage, i.e., the attempts to achieve competitive advantage by combining elements of both the cost focus strategy and the differentiation strategy can result in a scenario defined by porter (2007) as “stuck in the middle”. on the other hand, this phenomenon can be understood as small enterprises’ intention to combine elements of the differentiation and cost leadership strategies and to position themselves in the selected market segment either as producers offering medium-quality at below average prices, or offering high-quality at average prices. the risk associated with this strategy is very high. the biggest risk is that the company will fail to provide high value at a particular price or a sufficiently low price for a given set of product attributes. in the former case, the company will be threatened by actions of competitors using the differentiation strategy, and in the latter scenario it will be threatened by competitors using the cost leadership strategy (kalicanin, 2007). precisely, this strategy that combines the two sources of competitive advantage – low costs and differentiation might be an optimal solution for the internationalisation of serbian enterprises, and particularly for their access to the european union market (kalicanin, 2007). 23 management 2016/81 conslusion a competitive advantage is the main objective of all market oriented companies, while strategic orientation constitutes the most important precondition for gaining such an advantage. due to some specifics concerning small enterprises, as well as characteristics of the business environment for smes in serbia, the growth and development of these organizations should be predominantly based on their internal strengths, and particularly on skills and knowledge of their owners/managers. in order to create a competitive advantage, smes need to be strategically oriented. taking into account the characteristics of the business environment in serbia, as well as the problems faced by small businesses, the authors believe that strategic choice of serbian smes regarding the competitive strategy is limited and primarily refers to the focus strategy. based on empirical research conducted in the paper, it is concluded that smes in serbia are generally focused on costs as a source of competitive advantage, i.e., they achieve competitive advantage in a selected market segment by offering low price and average quality products/services. observed in the segment of medium-sized enterprises, the competitiveness strategy is aligned with activities in the field of innovation. in medium-sized enterprises, innovations are mainly related to processes, i.e., to the improvement of technological processes in order to reduce costs. on the other hand, in the segment of small enterprises no compatibility was observed between the competitiveness strategy and the innovative activities. in general, small businesses consider the average quality and a price lower than competition as the main characteristic of their products/services, while the dominant type of innovation refers to the product innovation. in case the prevailing view of the professional community is accepted, the absence of a strong commitment of enterprises regarding the source of competitive advantage i.e., the attempt to achieve the competitive advantage by combining the elements of the cost leadership and the differentiation strategies will result in the “stuck in the middle” position. the authors of the paper also believe that the integrating low cost and differentiation strategies should not be rejected as a possible solution for achieving competitive advantage of small businesses in serbia. under certain assumptions (flexible production system, efficient inventory management, intensive use of modern technology, tqm, top-down and bottom-up integration), the strategy combining elements of both low cost and differentiation strategies could be an appropriate solution for smes in serbia. the research results presented in this paper could be beneficial for both scientific and professional community, as well as for economic policy makers in serbia, 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(2005). developing strategic orientation in china: antecedents and consequences of market and innovation orientations. journal of business research, 58(8), 1049-1058. receieved: october 2016. accepted: december 2016. 25 management 2016/81 26 2016/81management about the author jelena minović institute of economic sciences, belgrade jelena.minovic@ien.bg.ac.rs; jelena.minovic@gmail.com jelena minović, phd, is a research fellow at the institute of economic sciences in belgrade. she acquired her phd degree (2012) at the faculty of economics, university of belgrade. jelena attended the european business school (ebs university) in wiesbaden, germany during her post-doc research stay from may 2013 to august 2013. she participated in many international and national conferences. she published, as author and co-author, a significant number of papers (about 70). her research interests are: quantitative methods and models in finance and economics, econometrics, time series analysis, financial economics and financial markets. her articles have been published in various international journals, such as applied economics, economic research, panoeconomicus, engineering economics, international journal of engineering education, economic annals, theoretical and applied economics, and others. marija lazarević – moravčević belgrade banking academy marija.lazarevic@bba.edu.rs marija lazarević – moravčević, phd, is an assistant professor at the department of business economics and management, belgrade banking academy – faculty for banking, insurance and finance, the union university, belgrade, serbia. she acquired her phd degree (2013) at the faculty for banking, insurance and finance, the union university. she earned her postgraduate degree (2005) and undergraduate degree (1999) at the faculty of economics, university of belgrade. she worked at the institute of economic sciences in belgrade from 2002 to 2009, where she was engaged in projects financed by the ministry of science. marija participated in many national and international conferences. her research interests are: strategic management, small and medium-sized enterprises and human resource management. isidora beraha institute of economic sciences, belgrade isidora.beraha@ien.bg.ac.rs; isidora beraha, phd, is a research associate at the institute of economic sciences in belgrade. she acquired her phd degree (2016) at the faculty of entrepreneurial business, union-nikola tesla university. she earned her postgraduate degree (2010) and undergraduate degree (2005) at the faculty of economics, university of belgrade. from september 1999 to june 2000 she attended one year academic programme at the hebrew university of jerusalem, rothberg international school, department for undergraduate studies, israel. isidora participated at a large number of national and international conferences. she published, as an author and co-author, two monographs and a significant number of scientific papers. her field of research 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04 85_3 radovic:tipska.qxd 33 svetlana radović1*, jelena sladojević matić2, goran opačić3 1 elektromreža srbije s.c. 2 university singidunum, faculty of media and communications, psychology department, serbia 3 university of belgrade, faculty of philosophy, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(3) personality traits composition and team performance doi: 10.7595/management.fon.2020.0006 abstract: 1. introduction in order to understand how organizations function and successfully manage human potential, it is necessary to understand how people function within the groups or teams, as well as to understand the dynamics of relations and mutual influences that are significantly different from the individual behaviour. managers steer the organizations by communicating to teams, not the individuals they consist of. changes that they convey are the consequence of the synergy of people in groups/teams (janicijevic, 2008), as well as of different roles they play in that constellation (aritzeta, swailes, & senior, 2007). the research also shows that individual output varies in the presence of other persons (jones, 2004). in the last 20 years teams have been more frequently mentioned in the management science and are differentiated with regard to working groups (vujic, 2008), first of all by synergetic effects that are much bigger in * corresponding author: svetlana radović, e-mail: svetlana.radovic@ems.rs research question: this paper investigates a relationship between the composition of personality traits of team members and teamwork performance as well as team behavioural competences. motivation: our primary motivation was to link and integrate organizational psychology and the field of management science. the study builds on existing literature that highlights the influence of personality factors and their composition on group processes. as stated in the literature, personality traits determine individual behaviour in work environment and therefore influence group processes and group performance (barric, steward, neubert, & mount, 1998). according to that, if we can determine such combinations of personality traits of team members that contribute to better or worse team performance, we can raise the team’s efficiency to a maximum. idea: the main idea of the research was to examine whether there is a combination of personality traits in a team that influences team performance. the importance of this topic is reflected in the increasing attention paid by organizations to working teams and their formation in order to increase productivity, so the adequate selection criteria of team members is of great importance. data: the research was conducted in one telecommunication company. the final sample consisted of 20 teams formed by 87 subjects (42 male and 45 female). every team consisted of 4-6 members and the team supervisor. the teams were generally similar in terms of education. tools: personality traits of team members were measured with the instrument based on the big five model. we used the average values of the team member’s personality traits as the predictors, and team work performance as criteria. beside descriptive statistics, we used correlation analysis and canonical and quasi canonical correlation analyses. findings: our findings mostly agree with similar studies in other countries the average group result of extraversion and openness proved to be very important for the teamwork performance. the results strongly support the existence of one general personality factor which is connected to the teamwork performance. it therefore confirms a hypothesis that adequately formed teams contribute considerably to the success of an organization. contribution: perhaps the most important contribution of this paper lies in the fact that there are very few similar studies in our area and including our population, and the practical implications for management are huge. keywords: team composition, personality traits, team efficiency, team work performance, organizational psychology, management jel classification: l20, m12, m59 teams in comparison with groups: the terms being used are team performances, shared leadership, complementary competences and collective responsibility for performances. teams for solving problems, interfunctional teams, virtual and global teams are other examples increasingly being discussed (leidner, kayworth, & tavarez, 2001). being very current and important within the management science this topic gives us a task to better understand the way that teams function successfully. one of the greatest challenges is to create a functional team since that affects almost every process of managing human resources – from selecting to achieving the strategic goals of the company. 1.1. theoretical background the tendency of a person to behave in a specific way is a function of their personality (hogan, 1991). metaanalyses consistently point to a relationship between certain personality traits of the five factors model and different individual criteria of work performance (barrick & mount, 1991; hough, 1992). personality traits determine the behaviour of the individual in work environment and therefore influence group processes and group performance (barrick, steward, neubert, & mount, 1998). specific studies showed that the team productivity is characterised by the factors such as group coherence and cognitive problem solving (kichuk & wiesner, 1997). three main theoretical perspectives explain the nature of the influence of the personality to the team performance and group processes: • universal perspective, according to which certain personality traits predict successful teamwork the personality shapes work performance through individual team members’ behaviour and the group personality is observed through average score of the specific group’s trait (moreland & levine, 1984). • contiguous perspective, according to which personality has the influence on the team outcome through the interaction of the personality and situation (magnusson & endler, 1977). • configurable perspective, according to which the combination of the personality traits within the group or members’ mutual compatibility predict team success (moynihan & randall, 2001). the results of the studies that deal with the personality traits’ influence on team behaviour and team performance have not so far offered a unique conclusion (driskell, hogan & salas, 1988). one study (bradley, baur, banford, & postlethwaite, 2013) showed that agreeableness is one of the most important team performance predictors, while being a weak individual performance predictor. apart from the group performance, agreeableness influences the group sustainability (barrick et al., 1998), which is a consequence of the trait of “the cooperative” to care for the common good and other group members apart from care for themselves (wagner, 1995). barrick and collaborators (1998) show that consciousness operationalized through the average, but through the lowest group result, is a good predictor of team performance, while neuman and wright (1999) find considerable connection between consciousness expressed with the lowest group result and the supervisor’s evaluation, even when they are expressed with objective signs such as quantity and quality of the work done. another research (van vianen, a. e., & de dreu, 2010) investigated, on the sample of 50 work teams, a relationship between the personalities, group cohesion and work performance of the team. they find that even a minimum level of consciousness and agreeableness contributes positively to both cohesion and team performance. the research conducted by barry and steward (1997) proves that extraversion is related to work performance and processes on both individual and group level. another very important work by barrick et al. (1998) show that teams with higher average extraversion level get higher scores of team performance by the supervisors. also, barry and stewart (1997) show that groups with a higher proportion of extroverted members have a lower cohesiveness level and lower performance, which could be due to a high number of individuals who tend to be dominant. results of various research show that neuroticism has a negative influence on the team work performance. haythorn (1953) is among the first authors who demonstrated such a negative influence of this trait. using the measure of the group average, he finds that the emotional stability is positively connected to the team performance. 34 svetlana radović, jelena sladojević matić, goran opačić 2020/25(3) o’neill and allen (2011) found that conscientiousness and its facets predicted team performance although agreeableness, extraversion and neuroticism were not predictive of team performance, whereas openness had a modest negative relation with team performance. neuman, wagner and chistiansen (1999) examined a connection between the team performance and two aspects of the team composition: the average level of a specific trait within the team and variability of the differences in the personality traits within the team. the results showed that the variability measure was connected to the team performance on neuroticism and extraversion, while for consciousness, agreeableness and openness the team performance was connected to the average level of the traits. in conclusion, as numerous research works indicate, all dimensions of the five factor model are theoretically and empirically connected to team performance and a group composition influences its performance (bradley, klotz, postlethwaite, & brown, 2013). apart from the average level of a specific personality trait, some other composition aspects can influence the group performance such as minimum and maximum scores and a personality traits variance (kramer, bhave, & johnson, 2013). 1.2. the problem and the aim of the research the main goal of this research was to examine connections between the composition of personality traits of team members, team performance and team behaviour competences. 2. method 2.1. variables the independent variables in the research are: five factors model personality traits operationalized through scores in neo-pi-r inventory (operationalized disintegration and amorality are also used in the research, but they are not relevant for the purposes of this paper). dependent variables in the research are: team performance (performance methodology is such that every team gets 3 to 5 key goals for the next year with defined kpis and defined valuation scale 1-5 (e.g., team kpi is the percentage of resolved malfunctions in the network where the grade 3 stands for 50-65% of resolved malfunctions and grade 4 stands for 65-75% of them). team behavioural competences (performance methodology includes the goals and the evaluation of 4 team behavioural competences by a team leader on 1-5 scale where each grade is defined. the estimated competences are: goals achievement: the employees are goal-oriented by actively directing themselves towards finalizing their tasks when achieving the specific goals of the company; planning and organizing: employees plan and organise the work efficiently by approaching every work task with previously formed work plan; team work: the employees show the ability of team work by treating one another like they treat their clients, they are attentive and helpful towards each other; accepting the change: employees flexibly accept the changes by showing the openness to new and unpredicted circumstances). 2.2. research process and instruments the subjects filled up neo-pi-r inventory (costa & mccrae, 1985; translation and standardisation by knezevic, dzamonja-ignjatovic, & djuric-jocic, 2004) as operationalisation of personality traits of the five factor model: neuroticism (n), extraversion (e), agreeableness (a), consciousness (c) and openness (o). the instrument consists of 240 five-point likert scale items. team leaders filled up questionnaire for an assessment of team behaviour competences. the researcher used the data about yearly performance of the team from an internal base. 2.3. the sample the research was conducted in the telecommunication company on 20 teams formed by 87 subject (42 male and 45 female). every team consisted of 4-6 team members plus the team leader. the teams were 35 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) generally similar as regards education (mostly telecommunication engineers). the team members work permanently together. 3. the research results the results of the subjects concerning the personality traits are aggregated according to the teams. for every team, there is an average, standard deviation, a minimum and maximum for all personality traits. for each of those team parameters, there are correlations with the team work performance and behavioural competences. table 1: correlation of team parameters and teamwork performance *. correlations are significant on the level of 0.05 (2-tailed). **. correlations are significant on 0.05 level 0.01 level (2-tailed). the results point out that the correlation between extraversion expressed in the average of the team, the team work performance and the team’s goal achievement is statistically significant. the average measure of openness, consciousness and agreeableness correlates with goal achievement. also, openness expressed as the minimal result and agreeableness expressed with the maximum result correlate to a significant extent with the same competence. 3.1. canonical and quasi canonical correlation analysis in order to prove a global covariance of the personality variables and teamwork performance, we performed a canonical analysis of the covariance using a spss macro programme (knezevic & momirovic, 1996). the left group of variables consists of all the personality variables from the neo pi-r inventory. the right group of variables includes the variables that represent the team work performance and the team’s behaviour competences. 36 svetlana radović, jelena sladojević matić, goran opačić 2020/25(3) big five dimension team work performance behavioural competences goals achievement planning and organizing team work change acceptance n_mean -.07 -.30 .01 .02 -.14 e_mean .47* .60** .02 .42 .39 o_mean .42 .60** -.06 .41 .33 a_mean .12 .46* -.07 .15 -.03 c_mean .14 .47* -.13 .01 .17 n_sd .12 .32 -.10 .18 -.01 e_sd -.18 -.25 -.14 -.29 -.24 o_sd -.22 -.32 -.12 -.18 -.26 a_sd .12 .11 .01 .22 .08 c_sd .15 .07 -.10 .05 -.01 n_min -.12 -.44 .09 -.16 -.08 e_min .40 .52* .05 .37 .35 o_min .38 .53* .07 .26 .34 a_min .09 .37 -.01 .09 -.07 c_min .04 .29 -.15 .03 .07 n_max .09 .02 .03 .10 -.08 e_max .19 .27 -.12 .10 .07 o_max .28 .35 -.05 .24 .18 a_max .20 .51* .07 .25 .05 c_max .16 .42 -.24 .10 .12 table 2: coefficient, structure and crossstructure of the left group of variables table 3: coefficient, structure and crossstructure of the right group of variables the quasi-canonical correlation analysis showed a statistically significant quasi-canonical function (ro = 0.527, p<0.5). we may conclude that there is a connection between the team performance and the team members’ personalities, i.e., the teams who have more stable and “healthier” members’ personality structure function better and more efficiently. it seems that the general personality factor emerged as a latent structure that influences the team performance and efficiency. the highest correlations mentioned personality g-factor has are with the traits of extraversion and openness. the personality traits g-factor explains 17% of the team work performance variance. 4. discussion the research results are mostly in concordance with the findings of different studies on the same topic that may be found in the literature. the average value of extroversion is in the considerable correlation between the team work performance and the team’s goal achievement. a higher efficiency of the team with more extrovert members can be explained by a higher social cohesion of the team. the teams with the higher average of openness dimension have better evaluations by the supervisors on goals achievement. as this dimension supposes openness towards experience, the tendency towards learning and discovery, the high trait average is connected to functioning well in the situations that require flexibility and change acceptance. similar results were obtained in the research by neuman, wagner and christiansen (1999). a higher efficiency of the teams with more extroverted members, as well as members who are more opened to experiences can be explained by team’s better social cohesion. the challenge of this finding lies in the possibility of composing the teams with dominantly introvert members with good qualities (e.g., programmers) – how to compose the teams that will achieve high standards. extroversion is a predisposition, but in the field of development it is possible to develop team members towards active listening, social skills, team coaching etc. developing teams this way in the long term creates an organization that is socially more responsive to the employees, dynamic, creative and productive. due to high cohesiveness, members are more prone to help the team if they find themselves in the challenging situations and different surroundings (liang, shih & chiang, 2015). similar results appeared in the research that was conducted by van vianen, & de dreu in 2010. the average and the maximum results on agreeableness and the average on consciousness on the team level is in the correlation with goal achievement. certain research works, as well as the one conducted by bradley, baur, banford and postlethwaite (2013), show that agreeableness is one of the most important predictors of team performance, while it is a weak predictor of the individual performance. neuman and wright (1999) came to the conclusion that the team performance is in correlation with the minimum on the consciousness dimension, 37 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) big five dimension w fx coefficient of the structure fyx coefficient of the crossstructure n -.19 -.63 -.21 e .58 .91 .63 o .56 .91 .61 a .28 .79 .30 c .30 .89 .33 variance proportion .68 .17 w fx coefficient of the structure fyx coefficient of the crossstructure team performance .43 .84 .33 goals realisation .73 .89 .58 planning and organization -.09 .60 -0,69 team work .33 .73 .26 change acceptance .36 .69 .29 variance proportion .57 .12 which they explained as the potential conflicts which proceed from the team diversity. we can say that team members with higher agreeableness have less need for a competitive attitude and achieve greater synergy in team performance. if conscientiousness is added, we have a higher-level team performance. the neuroticism dimension did not show considerable correlations with the team work performance nor with any of the team behavioural competences. this fact is an important guideline for selection procedures because it shows us that neuroticism can be compensated by interaction in the group where a person feels safer and can share with the group, which is a confirmation of the group synergy. the result of the quasi canonical analysis points to the existence of the general personality factor which influences team work performance. the teams with a more stable personality structure are more productive and they present better work habits. in the literature, personality g-factor follows the logic of spirman’s general intelligence factor (g-factor) and has the highest correlations with extraversion and openness. as an interesting concept, the literature also gives a factor of team intelligence which influences team performance (woolley, chabris, pentland, hashmi & malone, 2010). following an analysis of 14 studies with the confirmed five-factor personality structure, digman (1997) emphasized two factors of the second order, named “personality meta-traits”. the first factor includes emotional stability, kindness and consciousness, while the other includes extraversion and openness. according to digman (1997), they are called the alpha factor (stability of the emotional reaction, agreeableness and consistency in behaviour in terms of consciousness) and the beta factor (openness towards experience and extraversion). becker (1999) calls these factors the behavioural control (alpha) and the mental health/ self-actualization (beta), while deyoung (2006) calls them stability (emotional stability, consciousness and kindness) and plasticity (extraversion and openness). in the light of these results, as extraversion and openness show the highest correlations with the personality factor which influences the team performance, this result can be traced back to the beta factor, i.e., plasticity which has the highest influence on the efficiency of the teams, i.e., on their work performance. the general personality factor or superdimension is at the top of the pyramid and it may be assumed that it has deep biological, neuropsychological and evolutionary roots. it consists of wellbeing, life content, general self-respect, social desirability, emotionality and motivation (musek, 2011). viswesvaran and ones (2000) point to the general personality factor which has a higher importance than separate dimensions of the big five in comparison with the work performance. john and srivastava (1999) also talk about the integrative descriptive model which points to the existence of a general factor more than to individual dimensions of big five. the results of the meta-analytical study (van der linden, nijenhuis, & bakker, 2010) which examines the connection between the personality g-factor and teamwork performance point out that the general personality factor is a component connected to work performance, which is also in accordance with the results of this research. as repisti (2015) explains, the stability factor is related to activities performed devotedly (consciousness), to emotional reactions that are consistent (emotional stability) and cooperation with the others (agreeableness). in contrast with that, the plasticity is related to a tendency of an individual to achieve their rights and gain resources through social dominance, boldness, assertion and openness towards the surroundings (i.e., toward the others). connections of the factors with work performance and work traits are very obvious from this definition, all in accordance with our findings. 38 svetlana radović, jelena sladojević matić, goran opačić 2020/25(3) references [1] aritzeta, a., swailes,s., & senior,b. 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(2014). solution – focused team coaching. solutions academy, verlag 39 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) this research confirms the importance of team members’ personality traits and their compatibility. the frame and the structure of personality influences the achievements of the team. we conclude that efficient teams are the future of organizational behaviour and that a goal of organizational psychology is to explore possibilities of team development through training, systemic corporative coaching (hawkins, 2006), solution-focused organizational coaching (dierlof, 2014). also the focus should be shifted from individual development measures to an organization as a whole and its teams. this should be supported by a better development of work place consulting (carroll, 1996) that steers interventions towards the development of the organization – systemic approach. our findings point to existence of a personality factor that influences the performance. the importance of this research is based on the assumption that the adequately formed teams contribute considerably to the success of the organisation. perhaps the largest limitation in our research was the sample size of 87 employees organized in 20 teams. to obtain results with higher significance levels, a larger sample should be considered and that could be a subject of another possible research in the future. further research also needs to better articulate the operationalization of the evaluation process of the team behavioural competences with the purpose of decreasing subjectivity of the supervisor. another constraint is the fact that the teams are at the same time the working groups which exist in the structure of the organization and work together during a longer period of time, as well as the fact that the teams are specific educational structures (primarily technical). an advantage of this research lies in the fact that it was performed in a real company on teams that work side by side for a longer period of time, in contrast with artificially formed teams that perform certain tasks in controlled conditions, which was the case with a certain number of research works that we quoted in this paper. this very fact opens the possibility of further longitudinal research on the same sample on which some corrective measures can be applied and the effects followed. further research should focus on the type of activity the teams perform in the context of separating manipulative and creative tasks, considering that the sort of tasks can affect the relationship between the composition of personality traits and the performance (lugo, zapata-ramos, & puig, 2017). conclusion [12] digman, j. 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(2010). personality in teams its relationship to social cohesion, task cohesion and team performance. european journal of work and organizational psychology, 10(2), 97120, doi: 10.1080/13594320143000573 40 svetlana radović, jelena sladojević matić, goran opačić 2020/25(3) 41 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) [37] viswesvaran, c., & ones, d. s., (2000). measurement error in “big five factors” personality assessment: reliability generalization across studies and measures. educational and psychological measurement, 60(2), pp. 224–235, doi: 10.1177/00131640021970475 [38] vujic, d. (2008). menadžment ljudskih resursa i kvalitet. beograd: centar za primenjenu psihologiju. [39] wagner, j. a. (1995). studies of individualism–collectivism: effects on cooperation in groups. academy of management journal, 38, 152–172. doi: 10.5465/256731 [40] woolley, aw., chabris, cf., pentland, a., hashmi,n, & malone, tw. (2010). evidence for a collective intelligence factor in the performance of human groups. science, 330, 686-688, doi: 10.1126/science.1193147 received: 2019-07-27 revision requested: 2019-10-02 revised: 2020-02-07 (2 revisions) accepted: 2020-04-10 svetlana radović elektromreža srbije s.c. e-mail: svetlana.radovic@ems.rs svetlana radovic, ma, director of human potential development department in elektromreža srbije, with more than 13 years of experience in the field of human resources in hr development. faculty of media and communication, department of psychology, visiting lecturer in hr consulting and organizational psychology. jelena sladojević matić university singidunum, faculty of media and communications, serbia e-mail: jelenasladojevicmatic@yahoo.com jelena sladojević matic, phd, faculty of media and communication, department of psychology. assistant professor and lecturer in organizational psychology and occupational psychology, hr consulting. rich academic and practical experience in the field of organizational consulting. goran opačić university of belgrade, faculty of philosophy, serbia e-mail: opacicg@f.bg.ac.rs goran opačić, phd, faculty of philosophy, department of psychology, associate professor and lecturer in psychometry, psychology of individual differences and application of psychological testing. rich academic and practical experience in the field of hr consulting. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02 85_3 rajkovic:tipska.qxd 13 teodora rajković*, lena ðorđević milutinović, danica lečić-cvetković university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(3) * corresponding author: rajković teodora, e-mail: teodora.rajkovic@fon.bg.ac.rs research question: this paper presents a simulation model aimed at improving total adequacy calculation for performance indicators of the first phase of production management. motivation: defining a set of adequate performance indicators that are specific and highly important for the observed planning phase has a significant impact on the effectiveness of the production process management. the result of the developed model is the value of selected performance indicators adequacy. consequently, it can be concluded whether defined performance indicators are essential for the observed phase or other performance indicators should be selected. the monitoring of defined performance indicators should provide complete information about the observed phase and improvement of the planning phase management. idea: the main idea of this paper is to develop a user-friendly simulation model, in accordance with the basic principles of spreadsheet engineering, for improving the selection of adequate performance indicators. this model is intended for use in small and medium enterprises (smes) for the improvement of production management. data: the data used in the paper are grounded on the scientific articles, reviews and empirical studies, related to the performance and performance indicators in production management. the set of most adequate performance indicators based on a relevant literature review and used in the model, represents performance indicators for the planning phase that are the most suitable for smes. tools: the simulation model is developed in a spreadsheet environment. the use of spreadsheet applications enables simple data entry, processing, editing, analyzing and output reports compiling. findings: simulation results show the overall efficiency of the developed model in the determination of adequate performance indicators. they influence overall adequacy of performance indicators on the observed phase. contribution: the main contribution of this paper lies in the model developed to maximize the adequacy of the performance indicators, suitable for use in the production management of smes. keywords: production management, production planning, adequate performance indicators, simulation model, spreadsheet engineering jel classification: m11, c63 spreadsheet model for determining adequate performance indicators of production management doi: 10.7595/management.fon.2020.0011 abstract: 1. introduction with constant changes in market conditions in today's competitive business environment, every manufacturing company needs to define the performance and performance indicators, to measure them and to monitor their values. based on these values, the enterprise should monitor business results and correct control actions. determining a set of adequate performance indicators of production management represents a complex and demanding activity. the selection of a set of adequate performance indicators for production management phases depends on the quality and validity of the information they provide, where the total adequacy of performance indicators should reach maximum value (rajkovic, makajic-nikolic, vujosevic, & lecic-cvetkovic, 2019). the purpose of this paper is to develop a model for defining a set of adequate performance indicators for one phase of production management. this model is based on the main principles of spreadsheet engineering. the paper analyses adequate performance indicators of planning in small and medium enterprises (smes) in the manufacturing industry, as the first phase of production management. a sme's business is usually characterized by insufficient funds for software solution development and its implementation represents a striking characteristic of a sme’s business (zach, munkvold, & olsen, 2014). consequently, the authors of the paper suggest a spreadsheet simulation model, whose implementation is not expensive and which end-users can relatively easily apply. spreadsheet models are widely available and suitable for end-users, as well as for domain experts with a modest level of spreadsheet programming skills. spreadsheets represent a flexible and functional tool that supports simulation, decision-making processes and the analysis of the environment from many different perspectives (djordjevic, 2017). in addition, they represent a custom tool for problem-solving, which is easier to develop and implement than other tools, while significantly low cost of these activities indicates other essential benefits (teixeira & amaral, 2016). the remainder of this paper is organized as follows. the second chapter briefly describes the implementation of spreadsheet engineering principles in the production management of smes; it explicates characteristics of spreadsheets and spreadsheet control models and their implications in production management; finally, it explains adequate performance indicators and total adequacy of performance indicators. the third chapter expounds the model created for the calculation of adequacy of selected performance indicators for one phase of production management and presents simulation results. the fourth chapter outlines final remarks and directions for future research. 2. performance indicators and spreadsheet engineering in production management production management can be defined as the management of the transformation process of inputs into outputs (gupta & starr, 2014). the main purpose of the production process is the production of a certain quantity of products with defined all required manufacturing steps, including standard, minimal costs, defined timeline, and projected quality (halevi, 2001; rajkovic & lecic-cvetkovic, 2018). the production process consists of four phases (omerbegovic-bijelovic, 2006; gupta & starr, 2014; todorovic, 1993): planning, organizing, implementation and control. a contemporary business environment implies a constant development of products/services, improvement of production processes, supply and distribution, maintenance of stocks of raw materials and (semi) products, as well as the improvement of the management process by using new methods and techniques of enterprise management (atanasov, rakicevic, lecic-cvetkovic, & omerbegovic-bijelovic, 2014). performance indicators are a powerful tool for understanding the adequacy of business and identifying problematic areas, which presents an integral part of proper management and professional practice (simeunovic, 2015). they are used to report on results concerning enterprise objectives and targets (gudmundsson, marsden, & josias, 2016). performances identification comprises identification of performance indicators, measurement methods, benchmarks for comparison of results, as well as the source and reliability of the data used. for the performance identification process, it is essential to define adequate performance indicators. the decision-making process and actions are greatly influenced by indicators nature, use and time horizon (short or long-term) (franceschini, galetto, & maisano, 2019). the selection of adequate performance indicators is a critical point in the process of translating an enterprise mission into a business strategy and relevant objectives, which means that performance indicators are an integral part of a production management strategy (atanasov, 2016). adequate performance indicators are used to measure benefits for enterprise networks and should correspond to its size, processes and activities (graca & camarinha-matos, 2017). the complexity of defining the adequate performance indicators stems from the necessity of their reliability and the meaningfulness of the information they provide (dajic & todic, 2017). the adequate performance indicators should be sensitive to changes, adequate for the current state of a system process, and easily calculated. the authors (villa & taurino, 2018) consider that one of the most critical problems for managers in smes is related to production. the reason is that multiple tasks need to be accomplished with limited resources and machines, a lack of technology, resources, awareness, and knowledge of production management. for the purpose of this paper, the adequate performance indicators are considered as a group of the most important performance indicators for the planning phase. selected performance indicators should be those with the highest total adequacy for the observed phase. the total adequacy represents a cumulative value of all weights of performance indicators defined for the planning phase. the objective is to achieve the highest value of the total adequacy which means that the selected performance indicators are entirely adequate for the observed phase. this value indicates that a set of adequate performance indicators has an important impact on the observed phase and enables continuous improvement to achieve a more efficient and effective production management. one of the objectives of a manufacturing company is to ensure a stable production management. this objective can be achieved by the application of a spreadsheet control mod14 teodora rajković, lena ðorđević milutinović, danica lečić-cvetković 2020/25(3) els. the usability and overall rules for creating spreadsheet models depend on many factors, such as the purpose of the model, the complexity and dimensions of the problem being modelled, the knowledge and experience of the creator, etc. (antic & djordjevic, 2018). a spreadsheet model can be represented as a set of algebraic equations implemented in a spreadsheet environment. spreadsheet control models implement a mathematical model, which reflects the domain of an expert's knowledge and experience (djordjevic, 2016). like any other, a spreadsheet model uses a set of inputs and calculates a set of outputs (antic & djordjevic, 2018). spreadsheet programmes are probably the most successful example of end-user software development tools, used for a variety of purposes (jannach & schmitz, 2016). users can analyze decision alternatives before having to choose a specific plan for implementation in an enterprise (ragsdale, 2018). according to (djordjevic, 2017) modern spreadsheets are categorized as end-users programming languages (i.e., end-user computing euc) for non-professional developers. in order to develop and ensure the quality of spreadsheet models and applications that are efficient, effective, portable, and adequately documented, it is necessary to apply spreadsheet engineering knowledge. spreadsheet engineering can be explained as the application of software engineering principles to spreadsheets. it deals with various aspects of spreadsheet design and implementation, i.e., the life cycle of spreadsheet models and applications (djordjevic, 2017). djordjevic (2017) defines software engineering as a broad field that covers various techniques, for example: design before programming, modular structure, data referencing, documentation, etc. many of these techniques are directly applicable to spreadsheets and define spreadsheet engineering. adoption and application of the spreadsheet engineering principles have the potential to solve some of the basic problems related to spreadsheets: poor design, poor modularity, mixed data and calculations, lack of documentation, etc. although spreadsheets have countless advantages, they are also characterized by numerous errors (djordjevic, 2017). errors occur due to the omission of the testing phase and the lack of professional programming knowledge of the spreadsheet creators (djordjevic, 2016). the authors (hermans, jansen, roy, aivaloglou, swidan, & hoepelman, 2016) define the following issues related to spreadsheets: long life span, many different users performing a variety of tasks, lack of documentation and quality issues (substantial impact of errors involving spreadsheets). the authors (broman & woo, 2018) define basic principles for organizing spreadsheet data in order to reduce errors and facilitate analyses: be consistent, do not leave any cells empty, put just one thing in a cell, organize the data as a single rectangle (with subjects as rows and variables as columns, and with a single header row), create a data dictionary, do not include calculations in the raw data files, do not use font colour or highlighting as data, make backups, use data validation to avoid data entry errors, and save the data in plain text files. according to (djordjevic & antic, 2014) each spreadsheet model should comprise: modular and structural design, information flows, the range of field for input and output data, calculation module, and a reporting part. 3. a spreadsheet model based on adequate performance indicators most users do not apply spreadsheet engineering principles because of the lack of experience or training (roy, hermans & van deursen, 2017). consequently, it is important to develop a standardized model that can be easily implemented in everyday business activities. the model should be easy to understand and quickly accepted by end-users. 3.1 problem description the problem of selecting a set of adequate performance indicators for production management is a complex task, which can be solved by choosing a set of adequate performance indicators for each stage of production management. the model presented in this paper assumes a set of performances for the first stage of production management, defined to monitor the success of this phase. for the purpose of this research, four different performances and eight performance indicators of the planning phase are defined. selected performances and performance indicators are chosen in accordance with the problems usually appearing and mostly affecting everyday business activities of smes. the selection is grounded on the research presented in (franceschini, galetto, & maisano, 2006) and encompasses the following: the indicators should not be too complex, in order to avoid overloading the employees with work, the indicators should be easily understood and effectively used, they should have a clear distinct feature to be largely accepted by the employees, and necessary information should be available. the main objective is to select the group of adequate performance indicators of the highest importance for the observed phase. additionally, the performances and performance indicators used for the model development are defined based on the liter15 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) ature review (amrina & vilsi, 2015; bauer & hayessen, 2015; bhatti, awan, & razaq, 2014; gomes, yasin, & lisboa, 2011; gosselin, 2005; kang, zhao, li, & horst, 2016; muchiri, pintelon, gelders, & martin, 2011; tewari, singh, & tewari, 2016). the most cited ones are selected as the most monitored in the planning phase in smes operating in the manufacturing industry. the most significant performances for the observed phase used in the simulation are the following: cooperation with suppliers, cooperation with customers, machine performances, and cost performances. performance indicators defined for considered performances are presented as follows. for performance cooperation with suppliers, performance indicators are: delivery time, defect of delivered raw materials, and mistakes and omissions; for performance cooperation with customers, performance indicators are: delivery time and service; for performance machine performances, performance indicators are: mistakes and omissions, service, and available capacity of machines; for performance cost performances, performance indicators are: mistakes and omissions, planned production costs (per product unit), planned labour costs, and planned material/raw material costs. it is important to note that one performance indicator can be an indicator of more performances. table 1 shows the weight coefficients of performance indicators per performance. the weights are defined according to the importance of performance indicators for the observed performance. in practice, these weights are defined by a production manager or a planner, who monitors performance indicators of smes. in this paper, the values were defined by the authors of the paper and entered in columns cooperation with suppliers, cooperation with customers, machine performances and cost performances. the porter scale (05) is used for the performance indicator weight estimation. value 0 presents the lowest significance of the indicator for the observed performance, and value 5 represents the highest significance of the indicator for the observed performance. for example, performance indicator delivery time has a value 3 for the performance cooperation with suppliers and a value 5 for the performance cooperation with customers, but a value 0 for machine and cost performances. for the performance cooperation with customers, this performance indicator has a great significance, but it is not a performance indicator for machine and cost performances. the weights of performance indicators per performance differ and clearly define the priority of performance indicators. performance indicators per performance are ranked according to their weights in descending order. table 1: weights of performance indicator per performance for the planning phase and their ranks 3.2 mathematical formulation in order to explain the spreadsheet simulation model for the performance indicators adequacy maximization, the following notations are used: • pn: performances of the planning phase, n=1,...,4; • pik pn: performance indicator per performance, n=1,...,4; k=1,...,4; • pipn: number of performance indicators per performance, n=1,...,4; • wpik pn: weight coefficient of performance indicator per performance, n=1,...,4; k=1,...,4; • c: minimum weight of performance indicator; • apimin: minimum number of adequate performance indicators for the phase (where apimin pn is for pn, n=1,...,4); 16 teodora rajković, lena ðorđević milutinović, danica lečić-cvetković 2020/25(3) � ������� ��� � ������� ��� � �� ����� � � � �� � � � �� � � � � � �� �� � � �� � � � � �� � � � �� � � � � � �� �� � �� � � �� � � � � �� � � �� � � �� � �� � � � �� � � � �� � � �� � �� � �� � � � �� � � � ���� � � �� �� �� �� �� �� �� �� � � ������� � � � ��������� � ���� �� �� �� �� �� �� �� �� � ���� �������� �� ���� � �� �� �� � �� �� � ! �� � � �� �� � �� �� �� �� �� "�� ��#� ��� �� ���������� � �� �� �� �� �� �� �� �� �� $���� �� ������ ���������% �� ������� �� �&� �� �� �� �� �� �� �� �� $���� ����#��������� �� �� �� �� �� �� � �� $���� ����� � ��'������� � ��������� �� �� �� �� �� �� �� �� • apimax: maximum number of adequate performance indicator for the phase (where apimax pn is for pn, n=1,...,4); • apipn: number of adequate performance indicators for observed performance according to the constraint c, n=1,...,4; • upn: number of adequate performance indicators apipn; • xpn: state variable defining total adequacy of performance indicators for the observed phase; • ypn: adequacy of performance indicators per performance according to the number of defined upn. the user of this model defines constraint c. the minimum and maximum value of c is shown by inequality (1), according to the porter scale. 0 ≤ c ≤ 5 (1) the value of pipn is defined in advance and entered as an input value (table 2). values for apipn are defined as a number of performance indicators pipn that fulfill the defined constraint c. the value apipn must be between the minimum and the maximum of a defined number of adequate performance indicators for the planning phase (2). the minimum and maximum values are defined by the user. apimin ≤ apipn ≤ apimax (2) the control variable (upn) represents the number of adequate performance indicators for the observed performance. this value must be between the minimum and the maximum number of adequate performance indicators for considered performance. the control domain is defined by three constraints (3-5). upn apimin ≥ 0 (3) apimaxupn ≥ 0 (4) apipn ≥ upn (5) variable ypn represents the sum of weights of adequate performance indicators per performance, according to the upn. for example, rank 1 implies a performance indicator with the highest weight value, rank 2 has a performance indicator with the next weight value (in descending order), etc. this affects the change of order of performance indicators per performance, where the performance indicator takes place according to the ranked value (equation 6). pik pn = pir pn , r = 1,...,4; k = 1,...,4 (6) the control variable upn defines the number of performance indicators per performance for which the weight will be summed and presented as ypn. variable ypn sums weights of performance indicators starting from rank 1 until the rank that has the same value as upn (equation 7). ypn = wpi pn , n=1,...,4 (7) variable xpn represents a system state, i.e., total adequacy of performance indicators for the planning phase, shown in equation (8). xpn = xpn-1 + ypn , n=1,...,4 (8) the variable xpn reflects the adequacy level of the performance indicators. the value of this variable represents the total adequacy of performance indicators for the planning phase, as the cumulative value of all weights of performance indicators defined by the control variables. based on this value, it can be deduced whether the chosen performance indicators are adequate for the observed performance. if not, the production manager, or a planner, will have to define performance indicators that are more significant for the observed performance. the objective function j represents the sum of variables xpn and it should be maximized for all performance indicators (9). the total value of this objective function should achieve the maximum value, which implies that the observed set of performance indicators is adequate for the planning phase. (max) j = , n=1,...,4 (9) for the observed model, the minimum adequacy value is 0 (if apimin=0), whereas the maximum adequacy value is 47 (if apimax=4). 17 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) 3.3 the model implementation and simulation results the described performance indicators adequacy model is implemented in a spreadsheet environment microsoft excel (figure 1). the legend of terms and abbreviations used in the spreadsheet model is the following: pi(p) is the number of performance indicators for the planning phase; pi(pn) represents the number of performance indicators per performance; api(p) is the number of adequate performance indicators per planning phase and api(pn) relates to the number of adequate performance indicators per performance. the developed spreadsheet model is characterized by a modular design presented through three top-level modules: input, calculation, and output modules. the input module is intended for storing input data (circumstance and control variables), entered by the user. the calculation module is used for the mathematical model implementation. the report module represents the results reflected through the objective function, which determines the quality of control. figure 1: the spreadsheet model for performance indicators adequacy maximization the application of structural design affects the readability (separated input, output and calculation modules), accuracy (provided by translating the verbal model into mathematical and mathematical into a spreadsheet model, applied conditional formatting and data validation), reusability (it can be used again and with different data), and modification of the model (each module can be modified to reflect the newest facts, without influencing other modules) (grossman, mehrotra, & sander, 2011). the model structure comprises the logic of the input and output modules and organized information flows. the inputs and outputs of the model are separated, without the distractions caused by the calculation, and represent sets of connected blocks. information flows are direct and non-intersectional. at the highest level, information flows start from the input data (pipn, apipn, apimin, apimax, c, upn), continue through the calculation section, and end with the output values (xpn, jpn). this structure, based on the principles of spreadsheet engineering, reduces the likelihood of errors and improves the functionality of the created model. arranged information flows allow the model to be easily modified by changing the part for calculations, with the input and output parts isolated. the simulation is conducted for the planning phase of production management and four performances of that phase. the control variable values are changed according to the constraint (5). three scenarios with different input data were analyzed (table 2). according to the value of the objective function, the user of this model can deduce whether the set of performance indicators is adequate for the observed phase. a low value of the objective function implies that new performance indicators should be defined for the observed phase. the simulation result will be explained for the second scenario (table 2). the performance indicators per performance were defined and explained in section 3.1. based on the constraints, the minimum observed weight 18 teodora rajković, lena ðorđević milutinović, danica lečić-cvetković 2020/25(3) is c=3, the minimum number of adequate performance indicators for the phase is apimin=1 and the maximum number of adequate performance indicators for the phase is apimax=3. it is needed to define the number of adequate performance indicators per performance that meets those constraints and strives to maximize the adequacy of performance indicators for the planning phase. results of the model simulation are: • performance cooperation with suppliers has three (up1=3) adequate performance indicators (defect of delivered raw materials, mistakes and omissions and delivery time), where the weight of performance indicators per this performance is yp1=12; • performance cooperation with customers has two (up2=2) adequate performance indicators (delivery time and service), where the weight of performance indicators per this performance is yp2=9; • machine performance has three (up3=3) adequate performance indicators (available capacity of machines, mistakes and omissions and service), where the weight of performance indicators per this performance is yp3=12; • cost performance has three (up4=3) adequate performance indicators (planned material/raw material costs, planned labor costs and planned production costs (per product unit)), where the weight of performance indicators per this performance is yp4=12. the total adequacy of these performance indicators for the planning phase is 45. table 2: input data and simulation results of the implemented spreadsheet model the objective function will achieve the maximum value when the control domain takes the largest possible number of adequate performance indicators by performance (simulation 3). this simple, flexible, low-cost, and adjustable model is suitable for smes that do not have enough financial resources for expensive software solutions used for defining a set of adequate performance indicators for production management improvement. the spreadsheet model can be implemented in all manufacturing smes, for a particular phase of production management, with a significant impact on its effectiveness. the full efficiency and effectiveness of the model imply adjustment to the needs and capabilities of the particular manufacturing company and its business environment. 19 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) � ������� ���� � � � � � �� ����� �� �� �� �� ��� ������ �� �� �� �� ���� �� �� �� �� �� ���� �� �� �� �� �� �� �� �� �� �� ��� �� �� �� �� ���� �� � � � � ��� ���� �� �� �� �� �� ����� �� �� �� �� ��� ������ �� �� �� �� ���� �� �� �� �� �� ���� �� �� �� �� �� �� �� �� �� �� ��� �� �� �� �� ���� ��� ��� ��� ��� ���� ��� �� ��� ��� �� ����� �� �� �� �� � � ������ �� �� �� �� ���� �� �� �� �� �� ���� �� �� �� �� �� �� �� �� �� �� ��� �� �� �� �� ���� ��� ��� ��� � � ���� ��� �� ��� ��� ��� ������ references [1] amrina, e., & vilsi, a. l. 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(2014). evaluating the quality of the analytical spreadsheet model (in serbian: ocena kvaliteta analitičkog spredšit modela). in proceedings of yu info 2014, 206-211. [12] franceschini, f., galetto, m., & maisano, d. (2006). classification of performance and quality indicators in manufacturing. international journal of services and operations management, 2(3), 294-311. [13] franceschini, f., galetto, m., & maisano, d. (2019). designing performance measurement systems-theory and practice of key performance indicators. management for professionals. [14] gomes, c. f., yasin, m. m., & lisboa, j. v. (2011). performance measurement practices in manufacturing firms revisited. international journal of operations & production management, 31(1), 5-30. doi: 10.1108/01443571111098726 [15] gosselin, m. (2005). an empirical study of performance measurement in manufacturing firms. international journal of productivity and performance management, 54(5-6), 419-437. doi: 10.1108/17410400510604566 [16] graca, p., & camarinha-matos, l. m. (2017). performance indicators for collaborative business ecosystems—literature review and trends. technological forecasting and social change, 116, 237-255. doi: 10.1016/j.techfore.2016.10.012 20 teodora rajković, lena ðorđević milutinović, danica lečić-cvetković 2020/25(3) the basic contribution of this paper is the model developed for measuring the adequacy of selected performance indicators in the first phase of production management – planning. the performances and their indicators are defined according to the literature review, selecting the adequate ones for the planning phase. the model is developed for the production management of smes. future work can be directed toward a more systematic research of the model applicability to real-life problems of larger dimensions, i.e., the problem with an increased number of performances and performance indicators and additional constraints. furthermore, the implementation of the model for all production management phases should be considered. consequently, the adequacy of performance indicators for the whole production management process can be measured. another interesting question comprises an adaptation of the model for large enterprises, where performances and performance indicators differ from those defined for smes. conslusion [17] grossman, t. a., mehrotra, v., & sander, j. 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(2018). spreadsheet modeling and decision analysis: a practical introduction to business analytics, 8th edition. usa: cengage. [27] rajkovic, t., makajic-nikolic, d., vujosevic, m., & lecic-cvetkovic, d. (2019). production management by application of appropriate performance indicators (in serbian: upravljanje proizvodnjom primenom adekvatnih indikatora performansi). in proceedings of xlvi international symposium on operational research sym-op-is 2019, 524-529. [28] rajkovic, t., & lecic-cvetkovic, d. (2018). usage of rfid technology in production management. in proceedings of 37th international conference on organizational science development, 923-933. doi: 10.18690/978-961-286-146-9 [29] roy, s., hermans, f., & van deursen, a. (2017). spreadsheet testing in practice. in proceedings of 2017 ieee 24th international conference on software analysis, evolution and reengineering (saner), 338-348. doi: 10.1109/saner.2017.7884634 [30] simeunovic, b. (2015). development of process performance measurement model (in serbian: razvoj modela za merenje performansi procesa). doctoral dissertation, belgrade: faculty of organizational sciences. [31] teixeira, r., & amaral, v. (2016). on the emergence of patterns for spreadsheets data arrangements. in federation of international conferences on software technologies: applications and foundations, 333-345. springer, cham. [32] tewari, d., singh, a., & tewari, p. c. (2016). ranking of performance indicators in jit-based production system for manufacturing industries. iup journal of operations management, 15(1), 25-34. [33] todorovic, j. m. (1993). modern production (in serbian: savremena proizvodnja). belgrade: mrljes. [34] villa, a., & taurino, t. (2018). event-driven production scheduling in sme. production planning & control, 29(4), 271-279. doi: 10.1080/09537287.2017.1401143 [35] zach, o., munkvold, b. e., & olsen, d. h. (2014). erp system implementation in smes: exploring the influences of the sme context. enterprise information systems, 8(2), 309-335. doi: 10.1080/17517575.2012.702358 received: 2020-02-06 revisions requested: 2020-03-23 revised: 2020-05-04 (2 revisions) accepted: 2020-06-09 21 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) 22 teodora rajković, lena ðorđević milutinović, danica lečić-cvetković 2020/25(3) teodora rajković university of belgrade, faculty of organizational sciences, serbia teodora.rajkovic@fon.bg.ac.rs teodora rajković, msc, is a teaching assistant at the department for production and services management of the faculty of organizational sciences, university of belgrade. her research interests are related to operations management, production and services management, key performance indicators, e-manufacture and e-service. the author has published more than 10 papers in national and international conference proceedings. lena ðorđević milutinović university of belgrade, faculty of organizational sciences, serbia lena.djordjevic.milutinovic@fon.bg.ac.rs lena ðorđević milutinović, phd, is an assistant professor at the department for production and services management of the faculty of organizational sciences, university of belgrade. her research interests include operations management, production and services management, spreadsheet engineering, spreadsheet management, material flow management, control systems, enterprise information systems and business applications. she has published over 70 papers in national and international scientific journals and conference proceedings, national and international scientific journals and conference proceedings chapters in national and international monographs, textbooks, and auxiliary teaching literature. danica lečić-cvetković university of belgrade, faculty of organizational sciences, serbia danica.lecic-cvetkovic@fon.bg.ac.rs danica lečić-cvetković, phd, is a full professor of production and services management and e-manufacturing at the department for operations management, faculty of organizational sciences, university of belgrade. her research interests and fields are related to operations management, production and services management, key performance indicators, e-manufacture and e-service. the author has published more than 100 papers in journals and conference proceedings in international and national journals and conferences. since 2008, she is a member and leader of the mesa (manufacturing enterprise solutions association) group for the republic of serbia. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07 85_2 rajic:tipska.qxd 77 tamara rajić1*, isidora milošević2, ana rakić3 1economics institute s.c. belgrade, serbia 2university of belgrade, technical faculty in bor, serbia 3university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(2) the influential factors of health care customer loyalty: evidence from serbia doi: 10.7595/management.fon.2020.0004 abstract: 1. introduction a substantial body of literature has emerged over previous three decades on service quality; it has gained the status of the most extensively studied topic in services marketing (choi et al., 2004). a rising interest in service quality has been spurred on by the increase of competitive pressures in service businesses and expected benefits of service quality improvement. a number of studies have supported the antecedent role of service quality to customer satisfaction (rajaguru, hassanli, 2018; ananda & sonal, 2019; zhang et al., 2019). satisfied customers are praised for higher probability to return to the same company, recommend the company to significant others and spread positive word-of-mouth. satisfied customers are easier to serve and can be served in a more cost-efficient way (peer & mpinganjira, 2011; boakye et al., 2017; cvijovic et al., 2017). customer satisfaction has also been recognized as the main driver of company’s profitability (milosavljevic et al., 2016). in addition, by spreading positive referrals, satisfied customers lower the costs of attracting new customers (han & hyun, 2015; almohaimmeed, 2019). research on service quality in health care settings indicates that high quality service leads to patient satisfaction and willingness to use services of the same health care provider in the future (ozturkcan et al., 2009; kondasani & panda, 2015; boakye et al., 2017; taqdees et al., 2018; mahmoud et al., 2019). provision of high quality service by a health care institution has also been recognized as a means of successful differ* corresponding author: tamara rajić, e-mail: tamara.rajic@ecinst.org.rs research question: this study aims to investigate the determinants of customer loyalty in a european emerging economy’s health care setting. motivation: in spite of a rising research interest in the determinants of patients’ loyalty over previous years, scarce attention has been paid to date to simultaneous examination of the influential factors of patients’ loyalty. although a number of studies have pointed to patients’ perceptions of service quality as an important determinant of loyalty, there is a paucity of research of the impact of service quality, at a disaggregate level, on patients’ loyalty. idea: to address this knowledge gap, this study builds upon the south korean health care service quality measurement instrument and, upon supporting its validity in the serbian health care setting, examines a relative contribution of service quality dimensions and satisfaction to patients’ loyalty. data: quantitative research has been performed, by means of a structured questionnaire, on a convenience sample of 300 health care customers in serbia. tools: structural equation modelling (sem) has been applied to simultaneously examine the impact of service quality dimensions and satisfaction on patients’ loyalty. findings: results of the study point to patient satisfaction as the most significant determinant of loyalty, followed by tangibles and concern of other medical staff, which in terms of total effect resulted as statistically significant determinants of loyalty. findings of this study indicate that managerial attention to these predictors may results in higher levels of patients’ loyalty to the institution. contribution: this study adds to the body of knowledge on patients’ loyalty and points to the relevance of a more holistic approach in future examinations of customer loyalty in a health care setting. keywords: health care service quality, patients’ satisfaction, patients’ loyalty, structural equation modelling jel classification: m31, c30, i19 entiation among competitors and a source of sustainable competitive advantage leading to improved efficiency, long-term success and organizational sustainability (ramsaran-fowdar, 2008; peer & mpinganjira, 2011; boakye et al., 2017; giovanis et al., 2018; taqdees et al., 2018). on the other hand, the delivery of poor health care services leads to patient dissatisfaction, which negatively affects sustainability of health care services (altuntas et al., 2018). whereas health care service quality has been extensively studied in developed economies, the construct remains largely under-studied in eastern europe and its emerging economies lag behind other developing economies when it comes to health care service quality examinations. in addition, scarce research attention has been devoted to date to simultaneous examinations of the contribution of health care service quality, at a dimensional level, and customer satisfaction to patients’ behavioural intentions. therefore, this research seeks to contribute to the existing knowledge on patients’ loyalty by simultaneous examinations of the contribution of service quality, at a disaggregate level, and satisfaction to patients’ loyalty in the context of the serbian health care system. a number of health care quality measurement instruments have been proposed to date. this study will build upon choi et al.’s (2004) health care measurement instrument, which was proposed in the south korean health care context. the choice of this particular instrument is based on the fact that to date this instrument has been cited 249 times in scopus database and, according to the best of our knowledge, it is the most influential service quality instrument in the health care context. taking into consideration that the instrument is developed in one cultural setting and is now being applied in a different context, first, there is a need to examine its validity in the serbian health care setting. therefore, this study has two objectives: 1) first, to examine psychometric properties of the aforementioned instrument in the serbian health care system and second, to simultaneously examine the influence of service quality and satisfaction on patients’ loyalty, addressing the construct of service quality at a disaggregate level, i.e., at the level of its constituents. the remainder of the paper is divided into several sections. the first section deals with the review of literature and proposes a conceptual framework of the study. methodology of the study is presented within the second section. results of the study are provided subsequently. implications stemming from the study’s findings are discussed in the following section. the paper ends by noting the limitations of the study and providing directions for future research. 2. literature review historically, medical professionals have been responsible for setting specifications for the provision of quality health care services. however, the traditional way of managing health care quality has been extensively criticized for being overly focused on technical clinical criteria, without taking into account patients’ perspective (peer & mpinganjira, 2011). a contemporary health care system calls for putting customers’, i.e., patients’ interests first. patient satisfaction is regarded as an important indicator of a nation’s health care system quality (senic & marinkovic, 2013). therefore, there is a need for service quality measurements in health care settings to take into account patients’ perceptions of the quality of service provision. moreover, recent studies have highlighted the importance of measuring both patients’ expectations and perceptions of service quality attributes and the examination of relative contribution of quality dimensions to patient satisfaction (pekkaya et al., 2017; ali et al., 2018). it is widely acknowledged that service quality is difficult to measure, due to unique characteristics of services, such as intangibility, heterogeneity, perishability and simultaneity of production and consumption (boakye et al., 2017). this especially pertains to credence services, which are difficult to evaluate even after provision, and medical services are regarded as a typical representative of credence services. patients lack necessary knowledge and they are not sufficiently qualified to evaluate the technical aspect of health care service quality (ramsaran-fowdar, 2008). therefore, the north american school of service quality and servqual scale (parasuraman et al., 1988) with its orientation towards process aspect of service quality has captured most attention among researchers in the field of service research in general, including health care services. the servqual scale implies that service quality should be measured as a difference between customers’ perceptions of provided service and their expectations prior to service delivery. as such, the instrument is designed to detect eventual gaps, i.e., areas where service provision fails to meet customers’ expectations and to provide the foundation for future improvements in the provision of services. 78 tamara rajić, isidora milošević, ana rakić 2020/25(2) several studies have been performed to examine the applicability of servqual-based instrument for health care service quality measurement. however, results of the application of servqual instrument in a health care setting are equivocal. whereas some previous studies have supported the validity of servqual instrument for health care service quality measurements in diverse cultural settings (babakus & mangold, 1992; zarei et al., 2012; yousapronpaiboon & johnson, 2013), it is generally agreed that servqual scale should be regarded as a good starting point for service quality measurements in a health care context, however, appropriate adaptations of this measurement instrument which would take into account specificities of a health care setting and service delivery are advised (ramsaran-fowdar, 2008; lonial et al., 2010; al-neyadi et al., 2016; kansra & jha, 2016; fan et al., 2017; mahmoud et al., 2019). the servqual scale also provided the base line for choi et al.’s (2004) study on health care service quality in south korea. their study, performed on a sample of outpatients of a general hospital in seoul, indicated that patients’ perceptions on health care service quality depend on the convenience of a healthcare process, concern towards patients expressed by physicians and other medical staff and tangibles. the study further indicated a significant impact of service quality on the perceived value of a medical service and direct influence of both service quality and perceived value on patient satisfaction. perceived quality, value and satisfaction also emerged as significant direct determinants of patients’ loyalty. peer and mpinganjira (2011) applied a modified version of servqual instrument in south african private medical practice. their study indicated a significant impact of overall service quality on customer satisfaction and a significant influence of both service quality and satisfaction on patients’ behavioural intentions, i.e., willingness to return to the same institution and willingness to recommend the institution, whereas all service quality dimensions, corresponding to servqual dimensions, emerged as significant predictors of customer satisfaction. according to these authors, customer satisfaction emerged as a more influential determinant of customer behavioural intentions, in comparison with overall service quality. taking into account the explanatory power of overall service quality on customer satisfaction (which emerged slightly over 50%), the authors further concluded that, in addition to service quality, there might be some additional determinants of patient satisfaction which were neglected during the course of the study. however, it should be noted that relationships among the constructs in this study were examined by the application of simple regression analysis. ozturkcan et al. (2009) proposed a six-dimensional construct of service quality, comprising tangibility, reliability, responsiveness, assurance, courtesy and empathy, and studied the impact of service quality and satisfaction on patients’ loyalty at marmara university hospital in turkey. by the application of multiple regression analysis their study indicated significant impact of all proposed service quality dimensions on patient satisfaction and significant impact of reliability, responsiveness and empathy on patients’ loyalty. however, their study did not examine simultaneously the impact of service quality dimensions and satisfaction on patients’ loyalty. in the context of private health care institutions in india, kondasani and panda (2015) indicated a six-dimensional construct of service quality, comprising the following dimensions: physical environment, reliability, responsiveness, privacy and safety, customer-friendly staff and communication. by the application of multiple regression analysis the authors found out a significant impact of satisfaction on patients’ loyalty, whereas among service quality dimensions physical environment emerged as the most influential determinant of patients’ loyalty, followed by customer friendly personnel, communication and responsiveness. according to trivedi and jagani’s (2018) research, also in the indian health care setting, service quality dimensions, such as experience with hospital administration, experience with doctors, experience with nursing staff, experience with hospital pharmacy and physical environment, significantly influence patient satisfaction. taqdees et al. (2018) examined service quality, patient satisfaction and loyalty in the context of private health care in pakistan. their study indicated a five-dimensional construct of service quality, comprising physical environment, customer-friendly environment, communication, privacy and safety and responsiveness. further examinations, by the application of regression analysis, indicated a significant impact of all quality dimensions on patient satisfaction, whereas with the inclusion of satisfaction as an independent variable in a regression equation the study indicated a statistically significant contribution of two out of five quality dimensions on patients’ loyalty, namely, privacy and safety and responsiveness. ahmed et al. (2017) studied the construct of service quality, patient satisfaction and loyalty in the bangladesh health care system. their study indicated conformity to five servqual-based dimensions of service quality, revealed differences in the perception of quality dimensions and loyalty among single and married pa79 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) tients and among patients belonging to different age groups and indicated a higher level of services provided by private medical institutions, in comparison with public hospitals. in a recent study in a health care context in ghana, boakye et al. (2017) simultaneously examined relatedness among service quality, perceived value, satisfaction and their contribution to patients’ loyalty. results of this study indicated an indirect impact of overall perceptions of health care service quality on patients’ loyalty, mediated via satisfaction and perceived value. recently, giovanis et al. (2018) have studied patients’ perceptions of service quality in hospital outpatient departments in greece. their study has indicated four dimensions of healthcare service quality: medical care, nursing care, administrative services and staff behaviour and the condition of facilities, which contribute to patients’ overall quality perceptions. this study also provided evidence of partial mediation of satisfaction in the relationship between overall quality perceptions and patients’ intentions. unlike a majority of previous studies, these authors have simultaneously examined relatedness among health care service quality, satisfaction and patients’ behavioural intentions, however, the construct of overall perceptions of service quality has been modelled as an antecedent to satisfaction and patients’ future intentions. health care services have also occupied the attention of researchers in serbia. damnjanovic et al. (2018) studied the determinants of patient satisfaction in serbia. findings of their study indicate care of the doctors and support staff as important determinants of patient satisfaction. in an earlier study filipovic et al. (2010) provided evidence of significant impact of a positive attitude towards public relations and marketing activities of managers of health care institutions on patient satisfaction in serbia. in another study performed on a sample of serbian health care customers, senic and marinkovic (2013) used a servqual-based measurement instrument to examine the determinants of student satisfaction with health care services provided by student polyclinics. their study’s findings point to a significant influence of personal relationship with a doctor, promptness of service provision and tangibles on student satisfaction. review of literature points to the rising research interest into health care service quality and its effects in developing economies over previous years. it also shows that the majority of previous studies on health care service quality and its consequences have been based upon servqual measurement instrument. whereas researchers have agreed on a multidimensional nature of health care service quality, previous studies resulted in different dimensions of health care quality. however, it should be noted that similar traits of service quality construct have been highlighted as important in previous studies: courtesy, knowledge, experience, competence and empathy of doctors and supporting staff, accessibility, atmoshere and physical environment of a health care institution. however, a vast majority of previous studies have neglected simultaneous examinations of relatedness among quality, satisfaction and loyalty or, as evidenced in a recent study from the context of the greek healthcare setting (giovanis et al., 2018), the study took into account patients’ overall quality perceptions. therefore, a disaggregate approach to health care service quality and relative contribution of quality dimensions and satisfaction to patients’ loyalty is clearly missing in extant literature and this study aims to provide this missing link to service quality-satisfaction-loyalty relationship. to reach this objective, this study builds upon choi et al.’s (2004) health care measurement instrument. based on the above discussion, and taking into consideration an existing gap in the extant literature, the following hypotheses are proposed: h1: choi et al.’s (2004) health care service quality measurement instrument is a valid and reliable instrument for service quality measurement in the serbian health care setting; h2: health care service quality dimensions have a significant positive effect on patient satisfaction; h3: satisfaction has a significant positive effect on patients’ loyalty; h4: health care service quality dimensions have a significant positive effect on patients’ loyalty. the conceptual model which synthesizes proposed relationships is presented in figure 1. 80 tamara rajić, isidora milošević, ana rakić 2020/25(2) figure 1: conceptual model 3. methodology the study was performed on a convenience sample of health care customers in serbia. patients visiting a general practitioner or a specialist physician in one public health care institution in serbia were invited to participate in the study and the rationale of the study had been explained to them. data collection was performed by means of structured, self-administered questionnaire and it was anonymous. data collection took place in a waiting room of the facility. out of 400 delivered questionnaires, a total of 300 completely fulfilled questionnaires were included in data analysis. therewith, a requirement related to a sample size of having at least 10 respondents per questionnaire item was satisfied (boateng et al., 2018). the measurement instrument used in this study was based on previous research. items measuring health care service quality and patient satisfaction were taken from choi et al. (2004). patients’ loyalty to health care service provider was measured using three items adapted from the study of giovanis et al. (2018). questionnaire items were measured on a five-point likert-type response scale, ranging from 1-strongly disagree to 5-strongly agree. psychometric properties of the service quality measurement instrument, in the context of the health care system in serbia, were assessed using exploratory and confirmatory factor analysis. proposed relationships were examined using structural equation modelling, adhering to anderson and gerbing’s (1988) two-step approach, which calls for the examination of contructs’ validity prior to the investigation of structural relationships. data analyses were performed using spss v.17 and amos v.16. to estimate statistical significance of indirect relationships the maximum likelihood bootstrapping procedure was performed, using 1000 sub-samples and 95% bias-corrected confidence intervals. 4. results and discussion 4.1 reliability and validity of the measurement instrument psychometric properties of the measurement instrument, i.e., instrument’s reliability and validity, were assessed adhering to boateng et al.’s (2018) iterative procedure for scale validation in the area of health research. factor extraction was performed using principal component analysis with varimax rotation. eigenvalues higher than 1 were chosen as a criterion for factor extraction. factor loadings lower than 0.40 were suppressed. kmo (kaiser-meyer-olkin) measure of sampling adequacy of 0.934 and statistically significant value of bartlett’s test of sphericity (χ2=4295.785, df=153, p˂0.01) indicated the adequacy of the data for performing a factor analysis. due to cross-loadings, one item was eliminated from further iterative procedure. the application of exploratory factor analysis resulted in clean four-factor latent structure corre81 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) service quality dimension 1 service quality dimension 2 service quality dimension n patient satisfaction patient loyalty h4.2 sponding to choi et al.’s (2004) instrument. the resulting factor model explained 74.393% of variance in the data. rotated component matrix is presented in the appendix. confirmatory factor analysis was applied in the following stage. values of fit indices (χ2/df=1.995, cfi=0.967, nfi=0.936, nnfi=0.961, rmsea=0.058) indicated good fit of the model to the data. the construct reliability was also supported by estimates higher than 0.70. with cronbach’s alpha factors higher than the lower threshold of 0.70 (hair et al., 2010), resulting dimensions of health care service quality, as well as patients’ satisfaction and loyalty, were deemed reliable, i.e., internally consistent, as presented in table 1. table 1: measurement model results validity of a measurement instrument can be explained as “the extent to which an instrument indeed measures the latent dimension or construct it was developed to evaluate” (boateng et al., 2018; p. 13). construct validity, which comprises convergent and discriminant validity, was examined for the purpose of this study. statistically significant factor loadings higher than 0.50 and average variances extracted (aves) per construct above the threshold of 0.50 provided evidence in support of convergent validity (bagozzi & yi, 1991). the only exception, in terms of ave lower than 0.50, was tangibility, which will be discussed later on in the text. as none of the 95% bias-corrected confidence intervals of correlations among the constructs contained unity, evidence was provided in support of discriminant validity (choi et al., 2004), as presented in table 2. bold numbers on the diagonal represent square roots of the aves. 82 tamara rajić, isidora milošević, ana rakić 2020/25(2) standardized factor loadings t-value ave construct reliability cronbach’s alpha doctors’ concern (sq3) 0.813 0.956 0.957 .921 .936 29.267 .934 29.129 .865 23.338 .850 22.344 concern of other medical staff (sq2) 0.684 0.916 0.919 .775 .886 16.862 .860 16.262 .833 15.615 .782 14.399 convenience of the medical process (sq1) 0.576 0.843 0.834 .661 .683 10.267 .851 12.172 .824 11.921 tangibles (sq4) 0.463 0.774 0.792 .656 .669 9.695 .644 9.375 .747 10.608 patient satisfaction 0.862 0.926 0.926 .935 .922 27.663 patients’ loyalty 0.883 0.957 0.957 .942 .926 30.907 .950 34.154 table 2: correlations among the constructs, 95% bias-corrected confidence intervals of correlations and square roots of the ave values note: sq1-service quality dimension 1, sq –service quality dimension 2, sq3–service quality dimension 3, sq4-service quality dimension 4, sat-patient satisfaction, loy-patients’ loyalty reliability and construct validity which were indicated by this study’s findings provided support to hypothesis h1. therefore, it can be concluded that the health care service quality measurement instrument which was proposed by choi et al. (2004) can also be regarded as a valid measurement instrument in the serbian health care context. 4.2 structural analysis excellent overall fit of the model to the data resulted from structural analysis (χ2=1.995, cfi=0.967, nfi=0.936, nnfi=0.961, rmsea=0.058). hypotheses h2, h3 and h4 were examined by calculating standardized direct effects. results of structural analysis are presented in table 3. table 3: standardized direct effects the findings of this study, which indicate satisfaction as the most significant direct determinant of patients’ loyalty, provide support for hypothesis h3. a significant direct impact of satisfaction on patients’ loyalty has been also supported in previous studies (choi et al., 2004; giovanis et al., 2018). hypotheses h2 and h4 are only partially supported, as among service quality dimensions concern of other medical staff and tangibles emerged as statistically significant direct determinants of patient satisfaction, whereas, among service quality dimensions, tangibles is the only dimension which emerged as statistically significant direct predictor of patients’ loyalty. a significant impact of tangibles on patient satisfaction has also been supported in previous research on the determinants of health care customer satisfaction in the serbian health care setting (senic & marinkovic, 2013). 83 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) sq1 sq2 sq3 sq4 sat loy sq1 0.759 sq2 0.726 (0.638-0.809) 0.827 sq3 0.659 (0.538-0.748) 0.717 (0.616-0.792) 0.901 sq4 0.575 (0.4410.684) 0.718 (0.613-0.807) 0.565 (0.472-0.669) 0.680 sat 0.625 (0.528-0.709) 0.734 (0.651-0.807) 0.576 (0.477-0.683) 0.810 (0.727-0.889) 0.928 loy 0.625 (0.539-0.701) 0.713 (0.631-0.774) 0.592 (0.485-0.673) 0.850 (0.772-0.909) 0.912 (0.8630.945) 0.939 hypothesis standardized estimates t-values results of hypothesis testing h2.1: convenience patient satisfaction .128 1.742 not supported h2.2: concern of other medical staff patient satisfaction .229 2.442 supported h2.3: doctors’ concern patient satisfaction .007 .111 not supported h2.4: tangibles patient satisfaction .568 6.327 supported h3: patients satisfaction loyalty .629 8.752 supported h4.1: convenience patients’ loyalty .053 1.016 not supported h4.2: concern of other medical staff patients’ loyalty -.055 -.842 not supported h4.3: doctors’ concern patients’ loyalty .053 1.148 not supported h4.4: tangibles patients’ loyalty .320 3.977 supported by the application of bootstrapping procedure with 1000 sub-samples and 95% bias-corrected confidence intervals, in terms of total effects on loyalty, two service quality dimensions, tangibles (γ=0.359, p˂0.05) and concern of other medical staff (γ=0.144, p˂0.05), emerged as statistically significant predictors. however, findings of this study do not imply that other quality dimensions are not significant predictors of patients’ loyalty. it is possible that an important mediating variable exists between quality dimensions and loyalty, which has not been included in this study. according to choi et al. (2004), there are other cognitive constructs besides patient satisfaction and service quality, such as perceived value, which influence patients’ loyalty and which may mediate the impact of service quality dimensions on patients’ loyalty. as other constructs have not been considered in this study, this is one of its limitations. 84 tamara rajić, isidora milošević, ana rakić 2020/25(2) 5.1 implications of the study the objective of this study was twofold. first, to examine the applicability of choi et al.’s (2004) service quality measurement instrument in the serbian health care setting and second, to simultaneously investigate a relative impact of service quality, at the disaggregate level, and satisfaction on patients’ loyalty. by indicating a relative importance of loyalty determinants this study was intended to contribute to the current body of knowledge on health care customer loyalty. this study’s findings provide valuable insights into health care institutions’ management. results of the study indicate that by the improvement of other medical staff concern towards patients and tangible aspects of service quality health care institutions can positively contribute to patient satisfaction, which, in addition to tangibles, directly contributes to patients’ loyalty. findings of this study indicate that both quality and satisfaction of patients should be regarded as strategic tools by decision-makers in health care institutions. this especially pertains to privately owned medical institutions, as in private practice customers vote with their money for those institutions which provide a high level of service. therefore, both quality and satisfaction should be continuously monitored and measured, especially taking into account the potential of big data analytics in a health care sector (jovanovic milenkovic et al., 2019), and a possibility to provide high quality health care services. an interesting finding stemming from this study is the insignificant effect of doctors’ concern on patients’ loyalty. however, one should not come to the conclusion that doctors’ concern is irrelevant from patients’ perspective. there may be some other variables which mediate the impact of doctors’ concern on patients’ loyalty. this assumption, however, merits further investigation. 5.2 limitations and future research directions this study is not without limitations and their discussion should be in order. the major limitation of the study is that it was based on a convenience sample of health care customers, recruited from only one public health care institution. another limitation of this research relates to cross-sectional nature of the data, which allows only for correlational inferences to be made. therefore, this study’s findings should not be generalized to the entire serbian health care setting. it may be worthwhile to perform future research on a more representative sample of the serbian health care customers. confirmatory analysis resulted in the ave value of tangibles dimension which was lower than the threshold of 0.50, therewith affecting discriminant validity of this quality dimension. this situation may indicate that some facets of tangibility, which are important from the perspective of health care customers, have not been properly addressed by this study. as examinations of service quality perceptions depend on the type and variety of services offered by a health care institution, and the length of interaction between patients and medical staff, i.e., on whether it is a daily visit to an institution or a longer and more complex stay at a medical facility, these differences should be taken into account in a proposal of managerially relevant measurement instrument. as indicated by ramsaran-fowdar’s (2008) study findings, expectations drive patients’ evaluations of service quality in a health care setting. consequently, to determine possible negative gaps in patients’ evaluation of health care services, the authors of this study would advise managers of health care institutions to periodically measure both patients’ perceptions and their expectations. in case of negative gaps between patients’ perceptions and expectations, this approach would allow for timely actions to be undertaken and point to proper allocation of resources for service quality improvement. taking into account boakye et al.’s (2017) findings of the importance of high value for money for patients’ behavioural intentions, future research would also benefit from an examination of a more holistic model of patients’ loyalty. conclusion references [1] ahmed, s., tarique, k. md., & arif, i. 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(2019). service quality measurement for omni-channel retail: scale development and validation. total quality management & business excellence, 30(sup1), s210s226. doi: 10.1080/14783363.2019.1665846 received: 2020-01-27 revision requested: 2020-04-06 revised: 2019-04-09 (1 revision) accepted: 2020-04-10 tamara rajić economics institute s.c. belgrade, serbia e-mail: tamara.rajic@ecinst.org.rs tamara rajic is a research associate at the economics institute s.c. belgrade. she holds a doctoral degree from the faculty of organizational sciences, university of belgrade. her main research interests are consumer behaviour and multivariate data analysis across service industries. she co-authored a number of research papers which have been published in national and international journals. about the authors isidora milošević university of belgrade, technical faculty in bor, serbia e-mail:imilosevic@tfbor.bg.ac.rs isidora milosevic is an associate professor at the technical faculty in bor. her main research interests revolve around structural equation modelling, strategic management, corporate social responsibility and marketing in small and medium-sized entreprises. she co-authored a number of research papers published in international scientific journals and has led several international research projects. ana rakić university of belgrade, faculty of organizational sciences, serbia e-mail: ana.rakic@fon.bg.ac.rs ana rakić is an assistant professor at the university of belgrade, faculty of organizational sciences. her main research interests are standardisation, metrology, accreditation, certification, engineering communications and logistics. she is a coauthor of many papers in international and national journals and conferences and a member of four commissions at the national institute for standardization of serbia. appendix rotated component matrix 87 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) component 1 2 3 4 doctors’ concern (sq3) the doctor let me ask many questions regarding my condition .879 the doctor paid enough attention to my concerns regarding the medical procedure .849 the doctor made me feel comfortable .834 the doctor adequately explained my condition .803 the doctor was polite .781 concern of other medical staff (sq2) the nurses adequately explained the medication procedure .813 the nurses were friendly .787 the nurses tried to help me as much as possible .771 the nurses showed concern for me .730 there was a good coordination among medical staff .575 convenience of the medical process (sq1) laboratory tests were done promptly .798 the procedure to get to laboratory testing was convenient .783 the payment procedure was quick and simple .724 the process of setting up an appointment with the doctor was easy and simple .603 tangibles (sq4) it was easy to use amenities at the hospital (coffee machine, public telephone,...) .829 the hospital is well equipped .829 the waiting rooms for doctors look pleasant .705 it was easy to find necessary facilities (laboratory, doctor’s office, etc.) .495 eigenvalues 4.270 3.585 2.913 2.623 % of variance 23.721 19.919 16.182 14.571 cumulative % 23.721 43.639 59.822 74.393 << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 1048576 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05_84_3 nielsen:tipska.qxd 59 jelena erić nielsen1*, verica babić2, vesna stojanović-aleksić2, jelena nikolić2 1university of kragujevac, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(3) driving forces of employees’ entrepreneurial intentions leadership style and organizational structure doi: 10.7595/management.fon.2019.0020 abstract: 1. introduction in the entrepreneurial organization, new ideas and projects are initiated by individuals, but leaders take responsibility for the emerging initiatives and encouraging innovations that create new value. traditionally managed companies tend to grow at a moderate pace, without compromising current activities, risking resources or jeopardizing current managerial positions and structure. one of the biggest challenges for entrepreneurial leaders is how to embrace the latent conflict in the organization, and balance market validated and successful ongoing operations with unproven innovations, disturbing embedded patterns and bring discomfort, but aiming to secure a long term competitiveness. companies emerge as innovative and unstructured new ventures, but growth eventually results in increased formalization, more rigid organizational * corresponding author: jelena erić nielsen, e-mail: jelena_eric@kg.ac.rs research question: the purpose of this paper is to explore how leadership style and organizational structure characteristics influence employees’ intentions to start their own entrepreneurial ventures, ideas or projects, within an organizational setting. motivation: the main goal is to learn how to prevent innovativeness declining in a traditional organization and make internal environment friendly for entrepreneurial initiatives and for employees with propensity to develop new ideas, aiming to create sustainable competitive position. idea: the paper explores how identified leadership variables, initiative, pioneer, proactive behaviour and ability to communicate vision affect employees’ entrepreneurial intentions. we also analyze the organizational structure impact, testing organic design, level of centralization and formalization. for measuring employees’ entrepreneurial intentions, we use a previously validated scale and measurements, innovation, risk propensity and autonomy. data: the data are collected using a questionnaire on a random sample of 208 respondents employed in nineteen serbian companies. tools: a quantitative study methodology was designed and implemented, appropriate statistical methods performed, including correlation and linear regression analyses. findings: we have found evidence that appropriate leadership style has a positive influence on employees' entrepreneurial intentions. more specifically, there is a positive correlation between the leader’s initiative, pioneer and proactive behaviour, and the employees’ intentions to start innovative entrepreneurial ventures. the employees’ willingness to act autonomously is affected by leader’s initiative and proactive attitude, but also by ability to clearly communicate the vision. the study also reveals that organic organizational structure, decentralization and low formalization have a positive influence on employees' entrepreneurial intentions. contribution: the study contributes to a significant degree by filling gaps in knowledge base, revealing new perspectives about relevance of both leadership style and organizational structure for encouraging organizational entrepreneurship. the analysis also provides a more fine-grained perspective about characteristics of organizational design and improves understanding of the employees’ actions depending on authority delegation, procedures and overall flexibility of organizational structure. practical implications represent guidelines for practitioners as to how to set up structure and adjust leadership style in order to foster entrepreneurship among employees. keywords: entrepreneurship, leadership, organizational structure, employees’ entrepreneurial intention jel classification: l26, d23, m13, o31, p23 structure, while the leadership style is getting more conservative and short-term oriented. the need for entrepreneurial initiative gets stronger, but the entrepreneurial intensity is declining. researchers are shifting focus from entrepreneurship as an individual initiative leading to development of new business towards entrepreneurship as a means of organizational growth and strategic renewal, initiated by employees within established companies. it is imperative to revive the entrepreneurial spirit by adapting the leadership style and creating a more flexible organization. as organizational entrepreneurship is still a nascent field of research, relatively few studies in the past addressed the issue of organizational prerequisites for encouraging entrepreneurial behaviour (kelley, 2011; sebora et al., 2010; srivastava and agrawal, 2010; goffin and mitchell, 2010). entrepreneurship in general, and especially organizational one, is a complex and dynamic process, based on a sequence of structural and management preconditions, and as such requires further investigation. however, so far, previous studies have been mainly descriptive, lacking empirical evidence, with insufficient conceptual foundation. some researchers note that a traditional organization should be redesigned towards more organic, flexible, informal and decentralized structure, with new leadership style, capable of motivating and empowering employees to become entrepreneurs themselves (martin-rojas et al., 2011; bhattacharyya, 2006). even though numerous studies have addressed leadership style and organizational structure as part of management studies separately from each other, a gap still exists in the field of organizational entrepreneurship, particularly referring to the impact these factors might have on employees’ entrepreneurial intentions, which is the main reason for initiating our research. the paper is structured as follows. first, e conceptual model and theoretical considerations are provided based on a relevant literature review. second, the research design, methods, measures and sample are described. next, the results are presented, followed by discussions, critical evaluation, scientific and practical implications. finally, the limitations of the study are reflected and possible avenues for further research are indicated. 2. theoretical background and hypothesis researchers have been making considerable efforts to analyze how the internal organizational context affects individual entrepreneurial behaviour (zahra et al., 1999). shepherd and krueger (2001) pointed out that the internal environment does send signals to potential entrepreneurs, but they are not always clear and straightforward. researchers argue that organizational structure (covin and slevin, 1991), appropriate leadership style and support (sebora et al., 2010; kuratko et al., 1990; stevenson and jarillo, 1990) are possible determinants affecting entrepreneurial actions (kantur and iseri-say, 2013). our model identifying key factors of employee's entrepreneurial intentions is illustrated in figure 1. figure 1: key factors influencing employee's entrepreneurial intentions – entrepreneurial leadership and entrepreneurial organization structure 60 jelena erić nielsen, verica babić, vesna stojanović aleksić, jelena nikolić 2019/24(3) numerous researchers have embraced an approach analyzing entrepreneurial activities, measured on a scale ranking the companies as more or less entrepreneurial, depending on innovation, risk propensity and proactive behaviour of employees (covin & slevin, 1989; miller, 1983). in this paper we adopt this scale to analyze employees’ entrepreneurial intentions. innovativeness reflects the willingness of the organization to make a detour from the existing practices and support the development of new ideas, experimentation and creative processes that might lead to new products, services or technology improvements. until recently, the focus was mainly on technology innovation and advanced production processes, while more recently increased attention is paid to other types of innovation, as well. one of the main factors distinguishing entrepreneurs from other employees in organization is willingness to take chance. risk propensity is traditionally attributed to individuals, not to organizations. it refers to the extent to which a person is willing to take a chance with respect to possible loss. the result is frequently the discrepancy between individual employees willing to risk and resistant organization, and vice versa, risk-taking organizations with individuals unwilling to step out of the comfort zone (lumpkin & dess, 1996). autonomy provides the freedom, flexibility and opportunity to initiate entrepreneurial activities (lumpkin et al., 2009). this is paramount for taking advantage of unutilized potentials of the organization, identifying opportunities outside the core competence and new venture development. entrepreneurial initiatives are frequently driven by employees acting autonomously in relation to the formal subordination system, often positioned on lower levels of hierarchy. they represent new energy and provide fresh impetus by problem solving beyond the cognitive and organizational patterns. in the following sections we elaborate how entrepreneurial leadership and organization structure influence employee's entrepreneurial intentions. 2.1 entrepreneurial leadership entrepreneurial leadership demonstrates the ability to influence others to strategically manage resources in order to encourage a quest for opportunities and sources of competitiveness (covin and slevin, 2002). the entrepreneurial leader must convince the followers that entrepreneurship is an integral part of organizational values and the responsibility of every employee. it helps in motivating potential entrepreneurs, providing support in innovation development and securing the necessary resources (hornsby, naffziger, kuratko and montagno, 1993). an organization managed by an entrepreneurial leader is more likely to be engaged in stimulating and encouraging employees' entrepreneurial intentions (ling et al., 2008). entrepreneurial leadership is defined primarily in terms of the leader's effect on followers, and the behaviour used to achieve this effect (bass and avolio, 1995). entrepreneurial leaders offer a purpose transcending short-term goals; they appear as visionary and inspiring figures, motivating, assembling teams, providing recognition and guidance. they inspire trust, admiration, loyalty and respect, motivating their followers to engage beyond expectations. by questioning the existing organizational processes and structure, they shape the behaviour of the first-level managers in terms of their risk propensity, influencing the overall corporate entrepreneurial efforts (ling et al., 2008). entrepreneurial leadership in the form of inspiring and stimulating employees has a significant positive impact on employee attitudes to changes (babic et al., 2014). entrepreneurial leaders influence their subordinates raising awareness of the importance of change, encouraging them to align personal and organizational goals and activate higher-order needs (self-respect, success, promotion, etc.). entrepreneurial leaders influence others to manage resources strategically in order to emphasize both opportunity-seeking and advantage-seeking behaviours (fernald et al., 2005, covin and slevin, 2002). the leader is capable of anticipating and envisioning the future; he is flexible, having strategic orientation and collaboration with employees, aiming to initiate change that will ensure competitiveness (kuratko and audretsch, 2009). managers with leadership capabilities have a key role in organizational learning, and in general, internal knowledge transfers (petkovic, aleksic miric, & bozinovic, 2011). the leader’s responsibility is to convince others that entrepreneurial activities represent an integral part of the dominant value system and that all employees are responsible for their implementation. he provides guidance and motivation for potential entrepreneurs, refining entrepreneurial ideas and obtaining the necessary resources (hornsby et al., 1993). when the top management clearly communicates an entrepreneurial strategic vision, employees will have more audacity, orientation and moral justification to behave in an entrepreneurial manner (ireland et al., 2009). recent research studies focused on the leader's cognitive factors (alvarez and barney 2007; hayton and kelley 2006; antoncic and hisrich 2003; wright et al., 2000;) influencing the employee’s entrepreneurial intentions. entrepreneurial leaders demonstrating initiative, pushing change, and focusing on positive outcomes have a higher influence on employees. they are better equipped to start and implement changes, and less prone to discouragement and suspicion. hope, optimism and flexibility are often referred to in the literature as key prerequisites for the emergence of entrepreneurial leadership (peterson, walumbwa, byron, & my61 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) rovitz 2009). entrepreneurial leaders are pioneers, motivating and inspiring employees to adapt, by exhibiting emotional intelligence, self-consciousness, self-control and social skills (grant, 2009: 458-460). they demonstrate self-confidence and gain the trust and affection of employees, manifesting an idealized influence and inspirational motivation. employees perceive them as visionary and are willing to follow by expressing entrepreneurial intentions. thanks to positive attitude and unquestionable moral compass, they take proactive approach, keep moving forward, regardless of the challenges they might face. they strive to encourage risk-taking, creativity and innovation by adjusting leadership style depending on circumstances. optimistic leaders communicate a clear vision, strengthening the faith of the employees and the persuasion that change is not only possible but necessary along the way. even under high levels of stress, they will remain steadfast, enthusiastic and willing to act. leaders encourage followers to be creative and innovate by providing intellectual stimulation and inspiration. hypothesis 1. entrepreneurial leadership style has a positive influence on employees' entrepreneurial intentions. 2.2 entrepreneurial organizational structure numerous studies have been conducted regarding organizational conditions favourable for encouraging entrepreneurial initiative, especially in the context of designing an adequate organizational structure (e.g. hisrich et al., 2008: 7577; hornsby et al., 1993; zahra, 1991; guth and ginsberg, 1990; sathe, 1989; burgelman, 1984). organizational structure is the formal pattern of how jobs are allocated to people and divisions, how the communication flow is structured and how the hierarchical relationships between people are made (noorderhaven, 1995). the organizational structure of new venture is dynamic and flexible, but in time, as an organization grows, it is getting more and more rigid and bureaucratic, restraining creativity and entrepreneurial initiative. organizational structures are not equally capable of supporting the employees’ innovative behaviour. the requirements of entrepreneurial organizations are not conducive to traditional structures, predominantly inclined towards short term exploitation, neglecting long-term competitiveness. designing an "ideal" organizational structure, friendly to entrepreneurial initiatives and actions involves a sequence of decisions, referring to defining clear vision and strategic direction, levels of specialization, departmentalization, coordination, the span of control, decentralized authority, and communication (zur and walega, 2015). daft and levin (1993) argue that rapid changes in technology and necessity of encouraging entrepreneurial initiative in organizations means that they should be characterized by "flatter hierarchies, decentralized decision-making, a greater tolerance of ambiguity, permeable internal and external boundaries, empowerment of employees, capacity for renewal, self-organizing units and self-integrating coordination mechanisms". in a flat organizational structure cross-functional collaboration and interactions are priorities, the span of control is broad, and number of hierarchical levels is limited. it is noted that a more flexible organizational design embodied in contemporary organization structures, provide more space for the promotion of entrepreneurial behaviour (dess et al., 1999). organizational structures can be classified as follows (miller, 1996): simple structure centralized authority, low specialization and formalization, coordination through direct monitoring, innovation depending on the leader’s knowledge and awareness; mechanistic bureaucracy – a strong hierarchy and bureaucracy, high centralization and formalization, coordination through standardization, technology automated and integrated, internally oriented information system; organic structure a highly flexible structure, hierarchy is not emphasized, few bureaucratic rules and procedures, cross-functional collaboration is encouraged for designing and developing complex products with a short lifecycle, an adjustable externally oriented information system, emphasized interpersonal relations and communication, decentralized authority, based on expertise (miller, 1983); division structure product/market oriented divisions as separate profit centres often have an organic structure, authority is delegated to division managers, constant pressure towards formalization, entrepreneurial intensity varies, over time divisions become more bureaucratic and autonomous. divisions are mainly focused on incremental innovation; therefore, corporate entrepreneurship is at a low or medium level (besanko et al., 2004: 543-545). organic structure, the most adequate for encouraging entrepreneurial intentions, implies decentralized authority, based on expertise, and a high level of interaction between employees, where coordination is mainly exercised through lateral communication, without filtering information. this is a non-bureaucratic organization, with low specialization and flexible grouping of units, with a broad span of control. unstructured and innovative problem solving as building bricks of entrepreneurship, are not in compliance with strong cen62 jelena erić nielsen, verica babić, vesna stojanović aleksić, jelena nikolić 2019/24(3) tralization, typical for traditional organizational structures, where creative thinking and seeking alternative ways is discouraged, resulting in employees resistant to change. standardized activities such as employee’ wage, accounting, taxation and procurement can be organized according to bureaucratic procedures, but new product development, marketing and strategic planning require a more flexible organic structure (grant, 2009: 182-183). in an organic structure hierarchy is not emphasized, authority decentralization positively affects the knowledge management process in general, ideas flow through normal communication channels, creating internal environment favourable for employees' entrepreneurial intentions. organic structure, with low formalization, few rules and procedures, tends to make people feel more relaxed as it opens opportunities for mutual knowledge exchange, thus creating a higher level of creativity and willingness to demonstrate entrepreneurial initiative (eric nielsen, stojanovic-aleksic, & zlatanovic, 2019). high formalization not only fails to ensure an unrestricted flow of knowledge but can also hinder the development of new ideas. cross-functional collaboration, characteristic for organic structure, is encouraged, especially in designing and developing complex products with a short lifecycle. highly specialized, routine and repetitive activities of employees are in most cases very formalized, restrained by numerous rules and procedures. this is not a favourable environment for individual entrepreneurial initiative; on the contrary, any independent action might be strongly discouraged. formalization is therefore in inverse correlation with creativity and innovation, but also with hierarchy level, indicating that middle and top management structures are having more maneuvering space to encourage individual initiative and backup good ideas. hypothesis 2. organic organizational structure, decentralization and low formalization have a positive influence on employees' entrepreneurial intentions. 3. research design data were collected through field research from a random sample of 208 respondents from 19 companies operating in central serbia. the companies in the sample operated in a diverse range of industries, including car manufacturing, insurance, food processing and packaging solutions, and pharmaceutical/healthcare production. no single industry is represented in the sample with a proportion higher than 21%. companies selected for the study were required to be at least two years old and to rely on product or service innovation for survival. participating and non-participating companies showed no significant differences in terms of size as measured by the number of employees. a five-point likert scale was used, with respondents ticking the fields to denote the extent to which they (dis)agree with each affirmatively defined statement. the questionnaire was pre-tested to find the average completion time. overall, the response rate was 27.89%, which is comparable with other similar studies. the sample is structured as follows: males 66.7% (130 respondents), females 33.3% (65 respondents). for 13 respondents, no data was available. the most numerous respondents were in the 36-45 years age group (39.9%), followed by those of 26-35 years (38.4%), 46-55 years (15.2%), 18-25 years (4%), and more than 56 years (2.5%) of age. in total, 163 respondents (82.3%) were younger than 46. regarding educational level, the majority of the respondents have a university degree (54.8%), college or vocational education (17.1%), which in total forms the majority of the sample (71.9%). respondents with 6-15 (39.0%) and 3-5 (20.5%) years of work experience dominate. 22 respondents (11.0%) have less than 2 years and only 10 (5%) have more than 30 years of work experience. respondents are engaged in various jobs: 50 in manufacturing (28.2%), 24 in finance and accounting (13.6%), 23 in logistics and distribution (13.0%), 21 in marketing and sales (11.9%), 20 in technical support (11.3%), 12 in procurement (6.8%), and 7 (4.0%) in maintenance and r&d units. eight respondents (4.5%) have other responsibilities, as well. the sample includes 52 managers at all levels: 9 seniors (17.3%), 31 middle (59.6%) and 12 supervisors (23.1%). in total, 47 managers are highly educated (90.4%) and 43 are 26-45 years old. in our research, we use previously developed and validated measurements, innovation, risk taking and proactiveness (autonomy). the measures have been used for more than three decades for measuring entrepreneurial activities within established organizations (zahra, 1991, 1996; covin & slevin, 1989, 1991; guth & ginsberg, 1990; miller, 1983). the complete questionnaire is provided in table 1. 63 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) table 1: questionnaire the analysis showed that there are no statistically significant differences in the analyzed variables between companies who did and those who did not take part in the study. 4. results in this section, we present our findings concerning the key study variables. the reliability of the scale was measured by cronbach's alpha coefficient ( =0.868). as the minimum threshold for this ratio is 0.7, the questionnaire is reliable as a measuring instrument and the variables used for measurement are internally consistent (nunnally, 1978). descriptive statistic is presented in table 2. table 2: descriptive statistics for key study variables correlation analysis has been used to identify and quantify the strength of the relationship between the analyzed variables. we are drawing conclusions using pearson’s coefficient (r) by setting an appropriate significance level (p<0.05; p<0.01) (table 3). 64 jelena erić nielsen, verica babić, vesna stojanović aleksić, jelena nikolić 2019/24(3) ���������� �� ��� ��� ��� � ������� �� �� � ���� � � �� ��� ���������� � ���� �� ��� ��� ��� � �� ������ ������ ��� ��� �� ������ ��� ��� �� ����� ���������� � ������ ��� �� ��� �� ��� ������� ���������� ������ ����� ��� ����� � � �� �� ��� ����� ��� ���� ������� ������������� ���� ��� ���� � ����������� ���� �� ��� � � ����� �� ������� �� ������ �� ���� �� � � � ������� �� ��� � ����� �� � ���� � ������ �� � � �� ��� ���� ���� �� ��� �� � �� ��� ���������� �������� ��� ��������� � ���� �� �� �� ��� ����� ��� ���� ������ � ��������� ���� ��� ���� ������ ������� ��� ��� ������� ��� ��� ������ �� ��� � � ��� �� � ��������� �� ������ ��� �� ��������� ��� � ���� ��� ����� � ��� !�� ���� ��� ������� ��� � ����� "� ����� � ����� ��� � ����� ���������� �������� ��� ������� �� ������ ��� ���������� ��� ������� ��� ����#��� $� �� � ���� ��� ��� �� ������ � �� ��� ������ ��� �� ��� ����� %�� ��� ��� ��� �� ������ �� ��� ������� ��� ������������ �� � �� �� � �� � ���� � ���� ���� �� �� �� ��� ����� & �� ������ ��� �� ��� ��� ���� �� ������� �� �������� � ����������� ��� ����� �������������� ���������� � ������� �� � � ��� ��� � � �� �� ����� � ���� �� ������ � ���� ����� ������ �� � � � ��� ��� ������ �� �� ����� ������� �� ��� ��� ��� ������ � �� ��� ������ �� ��� ����� ��� � ����� ���� �� � �� ��� �� ���� � �� �� ��� �������� �� �� ��� ���"������ ��� ����� �� � ��� ��� �� ���� �� ������ �� ��� ���� ��� ����� �� ������� ��� ��� ���� � �� �� ����� � ���� �������� �� ��� ��� �� ��� ����� �� ���� ��� ���� �� �� �� ��� ���� � �� ������ ��� �� ��� �� ���� ��� ��� �� �� �� �� ���� ����� �������� � � ���������� �� ��� ������� � � � � ��������� ��� ��� ����������� ������ �� ��� ������� ����� ��� ��� �������������� ��� ���� ������������� ��� ��� ���������� ��� ��� ���� ���������� ��� ��� �������� ��� ���� table 3: correlations among key study variables **. correlation is significant at the 0.01 level (2-tailed). *. correlation is significant at the 0.05 level (2-tailed). the regression model has been used to analyze the influence of leadership style and organizational structure on employees’ entrepreneurial intentions (innovation, risk propensity, and autonomy). the regression model results are presented in table 4 for entrepreneurial leadership as a predictor of employees’ entrepreneurial intentions. table 4: entrepreneurial leadership as predictor of employees’ entrepreneurial intentions * probability level p 0,05; ** probability level p 0,01 standardized regression coefficients are reported; all tests are two tailed the above procedure was repeated to test the organizational structure as a predictor of the employees’ entrepreneurial intentions (table 5). table 5: organizational structure characteristics as predictor of employees’ entrepreneurial intentions * probability level p 0,05; ** probability level p 0,01 standardized regression coefficients are reported; all tests are two tailed 5. discussions and contributions the subtle signals the management is transferring to employees have a strong impact on their behaviour. analyzing the relevance of an entrepreneurial leadership style for employees’ entrepreneurial intentions, employees consider leaders’ initiative and pioneering to be the most important ones (table 3). there is a statistically significant moderate positive correlation between the variables of entrepreneurial leadership, pioneer (r=0.167, p<0.05), proactive (r=0.225, p<0.01), initiative (r=0.206, p<0.01) and the employees’ intentions to innovate through entrepreneurial actions. we identified a positive correlation between the variables of entrepreneurial leadership: proactive behaviour (r=0.175, p<0.05), initiative (r=0.172, p<0.05), communicating vision (r=0.159, p<0.05) and the employees’ intentions to act autonomously. employees generally feel that leaders who are willing to act as agents of change, encouraging others to act in the same way, have a significant impact on entrepreneurial intentions and activities. the manager’s initiative and encouraging creativeness are powerful instruments of motivating employees. they will be more willing to consider becoming entrepreneurs if the manager is constantly pushing forward, questioning status quo and pivoting the change. the way the leader acts represents a significant signal about employees’ preferred ac65 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) � ������������� ���� ��� � �� ��� � � � �� �� ��������� � �������� ��� �� ��� ������� ����� ��� ��������� � ������ ��������� ��� ��� ������ ��� ������� ������ ������ ��� ������� ��� �� ��� ��� � ! ��� ��� ������� � ���� ���" #��#���� $ �%&' �%(( � %) �%*) �%(& �%)! �� ��� �� ����$ �� �+ � %' �� �� �� ��� ��� ��� ��� ��� ������� �������� ���� ����� ���� ���������� �������� β���� ��� β���� β���� ��� �� β���� ��� �� �������� � � ��� � �� �� ��� ������ ����� ��� � �� ��� ����� ������� ���� �� ������ � � ����� ������ ����� ���� � ����� ����� ��� � ������� � � ���� � ��� �� ��� ������ ����� ������ �� ��� ����� ������ ���������� � ������ �� �� � � � ������ ������ ����� ����� ������ ����� ������ � �������� ���� ����� ���� ���������� �������� β���� ��� �� β���� ��� �� β���� ��� �� ������ �� ��� � ���� � ��� ���� ������ ����� ����� ������ ����� ������� ������� �� ��� � ���� � � ������ ���� � ����� � ��� ������ �� �� �������� ����� ������� �� �������� ��� ������� ����� ������� � �!�� ����� ������ ��" �� ����� �������� � 66 jelena erić nielsen, verica babić, vesna stojanović aleksić, jelena nikolić 2019/24(3) tivities and behaviour. as noted by ireland, covin and kuratko (2009), when top management clearly promotes an entrepreneurial strategic vision, employees will have more courage, orientation and moral justification to behave entrepreneurially. these findings are consistent with other similar studies too, stressing that there must be a consensus about the dominant logic, implying consent about expectations, signalizing which opportunities are important, which behaviours are appropriate and which results are valuated (dess, ireland, zahra, floyd, janney, & lane, 2003). the employees’ willingness to act autonomously will be affected when the leader demonstrates initiative, proactive behaviour and clearly communicates vision. autonomy from the entrepreneurial perspective refers primarily to strategic autonomy, enabling operations outside normal organizational constraints. autonomous strategic behaviour is equivalent to entrepreneurship in organization, as it refers to new combinations of available resources. an entrepreneurial leader must engage more to encourage these efforts, providing more space and allowing potential entrepreneurs to step outside of the given organizational framework and the established norms. independent thinking and free action are prerequisites for new value creation. based on the above, hypothesis 1 is partially supported, i.e., an entrepreneurial leadership is positively correlated with employees’ entrepreneurial intentions. considering identified dimensions of organizational structure, the respondents mostly agree that the organization should lean toward an organic design, while they are more ambiguous when it comes to the degree of centralization and formalization (table 3). innovation, autonomy and risk propensity are identified as important aspects of employees’ entrepreneurial intentions, thriving in organic organizational structure. the analysis shows that there is a statistically significant positive correlation between organic design (r=0.546, p<0.01), centralization (r=0.188, p<0.01) and formalization (r=0.317, p<0.01), and the employees’ propensity to innovative entrepreneurial behaviour. we also identified statistically significant positive correlation between organic design (r=0.391, p<0.01), centralization (r=0.364, p<0.01), formalization (r=0.305, p<0.01), and the employees’ autonomous behaviour. the regression model results indicate that innovativeness of employees is influenced by leaders’ initiative, pioneering, and proactive demeanor. according to the standardized regression coefficient , an organic organizational design is the most significant individual predictor of innovation (=0.546, p<0.01), explaining 29.5% of the variance employees’ entrepreneurial intentions (r²=.295). organic organizational design is also the most significant predictor of risk propensity (=0.142, p<0.05). the regression model indicates that autonomy is dependent upon all the analyzed variables: the most significant predictor of autonomy is an organic organizational design (=0.391, p<0.01), explaining 14.9% of the variance, centralization (=0.364, p<0.01) and formalization (=0.305, p<0.01), respectively. the employee’s innovative intentions are influenced by an organic organizational design, level of formalization and centralization. low centralization implicates high decentralization. employees are more likely to become entrepreneurs when the organization is more decentralized, i.e., management is willing to delegate authority and to waive strict control mechanisms. the most influential single variable is an organic organizational design, characterized by open communication channels and limited formalization. entrepreneurial initiative is compliant with low levels of formalization, when employees are not required to follow the same routines and operating procedures on a daily basis, when new ideas and projects are approved efficiently, without excessive bureaucracy, and interpersonal relations are informal and spontaneous. employees are more willing to risk and embrace uncertainty when communication is open and internal boundaries more flexible. the findings of this study also indicate that employees are more willing to act autonomously, starting their own venture or project, if they feel empowered by higher managerial levels, not overwhelmed with formalities and procedures, and in general feel positive feedback and encouragement, typical for organic design. results are aligned with other similar studies (burns, 2010: 482-499, grant, 2009: 182-183). based on the above, we found evidence that an organic organizational structure, decentralization and low formalization have a positive influence on employees' entrepreneurial intentions, thus hypothesis 2 is supported. this study makes a scientific contribution to the literature in several ways. first, the results shed more light on the organizational dynamics related to entrepreneurial activities of employees, from a theoretical point of view. second, the survey revealed new facts about the relevance of both the leadership style and the organizational structure, for creating a favorable environment for entrepreneurial actions. more specifically, it attempts to clarify the relevance of leaders’ influence on employees’ innovativeness and readiness to act autonomously. analysis also provides a more fine-grained perspective of organic organizational design as most suitable for encouraging entrepreneurial intentions of employees. third, study contributes by linking innovative and autonomous actions of employees with leadership based on proactive behaviour and initiative. fourth, the paper improves understanding of the employees’ actions depending on authority delegation, rules and overall flexibility of organizational structure. the practical implications represent guidelines for managers and practitioners how to set up internal environment favourable for fostering entrepreneurship among employees. first, managers need to understand that the standpoint they take and the support they provide is crucial in encouraging employees’ entreprereferences [1] alvarez, a. s. & barney, j. b. 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(2000). entrepreneurial growth through privatization: the upside of management buy-outs. academy of management review, 25(3), 591-601. doi: 10.2307/259312 [44] zahra, s. a. (1991). predictors and financial outcomes of corporate entrepreneurship: an exploratory study. journal of business venturing, 6(4), 259-285. doi: 10.1016/0883-9026(91)90019-a [45] zahra, s. a. (1996). governance, ownership, and corporate entrepreneurship: the moderating impact of industry technological opportunities. academy of management journal, 39(6), 1713-1735. doi: 10.5465/257076 68 jelena erić nielsen, verica babić, vesna stojanović aleksić, jelena nikolić 2019/24(3) 69 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) [46] zahra, s. a., jennings, d. f., & kuratko, d. f. (1999). the antecedents and consequences of firm-level entrepreneurship: the state of the field. entrepreneurship theory & practice, 24(2), 45–65. doi: 10.1177/104225879902400205 [47] zur, a. & walega, a. (2015). routines do matter: role of internal communication in firm-level entrepreneurship. baltic journal of management, 10(1), 119–139. doi: 10.1108/bjm-11-2013-0166 received: 2019-03-26 revisions requested: 2019-07-08 revised: 2019-09-20 (2 times) accepted: 2019-09-23 jelena erić nielsen university of kragujevac, faculty of economics, serbia jelena_eric@kg.ac.rs jelena erić nielsen received her phd at the university of kragujevac, faculty of economics, serbia, where she works as assistant professor. her current research interests include entrepreneurship, corporate entrepreneurship, leadership, organizational behaviour and corporate governance. she has published articles mainly in the field of entrepreneurship and leadership. verica babić university of kragujevac, faculty of economics, serbia vbabic@kg.ac.rs verica babic is a full professor and head of the department of business administration at the faculty of economics university of kragujevac, serbia. she teaches courses at undergraduate studies (introduction to management and decision theory) at the graduate level (corporate governance, public sector management) and the phd level (corporate governance theory). her current research interests are corporate governance, leadership, entrepreneurship, innovativeness and knowledge management. she is the author and co-author of eight books, and over 80 publications in scientific journals, monographs’ chapters, proceedings from international scientific conferences. during her academic career, she was awarded several national and international (fulbright, austrian government, eu) research grants, employing over fifty researches. she was engaged in numerous projects that deal with higher education, innovativeness and entrepreneurship. currently, she is a coordinator of international research project innovativeness in higher education in slovenia and serbia: comparative research and exchange of good practices, sl, rs grant. vesna stojanović-aleksić university of kragujevac, faculty of economics, serbia vesnasa@kg.ac.rs vesna stojanović-aleksić received her phd from the university of kragujevac, faculty of economics, serbia, where she works as full professor. her research interests are related to leadership, organizational culture, organizational theory, organizational behaviour and change. she has published articles mainly in the field of leadership, organizational culture and change. jelena nikolić university of kragujevac, faculty of economics, serbia jnikolic@kg.ac.rs jelena nikolić is an assistant professor on the following subjects: introduction to management, decision making theory, corporate governance, at the faculty of economics, university of kragujevac, republic of serbia. she received her phd from the university of kragujevac, faculty of economics. her research focus is on strategic decision making, corporate governance and corporate entrepreneurship. she is the author/co-author of numerous scientific papers and monograph chapters. 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 06 aleksandra marcikic:tipska.qxd 55 aleksandra marcikić1, radovan pejanović2, otilija sedlak1, boris radovanov1, zoran ćirić1 1university of novi sad, faculty of economics, subotica, serbia 2university of novi sad, faculty of agriculture, serbia udc: 005.311.12:614.(497.11) quantitative analysis of the demand for healthcare services doi: 10.7595/management.fon.2016.0019 1. introduction nowadays, when the demand for medical services is growing (calkins et al., 2016; eastwood et al., 2015; veser et al., 2015; williams, 2015) and the same trend is expected in the future, demand analysis has become an increasingly important area in every organization. on the other hand, due to serious financial difficulties in most of the countries, budgets became even more limited and reduced. tighter budgets make efficient use of scarce resources extremely important (jagtenberg et al., 2015). in order to obtain an efficient planning of various activities in healthcare organizations it is necessary to accurately analyse the demand for medical services during the planning period. goldberg (goldberg, 2004) mentions that the “ability to predict demand is of paramount importance”, but this area has seen little systematic study. a very challenging factor that influences the demand of healthcare services is randomness (shao et al., 2016), especially when patients arrive without an appointment (which is the case of emergency and radiology departments in hospitals, ambulance service, etc.). the demand patterns tend to be highly time and location dependent and the same can be concluded for the duration of medical interventions. therefore, classical planning techniques, which assume the deterministic character of the demand, cannot provide a relevant basis for the decision-making process. the adequate demand analysis, which takes into account the stochastic nature of frequency and duration of medical interventions, allows better utilization of available resources that can enable improvements in quality of services, patients’ and employees’ satisfaction and costs reduction. the current resource allocations in healthcare organizations in serbia are static and made ad hoc. this paper provides an insight into dealing with randomness in the ambulance service planning. the literature shows compelling evidence to assume that the level of demand for healthcare services varies over time (cantwell et al., 2015; liao et al., 2012; matteson et al., 2011; erdogan et al., 2010; taylor, 2008). therefore, we can define the main hypotesis that the demand, presented as a number of ambulance calls, depends on the hour of the day, day of the week and month of the year. taking into account these regularities, it is possible to predict the future variations of the demand and, consequently, human, financial and material resources that should be available at certain periods of time. for this purpose, it is necessary to perform various statistical analyses to examine whether it is possible to determine the daily, weekly or monthly patterns. management 2016/80 in order to provide the best possible healthcare, managers need effective methods for decision making, as well as effective methods for management and improvement of a healthcare organization. analysis of the demand is one of the key issues in healthcare organizations in that provides a reliable basis for efficient planning of future activities, of necessary material and financial and human resources. the main aim of this paper is to present the practical implementation of various quantitative methods in order to improve planning and organization of ambulance stations in serbia. the results of detailed statistical analyses show that demand for emergency medical services follows some hourly, daily and monthly patterns. observed regularities of the demand should be incorporated in operational, tactical and strategic plans of healthcare organizations in order to improve efficiency and achieve optimal allocation of scarce resources. keywords: statistical analysis, multiple regression, healthcare management, demand analysis, modelling emergency medical services, literature review of papers and studies that motivated us the most is presented in the next chapter. chapter 3 will present the results of the performed quantitative analyses that confirmed the main hypothesis of temporal patterns‘ existence. the last chapter presents the main conclusions and comparison with the results of similar studies, together with the guidelines for future research. 2. literature review baker and fitzpatrick (baker & fitzpatrick, 1986) were the first who applied winters exponential smoothing model to obtain accurate forecasts of the daily volume of emergency and non-emergency calls at the ambulance service of south carolina. to choose the exponential smoothing parameters, goal and quadratic programming were applied. the resulting forecasts were compared to those obtained by using a multiple linear-regression model and a single-objective winters exponential smoothing model and the smoothing method yielded more accurate forecasts. time-series models were developed for the emergency medical service of the canadian city calgary (channouf et al., 2007). the estimated models were compared in terms of goodness of fit and forecasting accuracy. the results showed that an autoregressive model of daily volumes and a multinomial distribution for the vector of number of calls in each hour conditional on the total volume of calls during the day are superior for their data. zuidhof (zuidhof, 2010) analysed the demand of ambulance services in amsterdam. holt winters exponential smoothing models, seasonal autoregressive integrated moving average (arima) models and multiple regression models were used to forecast the daily demand. in this case, the best forecast was obtained by multiple regression model. in addition to the abovementioned univariate and multivariate time series analysis, artificial neural network can also be designed to forecast the demand for healthcare services of specific areas during different times of the day (setzler et al., 2009). a group of authors (filho et al., 2012) used the constraint satisfaction problem approach to solve human resource allocation problems in cooperative health services. the authors proposed a new tool for planning human resources utilization in hospital plants by using simulations for measuring the performance of the proposed heuristics. according to the latest literature ( et al., 2015), the ambulance demand estimation at fine time and location scales is critical for fleet management and dynamic deployment. in this paper authors introduced a novel characterization of time-varying gaussian mixture models in order to address spatial and temporal patterns of the demand. the proposed model gives higher statistical predictive accuracy to reduce the error in predicting emergency medical service operational performance by as much as two-thirds compared to a typical industry practice. a group of authors (nickel et al., 2016) investigated the problem of choosing the location and number of ambulances and their bases in a certain region. the goal was to minimize the total cost for installing these facilities while assuring a minimum coverage level under stochastic demand. the authors showed that even when demand can be captured by a finite number of scenarios, the number of scenarios rapidly becomes too large, thus preventing the effective use of the model. they also showed that the possibility of considering just one sample of scenarios can lead to a totally misleading solution. these insights motivated them to develop a sampling approach. the sample of optimal values obtained by this procedure can be combined in order to estimate the optimal value of the original problem. the usual organizational problem of many healthcare organizations is that the number of available staff has been determined ad hoc, regardless of the demand and system load, which might negatively influence the efficiency of the whole system. here, the application of queueing theory in healthcare organizations might improve patients’ and employees’ satisfaction by reducing the time spent in waiting lines (bekker & debruin, 2010), (yankovic & green, 2011), (brahma, 2012). 56 2016/80management besides the queueing theory and other analytical methods, simulation models are frequently used for modelling various processes in healthcare organizations. a group of authors (ghanes et al., 2015) used discrete event simulation on order to determine the best way of staffing in the emergency department in one french hospital. derienzo (derienzo et al., 2016) et al. developed a discrete event simulation model of nursing staff needed in a neonatal intensive care unit and then validated the model against historical data. they assume that the discrete event simulation tool model can provide healthcare managers a valid method of modeling patient mix, patient acuity, staffing needs, and costs in the present state and the future state. in a recently published paper (vile et al., 2016) the authors investigated several interrelated advanced statistical and operational research methods, culminating in a suite of decision support tools to aid the welsh ambulance service trust with capacity planning issues. the developed techniques are integrated in a master workforce capacity planning tool that may be independently operated by planners. by means of incorporating methods that seek to simultaneously better predict future demands, recommend minimum staffing requirements and generate low-cost rosters, the tool ultimately provides planners with an analytical base to effectively deploy resources. 3. methodology and statistical methods in this paper, the demand for healthcare services is presented by the daily number of ambulance rides at the ambulance service in subotica, serbia. the data set provides us with the information about the daily number of ambulance rides and occupancy times during a three yeas period, from march 15th, 2011 until march 15th, 2014. with the aim of identifying yearly and weekly regularities in the recurrence of ambulance calls, the applied methods include the correlation analysis statistical method (spearman’s and kendall’s rank correlation test), nonparametric tests based on rank sums (wilcoxon t test and mann-whitney u test), contingency tables and a multiple regression model. 3.1. preliminary data analysis based on the box-and-whisker plot (figure 1), the median can easily be noticed as a value of the numeric characteristic with the highest frequency. the central part of the diagram, the box plot, covers 50 percent of the total observations, which are between the 25th and 75th percentile. in the observed period, an average of 30 medical interventions was made within a single day. the highest number of daily interventions was 54, and the lowest number was 13. the value of the standard deviation amounted to 6.63, while the value of coefficient of variation was 22.14 percent. thus, it can be concluded that the data show moderate oscillations in relation to the average number of daily ambulance rides. figure 1: box-and-whisker plot of a daily number of ambulance rides 57 management 2016/80 the jarque-bera test statistic has been applied as a joint testing of skewness and kurtosis. since the given value of this statistics exceeds the critical value of 9.21 (at the confidence interval of 99 percent), we can reject the null hypothesis about the existence of the normal distribution and conclude that the data fail to follow a symmetric normal distribution. by analysing figure 2 we can see that the most frequent period of a year is spring (march, april and may) and the months that are characterized by the lowest number of interventions are september and june. figure 3 shows that the demand for emergency medical services increases during the weekend, while the middle of the week is characterised by a lower number of daily interventions. those conclusions are also confirmed by the multiple regression model, which is presented in chapter 3.3. the number of medical interventions is significantly higher during daytime than at night, and the most frequent hours are from 1011 a.m. and 7-8 p.m. (see figure 4). figure 2: mean number of ambulance rides per day, for each month of the year figure 3: mean number of ambulance rides per day, for each day of the week figure 4: mean number of ambulance rides per day, for each hour of the day 58 2016/80management it is also necessary to analyse the travel time of ambulance rides, which is defined as the time between the starting time of the ride and the time the ambulance is available again. during this time the ambulance cannot respond to new incoming calls. the duration of travel times depends on various and numerous factors. frequent variations of travel times are also reflected in high values of standard deviation in comparison with the average travel time. the travel time of ambulance crews is characterised by significant oscillations (figure 5) and the results of the jarque-bera test statistics show that the data do not follow the normal distribution. figures 6 and 7 show how travel time varies over the day and the week. figure 5: histogram and basic statistics of travel time of ambulance rides (in minutes) figure 6: mean travel time of ambulance rides for each day of the week figure 7: mean travel time of ambulance rides for each hour of the day 59 management 2016/80 0 1000 2000 3000 4000 0 10 20 30 40 50 60 70 80 s eries: u k up not s ample 1 32823 observations 31099 mean 31.40078 median 29.00000 maximum 78.00000 minimum 1.000000 s td. dev. 14.47329 s kew ness 0.804035 k urtosis 3.305745 jarque-b era 3471.906 p robability 0.000000 the correlation analysis involves examination of the relationship between the observed phenomena. extreme observations, indicated in the above paragraph, will be left out from the analysis in this chapter, because they considerably influence the reliability of the correlation test results. after the application of spearman and kendall’s coefficient correlation test, it can be concluded that the number of daily interventions correlates positively with the number of interventions the day before. the number of daily interventions also correlates positively with the number of interventions made two days earlier and one week earlier. in all cases, the confidence interval was 99 percent. furthermore, detailed analyses will be made to examine whether the number of ambulance rides depends on a specific day of the week and whether certain days have a similar pattern of recurrence. 3.2. examination of weekly and daily patterns the positive correlation of the current number of ambulance rides with the number of ambulance rides made a week earlier indicates that the work load of the ambulance service may depend on the day of the week. it is necessary to examine whether the frequency of the number of ambulance rides during the week significantly differs from the days of the weekend. based on the results of preliminary data analysis we assume that there will be a significant difference and in this subchapter we will test this hypothesis. for that purpose, nonparametric mann-whitney u test, which verifies whether two independent samples belong to the same population, will be applied. this test provides reliable results when the sizes of subsamples are different (mann & whitney, 1947). the computed value of the u statistic is 107995.5, so we accept the alternative hypothesis on the existence of difference between the distributions of data in two sub-samples at the confidence interval of 99 percent. the results show that during the weekend the number of ambulance rides is significantly higher than the number of interventions during the workdays. thus, we confirmed one of the hypotheses of this paper, that the number of ambulance rides is significantly dependent on the part of the week (weekend or workdays) and further regression analysis (chapter 3.3.) will present a more detailed explanation of those effects. in addition to the previously identified weekly patterns, it is also necessary to examine whether the daily patterns exist as well. in this part of the paper we will test the hypothesis that the intensity of demand for ambulance services depends on the hour of the day. figure 8 below displays data about the total number of ambulance rides depending on the hours of the day and days of the week. we can see that the demand for ambulance services is higher during the day than during the night hours, and a majority of interventions are concentrated between 8 a.m. and 8 p.m. figure 8: mean hourly volume of ambulance rides on every day of the week furthermore, we will apply contingency tables in order to provide accurate conclusions whether the number of ambulance rides per hour differs on specific days of the week and whether it is possible to group the days which have similar daily patterns of the demand. thus, it should be checked whether the distribution of the demand differs on individual days of the week. if it does, it is necessary to examine whether there are days on which the difference in the distribution is not significant, so we define the groups of days which follow the same daily pattern. 60 2016/80management figure 8 shows that the distribution of the demand for ambulance services differs over week. this conclusion has also been confirmed by the χ2 test since the obtained test statistic value is χ2= 189.88. it can be concluded that the significant difference in the distribution of the demand during various days of the week exists, so we confirmed the hypothesis stated in this subchapter. further, we should check whether some days have a similar pattern of demand or whether the distribution of the demand is unique for all days of the week. based on the χ2 test results, we can conclude that days characterised by similar distribution of the number of ambulance rides can be grouped in three categories. the first group consists of tuesdays and wednesdays, where the value of corresponding χ2 statistic is 27.78. fridays, saturdays, sundays and mondays belong to the second group for which the value of χ2 statistic is 84.68. on thursdays, the distribution of the number of interventions statistically differs significantly from other days of the week, so that day of the week makes the third category. 3.3. multiple regression model our previous analysis confirms the presence of the month of year and day of week effects, hence we need to make use of a model which takes all categories into account altogether. this is done using the multiple linear regression model (zuidhof, 2010; channouf et al., 2007). an interesting question is also whether certain public and religious holidays significantly influence the level of demand for ambulance services. therefore, we can use multiple regression to model the behaviour of daily demand for ambulance services. we have multiple explanatory variables, month of the year, day of the week and public and religious holidays, which we model in a linear manner. the holidays that will be included in the model are: new year holiday(31st december and 1st january), easter (julian and gregorian calendar) and christmas (julian and gregorian calendar). the next equation presents the linear multiple regression model: (1) where yt is the t-th observation of the number of daily rides, indicator bi,t has value 1 if the month of day t is the i-th month of the year and value 0 otherwise, the indicator cj,t has value 1 if day t is the j-th day of the week and 0 otherwise and the indicator dk,t has value 1 if day t is the k-th holiday and 0 otherwise. parameters of the regression model are bi, cj, dk and ut is the error term. the application of the regression model demands that residuals are i.i.d. gaussian distributed. estimates of the parameters are obtained by using the least square method to minimize the sum of squares of the residuals. to avoid the problem of multicollinearity it is necessary to set the linear constraints on parameters as follows: . (2) table 1: significant parameters of multiple regression model 61 management 2016/80 parameter: a b4 b6 b9 constant april june september coefficient: 29.821 1.324 -1.087 -1.541 parameter: c2 c3 c4 c6 c7 tuesday wednesday thursday saturday sunday coefficient: -1.874 -1.902 -1.395 2.945 2.153 table 1 presents the significant parameters of the estimated multiple regression model. in this model significant factors for the parameters month of the year and day of the week, (p< 0.05) are april, june, september, tuesday, wednesday, thursday, saturday and sunday. according to the presented results, public and relogious holidays do not have significant influence on the daily number of ambulance calls. the average daily number of ambulance calls is 29.82, while the busiest month is april. during june and september the level of daily demand for ambulance services is lower than average. this model also confirms the existence of temporal pattern during the week. during the weekend an expected number of ambulance calls is higher than average by 2.945 calls on saturday and 2.153 on sunday. the middle of the week is characterized by the demand which is below the daily average. the estimated multiple regression model allows us to calculate the expected number of daily ambulance calls by incorporating both month of the year and day of the week effects. for example, the saturdays in april will have the highest expected level of demand of 34 calls per day (29.821+1.324+2.945= 34.09). the lowest demand of 26,4 calls per day can be expected on wednesdays in september (29.821-1.541-1.902=26.378). thus we can now conclude that the results of the estimated multiple regression model confirm the basic hypothesis of this paper, that month of the year and day of the week significantly influence the demand for ambulance services. the presented information is very useful for linking demand (in this case, emergency call volumes) and supply (human, financial and material resources) to aid the decision-making process in healthcare organizations, in order to obtain a desired level of medical services at reasonable costs. the identified temporal patterns provide valuable input data for the development of various quantitative models for forecasting future demand (derienzo et al., 2016; matteson et al., 2011; channouf et al., 2007), staffing and scheduling employees in healthcare organizations (ghanes et al., 2015; yankovic & green, 2011; ernst et al., 2004) or obtaining an optimal resources allocation in other fields in order to improve the overall quality of healthcare services provision (schneeberger et al., 2016). 62 2016/80management this paper provides an insight into dealing with randomness in the ambulance service planning. emergency medical services play a crucial role in the overall quality and performance of health services and the effectiveness of emergency medical services is a crucial ingredient of an efficient healthcare system (erdogan et al., 2010). the performance of these systems heavily depends on operational success of emergency services in which emergency vehicles, medical personnel and supporting equipment and facilities are the main resources (coskun & erol, 2010). recently, there has been a wide interest in the planning of emergency medical services and many models and approaches have been developed in order to use ambulances efficiently (chen et al., 2016; jagtenberg et al., 2016; su et al., 2015; wankhade & mackway-jones, 2015). the analysis of the demand is one of the key issues in healthcare organizations; it provides reliable basis for an efficient planning of future activities and necessary material, financial and human resources. while the goal of operations research is to aid decision makers, implementation of published models occurs less frequently than one might hope (green & kolesar, 2004). unfortunately, practical application of quantitative methods in the healthcare sector in our local community is on an extremely low level. some possible reasons for this situation might be low levels of engineering/mathematical background in the healthcare sector, lack of process-related data for modelling, lack of in-house operations research expertise and high cost of engaging external consultants (teow, 2009). the main aim of this paper is to present and encourage a practical implementation of various quantitative methods in order to improve the planning and organization of ambulance stations in serbia. this is one of the first papers that combine quantitative methods and healthcare management in this country. the results of detailed quantitative analyses show that demand for emergency medical services follows some hourly, daily and monthly patterns. the observed regularities of the demand should be incorporated in operational, tactical and strategic plans of healthcare organizations in order to improve efficiency and achieve optimal allocation of scarce resources (ernst et al., 2004). the application of quantitative models greatly accelerates and simplifies the process of decision making, which is especially important in complex healthcare organizations. integration of quantitative methods, management and health is necessary in order to improve the overall healthcare system in the today’s rapidly changing environment. taking into account the social significance of this topic, extensive world literature and a lack of systematic study in this field in our local environment, there was a need for conducting such a research, with the belief that the results of the research process will contribute to a deeper and more comprehensive review of issues concerning the modelling of demand in healthcare institutions. special emphasis needs to be placed on the practical significance of this research, because the use of the original data has enabled the future implementation of new or already developed models in order to improve the business organization of ambulance services in serbia. conslusion references [1] baker, j. r. & fitzpatrick, k. e. 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(2010). capacity planning for ambulance services: statistical analysis, forecasting and staffing. master thesis, vrije universiteit amsterdam,centrum wiskunde en informatica amsterdam. receieved: july 2016. accepted: september2016. 64 2016/80management 65 management 2016/80 about the author aleksandra marcikić university of novi sad, faculty of economics, subotica, serbia amarcikic@ef.uns.ac.rs aleksandra marcikić was born in 1985 in subotica, serbia. she graduated from the faculty of economics subotica, university of novi sad in 2007 and earned a ph.d. degree in 2014 from the same institution. she currently holds the position of assistant professor at the faculty of economics, subotica, university of novi sad. her main fields of interests are: operations research, multi-criteria decision making, business statistics and healthcare management. radovan pejanović university of novi sad, faculty of agriculture, serbia pejanovic@ uns.ac.rs ph.d. radovan pejanović is a full professor at the faculty of agriculture, department of agricultural economics and rural sociology, university of novi sad. he obtained all titles, from assistant to full professor. he teaches at the undergraduate, graduate and doctoral studies at agricultural economics studies and studies of agro-tourism and rural development, i.e., the following courses: microeconomics, macroeconomics, principles of economics, entrepreneurial economics, rural economics, methodology of scientific research, organic food production economics. otilija sedlak university of novi sad, faculty of economics subotica, serbia otilijas@ef.uns.ac.rs ph.d. otilija sedlak is a professor at the university of novi sad, faculty of economics subotica, working within the department of business informatics and quantitative methods. she is involved in the realization of the teaching process on the basic studies, master studies as well as on ph.d. studies in subjects closely related to her scientific interests: operational research, financial and actuary mathematics, mathematics for economists, quantitative methods in economy and management, risk management. boris radovanov university of novi sad, faculty of economics subotica, serbia radovanovb@ef.uns.ac.rs boris radovanov was born in 1983 in novi sad, serbia. he graduated from the faculty of economics subotica, university of novi sad in 2006, obtained his master’s degree in 2008 and earned a ph.d. degree in 2014 at the same faculty. currently, he holds the position of assistant professor at the faculty of economics subotica, university of novi sad. his main fields of interests are: econometrics, business statistics and portfolio management. zoran ćirić university of novi sad, faculty of economics subotica, serbia zoran.ciric@ef.uns.ac.rs ph.d. zoran ćirić an associate professor at the university of novi sad, faculty of economics subotica, working within the department of business informatics and quantitative methods. he is involved in the realization of the teaching process on the basic studies, master studies as well as on ph.d. studies in subjects closely related to his scientific interests: management information systems, project management, business process, knowledge management. 66 << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 1048576 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07p_mussi:tipska.qxd 71 fabricio baron mussi*, ubiratã tortato pontifícia universidade católica do paraná, brazil management: journal of sustainable business and management solutions in emerging economies 2018/23(2) cooperation, the crowding out effect and the role of incentives in the case of sustainable hydroplant project in brazil doi: 10.7595/management.fon.2018.0011 1. introduction in sustainability studies, we see an increasing number of technical analyses on the socio-environmental impacts caused by major corporations in the area of power generation (morimoto, 2013; liu et al., 2013; jiang, quiang and lin, 2016). given the magnitude, hydroelectric plants operate with a number of agents distributed by different areas such as energy generation, environment, and large-scale engineering projects, among others. hydroelectric ventures, in their vast majority, promote sustainability actions with the support of local agents (groups of stakeholders). these are actually groups of interest which will be impacted by the activities developed by these ventures, as is the case of local business, fishermen, indigenous groups, riverside agriculturists, and other farmers (brazil, 2015a). the multiple interactions point out to some interesting research possibilities. * corresponding author: fabricio baron mussi, e-mail: fabricio_mussi@hotmail.com abstract: research question: this paper sought to present a proposal for the analysis of the cooperation between a hydroelectric power plant and the fisheries community. motivation: the use of economic experiments on the sustainability theme has been employed by adapting public goods games to the different realities faced by the players. for this research, focused on the environmental preservation, preferring to contribute/not to contribute to their preservation consists of public goods dilemmas. this subject also constitutes a research opportunity, since in the preliminary literature review few studies addressed concomitantly the sustainability question related to hydroelectric plants and the cooperation between them and a group of local stakeholders. idea: the core idea of this paper was to bring a proposal of association between the behavioural economics and crowding out theory to the analysis of actions envisaging sustainability, which demand the cooperation between a hydroelectric power plant and the fisheries community that make a living out of its reservoir. data: the research was conducted assessing documents such as itaipu´s annual sustainability reports and other documents between the plant and its stakeholders, in the environmental area, and in the form of contracts and cooperation agreements. next, eight personal interviews were conducted with managers involved in the sustainability programme. tools: with these information, the suggested public goods game was adapted from fehr and gachter (2000), and sefton, shupp and walker (2007), and – for the present proposal of experiment – was named ‘reservoir game’, as the public goods in this case is itaipu´s plant reservoir. findings: this study can help in the acquisition of relevant information about the applicability and efficiency of punishment and reward mechanisms related to cooperation, either in support of future negotiations and agreements or in bargaining situations when groups present their demands. one can only hope to have also contributed to the improvement of management of contractual agreements between corporations and local stakeholders in projects targeting sustainability, to reduce any transaction costs, and minimize the possibilities for conflict and disagreement between partners. contribution: this paper expands existing research related to cooperation between a power plant and its local stakeholders. keywords: public goods game, mechanisms of punishment and reward, sustainability, hydroelectric power plant, fishermen jel classification: c93, q01, l90 moreira et al. (2015) and jiang, quiang and lin (2016) observed that the themes related with the issues hydroelectric plants face – among which those on environmental management and sustainability – have become more attractive than the transformation technology itself, and that there is an interdisciplinary trend in research. many of the projects addressing these themes are performed by the joint action of the interested parties (bond et al. 2016; soest, stoop and vyrastekova, 2016; lin and liu, 2016), guided by arrangements in the form of contracts, partnerships, or cooperative agreements, and the success of some of these initiatives require the involvement of two or more groups, and – sometimes – the results can only be checked in the medium and long term (jin and bai, 2011). since it is not always possible to carry out an immediate evaluation of the results of cooperation, albers (2010) suggests the adoption of coordination, control, and incentive mechanisms with a view to adjusting the parties´ behaviour. among the types of incentive, the use of reward or punishing mechanisms stand out as instruments capable of motivating those involved in cooperating (sefton, shupp and walker, 2007; egas and riedl, 2008; balliet, langer and mulder, 2011). on the other hand, some studies indicate that the use of external incentives can compromise the intrinsic motivation of those involved (vollan, 2008; narloch, pascual and drucker, 2012). in this scenario, some research strands may be useful in evaluating these interactions, such as the behavioural economic game theory, and the crowding out theory, offering subsidies to help us understand how such groups make their decisions, and particularly how they choose to cooperate (cardenas and ostrom, 2004; sturm and weimann, 2006; lozano, 2007; soest, stoop and vyrastekova, 2016). in the context of this research, focused on the sphere of sustainability and environmental preservation, preferring to explore/not explore non-renewable resources, or contribute/not to contribute to their preservation, consists of dilemmas on public commodities, once “the public resource dilemma is highly focused on in today’s global society, because it determines how long we will hold those necessary resources for the sustainable development” (du, wu and wang 2016, p.1432). faced with the difficulties of reconciling different stakeholder interests, as regards local contribution, opportunities for local development, reduction of environmental risks, private interests, and other such tensions between the corporation and society (porter and kramer, 2006), the contributions of these two theoretical strands as a mechanism for future negotiations, bargaining, and contract improvements needs to be envisioned. it is argued that recognizing the determinants weighing on the decision-making process of these groups to cooperate and trust can be deemed fundamental, particularly in moments of negotiation and bargaining among the involved, as well as providing information for the improvement of contractual instruments establishing the relationships between stakeholders and the plant, and to minimize the possibilities of conflict and mismatched expectations between all involved. this subject also constitutes a research opportunity, since in preliminary literature review few studies addressed concomitantly the sustainability question related to hydroelectric plants and the cooperation between them and a group of local stakeholders, based on behavioural economics and crowding out theory approaches. the present study hence seeks to bring a proposal of association between two areas of research still poorly integrated – the contributions that behavioural economics and crowding out theory can bring to the analysis of actions envisaging sustainability, which demand the cooperation between a hydroelectric power plant and the fisheries community that make a living out of its reservoir. the use of economic experiments on the sustainability theme has been employed by adapting public good games (both in the form of voluntary contribution mechanism and common pool resources) to the different realities which the players actually face. usually, the themes are focused on environmental preservation and control of scarce natural resources. we can name the forestry game (cardenas, janssen and bousquet, 2013; janssen et al., 2012); the water irrigation game (janssen et al., 2012; cardenas, janssen et al. 2013); and the fishery game (castillo et al., 2011; emery et al., 2015). considering the above, the problem of this research can be described as follows: how can behavioural economics, through the use of incentive mechanisms, contribute to assessing the intention of cooperation and the effect of crowding out between a hydroelectric power plant and a group of local stakeholders in projects favouring sustainability? the text begins with the literature review, followed by the construction of a proposal, after which our closing considerations are presented. 2. theoretical review 2.1 sustainability and energy it is recognized that corporations cause impact in the surroundings of their operation, and that cautionary attention to these impacts becomes absolutely necessary, particularly in the social, economic, and environmental spheres. in this context, much has been discussed about the need for corporations to address 72 fabricio baron mussi, ubiratã tortato 2018/23(2) the subject of sustainability, not only as an accessory matter, but incorporating it on strategic decision-making processes (engert, rauter and baumgartner 2016; moreira et al., 2015), either to mitigate/avoid social and environmental impacts, to explore new markets, or to reconcile the interests of various stakeholders (zijp et al. 2015; morrison-saunders et al., 2014). these latter authors maintain that this perspective envisages a better understanding of sustainability assessment processes, transparency, and – particularly – the potential way of obtaining consensus. in the energy sector, it is noted that many ventures sometimes delay their operation due to disagreement between stakeholders, particularly regarding the release of environmental licenses, and clashes with local communities (brazil, 2015a). despite these obstacles, this sector is considered fundamental for the functioning of mostly all other sectors in economy, so that the availability of energy conditions the capacity of a country to provide several services to its population, and for it to prosper economically (yüksel, 2010; mayumi and tanikawa, 2012; purwanto and afifah, 2016). in this respect, the global energy demand rises more slowly than in the past but still should expand by 30% between 2017 and 2040 (international energy agency, 2017). 2.2 hydroelectric power plants jiang, quiang and lin (2016), and han et al. (2014) found, from the bibliometric studies, that (i) most research is linked to a period following construction and start of operation, rather than to construction projects and technologies; (ii) the themes are multidisciplinary; (iii) there is a fast and rapid growth of publications on hydroelectric power plants. the argument is the relevance of hydroelectric power plants as a source of renewable energy, and its relative low-cost, when compared to other potential power sources (liu et al., 2013). the benefits of using these plants when compared to other sources, is pointed out by (yüksel, 2010; liu et al., 2013): • extension of flooded areas in some regions; • efficiency of energetic conversion, due to low-cost operation and technology already in place; • low maintenance costs; • major input (water) is not subject to fluctuations due to market changes; • possibility of flexible operation in power generation; • capacity to promote improvement in the living conditions of local communities surrounding these large plants; • high level of reliability. in brazil, such has been the main source of power supply, besides thermal plants, wind-power plants, small hydroelectric plants, and nuclear power plants (brazil, 2015a). moreira et al. (2015) state that the growth rate of the energy sector in brazil is 4% / year, considering the increased participation of other energy sources in the brazilian energy matrix. compared to the other countries of the emerging economies, there are some differences: coal-fired power plants still represent the main source of power supply in south africa, china and india, while in russia natural gas thermoelectric plants are the most used (brazil, 2015b). due to the size of these projects and their impact on the environment, the actions toward sustainability proposed by the hydroelectric plants are often under debate. most of these actions include economic, social, and environmental evaluations (liu et al., 2013): local impact, the constraints that these projects may occasion in ecosystems and local communities, changes to the dynamics of the aquatic and terrestrial habitat and the deposit of sediments in river beds are all considered, among others (yüksel, 2010; zhao et al., 2012). in the words of jiang, quiang and lin (2016, p.235): hydropower will orient the development strategy of renewable energy due to its huge development potential, economic and social benefits and proven technology. however, we cannot omit the negative impacts brought by hydropower projects in terms of environment, ecology and socio-economy. in brazil, there are some plants with a huge power-generation capacity. among the largest, we can mention itaipu binational (14,000 mw), belo monte (11,233 mw), tucuruí (8,370 mw), and jirau (3,750 mw) (brazil, 2015a). given the particularities of the country in terms of availability of hydric resources, the main topics of discussion are: (a) reduction of local and global impact arising from the use of energy sources; (b) use of renewable sources; (c) minimization of impact on the environment; (d) discussions, at the national and international level, on climate change. regarding socio-environmental themes, the following topics can be mentioned: (a) environmental impact: loss of native vegetation; transformation of a lotic environment into a lentic one (running waters into dammed waters, creation of reservoirs), loss of vegetation; (b) social-economic impact: affected population; interference in indigenous lands; (c) interference in infrastructures; (d) socio-economic benefits: job creation, temporary increase in tax-collection, permanent increase in tax-collection. 73 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) there are several bodies involved in the decision-making process in the power generation sector, each bringing to the table their own interests and responsibilities. the following table summarizes the main stakeholders in the sector: table 1: main stakeholders in the sector source: adapted from moreira et al. (2015). on the whole, many of the actions developed in the scope of sustainability occur by means of the interaction between power plants and their surrounding environment. at this point, we would add that understanding the evolution of cooperation among individuals and groups is still an interdisciplinary challenge (perc and wang, 2010), and behavioural economics can contribute to this endeavour. 2.3 behavioural economics, the crowding out effect behavioural economics consists of a fairly recent field of research deriving from the incorporation of economics, theoretical developments, and empirical findings in the fields of human and social sciences (weber and dawes, 2005). among the possibilities of contribution of this theoretical strand, we can mention behavioural economic experiments, and the public goods game in particular (sturm and weimann, 2006; lozano, 2007; soest, stoop and vyrastekova, 2016). the public goods game consists of an experiment in which the agents receive a certain amount of money and can contribute with the purpose of maintaining public goods or taking the money for themselves (for personal benefit), being that no agent can be excluded of enjoying the benefits the public goods offer. the donated value usually doubles (or is multiplied by another pre-established index) and redistributed equally to all players, independently of their individual contribution. the game presupposes the existence of an individual or group dilemma and the possibility of contributing/not contributing but still being able to use the public goods (sell et al. 2002; soest, stoop and vyrastekova, 2016). the payoff represents the linear function of the contribution of the subjects, and therefore the aggregated returns are maximized if each subject invests all his patrimony in a public good, so that the amount contributed to the public account represents a measure of the participant´s cooperativity (cardenas and carpenter, 2006). however, the self-reward maximizing strategy in this game is to pocket the donation independently of the amounts contributed by the other members of the group (soest, stoop and vyrastekova, 2016). this behaviour adopted by a subject, to maximize the use of the public goods without contributing to the provision of the same is recognized as free riding (andreoni 1988; sturm and weimann, 2006). some authors argue that the public goods game consists of a feasible possibility to evaluate the willingness of the participating agents to cooperate with a view to sustainability (lozano 2007; soest, stoop and vyrastekova, 2016; robert and broman, 2017). still, a strand of studies on cooperation argues for the need to consider local collective construction of solutions to specific environmental issues (frey and stuzer, 2006; vollan, 2008). cardenas, stranlund and willis (2000) and cardenas and ostrom (2004) analysed the effect of governmental intervention to regulate wood extraction in colombia. recognizing that the extraction of this 74 fabricio baron mussi, ubiratã tortato 2018/23(2) ������� ���� � ���������� ������� �������� ���� �� �� �� ������ ���������� ��� ���������� �� ��������� ���� ������ �� ��� ���������� �� �������� ��� ��� ����� �������� �������� ���� �� ������� ��� ��� �� ������ �� ���� �� �� �� ����� ����������� ���������! �������� �� ��" � �#����! �������� �� ��� �� ��� ����� �� �� ���� �� ������ ����������� �� � ��������� ������� �� ��" � �#���� �� ��� � �� $���� ���� ����� ����� � �� ����� � �#���� �� ������� �� ������! ���� ��������! ��� �������� ������! ����� � ������ "��� ��%&����������' ���(������ � ��� ������� � )�(� ���� ��������� ����� �� ��������! ������! ��� ���� �������� ��� ������� ������� �� ��� �� (��! ��������� ��������! ��� ���� ���(������ �' * ������� +�������� �� ��� ��� ������ ��� ���"���� ���� �� ���� ��� ��� ���� ����� �������� ���������� ��� ���������� �� ��� ���� �������� ���� ������ �� ��� ���������� �� �������� ��� ��� ����� �������� ������� +���������� �� ����� � ������ �� ��������! ������! ��� ���� �������� ������� ��� �� ������ �� �� ����� ������! ����� �� �� �� ������ ��� ������������ � ���� �� ����� ���! ��� ���� �� �� �! ��� ��#����� �������� material accelerates local erosion, the authors – considering the neoclassic economic theory – hoped that regulation would bring better results to local groups. nevertheless, they discovered that when the extraction was marked by informal norms defined by the residents themselves, the decision to extract was balanced between selfish and collectivist behaviours. from the moment the government took over this responsibility, the residents no longer felt co-responsible for the extraction, adopting a more egocentric posture. comparatively, both transaction cost theory and agency theory consider monitoring and surveillance to raise partner´s efforts, while the literature on the crowding out effect suggests just the opposite (dickinson and villeval, 2008). frey and jegen (2001), and fehr and falk (2002) reinforce this finding, stating that individuals can reduce their willingness to cooperate when threatened by sanctions/punishment, or even by economic incentives and rewards. 2.4 the role of reward and punishment mechanisms in order to encourage cooperation between individuals, some authors suggest the use of reward mechanisms (for cooperation) and punishment (for non-cooperation) as tools to promote cooperation in social dilemmas or situations when immediate self-interest and longer-term collective interest conflict (balliet, langer and mulder, 2011; choi and ahn, 2013). the reward mechanisms, from the perspective of the public goods game, consist of an artifice used to promote cooperation between the parties, being effective in games of more than one round (walker and halloran, 2004), and when the cost of promoting it is lower than the benefit of the recipient (sefton et al., 2007), being recommended the use of this instrument individually (narloch et al., 2012). for the latter authors (2012, p.2014): “by raising the individual pay-offs and decreasing free-riding incentives, individual rewards could have a stabilizing effect on collective action due to motivating people to stick to the social norm”. as with the agency theory, it is suggested that the partner is motivated by the financial returns from the interactions, so that the higher the return, the greater the likelihood of the agent to adopt a cooperative posture (dickinson and villeval, 2008). the following table summarizes some of the results related to rewards in the public goods game: table 2: synthesis of the studies addressing rewarding in public goods games source: prepared based on the literature review regarding punishment mechanisms, reuben and riedl (2013) broaden the discussion about contributions to a public good, indicating that differences in contribution stem from the forms of punishment imposed, so that when there is no punishment, all involved converge to the free riding behaviour. regarding this finding, other authors (masclet et al., 2003) have also observed that when the punishment is monetary, offer increases more than when the punishment is non-monetary. meanwhile, for both possibilities, when the punishment is removed, the contributions decrease in the public goods game. 75 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) ������� � �� �� ����� �� �� �� �������� ���� ����� ��� �� ��������� �� ���������� ��� ��������� ��� � ����� ��� ������� ���� ��������������� ����� !""#$��%��� ����&���������� ' ����� !"(($� ) ����� ������� �� � � ��� �������������� �� ��� �� ������� ��) ����� ���������� �� ������� �������������� � ��� ���� � ��� ��� ��� *���� �� ����� � � ���������� �������� ��������������� � �� � ������ *���� ���� +���,�������-� !"(($�� .������������-� !"(($�� /��� ���0��� ������� 1� ����� !"(!$� ����������* �������� �� � ������ *��������� �� ��� ��������� ��0 � � �������� *���� ��������� ���������� ������ � *���� ���2���� ��� ���2��� ��������� ��� �� �������� ��� ������ *��� �2�����* �� 2���� ��� ���� ��� � ���� ����� ���� ���������� ������������ � ������� *���� �� .������������-� !"(($� / ��� ��������������3� � *���� �� ��.����3*�� ����� ��2� ���*�� ���� � � ���������$� � ���� �������� � ���������� *���� �� ��������3�� � ��� 4 ������� !"(5$� � 6� ���������3�� *���� �� ��������������������������� ���� ��������(7(������ ������������� ��� ��� ����*�2��� ���� ��� � ��� � *���� �������������� ������� �2��� ��� ���� ��������������� ���� !""#$��8��� ���8� **����� ������� !""9$� 0 � � �����������3� � *���� �� ��0 � � ����������� (7:$�*� � �������� ����� �*���� ��� *���� ������� � ��������������� ����������� �*���� ������������� ��� �� � ����� �� � *���� ��� ��� ��� ��� ������� ���� ;���� � �����2� ������� <������ ��� !""5$�� <������� �������8 ���� !""=$� while the prediction of punishment in contractual arrangements is interpreted as a mechanism of prevention of opportunistic behaviours (willianson, 1985), in experiments of public goods game, it is observed as the prediction of punishment as a mechanism envisaging to ensure efficiency/contribution of the good (fehr and gaechter, 2000; sefton et al., 2007) penalizing those who choose not to cooperate, although they can still enjoy that specific public good. in this context, we can observe some authors´ reserve in what concerns the magnitude of the punishment, recommending that – to be effective – punishment should be high, in a proportion 1:3 or even higher (sefton et al., 2007; nikiforakis and normann, 2008; chaudhuri, 2010): the mere prediction of a punishment, or a punishment with minimal loss to the player, would not be effective to cooperation. it should be noted that the use of this resource is recommended, making the application of punishment low-cost to the punisher, and of high impact to those punished (carpenter, 2007; egas and riedl, 2008; nikiforakis and normann, 2008). the following table synthesizes some of the main findings regarding punishment mechanisms in public good games. table 3: synthesis of the studies addressing punishment source: prepared from the literature review. 76 fabricio baron mussi, ubiratã tortato 2018/23(2) ������� � �� �� ����� �� �� �� ��������� � ���� � � ���� ����� ���� ����� � �������� ���� ���� � �� ���� ��� ���� � ����������� ��� ��������� ����� ��������� �� �������� �� �� � ��������� ��������� �� ��� � !!!"# $��� ��� %��� � !&'" $�������� �� ���� � (�� ��������� �� ������ ��� ���� ����� �� � �� ���������� ��������� ����)�� � �� ��� ���� ��� ��� ���� ������ �� ��� ���� ���" �� ��� ����������� �� �� ���������� *�� ��� +���� � !!,"# -�.� ���.� ��� -������ � !!," +����� � ��� ���� ��� ������ /��� � ���� ��� ������ ������ ��� ��� ������� �������� ����������� ���� �� ��� ��� � ��� -�.� ���.� � !!0" ���������� ��������� ��� ���� ����� /��� ��� ���������� � ���� ������ ��������� ��������� � ��������� 1��� ��� 2������� � !!!"� 3������ ���� ��� ��������� � !!4"# 5� ��� �� ��� � !!6" 1���)��) ��� ������������� � � ���� ����� $�������� ��� � ������� � ���)��) ��� ������������� ���� ��������� ���� ������ �� ��� �� ���� ���� ������������� ������ � ������������ ���� ���� ��� �� ������� �� ���� �� ��� ��� ������� ��� �� � � ���� ����� ���� ������������� ���� ������� ������ � ��� ���� � ���������� ��� ��� ����� 3������ ���� ��� ��������� � !!4" $���������� ����������� $���������� ����������� ������� ��� � ��� ������� �� ���� � ����� ������� ���� � ����� � � �� � ��� �� ��� ��� ��� �� ����)���� ���� �� 1��. �� ���� � !!7"# 28������ 28����� �� ��� � !!," * ������� � � ���� ����� ) 3��� ������������ � ������ ��� � ������� � � ������ ���� ��� ������ ���� ���� ����� � ������� ���� ���� �� � ��� ��� ���# ) /������ ��� �� ������� � ���� ������ 9� � � ��������� ����� � ����� ��� ��� ������� ���� ��������� ��������� ��� � ��� ���� ������ � ���� ���� +��.������ ��� :���� .� � !!4"# +����� ��� +���� � !&'" ���� ����� � � ������ � ����� ;� ����� ����� ���� � ���� ����� �� �� � ��� /��.�� ��� <������� � !!0"# 28����� �� ��� � !!," :�������� � ���� ����� � � ����������� ) /��� ���� ����� � ���� �� �� &=&" �� � ��� � ������ �� ����������� �����������# ) (� �� ��� ����� � �������� ���� ����� �� � �� ���� �&=0" 5� ��� �� ��� � !!6"# -�.� ���.� ��� -������ � !!,"# $�������� � !&!" 5�>� � ��� ����� � � ���� ����� /��� ��� ���������� � �������� ��� �>� � ��� ����� ���� �� ������ � ������������� ��� ������� ������ ���������� � ����������� $�������� � !!6" $� � � ���� ����� ;����� � �� ���� ����� ������ � � ��� �� � � ���� ����� ������ � � � �� ��� ��� � ����� ��� ������ %���� �� ��� ��������� � !!4" 5����� ���� ����� � � ���� ����� ���� ����� ;� ��� �� ������� � ���� ��� ������� ���� ���� ����������� �� ��� � ��� ���������� ���� ����� �������� ���� ���� ����������� � ��� �� <������ �� ��� � !!,"# *���� �� ��� � !!?" ���� ����� � � �������� ������� ���� ����� � �� � ������� �� �������� ���� ������� ��� ������������ ;� �������� ���� ������� � ������� ����� � ������������ ���� ����� ���� �� ������ ��� ������� ���������� � !&4" -��)�������� ���� ����� ) -��)�������� ���� ����� ��� ������ � ����������� �� � ������� ������ � ����# ) (�� � ���� ����� ��� ���� � ������ ����� ������ ��� .��� � ������ ���� ���� ������� # ) 3��� ��� � ���� ����� ��� ���� � ������ �� ����������� ���� ��� ������ ��� ���� ����� �� ���� :� ���� �� ��� � !!'" in view of the above, in order to propose contributions of incentive mechanisms to cooperation in the field of sustainability for a specific group of itaipu´s stakeholders, as well as evaluate the manifestation of the crowding out effect, it is necessary to glimpse on how such motivations and collective constraints associated to incentives aimed at environmental preservation affect individual decisions to contribute to the public good. 3. methodological procedures and construction of the proposal for applying the public goods game the proposal for the integration of the themes is illustrated here in the form of itaipu hydroelectric plant and its particular sustainability program. the choice was intentional, once the corporation is considered to be the largest power generating hydroelectric in the world, with its sustainability program in force for over a decade, being internationally recognized for its contribution to the socio-economic development of the western region of the parana state, and for its water management and conservation practices. the operation of this plant began in 1984. its reservoir is 170km long, and 20 power units generating 700mw each were installed. this is a binational hydroelectric power plant (brazil and paraguay), and this research was conducted only on the brazilian side. another criterion for choice was that their programme has several fronts of interaction with groups of local stakeholders. the following table presents the generation of energy for the last ten years. table 4: history of power generation at the itaipu hydroelectric power plant source: elaborated through data collation the research was conducted assessing documents such as itaipu´s ten-year energy plan (brazil, 2015a), the plant´s annual sustainability reports, and other documents between the plant and its stakeholders, in the environmental area, and in the form of contracts, service permits, partnerships, and cooperation agreements. the purpose was to contextualize the main initiatives aimed at environmental preservation that require participation of the community of professional fishermen using the reservoir, the timeframe of these relationships, types of results expected, and whether the participation was a demand from the stakeholders. we are discussing a population of 456 professional fishermen, divided by 10 locations/fisheries associations. the following figure shows their distribution along itaipu´s reservoir. figure 1: distribution of professional fishermen along the reservoir 77 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) ����� ����� ����� ����� ����� ����� ����� ��� � ��� � ����� ����� �� � � �� � � �� � �� � �� � ���� �� ��� �� ��� �� ���� �� �� � �� � � ��� �� � �� ���� � next, eight personal interviews were carried out with managers involved in the sustainability program, guided by a semi-structured script of qualitative questions (godoy, 2006) – whose contents included the validation of the researcher´s findings from the examination of secondary documents, as well as the explanation regarding the fishermen of the western region of parana identified as relevant to the power plant, the particularities of each project developed, and the risks of possible non-cooperation. the questions also explored topics related to management of relationships, determinants and obstacles. the understanding of these questions was relevant to initially propose the field experiment in the form of public goods game. subsequently, it will also support the definition of the experiment protocol to be used with fishermen. the suggested public goods game was adapted from fehr and gachter (2000), and sefton, shupp and walker (2007), and – for the present proposal of experiment – was named ‘reservoir game’, as the public good in this case is itaipu´s plant reservoir. the option stems from the fact that the itaipu reservoir provides the input used to generate the energy that supplies approximately 17% of the energy in the whole of brazil. besides, this reservoir serves many purposes for the region population: it serves as the source of water for the household consumption, for agriculture and livestock; as a tourist attraction; and as a source of subsistence for the fishing activities in the region. the proposal for this game consists of conducting the experiment with groups of six players each. with each round, the players must receive 2 envelopes and 10 coins of r$ 1 each, choosing how many coins to allocate to a ‘public account created for the preservation of the reservoir’ (first envelope), and how many coins to allocate to their respective ‘private accounts’ (second envelope). unlike the allocation of coins to the individual account of each player, those donated for the reservoir preservation are summed, and right after multiplied by 2 (representing the benefits resulting from the preservation of the reservoir) and redistributed equally among all players, to illustrate the characteristics of a public good (non-exclusive and non-competing). the results should be presented in a projector, round by round, so that each player can take note of their gains, and the gains of the other players. after 6 rounds, the possibility of one player punishing or rewarding another must be introduced. for this sequence (another 6 rounds), an extra envelope must be handed out. in this envelope the player writes the number of the player he/she would like to punish (or reward) and with how many coins. in addition to the rest of the rules, for each coin the player uses to punish (or reward), the punished player loses (or receives) 4 coins, representing a high punishment (or reward) as suggested in the specialized literature (sefton et al., 2007; nikiforakis and normann, 2008; vyrastekova and soest 2008; reuben and riedl, 2013). at the end of the 6 rounds, there should be a draw for each player and – in that lot – the player would keep all the money. it can be said that experiments of this nature, in turn, test hypotheses related to the free rider behaviour and the selfish choice (soest et al., 2016) of the players as a presupposition of neoclassical economics; the role of the mechanisms of punishment and reward to ensure efficiency of public good in cooperation (fehr and gaechter, 2000); and the potential changes to cooperative behaviour (materialized in donations) resulting from the institution of penalties or rewards, i.e., whether the sustainability of the itaipu´s plant reservoir represents a motive good enough to favour cooperation on its own (bowles and reyes, 2013). 3.1 selection of players and definition of games the criteria for identification and selection of potential players in this proposal was based on the identification – among those groups belonging to the local society – of those who frequently interact with the power plant. these are stakeholders with frequent interface relationships, particularly with the area of environment and environmental management. the following was also considered: • that the fishing community has – direct or indirect – contact with some contractual regiment. this point constitutes an attribute for cooperation: when the participants themselves agree to a work order and a punishment system, it is often not necessary to use it, and the benefits of cooperation can be substantially improved (ostrom, 2010); • that the fishermen represent a group of interest mentioned in brazilian electrical sector official documents (brazil, 2015a) and in continual assessment for the construction of economic, social, and environmental indicators (iha, 2006; morinoto, 2013; dombi et al., 2014) for hydroelectric plants; • that from the suggestion of the criteria for classification of stakeholders, relation of dependency (langtry, 1994) and of legitimacy in the relationship (cornell and shapiro, 1987; carrol, 1989) of the professional fishermen to the power plant were observed; 78 fabricio baron mussi, ubiratã tortato 2018/23(2) • that these are mostly low-income groups whose decisions that may benefit them in the short-term may overlap with long-term cooperation decisions, albeit to the detriment of sustainability and contractual regiment. on the other hand, the imposition of external incentive mechanisms may undermine motivation of these groups to preserve the referred public good; the follwoing table characterizes the stakeholders identified from the data collection. table 5: characterization of the fishing community source: prepared based of the literature review. from the characterization of these groups, the sustainability projects that showed interaction were duly identified, and hence the public goods game was proposed, as the best way to represent the dilemma faced by the groups, particularly as regards the public good notion. regarding the type of game, the details on the gains for cooperation were proposed as follows: table 6: sustainability project with which the interest group has an interface, and proposal of economic games source: prepared from data collection checking willingness to cooperate in actions geared to sustainability, as well as examining the role of punishment and reward mechanisms is relevant for the corporation to obtain subsidies for the establishment and maintenance of long lasting relationships with these interest groups. for this, the possibility for communication between those involved (particularly direct, face-to-face communication), the long-term horizon of relationships, and the reputation of the power plant can represent factors that support stakeholders´ motivation, which in turn raises the chances for cooperation between all parts involved (ostrom, 2010). 79 management: journal of sustainable business and management solutions in emerging economies 2018/23(2) � ������� ��� ����� ����������� ������� ����� ���� ������������ ���� ������������� ���� ���� ����������� ������ � �� ���� � � ���� ����� �� ���� � ������� ���������� �� � � ������������ �� � ����������� ������ �� ������������� ��� �������������������� ������ ����� �������������������� ��������� ��� ���� �� � ����� ������ ���������� �� �������� �������� ����������� �� �� �� ������������� � ����� �������� ������ �� �!�� ����������� ���� �������� �������� ��� ���� ��� � ���� ����������� �������� ����� � ��� � ������� ������������������� �"��� ���� ��� ����� � ������� ������������ ���� ����� �������"���� ��������#���������������������� � � ��� � ��������� � ��� ������������ ��$ � ������ ���� � "����� ������������"����������� ����� ������ � ���� ��� ������ �� ����������������� ������������ ��%��� �� ������ ��� ���� � �� � � � ��� �� �� ����� �� �� �� ������� ����� ������ � ��� �� �� ��������� ����� � ���� �� ����������� ����"���������� ������� � "������ ��������� �� �������� �� ���������� ���� ����� � ������� � ���������� ���� ��� ����� � ������������ �������� � ���� ����� � ���� ���� ��������� ��& �� � ��� � ������������ ���� ������ �� ������ ���� ��� � � ����������� �� � ��� ���� �������� ������ ����� �� �������� � � �� �� � � � � �� � � � �� �� ���� � ����� � � ��� ������ ��� � � �������� � � ���� � � ��� ������ ��� � � �������� � � � ������ � ������� �� � ��� ������ ��� � ��� ���� � ���� � �� � � �� ����� � ��������� � ���� � � ��� � �� ���� �� � �������� � � �������� �� � � �� � � ��� �������� � ���� � ��� � ��� ���� ������� �� � ����� � � ������ � � ������ � � � ���� ��� �������� ��� ����� � � ��� ��� ��� ������ � �� ��� � ��� ������� � � ��������� � �������� �� ���� ����� �� � ��� �� � � ���� ������� �� ��� � ������ ��������� � ��� �������� ! � � ���� � "# � � �� �$ � � � �� �� � � $ � � ������� ��� ���� �� %����� � ��� ��� ! ���� ������� � � ����� �� � �� ����� ���� ���� �� �� � � ��� � � ��� ���� � � ���������� � ��� ������ ��� � &��� � � ����� � �� ���' ( �� �� � $ � ��������� ���� �� ����� �� ���� �� � ��� ����� ) ����� � � ����� �� ������� ' 4. final considerations the present study sought to present a proposal for an association between two areas of research still poorly integrated – the contributions that behavioural economics and crowding out theory can bring to the analysis of actions envisaging sustainability, which demand the cooperation between a hydroelectric power plant and the fisheries community that make a living out of its reservoir. it can be added that most research, based on the application of economic experiments, focuses on two aspects: • analyzes decisions targeting cooperation in public goods based on a dummy scenario – created in university laboratories – predominantly with the participation of students (weber and dawes, 2005; houser et al., 2012; dannenberg, 2016; boosey, 2017); • analyzes decisions targeting cooperation based on field experiments in rural communities (cardenas, 2000; cardenas and ostrom, 2004; henrich et al., 2005; vollan, 2008; narloch et al., 2012), envisaging the understanding of the dynamics of cooperation between these groups, as well as the factors that may interfere in this dynamics. in this case, research generally involved a combination of (qualitative and experimental) methods, making use of specific control variants, and – sometimes – considering specific contexts in which these communities exist, in terms of social norms, restriction of resources, forms of subsistence. the present proposal is embedded in this latter current, and can be synthesized as follows; table 7: experiment proposal source: prepared by the author, based on specialized literature it is recognized that economic field experiments lose part of their internal validity and potential for replication when compared to laboratory experiments (roe and just, 2009). however, to approach the reality of local organizations and identify the heterogeneity of the stakeholders with which the hydroelectric power plant interacts represents a relevant aspect to be considered in decision-making about cooperation (chakravarty and fonseca, 2014). still with respect to the proposal of use of economic behavioural experiments, it is justified due to the nature of the information one wishes to obtain, which can hardly be obtainable by means of performing predominantly qualitative studies, or by exclusively applying questionnaires. cardenas and carpenter (2006), for example, recommend the adoption of this procedure to evaluate issues related to decision-making of agents and groups, especially on matters related to preferences, risk, and willingness to cooperate. due to this methodological option, it is important to observe the need to strictly comply with the protocol of manipulation of variables and the operationalization of the experiment itself. this involves specific procedures in the recruitment of potential participants phase, explanations, and stimuli prior to the game, game conduction, and even a follow-up to the experiment (kreps, 1990; henrich et al., 2005; cardenas, 2000; cardenas and carpenter, 2006; howe et al., 2016). the current proposal finally wishes to contribute to the refinement of research on hydroelectric power plants stakeholders´ willingness to cooperate, representing a still on-going development of an opportunity for research on this theme. from a practical standpoint, this study can help in the acquisition of relevant information about the applicability and efficiency of punishment and reward mechanisms related to cooperation between a power plant and its local stakeholders, either in support of future negotiations and agreements or in bargaining situations when groups present their demands. one can only hope to have also contributed to the improvement of management of contractual agreements between corporations and local stakeholders in projects targeting sustainability; to reduce any transaction costs, particularly in long-term relationships; complement the contents of contracts, drafting obligations/duties of the parties involved, applicable penalties and incentives for contractual compliance; and minimize the possibilities for conflict and disagreement between partners. 80 fabricio baron mussi, ubiratã tortato 2018/23(2) punishment and evaluation of crowding out effect without punishment (control) with high level of punishment reward and evaluation of crowding out effect without reward (control) with high level of individual reward the conduction of similar studies in other power plants with recent impact on local communities, as is the case of belo monte power plant (oliveira et al., 2016), and with other players can also aid to the validation of this 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(2010). hydropower for sustainable water and energy development. renewable and sustainable energy reviews, 14(1): 462-469. doi: 10.1016/j.rser.2009.07.025 [85] zijp, m.c., heijungs, r., van der voet, e., van de meent, d., huijbregts, m.a.j., hollander, a. and posthuma, l. (2015). an identification key for selecting methods for sustainability assessments. sustainability, 7(1): 2490-2512. doi: 10.3390/su7032490 [86] zhao, x., liu, l., liu, x., wang, j., and liu, p. (2012). a critical analysis of the development of china’s hydropower, renewable energy, 44(1): 1–6. doi: 10.1016/j.renene.2012.01.005 received: 2018-05-25 accepted: 2018-06-30 fabricio baron mussi pontifícia universidade católica do paraná, brazil fabricio_mussi@hotmail.com bachelor’s and master’ degree at business at federal university of parana and a phd student at business of pontifícia universidade católica do paraná. he is currently a contract manager at itaipu hydroelectric power plant. he has experience in business, acting mainly in the following subjects: sustainability; economic behaviour; finances. ubiratã tortato pontifícia universidade católica do paraná, brazil ubirata.tortato@pucpr.br bachelor’s and master’s at business from universidade federal do paraná and a phd at production engineering from universidade de são paulo. he is currently a full professor at the pontifícia universidade católica do paraná and chief-editor of rebrae. he has experience in business, acting 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03_mina bogosavljevic:tipska.qxd 27 mina bogosavljević jovanović1, zoran radojičić2 1faculty of economics, finance and administration, belgrade, serbia 2university of belgrade, faculty of organizational sciences, serbia management 2016/79 consumer behaviour in the new products management in serbia udc: 005:.346:005.936.43 658.8 doi: 10.7595/management.fon.2016.0012 1. introduction the aim of this paper is to investigate the application of consumer behaviour in marketing management, in the field of new products development. research on the interface of innovation and branding is limited. managers receive little guidance regarding how consumers’ perceptions of a brand’s innovativeness affect firm performance metrics such as consumer brand loyalty. research examining linkages between innovativeness and customer satisfaction is considered critical (pappu, quester, 2015). two large manufacturers of black coffee in serbia have entered, at the same time, the segment of instant coffee, where the multinational manufacturers dominate. as it is a hazardous step, it is interesting to show how those manufacturers have prepared to launch new products on the market, intended for completely different target group of consumers than they are familiar with. this paper will display the information about the success of the conducted innovations by market volume share, brand recognition, as well as the degree of the managers’ satisfaction with the achievements. the main objective of behavioural decision theory (bdt) research, demonstrating that economic theory often fails is a description of decision making as well as gaining insights into systematic influences on judgment and choice (simonson, i., 2015). the practical goal of this research is to advance future new products development, to achieve better product performance as well as higher consumer satisfaction. initiating the process of new product development based on consumer needs and by satisfying their expectations, as required by the concept of marketing, emphasizes indubitable significance and contribution of consumer behaviour in marketing. however, insufficient or inadequate application and understanding of the consumer has been observed in the practice, in the process of innovation. therefore, managers of the two companies that were involved in the process of new instant coffee development were interviewed. secondary data, concerning the brand performance are data of the longitudinal studies of market research agencies. the paper shows that insufficient attention paid to consumers in the new product development impacts the success of the product. it has been confirmed that the marketing managers rely on consumer behaviour and that they are aware of its importance, but use it quite superficially. the conclusion is that, in practice, enterprises in serbia, in addition to the insufficient application of consumer behaviour in the new products development, face the shortcomings related to the process itself, such as the lack of marketing concept acceptance, production of certain formal documents, strategic planning as well as consumer research. the paper proposes a modification of the new products development model that insists on the four observed shortcomings. keywords: consumer behaviour, product management, the new product development, innovation, market, protocol, concept 2. marketing management some economists’ interests for the material factors is the same as the amount of psychologists’ “negligence for the economic behaviour of individuals”. (ilic, 2011, p.11; petrović, 2007). based on the interdisciplinary knowledge of marketing and psychology, a new scientific discipline has been developed (maričić, 2005; milas, 2007, živković, 2014) or a new marketing branch (schiffman & kanuk, 2009; begen, 2004; hoyer & macinnis, 2004) – the consumers’ behaviour. there is a growing importance in consumer behaviour even in e-commerce (čavoški & markovic, 2015). the more the business performs according to the concept of marketing, forcing enterprises to be focused on the market and not on the product itself, the more the consumer is included (joksimovic, 2013). consumers often make product choices that involve the consideration of money and time. a scientific approach to understanding consumer behaviour appears to be lacking in many corporate research surroundings (dijksterhuis, 2016). building dual-process models, the two essential resources activate qualitatively different modes of processing: while money is processed analytically, time is processed more affectively (lee l. et al., 2015). what is necessary for the market orientation and marketing concept is “the superior expertise in understanding, satisfying and maintaining the consumer” (milisavljevic, 2006, p.7). the problem is, according to foxal, goldsmith & brown (2007), that not many manufacturers are ready to accept the marketing concept. it can be said that there is a chain market focus innovation success, while milutinović, stošić & mihić (2015) define a concept of strategic innovation as the key to competitiveness. 2.1. marketing management through “the consumer” frame marketing is often accused of creating false wishes and support materialism, through greedy ambition and creation of the wrong value system (hrnjica, 2005). many believe that the profound understanding of consumers’ behaviour, actually contributes and facilitates unethical marketing exploiting a human weakness (schiffman & kanuk, 2009). likewise, marketing is often accused of the development of materialism (hrnjica, 2005), for the decrease of social values (rotfield, 2005), and for preoccupation with creating money and exaggerated purchase (roberts& manolis, 2000). lange at al. (2015) researched the impact of information on liking and willingness to pay. they were asked to indicate the maximum price they would pay for each product. the returns of customer participation on new product development performance can vary substantially in systematic and empirical integration of a customer participation (chang, taylor, 2016). in the definition of marketing, there are two psychological phenomena – the need and the want, which marketing vaguely defines, and it seems that not even psychology separates them from the other motivational factors. when described, the needs and the wants of the target group are satisfied through the marketing mix elements which the company can control (kotler et al., 2007), that have a psychological dimension as well (begen, 2004; milas, 2007). modern marketing mix takes care of long-term communication, trying to establish a stronger emotional connection with a consumer (jankovic, 2012). furthermore, advanced segmentation relies on psychographic measurements more than just demographic (bogosavljević, 2001). a study done by marković, antanasijević & ninković (2011) emphasizes statistically important differences between psychographic segments based on their affective and cognitive relation to money. the latest research has shown that information, price, or moral influence has an impact on an ethical consumption and are important (andorfer, liebe, 2015). 2.2. the consumer through marketing management frame besides the influence of external factors, consumer and their effects, cognition and behaviour, also depend on many interior factors, such as experience, learning, motivation, perception, memory and others. • motivation-“to understand consumers’ motives presents half of job done so that their needs are adequately satisfied which leads to purchase and the profit to the enterprise.” (maričić, 2005, p. 87). • perceptionthe function of perception is to defend the organism from too many stimuli (hrnjica, 2005), and it can be of use for the efforts of marketing if well understood. therefore, it is necessary to comprehend the characteristics of perception, such as perception intensity, subliminal perception, the selectivity of perception, perception integrity, generalizing of perception and 28 2016/79management adaptation stimulus, to understand the influence of perception on the consumer behaviour as well as the notions: perceptive map and perception of risk. the causal role of the specific emotions in risk perception has been confirmed (drače & ric, 2012). • memory and learningin marketing, the cognitive approach to learning is very helpful (the consumer is being treated as a person who actively and understandingly solves the problems and tries, in a certain way, to influence the environment (maričić, 2005; milas, 2007)). it is especially useful in the new products development, having to satisfy newly created needs and wants of the consumer without previous experience (maričić, 2005). milutinović & stošić (2013) find it even more difficult in new service development projects. • personality, values, and lifestylepersonality and personality traits are important market demand factors because they influence the type and the brand of the purchased product.therefore, there is a possibility of using personality traits as a guideline for marketing activity, such as the creation of new brands according to preferences of innovative consumers or old brands repositioning throughout the psychographic segmentation of the market (elliot &ynnopoulou, 2007; mcdonald & alpert, 2007). the usage of lifestyle parameters in marketing is more commonly used, as a “syndrome of interconnected personality traits, attitudes, and value.” (milas, 2007, p.128). 2.3. the new product in the area of marketing management new products are developed considering the importance of the entire organization’s functioning and its sustainability on the market. it is necessary for the experts in this field to know all the aspects of marketing and the whole business decision-making process. the innovation is the main characteristic of the successful marketing strategies; it is the “lifeline of every organization” (foxall et al., 2007, p.10; milas, 2007; crawford & benedetto, 2000). innovation is important for small and medium enterprises as well, as it affects their ability to grow (veselinova, gogova samonikov, 2012). the distinction between the short term and the long term is especially critical for radical innovations that create a completely new product category (gatignon, gotteland,haon, 2016). crawford & benedetto (2000) explain the new product development process through five consecutive but overlapping phases: identification and selection of opportunities, concept development, evaluation of ideas and projects, development and commercialization. the process of accepting a new product is not automatic and should be considered as a macro process (how does an innovation spread throughout society) and micro process (the phases that the individual goes through before accepting something) (kotler et al., 2007; crawford & benedetto, 2000). although bulut, trifunović and zivaljević (2011) conclude that serbian manufacturers consider their consumers’ dissatisfaction as a primary signal that launches innovation, other authors used the conceptual model to test in two empirical studies for three global consumer electronics brands in two product categories (pappu, 2016). kucia & szymura-tyc (2012) state that in transition societies, a major role in decision making in the innovation process is assigned to directors and board of directors instead of being given to the marketing department, with a reduced consumers’ role. serbia has progressed a lot in the past years, both in education and expertise of managers, as well as in professional approach, but the business decisions are still often made by using intuition or under the authority of the owner or the board of directors. the new product development can only get more complex and more challenging in the future as the fierce competition leads to increasing market fragmentation. an exploration of consumer attitudes and purchasing patterns are one of the necessary steps in developing a new product (winchester m., arding r., nenycz-thiel m., 2015). 3. the method the first part of the research refers to the analysis of the secondary data about the brand success (market share, value share, brand recognition, brand loyalty). the data came from the studies done by independent market research agencies: ac nielsen (retail audit) and ipsos strategic marketing (a longitudinal study of brand success and image, brandpulse). 29 management 2016/79 the second part of the research consists of interviews with managers who participated in the development of the new brand a and brand b. the study was conducted in belgrade, during february and march 2015; by using qualitative methodology (quantification is possible only for a couple of questions). the unstructured interview was the most suitable, because of the expectation of the social, i.e., business adequate answers. for better insight and confirmation of the interview, a partial quantification was also conducted through a structured questionnaire, by using a likert scale. this instrument was given to the respondents during the interview. 3.1. the coffee market in serbia in time of new products launch during 2006, black coffee consumption was still over 90% of overall coffee consumption in serbia. the volume share growth of instant coffee has been noted in a segment named “mixes,” which is instant coffee with milk, sugar or different flavours (as “2 in 1”, “3 in 1”, “cappuccino” and additions to coffee like chocolate, vanilla, banana, rum). on the other hand, in developed countries, more important and the basic instant coffee segment is a segment of pure soluble instant coffee, which is mixed with coffee and milk during the preparation. the basic instant coffee market, a portion of pure, soluble coffee, was divided between the two multinational manufacturers (nestle and jacobs). the two new products (brand a and brand b), have soon after launch, in 2007, reached 14% of market share, which is a great success (brand a 11% and brand b 3 %). the segment named “mixes” is the most fragmented segment, in which nescafe is the leader but is not as dominant as it is in the previously mentioned segment. new products brands a and b are reaching an unbelievable 23% of market share (brand a 20%, brand b 3%) soon after launch. the favorable perception of these two dominant manufacturers of black coffee in the serbian market has positively influenced their entrance to the segment of instant coffee, and it is expected that this positive image should influence the new product acceptance, contributing, seven years later, to good, long-lasting business. 4. the results the ac nielsen retail audit data show that the black coffee market share, although still dominant, is continuing to decrease while the proportion of the instant coffee segment is increasing. comparing the retail audit data from 2007 and seven years later (in 2014), in the first stage of market appearance, a significant market share loss, and almost no existence was recorded. in the segment of pure soluble coffee, brand a loses, while in „mixes“ brand b loses share and brand a stagnates. table 1: new products market share in instant coffee segments in 2007 and 2014 source: retail audit ac nielsen analyzing brand strength position within the competition, i.e., in the consumers’ minds, both manufacturers completely disappear in 2014 in a pure, soluble coffee segment, and in “mixes” segment they are losing one level each. 30 2016/79management table 2: new products position in instant coffee segments in 2007 and 2014 source: brand pulse (ipsos strategic marketing) while nescafe consumers use other brands in more than a half of the instant coffee consumption, jacobs’s consumers are quite loyal. the cross usage data are important because they show that the brand a and brand b make the worst competition to each other, in the “mixes” segment. table 3: the cross use of the brand of the “mixes” coffee segment source: brandpulse, ipsos strategic marketing 4.1. the results of the primary research the interviewed managers stated that the two companies have had a goal, by the development of brand a and brand b, to make a presence in the growing segment of instant coffee in serbia, only by having a proper distribution and lower price than the leader, nescafe, but without a strong competitive strategy. by that time, everyone was satisfied with the achievement, but now all the interviewed managers state that the approach to the process could have been more ambitious with a possibility of getting closer to the leader or even acquiring its position. the other goal that these enterprises had by developing the new instant coffee products, which are more modern drinks and have consumers in the younger age group, was to rejuvenate the image of black coffee brands. unfortunately, the conclusion is that the transfer was vice versa – the strong image of the black coffee brands has been transferred to the instant coffee brands, and, on the other hand, the strength of the corporate image has not been exploited enough. the competitive advantage was that they could compare to the multinational brands, where it is a fact that they are produced by known, reliable and domestic black coffee manufacturer, which was not used adequately in the sense of transferring positive attributes that come with the positive image of the maker but with the independence from the picture of the black coffee brands. furthermore, both enterprises have not defined their targeting and positioning strategies but have imitated the approach of the category leader, nescafe, which was too far from the corporate image of these enterprises. the initiative for the idea of these new products development are the global trends, and that has been stated as a first stage by all interviewed managers. in general, stages of this process, as revealed by this research, are similar and somewhat match the theoretical model. 31 management 2016/79 table 4: the stages of new product development however, none of the managers have mentioned the formal documents which are imposed by the new product development theory, such as: • the product innovation charter (pic), which formalizes the reasons for opportunities search, as well as the goals that need to be achieved, with certain rules. • the product concept in consumers terms, by listing the attributes and perceptive gap analysis. • the product protocol (the products’ essence and its benefits) which has the description of the target group, the positioning, the product attributes, timeline planning as well as marketing and financial demands. the consumer is mentioned only in the context of market research, which is classified in one phase. the analysis of the consumer needs, as the theory of marketing and new product development impose, has been conducted only in a sense of global trends analysis. all the managers spontaneously point out the marketing research as an important factor. however, the conclusion is that managers mention only tactical research (testing the flavour, design or price) and that the investigation into the consumers’ needs, habits, attitudes, segmentation or perceptive maps has not been carried out before the launch. the consumer was considered as an important factor during these new products development, not as a person with his dynamics and processes, but rather as a group of reactive consumers. during the new products development and marketing management, all of the surveyed executives note that the consumer’s role is vital, but during the application, the following factors diminish this importance: • the executive’s attitude that the consumers’ opinions and wishes should be taken with caution, and rely on business intuition, because sometimes consumers do not know what they need. • the executive’s attitude that “they do not want to stand out and slow down the processes by pointing out the soft process elements”. the hard process elements of the new product development are material, visible, such as the creation of the product itself, its listing, financial postulates, etc. • performance evaluation of employees, which is based on time. by pointing out the soft elements, managers could be treated as ones that complicate and slow down the process, which is undesirable. sorting the analysis by relevance during any new product development, and from the present point of view, the interviewed managers state the consumers’ analysis as the most important one. the next one is the competition analysis, which leads to the market analysis as the most important one. table 5: relevance of the analysisduring the new products development 32 2016/79management the executives of both enterprises state that the management concept of their companies was far from the idea of marketing; it rather was the product concept. furthermore, they state that their enterprises wanted to satisfy the enterprises’ needs by developing new brands of instant coffee and not the consumers’ needs. by analyzing the launching strategy of the two new brands, it seems that even the fundamental postulates of marketing management were not adequately implemented. • the competitive advantage, the fact that they were created by the domestic, known and reliable turkish coffee producer, was not exploited properly. • the differentiation between the new competitive products has not been implemented, which is confirmed in several data sources, in this paper. • neither of the new products had their positioning and targeting strategy but imitated the strategy of the category leader, which is too far from their corporate image. • the communication strategy, although different, did not fulfill the consumers’ expectations • the development stages of two new products correspond somewhat to the theoretical model but without the use of the formal documents, as the new product development theory imposes. • the managers of the both enterprises state that the management concept of their businesses was at that time far from the marketing idea, but rather a product concept. for the well-being of the individual as well as of the society, it would be desirable to get close to social marketing concept during the new product development, but in serbia, it seems that only sporadic socially responsible activities exist at the enterprise level, not at the brand level. it appears that the enterprises in serbia are still moving towards the marketing concept, which is a lower stage than a social marketing concept. although entire marketing literature points out the importance of the marketing concept in marketing management, this concept is even more important during the new products development. 4.2. the new product development model the suggested model of the new product development is the revised model developed by crawford & benedetto (2000). the modification is based on pointing out the four shortcomings, identified in this research, and those are acceptance of the marketing concept, the formal documents creation, and the application of strategic planning and consumers researching – from the initial idea to the product development. the primary criteria for the division into phases are formal documents which need to be created. • phase 1. product innovation charter. in the starting, first phase, it is necessary to create a document that describes the reasons for the search of new opportunities and ideas. it is important to define clearly and agree on the goal/goals of the new product development, within the enterprise. • phase2. product concept. the product concept is a document that formalizes the idea and the opportunity, by describing them thoroughly, in the consumer sense, and by demanding extensive market research and analysis to answer the following questions: what does the consumer need? which technology can make that happen? how do we solve the problem/the need for the consumer? which attributes does the product have? where is the product expected to be found on the consumers’ perceptive map (by analyzing the perceptive gap)? • phase 3. the result of the concept is testing. the document which contains the result of the concept testing demands a previous concept testing on a small target group of the consumers, and further improving and adapting of the product to the consumers perception of the benefit the product brings. • phase 4. the product protocol. the product protocol explains the essence of the new product, i.e., what is the advantage of it for the consumer, with the descriptions of the decisions that came from the strategic analysis and planning –the description of the target group, the positioning and the attributes of the product. 33 management 2016/79 34 2016/79management this paper investigates whether the consumer was treated with the necessary knowledge, understanding and appreciation of the new product developments. as an example, two new instant coffee products have been used, which have been launched at the same time by the two large black coffee manufacturers on the serbian market, in 2007. the success of two new products, as well as the satisfaction of the final consumers,is reflected in the data of the independent research agencies. comparing the data in a first stage of launching, and seven years later (2014), a significant market share decline of both new products can be recognized. the brand strength and the competition showed that both manufacturers are losing their positions. the secondary data indicate that the two new products have not made nor retained the market success. however, the existence of a severe competition between the two new products, as well as strong multinational competition can be noticed in the data. by examining the process of the new products development in practice, the observed insufficient or inadequate application of consumers’ orientation during the new product development in serbia is confirmed in this paper. the reason for that is in the incomplete acceptance of the marketing concept, as well as in the overall corporate culture and in the attitudes of the managers themselves. homburg et al. (2015) indicate that the design dimensions positively influence willingness to pay and also have a positive effect on purchase intention and word-of-mouth, both directly and indirectly, through brand attitude. prior research has posited that product attributes are primary drivers of success that a firm must consider when developing a competitive advantage (li g., zhang r., wang c., 2014) in general, during a new product development, all of the interviewed managers state that the role of the consumer is crucial, but that their wishes should be taken with caution because sometimes the consumers do not know what they need. the consumer behaviour is crucial to the managers, but they point out that they do not want to “stand out and slow down the processes by implying those soft process elements”. van loo et al. (2015), in their research about consumer preferences, willingness-to-pay and visual attention, showed a sustainability of customers. the main factor for that is not the lack of managers’ education or the literature but, for the most part, performance evaluation of employees, which is based on time. although bulut and associates (2011) state that the serbian manufacturers consider the consumers’ dissatisfaction as the primary signal to start the innovation, this paper did not confirm that. serbian coffee manufacturers did not launch the new products development because of the consumers’ dissatisfaction, but because of the perceived threat of the growing instant coffee segment. the surveyed managers often mentioned the influence of the owner and the board of directors, as kucia&szimura-tyc (2012) point out that it is often the case. cvetanović, nedić and despotović (2013) point out that it is precisely a small innovation what causes a lack of competitiveness of the serbian economy. the paper concludes that, in practice, enterprises in serbia, in addition to the insufficient application of consumer behaviour in the new product development, face shortcomings related to themselves such as the lack of marketing concept acceptance, production of certain formal documents, and strategic planning as well as consumer research. a modification of a new product development model is therefore proposed, aiming to overcome the four observed shortcomings by mandating the creation of formal documents in various phases of product development, which requires consumer research and strategic planning, ensuring respect for the modern concept of marketing. conclusion 35 management 2016/79 references [1] andorfer v.a., liebe u. 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(2014). ponašanje potrošača, univerzitet singidunum, beograd receieved: march 2016. accepted: may 2016. mina bogosavljević jovanović fefa faculty of economics, finance, and administration, beograd mina.bog.jov@gmail.com graduated in psychology at the university of belgrade and holds a msc in marketing, from the university of sheffield. she is finishing her phd studies at the fefa. mina is an experienced marketing research and strategic planning practitioner, through management positions in the coca cola company, grand kafa, ipsos strategic marketing and atlantic group. zoran radojičić faculty of organizational sciences, univeristy of belgrade zoran@fon.bg.ac.rs full professor at the faculty of organizational sciences in belgrade. he teaches several subjects in the field of statistics at the university of belgrade and the university of novi sad. head of the laboratory of statistics on the basic faculty and member of the department of operations research and statistics. 36 2016/79management about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 1048576 /lockdistillerparams false /maxsubsetpct 100 /optimize true /opm 1 /parsedsccomments true /parsedsccommentsfordocinfo true /preservecopypage true /preservedicmykvalues true /preserveepsinfo true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02_nebojsa bojovic:tipska.qxd 13 nebojša bojović1, miloš milenković1, marko kapetanović1, nikola knežević1 1university of belgrade, faculty of transport and traffic engineering, serbia management 2016/79 innovations impact on efficiency of european railway companies udc: 005.591.6:656.2(4)”2009/2013” 005.642.4:656.2 doi: 10.7595/management.fon.2016.0011 1. introduction transport plays an important role in the economic development of each country. all industries are largely dependent on the level of efficiency of the transport system. ultimately, the development and efficiency of the transport system greatly influences the quality of people’s lives. the european union (eu) and the rest of the world are faced with serious problems such as constantly increasing in demand, pollution, climate changes and limited resources of conventional fuels. in order to face and overcome aforementioned problems, the eu undertakes huge efforts in promoting and achieving sustainable development in transportation sector. number of initiatives and measures are introducing in order to achieve a more competitive and resource-efficient transport system. the key challenge is modal shift from road to rail and the creation of single european railway area (sera). in that sense, one of initiatives in the eu is development of trans-european transport network (ten-t) through nine core network corridors. shift2rail1 initiative involves major european railway actors and aims to increase competitiveness of the railway sector in mid-long term. since share of rail on european passenger and freight transportation markets is still very low compared to road transportation, it is necessary to constantly improve railway transportation service through implementation of different technological and organizational solutions. to achieve an efficient european railway transport market, it is necessary for every single national market to face the challenge of efficiency improvement. in that sense, this paper aims to investigate the impact of innovations on european railways technical efficiency. the definition of innovate from the online oxford dictionaries is: „make changes in something established, especially by introducing new methods, ideas, or products“. following this definition, this study discusses the two types of innovation: (ii) technological innovation, and (ii) structural reform and railways industrial restructuring. the aim of this paper is the assessment of innovations impact on european railways efficiency. in order to achieve sustainable transportation development, the key challenge is modal shift from road to rail, and development of single european transport market. innovations in the railway transport sector contribute to the higher efficiency of transport services and promoting a more competitive and resource-efficient transport system. in the first stage of this study, efficiency scores are obtained through the use of data envelopment analysis (dea), and the ranking of 23 railway companies for the time period from 2009 to 2013 is conducted. in the second stage, factors representing technological and organizational innovations are introduced. using different statistical tests the impact of these factors on railways technical efficiency (te) is analyzed. results showed significant impact of innovations on efficiency level of railway companies. this paper considers most recent time period, thus enabling observation of current trends in european railway transport market. innovations observed in this study represent key elements in the field of technological development and the structural organization of railways, with the aim of achieving sustainable european rail transport system. keywords: railways, innovations, efficiency, data envelopment analysis 1 http://www.shift2rail.org/ 14 2016/79management this paper is organized as follows. efficiency assessment of european railway companies is conducted and presented after the introduction, in the section 2 of this paper. analysis of innovations impact on european railways efficiency is presented in the section 3. the conclusions of this study are given in the section 4. 2. efficiency assessment of european railway companies this paper analyzes technical efficiency of european railway companies from larger europe during the time period of five years, between 2009 and 2013. for this aim the data envelopment analysis (dea) is selected, as the most suitable and most widely used in transportation sector efficiency assessment. literature surveys of liu et al. (2013a & 2013b) as well as that of liu et al. (2016) concluded that transportation and railways have important role in the discipline development of dea applications. 2.1. defining input data data set includes 23 national railway companies from larger europe (table 1). the data were obtained from the official uic statistics2. only companies which provide both, passenger and freight transportation, are selected. as infrastructure maintenance and all transportation activities have been performed as integrated for some firms, the values have been taken as they are when compiling the data; and as infrastructure maintenance and transportation activities have been separated for some firms, the respective values have been taken from different companies considering the relations among the companies (e.g. in case of romania – companies cfr, cfr calatori and cfr marfa, which perform infrastructure maintenance, passenger and freight transportation service, respectively) and completed by processing for the firm which has been studied [11]. companies from denmark (dsb), netherlands (ns), norway (nsb) and sweden (sj ab) provide only passenger transportation service, thus they are omitted in the analysis. also, due to the lack of data for the time period observed, companies from estonia (evr), greece (ose), hungary (mav), ireland (cie), latvia (ldz) and ukraine (uz) are excluded. table 1: railway companies included in the analysis 2 uic (international union of railways), railisa database, available on: http://www.uic.org/statistics country abbreviation name of the company (dmu) austria obb österreichische bundesbahnen belarus bc belarus railways belgium sncb/nmbs société nationale des chemins de fer belges bulgaria bdz bulgarian railways croatia hz hrvatske željeznice czech republic cd eské dráhy finland vr vr-group ltd france sncf société nationale des chemins de fer français germany dbag deutsche bahn ag italy fs ferrovie dello stato spa lithuania lg spab “lietuvos gelezinkeliai” luxembourg cfl société nationale des chemins de fer luxembourgeois macedonia mz makedonski železnici moldova cfm calea ferat din moldova poland pkp polskie koleje panstwowe s.a. portugal cp caminhos de ferro portugueses romania cfr c ile ferate române serbia zs železnice srbije slovak republic zssk zsr slovak rail železnice slovenskej republiky slovenia sz slovenske železnice d.d. spain renfe red nacional de los ferrocarriles españoles switzerland sbb cff ffs schweizerische bundesbahnen turkey tcdd türkiye cumhuriyeti devlet demiryollari isletmesi four input and two output variables that characterize railways transportation process are employed in this paper (figure 1). input variables include total length of lines, total number of employees, number of passenger cars and number of freight wagons. two output variables which represent revenue measures are passenger-kilometers and freight ton-kilometers. figure 1: inputs and outputs in dea model although there are studies which analyze passenger and freight transportation efficiency separately (e.g. hilmola, 2008; yu & lin, 2008), this paper aims to conduct overall efficiency assessment of european railways, thus all variables are integrated into a single model. also, some authors included additional inputs and outputs, such as number of locomotives, number of passengers carried, freight tons transported (e.g. hilmola, 2008; kutlar et al., 2013), passenger and freight train-kilometers (oum & yu, 1994; yu & lin, 2008). these variables are not included in this study, since only factors which affect railway transportation process the most and which represent revenue measures are observed. descriptive statistics of inputs and outputs selected for the time period observed are presented in table 2. table 2: descriptive statistics of inputs and outputs in dea model 2.2. mathematical formulation of dea model in order to obtain consistent technical efficiency scores, appropriate dea model must be defined. regarding the orientation of model, form of identified technical efficiency and the assumption of return to scale, this paper employs input oriented dea model with constant return to scale (see oum and yu, 1994; hilmola, 2008), and considers pareto-koopmans technical efficiency. although coelli & perelman (2000) stated that the choice of orientation of the distance function is not as important in case of railway companies as for other industries, this paper employs input orientated model, assuming that the railway companies have a higher influence on the inputs than on the outputs (merkert et al., 2009). based on work of farell (1957), who introduced basic idea and definition of dea, charnes et al. (1978) developed linear programming (ccr dea) model. input oriented ccr dea model employed in this paper has the following form: 15 management 2016/79 var. description unit obs. mean min max std.dev. x1 total length of lines km 115 8218.09 275 33708 8932.64 x2 no. of employees person (×103) 115 43.13 1.1 294 60.94 x3 no. of passenger cars cars 115 4484.21 77 29470 6501.19 x4 no. of freight wagons wagons 115 20568.10 1007 113657 23258.22 y1 passengerkilometers person×km (×106) 115 13926.96 99 86094 23084.12 y2 freight tonkilometers ton×km (×106) 115 14608.66 189 111980 22324.52 16 2016/79management (1) with constraints: (2) (3) (4) (5) one of the main drawbacks of previous dea model is that it is not able to make a difference in efficiency level of efficient units, since all efficient units have efficiency score equal 1. to rectify this shortcoming, andersen & petersen (1993) introduced super-efficiency grade and showed that the ccr model can be modified for the purpose of ranking units. the modification is leaving out the unit for which the efficiency is measured in the constraints set (3), so it becomes (8). the dea model in this case has the following form: (6) with constraints: (7) (8) (9) (10) 2.3. efficiency scores of european railway companies using data defined above, models (1)-(5) and (6)-(10) are solved for each year of the time period observed, and the technical efficiency (te) and super efficiency (se) scores are obtained. models (1)-(5) and (6)-(10) are solved using ems3 software. te and se scores are presented in table 3. best performance during the period observed showed companies from spain, switzerland, lithuania, france and belarus, and they represent benchmarks for other railway companies. also, high efficiency level (above 80% efficiency level in average) showed companies from austria, finland, germany, italy and portugal. lowest performance (below 30% efficiency level in average) showed railway companies from moldova and serbia. 3 ems – efficiency measurement system, available on: http://www.holger-scheel.de/ems/ table 3: efficiency scores of european railway companies for period 2009-2013 using te and se scores obtained, ranking of railway companies is conducted (figure 2). the highest yearto-year rank difference during the period observed showed companies from portugal, turkey and croatia. except companies from lithuania, france, croatia, germany, romania and macedonia, there are no clear trends in ranking of railways, in terms of constant rank improvement or worsening during the period observed. figure 2: ranking of european railway companies for period 2009-2013 17 management 2016/79 comp. 2009 2010 2011 2012 2013 te se te se te se te se te se obb 0.853 0.850 0.923 1.000 1.063 0.993 bc 1.000 1.279 1.000 1.453 1.000 1.242 1.000 1.293 1.000 1.236 sncb 0.654 0.562 0.716 0.741 0.706 bdz 0.386 0.274 0.307 0.304 0.543 hz 0.764 0.407 0.375 0.452 0.421 cd 0.380 0.431 0.464 0.515 0.528 vr 0.948 0.896 0.923 0.971 1.000 1.165 sncf 1.000 1.615 1.000 1.746 1.000 2.045 1.000 2.245 1.000 2.068 dbag 0.758 0.767 0.776 0.818 1.000 1.042 fs 0.934 0.773 0.839 0.807 0.852 lg 1.000 1.922 1.000 3.021 1.000 3.906 1.000 3.836 1.000 3.900 cfl 0.365 0.246 0.347 0.381 0.370 mz 0.390 0.317 0.338 0.338 0.389 cfm 0.238 0.173 0.223 0.199 0.236 pkp 0.551 0.410 0.474 0.475 0.496 cp 0.716 1.000 2.775 1.000 3.530 1.000 3.183 0.848 cfr 0.440 0.302 0.330 0.299 0.351 zs 0.233 0.229 0.247 0.212 0.236 zssk 0.485 0.500 0.502 0.531 0.553 sz 0.548 0.624 0.632 0.655 0.758 renfe 1.000 2.064 1.000 1.616 1.000 1.630 1.000 1.755 1.000 1.817 sbb 1.000 1.934 1.000 1.866 1.000 1.838 1.000 1.801 1.000 1.866 tcdd 0.989 0.522 0.489 0.466 0.642 18 2016/79management 3. analysis of innovations impact on european railway companies efficiency this paper investigates impact of two types of innovations on railways efficiency level – technological innovations and innovations in terms of structural and regulatory reforms. using technical efficiency scores obtained in the previous stage, this stage introduces additional innovation indicators and conducts different statistical tests. 3.1. impact of technological innovations on railways efficiency level in order to obtain a unique european railway transport market, one of the main goals is to provide railway interoperability across europe. increased cross-border traffic is faced with different signaling and control systems from country to country, as a consequence of different manufacturers. in order to respond this challenge, european commission (ec) initiated development of new signaling and control system. directive 96/48/ec enforces “the ability of the trans-european high-speed rail system to allow the safe and uninterrupted movement of high-speed trains which accomplish the specified levels of performance” (council directive, 1996). as a consequence, project called european rail traffic management system (ertms) has been established. the ertms system is composed of two main components: european train control system (etcs), implemented, in part, onboard trains and partly as a fixed infrastructure, and gsm-r, which is the communication system between the etcs onboard subsystem and the etcs trackside subsystem (ghazel, 2014). the ertms is constantly evolving and many countries are gradually introducing this system. in order to analyze the impact of ertms implementation on technical efficiency of railway companies, tobit regression (tobin, 1958) is used in this stage. when the efficiency scores calculated by dea are used as dependent variables in regression, we find a good example of censoring, which means that the values of the dependent variable (te in our case) are limited to a range of values (between 0 and 1). more precisely, censoring occurs when the dependent variable is observed as a subsample, while information about independent variables for the entire sample is available. this is why the tobit regression (also known as the censored regression) has been widely used to determine the efficiency drivers of railway companies (e.g. oum & yu, 1994; merkert et al., 2009; nashand & nash, 2010; kutar et al., 2013). using te scores as dependent variable, two different explanatory variables, representing ertms implementation are defined – percentage of lines equipped with ertms, and percentage of vehicles equipped with ertms. considering large differences in absolute values (length of lines and number of vehicles) from country to country, these ratio indicators are used as most adequate. only projects implemented before or during the time period observed are taken into account. data are obtained from the official ertms deployment statistics4. in addition, three additional explanatory variables, representing infrastructure development are introduced. these variables include network density, percentage of doubletrack lines and percentage of electrified lines. descriptive statistics of variables used in tobit regression are presented in table 4. table 4: descriptive statistics of variables in tobit regression 4 ertms deployment statistics, available on: http://www.ertms.net/ var. description unit obs. mean min max std.dev. te technical efficiency 115 0.660052 0.173 1 0.285763 z1 network density km/km 2 115 0.055621 0.011286 0.123482 0.030833 z2 percentage of double-track lines % 115 49.64953 0 100 25.1595 z3 percentage of electrified lines % 115 29.4834 0 77.75294 19.18845 z4 percentage of lines equipped with ertms % 115 2.225403 0 38.79262 7.276728 z5 percentage of vehicles equipped with ertms % 115 3.316203 0 82.81853 12.69245 results of tobit regression are presented in table 5. tobit regression, as well all other statistical tests in this paper are conducted using stata software5. regarding network density, results showed statistically significant negative impact on technical efficiency of railway companies. it could be explained as a consequence of excessive engagement of input variable (length of lines) by railway companies. variable regarding percentage of double-track lines showed negative impact on efficiency, although it has no statistical significance. variables which represent percentage of electrified lines and percentage of lines equipped with ertms showed statistically significant and positive impact on efficiency, as expected. variable which represents percentage of vehicles equipped with ertms showed statistically significant and negative impact on railways efficiency, which could be explained with reduced sample of railway companies in this study, considering that some omitted companies are large ertms users. table 5: results of tobit analysis *denotes statistical significance at level α=5% **denotes statistical significance at level α=1% the implementation of ertms contributes to uninterrupted cross-border traffic, by overcoming abovementioned problems of different signaling and control systems between countries. this allows increased volume of transit traffic, which in most countries has a significant share in the total traffic volume. also, the implementation of ertms contributes to removing bottlenecks and improving trains performance, thus enabling railways to meet increased transport demand. in order to analyze difference in efficiency level of railway companies which implemented ertms and those which did not, next hypothesis is set: hypothesis 1: there is a difference in efficiency scores of railway companies which implemented ertms and those which did not, and companies which implemented ertms have higher efficiency level, as a consequence of increased traffic flow. the previous hypothesis was tested using non-parametric man-whitney and kolmogorov-smirnof tests. results of mann-whitney test (table 6) showed that there are statistically significant differences between these two groups, and that the companies which implemented ertms have higher efficiency scores. thus the null hypothesis is rejected, and hypothesis 1 is accepted. results of kolmogorov-smirnof test (table 7) confirmed this conclusion. 19 management 2016/79 5 stata software, available on: http://www.stata.com/ variable coefficient t-ratio z1 -7.810897** -6.49 z2 -0.002507 -1.49 z3 0.016739** 6.64 z4 0.025803** 3.44 z5 -0.010601* -2.51 constant 0.760149** 10.52 sigma 0.282205 pseudo r2 0.4440 log likelihood -37.032108 number of observations 115 uncensored observations 84 censored observations 31 table 6: results of mann-whitney test ertms implementation table 7: results of kolmogorov-smirnof test ertms implementation 3.2. impact of structural and regulatory reforms on railways efficiency level railway reform in eu began in 1991 with the ec directive 91/440/eec aiming to facilitate the creation of single market and to increase railways efficiency. the four main objectives are related to: (i) insuring the independent management of railway undertakings (operators); (ii) separating the management of railway operations and infrastructure from the provision of transport services; (iii) improving the financial structure of the undertakings; (iv) ensure international access to the networks of member states for international combined transport of goods (council directive, 1991). licencing issues were subject of the following directive 95/18/ec (council directive, 1995). after that, a set of four “railway packages” and complementary initiatives were brought by ec in the early 2000s. an essential goal of the rail reforms in the eu was to improve the efficiency and competitiveness of the european railway system and in the end to increase its market share in the modal split (grushevska et al., 2016). two different indicators regarding structural and regulatory reforms implementation are considered in this paper – the implementation of vertical separation and the implementation of horizontal separation. following the uic classification, there are five categories of railway organizations: (1) integrated company, (2) railway undertaking (i.e. passenger and freight operators), (3) passenger operator, (4) freight operator, and (5) infrastructure manager. based on this classification, the vertically integrated company represents a company providing rail operations while holding its own infrastructure, while the vertically separated company is a company comprised of a railway undertaking and an infrastructure manager (mizutani & uranishi, 2013). horizontally separated company is a company (railway undertaking) which separated its passenger and freight operations. although there are different types of vertical separation (vešović & bojović, 2002), in this study, only vertical separation at the institutional level is considered, meaning that two different organizations held by the same holding company are not observed as separated organizations. therefore, in this paper, vertical separation means that the rail operations and infrastructure management activities are performed by completely separated companies. the same principle goes for horizontal separation. data related to the implementation of vertical and horizontal separation of railway companies are gathered from different studies (sanchez et al., 2008; wolff, 2011; mizutani & uranishi, 2013; mizutani et al., 2014), and also from respective companies annual reports. the implementation of vertical and horizontal separation during the period observed is presented in table 8. 20 2016/79management ertms implemented observations rank sum expected no 77 3929.5 4466 yes 38 2740.5 2204 combined 115 6670 6670 unadjusted variance 28284.67 adjustment for ties -554.07 adjusted variance 27730.60 z -3.222 p-value ( =0.05) 0.0013 smaller group d p-value no 0.4012 0.0000 yes 0.0000 1.0000 combined 0.4012 0.0001 observations 115 unique values 80 table 8: the implementation of vertical and horizontal separation during the period 2009-2013 in order to analyze difference in efficiency level of railway companies which conducted vertical separation and those which did not, next hypothesis is set: hypothesis 2: there is a difference in efficiency scores of railway companies which conducted vertical separation and those which did not, and companies which conducted vertical separation have higher efficiency level, as a consequence of different business environment. both, man-whitney (table 9) and kolmogorov-smirnof test (table 10) showed that there is statistically significant difference in efficiency scores between these two groups, and that railway companies which conducted vertical separation have higher efficiency level. thus, null hypothesis is rejected, and hypothesis 1 is accepted. table 9: results of mann-whitney test vertical separation 21 management 2016/79 country abbreviation vertical separation horizontal separation austria obb no no belarus bc no no belgium sncb/nmbs no no bulgaria bdz yes no croatia hz no no czech republic cd yes no finland vr yes no france sncf yes no germany dbag no no italy fs no no lithuania lg no no luxembourg cfl no yes macedonia mz no no moldova cfm no no poland pkp no no portugal cp yes no romania cfr no no serbia zs no no slovak republic zssk zsr yes yes slovenia sz no no spain renfe yes no switzerland sbb cff ffs no no turkey tcdd no no vertical separation observations rank sum expected no 80 4273 4640 yes 35 2397 2030 combined 115 6670 6670 unadjusted variance 27066.67 adjustment for ties -530.21 adjusted variance 26536.46 z -2.253 p-value ( =0.05) 0.0243 table 10: results of kolmogorov-smirnof test vertical separation in addition, in order to analyze difference in efficiency level of railway companies which conducted horizontal separation and those which did not, next hypothesis is set: hypothesis 3: there is a difference in efficiency scores of railway companies which conducted horizontal separation and those which did not, and companies which conducted horizontal separation have higher efficiency level, as a consequence of different business environment. results of man-whitney test (table 11), as well as of kolmogorov-smirnof test (table 12) showed that there is statistically significant difference in efficiency scores between these two groups, and that railway companies which conducted horizontal separation have lower efficiency scores. thus, both null hypothesis and hypothesis 3 are rejected. this could be explained with the fact that many companies have conducted vertical separation, but are still operating as a single passenger and freight operator, or they have conducted horizontal separation at the accounting level. also, some of companies omitted in the analysis represent best practice in reforms implementation. table 11: results of mann-whitney test horizontal separation table 12: results of kolmogorov-smirnof test horizontal separation 22 2016/79management smaller group d p-value no 0.2518 0.046 yes 0.0000 1.000 combined 0.2518 0.091 observations 115 unique values 80 vertical separation observations rank sum expected no 105 6333 6090 yes 10 337 580 combined 115 6670 6670 unadjusted variance 10150.00 adjustment for ties -198.83 adjusted variance 9951.17 z 2.436 p-value ( =0.05) 0.0149 smaller group d p-value no 0.0857 0.874 yes -0.5905 0.002 combined 0.5905 0.003 observations 115 unique values 80 references [1] andersen, p., & petersen, n.c. (1993). a procedure for ranking efficient units in data envelopment analysis. management science, 39 (10), 1261-4. [2] charnes, a., cooper, w.w., & rhodes, e. (1978). measuring efficiency of decision making units. european journal of operational research, 2, 429-444. [3] coelli, t., & perelman, s. (2000). technical efficiency of european railways: a distance function approach. applied economics, 32(15), 1967-1976. [4] council directive 91/440/eec of 29 july 1991 on the development of the community’s railways. official journal l 237, 24/08/1991, 25-28. [5] council directive 95/18/ec of 19 june 1995 on the licensing of railway undertakings. official journal l 143, 27/06/1995, 70-74. [6] council directive 96/48/ec of 23 july 1996 on the interoperability of the trans-european high-speed rail system. official journal of the european union l 235, 17/09/1996, 6-24. [7] farrell, m.j. (1957). the measurement of productive efficiency. journal of the royal statistical society. series a (general), 120(3), 253-290. [8] ghazel, m. (2014). formalizing a subset of ertms/etcs specifications for verification purposes. transportation research part c, 42, 60-75. [9] grushevska, k., notteboom, t, & shkliar, a. (2016). institutional rail reform: the case of ukrainian railways. transport policy 46, 7-19. 23 management 2016/79 conclusion this paper analyzes impact of innovations on technical efficiency of european railway companies. the evaluation of efficiency and ranking of 23 national railway companies was conducted using dea method, observing time period from 2009 to 2013. using four input and two output variables which characterize railway transportation process, technical efficiency scores are obtained by solving input oriented ccr dea model. the ranking of railway companies is successfully conducted using modified dea model, which enables ranking of efficient companies by introducing super efficiency scores. this approach provided the observation of efficiency and ranking trends of railway companies during the period observed. in the second stage of the study, different factors representing technological and organizational innovations in railway sector are introduced. variables representing technological innovations consider implementation of european rail traffic management system (ertms), and include percentage of lines and vehicles equipped with ertms. also three additional variables, which represent infrastructure development are introduced. these include network density, and percentage of double-track and electrified lines. the impact of these explanatory variables on railways efficiency was analyzed using tobit regression. in addition, the hypothesis testing was conducted aiming to observe the difference between railway companies which implemented ertms, and those which did not. results showed that railway companies which implemented ertms have higher efficiency level. considering structural reform and railways industrial restructuring, hypothesis testing was conducted with the aim to analyze the difference in efficiency level between companies which conducted vertical and horizontal separation, and those which did not. results showed that companies which separated infrastructure management and transport operations have higher efficiency level. regarding horizontal separation, it has been shown that companies which conducted horizontal separation have lower efficiency scores. overcome of the problem of lack of data for some companies would enable larger sample analysis. also, future research directions are including some private railway operators in the analysis, as well as observing differences in passenger and freight transportation service. in addition, inefficiency aspect of companies will be analyzed in dea, in terms of efficiency improvement possibility by reduction of some inputs. acknowledgement this work was partially supported by ministry of education, science and technological development, republic of serbia, through the project tr36022. [10] hilmola, o-p. (2008). railway efficiency analysis from larger europe during the period 1994–2003. int. j. operational research, 3(3), 255–280. [11] kutlar, a., kabasakal, a., & sarikaya, m. (2013). determination of the efficiency of the world railway companies by method of dea and comparison of their efficiency by tobit analysis. quality & quantity, 47, 3575–3602. [12] liu, j.s., lu l.y.y., & lu, w-m. (2016). research fronts in data envelopment analysis. omega. international journal of management science, 58, 33-45. [13] liu, j.s., lu, l.y.y., lu, w-m., & lin, b.j.y. (2013a). data envelopment analysis 1978-2010: a citationbased literature survey. omega, international journal of management science, 41, 3-15. [14] liu, j.s., lu, l.y.y., lu, w-m., & lin, b.j.y. (2013b). a survey of dea applications. omega, international journal of management science, 41, 893-902. [15] merkert, r., smith, a., & nash, c. (2009). the institutional, environmental and transactional factors on train operating company performance – a tobit regression approach based on dea efficiency scores. european transport conference, noordwijkerhout, netherlands. [16] mizutani, f., & uranishi, s. (2013). does vertical separation reduce cost? an empirical analysis of the rail industry in european and east asian oecd countries. j regul econ, 43, 31–59. [17] mizutani, f., smith, a., nash, c., & uranishi, s. (2014). comparing the costs of vertical separation, integration, and intermediate organisational structures in european and east asian railways. discussion paper series, kobe university, graduate school of business administration, japan. [18] nashand, a.s.j., & nash, c.a. (2010). benchmarking of train operating firms: a transaction cost efficiency analysis. transp. plan. technol., 33(1), 35–53. [19] oum, t.h., & yu, c. (1994). economic efficiency of railways and implications for public policy. journal of transport economics and policy, 18(2), 121-138. [20] sanchez, p.c., monsalvez, j.m.p., & matrinez, l.s. (2008). vertical and horizontal separation in the european railway sector: effects on productivity. working paper, bbva foundation. [21] tobin, j. (1958). estimation of relationships for limited dependent variables. econometrica, 26, 24-36. [22] vešović, v.b., & bojović, n.j., (2002). organizacija saobraćajnih preduzeća. saobraćajni fakultet, beograd. [23] wolff, j.w., (2011). organizational structures & performance evaluation of railways: based on european railway reform experiences and applied to israel railways. master thesis, delft university of technology, netherlands. [24] yu, m.m., & lin t.j.e. (2008). efficiency and effectiveness in railway performance using a multi-activity network dea model. omega international journal of management science, 36(6), 1005-1017. receieved: january 2016. accepted: may 2016. 24 2016/79management 25 management 2016/79 about the author nebojša bojović university of belgrade, faculty of transport and traffic engineering, serbia e-mail: nb.bojovic@sf.bg.ac.rs nebojša bojović, phd is a dean and a full professor at the faculty of transport and traffic engineering, university of belgrade. he is an author and co-author of several books and more than 40 scientific papers. prof. bojović is a reviewer at several international scientific journals, “transportation research part b”, “transportation research part e”, “european journal of operational research”, “computational and mathematical organization theory”, “annals of operations research”, “journal of applied mathematics and decision sciences”. his professional expertise, research and teaching interests include: applications of operations research, information systems and control theory in transportation systems with particular emphasis on: rail freight car fleet sizing, railway vehicle routing and scheduling, risk management and project management. miloš milenković university of belgrade, faculty of transport and traffic engineering, serbia zaragoza logistic center e-mail: m.milenkovic@sf.bg.ac.rs; mimilenkovic@zlc.edu.es milos milenkovic is assistant professor at the faculty of transport and traffic engineering, university of belgrade, serbia and a research fellow at the mit-zaragoza international logistics program. dr. milenkovic´s main research areas are mathematical optimization, model predictive control theory, time series analysis, project management and engineering economy with a special focus on transport related applications. he is engaged as a member of editorial board of a number of scientific conferences and also as a reviewer of a number of prestigious peer-reviewed journals, like “international journal of uncertainty, fuzziness and knowledge-based systems”, ”applied mathematical modelling” and ”transportation research part e”. during his career dr milenkovic published more than forty papers in journals as well as on scientific conferences. marko kapetanović university of belgrade, faculty of transport and traffic engineering, serbia e-mail: marko.kapetanovic@live.com marko kapetanović, msc is student of doctoral studies and research assistant at the faculty of transport and traffic engineering, university of belgrade. he graduated and earned his master’s degree from the railways transport and traffic engineering department, at the faculty of transport and traffic engineering, university of belgrade. he is an author and coauthor of two scientific papers in proceedings of domestic and international scientific conferences. his research area of interests include application of operational research in transportation systems, transport economics and revenue management. nikola knežević university of belgrade, faculty of transport and traffic engineering, serbia e-mail: n.knezevic@sf.bg.ac.rs nikola knežević, phd, is an assistant professor at the faculty of transport and traffic engineering, university of belgrade, serbia. his areas of academic interest include: project management, organization design, performance management and application of quantitative methods in management. he is author and co-author of one book and over 40 papers published in scientific journals and at scientific conferences. he was a reviewer of one book (monograph). in his previous career, he was engaged by the government of the republic of serbia in the development strategy of postal services, and by the government of montenegro in the development strategy of postal traffic. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02 85_2 karamata:tipska.qxd 15 jasna soldić-aleksić, biljana chroneos-krasavac, ema karamata1 university of belgrade, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(2) business analytics: new concepts and trends doi: 10.7595/management.fon.2019.0013 abstract: 1. introduction the concept of business analytics (ba) may be regarded as a result of an interaction of a few research disciplines and software tools: quantitative data analysis statistical analysis, management science techniques and methods, computer science and information communication technology (ict) tools. although the development of all these disciplines reflects on the progress of the ba concept, it is not exaggerated to say that the dynamic changes in ict domain have the dominant influence on the ba. in the last ten years, we have been witnesses to a very dynamic development of business analytics. as it was pointed out by davenport and harris in the period after 2006, a revolution in business analytics has happened (davenport & harris, 2017). the authors explained this revolution mainly as a set of huge changes in the ict domain, which had a powerful impact on ba. they emphasized that in the last decade the development of business analytics and its applications in business processes have gone through a few historical phases, which they noted as “four eras in ten years”: from the analytics 1.0 to the analytics 4.0. 1 corresponding author: ema karamata, e-mail: ema.karamata@gmail.com research question: in the last decade, the concept of business analytics (ba) has gone through revolutionary changes. it has gained a lot in popularity and attracted immense interest both in academic and commercial communities. accepting this reality, the main research topic of the paper is to investigate and present the global tendencies regarding the development of business analytics concept. motivation: we have been motivated by huge changes in ict environment and have studied how they reflect on the domain of business analytics. idea: the main idea was to elaborate and make distinction between crucial characteristics of the classical and new emerging concepts of business analytics. in addition to technical aspects, the broader business context of all presented concepts and phenomena are discussed. findings: dealing with essential elements of the ba concept, this paper points out that the history of business analytics has been strongly influenced by the changes and innovations in the sphere of information communications technologies (ict). in particular, the paper addresses two tendencies connected to the status of business analytics in the digital economy. the first tendency concerns the emergence of big data phenomenon and its implications on both business and public environment. the other tendency concerns the increasing business request and need for data and analytics democratization. the paper concludes that specifically two forms of analytics – embedded analytics and self-service analytics – appeared as strong enablers of the process of data and analytics democratization. contribution: although a considerable part of the paper tackled the issue of the ict trends and its impact on the business analytics, one specific part of the paper presents the broader business implications of data and analytics deployment. our opinion is that this part provides a significant contribution to the ba topic. we demonstrate that there is strong evidence that one of the most important benefits that ba brings to the company is competitive advantage. also, it is emphasized that the other big issue in business domain concerns the forms of ba deployment in the organization. we strongly support the opinion that successful ba deployment requires a clear data and analytics strategy, with elements of proposed ict innovations and ba solutions. keywords: business analytics, information-communication technologies (ict), big data, democratization of analytics, open data initiative, embedded analytics, self-service analytics jel classification: m15, m21, c80 the phase of analytics 1.0 refers to the period when all classical analytical tools have been used. this period spanned from the mid of the last century until 2005. the focus of this ba concept was on the usage of descriptive statistical methods, optimization and simulation techniques, classical reporting capabilities and the visual data presentations. in this long period, different techniques from statistical domain and other quantitative disciplines, as well as from management science were extensively explored for the purpose of business analytics. the final goal of the ba usage was to provide support for business decision making, and the people included in this process were mainly separated: data analysts on the one side and business decision makers on the other side. the huge change happened at the mid of the previous decade. the period from 2005 to 2012 is characterized by the emergence of the big data phenomenon and the shift in the analytics toward the big data analytics as a specific standalone entity. this phase which refers to the rise of big data is marked as analytics 2.0. the pioneering proponents of this ba era were google, yahoo, microsoft, ebay, facebook, linkedin etc., whose business models were, and still are, based on the data gathering, manipulating and analyzing. their main products are data products and services. in the last few years (2012 until nowadays) much of the analytics efforts have been focused on the combined usage of the previous two analytical capabilities, which was annotated as an analytics 3.0. often, this era is characterized as a mixture of “big and small data”: big firms are engaged in dealings with big data and small firms have a lot of potential dealings with classical small data analytics. the objective of the firms in this era is not only to use ba for decision support, but also to create new products and services. the final analytics 4.0 era is at its beginning. in comparison with the previous three eras, this era has some specifics: while in the eras of analytics 1.0 to analytics 3.0 the role of the human analyst is of crucial importance, the analytics 4.0 is more autonomous. despite the need for specific professionals, such as quantitative analysts and data scientists, which are the workhorse of the first three analytics eras, the analytics 4.0 is more oriented to the democratization of the analytics jobs. new job positions are emerging, such as: citizen data scientists and business translators. artificial intelligence, machine learning and cognitive computing are the new technologies that promise to radically change a classical ba paradigm. nowadays, all described ba types are living and functioning in practice side by side. the structure of the paper is as follows. after the introduction, in the second section of the paper, the classical concept of business analytics is discussed, with the focus on the definition of the term, key features and different types of business analytics. the next section elaborates the topic of the modern tendencies regarding the information communication technologies and their impact on ba. in particular, the big data phenomenon and the process of data and analytics democratization are discussed. the fourth section deals with business implications of data analytics usage, covering two issues: the link between ba and company’s competitive advantage and main challenges of business analytics deployment. the fifth section presents the future trends of business analytics. finally, in the sixth section concluding remarks on the main findings are made. 2. classical concept of business analytics: definition of the term and key features the classical concept of business analytics encompasses different tools, techniques and processes with the purpose of analyzing business data and extracting some new patterns, trends and/or insights that provide additional business values. one definition of ba explains it as “a process of transforming data into actions through analysis and insights in the context of organizational decision making and problem solving” (evans, 2017, p.30). according to the gartner definition ”business analytics is comprised of solutions used to build analysis models and simulations to create scenarios, understand realities and predict future states. business analytics includes data mining, predictive analytics, applied analytics and statistics, and is delivered as an application suitable for a business user” (gartner it glossary, 2018). the classical approach to business analytics has been around for a long period. it differentiates between three distinct types of analytics: descriptive, predictive and prescriptive analytics (schniederjans, schniederjans & starkey, 2015, pp.18-20). the relationship between these types is not competitive, but primarily complementary. each of these analytics is focused on specific business problems and provides specific solutions. the focus of the descriptive analytics is on the past events it tries to give the answer to the following question: what happened in the past? this type of analytics is referred to as a post-festum (post-mortem) analytics and is based mainly on the usage of descriptive statistical techniques. today, most of business analytics still belongs to this analytics type. predictive analytics is oriented to the future and to the question: what will happen in the future? this type of analytics combines the historical data with different quantitative techniques, algorithms and rules to estimate the probability or the likelihood of the future situations and business outcomes (siegel, 2016). often 16 jasna soldić aleksić, biljana chroneos krasavac, ema karamata 2020/25(2) this analytics is referred to as a form of an advanced analytics with the usage of the techniques, such as: trend and regression analysis, forecasting, multivariate statistical techniques, data mining techniques pattern matching, estimation and prediction (gartner it glossary, 2018). the final goal of the predictive analytics is to reveal patterns in data that should serve as a base for prediction of customers’ behaviour, as well as the features of products, services and markets. finally, prescriptive analytics is concentrated on the problems of optimization and simulation looking for the answer to the following question: what can we do to improve the business outcomes? this analytics goes further than the predictive analytics, as it aims to provide not only prediction, but also an adequate decision options and the relevant implications of each decision. it includes data, mathematical and computational models and business rules, which are derived from the existing business processes. here, data are internal and external, i.e., they are coming from inside organization, as well as from the outside business environment. also, this analytics uses hybrid data structured and unstructured data. further on, the used mathematical and computational models are more complex and belong to the following scientific disciplines: applied statistics, operational research (simulations, optimization techniques, and game theory), machine learning, artificial intelligence, decision science theory, natural language processing, image processing, computer vision and metaheuristics. the final component of prescriptive analytics comprises business rules, which are relevant and derived from the business processes. more precisely, they are extracted from the business strategy, policies and preferences, and present the objective constraints and boundaries, best practical examples and so on. the main features and characteristics of the three classical analytics types could be summarized by the following short schemes: descriptive analytics: data + model (mainly descriptive statistics) = description of the past (1) predictive analytics: data + model (predictive statistics) = prediction oriented to the future (2) prescriptive analytics: data (structured and unstructured) + model (complex models from various domains) + rules = prediction + decision + recommendation of the action + advice (3) nowadays descriptive and predictive analytics are dominant in practice. prescriptive analytics does not appear in its full force, it is still in its infancy phase and is considered as a technology of the future analytics. as basu (2013) remarked, prescriptive analytics is one of revolutionary technologies that will be the main business topic in the upcoming years. further on, he noted and discussed five crucial attributes of the prescriptive analytics (basu, 2013, p. 8): 1. hybrid data; 2. integrated predictions & prescriptions; 3. prescriptions & side effects; 4. adaptive algorithms; 5. feedback mechanism. one of the key features of prescriptive analytics technology is its ability to process hybrid data, i.e., combination of structured, semi-structured and unstructured data. the evolution of analytics regarding the data type may be found in an extended text and graphic sources suggested by gartner (basu, 2013). besides the traditional quantitative techniques and technologies which are suitable for structured data processing, hybrid data demand essentially new technologies to be processed. that is a signal and image processing, natural language processing, computer vision and more. apart from this basic ba classification, some additional and/or modified types of analytics can be found in the literature. one additional ba framework is composed of four analytics types. in addition to the classical three analytics – descriptive, predictive and prescriptive analytics, it also includes the diagnostic analytics or inquisitive analytics. these two terms are used with an equal meaning (schniederjans, et al., 2015; gartner it glossary, 2018; vlamis, 2015; kuipers, 2014; cornerstone glossary, 2018). diagnostic analytics is closely related to descriptive analytics and is mainly concerned with the past events and partly with the present 17 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) situation. while the descriptive analytics is trying to give answer to the question: what happened in the past, the diagnostic analytics is dealing with the following question: why something happened in the past? usually the answer is provided by testing the business hypothesis, which includes the usage of statistical analysis, factor analysis, and so on. recently, one more term has been widely used. it is advanced analytics. it has a broader meaning than the particular ba types. while the traditional analytical tools are mainly related to the descriptive statistical analysis of historical business data, tools of the advanced analytics are oriented to the future and comprise predictive analytics, data mining, location or spatial data analysis, big data analytics, to name a few of analytical tools that belong to the advanced analytics. gartner definition of advanced analytics points out that it includes sophisticated quantitative methods from the domain of an advanced statistics, data mining, machine learning, simulation and optimization to produce patterns, trends and insights that traditional approaches are not capable to produce (gartner bi and analytics report, 2016). 3. how modern icts reflect on business analytics? the importance of information communication technologies as an integral part of the concept of business analytics has already been emphasized in the previous section. although many of ict innovations, directly or indirectly, reflect on the business analytics, further on in this paper only two tendencies from the ict domain that have substantial impact on business analytics, are discussed: the phenomenon of big data revolution and the process of democratization of public and business data and analytics. 3.1 the big data phenomenon and streaming analytics the concept of the big data attracted a a lot of attention in the global ict society and academic community in the last decade. the rapid – almost an explosive increase in data volume (sometimes called a tsunami of data) is without precedent in the history of data gathering and storage. according to the ibm estimates, the annual growth rate of data volume was 40% in the recent few years and 90% of all data produced in the long period of the human civilization have been produced in the last 2 years (ibm software group, white paper, 2015, p.5). it is, also, amazing evidence that more than 2,500 petabytes of data are created every day (sas institute, inc., 2017a). further on, it is estimated by entrepreneur.com, that by 2020, every individual, who is online, will create every second almost 1.7 mb of new data, which will result of 44 zb (zettabyte = 1021 byte) of data by that time. this explosive data growth is mainly the result of the ict tendency to the global computer connections through the networks of people (a number of social networks), things (internet of things – iot) and processes. also, some other technologies, such as global positioning systems and geographical information systems, as well as the technology of radio frequency identification – rfid, have contributed to the enormous increase in data volume in all spheres of work and life (dietrich, heller, & yang, 2015). there is no unique definition of this phenomenon, but the dominant definition of big data put into focus the three vs: volume, variety and velocity of data (zikopoulos, eaton, de roos, deutch, & lapis, 2012, pp. 2536). in addition to the substantial enlargement in data volume, the other characteristic – variety, of data reflects the various data forms and data sources from which data come from. in comparison with the traditional structured data (electronic data tables, spreadsheet data editors, relational databases, etc.), the volume of semi-structured (log files, xml, e-mail, etc.) and unstructured data (video, images, audio data, data on social networks and so on) has increased more rapidly. according to the ibm findings, more than 80% of all data volume which is currently generated belongs to the semi-structured and unstructured data (basu, 2013, p. 8). the third characteristic – velocity, refers to the dynamic nature of big data processing. while the previous computing paradigm was based on the processing of static data, the new computing paradigm based on big data technology allows the processing of dynamic data streams (ghosh, 2016). the big data phenomenon brings significant novelties and changes in the business sector and public domain. more on this topic may be found in the paper written by chroneos-krasavac, soldic-aleksic and petkovic (2016). staying on the ground of business analytics the most serious impact of big data on business analytics reflects on the new version of business analytics which was born. that is the streaming analytics, i.e., analytics on „data-in-motion“. so, nowadays we can compare the classical business analytics concept, based on the „stock“ of data data-at-rest (i.e., data stored in, data bases and data warehouses), with the big data analytics concept, which is based on the flow of data „data-in-motion“ (data generated by 18 jasna soldić aleksić, biljana chroneos krasavac, ema karamata 2020/25(2) sensors, rfid and various devices mobile, as well as the flow of data on social networks). as an important feature of the streaming analytics is its ability to provide data processing in real time, this analytics is also known as a real-time big data analytics. as it was explained in the introduction part of the paper, in the periods of analytics 2.0 and analytics 3.0 eras the focus was on a big data concept. the main characteristics of analytics 3.0. can be summarized as follows (davenport & dyche, 2013, pp. 27-30): • different data sources and types enter the analytical process; • variety of it architectures (clustered servers of hadoop, traditional data base) are used; • faster big data technologies and data processing will mature and be employed; • analytics models are being integrated and embedded into business applications; • new it professions and roles emerged, such as: data analysts, data scientists, data engineers and data translators. also, in addition to chief data officer and chief information officer, a new role of chief analytics officers appeared; • while the classical analytics is focused mainly on descriptive and predictive analytical models, modern analytics tends to take advantages of prescriptive analytics. the usage of big data concept and real-time analytics makes room for substantial changes in business processes and public services. it is estimated by sas that 89% organizations look at the big data as an important business opportunity, but only 3% of organizations consider their data management systems as adequate for big data processing (sas institute, inc., 2017b). for business organizations, this means that if they want to have better performance and be in the leading position in the industry, they have to face serious challenges, otherwise they will end up losing opportunities and consequently lagging behind the competitors (chen, preston & swink, 2015). therefore, one crucial question may be posed: do big data and analytics bring better business performance? an extensive analysis of this topic and the answer to the question can be found in the paper big data: the management revolution, written by mc afee, et al., (2012). the authors led a team which was focused on the investigation of the usage of data and analytics in business decision making and the consequent business performance. they tested the following hypothesis: data-driven companies are better performers compared to the companies that do not rely on the data in business running? their conclusion was that data-driven organizations have better business performance than other organizations. further on, they specified: „companies in the top third of their industry in the use of data-driven decision making were, on average, 5% more productive and 6% more profitable than their competitors (mc afee et al., 2012, p.6). 3.2 democratization of data and business analytics the usage of big data across various business functions is a great challenge for managers at all business levels and layers. to take advantage of big data requires a specific set of skills which are incorporated into a new profession – data scientist. it is estimated that nowadays only the united states experiences the shortage of 190.000 data scientists (srujana, sharma & amitava, 2016, p.43). besides that, in many companies, a large part of useful business data are concentrated in the ict departments and only ict staff and a number of executive managers have an access to data and analytics. this is a severe limitation for management to get full business benefits across all the levels of the enterprise. in this respect srujana et al. (2016, p. 43) pointed out that “democratization of data and analytics is the next promising frontier for business success and data economy”. the term data democratization relates to the possibility of the end user to access data in any digital format. it means making data and analytical tools available and accessible to people who need them at all organizational layers. that way organizations could improve business decision-making and make it dynamic and decentralized. there is no unique solution regarding the level of centralization and decentralization of data and analytics which is adequate for different organizations. the tendency of democratization of data and analytics does not have the same meaning for all businesses. it opens the space for organizations to reconsider and recalibrate the right mix of centralization and decentralization suitable for their own needs. the real scale of data democratization in a particular company heavily depends on the corporate culture and management decisions. although the topic of data democratization is primarily the managerial issue, it is worth mentioning that some technical advances, such as advances in virtualization, data federation software and cloud data storage, can contribute to the data sharing in organization. the practice of democratization of non-business data and analytics has already been accepted in many public organizations, primarily governmental institutions. some of the well-known examples of public data discovery platforms are find the data and socrata websites. socrata is a public cloud-based platform that 19 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) provides government data to all public users in the united states, allowing them to use, discover and analyze data related to the cities, counties, states and the federal level (tyler technologies, inc. 2018). besides the free access to the public data, socrata allows consumers to use analytical tools to gain insights from the data. in this context, we refer to the open data initiatives that have been taking ground in many countries, regions and cities. the idea on open data initiative is very similar to the established practice of open source software, open hardware and the similar (kitchin, 2014). governments of many cities, states and countries are fostering the open data initiative for public data and have established the appropriate websites (kassen, 2017). the first open data portal was established in may 2009, by the us government administration. in addition, from the very beginning, the idea was adopted by many international organizations such as the world bank, the united nations, the international monetary fund and the european commission eu open data portal and public data portal (gray, 2014). the general framework and support for the open data initiative in serbia is provided by the undp project “open data – open possibilities”. the project started in 2015 and resulted in the open data portal of the republic of serbia activated at the beginning of october 2017 (open data portal of the republic of serbia, 2018). the progress of the certain countries in the field of open data activities and their achievements may be followed at the international score lists, such as: global open data index and open data barometer. serbia is ranked as 41st in 2018 global open data index among 94 countries. the index calculation is based on the level of data openness of the following indicators: government budget, government spending, national laws, draft legislation, national statistics, administrative boundaries, procurement, air quality, company register, national maps, election results, weather forecast, locations, water quality and land ownership. more details on the index structure and a country’s position may be found at global open data index web site (global open data index, 2018). open data portals have powerful impact at both macro and micro-economic levels (berends, carrara, & radu, 2017). the main economic benefits of open data are reflected in: improved efficiency and quality of public administration, higher transparency of public services, new business models and innovative business services, as well as various significant social contributions. it is estimated by the european commission that open data initiatives will contribute to the growth of eu data economy up to eur 739 billion by 2020, which accounts for 4% of the eu gdp. the economic value of open data for the eu member states may be summarized as follows: direct market size of € 325 billion for the period 2016-2020, 100.000 jobs in open data in 2020 and z 1.7 billion cost savings for the public sector in 2020 (open data barometer, 2016, pp.34). another study revealed the open data potential in the following areas – consumer finance, consumer products, health care, oil and gas, education, electricity and transportation. it reveals that the economic potential of open data in these domains is approximately $ 3 5 trillion per year (manyika, chui, farrell, van kuiken, groves, & almasi doshi, 2013, p. 9). apart from direct economic benefits, it is believed that open data portals should encourage the creative business initiatives and foster knowledge economy development. also, it is important to note that the open data entrepreneurial ecosystem could not exist without support, i.e., it must be permanently encouraged and cultivated (walker & simperl, 2018). as valuable enablers of data and analytics democratization an open source platforms (such as hadoop) and programming languages (for example r) have appeared. on the other hand, on the ba’s market there are lots of ba producers that provide distributed models for analytics, as well as easy-to-use and flexible interfaces to users’ legacy systems. more on this topic can be found in gartner annual report on magic quadrant for business intelligence and analytics platform (gartner bi and analytics report, 2017). additionally, it is evident that serious steps have been made to integrate the embedded analytics into business applications. therefore, the embedded analytics is considered to be the future of business intelligence (eckerson, 2016, pp. 9-13). the wave of democratization of data and business analytics has brought some new roles in the business world. here we point out the citizen data scientists and business translators. a citizen data scientist is neither an ict specialist, nor an expert from the field of statistics or analytics. rather, it is a person who is skillful in data handling and manipulation, as well as in creating models with analytical software. thanks to a new breed of ba software solutions, the citizen data scientists are taking a more powerful and growing role in completing ba tasks without requiring a data science degree (gartner bi and analytics report, 2016). business translators are persons from the operation business levels in the organization who possess business knowledge and the general understanding of ict. their task is to make good connection between ict professionals and business people. according to the forrester report acceleration in the trend towards democratization of data usage and data analysis will continue. their study shows that in 2015 almost 51% of business decision makers who used data and analysis in decision-making process have no problem in accessing data and their analysis without the help of ict staff. the prediction is that this trend will continue and very soon reach the figure of 70% (mc cormick, 2016, p. 2). 20 jasna soldić aleksić, biljana chroneos krasavac, ema karamata 2020/25(2) 3.3 embedded analytics the wave of democratization of the ba concept brings new forms of analytics inclusion in business applications: embedded analytics and self-service analytics. as it was earlier pointed out, the main purpose of ba is to elicit some knowledge and insight from data. in this regard the concept of ba may be considered as an integral part of the wider concept of business intelligence (bi). the subject relating to the relationship between business intelligence and business analytics is examined by heinze, j. (heinze, 2016). while the traditional bi concept was mainly report and dashboard oriented with possibilities for reactive actions, embedded analytics brings a new perspective: not only reports, queries and dashboards, but also the analytical models and outputs are embedded into applications. this way the concept of bi is being transformed from a reactive to a proactive set of business tools. the history of development of business intelligence tools, techniques and concept can be observed as an evolution process rather than the revolution one. it is presented at the figure 1 (eckerson, 2016). figure 1. the evolution of bi – and its future (source: eckerson, 2016, p. 4.) it is evident that the bi concept has been developing in two directions: the first is concentrated on the reporting functionalities, while the other focuses on the analysis. these two functionalities address the different classes of users: the first report-centric bi functionality has been oriented toward the casual users, while the other one – analysis-centric to data professionals and more powerful users. the final phase of bi evolution is a mixture of these two capabilities. it generates embedded reports and operationalized models. these two outputs are supposed to be actionable, i.e., to produce a prompt and automatic action in business environment. according to the gartner definition of embedded analytics, it is concerned with the usage of reporting and analytic programming features in transactional business applications. these features can be stored as functionalities inside the application or outside it (residing in some other system). however, the main point is that they must be easily accessible to users, without a need to change the system (, 2018). what kind of tools and functionalities do organizations embed into their applications? generally, it could be a set of the following functionalities: • charts and components (static report and/or report’s parts, tables, queries, maps etc.); • dynamic reports and dashboards, that provide an interactivity for the users; • transaction execution (apart from analytical capabilities some bi tools can provide also the transaction execution); • predictive analytics that encompasses various advanced analytical models and techniques; • self-service analytics – aimed to the power users for data extraction, classification, visualization and making specific reports and/or dashboards. 21 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) having in mind the technological characteristics of the embedded bi it may be concluded that it is not a new phenomenon. on the contrary, it has been around for a long period. the following table presents the main features of this technology in the last three decades. table 1. embedded bi – time perspective source: authors modified the illustration presented in eckerson group report, (eckerson, 2016, p.10) generally speaking, the embedded analytics uses different analytic features that are incorporated in transactional business applications. these analytical features may be part of application or be stored outside of applications, but it is important that the user can access them relatively easily, without switching different systems. 3.4 self-service analytics embedded analytics paved the way for the self-service analytics usage. namely, a new set of tools has emerged that help ordinary business users to prepare descriptive analysis and visual exploration of the data at their disposal. this idea is not new. it demonstrates that data analysis is not the job to be exclusively done by business analysts, but by an entire company work force. the proponents of the idea believe that data analysis jobs should be removed from the ict departments to the business operation levels. so, it is expected that business professionals will be enabled to perform at least simple queries, data exploration and visualization and report generating. in line with this idea is the emergence of flexible and easy-to-use software tools and functionalities to handle and visualize data. therefore, more intuitive, business centric analytical tools with flexible interfaces are taking the ground and promising to be available to the ordinary business users. that is the process of democratization of analytics. as the new trend of the rise of self-service analytics (ssa) is getting momentum, the greatest challenge for the organizations is the existence of an adequate data governance policy which could provide highquality data that is easily accessible (brunet, 2018). some studies show that 55% of organizations with a very high level of adoption of self-service analytics have implemented a serious data governance strategy and rules (krensky, 2015, p.3). only this way the self-service analytics can provide a full potential for casual and power business users. 4. business implications of data analytics usage in the previous sections, the classical concept of ba is introduced and then the modern ict trends and innovations, reflecting on the ba, are discussed. this section is expanding the scope of discussion in a broader business context. it tackles the issue of some business implications of data analytics (da) deployment. 4.1 the link between ba and company’s competitive advantage many research studies dealing with the concept of ba, as well as the business practice, have shown that the usage of ba is widespread across almost all company business functions. however, the most dominant influence of ba, of advanced and predictive analytics (apa) in particular, is recorded in the sphere of marketing, sales, executive management, information technology and finance (dresner advisory services, 2015). among many statistical and other quantitative techniques, the most popular is the usage of the following techniques: regression techniques (linear, nonlinear and logistic regression), different clustering and classification techniques, descriptive statistical procedures, principal component analysis, support vector machine – svm models, neural networks – nn models, decision tree models (c4.5, chaid, random forests), language processing and sentiment analysis (dresner advisory services, 2015). the usage of all these techniques provides companies with the substantial potential and possibilities for business success. according to some marketing studies, the main benefits that ba brings to the companies are: competitive advantage, which is seen as the most important benefit for business users (noted by 57% respondents), new revenue opportunities, increased profitability, improved customer service and cost savings (ventana research report, 2015, p.7). 22 jasna soldić aleksić, biljana chroneos krasavac, ema karamata 2020/25(2) ������� � ���� � � � �������� ������� ������ ������ ��� ��� ������������ � � �������� �� ������ ���� ���������� � !�"��#�! ���� �$������� ������%����&�������� ������ '��(&� ��)�&� ���*�&�����+��,��� '��(&�������� ���"������$�����)�� ���&�� �$���!&����-#���$�����!�� ���� the impact of ba on company’s business running, in particular on the competitive advantage, was first presented in the well-known paper competing on analytics, prepared and written by davenport, cohen and jacobson (2005), more than one decade ago. the paper was based on the research conducted with the purpose to investigate the relationship between the companies’ usage of sophisticated analytics and their business performance. the research had been sponsored by the large ict companies sas and intel. the authors of the paper shed the light on the new specificity regarding the competition – competition based on the extensive use of analytics, data and fact-based decision making. they argued that this type of competition is not something new, yet it has only existed for the period of a few decades. this was particularly true for the finance industry, mainly financial investment and trading business, where organizations have been competing using analytics for a long period. this practice has been adopted by the other industries, such as consumer profiling and finance, retailing, telecommunications, marketing, tourism, supply chain management, insurance industry, entertainment and so on. furthermore, analytics based competition has been spreading within organizations – from department units to enterprise-wide level. describing the companies which are analytically oriented in conducting business processes, the authors of the research emphasized the most prominent attributes of these companies: • a strong support of analytical-based decision making by senior executives; • an extensive use of statistical methods, predictive analytics, optimization, simulation and other complex analytical methods; • a widespread usage of the analytics not only in one business unit, but in multiple and cross-section units and business functions. based on the conducted survey the authors remarked that analytical competition is not simply „yes“ or „no“ attribute. on the contrary, analytically oriented firms may pass through several phases in their analytical business orientation. the authors defined these phases as follows (davenport et al, 2005, p. 4): • phase 1: major barriers; • phase 2: local activity; • phase 3: vision not yet realized; • phase 4: almost there; • phase 5: analytical competitors. one third of the organizations in the survey were positioned in the phase 5, only 7% in phase 1 and about 20% in other phases each. the final conclusion derived from this research indicated that opportunities for analytical competition may be found in every industry. consequently, the individual firm that did not recognize and embrace these opportunities is in a risky position to lag behind the competitors regarding crucial business performance. 4.2 main challenges of business analytics deployment as it was pointed out in the previous section, the flood of data generated by various devices is transforming the world around us and has a potential to change business data landscape in general. in that context a crucial practical issue for organization is the following: how to organize data flow and make it accessible to the potential users who will deliver business value? the critical part of the answer to the previous question is the implementation of the adequate data infrastructure and an efficient data analytics strategy. data analytics could take a role of a paramount business differentiator that brings new insight-driven business models. these models are supposed to be data-focused models. in that respect, we recall the famous online companies, such as, google, facebook, yahoo, linkedin, microsoft, etc., most of which are striking examples of organizations whose business processes are completely data driven. it could be observed that, in general, organizations empowered with this kind of business models have substantial potential to outperform the organizations without data analytics experience in business running. how much the organization can take advantage of this potential depends of its capacity to go through the process of digital transformation. in short, the process of digital transformation leads to the data and analytics driven organization which makes smarter decisions, has potential to act not only reactively, but rather more proactively, creates more accurate business forecast, and becomes more predictable and profitable. how can one set out on the road to become a data driven organization? the first big issue for the organization is how it treats the available data. many organizations are treating data and analytics as passive and static business resources. on the contrary, data and analytics must be treated as dynamic resources, capable to deliver real-time information to all line-of-business (lob) managers and users. the next big issue for organization is: what is its current position on the “business analytics journey” (shashikiran, 2018). does it belong to the stage of descriptive analytics, or to the stages of more matured analytics predictive, prescriptive or more sophisticated an advanced analytics? this starting point reflects on the further activities 23 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) and decisions which should be resolved, such as: the choice of the data and analytics infrastructure, creation and deployment of the renewed (or completely new innovative) data-centric services and products, expansion of the good practice across the organization, recruiting, training and allocation of human resources for data analytics assignments, etc. to deal with the above issues the organization needs to make a well-defined data strategy, concerning the data and information quality, data security and governance, data integration and preparation, data exploration, etc. (dallemule & davenport, 2017), as well as an analytics strategy. both of these should be in line with the business strategy, or more precisely, should be an integral part of the business strategy. the road that leads to data driven organization is usually full of bumps – technical and non-technical. the technical obstacles are connected to the data storage, data quality (batini & scannapieco, 2016), the integration of data from different data sources, hardware and software platforms, human resources, etc. on the other hand, one of crucial non-technical impediments is the lack of data-driven mindset in the organization. in that respect, the most serious efforts should be put on the change of the cultural mindset in the organization (edmonds, 2014). this change is supposed to be directed toward the more open datadriven patterns of decision making in all spheres of business running, which opens the door for the process of data and analytics democratization. the most common enablers of the process of data and analytics democratization are open data platforms, open source software platforms, as well as data virtualization and data federation software. yet, there are substantial challenges to make this concept a reality. namely, the process of data and analytics democratization requires a strong commitment of managers at all business levels. in particular, the top business management is supposed to provide the insurance that the data and analytics strategy would be put in practice. the final goal of this strategy may be the creation of the collective intelligence in the organization, which means free information sharing throughout the organization. 5. the future trends of business analytics regardless of the scope in which business organizations accept the ba concept, the majority of them are in a position to deal with the modern ict innovations and consequently prepare for the future. what can they expect on the field of business analytics in the future? the future of business analytics is shaped by the following trends: • the trend of exploring big data structures will continue and will be the focal point for both academic research and commercial application. the whole world is facing a tsunami of data coming from different sources, usually at extremely high speed and in various formats; • an algorithmic economy is getting on the power looking for an adequate response to big data phenomenon, organizations and other business subjects are forced to turn to the new algorithmic solutions derived from the field of machine learning (ml), data mining (dm), cognitive computing, natural language processing (nlp) and deep learning (dl). to be successful in these endeavours organizations must be flexible in integrating different data and analytics architecture in seamlessly connected infrastructure; • the widespread usage of mobile devices foster the explosive growth of mobile applications – so, an application economy enters the stable and more matured period of development; • visual analytics is on the rise. it becomes a lingua franca for various data professionals and ordinary business users. therefore, many ict vendors are preparing products and tools for data visualization; • cloud analytics has taken the ground and would be an acceptable solution for the growing number of organizations; • on the hardware side, the inclusion of graphics processing units (gpus) is getting momentum, replacing cpus that have been used for decades (weldon, 2017); • in addition, one of the crucial elements of the future of data analytics is the focus on the speed at which organizations could generate business value from the data sources. real-time analytics is in demand for fast moving data – data-in-motion, as well for data-at-rest, to deliver business insights and responses; • streaming analytics (data manipulation and analysis on the fly), with appropriate tools, is entering the ba market space; • finally, the big challenge in the next years will be the usage of the internet-of-things (iot) technology, which will have 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(2017). 6 trends shaping the future of data analytics. retrieved from: https://www.informationmanagement.com/slideshow/october-top-reader-pick-6-trends-shaping-the-future-of-data-analytics#slide-1 [45] zikopoulos, p.c., eaton, c., de roos, d., deutch, t., & lapis, g., (2012). understanding big data, analytics for enterprise class hadoop and streaming data. new york: mcgraw-hill received: 2019-01-22 revision requested: 2019-03-22 revised: 2019-04-23 (2 revisions) accepted: 2018-05-07 jasna soldić-aleksić university of belgrade, faculty of economics, serbia jasnasol@ekof.bg.ac.rs soldić-aleksić jasna holds a position of full professor at the department of mathematics and statistics, faculty of economics, university of belgrade. her main subjects of interest and research are: applied data analysis, business data management and software applications. she has gained research experience at the london school of economics and political science, central european university in budapest, limburg business school, belgium; faculty of management science and information systems, state university of new york. she is a member of the following professional bodies: international association of statistical computing, statistical association of the republic of serbia, serbian association of economists, serbian marketing association sema. she has published a number of books on the subject of applied data analysis and over 100 articles in the relevant scientific and professional journals. about the authors 28 jasna soldić aleksić, biljana chroneos krasavac, ema karamata 2020/25(2) biljana chroneos krasavac university of belgrade, faculty of economics, serbia biljanak@ekof.bg.ac.rs chroneos krasavac biljana, a phd in business administration, was born in 1964 in novi sad. ms. chroneos krasavac worked in numerous projects funded by the us government, and/or the usaid. in august 2006, she was appointed by the government of the republic of serbia as serbia's representative with the world bank in washington. in addition to the experience gained at the world bank, she has also gained several years long experience by working for the government in the capacity of special advisor to the minister of finance and advisor to the director of the flood affected areas assistance and rehabilitation office. currently, she is holding the position of the director of the world bank project “inclusion and early childhood development“. ema karamata university of belgrade, faculty of economics, serbia ema.karamata@gmail.com karamata ema had graduated from the university of belgrade, faculty of economics, where she has also gained her master's degree, and where she is currently enrolled as a phd student at the business management department. the main areas of ema's interests and expertise are: business management, information technologies, digital marketing, and data analysis. she has participated in a number of projects in the domain of business management, and conducted several surveys. ema 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05 85_2 bakator:tipska.qxd 53 mihalj bakator1*, dejan đorđević1, dragan ćoćkalo1, srđan bogetić2 1 university of novi sad, technical faculty ”mihajlo pupin”, zrenjanin, serbia 2 belgrade business academy of vocational studies, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(2) the impact of consumer-company relationships on brand loyalty doi: 10.7595/management.fon.2019.0016 abstract: 1. introduction when examining brand loyalty, it is important to quote the findings of moller jensen and hansen (2006). in their study, it is argued that brand loyalty should be investigated through consumers who had a multiple choice of brands, and not just the one brand they use. if only one brand is present on a specific market, it may induce partial or non-organic consumer brand loyalty (moller jensen & hansen, 2006). therefore, in this research, the participants had a choice from a wide variety of international brands, and they could write down other brands as well. this way, the non-organic consumer brand loyalty is managed, so it does not severely affect the results. furthermore, veloutsou (2009) perfectly addressed consumer behaviour, and noted that there are different emotions towards a brand. in addition, he also argued that consumers can develop strong emotions towards a company that further enhances brand loyalty. matzler, grabner-krauter and bidmon (2008) analysed various literature on brand loyalty and noted that brand loyalty is one of the central factors around which companies achieve competitiveness and generate advantageous positions on the market. brand loyalty is stronger, and more stable for companies that achieved market leadership status (dekimpe, steenkamp, mellens & abeele, 1997). without strong brand loyalty, companies can expect a hard time to increase sales volume (lin, wu & wang, 2000). now, companies have to position themselves on the market in a way that they will satisfy incoming customers’ needs (djordjevic, cockalo & bogetic, 2016). in * corresponding author: mihalj bakator, e-mail: mihalj.bakator@uns.ac.rs research question: in this paper the effect of consumers’ relationship towards a company on brand loyalty is analysed. motivation: the main goal is to determine if consumers’ relationship towards a company develops brand loyalty. in addition, consumer-brand relationships, consumer-product relationships, brand trust and brand relationship quality are observed. this is important for defining complex relationships between companies, consumers and brands. brand loyalty is the result of marketing, management and public relations practices. this thorough research provides a substantial insight into this domain. the number of studies that address several marketing management constructs in this form is low. therefore, this approach is innovative from that viewpoint. idea: the main idea is to analyse the complex relationships between the above-mentioned constructs and to highlight key factors while taking into consideration the integrity of the analysed data. data: for this research, the data was collected via structured survey. the sample size of 407 included male and female consumers, aged from 15 to 65, from the major cities in serbia. potential biases were taken into consideration when undertaking data analysis. tools: conclusions were drawn from the extensive data analysis that included ols regression analysis, (with and without control parameters), correlation analysis, reliability test, and tests for multicollinearity, heteroscedasticity and autocorrelation. findings: the results indicate that there is a strong link between consumers’ relationship towards a company and brand loyalty. in addition, the links between the mediating constructs shed light on the complexity of developing relationships with consumers. contribution: this study contributes to the existing body of literature and expands the view on consumer-company relationships from the aspect of brand and marketing management and management overall. keywords: consumer-company relationships, brand loyalty, brand relationship quality, public relations, business performance jel classification: m31, m21, d40 the same study it was discussed that changes on the market affect enterprise management. furthermore, in order to gain customers, and to positively affect the consumer-company relationship, companies have to focus not only on the internal but on the external environment as well. for long-term sustainability and competitiveness, companies have to change their business models from pure profit-focused to environmentfocused (kitic, kostic–stankovic, cvijovic & lecic-cvetkovic, 2015). this means that corporate social responsibility (csr) should be taken into consideration when aiming for higher financial performance and increased competitiveness on the market (vlastelica bakic, cicvaric kostic & neskovic, 2015). companies use various forms of marketing communication such as advertising and public relations through different media outlets in order to increase brand awareness, create brand image, and connect with the consumers (bakator, boric & paunovic, 2017). from here, dynamic relationships arise between consumers and companies. the main goal of this research is to identify influencing factors on brand loyalty development, more precisely, the effect of consumers’ relationship towards a company on the development of brand loyalty is analysed. as consumer-company relationships are complex, additional marketing constructs are investigated such as consumer-brand relationships, consumer-product relationships, brand trust and brand relationship quality. the main reason behind this research is the necessity to highlight the potential causal relations between the above-mentioned factors. after a thorough investigation into a large body of literature in the domain of consumer-company relationships and brand loyalty, it was found that the majority of these studies address only up to three constructs, thus leaving a small gap where a multi-construct approach is welcomed. this current paper provides exactly that, a multi-construct approach to consumer-company relationship and brand loyalty development. the data for this study were obtained through surveys. it is important to note that the terms consumers and customers are used interchangeably due to literature analysis. however, in this present study, the focus is on consumers and customers as users of products and/or services. the data analysis included descriptive statistics, reliability test, ols regression analysis, correlation analysis, and tests for multicollinearity, heteroscedasticity, and autocorrelation. the paper starts with the examination of literature in the domain of brand loyalty, consumer behaviour, brand trust, and consumer-company relationships. in the next section, the research methodology is presented. the fourth section presents the obtained results from the conducted analyses. afterwards, the results are discussed, the contribution of the study is outlined, and the limitations of the study are addressed. in the final section conclusions are drawn, and guidelines for future research are suggested. 2. theory and hypotheses development 2.1 relationships towards a company and brand trust chen and myagmarsuren (2011) investigated the relationships between brand equity, relationship value, and customer loyalty. their findings suggested that high relationship values between consumers and companies, increased brand equity. it is certain that developing strong relationships with a company is beneficial for brand trust (kuikka & laukkanen, 2012). early research of bhattacharya and sen (2003) discussed that consumer-company identification has an important role in developing brand loyalty. additionally, this relationship is important for managers, as consumer-company relationships and its influence on brand loyalty can help understand the possibilities and limits of relationship-building activities and strategies. consumers tend to connect with some brands, while not with others. it was noted that various levels of attraction and self-identification with the company could affect brand loyalty development (elbedweihy, jayawardhena, elsharnouby & elsharnouby, 2016). therefore, based on previous findings, it is safe to assume that consumers’ relationships towards a company are an important marketing management construct for managers and companies, as these constructs can affect long-term business performance. in the modern marketing environment, consumers are influenced by many factors that lead to behaviours on the market that do not have patterns, and are hard to predict (alavuk, jevtic & petrevska, 2015). prior research suggests that building relationships towards a company is an important process where overall business performance is affected (kim, park & kim, 2014). it is evident that the consumer-company relationships and their effect on brand loyalty strength play an important role in achieving adequate business performance. companies strive towards loyal customers, and are eager to develop strong customer relationships, as loyalty is crucial for a competitive advantage on the market (aggarwal, 2004). loyalty can 54 mihalj bakator, dejan đorđević, dragan ćoćkalo, srđan bogetić 2020/25(2) be achieved through customer satisfaction, thus companies have to address the needs and wishes of their customers (bakator, boric & paunovic, 2017). certainly, consumer-company relationships are a complex construct where achieving brand loyalty is the main goal of consumer-relationship building strategies. taking into consideration previous findings, the following null, and alternative hypotheses are suggested: h0: developing a positive relationship towards a company increases brand loyalty ha: developing a positive relationship towards a company does not affect brand loyalty. on dynamic markets, consumers’ relationships with companies and their effect on brand loyalty can define future business performance, and strongly affect business excellence. this has been examined by theng, parsons and yap (2013), where the existence of moderate correlation between brand trust, and consumerproduct relationships was analysed. brand and product relationships build strong brand identities. relationship development with companies is a strategic process where companies endure various feedback from existing customers and consumers (rauyruen & miller, 2007). consumer loyalty towards a brand is one of the results of strong relationships between consumers and companies. however, do relationships towards a company indicate strong consumer-product relationships? the complexity of human perceptions, affections and overall emotions towards objects demands as much investigation as possible. the forementioned research findings, and the mentioned comprehensive descriptions of the examined constructs, provide a strong base for the following auxiliary hypotheses: h1: strong relationships towards a company positively influence consumer-product relationships. h2: strong relationships towards a company positively influence brand trust. h3: strong relationships towards a company positively influence consumer-brand relationships. 2.2 consumer-brand and consumer-product relationships customer satisfaction is valuable for developing consumer-brand relationships (muyammil, haffey & riaz, 2010). in addition, earlier findings of smit, bronner & tolboom, (2007) note that the consumer-brand relationship resonates through business performance and it influences consumer-product relationships. brand equity and strong consumer-brand relationships positively affect the marketing environment in the companies’ favour (keller, 2009). this is presented through more effective marketing communications, and most importantly, higher profits. furthermore, fetscherin and heinrich (2014) investigated consumer-brand relationships, and described that strong feelings towards a brand, and a strong brand relationship, result in brand love. one year later, after a complex research of literature on this subject, fetscherin and heinrich (2015) note that storytelling plays an important role when it comes to brand relationship development. breivik and thorbjornsen (2008) suggest that brand relationship quality affects deeper dimensions of consumer-brand relationships. brand relationship quality includes three interconnected factors that a consumer expresses towards a brand. these factors are affection and socio-emotion, behaviour, and cognition (francisco-maffezzolli, semprebon, & muller prado, 2014). now, brand relationship quality can alsobe described as an indicator which defines the strength and depth of a consumer-brand relationship (hudson, roth, madden & hudson, 2015). however, smit, bronner & tolboom (2007) argue that consumer-brand relationships cannot exist between all brands, and all consumers. some brands are more suited to develop relationships with consumers, while other brands may lack personality (aaker, fournier & brasel, 2004). it is clear that emotions towards brands require further investigation as they can affect consumer behaviour. from the company’s point of view, developing good relationships with consumers is an imperative for long-term success. therefore, with the goal to investigate these relationships, additional auxiliary hypotheses are proposed: h4: strong consumer-product relationships positively influence consumer-brand relationships. h5: strong consumer-product relationships positively influence brand trust. h6: strong consumer-product relationships positively influence brand relationship quality. 2.3 brand loyalty and managing consumer behaviour brand image, and brand loyalty are often portrayed as complementary dimensions that influence consumer behaviour towards buying a specific brand (kotler & keller, 2016). brand loyalty was described as a consumers’ mind-set that will result in repetitious purchase of the same brand (severi & ling, 2013). similarly, prior research of chaudhuri and holbrook (2001) described brand loyalty as a preference for repeated purchase of products or services from the same brand. consumer loyalty, and good relationships between consumers and companies for achieving a competitive advantage on the market (djordjevic, cockalo, & 55 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) bogetic, 2016). punniyamoorthy and prasanna mohan raj, (2007) pointed out that brand loyalty should be measured not only by the frequency of repurchase, but by the customers’ attitude, and satisfaction as well. therefore, in this research the questions are designed to avoid “crippling” miss-measurements, and are focused on the brand as a whole, rather than just on purchasing frequency. it is evident that consumercompany relationships are a key influential factor when developing marketing strategies (kotler & keller, 2016; russell-bennett, mccoll-kennedy & coote, 2007). based on the reviewed literature, additional auxiliary hypotheses are suggested: h7: strong consumer-brand relationships positively influence brand loyalty. h8: strong brand trust positively influences brand loyalty. h9: high brand relationship quality positively influences brand loyalty. further, in figure 1, the research framework is presented and it depicts the observed relationships between the main and mediating constructs. figure 1: research framework 3. research methodology the survey for this study was designed and based on similar research in this domain (buil, de chernatony & martinez, 2013; chen & ann, 2014; habibi, laroche & richard, 2014; mishra, bhusan & dash, 2014; park & kim, 2014; zarantonello, 2016). these papers examined various aspects of brand loyalty, brand trust, perceived quality, perceived value, and other constructs in the domain of marketing, consumer-company relationships, brand management and management overall. the surveys in these research articles are well balanced, thus they provide adequate survey items for developing a reliable survey for this present research. a seven-point likert scale was used for twenty-five (25) items distributed across six (6) constructs. according to brown (2011), a likert scale type survey is sufficient for this type of research. in addition, credible studies in this domain were conducted where the data was collected through surveys with likert scale items (ramaseshan & tsao, 2007; vigneron & johnson, 2017). in table 1 the research items are presented. 56 mihalj bakator, dejan đorđević, dragan ćoćkalo, srđan bogetić 2020/25(2) table 1: research items the research was conducted in 4 main phases. phase 1 included extensive literature analysis, theoretical background development, and survey design. phase 2 included distributing the surveys online. in phase 3, the data were exported, prepared for analysis. phase 4 included the analysis of the results, discussion, and conclusions. 4. results in table 2, the results of the descriptive statistics are shown. for every measured construct, the sample size, the minimum, and maximum values, the mean, and the standard deviation values are presented. table 2: results of descriptive statistics for every dimension for every measured dimension the minimum and maximum values are 1 and 7. further, it can be seen, that the means of the measured dimensions vary from 4.00 to 4.24. the standard deviations range from 1.56-1.80. further, the obtained sample details are given in table 3. 57 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) ���������� ��� ������� ������ � ������� � ��� ������� ��� ������������ ��� ������ �������������� ������� ��� ������������ ���� ����������������� ����������� ����� �� �������� ���� ���������� ���������� ���� ����� ����������� �������� ������� ������ ��������� ��������� �������� ���������������������� ��� �� ������ ��� ����� ��������� ��������� ����� ������������ ��������� �������������� ����� ����� � ���� ����������������� ������������ ���� ������ ������ ���������������� ���� � ���� ����� ������������� ������������������� ����������� ��������� ����� ������� ����������������������� �������������� ���� ������� ��� � �� ���� ������������������������� ���� ������ ������ �� ������� ��� �������� ���� �������������� ���� ���������� ��������� ���� ��������������� ������ ���� ������ ���� ���������������� ���� ��������������� ���� ������� ��� � ����������� ��� ���� ������������ ���� �� �� �� ������ ��������� ��� ���� ������������ ���� �������������� ��� ���� ������������ ���� ����� ��� ���� ��������������� ������������������ ���� ���������������������� ������������������ �� ��� ����� ��������� ���������� ������� ��������� ������� ����� ��� ���� ��������� ��� ���� ���������� ���� ����� ���� ������� ����� � �� � �������������� ����������� ������������������� ��� ��� ���� ������������ ������������ ���� ������� ���� ����������� � ������� ����� ��� ����� ������� ��� ������ ������ ���� �������� � ��� � �� ���� �� ������� �� ����� ����� ��������� � ������� �� �� �������� ���� �������� ��������� �� ����������� ���� �� �� ����� ����� ����������� ���� �� ���� �� �� �� �� �� �� ����! ��"#��������� �������� ������ ���� �� �� ����� ��� � ����! ��"����!� � ���� ����������$��� ���� �� �� ����� ����� ������ �!� ������ ���� �� �� �� �� ����� ���������� ��������%!��� �� ���&�� ���� �� �� ����� ����� table 3: sample details a majority of the sample consists of two groups: the younger than 20 (40.3%) and the 20 to 30 years old (40%). the gender structure of the sample is in favour of women (68.3%), and a vast majority of the participants are students (60.4%). however, to ensure that there is no bias and that the sample is representative, several statistical analyses were conducted later in the paper. after sample details, a cronbach’s alpha reliability test was used in order to determine the internal consistency of the measured items. the results of the reliability test are given in table 4. table 4: results of the reliability test the results are satisfactory as the values are over 0.8 and 0.9. the close to 1.0 cronbach’s alpha values indicate that there were no two contradictory statements between the items in the survey. further a heteroscedasticity test was conducted in order to ensure that the ols will give the estimator with the smallest variance. the results of the heteroscedasticity are given in table 5. 58 mihalj bakator, dejan đorđević, dragan ćoćkalo, srđan bogetić 2020/25(2) �������� � � ����� ������� ���� �� ������ ������� ���������������� ��� ��� ������ ��� ��������������������� ���������� ���� ��������� ����� �������� �� ������ ����� �������� ������ �� ��� ���� ������� ���� ������ �� �� �� ������� ���� ������ ������ ���� ���� ���� �������� ����� �� ��� ��� ���� ����������� ��� ���� �� ������ ����� ������!������ �������������������������� ������� ����"�� ������� ��� � ����� � ��� �!"#$ % �� ���� #$�� ���� �� �� $�%��� ���� ��� ��%��� ��� ��� ��%��� �&� � '� ��%��� �� � $� �������������� �� � �� &����� (���� �$&� �� �� )� ���� $�'� �' �� �� ������ * �� ��� ��&� $& �� +�� �� ��� ��� & '� ��������� $��� �� �� �������� $� � �� ��������� *�� ����� ������������� ����������� �&� � �� ,�!��������� $��� �� �� +����!����������!���� ���� �� &� (�����-����!���� ��� � �� (�!��������!���� $� � �� .� / ���!���� �� � $� ����������� ���� �� ������ ���������� ����� �� ��� �� ��� � ������������ ������� � �� ��� ����� ������ �� ����� �� ��� ���� ������ � ����� �� ����� ������������ ����� ���� � � ����� �� ������� ������������ ��!�� ������ �� ����� ����� ���� ������ �� ����� ������������ "����� ���#� ������ � table 5: results of the heteroscedasticity test in, addition a test for multicollinearity was conducted. the results are given in table 6. table 6: results of the muclticollinearity statistics based on the results in table 6, it can be assumed that there is little to no multicollinearity between the observed constructs, as only a few vif values are slightly higher than 2.3. furthermore, with the goal to determine the relationship between the observed constructs, an ols regression analysis was conducted. in table 7 and table 8, the results of the regression analysis are presented. table 7: results of regression analysis (β, s.e., r2, adjusted r2) further, additional data from the regression analysis are given in table 8. table 8: results of regression analysis (p-value, f, f sig., durbin-watson value) for the regression analysis, brand loyalty was taken as a dependent variable, and the other constructs were taken as independent variables. the r2 value of 0.697 indicates that there is a strong and positive relationship between the dependent variable, and the independent variables. the p-values indicate that the null hypothesis cannot be rejected. the durbin-watson value (dw) indicates that there is little to no autocorrelation between the variables. here the regression equation has the form: bl = β0 + β1 · rtc + β2 · cpr + β3 · cbr + β4 · brq + β5 · bt + �. the values from table 7 are inserted into the equation, are results is: bl = 0.655 + 0.138 · rtc + 0.275 · cpr + 0.337 · cbr + 0.225 · brq + 0.306 · bt + �. further, another ols regression analysis was conducted based on the following regression model: bl = β0 + β1 · rtc + βz . z + +�; where z= cpr, cbr, brq, and bt are presented as separate regressions. the results of this regression analysis are presented in table 8. table 8: results of the ols regression (β, r2, p-value, s.e.) 59 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) ���������� ������� ���� ��������� � � ���� ����� ���� �� �������� � ���� ������ ���� � �� ������� � � ���� ���� � ������ � � �� !�� ��� �"#� � ��� � ���� � ��� ��� �!� ����� ����� ���������� ���� ������������ � ���� ���� ���� ���� ��� ��� ��� �� � � ������ ���� � ��� �� ������ ��� � ��� �� ����� � �� ������ � ������������� ����� ���� � � � � ����� � ��� � ��� ���������� ����������� �� ��� ��� ���������� ��� ������������ ���� ���� ������ ������ � � ��� � � � ����� � � ���� ��� �� ������ ���� ���� � ��� �� ���� ������ ������ ��� ������ ��� �� � ���������� ����������� � �� ��� �� ������� ������ ��������� ��� ����� ���� ���� ������� ���� � �������� ������ � �� ������� ���� �������� ��!� �������� ��� �������� � 60 mihalj bakator, dejan đorđević, dragan ćoćkalo, srđan bogetić 2020/25(2) �������� � �� ��� � � ���� ���� ���� ���� ��� ��� ���� ������� � � � � � ���� ���� �� ������� � � � � ���� ������� ��� ��� ������� � � � ���� �� ���� �� �� �� ���� ������� � � ��� �� ��� �� ��� ��� ��� ��� ��� ������� � ��� �� ���� �� ��� �� �� �� ���� ���� �� ������� ��������������� �� � next, a spearman’s correlation analysis was conducted. instead of the pearson’s correlation analysis, a spearman’s correlation was considered as it gives more adequate results for ordinal data (hauke & kossowski, 2011). the results of correlation analysis are given in table 9. table 9: results of the correlation analysis the correlation analysis indicates that between every measured marketing construct, there is a moderate to strong positive relationship. the lowest correlation value (0.536) is between brand trust (bt) and relationship towards a company (rtc). the highest correlation value (0.682) is noted between the consumer-product relationship construct (cpr), and the consumer-brand relationship construct (cbr). overall, the correlation analysis provided satisfactory results. 5. discussion the results of the data analyses indicate that the null hypothesis cannot be rejected, and the alternative hypothesis is rejected. therefore, the current study has found that consumers’ relationship towards companies positively influences brand loyalty. in addition, it has been found that there is a positive relationship between the consumer-brand relationships, consumer-product relationships, brand trust, and brand relationship quality. further, the tests for multi-collinearity, autocorrelation, and heteroscedasticity are “negative” indicating that there is no multicollinearity, autocorrelation and heteroscedasticity among the observed variables. this present paper is complementary with the findings of kim, morris and swait (2008) who discussed that when a customer is satisfied, he or she favours a specific brand that has earned their loyalty. further, the findings in this present study are similar to the findings of delgado-ballester and munuera-aleman (2000), who noted that better relationships with companies achieve higher levels of brand trust. it is certain that there is an influential relationship between the measured constructs. similarly to the findings of (chaudhuri & holbrook, 2001), this study observes that brand relationship quality, and consumer-brand relationships positively affect brand loyalty. furthermore, the findings of this present paper are complementary to other research papers regarding brand loyalty and service quality (hemsley-brown & alnawas, 2016), brand loyalty and customer satisfaction (torres-moraga, vasquez-parraga & zamora-gonzalez, 2008), brand credibility, customer loyalty (kuikka & laukkanen, 2012) and consumer-brand relationships (giovanis & athanasopoulou, 2018). next, the theoretical background provided support and adequate insight into the main issues regarding consumer-brand relationships, brand loyalty, and overall consumer behaviour. why is this paper significant? there is quite a number of studies published in the domain of brand loyalty, brand trust, and overall consumer behaviour. however, the number of papers that investigate the consumer-company relationship construct and brand loyalty as the main analysed dimensions is practically non-existent. therefore, this present study significantly contributes to the existing body of literature in this domain. what is even more significant are the managerial implications which come from the research results. the two main implications are in the domain of consumer relationship management (crm) and brand management. first, managers should address the needs and wishes of consumers. this means statistical analysis of feedback data obtained from consumers. this will help in developing and modifying products in order to increase satisfaction rates and re-purchase rates. the optimization process of products and services has to address the detected needs of consumers. managers have to make the optimization-till-satisfaction approach an imperative. additionally, based on the research results, managers have to develop long-term strategies in order to develop and maintain good relationships with consumers, as developing relationships towards a company further positively affect consumer-product and consumer-brand relationships. the result of this is a stronger brand trust and brand relationship quality, and an overall stronger brand loyalty. in brand management, managers have to address the relationships between consumers and products, as these are good indicators for brand loyalty development. by establishing good relationships with consumers, the company increases its potential on the market and acquires a competitive advantage. in sum, the results in this paper provide a better understanding of the consumer-company relationships, consumer loyalty, and brand loyalty by investigating key marketing constructs. thorough analyses were conducted over structured sample data. managers can examine these findings, which can help them make more adequate decisions when it comes to developing brands and relationships with consumers and customers as well. references [1] aaker, j., fournier, s., & brasel, s. a. (2004). when good brands do bad. journal of consumer research, 31(1), 1-16. doi: 10.1086/383419. [2] aggarwal, p. (2004). the effects of brand relationship norms on consumer attitudes and behavior. journal of consumer research, 31(1), 87-101. doi: 10.1086/383426. [3] alavuk, dj.., jevtic, j., & petrevska, i. (2015). sales promotion as a determining factor in the competitive position of the company. journal of engineering management and competitiveness (jemc), 5(1), 50-54. [4] bakator, m., boric, s., & paunovic, m. (2017). influence of advertising on consumer-based brand loyalty. journal of engineering management and competitiveness (jemc), 7(2), 75-83. [5] bhattacharya, c. b., & sen, s. (2003). consumer-company identification: a framework for understanding consumers’ relationships with companies. journal of marketing, 67(2), 76–88. doi:10.1509/jmkg.67.2.76.18609. [6] breivik, e., & thorbjørnsen, h. (2008). consumer brand relationships: an investigation of two alternative models. journal of the academy of marketing science, 36(4), 443-472. doi: 10.1007/s11747-008-0115z. [7] brown, j. d. (2011). likert scale items and scales of measurement. shiken: jalt testing & evaluation sig newsletter, 15(1), 10-14. [8] buil, i., de chernatony, l., & martínez, e. (2013). examining the role of advertising and sales promotions in brand equity creation. journal of business research, 66(1), 115-122. doi: 10.1016/j.jbusres.2011.07.030. 61 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) conclusion this research paper has investigated the connections between consumers’ relationship towards a company, and brand loyalty through other complex constructs. the data were obtained from surveys, and were analysed using the regression analysis as well as correlation analysis. according to the results of these analyses, the auxiliary hypotheses cannot be rejected, thus the null hypothesis h0: developing a positive relationship towards a company, increases brand loyalty cannot be rejected and the alternative hypothesis is rejected. the regression and correlation analyses confirmed the proposed auxiliary hypotheses. the main purpose of this study was to present the consumers’ relationships towards a company, and how these relationships influence consumer behaviour on the market. additionally, the dynamic relationship of consumers and companies was presented through other constructs. undoubtedly, this research extended the knowledge of brand loyalty, and customer-company relationships into the right direction. future studies are suggested and welcomed. the influential nature of different aspects of a brand on customer and consumer behaviour should also be addressed. this includes the measurement of brand love, brand integrity, and brand congruity. additionally, the perceived product quality and perceived advertising should be added into the survey. after these future studies are conducted, it will be interesting to compare their results with this present study. the sample for future studies should also be structured and tested for biases and skewness. in addition, heteroscedasticity tests and multicollinearity test should be included. the sample should also include a minimum of 400 participants, as this will reduce the risk of skewed and bias results. finally, a thorough meta-analysis of various studies in the domain of consumercompany relationships could be conducted. a marketing environment, as complex as it is, requires a structured and analytical approach. this will ensure that all the major dimensions are analysed according to their nature and role on the market. this present study provides a solid basis for future research. 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(2015). model for managing corporate social responsibility. management: journal of sustainable business and management solutions in emerging economies, 20(74), 47-56. doi:10.7595/management.fon.2015.0002. [47] zarantonello, l. p.-d., veronique. (2016). the handbook of brand management scales: routledge. received: 2018-12-19 revisions requested: 2019-03-03 revised: 2019-08-17 (3 times) accepted: 2019-08-19 mihalj bakator university of novi sad, technical faculty ”mihajlo pupin”, zrenjanin, serbia mihalj.bakator@uns.ac.rs mihalj bakator has a m.sc. degree in engineering management at the university of novi sad, technical faculty “mihajlo pupin”, in zrenjanin, the republic of serbia. currently, he is a research associate and ph.d. student of engineering management at the university of novi sad, technical faculty “mihajlo pupin” zrenjanin. his areas of research interest are marketing management, quality management, entrepreneurship, consumer behaviour and competitiveness. about the authors dejan đorđević university of novi sad, technical faculty ”mihajlo pupin”, zrenjanin, serbia dejan.djordjevic@tfzr.rs dr dejan đorđević has a ph.d. in economics. he is a professor of economics and marketing at the university of novi sad, technical faculty “mihajlo pupin” in zrenjanin, the republic of serbia. his main areas of research interest are economy, marketing, entrepreneurship, competitiveness and quality management. dragan ćoćkalo university of novi sad, technical faculty ”mihajlo pupin”, zrenjanin, serbia dragan.cockalo@tfzr.rs dr dragan ćoćkalo has a ph.d. in technical sciences. he is an associate professor of entrepreneurship and quality management at the university of novi sad, technical faculty “mihajlo pupin” in zrenjanin, republic of serbia. his main areas of research interest are quality management, entrepreneurship and regional business development. srđan bogetić belgrade business academy of vocational studies, belgrade, serbia srdjan.bogetic@bpa.edu.rs dr srđan bogetić is a professor of vocational studies at the belgrade business academy of vocational studies, belgrade. in 2009. he acquired his ph.d. degree in the domain of quality management in small and medium-sized enterprises. his areas of 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 06 85_3 kwantes:tipska.qxd 55 catherine t. kwantes1*, siddardh thirumangai alwar1, stephanie j. cragg1, magali feola2 1university of windsor, windsor, on, canada 2objectif france inde, bangalore, india management: journal of sustainable business and management solutions in emerging economies 2020/25(3) * corresponding author: catherine t. kwantes, e-mail: catherine.kwantes@uwindsor.ca research question: this paper investigates how the social franchising approach may enhance the sustainability and capability of foster home ngos in the global south. motivation: while many programmes exist to address issues such as poverty and lack of education for children in nations of the global south, many operate in isolation, and are grassroots and/or stand-alone operations. little research has been undertaken to understand how various approaches to organizational sustainability may be enacted for non-governmental organizations (ngos) seeking to provide care for children in foster care homes. our goal was to apply franchising and social franchising concepts as a framework for ngos and non-profit organizations to use as a way of enhancing both the capability of achieving their mission as well as a method of organizational sustainability. idea: much of the literature on social franchising has been in the area of providing health care and services – however, this model may be useful to enhance the sustainability for ngos and non-profit organizations that provide other critical services as well, such as foster care homes in the global south. findings: the social franchising model offers a concrete and actionable business model to foster home organizations with multiple homes to standardize care delivery as well as develop a strong core organization. contribution: this paper explores how applying the social franchising model could enhance sustainability of ngos with foster care home programmes, as well as some of the opportunities and challenges in applying this model to such ngos and non-profit organizations. keywords: social franchising, non-profit, ngo, organization, global south jel clasiffication: l31, d2, a13, l44 enhancing foster care home ngo sustainability via social franchising doi: 10.7595/management.fon.2020.0014 abstract: 1. introduction the “urbanization of poverty” (see mitlin, 2016) has resulted in an increased recognition of the needs of impoverished families in the global south. while many programmes exist to address issues such as poverty and lack of education for children in nations of the global south, many operate in isolation, and are grassroots and/or stand-alone operations. amies (2000) notes “although individual efforts can and do create units that work well, there is rarely any expansion strategy or methodology for replication of the successful pilot, no mechanism for passing on "best practices." there is usually little coordination, little monitoring, minimal feedback, very little learning from mistakes, and not much sharing of experience. there is also a lack of market research before starting a project, often no real plan or marketing, rarely an operating procedure that has been tested, no cash flow forecast or measurement” (p.38). a recent approach that addresses these concerns is social franchising. the idea of social franchising is relatively new, and the concept has been interpreted and enacted in a variety of ways (brown, 2014). as a new area of both practice and research, how to prepare for social franchising, accomplish it, and evaluate its success has some distinct challenges. it can take on multiple forms that can be difficult to define as “the nature of non-profit organizations and social enterprise is diverse, making it difficult to generate and test theory in the field with consistency” (crawford-spencer & cantatore, 2016, p. 29). social enterprises are difficult to establish and are particularly liable to fail (hayllar & wettenhall, 2011), and social franchises are no exception to this, yet this approach also offers some unique opportunities, especially the opportunity to increase the capability and sustainability of the organization. given that ngos typically operate with limited resources yet vast needs, social franchising provides a strategy for generating capital, enhancing sustainability, improving quality and expanding impact (cumberland & litalien, 2018). most social franchising efforts have been in the area of providing health care and services – however, this model offers opportunities for organizations providing services such as foster care in the global south. children who live in urban poverty are among the most vulnerable to the negative effects of poverty, with the impact of poverty both “devastating and lifelong” (stewart & okubo, 2017, p. 5). foster care homes are therefore an opportunity to protect children from these risks, and to give children opportunities for the future that they would not have had otherwise (eiðsdóttir, 2016). given the importance of the mission of foster care homes, and given the scope of the need for care of children who live in poverty in the global south, the social franchise concept may increase the scope and impact of ngos working to address the needs of children. 2. literature review 2.1 social franchises. social franchises are geared towards alleviating a social problem (alur, 2013) and do this by leveraging commercial franchising approaches to increase the scale of organizational impact (beckmann & zeyen, 2014), including market research, marketing, cash flow forecast and measurement, and employee training. kaufmann and eroglu (1999) note that in the us “howard johnson’s became the ubiquitous “host of the highway” by providing wary travellers the assurance of a predictably consistent dining experience” (p. 72). similar to such business franchises that emphasize standardization of products and services both internally and for clients (kellner, 2017), social franchises focus on consistency of service delivery. social franchising is increasingly recognized as a viable approach for social enterprises to achieve impact and to increase organizational sustainability, as it has been suggested that the “expansion of franchising into the social realm has implications for global development and may impact the lives of millions of individuals” (cumberland & litalien, 2018, p. 139). alur and schoormans (2011), for example, conducted an exploratory field study in india focusing on healthcare organizations, concluding that the key to successful franchising is training and support to maintain the quality of the services that they offer. developing standards to assure consistency, then training to uphold those standards is paramount for social franchises. for foster care homes, this means that activities related to care for children with respect to psychosocial development, education, safety, and nutrition, as well as the standards of that care, are standardized and consistent regardless of who is providing financial support for the home or who the caretaker is in the home. 2.2 social franchise strategies. ngos around the world emerge to deal with various social needs through products and services that aim at addressing social issues. most of these organizations find it difficult to reach many people or have the intended impact due to limited resources and geographic reach of the communities with similar social needs (asemota & chahine, 2017). it is evident that starting a new project or organization from scratch requires a lot of time and resources and establishing a social enterprise to achieve the level of social impact can take years and might involve a number of years before achieving success which can be expensive (pereira et al., 2015). instead of building an organization from scratch, some organizations can utilize different scaling models, which allows for initial ngo’s success to generate additional impact. and this scaling can also help in identifying problems and adaptations that can help improve the overall organizational functioning. studies show that when projects and organizations have proven to be successful in solving a particular social issue, they should be encouraged to replicate it in other parts of the world with similar social problems (berelowitz, richardson & towner, 2013). one of the most important things to consider during replication is whether the organization is scaling out or scaling up (bloom & chatterji, 2009). scaling out refers to the opportunity to expand the social impact by introducing the solution to new territories with the right strategy and effective adaptation to the new local context. scaling out can be considered as scaling horizontally as it aims at impacting wider numbers of people and regions. scaling up, on the other hand, refers to the replication of an innovative solution to a social problem that involves affecting the broader system that influences the root cause of the problem (lyon & fernandez, 2012). scaling up can be considered as scaling vertically as it aims at impacting the larger system through policy change. although the traditional franchising model focuses on scaling out, it is important for the ngo/organization to decide the extent to which it decides to address the social need (conway, 2015). organizations that consider franchising as a replication strategy should examine different elements that need to be replicated among the franchisees. among these elements, some factors might be the core competency of the organization which cannot be modified while other elements can have contextual flexibility (hurley, 2016). some of the key replicable elements for successful replication of the franchising model are 56 catherine t. kwantes, siddardh thirumangai alwar, stephanie j. cragg, magali feola 2020/25(3) vision, idea, knowledge, training, health & safety, process, brand, monitoring & evaluation and it systems (berelowitz, richardson & towner, 2013). 2.3 social franchise development. keeping standards consistent and high while a social franchise is growing can be challenging. while the main goal of social franchising is to expand the social benefits of the organization, rather than financial gain (asemota & chahine, 2017), there are a variety of ways in which social franchises can expand their services. weber, kroger, and demirtas (2015) conducted an analysis of 358 national and international european social enterprises which revealed four main scaling strategies. the first scaling strategy is capacity building, which is expanding through offering the same services as the original franchise location, and advertising to the same client base. a second scaling strategy is strategic expansion, which is when the social franchise offers new products or services or advertises to a new market base. the third scaling strategy is called contractual partnerships, which is when new social franchise locations are established through set contractual partners. the final scaling strategy is known as knowledge dissemination and occurs when the social franchise’s social impact model is disseminated, but no social franchise expansion is desired. asemota and chahine (2017) developed a theoretical framework for use in understanding the development of social franchising. this framework suggests that there are seven developmental stages of the social franchising process: (1) pre-replication, when the organization is considering social franchising; (2) replication readiness, when the organization assesses their ability to engage in social franchising; (3) replication capital, when the organization evaluates the various forms of capital needed and available to engage in social franchising; (4) franchise manual development, when the organization develops their operating manual; (5) franchisee selection, selecting applicable individuals or organizations which may be interested in franchising; (6) training, communication and support; and (7) evaluation. the first stage of the developmental process, according to the authors, is pre-replication, when the organization is considering social franchising. pre-replication refers to the phase in which the organization assesses a potential franchisee’s alignment with the ngo’s vision and mission statements, financial resources, local knowledge and managerial expertise to successfully implement the scaling model and may run a cost-benefit analysis to identify if social franchising is beneficial. in this stage, therefore, it is extremely important to ensure that potential franchisors are sufficiently developed to be able to support franchisees, that franchisees understand the local conditions, and that the service being offered is a good fit within the local environment (asemota & chahine, 2017). for foster home agencies, this may be in determining what the core population is that the organization wishes to serve. for example, organizations may see the greatest need is to provide care for orphans, or for certain age groups, or for those who live in specific areas that have challenges such as slums. the second stage is replication readiness, when the organization assesses their ability to engage in social franchising. tracey and jarvis (2007), in their case study on a social franchise in the uk noted that its failure was in large part due to becoming a social franchise too early, without becoming a stable franchisor first, then undertaking the necessary reviews to ensure that franchisees were compatible with their vision and ensuring that they were able to provide the necessary support to a new franchisee. in the social franchising model of service provision, ngos require a significant amount of investment in terms of financial and human resources (montagu, 2002), and there is a high level of economic risk for social franchises (zafeiropoulou & koufopoulos, 2013) when significant outcomes are also dependent on donations and work is being conducted by volunteers. thus, a careful alignment of franchisor vision and the capability of a potential franchisor is critical to consider. for foster care home programmes, this would suggest the benefit in creating a team to conduct interviews and assessments and provide recommendations for social franchising (the annie e. casey foundation, 2013). the team can modify the kinship treatment foster care initiative toolkit (foster family-based treatment association, 2015) to assist in their assessment. the third stage mentioned by the authors is replication capital, when the organization evaluates the various forms of capital needed and available to engage in social franchising. in this stage it is important to consider the legal and ethical concerns associated with obtaining capital, as well as how funds flow between the franchisor and franchisees (asemota & chahine, 2017). for foster care homes, this involves a strategic plan for developing relationships with potential funders for the project – relationships with funders is critical for sustainable capital. understanding what funders expect with regard to reports on spending and impact and meeting reporting expectations is important for continued support by granting entities. thus, a strategic plan for communicating with current and potential funders of a foster care home social franchise is a crucial part of determining what capital is available for social franchising activities. at this stage, care to determine expenses and capital requirements is crucial, including making connections with donors who are willing to support the mission of the organization and provide needed funding for the organization on an ongoing basis. 57 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) the fourth stage is franchise manual development, when the organization develops their operating manual. standard operating procedures that the franchisees are expected to follow must be carefully developed and operationalized – they should be consistent with the vision and mission of the social franchisor yet allow for flexibility as needed in various specific contexts. this standardization is critical to the sustainability, success, and impact of the social franchise. this standardization, in the case of social franchising, is critical to establishing standards of care and operations in order to ensure that the services provided are consistent and of high quality. for foster care homes, there are governmental, or legal, regulations as well as clear guidelines for the care of children (for example, cantwell, davidson, elsley, milligan & quinn, 2013). at this stage of social franchising, the organization should be operationalizing those guidelines with concrete steps for how the guidelines should be put into practice in a way that makes sense in the given context, one the ngo operates in. further, before opening foster home franchises clear policies related to how the foster homes will be evaluated should be developed, as well as the criteria that they will be evaluated on and how often evaluations will occur (asemoda & chahine, 2017). the head office should work to ensure that evaluations and criteria are standardized across all foster home franchises. foster homes should be evaluated on the safety of the children, the safety of the home, medical and educational support provided by the homes, as well as the social and psychological supports provided by the homes the fifth stage is franchisee selection, selecting applicable individuals or organizations which may be interested in franchising (asemota & chahine, 2017). potential franchisees may be interested in entering a social franchise arrangements for a number of different reasons, and the incentivisations may impact the success of the relationship (cumberland and litalien, 2018). for example, there are many faith-based organizations as well as secular organizations that serve those in need, and who seek to provide positive outcomes for those whom they serve. however, while the missions of these types of organizations may be similar, the approaches may differ. frame (2017), for example, noted that in the organizations he reviewed, discussions of religion and faith were strongly present in the faith-based organizations, and impacted the types of outcomes that the organizations hoped to achieve. secular ngos did not ignore religious faith and saw value in it, but as it was not a key component of their approach, the outcomes they worked towards differed from the faith based organizations as they did not include behavioural outcomes that could be perceived as consistent with religious expectations. thus, care to discuss the philosophical underpinnings of social efforts between a franchisor and a franchisee are critical as disagreement in this area, or a misalignment of outcome expectations can cripple a social franchising effort. the selection of franchisees is critical (sivakumar & schoorman, 2011) as the franchisor and the franchisee enter into an interdependent relationship with the same vision and goal. the more closely aligned the franchisor and the franchisee are, and the stronger the relationship between the two, the more successful franchises tend to be (brown & dev, 1997). foster homes located in communities are likely to have varied relationships with those in the community, depending on specific locations (eiðsdóttir, 2016) and the social franchise model allows for some regional variations. given these variations, and the need for them, it is even more incumbent upon the franchisor to exert great care in selecting franchisee foster homes where the vision of how children are cared for is a shared one. the sixth stage is training, communication and support. it is important to engage in continuous training for franchisees in order to ensure that franchisees are able to function with the most up-to-date knowledge (asemota & chahine, 2017). frequent training reinforces the importance of complying with standard operating procedures. ngo employees tend to operate in environments that are stressful, and turnover levels may be high (khurshid, butt, & muzaffar, 2012). thus, clear training, both formal and informal, is critical to ensure that the standards set by the franchisor are understood and maintained. however, communication to ensure that the franchisor is aware of the contexts within which the franchisees work is also important to ensure that the standards are practical, relevant, and lead to the desired impact. interaction with the community the ngo seeks to serve, and feedback from them on how various practices impact their wellbeing is also important at this stage to ensure the relevance of the social franchise activities. for foster care home agencies, communication must flow both ways as when children are being cared for it is critical that the franchisees have what is required to care for the children, but also adhere to the standards set by the franchise (cantwell et al, 2013). the final stage is evaluation which should ensure equal contributions from the franchisor and franchisees and to appraise the social impact of the franchise. further, evaluation is important due to the costs inherent in the social franchise model (montagu, 2002) and the responsibility to report to funders what the impact of their gifts were, as well as to develop a strong performance record to attract further funding. ngo funding is dependent on donors (bies, 2010), and accountability and transparency both with respect to the projects and activities is important, as well as the transparency of the organization itself (cabedo, fuertes-fuertes, maset-llaudes, & tiradobeltran, 2016). a systematic evaluation system allows for this accountability and transparency and sets the stage for the sustainability of the ngo. it is important to maintain quality of service 58 catherine t. kwantes, siddardh thirumangai alwar, stephanie j. cragg, magali feola 2020/25(3) of the franchisee as it has a direct impact on the reputation of the franchisor (kidwell, nygaard, & silkoset, 2007) as well as on the social impact that the social franchise is attempting to make. short term goals (e.g., increased access to education, healthcare, increased safety) as well as long term goals (increased ability to support oneself as an adult) should be assessed. 59 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) � ������� ���� ��� ���� ������ ���� ���� ���� ��� �� ������� �� ����� ������� � ������� �� ����� �� ���� ��� ����� �� ��� ������� ���� ���� ��� ��� ����� �� ����� � ���������� ���� 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������ $� �������� �������� ��� �� ���� � ������ ���� ������,������������������� � 3. possible outcomes the social franchising approach offers a possibility of both larger impact as well as greater sustainability of the organization through careful consideration of standardizing processes, training, and partnerships with other organizations. nevertheless, there are also several challenges that this model brings. 3.1 opportunities and benefits. the social franchise model provides some economy of scale, where franchisees provide social services, and the head office provides administrative support, including developing standard procedures and training for franchisees. adopting this model for foster home ngos can create better sustainability and impact. social franchising helps create a platform for knowledge exchange within a system. in order to be successful in social franchising, franchisors must encourage the exchange of knowledge and experiences between the different franchisees as that aids in developing a more successful social business model. this kind of knowledge sharing leads to more cooperation, which is essential for developing a strong organizational culture and long-term sustainability of the system. it may be most critical in contexts such as the global south as a means of providing training, knowledge exchange, and developing standards of care when working with children. one potential benefit to franchisors is the opportunity to rapidly expand their organization and their social impact with a lower financial burden than would be the case if franchisors operated numerous facilities themselves. social capital provided by the franchisees reduces the risks to the franchisors that are often associated with business expansion while simultaneously allowing the franchisors to take advantage of the local knowledge and credibility of their franchisees (asemota & chahine, 2017). this is a particularly important factor for ngos that rely on donations to carry out their mission. franchisees also receive benefits from social franchising. franchisees can rapidly expand their social impact as they receive financial support from the franchisor. in the case of foster homes, the social franchise model allows for outreach programmes and new care facilities to be developed more quickly given that many of the operating procedures and standards have been determined ahead of time. this can be a great advantage when the social issues that the ngo is seeking to remedy increases very quickly. in the global south, the urban population is quickly expanding as people move from rural communities looking for economic opportunities. many approaches to this urbanization have adopted models from the global north and, as a result, policy making related to poverty and urbanization has not always been as relevant as it could be (parnell & robinson, 2018). ngos are increasingly needed to provide social services and support for those whose economic mobility dreams did not work out (zafeiropoulou & koufopoulos, 2013), as not only is urban poverty growing but it is likely that the extent of the poverty is underestimated (lucci, bhatkal, & khan, 2018). this situation of urban poverty is one where children are the first victims, and the number of vulnerable children increases rapidly. therefore, it is an asset to be able to open foster homes rapidly, and the social franchise model can support this. in social enterprises, the consistency of the standards set by the franchisor and the concomitant training that is provided offers the opportunity for multiplication of effort as it ensures that a standard is maintained by all franchisees. in case of foster care homes, this model can ensure that all homes are held to the same standards of care and operating procedures, giving a guarantee of quality care since each home must meet the standards and norms set by the organization. further, these standards are supported by the franchisor in the form of communication of the standards and by providing training. the result of this careful development and training in expected operating standards also provides a tool for self-evaluation for franchisees as they have a benchmark for success. the training opportunities and consistency of support by the franchisor is a unique benefit of social franchising approaches (sievering, briegleb & montagu, 2105), and is of critical importance in taking care of vulnerable populations such as children. finally, the social franchising approach has the possibility to help in fundraising. as this approach is model based, the process can be replicated, and the results can be expected to be similar to the projects already implement by the franchisor. the success of ongoing franchisees can be used to show the success of the model undertaken by the franchisor. additionally, since each of the franchise locations has similar activities, expectations, goals and operating standards, reporting of results, monitoring and evaluation can be standardized, reducing the resources required for evaluation and communication with external agencies and funders. applying the social franchise model to foster homes in the global south provides the opportunity to assist a wide number of children and families as studies show that nonprofits that undertake a social franchise 60 catherine t. kwantes, siddardh thirumangai alwar, stephanie j. cragg, magali feola 2020/25(3) system grow twice as fast as other systems (wei-skillern & anderson, 2003). using the social franchise model with foster care homes could open up foster care homes to a large segment of the population, providing more children with stability, nutrition, and education. 3.2 challenges. despite these opportunities, challenges also exist. one of the common challenges in franchising as a business model is the risk of negative reputation. when different entities operate under the same brand name, there is a possibility of one unit’s negative image impacting the whole organization. similarly, in the social franchising model, it becomes even more important to ensure that consistent standards are followed not only as the organization is directly delivering services to people in need, but also as they are dependent on external funds, which is highly impacted by reputation. therefore, carefully selecting the franchisees’ by evaluating the leadership and long-term commitment to the social goal can be critical. another challenge posed by the social franchising model is that it may seem deceptively simple and easy to implement. an evaluation of needs, and a careful assessment of the impact on communities, as well as individuals served is paramount. it is important that good intentions result in actions that have positive results rather than negative impacts. for foster care homes, this means that while taking care of children and providing them better opportunities is a noble endeavour, whole families and communities are also affected, therefore ensuring that providing services while maintaining a holistic view of the impact on children, families, and communities is important. while the opportunities and benefits of the social franchise model are many, two important factors must be kept in mind. the first is that initiating this model is costly with respect to human resources and time. it takes time to create a franchise model and to develop it. the tools and training to ensure that standards are clear, consistent, and well communicated take time to develop. once developed, the network of franchisees must be nourished, and evaluation and learning from projects must be consistently maintained. this approach requires a long-term view as it is a long-term relationship. second, the results in a social franchise model are not as clearly observable nor measurable as those of a commercial franchise model. it is not easy to evaluate well-being, satisfaction, or happiness. with respect to social franchising foster care homes this can be particularly difficult given that the beneficiaries of the efforts are predominantly children in care, and therefore the desired results are both short term (safety, good nutrition and medical care) but also long term (life satisfaction, self-sufficiency). thus, the longevity of the social franchise model is key to understanding its impacts and highlights again the challenge and importance of the long-term relationships between the franchisor and the franchisees. another challenge in undertaking a social franchising model is maintaining the balance between general requirements and particularistic considerations, especially as concerns the core mission of the social franchise. while some flexibility to meet contextual concerns is important, when franchisees adapt to specific local characteristics, it can lead to altering the original mission created by the franchisor (ziolkowska, 2017). it is important to find the right balance between flexibility and standardization, as more standardization might compromise the level of impact in specific populations whereas more flexibility can lead to shifting the organizational mission in specific locations which can then reduce the impact of the social franchise. many areas in the global south have diverse cultures in the populations served. for example, one challenge in implementing the social franchise model for foster care homes in india is a wide variety of religions and languages which may be practiced by children residing in the foster homes. india is home to a number of major religions, while the constitution of india recognizes 23 official languages. when in an area with such a wide variety of languages and religions, it is extremely important for franchisors and franchisees to maintain an environment of cultural and religious sensitivity. thus, it is important for social franchises to maintain some flexibility in their approach when working in culturally diverse local markets (altinay, brookes, madanoglu, & aktas, 2014). the importance of maintaining flexibility is also key for foster care home franchises, as some of the criteria for operating procedures are out of control of the franchisor and are often evolving. for example, in many countries in the global south, foster care home programmes must follow the criteria that are set by the government such as the number of children in a foster care home and the number of staff in a home. operating procedures must be in line with such government regulations, and when criteria change, the changes must be implemented, communicated, and codified in standard operating procedures for franchisees. 61 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) references [1] altinay, l., brookes, m., madanoglu, m., & aktas, g. 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(2013) the influence of relational embeddedness on the formation and performance of social franchising. journal of marketing channels, 20(1-2), 73-98, doi: 10.1080/1046669x.2013.747861 received: 2020-03-25 revisions requested: 2020-04-30 revised: 2020-05-08 accepted: 2020-05-17 63 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) 64 catherine t. kwantes, siddardh thirumangai alwar, stephanie j. cragg, magali feola 2020/25(3) catherine t. kwantes university of windsor, department of psychology, canada catherine.kwantes@uwindsor.ca catherine t. kwantes holds a phd in industrial organizational psychology and an msc in clinical psychology. she is a full professor in the psychology department at the university of windsor, canada where she has worked for the past 18 years. during this time, she has been actively involved in projects related to humanitarian work psychology. her area of expertise is societal culture’s influence on workplace attitudes and behaviours, including organizational culture and interpersonal trust in the workplace. siddardh thirumangai alwar university of windsor, department of psychology, canada thiruma1@uwindsor.ca siddardh thirumangai alwar is a master's student in applied social psychology at the university of windsor. his research interest is in the area of industrial organizational psychology, with a focus on psychological safety, organizational culture, burnout, and employee well-being. stephanie j. cragg university of windsor, department of psychology, canada cragg2@uwindsor.ca stephanie cragg is currently a phd student at the university of windsor in applied social psychology and is also a graduate of the master of social work programme at the university of windsor. her area of interest is community and health psychology, and her research focus is on the social and psychological effects of disability. magali feola, project coordinator objectif france inde, india magalifeola@gmail.com magali feola is a young humanitarian worker who specializes in childhood projects. she has been engaged in projects allowing a better access to education, notably in india. while in india, she supported a local ngo in the monitoring of foster homes. while the orphanages are often overcrowded in india, they worked for a better focus on the individual and the personal development of each child. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08 26_2 book review sudeshna ghosh:tipska.qxd book review doi: 10.7595/management.fon.2021.0013 the book entitled ‘international trade policies in the era of globalization’, edited by dr. ahu coşkun özer, published by igi global publishing, offers the readers an in-depth study on foreign trade policies adopted by the major global players like the usa, china and the eurasian economic union. the deliberations in the chapters in the book offer the reader a thorough understanding of how the us-china trade wars adversely impact the trade shares in other major economies. according to özlem toplu yýlmaz (2019), the protectionist policies implemented by the u.s. and china negatively affect the liberalization of world trade. divided into twelve distinct yet interrelated chapters, the book blends the perception on how globalization leads to increasing gains from trade and how protectionism may adversely impact trade. chapter one by vasilii erokhin (2019) discusses how the rising tariff rates in china as a retaliatory policy to the usa trade barriers may lead to a situation of food insecurity in china. the study advocates the diversification of domestic agricultural production vis-à-vis exploring possibilities on import expansion in the agricultural sector. in chapter two the author, maria lagutina (2019) discusses the economic and political scopes of trade dialogues and how the preferential trade agreements may impact the development agenda of the eurasian economic union. ahu coskun ozer (2019), in chapter three, deals with how the uschina trade war may bring uncertainty in the scope of global trade. the study rightfully claims that the us-china trade wars will lead to a major shrinkage on the world share of exports. in chapter four the author ozlem toplu yilmaz (2019) laments that the uschina retaliatory protectionist policies have significantly and adversely impacted the mechanism of trade liberalization and suggests that the two countries should consider the urgency to end trade wars in favour of global expansion and economic development. chapter five in continuation with the earlier thread of discussion focuses on trade protectionism and the associated precincts for development. the study concludes that protectionism has its adverse implications on the concerned country’s level of development. however, the author also points out the lacuna in context of free trade because it may lead to an emergence of a class of winners and that of losers (cambazoglu, 2019). chapter six explains the need for mechanisms to intensify the regional trade integration in the post-soviet era. the central argument in this chapter is that integration is a process of accumulating advantages in the context of country’s development opportunities (eremina, 2019). the chapters eight, nine and ten discuss how trade policies impact the major economies of the eurasian region. conclusively, the authors investigate into what international trade policies offer to individual countries who are caught up in the web of the global network as unequal partners (karataser, 2019; tasbasiet al., 2019; arapova & maslova, 2019). in chapter eleven the author, simla guzel (2019), discusses the issue of foreign direct investments as a catalyst to growth for the emerging economies. the essential argument of the chapter is that the complex regime of tax structure, low institutional quality and poor governance are major impediments to foreign direct investabstract: book review of: “international trade policies in the era of globalization”, ahu coşkun özer (ed). igi global. 2019. pp.363. isbn13: 9781522595663 doi:10.4018/978-1-5225-9566-3. jel classification: f1, f10, f13 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) 89 sudeshna ghosh scottish church college, kolkata, west bengal, india ment and economic development. chapter twelve, the last chapter, juxtaposes issues on devaluation and trade balance particularly in the long-term context. the author argues through empirical evidence that devaluation may not always lead to an improvement in the trade balance (yilmaz, 2019). the agenda proposed and examined in the various chapters of the book deliberates on the importance of international trade organizations in advancing the agenda of free trade. the various chapters correctly discuss that economic integrations in the global system must be carefully implemented. furthermore, the discussion weaves a direction towards future research as to how protectionism impedes development and what should be the correct order of international trade policies so that the process of globalization tilts the benefits of trade to the emerging nations. to summarize, this book edited by ahu coşkun ozer is packed with a detailed description of the recent developments in international trade. the usefulness of the book is that it takes the reader through the complex issues of international trade associated with exchange rate fluctuations, tariff rates, tax structure, protectionism and trade wars. divided into twelve distinct but interrelated chapters the studies blend the perceptions of trade in the recent years of increasing globalization. my reactions on reading this book are two pronged: first, i was struck by the way the authors discuss the complex theoretical issues associated with trade wars and how protectionism may have adverse impact on trade, particularly in the context of developing countries. second, i was also struck by the interesting empirical exercises associated with devaluation, tax structure and trade policies and their impact on trade balance in the backdrop of individual country experiences. the book is useful for the readers who are interested in issues of foreign trade policies adopted by the major global players such as the usa, china and the eurasian economic union. references [1] arapova, e., & maslova, e. (2019). influence of tariff liberalization on bilateral trade: implications for russia and its asian trade partners. in international trade policies in the era of globalization (pp. 209227). igi global.. doi: 10.4018/978-1-5225-9566-3.ch010 [2] cambazoglu, b. (2019). trade protectionism: pros and cons. in international trade policies in the era of globalization (pp. 94-115). igi global.doi: 10.4018/978-1-5225-9566-3.ch005 [3] eremina, n. (2019). forms and mechanisms of economic cooperation between russia and belarus within the union state: tasks, problems, achievements. in international trade policies in the era of globalization (pp. 116-143). igi global.doi: 10.4018/978-1-5225-9566-3.ch006 [4] erokhin, v. (2019). transformation of china's agricultural trade in response to emerging tensions on the global market. international trade policies in the era of globalization (pp. 1-28). igi global. doi: 10.4018/978-1-5225-9566-3.ch001 [5] guzel, s. (2019). the efficiency of corporate tax incentives in developing countries based on foreign direct investments. in international trade policies in the era of globalization (pp. 228-258). igi global. doi: 10.4018/978-1-5225-9566-3.ch011 [6] hailu, s. m., & saliya, a. y. (2019). the impact of devaluation on balance of trade: the case of ethiopia. in international trade policies in the era of globalization (pp. 259-282). igi global.. doi: 10.4018/9781-5225-9566-3.ch012 [7] karataser, b. (2019). globalization in the ottoman empire: an evaluation through the naval institutions and international trade policies. in international trade policies in the era of globalization (pp. 163-188). igi global. doi: 10.4018/978-1-5225-9566-3.ch008 [8] lagutina, m. (2019). preferential trade agreements of the eurasian economic union: economic feasibility and political significance. in international trade policies in the era of globalization (pp. 29-55). igi global. doi: 10.4018/978-1-5225-9566-3.ch002 [9] ozer, c. a. (2019). international trade policies in the era of globalization, igi global, pp.363. doi: 10.4018/978-1-5225-9566-3 [10] ozer, a. c. (2019). the effect of the us-china trade war on global trade. in international trade policies in the era of globalization (pp. 56-70). igi global. doi: 10.4018/978-1-5225-9566-3.ch003 [11] tasbasý, a., sarýca, p. y., & yuksel, a. h. (2019). an analysis of risk transfer and trust nexus in international trade with reference to turkish data. in international trade policies in the era of globalization (pp. 189-208). igi global.doi: 10.4018/978-1-5225-9566-3.ch009 [12] yýlmaz, ö. t. (2019). usa-china trade wars: back to protectionism in world trade. in international trade policies in the era of globalization (pp. 71-93). igi global.doi: 10.4018/978-1-5225-9566-3.ch004 accepted: 2021-02-23 sudeshna ghosh 2021/26(2) 90 sudeshna ghosh scottish church college, kolkata, west bengal, india sudeshna.ghosh@scottishchurch.ac.in sudeshna ghosh has a ph.d. in economics and works as an associate professor at the scottish church college kolkata, india, in the department of economics. she teaches data analysis, development studies and interdisciplinary studies. her research interests include trade and tourism development, development economics and time series econometrics. she published over 35 research papers in various national and international journals related to the above fields including in quality & quantity; arthaniti: journal of economic theory and practice; international journal of tourism research; asia pacific journal of tourism research & tourism management. 91 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01 26_2 bjekic:tipska.qxd 1 radmila bjekić, maja strugar jelača, nemanja berber, marko aleksić* university of novi sad, faculty of economics, subotica, serbia management: journal of sustainable business and management solutions in emerging economies 2021/26(2) factors affecting entrepreneurial intentions of faculty students doi: 10.7595/management.fon.2020.0024 abstract: 1. introduction entrepreneurship is a phenomenon that increasingly occupies the attention of scientists, researchers, educators, and even young people. programmes for promoting entrepreneurship among pupils and encouraging their entrepreneurial spirit are introduced in the early days of schooling. such programmes are increasingly promoted, and certainly during university studies, such forms of support should be intensified. universities are more and more considered as key institutions that provide vital resources for society to learn about, aspire to and develop an entrepreneurial spirit which can foster entrepreneurship (souitaris et al., 2007). entrepreneurial activity is regarded as imperative for the health of the developing countries and presents the basis of economic activities in such areas (petrovic & lekovic, 2019). also, today more and more important social entrepreneurship is developing with the same purpose, but in a different way, namely, through socially responsible practices of commercial enterprises engaged in cross-sector partnerships (mitrovic & mitrovic, 2019). this is seen as a force that revitalizes the economy and contributes to economic progress and job creation. therefore, the development of entrepreneurship is encouraged, given that it sup* corresponding author: marko aleksić, e-mail: marko.aleksic@ef.uns.ac.rs research question: the authors of the article investigate if there is a relationship between the psychological characteristics of students at the faculty of economics and their entrepreneurial intentions. motivation: based on the study results of littunen (2000), walter et al. (2013) and popescu et al. (2016), the authors planned to identify the factors which would predominately influence the students’ entrepreneurial intentions. idea: the authors believe that the psychological characteristics, such as the greater need for achievement and the need for independence can be treated as important psychological indicators for the students’ predicted entrepreneurial success in the future. furthermore, these characteristics are significant but not sufficient, therefore the introduction of formal entrepreneurial education at university is likely to additionally contribute to raising the students’ entrepreneurial spirit. data: the research was conducted during the academic year of 2016/17 on a sample of 517 students in their third and fourth years of studies at the faculty of economics. the survey questionnaire adopted already established scales on students’ entrepreneurial intentions as created and carried out by walter, parboteeah and walter (2013). tools: the pls analysis was used for exploring relations between psychological characteristics (need for achievement and need for independence) and entrepreneurial intentions. for that purpose, the authors used smart pls 3 software. findings: the results show that psychological characteristics are significantly related to students’ entrepreneurial intentions, i.e., the students who have a greater need for achievement and independence, also have stronger entrepreneurial intentions in comparison with those who do not have those needs. contribution: the paper contributes to the literature by empirically testing how certain factors affect the entrepreneurial intentions of university students of economics. keywords: students, entrepreneurial intentions, entrepreneurial spirit, psychological characteristics jel classification: i23, m13 ports the national economic policy in order to stimulate economic growth (zaman, 2013). the underlying reason for the increased focus on entrepreneurship is the fact that in 2017, the unemployment rate in serbia was 13.5%, while in terms of “brain drain”, serbia is among the highest-ranking countries in the world. it is very important to emphasise that the youth unemployment rate in the same period was 31.9% (statistical office of the republic of serbia, 2018:7-8). thus, the ‘support for entrepreneurial youth’ initiatives are one of the key factors for improving employment and keeping young people in serbia. the authors of the paper were motivated by the above facts and decided to launch a research on students’ entrepreneurial intentions, starting with the faculty of economics in subotica, hoping to stimulate a series of research works in this area. this would create a unique database, detect the deficiencies, find the best mechanisms of work and ultimately support and develop the entrepreneurial spirit of young people. in this paper, the authors investigate whether there is a relationship between students’ psychological characteristics and their entrepreneurial intentions. the idea of this research was based on the results of earliest research that emphasised the importance of psychological characteristics as determinants of entrepreneurial intentions (matlay et al., 2013) as well as that this research topic re-emerged after 20 years (zhao et al., 2010) and still attract considerable attention (zhao et al., 2010; bux & honglin, 2015; nasip et al., 2017; gu et al., 2018). one of the reasons why relations between psychological characteristics and entrepreneurial intentions should not be neglected can be found in bird’s (1988) widely known definition about entrepreneurial intentions “as the states of mind that direct attention, experience, and action toward a business concept” (p. 442). therefore, psychological characteristics can be understood as a predictor of transformation of entrepreneurial intention into active entrepreneurial behaviour in some stage of life. the empirical results from the study of ajzen, csasch and flood (2009) reveal the high positive relationship between entrepreneurial intention and entrepreneurial behaviour. also, the entrepreneurial intention affects individual decision making according to entrepreneurial behaviour so it can be considered as its predictor. the link between these variables was the guiding idea for adopting new approaches in determining entrepreneurship intention concept. nevertheless, psychological characteristics as one of the determinants of entrepreneurial intentions should not be abandoned because there were different research models and investigated hypotheses with confronting results (zhao et al., 2010), and therefore, they should be studied in more detail in the future. the study involved 517 students at the faculty of economics in subotica, all in their third or fourth years of study, across various study programmes. through this research, the authors explored the relationship between the psychological characteristics of students at the faculty of economics and their entrepreneurial intentions. for revealing the relations between psychological characteristics (need for achievement and need for independence) and entrepreneurial intentions the pls was used. the results of the analysis showed that there was a positive relationship between students’ psychological characteristics and their entrepreneurial intentions. the paper is structured as follows: the first part contains a review of the relevant literature in this field, specifically the relationship between students’ psychological characteristics and their entrepreneurial skills. next, there is a description of the research method applied. the following section outlines the results of the conducted research and presents their analysis. the final part of the paper offers concluding observations and gives recommendations for future research. 2. theoretical background entrepreneurial intentions of an individual can be defined as their alleged desire to start a business or to found a new company in the future. entrepreneurial intentions are desires to own or start a business (bae et al., 2014). entrepreneurial intentions can also be defined as the “self-acknowledged conviction by a person that they intend to set up a new business venture and consciously plan to do so at some point in the future” (thompson, 2009: 676). they direct their attention, experience and behaviour towards a planned entrepreneurial action and play a crucial role in the development of entrepreneurial activities (kautonen et al., 2015; kibler et al., 2014). the application of intentions in the domain of entrepreneurship (self-employment) research started soon after ajzen (1991) revised his theory of planned behavior. much research has been conducted and numerous papers written on the subject of students’ entrepreneurial tendencies. many authors linked entrepreneurial intentions with students’ psychological characteristics and entrepreneurial education (hansemark, 2003; gürol, & atsan 2006; walter et al., 2013; ferreira et al., 2012; dinis et al.,2013; zaman, 2013; ahmed et al., 2010; stamboulis & barlas 2014, popescu et al., 2 radmila bjekić, maja strugar jelača, nemanja berber, marko aleksić 2021/26(2) 2016) while a smaller number of authors focused on programmes of support to the development of entrepreneurial intentions of students (souitaris et al., 2007; walter et al., 2013). in the majority of papers, the psychological characteristics associated with entrepreneurial intentions are: locus control (the degree to which individuals believe that their achievements depend on their own behavior), the tendency to take risks, self-confidence, the need to achieve, the tolerance of ambiguity and innovation (ferreira et al., 2012). ferreira et al. analyzed data using structural modelling equations, and also implemented a partial least squares (pls) technique to test the model. gürol and atsan (2006) used six characteristics in their study in order to define the students’ entrepreneurial profile. these are: the need to achieve, locus control, the tendency to risk, tolerance for ambiguity, innovation and self-confidence. the survey was conducted on a sample of 400 students of the fourth year of study at two universities in turkey. for the analysis, the authors used the t-test and proved that, except for tolerance for ambiguity and self-confidence, all entrepreneurial traits were found to be higher in entrepreneurially inclined students, as compared with entrepreneurially non-inclined students. the results of the research showed that students who were more prone to risk had internal locus control, greater need for achievement and were more innovative, had a stronger inclination towards entrepreneurship in comparison to those who did not possess these psychological characteristics (gürol & atsan, 2006). popescu et al. conducted a survey on a sample of 600 students in romania. the research aimed to highlight how psychological characteristics affected the entrepreneurial intentions of students. the focus was on the following psychological characteristics: creativity, locus control, need for reaching and a tendency towards risk. the authors used several statistical techniques for testing research hypothesis, including analysis of variance (anova), principal component analysis (pca) and general linear models (glm). the results of the study showed that the need for achieving and the preference for risk influence student’s entrepreneurial intentions and play a vital role regarding students’ entrepreneurial preference (popescu et al., 2016). for further analysis, the psychological characteristics of need for achievement and need for independence will be explained in more detail. the need for achievement is an important determinant of individual entrepreneurial intentions. individuals who have a strong need to achieve are in fact those who want to solve their problems by themselves, set goals and strive to achieve these goals through their own efforts. they also aim to show better results in challenging tasks, whereby they are more innovative in terms of seeking new and better ways to improve their performance (littunen, 2000; hansemark, 2003). mcclelland (1961) proved that there was a relationship between the need for achievement and business development. in his wake, many authors showed that indeed there was a relationship between the need for achievement and entrepreneurial behaviour (begley & boid, 1987). further, there were numerous comparative studies on entrepreneurship and the differences between entrepreneurs and those who failed to determine that the need for achievement had a more significant connection with entrepreneurship than with other psychological characteristics analyzed (littunen, 2000). the need for independence refers to the need to execute something in the way the initiator planned,even in spite of conventional expectations. autonomy is one of the most frequently stated reasons for choosing an entrepreneurial career (kolvereid, 1996). the need for independence presents itself in those individuals who decline a work environment where they are subordinate; who are capable of independently defining the structure of their tasks, who crave the freedom to create assignments, but are also able to independently determine the time and order of the assigned tasks (walter et al., 2013). according to amidzic (2019), “opportunity entrepreneurs are motivated by prospects of increasing their wealth. they are looking for independence or new prospects in business, by creating opportunities that can provide a wide range of business ventures on the market” (p. 45). in their previous article, the present authors proved the hypothesis that “there is a statistically significant relationship between the students’ need for greater achievement and independence, on the one hand, and their entrepreneurial intention, on the other” (bjekic & strugar jelaca, 2019, 384). as regards supporting programmes for entrepreneurship development, the focus will be on the article that tested the multi-level model of self-employment intentions (walter et al., 2013). essentially, walter et al. (2013) suggested that universities represented a contextual environment that affected students more than individual influences of self-employment intentions. entrepreneurship support programmes measure the range of systematic and complementary institutional activities aimed at supporting students in developing an entrepreneurial career. entrepreneurship support programmes include activities such as guest lectures, competition in compiling a business plan, extracurricular consulting, securing start-up capital. walter et al., argued that students at universities with more active entrepreneurship support programmes would be more 3 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) oriented towards creating an entrepreneurial career. the survey was conducted on a sample of 1530 students and 132 professors in 25 departments in germany. for data analysis purposes, the results of the research indicated that there was no statistically significant relationship between entrepreneurship support programmes and self-employment intentions (walter et al., 2013). although not the subject of this research, entrepreneurship education should be paid attention to since, in the present authors’ opinion, programmes for supporting the development of entrepreneurship without entrepreneurial education at the university cannot produce significant results. entrepreneurship education is meant to enhance “awareness of entrepreneurship as an alternative career path to employment” (slavtchev et al., 2012, 3). the results of the conducted research in this field showed that entrepreneurial education can significantly stimulate entrepreneurial intentions of students (zhang et al., 2014; bae et al., 2014; maresch et al., 2016). the american education system was the first to introduce this type of education to students by offering courses and programmes in the field of entrepreneurship and creating an inspiring environment that stimulated and developed entrepreneurship (þeþen & pruett, 2014). þeþen & pruett (2014) stated that the most effective way to stimulate entrepreneurship was to motivate students through education and raising awareness about importance and benefits of entrepreneurship. there are various forms of entrepreneurial education, such as courses for writing business plans that aim to provide knowledge and skills that reinforce entrepreneurial intentions (von graevenitz et al., 2010), as well as courses for creating business ventures, where students learn how to take practical steps to start their own business, that is to start their own company (rodrigues et al., 2012). a survey conducted on a sample of 170 students of basic academic studies in economics and mechanical engineering aimed to investigate the impact of education on the students’ intentions to start their own business in lithuania. the statistical technique used was the kendall’s coefficient of concordance (w). the results of the research demonstrated that students of economics held that education positively influenced their entrepreneurial intentions by providing them with the basic knowledge of business management and developing the needs for achieving them, while students of mechanical engineering believed that entrepreneurial education contributed very little to entrepreneurship development among young people (remeikiene et al., 2013). the importance of entrepreneurial education at university was also reflected in the results of a research carried out by franke and luthje with the aim of comparing the entrepreneurial potential of german and american students. those research results revealed that american students had higher entrepreneurial potential than german students, and the reason was the educational system that offered more specific entrepreneurial knowledge and skills. anova was used for this purpose (franke & luthje, 2004). it is accepted that entrepreneurial education and programmes supporting the entrepreneurial spirit development, along with the positive environment at the university, will positively contribute to entrepreneurial activity and the entrepreneurial potential of individuals. hence it is suggested that universities should adopt and apply entrepreneurial education as much as possible, in order to create a good basis for the development of future entrepreneurs, and in that way contribute to the development of the economy as a whole. many authors recommend that universities need to develop dynamic educational and entrepreneurial practice and provide space at the university where students will be able to put into practice the knowledge they have gained at the lectures (díez-echavarría et al., 2019). based on the presented theoretical framework and the ruling attitudes in this field, the following hypotheses have been set: h1: need for achievement as psychological characteristic is positively related to entrepreneurial intentions of students at the faculty of economics h2: need for independence as psychological characteristic is positively related to entrepreneurial intentions of students at the faculty of economics 3. methodology in order to ensure high regional representativeness of the data, it was decided to survey the largest public faculty for economics studies, specializing in business and management in the autonomous province of vojvodina. the research was conducted during the academic year 2016/17 on a sample of students at the faculty of economics in subotica. the same sampling procedure was used as in the research of the authors walter et al. (2013). the authors worked with a stratified random sample of 517 students from the general population of 2777 students, who study economics and business in the academic courses at the university of novi sad. the survey was conducted at the beginning of one of the compulsory lectures for the students 4 radmila bjekić, maja strugar jelača, nemanja berber, marko aleksić 2021/26(2) of the third and fourth years from all study programmes. this particular sampling strategy was selected because students in their third and fourth years of study have already partly made up their mind regarding future employment as they are aware of their abilities from the point of view of self-employment. furthermore, the authors made sure to survey students from all study programmes without specifically oversampling entrepreneurially oriented students from the management study program. the research-based questionnaire was formulated on the basis of a questionnaire on individual entrepreneurial intentions of students created and conducted by walter, parboteeah and walter (2013) at selected universities in germany. the likert scale from 1 to 5 was used (1 incorrect statement, 2 partly incorrect, 3 neither accurate nor incorrect, 4 partially accurate, 5 accurate). the questionnaire consisted of 17 questions. the first three questions inquired about the respondent’s general information, such as gender, study programme and year of study. altogether 14 questions were used to measure entrepreneurial intentions, the need for achievement and the need for independence. three questions were posed to test entrepreneurial intentions: (z1) there is no doubt that i will become self-employed as soon as possible; (z2) i plan on becoming self-employed within 5 years of the successful completion of my studies and (z3) i plan on becoming self-employed sometime after the successful completion of my studies (walter et al., 2013). furthermore, certain questions measured the student’s psychological characteristics, such as the need for achievement: (a1) hard work is something i like to avoid; (a2) i frequently think about ways i could earn a lot of money; (a3) i believe i would enjoy having authority over other people; (a4) i find satisfaction in exceeding my previous performance even if i don’t outperform others; (a5) i care about performing better than others on a task; (a6) i would rather do tasks at which i feel confident and relaxed than do ones which appear challenging and difficult and (a7) i would like an important job where people look up to me (cassidy & lynn 1989) and the need for independence: (i1) having freedom of choice when i do my work is important to me; (i2) i prefer to determine the content of my work as far as possible on my own; (i3) i would rather set the sequence of my work tasks on my own; (i4) i dislike being subordinate to other people (walter et al., 2013). table 1: sample characteristics source: authors’ calculations out of 517 respondents, 24% i.e., 124 were female students, while the remaining 76% were made up of 389 male students. a total of 207 participants were in their third year of studies, whereas 310 respondents, or 60% of all respondents attended the fourth year at university. based on the criteria of the study program, the structure of the sample was as follows: the largest number of respondents, 142 students, studied fbi (finance, banking and insurance), thus making up 27% of the overall number of students, while the smallest number of respondents studied commerce 3.9%. the layout of the above data follows logically from the 5 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) characteristics n percentage of sample gender female male 124 389 24 76 year of the study third year fourth year 207 310 40 60 study program accounting and auditing agrarian economy and agribusiness business information systems european and international economy and business finance, banking and insurance management marketing commerce missing 69 44 54 68 142 27 91 20 2 13.3 8.3 10.4 13.2 27.8 5.2 17.6 3.9 0.4 total 517 100 structure of student enrollment at the faculty: the largest number of students are enrolled in the fbi study programme, whereas commerce has the fewest students. concerning the other study programmes, the structure is given here: marketing accounted for 17.6%, accounting and auditing amounted to 13.3%; european and international economy and business provided 13.2% of the respondents; business information systems students made up 10.4%; agrarian economy and agribusiness was studied by 8.3%, while management students accounted for 5.2% of the overall number of survey participants. 4. results and discussion the authors analyzed reflective indicator loading, internal consistency reliability, convergent validity and discriminant validity. this type of measurement is suggested for reflective constructs in the model (hair et al., 2019, grubor et al., 2018). in addition to the methods listed above, common method bias (cmb) was also performed. first, however, certain variables were removed from the analysis, because their loadings were very low. according to hair et al. (2019) the lowest limit of acceptability is 0.708. factors which have loading between 0.4 and 0.7 should be retained if their deletion does not have a positive impact on ave and composite reliability (hair et al., 2014). based on the abovementioned, the authors retained only one item with loadings below the threshold of 0.708 (see figure 1). figure 1: path coefficient estimates source: authors’ own research table 2: indicator reliability and construct reliability and validity source: authors’ calculation the reliability test was conducted by calculating the cronbach’s alpha, composite reliability, and ave. table 2 presents the results of this sample and shows that cronbach’s alpha values range from 0.564 (need for achievement), over 0.769 (need for independence) to 0.889 (entrepreneurial intentions). some authors recommend that the lowest limit of acceptability should be 0.6 (dakduk et al., 2019). the value of the composite reliability of constructs (cr) ranges from 0.767 (need for achievement) through 0.859 (need for independence) to 0.919 (entrepreneurial intentions). the lowest limit of acceptability for composite reliability is 0.7 (hair et al., 2014), so the results seen in table 1 indicate that the composite reliability criterion is met. some researchers prefer the use of composite reliability rather than cronbach alpha, because cronbach alpha is being criticized for its lower bound value which underestimates the true reliability. cr can be used 6 radmila bjekić, maja strugar jelača, nemanja berber, marko aleksić 2021/26(2) cronbach's alpha composite reliability ave entrepreneurial intentions 0.867 0.919 0.790 need for achievement 0.564 0.767 0.528 need for independence 0.769 0.859 0.672 as an alternative, as its cr value is slightly higher than cronbach alpha, whereby the difference is relatively inconsequential (peterson & kim, 2013). the assessment of convergent validity was carried out based on the examination of the average extracted variance (ave). in the model, the ave value ranges from 0.528 (need for achievement), over 0.672 (need for independence) to 0.790 (entrepreneurial intentions). bearing in mind that the lowest limit of acceptability is 0.5 (fornell & larcker, 1981), it can be concluded that convergent validity is satisfied for all three constructs. the discriminant validity can be evaluated by using cross-loadings of indicators, fornell & larcker criterion and heterotrait-monotrait (htmt) ratio of correlation (ab hamid et al., 2017). table 3: discriminant validity (cross-loadings) source: authors’ calculation a measurement model has adequate discriminant validity when an indicator’s loading is higher for its respective construct than for any constructs (chin, 1998). the results presented in table 3 demonstrate that the loading of each block is higher than any other block in the same rows and columns, clearly separating each latent variable thus, the cross-loading output confirms the measurement model’s discriminant validity. table 4: discriminant validity – fornell-larcker criterion source: authors’ calculation according to fornell-larcker criterion, the root from the ave of a latent variable must have a higher value than all correlations with other latent variables (fornell & larcker, 1981). table 3 demonstrates that the discriminant validity is satisfied, because the value of the root of ave on the diagonal is higher than all values below for each variable respectively. table 5: discriminant validity – heterotrait-monotrait (htmt) source: authors’ calculation htmt ratio values below 0.9 indicate that the defined components are sufficiently different from each other; it means that they describe different phenomena (hair et al., 2019). the results presented in table 5 show that all values are below 0.9, so it can be concluded that discriminant validity criterion is met. the common method bias (cmb) is detected through a full collinearity assessment approach (kock, 2015). the threshold for the variance inflator factor (vif) values is 3 (becker et al., 2015). hair et al. (2019) agree with the previous mentioned statement, namely that vif values should be 3 or lower. 7 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) entrepreneurial intentions need for achievement need for independence z1 0.899 0.223 0.133 z2 0.913 0.227 0.161 z3 0.854 0.226 0.167 a2 0.234 0.822 0.178 a3 0.175 0.751 0.278 a5 0.123 0.587 0.328 i1 0.175 0.256 0.856 i2 0.143 0.320 0.855 i3 0.081 0.237 0.743 entrepreneurial intentions need for achievement need for independence entrepreneurial intentions 0.889 need for achievement 0.254 0.727 need for independence 0.174 0.330 0.819 entrepreneurial intentions need for achievement need for independence entrepreneurial intentions need for achievement 0.346 need for independence 0.196 0.540 table 6: collinearity statistics source: authors’ calculation the multicollinearity analysis indicated that all vif values presented in table 3 are below the threshold of 3 (vif<3). the final step of the analysis was to explore relations between psychological characteristics (need for achievement and need for independence) and entrepreneurial intentions. the data from table 4 and figure 2 show the coefficients for pls-sem relations and their significance level. the r2, as a coefficient of determination of the model, is very low. only 7.3% of the observed variation of the dependent variable (students’ entrepreneurial intentions) was explained by independent variables in the model. table 7: mean, standard deviation, t-statistics, p-values source: authors’ calculation the results displayed in table 4 demonstrate that all coefficients, which represent the relationship between the independent reflective constructs (need for achievement) and the dependent reflective construct (entrepreneurial intentions) are in fact positive and statistically significant (t=4.932; p=0.000). the results show that the relationship between the independent reflective construct (need for independence) and the dependent reflective construct (entrepreneurial intentions) is positive and statistically significant (t=2.441; p=0.015). figure 2: the path model with bootstrapping results source: authors’ own research based on the results, it can be concluded that both hypotheses (h1 and h2) are confirmed and accepted. the results obtained are in line with previously conducted research which focused on psychological characteristics of students and the connection with their entrepreneurial intentions (littunen, 2000; gurol & atsan 2006; popescu et al., 2016, bjekic & strugar, 2019). 8 radmila bjekić, maja strugar jelača, nemanja berber, marko aleksić 2021/26(2) vif need for achievement (a2) 1.169 need for achievement (a3) 1.225 need for achievement (a5) 1.130 need for independence (i1) 1.406 need for independence (i2) 1.855 need for independence (i3) 1.685 entrepreneurial intentions (z1) 2.799 entrepreneurial intentions (z2) 2.939 entrepreneurial intentions (z3) 1.817 original sample sample mean (m) standard deviation t statistics p values results h1 need for achievement entrepreneurial intentions 0.220 0.223 0.045 4.932 0.000 accepted h2 need for independence entrepreneurial intentions 0.101 0.107 0.041 2.441 0.015 accepted students, who frequently contemplate various ways of how they could earn much money, who believe that they would enjoy having authority over other people and students, who care about performing better than others on a task, are those particular students who have a need for achievement, and harbour higher entrepreneurial intentions in comparison with students who do not possess these psychological characteristics. students who have a need for independence are students for whom it is vital to have the freedom of choice when they do their work; they prefer, as much as possible, to determine the content of their work on their own and they would rather set the sequence of their work tasks independently. these students have higher entrepreneurial intentions than others, who do not have these psychological characteristics. 9 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) conslusion entrepreneurial activity is one of the best means of revitalizing developing economies and meeting the challenges of unemployment. entrepreneurs play a crucial role and are considered drivers of economic development. universities should take more initiative in raising awareness as regards the significance of entrepreneurship among young people and in encouraging the development of entrepreneurial spirit. this is the underlying reason for conducting this research. the authors aimed to reveal the entrepreneurial intentions of the students and the factors influencing it. the focus of the research was on the psychological characteristics of students and the linking of those characteristics with the students’ entrepreneurial intentions, involving more than 500 students at the faculty of economics in subotica. the results of the research show that psychological characteristics significantly contribute to entrepreneurial intentions of students, i.e., those students, who have a greater need for achievement and independence are more entrepreneurially oriented than those who do not have those needs. according to these empirically supported results, universities must pay attention to students of all levels of entrepreneurial talent, but specifically make greater efforts to encourage the students with a minor need for achievement and independence to develop these skills. universities must also stimulate the students with a higher need for achievement in providing venues so they can express their entrepreneurial personalities, e.g., through participating in different students’ competitions, as well as through rewarding such students for their success. furthermore, the universities must motivate and advance those students who have a greater need for independence by having them write the projects of their interest and by triggering them to autonomously organize all resources according to project activities. also, universities with strong ties to the industry can offer these students a period of business practice, especially in those organizations that are managed in an entrepreneurial way, because in such companies there is a strong tendency for identifying and exploiting opportunities as well as accelerated growth (eric-nielesn et al., 2019). the previously mentioned practical implications can be of a huge importance for developing entrepreneurial-minded personalities of students. the authors believe that the psychological characteristics, crucial for students intending to be entrepreneurs, are insufficient in themselves, thus the introduction of formal entrepreneurial education at the university is likely to contribute to the growth of students’ entrepreneurial orientation. networking the faculties/universities with entrepreneurial educational programmes and entrepreneurship support programmes can present an incentive as a motivating atmosphere for the development of entrepreneurial spirit and a suitable environment for the students who have entrepreneurial intentions. however, one must keep in mind that, apart from psychological characteristics of the individual and the role of the university, the entrepreneurial intentions of students are influenced by many other factors. for example, complicated administrative processes, the inability to access financial resources, high costs or, simply put, inadequate support at the state level for the development of an entrepreneur can prevent students from deciding to enter the world of entrepreneurs. it is thus the authors’ recommendation that at sthe tate level and at the level of the local community things should be made easier for the entrepreneurs in the initial period of development in such a way that upon the completion of their studies, graduates could be offered support when starting an entrepreneurial venture, because only then do the faculty’s efforts of support have a specific purpose. the authors acknowledge that this study has several limitations. one such limit may be that the research was conducted only with students from the faculty of economics in subotica. a further restriction lies in the fact that the research was conducted only at one point in time, therefore making it difficult to determine the trends of this phenomenon. also, a low coefficient of determination in the model (r2) shows that there are some other factors which determine entrepreneurial intentions, so, apart from the psychological characteristics, it will be important to investigate those, too. this would be the subject of future studies. following the implementation of the questionnaires, it was not verified whether the entrepreneurial intentions of the students upon graduation were actually realized. in this regard, the authors suggest that future works apply an expanded sample, including students from 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(2014). entrepreneurship education impact on student attitudes.the international journal of management education, 12(3), 365-373. doi: 10.1016/j.ijme.2014.07.001 11 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) [47] statistical office of the republic of serbia (2018). labour force survey,2017, issn 0354-3641, available on [48] thompson, e. r. (2009). individual entrepreneurial intent: construct clarification and development of an internationally reliable metric. entrepreneurship theory and practice, 33(3), 669-694. doi: 10.1111%2fj.1540-6520.2009.00321.x [49] von graevenitz, g., harhoff, d., & weber, r. (2010).the effects of entrepreneurship education. journal of economic behavior & organization, 76(1), 90-112. doi: 10.1016/j.jebo.2010.02.015 [50] walter, s. g., parboteeah, k. p., & walter, a. (2013). university departments and self–employment intentions of business students: a cross–level analysis. entrepreneurship theory and practice, 37(2), 175-200. doi: 10.1111%2fj.1540-6520.2011.00460.x [51] zhao, h., seibert, s. e., & lumpkin, g. t. (2010). the relationship of personality to entrepreneurial intentions and performance: a meta-analytic review. journal of management, 36(2), 381-404. doi: 10.1177/0149206309335187 [52] zaman, m. (2013). entrepreneurial characteristics among university students: implications for entrepreneurship education and training in pakistan. african journal of business management, 7(39), 4053. doi: 10.5897/ajbm10.290 [53] zhang, y., duysters, g., & cloodt, m. (2014).the role of entrepreneurship education as a predictor of university students’ entrepreneurial intention. international entrepreneurship and management journal, 10(3), 623-641. doi: 10.1007/s11365-012-0246-z received: 2020-04-28 revision requested: 2020-07-05 revised: 2020-09-17 (2 revisions) accepted: 2020-10-20 radmila bjekić university of novi sad, faculty of economics in subotica, serbia radmila.bjekic@ef.uns.ac.rs radmila bjekić is a teaching assistant at the faculty of economics in subotica, university of novi sad, republic of serbia. she is an assistant for the scientific area of management and student of doctoral studies at the department of business economy and management – module entrepreneurial management at the faculty of economics in subotica, university of novi sad. she conducts practical training at the courses of organizational theory and organizational design (undergraduate studies). she is the author and coauthor of scientific and professional papers in the fields of human resource management and organizational design that are presented at national and international scientific meetings or published in national and international journals. maja strugar jelača university of novi sad, faculty of economics in subotica, serbia maja.strugar.jelaca@ef.uns.ac.rs maja strugar jelača is an assistant professor at the department of management, faculty of economics in subotica, university of novi sad. she teaches courses such as strategic management, management innovation and management and development at both under and postgraduate levels. her research primarily aims at: measuring innovative activities in management practice, as well as analyzing different leadership styles to understand what drives the entrepreneurship orientation and innovative success of large organizations. she is the author and co-author of different scientific and professional papers published in national and international research journals. 12 radmila bjekić, maja strugar jelača, nemanja berber, marko aleksić 2021/26(2) about the authors nemanja berber university of novi sad, faculty of economics in subotica, serbia nemanja.berber@ef.uns.ac.rs nemanja berber is an assistant professor at the faculty of economics, the university of novi sad, the republic of serbia. he works in the areas of human resource management, organisational behaviour, urban management, and environmental management. his research interests include human resource management practice in serbia and central and eastern european regions, especially employees’ compensation, benefits, and training. he participates in cranet (the cranfield network on international human resource management) and ceeirt (the central and eastern european international research team) projects on hrm and ihrm. marko aleksić university of novi sad, faculty of economics in subotica, serbia marko.aleksic@ef.uns.ac.rs marko aleksić is a teaching assistant at the faculty of economics in subotica, university of novi sad, republic of serbia. he is an assistant for the scientific area of management and student of doctoral studies at the department of business economy and management – module entrepreneurial management at the faculty of economics in subotica, university of novi sad. in addition, he is the author and coauthor of numerous scientific and professional papers in the fields of management and ecological economics. 13 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 2 27_1 milena vukic:tipska.qxd 11 milena vukić1*, marija kuzmanović2, milorad vukić1 1academy of applied studies belgrade, college of hotel management, serbia 2university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(1) * corresponding author: milena vukić, e-mail: milena.vukic12@gmail.com students' perspective of internship in vocational higher education doi: 10.7595/management.fon.2020.0018 abstract: 1. introduction tourism is becoming an increasingly important service sector in the economy of many countries, as reflected in various direct and indirect impacts (vukic & kuzmanovic, 2017). the world travel and tourism council, in its annual report (wttc, 2019) points out that this sector provides opportunities to create jobs and accelerate exports and prosperity all over the world. the travel and tourism sectors are estimated to account for 10.4% of global gdp and are projected to rise by 3.6% in 2019. in terms of employment, in 2018, the sector accounted for 10% of total employment and is expected to grow by 2.9% in 2019. the tourism sector provides a significant economic contribution to the republic of serbia as well, accounting for 2.3% of total gdp and 1.9% of total employment in 2017. over the next ten years, the number of new jobs is estimated to grow by 0.9% annually, resulting in 39,000 jobs by 2028 (wttc, 2019). given the rapid development of the service sector, one of the key factors of success is the recruitment of highly qualified staff, which increases the demand for education in this field. this is supported by the fact that many higher education institutions worldwide strive to increase the number of hospitality and tourism study programmes (kim, lee, & cohen, 2008). according to the statistical yearbook of the republic of serbia for 2018, the total number of students enrolled in state higher education institutions in the field of services for the academic year 2016/2017 was 5847, while the number of those enrolled in private institutions was 452 (statistical office of rs, 2018). these numbers show that state higher education institutions still dominate in the field of services in serbia despite the fact that competition in the market is getting fiercer. research question: this study aims to determine students’ satisfaction, experience and attitude toward internship in hospitality higher education. motivation: work integrated learning in the system of vocational higher education should enable young people, who have acquired theoretical and practical knowledge, to increase their employability, develop expertise through the process of socialization in the workplace, as well as to develop work habits and have a better understanding of the work culture. according to hussien and la lopa (2018), well-organized internship with detailed feedback, flexible working hours, adequate institutional support, and the ability to acquire a diverse range of skills, can increase satisfaction of all stakeholders. idea: the main idea is to examine students’ experience, attitudes and satisfaction with internship, in order to propose practical implications for internship improvement. data: the data were collected by means of a questionnaire during the summer term of 2017/18 academic year. the survey involved 189 students of the college of hotel management. tools: collected data were analysed and interpreted using some descriptive statistics techniques, as well as non-parametric tests such as mann-whitney u test, kruskal-wallis h test and spearman's rho. findings: a vast majority of students were given employment opportunities during internship, which has increased their satisfaction. gastronomy and hospitality students most often worked in the profession, while junior and senior students find the curriculum to a lesser extent consistent with the internship program. students were most satisfied with the mentor’s objectivity in the assessment, and least satisfied with the school support during internship. student satisfaction is also affected by better alignment of theory and practice, adequately rewarding overtime and doing the job for which they have been trained. contribution: this study contributes to the identification and understanding of factors affecting satisfaction of hospitality students with internship and proposes measures to better internship organization. keywords: vocational higher education, work integrated learning, hospitality internship, satisfaction. jel classification: i21, i23, l83, z22 in order to become active partners in fostering local and regional development, higher education institutions (hei) must become much more flexible as regards new opportunities and challenges. the fastest way for heis to respond to the labour market needs for skilled workforce is through redesigning internships. developing an effective and well-organized internship program can help retain talent, reduce dropouts, and facilitate future career retention (lin & anantharajah, 2019). in order to increase students’ satisfaction and the success of internship, strong faculty support and intensive participation of faculty supervisor are necessary . hussien and la lopa (2018) state that cooperation between industry, heis and students provides more opportunities to identify different needs, expectations and interests of students, leading to excellence in vocational education. according to the mentioned authors, the key factors of internship satisfaction are the following: self-initiative, university support, job characteristics (feedback is of the highest importance to students), an organizational environment that provides them with learning opportunities, and working hours. the purpose of this paper is to empirically explore the experience and satisfaction of internships in vocational higher education, but also to explore students’ attitudes towards various aspects of the internship. for this purpose, a survey was conducted among current students of the college of hotel management in belgrade. the paper is organized as follows. the introductory section is followed by a theoretical section explaining the concept of work integrated learning with special reference to its application in the hospitality industry, as well as a literature review of students' motivations for studying tourism and hospitality programmes. section 3 sets out the research hypotheses and describes the research methodology. the results of the study are presented in section 4, while section 5 provides recommendations and concluding remarks. 2. theoretical background 2.1. work integrated learning in hospitality the term most commonly used to describe cooperation between the heis and businesses is work integrated learning (wil). wil is a learning approach in the higher education system that brings vocational education closer to the academic one. this is especially true for heis in the tourism and hospitality sector, given that most tourism courses are partly academic and partly professional, depending on competencies (ndlovu, 2015). it is quite challenging to define the term ‘work integrated learning’ as it covers a wide range of trainings such as internships, job shadowing, practicums, simulations, field work, cooperative education, work placement, cadetships, apprenticeships, and many others (groenewald, 2004; von treuer, sturre, keele, & mcleod, 2010; smith, 2012; wardle, 2014). for the purpose of strategic positioning in the market, heis strive to use any form of professional trainings, as this primarily helps students create generic skills, understand organizational culture and their own careers (cameron, freudenberg, giddings, & klopper, 2017). a key point of wil is the integration of practical and relevant work experience within curricula, which would result in proactive and qualified graduates (wardle, 2014). however, for the implementation of any type of vil to be successful, the presence of strong links between all actors is necessary (cam, 2016). one of the main benefits of wil is the saving of time and money that future hospitality employers would spend on long-term trainings (vukic & vukic, 2018). in addition to employers, heis also benefit from wil because industry requirements foster creation of relevant and attractive tourism and hospitality curricula (caldicott, wilson, donnelly, & edelheim, 2019). a proactive nature of internship helps different types of stakeholders to get connected and create an environment which will ensure hospitality he to be equipped with latest skills and knowledge from industry (nicolaides, 2015). an international component of wil allows students to get familiar with foreign cultures, to travel and gain global perspective of host-guest relations (ruhanen, robinson, & breakey, 2013). smith (2012) emphasizes that wil enables students to make a much faster return on money invested in education, which also has an impact on the increase in gross domestic product. despite the increase in the number of students involved in the hospitality internships, these programmes are often criticized for poor organization and lack of structure (lee & chao, 2008). a negative experience during internship may lead to student dissatisfaction which impact their decision to continue their career in the hospitality industry (seyitoglu & yirik, 2015).to overcome these problems, university mentors need to be constantly in touch with industry recruiters, while internship mentors should be adequately trained to provide precise instructions as well as constructive feedback to help students do their job appropriately (hussien & la lopa, 2018). more internship hours can help students develop cognitive and generic skills but also improve affective qualities such as passion and adaptability which are of great importance in the hotel industry. their positive attitude towards guests in term of providing exceptional service can help them to secure long-term careers in this industry (sonnenschein, barker, & hibbins, 2019). on the other hand, educational institutions should draw students’ attention to the fact that the problems they encounter during internship, such as poor working conditions, problems with guests, work accidents, inadequate pay, can help them become better 12 milena vukić, marija kuzmanović, milorad vukić 2022/27(1) managers or business owners once they have completed their schooling (seyitoglu, gastronomy students’ internship experience: benefits, challenges, and future career, 2019). insufficiently trained and motivated staff can negatively affect the quality of service provided, customers’ satisfaction and loyalty, and thus the competitiveness of the sector itself (le, mcdonald, & klieve, 2018). the internship also provides students’ immediate experience after which they have a better understanding of the classroom teaching process, but also provides teachers with the opportunity to improve their teaching skills (gupta, 2019). 2.2. students’ motives for studying tourism and hospitality programme understanding the students’ motives for enrolling a hospitality or tourism programme is crucial to create a competitive curriculum, but also a strategy for positioning these heis. many researchers investigated students' motivation for hospitality and tourism management courses, but there is still a limited body of research exploring students’ motivations for majoring in this field (walmsley, 2012; lee, olds, & lee, 2013; juaneda, herranza, & montano, 2017). several conclusions can be drawn from the literature review. first, most studies addressing students' motivations for choosing courses in tourism and hospitality have been conducted at universities and colleges in asia or the united states, while there is a lack of empirical studies on european students. furthermore, the main motivating factors can be grouped into several categories: job opportunities, chance for foreign experience, ease of study, and personal skill development. finally, the most commonly method used for investigating motivational factors is the factor analysis. one of the earliest studies on hospitality and student motivation in tourism was conducted in china. the results showed that students are motivated to study hospitality and tourism management (htm) as they believe that the tourism industry offers more employment opportunities, a high quality tertiary education experience abroad, and can lead to a respectable career (zhao, 1991). a few years later, huyton (1997) came up with similar findings, adding that the dominant motive for chinese students was a greater chance of employment. kim et al. (2007) compared the motivation of chinese, taiwanese, and korean htm students and found that motivation varied by geographic origin, although six major factors were identified in all three groups: job opportunity, practical aspect, scholastic achievement, apparent attractiveness, interest in foreign culture, and ease of study. the results of lee, kim and lo (2008) study conducted in hong kong among college students indicated that the most important reasons were job opportunity and self-actualization. kim, jung and wang (2016) compared students from three asian countries and concluded that all three groups were more motivated by practical learning than scholastic pursuits. jamnia and pan (2017) conducted a survey among students of a taiwanese private university, suggesting low average grades earned by students in the joint entrance exam as one of the motives. in sweden, students are mostly motivated by working and communicating with people and by obtaining higher qualification (hjalager, 2003). according to airey (2005) students choose tourism and hospitality programmes because of job opportunities, networking, international career opportunities, universal management and business skills. dodds and muchnick (2013) have shown that the canadian students are motivated by school reputation, faculty teaching and assistance, the focus on degree in business and career/industry opportunities. what has proven to be very interesting is that students choose to study hospitality and tourism as their first choice, and their decision is not influenced by friends and family, which contrasts with the results of research conducted by o'mahony et al. (2001) among australian students. a factor analysis of us students' motivations to study htm revealed six main motives: self-actualization, employment opportunity, field attractiveness, foreign experience, external influence, and ease of study (lee, olds, & lee, 2013). mohammad and alsaleh (2013) applied a factor analysis of student motivations to study hospitality and tourism programmes, and the results show that social status, job opportunities, modern and attractive major, specific interest, ease of study and dream fulfillment are important influencing factors for students to study tourism. airey (2016) considers that the increase in the number of students studying in tourism field is the result of the economic attractiveness of the sector itself. examining the motives of tourism students in spain, juaneda, herranz and montano (2017) show that those motives do not much differ from the motives of students enrolled in social science studies. the authors conclude that the respondents attach importance to job prospects, interest in degree and personal skills, diploma reputation and job opportunities. 3. methodology an empirical study was conducted to examine the experiences of vocational college students with internships, as well as their satisfaction and attitudes. the research, involving students from the college of hotel management in belgrade, was conducted through a questionnaire in the summer semester 2017/18 academic year. the college of hotel management in belgrade was chosen because it is one of the oldest 13 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) vocational colleges in serbia, and was also awarded by the ministry of education, science and technological development of serbia for its contribution to dual education in serbia. the questionnaire contained four sets of questions: demographics, seven statements related to experience and as many related to student attitudes towards internship, as well as eight statements regarding students’ satisfaction with internship. students evaluated statements on a five-point likert scale, where 1 stands for "strongly disagree", while 5 stands for "strongly agree". the collected data were analysed using spss. to answer the stated research questions, the following hypotheses were tested: h1: frequency of internships outside of the profession varies depending on the study programme. h2: frequency of internships outside of the profession varies depending on the student gender. h3: students' perception of curriculum compatibility with internship depends on the study programme. h4: students' perception of curriculum compatibility with internship depends on the year of study. h5: students' attitude that the internship should be paid depends on the year of study. h6: students’ satisfaction depends on the way they were informed about internship. h7: students’ satisfaction is correlated with the perception of internship compatibility with the curriculum h8: students’ satisfaction depends on whether they worked in profession during internship. h9: students’ satisfaction depends on the employment opportunities after internship. h10: students’ satisfaction depends on whether or not they worked overtime. h11: satisfaction of students working overtime depends on the way the overtime was valued. since the criteria for normally distributed data were not satisfied as assessed by shapiro-wilk's test (p < 0.01), non-parametric analyses for testing the hypotheses were applied. to test hypothesis h2, h8 and h11 the mann-whitney u test was used, in order to test the equality of mean rank in two independent samples. for the testing of hypotheses h1, h3-h6, h9, and h10 it was suggested that the kruskal-wallis h test be used, in order to obtain statistically significant evidence, that there is a difference in mean rank among more than two groups of an independent variables. spearman's rho was used to test hypothesis h7 in order to measure the strength of correlation between two variables that did not have a normal distribution. the chrombach alpha reliability test was used to check the internal consistency of the statements used for measuring summed satisfaction. 4. results the total of 189 respondents completed the questionaire. demographic data are given in table 1, indicating slightly more male than female respondents in the sample. the average age of the respondents was 20.78 (sd = 1.63). most of the respondents were second year students in the hotel management study programme. a slightly over half of the students have completed hospitality and tourism high school (55%), as expected. table 1: demographic structure of respondents 14 milena vukić, marija kuzmanović, milorad vukić 2022/27(1) ������� ����� �� �������� � ������� � �� ���� ���� � ��� �� ��� ����� �� ������������ �������� �� ��� ����� � ��������� �� ��� ����� � � ������ �� �� ���!� � ������������"� �� ���� !� ��!� ������#��"� ���� $��� �% � "������ ��� � � � � &��� �� ���% � "������ ��� � ��� � � ���������% � "������ !�� ����� '(�� "��"� ��������"��������� �����)��� �� ��� �� � � �� ��)�!� �� ��� ���� � !� ��)��� �� ��� �*��� � �� ��)��� ��+��,� ��� !��� �� ��������������� ��(��������������� ��� ���� � �� �)��� ����� ��� ����� $�" ��� �� � $��#�� ���� ����������� �" ��� �� � ���� ��� � -� �"�)#��# � ������� �� �+"� �� ���� �� ,� *!� ����� � �� ��� �" ��� �� � ��� ��� � .��������� �" ��� �� � * � ���*� � /� ���� **� ���!� � 4.1. students’ experiences and attitudes toward internship students' attitudes toward internships, expressed through the level of agreement with the seven statements, are given in table 2. average scores indicate that students largely agree with the statements that internships should increase employment opportunities in the profession (mean = 4.86) and develop professional and communication skills (4.80), while they least agree with the statement that internships should allow them to find a full-time job (4.29). table 2: students' attitudes towards internship an analysis of students' previous experience with internships showed that more than two-thirds of respondents used college ads as a source of information (74.1%), followed by a professor's recommendation (24.9%) and a recommendation from other students (1%), while no student stated another source of information. students generally agree with the statement that during internship they were doing the jobs they were studying for (mean=3.52); namely, almost one third of all students (31.2%) stated that they had always done the job they were studying. as for the reasons why they continued to carry out internships outside their profession, the two most common reasons were the desire to learn something new (24.8% of responses) and the obligation to intern (19.7% of responses). other, less common reasons were: desire to travel and learn about other cultures (9.8%) and avoid the demanding procedures necessary to change internships (8.5% of responses). empirical results indicate a high rate of employability through internships (63.5%), which is a very encouraging information. among those who were offered employment, the majority were students of hotel management (44.2%) and gastronomy (41.7%) programmes, and the least number of students were offered an employment in restaurant management (14.2%). only 12.7% of students have never worked overtime during internship and there is no statistically significant difference between study programmes concerning overtime (p> 0.05). one third of students (30.69%) stated that they were not paid overtime, 29.63% stated that they received pay, 26.98% said that overtime was recognized as working hours, while the rest did not work overtime. when it comes to compatibility between curriculum and internship programme, students are generally not sure to what degree they are aligned (mean = 3.08). examining whether students worked during the internship in the jobs they were educated for, it was found that there was a statistically significant difference between the students of different study programmes (29.169, p < 0.001). a post hoc analysis has shown that there is a difference between the students of hotel management and students of restaurant management (31.642, p < 0.01), as well as between the students of restaurant management and students of gastronomy (44.789, p < 0.01). therefore, we can conclude that gastronomy and restaurant management students do the job they were educated more often than hotel management students, thus confirming hypothesis h1. these results showed that hotel management students had a wider scope of work which qualified them more for employment in comparison with restaurant students. regarding the frequency of work in the profession during the internship, a statistically significant difference was observed between males and females, as estimated by the mann-whitney u test (3403.5, p < 0.05). the results show that males more often than females do the jobs for which they are educated, thus confirming hypothesis h2. concerning students' perception of curriculum compliance with the internship programme, no statistically significant differences between the three study programmes have been found, as estimated by kruskal-wallis test (4.486, p > 0.05), so hypothesis h3 is rejected. the results of the kruskal-wallis test show statistically significant differences between students of different years of study in terms of perceived compatibility of the curriculum with internship programme (8.495, p < 0.05). statistically significant differences in perception are found between third-year and first-year students (29.113, p < 0.01), as well as between second-year and first-year students (28.103, p < 0.01), thus confirming hypothesis 4. it has been confirmed that students of all years agree that the internship should be paid (1.649, p > 0.05), therefore hypothesis h5 is rejected. 15 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) ������� ��� ������ ��� ���� ��� ���� � ���� ���� ��� ���� ���� ���������� ����� �� �� ��� ������� ��� ���������� ����� ������ �� �� ���� � ���� ���������������� ������� ����� ���� � � �� ���� � ���������� ������� �� ����� ��� �� �� �� ��� ���� ��!�� ������ "� �� ������ � �� ��#� �� ������# ��$��$���������� ���� ����� ���"�� "� �� ����������� ��������� �����$���� ��� �� �����������$����$������ ����� ������ "� �� ��������� ����� �� �� ��� ����� � ����� ������ ���� � � ���� �� �� ������ "� �� � 4..2. student satisfaction with internship in addition to experiences and attitudes, this study examined the students’ satisfaction with internship and with mentors from the industry (table 3). looking at the arithmetic mean at individual items of students’ satisfaction with internship, it can be concluded that the students are most satisfied with mentors’ objectivity in evaluation (means=3.83) and least satisfied with the support given by the college during internship (means=3.22). students’ average satisfaction with treatment during internship is not very high (mean = 3.52) and there is not much difference between the respondents' individual responses (st. dev. = 0.90). the total score was obtained by summing up the answers to questions shown in table 3 and then dividing by the number of items representing satisfaction. the result obtained is the measure of students’ total satisfaction with internship. further in the study, hypotheses concerning students’ satisfaction were tested, whereby all the tests were calculated with the scale of summed satisfaction. with the aim to calculate the reliability of the created scale, chrombach alpha reliability test was used which equals 0.882 and gives information on the satisfactory reliability of the scale (>0.7), indicating that the data obtained in this study can be considered relevant. table 3: students' satisfaction with various aspects of the internship the results of the kruskal wallis test suggest no statistically significant difference in the degree of student satisfaction with the internship, depending on the way they were informed about the internship (p > 0.05), so hypothesis h6 is rejected. furthermore, spearman's rank correlation coefficient showed a statistically significant correlation between student satisfaction with internships and perceptions of internship compatibility with the curriculum (0.486; p < 0.01). namely, the stronger student perception of compatibility between the internship programme and the curricula, the more satisfied they are with the internship, so hypothesis h7 is confirmed. mann-whitney u test results confirm statistically significant differences in student satisfaction depending on whether they did the jobs they were educated for, whereby higher ratings on the satisfaction scale gave those who did such jobs (see table 4). therefore, hypothesis h8 is also confirmed. further analysis shows that there is a statistically significant difference in the level of satisfaction between the students who continued their internship even though they were not doing the jobs they were studying for, depending on the reasons to stay. table 4 shows a statistically significant difference between students who explicitly state that they continued internship because of its compulsory status, and other students (p < 0.01), wherethe latter group were more satisfied. a difference in satisfaction also appears between the students who find the procedure of quitting internship complicated and other students (p < 0.01), who do not consider the procedure complicated and who are more satisfied. other reasons, such as travelling and learning something new, are not statistically significant predictors of satisfaction of students who worked outside of the profession during internship (p > 0.05). table 4: student satisfaction with internship depending on whether they worked in profession 16 milena vukić, marija kuzmanović, milorad vukić 2022/27(1) ������� ���� ���� � �� ��� � ��� �� ������������ ��������� ���� ������ � ������� ������� ���� ������ ��� ������������ �� ���������� ������ ���������� ���� ����� ��� �������� � �� ����� ��������� ���� ����� ���������� ������ � ��� �� ����� �� �������� ��� ���� � ��!" ��#�# ������ � ������ �� ���� ��������� � ��"! ��#�� ��� $������ �� ��������% ����% �� �������� ��� � ���� � $����� ��&& ���!� ��� $������ �� ������ ����� ����� �� ��� ������ �� ������� � ����� ���� ��� ��&� ��#�" ��������� �� ��� ������ ���� �������� �� ������ �� ������� �������� ��#" ���#& ������ �����% ������� ��� ��� �� ������ �������� � �� ����� �� ������ ��## ����# �������� �� �� ������� � �������� ������ ��������� ���������� �������� ������ �� �� �������� �� ���� �� ����� �� ����� � � � � ��� ���� � �������� ������� ������ �� � ������ � � � �������� ��������� ��� ����� ���� �� ����� � � � � ��� ������� � ����� �!� !�� ������ �� � ������ � � � ���������� ���������� � � � � � ��� �� �� �"���"��� �!� ��� ������ �� � �� ���� � � � � using the kruskal-wallis test, a statistically significant difference in satisfaction was found between students who were offered a job after completing internships, those who were not sure and those who were not offered a job (p <0.05). it was found that students who were offered a job were more satisfied with the internship than those who were not offered (p < 0.05). students uncertain about employment after completing internships do not show a statistically significant difference in the level of satisfaction with the internship, in comparison with two other groups (p > 0.05). therefore, hypothesis h9 is confirmed. kruskal-wallis test indicates no significant difference in the degree of student satisfaction depending on whether they worked overtime (often or occasionally) or not (p > 0.05). therefore, hypothesis h10 is rejected. in order to examine whether there is a difference in the degree of satisfaction in those students who worked overtime, depending on if and how the work was rewarded, an analysis was made whose results are shown in table 5. the overtime was treated in one of three different ways: it was paid, converted to internship hours, or was not compensated at all. each of the ways was a separate question in the questionnaire, and students stated whether overtime was valued that way or not. for all three options, there is a statistically significant difference (p < 0.01), indicating that those students who were paid or whose overtime was converted into internship hours are more satisfied. therefore, hypothesis h11 is confirmed. table 5: internship satisfaction depending on how overtime is rewarded 17 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) �������� ��� ������� ������ ���������� ������� ������� �� �� ������� �� � � � � ���� ������ ������� ������ ������ ����� ��� � � � � �� ��� � � � � ���� � � �� ��������� � ��� �� ����� � ���� � � � ���� ��� ������� ������ �� ���� �� � � � � ���� � ���� � ������� ���� � ��� �� ����� ������ � � � � the research results in this study indicate a very high possibility of preliminary selection and recruitment of personnel by companies in the hospitality industry. such possibilities have positive effects on satisfaction with internship. a better interaction and compatibility between the higher education institutions and the industry would result in the creation of such contents and outcomes that would facilitate a quicker solving of practical problems, which would increase the students’ satisfaction. considering the fact that employment is least offered to students of hotel management, it is necessary to innovate the curriculum programme. a possible solution can also be to offer more elective subjects from the restaurant management field so that hotel management students could acquire a more complex knowledge that may improve their employment prospects. to avoid the dissatisfaction of students working outside the profession when the procedure of changing internships is complicated, it is necessary to organize start-up meetings of industry mentors and students so that companies can provide as much detail as possible about the positions in which the student will work. furthermore, communication between the school supervisor and students should be intensified by mobile phones, e-mail or direct contact. allowing mobility during the internship would reduce dissatisfaction with school support during the internship. the school should at least keep records of unsatisfied students so that during the next internship they will be given the opportunity to make up for the training they have missed. as the most common reason to continue internship although not doing the jobs in profession students cite the opportunity to learn something new. this indicates that the students are satisfied with the quality of the knowledge gained; however, the improvement of pedagogical skills and perhaps the introduction of a licence for working with students would certainly improve the performance of the mentors from the industry even further. paid overtime work can increase students’ motivation and their productivity as well. as overtime was mostly done by the students of gastronomy, school mentors should check the conditions under which these students worked taking into account the fact that their job is often more physically strenuous than that of the others. therefore, school mentors should warn the students about the possible difficulties when working in this sector so that they would have more realistic expectations and positive attitudes towards their future profession. conslusion references [1] airey, d. (2005). growth and development. in w. zhang, x. fan, d. airey, & j. tribe, an international handbook of tourism education (p. 17). oxford, uk: elsevier ltd. [2] airey, d. (2016). tourism education: past, present and future. the business of tourism, 17, 9-12. [3] caldicott, j., wilson, e., donnelly, j. f., & edelheim, j. r. (2019). fostering self-authorship through work integrated learning in university tourism programs: a missed opportunity? journal of hospitality & tourism education, 1-14.doi: 10.1080/10963758.2019.1685891 [4] cam, k. (2016). work-integrated learning process in tourism training programs in vietnam: voices of education and industry. asia pacific journal of cooperative education, 17(2), 149-161. [5] cameron, c., freudenberg, b., giddings, j., & klopper, c. 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(2010). evaluation methodology for work integrated learning-placements: a discussion paper. acen 2010: proceedings of the 3rd biannual australian collaborative education network national conference (pp. 489-497). australian collaborative education network (acen). [34] vukic, m., & kuzmanovic, m. (2017). primena conjoint analize u pozicioniranju gastronomskih manif estacija na turističkom tržištu srbije. in modern management tools and economy of tourism sector in present era (pp. 240-257). belgrade. [35] vukic, m., & vukic, m. (2018). connection of tourism companies with the development of dual system in higher education. third international scientific conference: tourism in function of development of the republic of serbia: tourism in the era of digital transformation (pp. 622-639). vrnjačka banja: university of kragujevac. [36] walmsley, a. (2012). pathways into tourism higher education. journal of hospitality, sport and tourism education, 11, 131–139. doi:10.1016/j.jhlste.2012.02.015 [37] wardle, k. (2014). an assessment of work integrated learning (wil) in hospitality tertiary education. university of western sydney. [38] wttc. (2019). travel & tourism economic impact 2019. retrieved june 2019, from world travel & tourism council: https://www.wttc.org/-/media/files/reports/economic-impact-research/regions2019/world2019.pdf [39] zhao, j. (1991). a current look at hospitality and tourism education in china’s colleges and universities. international journal of hospitality management, 10(4), 357-367. received: 2019-08-11 revision requested: 2020-04-26 revised: 2020-06-25 accepted: 2020-07-12 milena vukić academy of applied studies belgrade, college of hotel management, serbia milena.vukic12@gmail.com milena vukić is a professor of applied studies at the college of hotel management, academy of applied studies belgrade. her research interest focus on consumer behaviour, marketing strategies, service sector, higher education and applicaton of quantittive methods and analytical techniques. she is member of business association of hotel and restaurant industry – serbia and serbian marketing association. about the authors 20 milena vukić, marija kuzmanović, milorad vukić 2022/27(1) marija kuzmanović university of belgrade, faculty of organizational sciences, serbia marija.kuzmanovic@fon.bg.ac.rs marija kuzmanović, phd, is an associate professor in the operations research, business analytics and game theory at the university of belgrade, faculty of organizational sciences. she is author or co-author of 8 chapters in international monographs and over 25 papers in leading scientific journals including expert systems with application, mathematics, higher education and international journal of tourism research. in addition to being the co-editor of the springer monograph, advances in operational research in the balkans, she is also the author of two national monographs. her research interests include mathematical modelling and optimization, data analytics, methods of preference measurement, and game theory. milorad vukić academy of applied studies belgrade, college of hotel management, serbia milorad.vukic@vhs.edu.rs milorad vukić is a professor of applied studies at the college of hospitality management, academy of applied studies, belgrade. he has written more than 20 books on gastronomy and hospitality management. professor vukić is chief of department of gastronomy at the academy of applied studies, belgrade and member of team for development of the national qualifications framework in serbia. he is also an executive trainer and business consultant in projects with the private (medium and small enterprises) as well as the public hospitality sectors. he frequently delivers keynote presentations, speeches, seminars and workshops in both academic and professional conferences and has close collaboration with industry. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice stankovic:tipska.qxd 1 jelena j. stanković1, ivana marjanović, nebojša stojković university of niš, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: jelena j. stanković, e-mail: jelena.stankovic@eknfak.ni.ac.rs research question: the study is aimed to explore the achieved level of socio-economic development of european countries, providing their efficiency analysis. motivation: current trends in the social wellbeing quantification indicate the neediness to change the perception of growth that relies solely on economic performance and the requisite to develop new approaches in measuring societal progress that, in addition to economic, includes the social performance of the national economy. modern concepts are designed to encompass both the economic aspect and social goals. therefore, the purpose of this paper is to contribute to the development of a methodological approach that can be applied to assess the level of socio-economic development. idea: the study has been developed with the main idea to empirically assess and quantify the socio-economic development of european countries in order to improve traditional performance measures, which are primarily focused on economic aspects, omitting other aspects of sustainability. data: a sample of 32 european countries was empirically analysed based on the data on socio-economic development indicators in 2018 (employment rates, mean equivalised net income, gdp per capita pps, and percentage of people at risk of poverty and social exclusion) obtained from eu statistics on income and living conditions (eu-silc) and eurostat database. tools: the assessment of the achieved level of socio-economic development was carried out using a data envelopment analysis (dea) based on the bcc output-oriented model with four output variables. findings: most of the eu28 countries (26 out of 28) do not achieve satisfactory levels of socio-economic efficiency. additionally, countries of northern and western europe achieve greater socio-economic efficiency, compared to the countries of southern europe. four countries have a satisfactory level of socio-economic efficiency (the czech republic, luxembourg, switzerland and norway). contribution: this paper contributes to the existing literature in the field of socio-economic sustainability assessment through testing of the model with empirical data on european countries. keywords: socio-economic development, data envelopment analysis, sustainable development, undesirable outputs, people at risk of poverty or social exclusion. jel classification: o11, o52, o57, i30, c44, c67 dea assessment of socio-economic development of european countries doi: 10.7595/management.fon.2020.0012 abstract: 1. introduction socio-economic development implies the existence of adequate policies focused on sustainable social prospects and economic progress. the ultimate goal of social development is to improve a sustainability in the wellbeing of a society as a whole and it can be achieved only by continuously increasing the economic standard of the population in the country. sustainable development plays an important role in a modern society that seeks to "meet the needs of current generations without compromising the ability of future generations to meet their own needs" (world commission on environment and development, 1987). promoting sustainable development requires the implementation of concrete actions, programmes and policies, which include a simultaneous struggle and achievement of environmental, economic, and social goals. setting adequate sustainability goals requires some knowledge and understanding of the current level of sustainability. the traditional approach to assessing the level of development of a particular national economy involves analysing the level of realized gross domestic product (hereafter abbreviated as gdp). however, it is evident that the established practice of relying solely on gdp as a measure of national growth, to propose appropriate development strategies is not adequate (decancq & schokkaert, 2016; kubiszewski et al., 2013; jones & klenow, 2016). a number of authors point out that focusing on gdp leads to conflict with the achievement of sustainable development goals, especially those related to the social equality and environmental welfare (nahman et al., 2016). nevertheless, the fact that gdp, even so, prevails in wellbeing contexts is generally regarded as compelled by the absence of a more suitable index, rather than the result of social consensus (fleurbaey, 2009). unlike the present emphasis on maximizing consumption and production of goods and services, it is crucial to create measures that will give equivalent importance to every aspect of human, social and environmental welfare (nahman et al., 2016). various indices of social progress have been developed as an attempt to include both social and environmental indicators to measure people's quality of life. however, the majority of human wellfare indices (for instance the human development index), in addition to evaluating certain aspects of social development, fail to explain the complex relationships between social progress and economic development or do not succeed to quantify social progress (charles & d'alessio, 2019). sen (2000) suggested that when creating a measure of socio-economic development, it is important to assess all the elements that affect living standards and to overcome income-based estimates. porter, stern and green (2016) consider that monitoring social performance is an important task because it leads to the establishment of better policies and better decisions by governments and corporations, thereby ultimately contributing to the advancement of economic growth. decancq and schokkaert (2016) believe that it is necessary to create a development assessment model that goes beyond traditional measures of economic growth and progress since traditional indicators of economic growth do not fully reflect the progress of the country and do not accurately reflect the factors important for progress. the main problem in sustainability assessment are the numerous interpretations and aspects of this concept, making it difficult to define the measures of sustainability level achieved. although the theoretical definition of sustainability is clear, it is less clear how to make it operational in the empirical analysis (oskam & feng, 2008). to answer the question of whether a particular system is sustainable, it is often necessary to define a benchmark, indicators and benchmarking methods (pascucci, polman & slangen, 2012). numerous researchers have tried to evaluate different aspects of sustainable development. strezov, evans and evans (2017) examined nine different indices for quantifying sustainable development and determined that most of the indices considered either the socio environmental, socio economic, or just environmental and economic dimensions, while only two of them measured all three dimensions of sustainable development. spaiser et al. (2017) proposed a data-driven approach for quantifying and monitoring sustainable development. several studies attempted to offer a tailor-made composite index that will measure sustainability (salvati & carlucci, 2014; ivaldi, bonatti & soliani, 2016; panda, chakraborty & misra, 2016; rodrigues & franco, 2019; khalid, sharma & dubey, 2019; alaimo & maggino, 2020). however, despite a large number of proposed methodologies for measuring distinctive features of sustainability, most of them face the problem of aligning the multidimensional nature of the sustainability concept with the need to create a single, synthetic measure of sustainability that would be useful for policymakers (gerdessen & pascucci, 2013). therefore, the paper aims to contribute to the development of a methodology that can simplify the procedure for assessing socio-economic development taking into account the multidimensional nature of the concept. applying data envelopment analysis (dea), based on indicators showing a measure of poverty, social exclusion and material deprivation, as well as other socio-economic indicators, the objective is to quantify and compare the levels of socio-economic development of the european countries (stanković et al., 2019). the rest of the paper is structured so that in addition to the introduction and conclusion, it also contains the following two sections: 1) research methodology 2) data and model formulation; 3) research results and discussions. 2. research methodology data envelopment analysis (dea) is a non-parametric approach applied to evaluate the effectiveness of decision-making units (dmus) using linear programming techniques in situations where multiple inputs and outputs make comparison difficult (boussofiane, dyson & thanassoulis, 1991; eskelinen, 2017). it was developed in 1978 by charnes, cooper, and rhodes (charnes, cooper, & rhodes, 1978) as a technique for evaluating and comparing the performance of a set of dmus with multiple inputs and outputs. the advantage of the method is that it does not require a priori determined weight coefficients, thus reducing the subjectivity and influence of the decision-maker. efficiency is quantified as the ratio of the weighted sum of the outputs to the weighted sum of the inputs (thanassoulis & silva, 2018; omrani, adabi & adabi, 2017). using the dea method, a subset of the most efficient dmus from the total set is identified, whose realized efficiency is quantified by 1. the dea also calculates the efficiency levels of the remaining dmus, with measures of estimated efficiency ranging between 0 and 1. dea models can be input oriented when the goal is to 2 olga stangej, inga minelgaite, christopher leupold forthcoming minimize inputs for a given output level, or output-oriented models when the goal is to maximize outputs for a given input level (al-refaie, hammad & li, 2016). besides, depending on the treatment of the returns on scale, the ccr model (charnes, cooper, & rhodes, 1978) with the constant returns on scale and the bcc model (banker, charnes, & cooper, 1984) with the variable returns on scale can be identified. when formulating the model, the existence of n decision-making units j=1,… n is assumed, with each decision-making unit producing s different outputs from m different inputs. the mathematical model of the output-oriented bcc model can be represented via relations (seiford & zhu, 2002): (1) subject to: (2) (3) (4) (5) where xj is a vector of inputs whose i th element xij represents the amount of i input and used by the j th decision-making unit, yj is an output vector whose r th element yrj represents the amount of output r produced by the jth decision-making unit, while xo and yo denote the input and output vectors of dmuo under evaluation. the use of the dea methods in the field of sustainable development has expanded in recent years, especially given the fact that the efficiency assessed by the dea method can be interpreted as an index of sustainability of each observation unit (cherchye et al., 2007). the main advantage is that, in addition to identifying inefficient dmus, the dea enables the identification of best practices to strive for. a large number of papers apply the dea methodology to assess differences in the achieved levels of social sustainability, both between countries and regions of a given country (murias, martinez & de miguel, 2006; adler, yazhemsky & tarverdyan, 2010; charles & d'alessio, 2019; iribarren et al., 2016). on the other hand, the question arose on how to explain unwanted variables in a particular process, that is, how to treat undesirable inputs and undesirable outputs. traditional dea models rely on the assumption that inputs must be minimized and that outputs must be maximized. however, koopmans (1951) notes that processes can also create unwanted results. färe et al. (1989) created a nonlinear dea model to evaluate the performance of systems in which there are desired results to be maximized and undesirable results to be minimized. also, there are situations where it is necessary to increase the inputs and reduce some of the outputs to improve the efficiency of the decision unit (jahanshahloo et al., 2005). seiford and zhu (2002) have refined the traditional dea model and created an output-oriented bcc model that incorporates undesirable outputs. the problem of undesirable outputs is particularly present in the assessment of the effectiveness of sustainable development, especially if environmental variables (such as the amount of waste produced) are included in the analysis. thus, the total results of the system (y) can be categorized as good or desirable outputs (yg), and as poor or undesirable outputs (yb), with the tendency to increase good and decrease poor outputs (seiford & zhu, 2002). however, the traditional dea models tend to increase the output without making the distinction among desirable and undesirable outputs. therefore, färe et al. (1989) modified the standard bcc model in order to improve desirable and reduce undesirable outputs (seiford & zhu, 2002): (6) subject to: (7) (8) (9) (10) (11) the abovementioned model is not adequate in situations when the transformation of undesirable outputs is performed, and in order to preserve convexity and linearity in dea, seiford and zhu (2002) have formulated the following linear program: 3 management: journal of sustainable business and management solutions in emerging economies forthcoming ��� � � ���� � � � � � �� � ���� � � � � � ��� � �� � � � � �� � �� � � ��� � � ��� � � ���� � � � � � �� � ���� � � � � � � ��� � � ���� � � � � � � � � �� � � �� � � � � �� � �� � � ��� � � (12) subject to: (13) (14) (15) (16) (17) where various research works have applied dea in the environmental studies for the assessment of performance of dmus that produce both desirable and undesirable outputs (liu, lu & lu, 2016; chen & jia, 2017; sueyoshi & yuan, 2017; halkos & petrou, 2018b; wu et al., 2016; song et al., 2018; zhou, poh & ang, 2016; beltrán-esteve & picazo-tadeo, 2017; kao & hwang, 2019; halkos & petrou, 2019b). dealing with undesired outputs certainly ultimately affects the effectiveness of dmus. to address the problem of undesirable outputs several approaches have been developed. the four most common approaches for treating undesirable outputs in the dea model are identified in the literature (halkos & petrou, 2018a; halkos & petrou, 2019a): • ignoring undesirable outputs involves a mere neglecting of the undesirable outputs, thus eliminating their effect on the final score. however, yang and pollitt (2009) state that this approach can lead to inaccurate results that do not give a true picture of the effectiveness of decision-making units. • treating undesirable outputs as inputs in many efficiency studies this approach has been applied and assumes handling of unwanted outputs as usual inputs. • application of nonlinear models involves treating undesirable outputs as usual outputs, with the assumption that undesirable output values cannot be increased without affecting the values of other desirable outputs (färe et al., 1989). • application of the needed transformations there are several ways to perform transformations of undesirable outputs: o the first option is the add approach proposed by koopmans (1951) according to which the transformation is performed by applying the relation (u) = −u. the application of this transformation may lead to the appearance of negative values which require the use of additive models (seiford & zhu, 2005). o the second option is to apply the transformation (u) = −u + β, which eliminates the occurrence of negative values. however, this kind of transformation may affect the results, and it is thus recommended for the value of β to be equal to the maximum value of the undesirable output (zanella, camanho & dias, 2015). o the third option is to apply an inverse function based on the relation f (u) = 1 / u. it should be noted that the variable returns on scale are assumed in all cases with data transformation (wojcik, dyckhoff & gutgesell, 2017). 3. data and model formulation social risk represents the possibility of one or more persons being exposed to negative social conditions that threaten social sustainability. one of the five main goals of the europe 2020 strategy is to reduce poverty by taking out at least 20 million people from the at-risk-of-poverty or social exclusion group by the end of 2020 (poverty in europe, 2020). the problem of measuring poverty and social exclusion is a contemporary task among academic researchers and, at the same time, an operationally relevant topic at all levels of policymaking. in 2018, 109.2 million people in the european union (eu) lived in households at risk of poverty or social exclusion, accounting for 21.7% of the total population (eurostat, 2020). data on population at risk of poverty or social exclusion are obtained from the eu statistics on income and living conditions (eusilc) surveys aimed at gathering an appropriate and comparable multidimensional microdata on social exclusion, poverty, income, and living conditions. to analyse the achieved level of socio-economic sustainability, in addition to data on people at risk of poverty or social exclusion, it is necessary to include other indicators of socio-economic development and sustainability presented in table 1 (stankovic et al., 2019). to obtain a composite indicator of socio-economic development, based on the available data, the model with four output variables was created, where one output variable represents an undesirable output, and for this analysis the transformation (u) = −u + β is conducted. 4 olga stangej, inga minelgaite, christopher leupold forthcoming ��� � � ���� � � � �� � ���� � � � � ��� � � ��� � � � � � �� � � � �� � � � � �� � �� � � ��� � � � � � � ��� � � ! " �. table 1: description of the variables of the dea-bcc model the creation of a composite index using the dea method has been proposed by cherchye et al. (2007) suggesting the approach named „benefit-of-the-doubt“. the composite indicator is obtained based on the model that is identical to the input-oriented model with constant returns-to-scale and unit input for all dmus. however, zanella et al. (2015) suggest that the composite indicator can be also obtained using the outputoriented model. additionally, lovell and pastor (1999, p. 48) state that “an output-oriented ccr model with a single constant input and an input-oriented ccr model with a single constant output coincide with the corresponding bcc models“. therefore, the bcc output-oriented model will be assessed. 4. research results and discussions an analysis of the effectiveness of the achieved level of socio-economic development was performed using the benchmarking package for r software. according to the obtained efficiency index, mean socio-economic efficiency is 110.90%, with nineteen countries attaining efficiency score which is better than the average. based on the estimated measure of the socio-economic development of european countries (figure 1), it is observed that the countries of northern and western europe achieve greater socio-economic efficiency, while the countries of southern europe record lower levels of socio-economic efficiency. four countries have a satisfactory level of socio-economic efficiency (the czech republic, luxembourg, switzerland and norway). most of the eu28 countries (26 out of 28) do not achieve satisfactory levels of socio-economic efficiency. figure 1: results of the efficiency analysis 5 management: journal of sustainable business and management solutions in emerging economies forthcoming � ������� � �� � � ������� � � �� � � � �� � �� � �� �� �� � � � � �������� ����� ���� �������� ����� ������������������������������ �������������������� � � �� � ����� �������������������������������� ��� � ������ ����� ������ ����� ����� ������ ���������� ����� ������� �� ������������ ���������� �������� � � �� ����� ������ �������� ���������� !������ ��� �������� ����������!������ ������������������ ������� ��� ������� ���� ���"� ���� ��������� ��� �������� ��"������������ �� ������� �� ������������������ � ��������� � ��� ���� �������� ��� ��� ����� �� ����������������#���������� � ��������$�%&�� ����������'����(�� )&*��� ��������**'� )&*��� ��������#������ ��**'(������) ���& �������* ������ ��� ����� � � ��� ������������������������ ��������� �� ������� ��������������� ����� � ����� ������ ��� � � �� � � � � � � �� � �� �� �� � � � � *� ������� ���� �� � �� � � �� ����� ������� �� *� �������� ���� ������ �� ������� ���� ���� ��� �� � � ����� �� ����� ���� � ��� ����� ��������������� �� ��� ���������� �� ���� ���� � 90,00% 100,00% 110,00% 120,00% 130,00% 140,00% 150,00% c ze ch r e p u b lic l u xe m b o u rg n o rw a y s w itz e rl a n d s w e d e n n e th e rl a n d s g e rm a n y e st o n ia u n ite d k in g d o m ir e la n d d e n m a rk l ith u a n ia f in la n d a u st ri a s lo ve n ia l a tv ia m a lta p o rt u g a l h u n g a ry s lo va ki a c yp ru s f ra n ce p o la n d b u lg a ri a b e lg iu m r o m a n ia s p a in c ro a tia s e rb ia it a ly g re e ce n o rt h m a ce d o n ia the low level of socio-economic efficiency of the eu countries can be justified by the fact that there is an obvious inequality in the eu countries. in the eu in 2017, the top 20% of the population (with the highest income) received 5.1 times more income than the bottom 20%, with this ratio varying significantly across the member states, from 3.5 in the czech republic to 8.2 in bulgaria (income inequality in the eu, 2020). additionally, it can be observed that the group of new eu members (eu13) globally has a higher average efficiency than the group of old members (eu15), which is in accordance with the findings of the group of authors melecky, stanickova and hanclova (2019) who examined the level of social and economic development of the european union (eu28) countries. the eu enlargement was supposed to provide the new eu member states (eu13) to converge towards the living standards achieved by the old eu member states (eu15), which is supported by the results of the analysis. consequently, eu accession can be a chance to improve the living standards of candidate countries (serbia and northern macedonia), which, according to the results of the analysis, are at the very bottom in terms of the achieved level of socioeconomic efficiency. to determine the robustness of the obtained results, a sensitivity analysis was performed. the sensitivity analysis of the results encompasses two types of analysis. the first one is a sensitivity analysis of model changes, and the second one is a sensitivity analysis of data variations. regarding the sensitivity analysis of model changes, in addition to the assessed model, four complementary models were created (table 2). each of the models uses a different combination of output variables and assumes a uniform input, to examine the impact of output variable choice on the results as suggested by nissi and sarra (2018). the purpose of this sensitivity analysis is to examine the consistency of the obtained results (cylus, papanicolas & smith, 2017), and to determine whether the efficiency of different countries depends on the selection of socioeconomic indicators. the results of the correlation analysis indicate that regardless of the changes of variables in complementary models, there is a significant positive correlation between the results of the original model and each of the complementary models. regarding the countries that were efficient in the original model, switzerland remained efficient in all complementary models, norway and the czech republic are efficient in all complementary models except model 4, while luxembourg is efficient in all complementary models except model 3. countries that were inefficient in the original model remained inefficient in the complementary models. based on these results, it can be concluded that the results of the conducted efficiency analysis are consistent concerning changes in output variables as similar groups of countries form the efficiency frontiers in all model specifications. table 2: complementary models and correlation coefficients to examine the effects of sampling variations on the dea estimates bootstrapping was employed. the application of bootstrapping in the dea may improve the reliability of the results since it offers the possibility to rectify the deviation of efficiency estimates and to provide the confidence intervals of efficiency measure (simar & wilson, 1998). the essence of bootstrapping is resampling by simulating the process of generating data to repeatedly evaluate parameters (munim, 2020). figure 2 discloses the sensitivity of efficiency scores concerning sampling variations. the results indicate that efficiency scores of european countries change when corrected for bias. the efficiency of all countries declined during the bootstrapping process which indicates that the obtained assessments of socio-economic efficiency might be overestimated since the original efficiency estimates almost overlap with the lower-bound. 6 olga stangej, inga minelgaite, christopher leupold forthcoming � �������� ������ � ������ � �������� ��������� ��� �� � � ��� ��� ��� � ��� �� ����� � �� � ������ ��� �� � � � ��� ��� ��� � ��� �� ����� � � � ��� ��� ��� � ��� �� ����� � ����� ���� ��� ���� ����� ���� ��� ���� �� � ������ ��� �� � ����� ���� ��� ���� � ��� ���� � ��!� ��� ���� ���� ��� "���� ��� � ��� ���� � ��!� ��� ���� ���� ��� "���� ��� � ��� ���� � ��!� ��� ���� ���� ��� "���� ��� �� � ������ ��� �� � �� � ���#�� ����� ��� ����� !! � ��� $%%&''� ($)))''� $&*+''� $&,-''� � .$�/01�� � �2� $)))� $)))� $)))� $)))� �� 30� 30� 30� 30� � figure 2: confidence intervals and bootstrap efficiency references [1] adler, n., yazhemsky, e., & tarverdyan, r. (2010). a framework to measure the relative socio-economic performance of developing countries. socio-economic planning sciences, 44(2), 73-88. doi: 10.1016/j.seps.2009.08.001 [2] alaimo, l. s., & maggino, f. (2020). sustainable development goals indicators at territorial level: conceptual and methodological issues—the italian perspective. social indicators research, 1-37. doi: 10.1007/s11205-019-02162-4 [3] al-refaie, a., hammad, m., & li, m. h. (2016). dea window analysis and malmquist index to assess energy efficiency and productivity in jordanian industrial sector. energy efficiency, 9(6), 1299-1313. doi: 10.1007/s12053-016-9424-0 7 management: journal of sustainable business and management solutions in emerging economies forthcoming 90,00% 100,00% 110,00% 120,00% 130,00% 140,00% 150,00% c ze ch r e p u b lic l u xe m b o u rg n o rw a y s w itz e rl a n d s w e d e n n e th e rl a n d s g e rm a n y e st o n ia u n ite d k in g d o m ir e la n d d e n m a rk l ith u a n ia f in la n d a u st ri a s lo ve n ia l a tv ia m a lta p o rt u g a l h u n g a ry s lo va ki a c yp ru s f ra n ce p o la n d b u lg a ri a b e lg iu m r o m a n ia s p a in c ro a tia s e rb ia it a ly g re e ce n o rt h m a ce d o n ia the need to measure the overall development of a national economy requires new approaches that take into account both economic and social indicators. the paper aimed to demonstrate the benefits of a non-parametric, dea approach in the assessment of socio-economic efficiency, especially in conditions where undesirable outputs occur, which is a fairly common situation in sustainability studies. the implementation of the dea method enables the integration of various aspects of development and enables decision-makers to adequately increase efficiency. the unique assessment provided by the dea approach enables comparison of european countries. the benefit of this comparison is that policymakers are presented with a set of best countries that can be used as best practice for lagging countries. in other words, the most successful countries can provide guidance on establishing best practices to be adopted in the lagging countries, thus contributing to the implementation of sounder and more effective policies in the upcoming period. future research can be developed in different directions. one possible direction is to capture the pre-2018 period to track the evolution of country efficiency. it is also possible to carry out further analysis of effective countries in terms of their ranking using super-efficiency dea. incorporating environmental indicators to obtain a comprehensive measure of sustainability can also be worth exploring in future research. acknowledgements this research study has been supported by the republic of serbia’s ministry of science, education and technological development. the first version of the paper “ocena društveno-ekonomskog razvoja evropskih zemalja: dea pristup” has been presented at the conference xlvi international symposium on operational research sym-op-is 2019. it has been selected as the best in the section. authors were invited to submit the extended version of the paper to the journal management: journal of sustainable business and management solutions in emerging economies. conslusion [4] banker, r. d., charnes, a., & cooper, w. w. 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(2016). data envelopment analysis for measuring environmental performance. in handbook of operations analytics using data envelopment analysis (pp. 31-49). springer, boston, ma. doi: 10.1007/978-1-4899-7705-2_2 received: 2020-03-01 revisions requested: 2020-05-06 revised: 2020-05-31 accepted: 2020-06-15 jelena j. stanković university of niš, faculty of economics jelena.stankovic@eknfak.ni.ac.rs jelena j. stanković is an associate professor at the faculty of economics, university of nis, for the scientific field mathematics and statistics in economics. her scientific interests are related to methods and models of operational research and decision theory, but also to statistical analysis in strategy evaluation and business decision making. she gained most of her experience in conducting research that involves the collection and analysis of data in the field of local economic development, labour market and urban economics. she is an active member of the committee for economic sciences of the serbian academy of sciences and arts. 10 olga stangej, inga minelgaite, christopher leupold forthcoming about the authors 11 management: journal of sustainable business and management solutions in emerging economies forthcoming ivana marjanović university of niš, faculty of economics ivana.veselinovic@eknfak.ni.ac.rs ivana marjanović is a teaching assistant at the faculty of economics, university of nis, for the scientific field mathematics and statistics in economics. her field of scientific interest is the application of quantitative methods in economics. she has obtained most of her experience in conducting quantitative and qualitative research in the area of urban economy and public procurements, and also a noteworthy experience in project management. she has good theoretical knowledge about the statistics as well as practical knowledge and skills related to the methodology of survey implementation, data collection, data processing and data analyses. nebojša stojković university of niš, faculty of economics nebojsa.stojkovic@eknfak.ni.ac.rs nebojsa v. stojković is a full professor at the faculty of economics, university of nis, for the scientific field mathematics and statistics in economics. his field of scientific interest is applied mathematics, theory of computation and computing in mathematics, operational research, decision theory and statistical analysis. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /none /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /error /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /cmyk /dothumbnails false /embedallfonts true 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/hrv (za stvaranje adobe pdf dokumenata najpogodnijih za visokokvalitetni ispis prije tiskanja koristite ove postavke. stvoreni pdf dokumenti mogu se otvoriti acrobat i adobe reader 5.0 i kasnijim verzijama.) /hun 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can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /converttocmyk /destinationprofilename () /destinationprofileselector /documentcmyk /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure false /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles false /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /documentcmyk /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /usedocumentprofile /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [612.000 792.000] >> setpagedevice terzic:tipska.qxd 1 ivica terzić1, zoran jeremić1, tatjana latas2 1singidunum university, faculty of business, belgrade, serbia 2 somborelektro d.o.o. sombor management: journal of sustainable business and management solutions in emerging economies forthcoming modelling and forecasting volatility on electric power exchange seepex doi:10.7595/management.fon.2021.0002 abstract: 1. introduction seepex a.d. beograd is a licensed operator in an organised electricity market launched early in 2016. clearly, seepex is a very young power exchange in the early stages of development, making the time series required for an analysis of trade and overall market performance rather short. the authors studied trade data available between the birth of seepex and the end of 2019, which is a long enough period to draw conclusions as to the possibility of predicting volatility and the price of power traded on seepex in the observed period. seepex is a joint-stock company that emerged from a partnership between elektromreža srbije (ems) national utility and epex spot. seepex operates the organised market using standardised products and the day-ahead timeframe, providing electricity trading products in serbia and across south-eastern europe, where possible. the organisation seeks to offer a transparent and reliable wholesale pricing mechanism in the electricity market by matching supply and demand at a fair and transparent price while ensuring that seepex delivery and payment transactions are finalised. seepex operates day-ahead auctions as a form of the spot market (www.seepex-spot.rs). * corresponding author: ivica terzić, e-mail: iterzic@singidunum.ac.rs research question: the launch and the beginning of trade on the south east electric power exchange (seepex) in belgrade, early in 2016, opened the issue of forecasting volatility and price movements in the market. motivation: the issue is of vital importance for all market actors for the purpose of maximising profits, reducing risks, planning production and making investment decisions. forecasting volatility and price movements in electric power markets is important for traders with profit maximisation and yield-to-risk ratio optimisation in mind and, equally, for producers, large industrial consumers, investors and portfolio managers. idea: exploring models and techniques to forecast volatility in electricity markets and subsequently testing statistical methods based on time series data, the arma-garch being the preferred model, with a view to identifying optimal methods for this market. the volatility of the power market and price movements have been tested during a given period. the results can be used to gauge market parameters and opportunities to extrapolate future volatility and movements in electricity prices. data: for the purposes of this analysis, a time series involving price movements and trade volumes were used, covering a period between the seepex trade launch and the end of 2019. tools: in the empirical part of the paper, "stata 13" statistical and econometric software was used to explore stylised facts and model the volatility of seepex electricity price returns. findings: the authors offer an overview of different methods used in the research, having selected different specifications of the arma-garch model as the most reliable in predicting volatility in the given market. the exponential garch model with student-t error distribution is believed to have provided the best overall performance in modelling the seepex return volatility, as well as the best volatility forecast. contribution: this is one of the first empirical studies of the serbian power market that deals with risk modelling. forecasting time-varying electricity exchange volatility is important for all market participants interested in variance forecasts to be used to calculate risk and hedging measures. keywords: electricity price, forecasting, modelling, volatility, arma, garch, seepex jel classification: g17, c32, c51, c52, c53, c58 market deregulation and the beginning of electricity trading in serbia have raised an important issue shared by all exchanges, trading in stocks and in commodities alike the issue of different risks involved in a decision to go public. in finance, a study of market volatility is most relevant to a study of risks, whether financial and commodity markets, derivatives or currencies are involved. based on a volatility analysis risks may be predicted and risk minimisation attempted, allowing also for the modelling of market trends and price movement forecasts (nakamura et al., 2006). volatility is essential in analysing power markets with high or ultra-high frequency data. (chang, mcaleer & tian, 2019). accordingly, predicting the volatility of a power market is a key issue for all market players in the context of profit maximisation, risk/loss reduction, appropriate supply and demand for producers, consumers, traders, investors and portfolio managers. among other things, market volatility forecasts can help producers formulate their offer and plan investments using modern assets pricing techniques. still, it can also make it easier for consumers and traders to reduce the risks arising from price fluctuations and increase profits (gianfreda, 2010). since not all power markets have reached the same stage of development, the literature suggests different price forecasting methods for specific markets (cerjan, petricic & delimar, 2019). yet the previous and current energy literature on price forecasting has in good part focused on developed power markets. that on seepex electricity price forecasting is rather scarce though. with that in mind, the main aim of this research is to fill the gap by introducing and testing one of the statistical approaches, based on arma-garch specification, for day-ahead electricity price forecasting on the domestic power market. the goal is to accurately capture the behaviour of the seepex conditional volatility. the paper is structured as follows. after introduction, section 2 provides a brief overview of the existing literature. section 3 outlines the research approach and methodology. section 4 describes data, discusses the study's empirical results, and explains the robustness tests used. section 5 offers a summary and a conclusion. 2. literature review a large number of competing methods exist to measure, model and predict energy price volatility, and it is important to note that no research has suggested any universal superiority of one method over the others. instead, each method has merit and may work well in certain circumstances (nomikos & andriosopoulos, 2012; sisodiaa et al., 2015; singh & mohanty, 2015). the results indicate a large variation in scientists' methodologies to address the issues in different countries (sisodiaa et al., 2015). there is also a broad spectrum of techniques and methods designed to predict market volatility and price movement on electricity exchanges as accurately as possible (weron, 2014). models used in short-term electricity price forecasting can be divided into three categories: statistical models based on time series analysis, models based on artificial neural networks and hybrid models (abedinia et al., 2017). specific features involved in power trading, alongside high volatility inherent in electricity markets, have made it impossible to use price forecasting methods employed by other exchanges without involving considerable power market-specific modifications and a number of intrinsic factors (alfares & nazeeruddin, 2002). these include the impossibility of storing electricity, seasonality, the influence of weather on consumption and production, i.e., supply and demand, transport-related restrictions and risks (nakamura et al., 2006). equally important is the range of forecasting – there can be short-term, medium-term or long-term forecasts (mandal et al., 2007). short-term forecasts are used for spot markets, largely day-ahead, as traders want to maximise profits and cut risks (maciejowska & weron, 2015; nomikos & andriosopoulos, 2012; maksimov & shchurupova, 2017; steinert & ziel, 2019; ziel & weron, 2018; hubicka, et al., 2019). medium-term forecasts are used for bilateral negotiations between producers and consumers, while long-term planning requires long-term forecasts (maciejowska & weron, 2016). the models based on artificial intelligence, most often neural networks, have been largely used for their ability to resolve undefined relationships between input and output variables, approximating complex nonlinear functions and implementing multiplied algorithms (wang et al., 2006; gonzalez et al. 2012; monteiro et al., 2016; dedinec & dedinec, 2017). a variety of statistical forecasting models dominates day-ahead spot markets, based on historical time series data and volatility measurements (chang & mcaleer,2017; nowotarski & weron, 2018; maciejowska et al., 2019; maciejowska & weron, 2015; gianfreda, et al., 2020; liu & shi, 2013; lópez-gonzales, 2020). these models are used to predict future trends based on historical movement, where identified shapes and movements of time series from the past are extrapolated into predictions of the future (kostrzewski & kostrzewska, 2019). 2 ivica terzić, zoran jeremić, tatjana latas forthcoming seepex day-ahead spot price forecasting has been recently researched in several papers. dedinec & dedinec. (2017) used an artificial intelligence model (ann) to predict day-ahead electricity prices in bulgarian, croatian and serbian power exchanges. they obtained the best forecasting model performance for the serbian market. dedinec & dedinec (2018) also developed a forecasting model based on deep belief networks (dbn) and applied it successfully to the power markets in the south east europe (see) region. the results show a superior forecasting performance of the newly developed model compared to traditional neural networks. however, no attempts have been made so far to analyse and forecast the electricity price dynamics on this market using a statistical approach. hence the attempt to fill the research gap by developing empirical forecasting models based on arma-garch specifications. 3. research methodology for the purpose of predicting the volatility of returns in a power market, the authors use different symmetrical and asymmetrical models from the generalised auto regressive conditional heteroskedasticity (garch) family. modelling and forecasting volatility are crucial for investors who are interested in a predicted variance of time-varying electricity price returns over an investment period. garch models are designed to capture the volatility clustering effects on the returns. on the other hand, the standard garch models such as garch (1,1) cannot account for leverage effects (awartani & corradi, 2005). these asymmetries occur as volatility responds to positive or negative returns. the standard garch model cannot capture these, since the lagged error term is squared, therefore losing its sign. a number of garch models are designed to capture asymmetry and leverage effects. those of relevance, discussed in this paper, include egarch, gjr garch and sagarch. the basic garch model was developed by bollerslev (1986) and has the following form: (1) the exponential garch (egarch) model was developed by nelson (1991). the egarch (p, q) model specifies conditional variance in logarithmic form, which means that there is no need to impose an estimation constraint in order to avoid negative variance. accordingly, there is no need to impose non-negativity constraints artificially. the conditional variance equations for the egarch is as follows: (2) this specification captures the stylised fact that a negative shock leads to a higher conditional variance in the subsequent period than a positive shock. the model that also allows for asymmetrical dependencies includes the gjr-garch (glosten, jagannathan and runkle, 1993) as shown below: (3) the simple asymmetric garch or sagarch model simply adds another parameter to the symmetric garch model so that it can have a mechanism to capture the asymmetric volatility response. the simple asymmetric garch model was initially suggested by engle (1990) and subsequently discussed by engle and ng (1993). this model takes the form presented below: (4) 3 management: journal of sustainable business and management solutions in emerging economies forthcoming where the extra parameter captures the leverage effect. sagarch conditional variance depends on the extra parameter λ. if λ > 0, then term will be larger when the shock is negative. if λ < 0, the opposite will happen (alexander, 2008). the parameter estimates were checked using several diagnostic analysis tools. the final model selection is conducted in compliance with econometric theory primarily relying on log likelihood function (llf), the akaike information criterion (aic) and bayesian information criterion (bic). all calculations and empirical investigations are conducted using stata 13 software package. 4. results and discussion daily historical data referring to the seepex prices from 18 february 2016 until 31 december 2019 were available on the seepex web page (www.seepex-spot.rs). using the same data set for each, eight armagarch models were used to capture volatility clustering and forecasting. the price series is converted to log returns series. for a series of seepex prices spt, the rate of return rt is obtained by: (5) the seepex historical prices and logarithmic returns are presented in figure 1. the graph clearly shows that the seepex time series are very volatile, with very high volatility spikes in the observed period. before analysing different garch models' predictive performance, some stylised facts about seepex log return series have been tested and presented in tables 1 6. figure 1: seepex historical prices and log returns, february 2016 december 2019 table 1: descriptive statistics of seepex log returns source: authors' calculation 4 ivica terzić, zoran jeremić, tatjana latas forthcoming -1 .0 00 0 -0 .5 00 0 0. 00 00 0. 50 00 1. 00 00 1. 50 00 lo gr s r b 0 50 10 0 15 0 s r b 1/1/2016 1/1/2017 1/1/2018 1/1/2019 1/1/2020 date srb logrsrb variable mean sd skewness kurtosis min max log r srb 0.0002204 0.1968394 0.5405021 11.09913 -1.21836 1.573098 table 1 shows the descriptive statistics of seepex daily log returns. the return mean is close to zero. the unconditional daily standard deviations are very high (19.68%), which implies that the power market is relatively very volatile, as confirmed by the difference between the minimum (-121.84%) and maximum (157.31%) daily returns. electricity returns have a leptokurtic distribution (fat tails), verified by the analysis of asymmetry and kurtosis coefficients. seepex log returns exhibit kurtosis well above 3 (11.09), indicating a higher probability of the occurrence of extreme returns than predicted by gaussian distribution. also, there is a presence of skewness. in fact, seepex series are positively skewed (0.54). the positive skew means that the lower tail of the distribution is heavier and the centre is shifted to the left. it points to a higher likelihood of achieving extreme positive returns on the serbian power market. figure 2. also shows skewed seepex returns, and leptokurtic unconditional distribution. the distribution has a higher peak and heavier tails than the normal density with the same variance. figure 2: histogram of seepex log returns these indicate that the seepex log return series are non-normal. this non-normality is corroborated via shapiro-wilk and skewness/kurtosis tests for normal data, as presented in tables 2 and 3. the results obtained by test statistics lead to the rejection of normality's null hypothesis, and both tests show that data are not normally distributed. table 2: shapiro-wilk w test for normal data source: authors' calculations table 3: skewness/kurtosis tests for normality source: authors' calculations in further data analysis, the dickey-fuller test was used to examine stochastic trends. the results are presented in table 4. the null hypothesis is rejected that seepex log returns have a unit root, because the z score test statistic (-34,673) does not fall within the acceptance interval. it means the series of log returns are stationary for any level of confidence. 5 management: journal of sustainable business and management solutions in emerging economies forthcoming 0 1 2 3 d en si ty -1.0000 -0.5000 0.0000 0.5000 1.0000 1.5000 logrsrb variable obs w v z prob>z log r srb 1412 0.9180 70.8550 10.697 0.0000 joint variable obs pr (skewness) pr (kurtosis) chi2 (2) prob>chi2 log r srb 1412 0.0000 0.0000 288.67 0.0000 table 4: augmented dickey-fuller test for unit root source: authors' calculations given that returns are not normally distributed, the conditional mean needs to be modelled prior to the volatility analysis that will be included in the garch process. this part of the research aims to build an arma model for electricity price changes, estimating it in three stages. firstly, a model is identified by determining the order of the model required to capture the data's dynamic features (enders, 2010). graphical procedures and information criteria are used to determine the most appropriate specification. secondly, the parameters of the model are estimated. finally, a model diagnostic check is performed using a residual analysis. as it can be seen clearly from table 5, the seepex series are quite persistent. the autocorrelation function dies away slowly. the first seven partial autocorrelation coefficients appear strongly significant. since the first autocorrelation coefficient is highly significant, the joint test statistic presented in column 4 rejects the null hypothesis of no autocorrelation at the 1% level for all numbers of lags considered. it could be concluded that a mixed arma process might be appropriate, although it is difficult to precisely determine the appropriate order given these results. in order to investigate this issue further, information criteria are employed. table 5: ljung–box q test statistics (white noise test) for auto-correlation in seepex log returns source: authors' calculations based on the autocorrelations, partial autocorrelations, and the results of preliminary estimations, ar (7) ma (1 7) model is identified in the log-differenced series of seepex electricity prices (table 5). as the estimation results have been examined, it can be seen from table 6 that the ar (7) coefficient is 0.9823, the ma (1) and ma (7) coefficients are −0.0281 and -0.8857 respectively, and all are highly significant (p-values are bellow 0.05). also, aic and bic statistics are generated for the competing arma models, and this arma model has been confirmed to be with the lowest information criterion. in addition to an autoregressive term and an ma (1) term, an ma (7) term is included to account for a remaining weekly effect. thus, the model to be fit is: (6) 6 ivica terzić, zoran jeremić, tatjana latas forthcoming interpolated dickey-fuller test statistic 1% critical value 5% critical value 10% critical value z (t) -34.673 -3.43 -2.86 -2.57 mackinnon approximate p-value for z (t) = 0.0000 lag ac pac q prob>q 1 -0.1510 -0.1510 32.253 0.0000 2 -0.2235 -0.2521 102.97 0.0000 3 -0.0825 -0.1780 112.62 0.0000 4 -0.0778 -0.2115 121.21 0.0000 5 -0.1365 -0.3176 147.65 0.0000 6 -0.0312 -0.3329 149.03 0.0000 7 0.4755 0.2597 470.3 0.0000 8 -0.0335 0.0322 471.9 0.0000 9 -0.1162 0.0550 491.12 0.0000 10 -0.0757 0.0023 499.27 0.0000 table 6: arma process coefficients estimates source: authors' calculations in this final specification, the seepex returns are still highly autocorrelated at a level of 0.982, though innovations have a negative impact on the ensuing day (-0.028) and a negative impact of 0,886 on the eighth day of trading. after generating residuals from arma model, a constant-only model is fit by ols and tested for the presence of autoregressive conditional heteroskedasticity using engle's lagrange multiplier test (lm test). the lm test (table 7) shows p-values of zero for different lags, which are below 0.05, and the null hypothesis of no arch effects is rejected. this makes the seepex log return series a good candidate for arch modelling. table 7: lm test for autoregressive conditional heteroskedasticity (arch effect) source: authors' calculations in the next section the results of estimating eight different arma garch models using the seepex data set are compared. different volatility forecasting models assuming the errors that follow both gaussian and student-t distribution are fitted, namely: garch (bollerslev 1986), egarch (nelson 1991), saarch, simple asymmetric arch (engle, 1990) and gjr garch (glosten et al., 1993), a form of tarch (zakoian, 1994). all garch models have a specification for both the conditional mean (equation 6) and the conditional variance, and the variance is a function of the size of prior unanticipated innovations (i.e., shock). the models' estimate is made using daily seepex log returns from 18 february 2016 to 31 december 2019. the estimated coefficients for the different garch models are shown in table 8 with their standard errors, t statistics and p–values. all garch parameters are estimated by maximizing the log likelihood function. the parameter estimates are statistically significant to a high degree, at a 5% level collectively (table 8, column 6). it is also worth noting that the asymmetry term in the egarch, gjr garch and sagarch models is statistically significant. some practical implications and interpretation of obtained garch parameters can be derived as follows: 7 management: journal of sustainable business and management solutions in emerging economies forthcoming arma mean equation seepex order parameters coef. std. err. z p cons -0.0374174 0.0106822 -3.5 0 l7 ar 0.9823808 0.0032965 298 0 l1 ma -0.0281331 0.0084905 -3.31 0.001 l7 ma -0.8857268 0.0119572 -74.07 0 lags (p) chi2 df prob > chi2 1 100.781 1 0.0000 2 100.686 2 0.0000 3 103.536 3 0.0000 4 103.902 4 0.0000 5 104.838 5 0.0000 6 123.273 6 0.0000 7 132.939 7 0.0000 8 132.913 8 0.0000 9 133.283 9 0.0000 10 135.542 10 0.0000 11 135.455 11 0.0000 12 140.529 12 0.0000 13 140.600 13 0.0000 14 140.512 14 0.0000 15 140.800 15 0.0000 h0: no arch effects vs. h1: arch(p) disturbance the volatility intercept (ω) is very close to zero in all applied models, except for the egarch (egarch does not require any constraints on parameters). all constraints for the garch models are fulfilled. the sum of α+β is lower than 1; thus the process is covariance stationary. the sum of coefficients α+β falls in the interval 0.84-0.94. the estimations show that coefficient α has small values relative to β. but all garch models for seepex stipulate that coefficient α is larger than 0.1 (in the interval 0.21-0.41). it results in a larger volatility rise following a shock in time t-1. volatility persistence (β) for seepex in all models (range 0.65 to 0.86) is lower than 0.9, which means that the reaction of volatility to past market movements is much more intense and sensitive to market shocks, and as a result, today's volatility is highly correlated to yesterday's and shocks in volatility subside quickly. it indicates a relatively short-term persistence of the estimated volatility. in the case of egarch, a response exists only to positive shocks due to the positive asymmetry term. this is a strong indication of the asymmetry effect, but the leverage effect is not possible. asymmetry is also possible for gjr garch and sa garch, but leverage is not. these findings are in line with chang & mcaleer (2017). the positive earch_a (θ) coefficient 0.358 implies that positive shocks (seepex price increases) are more destabilising than negative innovations. if θ > 0 and α < 0, volatility reacts to bad news more than it does to the good news. in an electricity power market, a price increase is bad news. the asymmetry parameters estimated in gjr (-0.35) and sa garch (-0.02) models are negative, as they would be expected to be on commodity markets, but also with the absence of leverage. the asymmetric models also appear to be a better fit than the symmetric model because the log likelihood value is higher. table 8: different garch parameter estimates source: authors' calculations 8 ivica terzić, zoran jeremić, tatjana latas forthcoming garch type models seepex order(1,1) parametrs coef. std. err. z p garch gaussian intercept ( ) 1.72e-03 2.09e-04 8.22 0.000 arch ( ) 0.2407171 0.0170084 14.15 0.000 garch ( ) 0.7097634 0.0181402 39.13 0.000 garch t intercept ( ) 2.87e-03 6.35e-04 4.51 0.000 arch ( ) 0.23402 0.0438703 5.33 0.000 garch ( ) 0.6374336 0.0501821 12.7 0.000 egarch gaussian intercept ( ) -0.5376347 0.0615906 -8.73 0.000 arch ( ) -0.1879445 0.0162286 -11.58 0.000 garch ( ) 0.8610962 0.0149187 57.72 0.000 earch_a ( ) 0.372327 0.0243169 15.31 0.000 egarch t intercept ( ) -0.6712975 0.1430532 -4.69 0.000 arch ( ) -0.1747658 0.0381033 -4.59 0.000 garch ( ) 0.8319856 0.0347353 23.95 0.000 earch_a ( ) 0.3576924 0.0508204 7.04 0.000 gjr garch gaussian intercept ( ) 2.33e-03 2.56e-04 9.1 0.000 arch ( ) 0.4190204 0.0309391 13.54 0.000 garch ( ) 0.681642 0.0217778 31.3 0.000 tarch ( ) -0.3578884 0.0324027 -11.05 0.000 gjr garch t intercept ( ) 2.86e-03 5.83e-04 4.91 0.000 arch ( ) 0.3994211 0.0790492 5.05 0.000 garch ( ) 0.6466886 0.0474028 13.64 0.000 tarch ( ) -0.3480306 0.0818433 -4.25 0.000 sagarch gaussian intercept ( ) 2.46e-03 3.00e-04 8.17 0.000 arch ( ) 0.218619 0.0171941 12.71 0.000 garch ( ) 0.6866569 0.0207388 33.11 0.000 saarch ( 2) -0.0253384 0.0030808 -8.22 0.000 sagarch t intercept ( ) 2.94e-03 6.36e-04 4.63 0.000 arch ( ) 0.2071993 0.0407998 5.08 0.000 garch ( ) 0.6531502 0.0500054 13.06 0.000 saarch ( 2) -0.0230343 0.0073476 -3.13 0.002 the estimates of the maximised value of the llf, aic and bic information criteria are shown in table 9. the maximum llf value for the egarch with student-t error distribution model is considerably higher than either gjr or symmetric garch. accordingly, the e-garch t model provides the best fit to this sample of all the models considered so far. in terms of the aic and bic values, too, egarch t is the preferable model (producing the smallest aic and bic values). this leads to a conclusion that egarch t fits the sample data best, but it does not necessarily mean that it will outperform the other volatility forecasting models. the issue warrants further research. as for seepex series, the long-term volatility from egarch t is also lower than in the gjr garch, sagarch or symmetric garch models. compared to previous findings by dedinec & dedinec (2017) and dedinec & dedinec (2018), forecasting errors of these models fall within the range of 9.74 % for egarch t model, 9.28 % for ann, and 9.07 % for dbn method. as the results have shown, arma-garch constitutes a highly competitive model to forecast prices on the seepex market. the comparison should be taken with reservation though, due to different research periods, the length of the analysed series and different data frequencies that have been used. table 9: akaike's information criterion and bayesian's information criterion for the selection of garch type model to best fit the data source: authors' calculations the predicted values of the egarch t conditional variance are displayed in figure 3, presenting the behaviour of volatility more clearly, and comparing it with actual in-sample volatility. it is evident that this model provides for a good in-sample fit and future volatility forecasting. figure 3: graph of the one step ahead within sample estimates of seepex volatility via egarch model with student-t error distribution and realized volatility data 9 management: journal of sustainable business and management solutions in emerging economies forthcoming garch type models llf aic bic garch gaussian 867.6866 -1721.373 -1684.604 garch t 992.5241 -1969.048 -1927.026 egarch gaussian 894.9306 -1773.861 -1731.839 egarch t 1006.177 -1994.353 -1947.078 gjr garch gaussian 891.1066 -1766.213 -1724.191 gjr garch t 1005.05 -1992.1 -1944.825 sagarch gaussian 879.594 -1743.188 -1701.166 sagarch t 998.0995 -1978.199 -1930.924 0 .5 1 1. 5 1/1/2016 1/1/2017 1/1/2018 1/1/2019 1/1/2020 date realized seepx volatility forecasted seepex volatility references [1] alexander, c. 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(eds.) icist 2018 proceedings 1, 155-158. retrieved from: http://www.eventiotic.com/eventiotic/library/paper/391 10 ivica terzić, zoran jeremić, tatjana latas forthcoming modelling and forecasting electricity price volatility has been the subject of intensive research over the past ten years. different approaches to forecasting and a variety of forecasting methods have been proposed for different markets. on the other hand, there have not been many attempts so far to analyse and predict the dynamics of electricity prices on serbian power markets. hence, the main contribution and significance of this paper lie in an attempt to fill this research gap by developing empirical time series forecast models for this market. this research is a novel approach, differing from the published work of other authors. the aim of this study is to introduce and identify a short-term electricity price volatility forecasting model based on a statistical approach addressing the problems of price volatility in the newly developed day-ahead seepex power market. using descriptive statistics and appropriate tests, a number of statistical indicators have been obtained and employed as guidelines to conclusive findings related to the problem of predicting the volatility of electricity prices. a comparison between different arma-garch models with specific characteristic has been performed and discussed. in this study, symmetric and asymmetric univariate arma-garch models have been used to capture the characteristics of electricity price returns. they assess the volatility of returns on seepex power exchange. the llf, the aic and bic have been implemented to evaluate the models' fit and the forecasting accuracy of garch models. the results show that the exponential garch model with student-t error distribution has the best overall performance for modelling the seepex return volatility and is in general very effective in modelling and forecasting volatility. the other asymmetric models, gjr and sa garch, are also competitive. the widely used "plain vanilla" garch model performs well, but it has been outperformed by more sophisticated models that allow for asymmetry. another conclusion is that seepex time-varying volatility is more reactive and less persistent to market events during the observed period and has an inverse leverage effect. this paper provides some useful insights for future research. the obtained results are all the more important as the domestic literature does not seem to have explored this issue sufficiently, providing greater practical implications and making the study's findings more useful to practitioners. forecasting movements in the cost of electricity production and consumption is extremely complex due to the diversity and multitude of factors involved. with this in mind, the authors will shift the focus of their future research to identifying the main exogenous risk factors that can explain the variation of electricity prices on seepex, finding and applying other multivariate time series models in combination with artificial intelligence, in order to be considered as an alternative to the approach adopted in this paper. further, the research will be extended to other emerging regional power markets in order to compare their performance and pinpoint the most effective forecasting model. conclusion [11] enders, w. 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(2012). forecasting energy market volatility using garch models: can multivariate models beat univariate models? energy economics, 34(6), 2167-2181. [38] weron, r. (2014) electricity price forecasting: a review of the state-of-the-art with a look into the future. international journal of forecasting, 30 (4), 1030–1081. doi: 10.1016/j.ijforecast.2014.08.008 [39] zakoian j-m., (1994). threshold heteroskedastic models. journal of economic dynamics and control, 18(5), 931-955. [40] ziel, f. & weron, r. (2018). day-ahead electricity price forecasting with high-dimensional structures: univariate vs. multivariate modelling frameworks. energy economics, 70(c), 396–420. doi: 10.1016/j.eneco.2017.12.016 received: 2020-06-30 revisions requested: 2020-11-05 revised: 2020-11-23 accepted: 2021-01-09 ivica terzić singidunum university, faculty of business, belgrade, serbia iterzic@singidunum.ac.rs ivica terzić is an associate professor at the faculty of business, department of finance and banking, singidunum university, belgrade. he teaches courses in portfolio management, banking, monetary economics and models of risk distribution in financial business. his professional interests refer to financial markets, risk management, financial risk forecasting, risk modelling, portfolio management, data analytics and energy markets. he has published numerous scientific papers, including the book “financial markets and portfolio management”. currently, he participates in the international project “experience-sharing of visegrad countries to tax avoidance activity” (no.22010083), financed by international visegrad fund. zoran jeremić singidunum university, faculty of business, belgrade, serbia zjeremić@singidunum.ac.rs zoran jeremić, after graduating from faculty of economics in belgrade, was employed at a bank, and then at the national bank of serbia. as an expert of the bank rehabilitation agency, he was twice the director general of the banks in the process of rehabilitation. he was also the director general of the belgrade stock exchange and chairman of supervisory bord of belgrade chamber of commerce. he is a full-time professor at the singidunum university, faculty of business, belgrade. tatjana latas somborelektro d.o.o. sombor, serbia tatjana.latas@somborelektro.rs tatjana latas is a phd student at singidunum university. during her professional career, she has gained a wide range of knowledge and skills in various fields and has significant experience at leading position in the private sector. her scientific field is liberalization and deregulation of electricity markets and her research interest is focused on power exchanges and risk hedging on electricity markets. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 1048576 /lockdistillerparams 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 1 27_2 dragana tomasevic:tipska.qxd 1 dragana tomašević*, dragana gašević, marija vranješ novi sad school of business, novi sad, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(2) * corresponding author: dragana tomašević, e-mail: dragana.vps@gmail.com factors affecting consumers' intention to buy foreign brands an empirical survey in serbia doi:10.7595/management.fon.2020.0020 abstract: 1. introduction the process of globalization has resulted in the development of global marketing across the globe. globalization allows the users to choose among products from various countries. therefore, in a growing global economy, brand is gaining in importance. a brand is a very important asset (gunter & kriegbhaum-kling, 2001). a symbol, sign and name of the product create the brand. choosing a brand is a very important decision made by customers. companies try to increase their brand image in different ways, as image increases brand loyalty and greater brand loyalty leads to re-purchase. the connectivity of different brand theories suggests that branding is a tool that links customers with the company and helps in maintaining such a relationship in the long term (chang & chieng, 2006; davis et al., 2000). the brand enables cusresearch question: the purpose of this paper is to analyze the factors that influence consumers' intentions when buying foreign brands, and then the purchase itself. motivation: the business environment is experiencing an extensive change and it has become very demanding for companies to retain customers as well as market share. companies must learn to adapt to changes in order to survive in the market, and therefore need to be aware of the needs of their customers and their purchasing decisions. the rise in consumer awareness has led consumers to opt for well-known and high-quality foreign brands. hence, if companies hope to outperform their competitors, they need to persuade consumers to purchase their products and brands. idea: the main objective of the research is to be based on previous research in this field to find out whether perceived quality, prestige, perceived value and environmental impact affect the intention of domestic consumers to buy foreign brands, and consequently the purchase of these foreign brands. data: the survey was conducted on the territory of the republic of serbia by means of a questionnaire and included 158 respondents. data were collected from the respondents electronically during a period of about one month. tools: statistical analyses of all collected data (utilizing linear correlation, multiple regression analysis, t-test of sample independence and anova) were used to draw conclusions about the relationships between the observed variables and to determine differences in the mean values between individual categories of respondents in terms of buying foreign brands. findings: multiple regression analysis confirmed the statistically significant influence of perceived quality and perceived value on the intention of consumers in serbia to buy foreign brands. other factors do not have a statistically significant effect on consumer intention. also, a simple regression analysis revealed a statistically significant influence of consumer intention on the act of purchase. at the very end of the paper, it was determined that statistically significant differences regarding the purchase of foreign brands existed when respondents were observed by gender and education levels, while age did not have a statistical significance. contribution: this research has a scientific and practical contribution in terms of collecting information about the factors that influence the consumers` intension to buy foreign brands. keywords: brand, customer, intention, buying foreign brand jel classification: m31, m21 tomers to make the right choice that meets their wishes and needs for any product or service. a number of researchers have developed various models, theories and frameworks to establish how brands influence consumer behaviour from different aspects. macdonald and sharp (2000) point out that while consumers are aware and inclined to buy a product, brand awareness is still a dominant factor influencing their final decision to buy a particular product. products with greater brand recognition will have a higher market share and a higher quality score. suh and kwon (2002), on the other hand, believe that impact of globalization should not be neglected. not all consumers are contented with globalization. in addition, the abundance of foreign products is said to contribute to the negative feelings of local consumers towards foreign brands (shimp & sharma, 1987). in addition, consumers who associate political happenings with regard to product purchases become hostile to products from these countries (klein et al., 1998). thus, growing globalization requires from marketers to fully understand the reactions of foreign consumers to their brands. consumer behaviour is a complex process associated with numerous activities: searching, selecting, buying, using and evaluating products and services to fulfill different needs and desires. various internal and external factors influence customer behaviour (komal prasad & jha, 2014). the whole buying decision-making process involves considering the type of a product, quality of a brand, place, time and time spent on shopping. accordingly, the direct result of customer behavior is the final decision on product and brand selection, quantity, timing and frequency of purchase (khaniwale, 2015). 2. literature overview 2.1. perceived quality in marketing literature, perceived quality is widely recognized as a major driver of consumer intention to buy a product (calvo-porral & levy-mangin, 2017; olson & jacoby, 1972). perceived quality is defined as the opinion of consumers whether a product or brand can fulfill their expectations. therefore, if consumers feel that a particular brand can meet their expectations, they will certainly buy it (kocic et al., 2016). thus, perceived quality is determined by consumers' subjective assessment of the product (hazen et al., 2017; konuk, 2018; zeithaml, 1988). bhuian (1997) regards the perceived quality to be an estimate of the consistency of a product specification or an estimate of the added value of a product. brand quality is defined as recognizing the quality of a product, which affects consumer buying. garvin (1983) suggests that perceived quality can be explained as the recognition by consumers, whereas objective quality is defined due to product or production orientation. the distinction between objective and perceived quality are reflected in the fact that standards for pre-product quality exist for objective quality, and perceived quality is determined by the internal and external qualities of the product, which is the basis for consumer evaluation (zeithaml, 1988). perceived quality is the consumer's assessment of the product's accumulating advantages and a personal sense of product quality (dodds et al., 1991; zeithaml, 1988). as aaker (1996) states, the perceived quality can indicate a visible distinction of a product or service and become the basis for brand selection in the mind of consumers. in a holistic approach, sirieix and dubois (1999) reflected on the perceived quality of a product as "an estimate made by the consumer relying on the internal as well as the external dimensions of the product or service". perceived quality is defined as the consumer's assessment of overall brand excellence based on internal (performance and durability) and external attributes (brand name) (kirmani & baumgartner, 2000). consumers believe in brand and labels as signs of product quality. consumer appreciation of brand quality replaces price when making a purchasing decision (dodds et al., 1991). thus, quality is an assessment of the overall excellence or superiority of a product or service, because quality can be defined at the moment when the consumer assesses the product's characteristics, during purchase or consumption. if a certain product stands out from the competition ones, consumers start to see it as unique and rare. this implies that when the consumer on many occasions differentiates the product from the products made by competitors, then the product becomes recognizable and the perceived quality of the product can be seen as an intermediary variable that is likely to affect the consumer's purchase. a better perception of quality leads to higher profits and longterm growth of a business, which further includes expanding markets and increasing market share. 2.2. brand prestige the notion of prestige can mean different things for different consumers.the general premise is that prestigious brands require higher level of interest of the buyer himself and are strongly associated with a selfconcept of individual buyers. consumers' perceived prestige for a brand is created from a multitude of interactions between consumers and different environmental factors, so consumers are expected to have different perceptions of how prestigious the same brands are. consumers gain the meaning for brand prestige through interaction with people (e.g., peer group), item characteristics (e.g., best features), and hedo2 dragana tomašević, dragana gašević, marija vranješ 2022/27(2) nic values (e.g., visible beauty) (vigneron & johnson, 1999). brand prestige is an expression of appreciation brought by higher or lower social status defined by life experience, knowledge and awareness of competing brands (o'shaughnessy & o'shaughnessy, 2002). brand prestige represents the relatively high status of product positioning associated with the product brand (steenkamp et al., 2003). uniqueness, related to a particular feature or to the overall product quality and performance of a product, is a main criterion based on which a brand can be considered prestigious (dubois & czellar, 2002). compared to non-prestigious brands, prestigious brands not only provide intangible benefits to consumers, but create value for the consumer through status and expressed consumption. accordingly, some researchers have implied that consumers may think of foreign brands as more prestige with because it is hard to find them and they cost more than the local brands (batra et al., 2000; bearden & etzel, 1982). brand prestige is directly related to perceived quality. steenkamp et al. (2003) found that the consumer value of a global brand was positively related to brand prestige and perceived brand quality. their results showed that brand prestige significantly influences purchase intent. vigneron and johnson (1999) concluded that there are five values consumers seeking prestige usually desire: perceived striking value (to indicate wealth and status of a brand owner status), perceived unique value (related to scarcity), perceived social value, perceived hedonic value and perceived quality value. the first three values are related to social effects and the last two values are related to personal effects. vigneron and johnson (1999) clearly state that it is justifiable to explain that consumers expect quality (perceived value of quality) when they opt for famous brands. wong and zhou (2005) find that purchase decision are influenced by perceived brand prestige especially with the product categories bearing high social value. because prestigious brands have the status of high-quality products, consumers do not put much effort to obtain product information necessary to make a purchasing decision. thus, the cost of information regarding a purchasing decision would be reduced when consumers perceive brands as prestigious (baek et al., 2010). therefore, consumers find prestigious brands valuable because, in their opinion, such brands are linked to higher social status, which affects their decision on purchasing these brands. 2.3. perceived value preferred value is an important factor when deciding on a purchase. it is an assessment of the usefulness of a product in terms of value (money) spent by the customer and the value (satisfaction and utility) he or she gets from it (gan & wang, 2017; zeithaml, 1988). in the process of creating the perceived value of a particular product or service, the most important role is played by the benefits and costs that the consumer perceives in the process of purchasing that product or service (pandza, 2012). value implies a set of different benefits that consumers receive by investing cash, time and energy in the procurement and consumption of a product and / or service (sapic et al., 2014).the total value for the buyer is the monetary value that is made up of the economic, psychological and functional benefits that the buyer expects from the offer. the total cost to the buyer is the total perceived cost that the buyer expects during the assessment, procurement, use and disposal of the offer, including monetary, time, energy and psychological costs (boras, 2018). dodds and monroe (1985) also find that consumers will personally estimate what they give and what they receive when purchasing a product / service. in accordance with the utility theory, it is highly likely that the consumers will decide to buy a product if they get more convenience than they pay for the product (dickson & sawyer, 1990). according to woodruff (1997), perceived value is the result of the benefit that customers receive over the price paid for a product / service. consumers cannot clearly and accurately identify all the benefits offered by products / services, nor the financial investments needed to procure and consume them, so they rely on their valuation when determining value (sapic et al., 2014). if consumers acquire trusted perceived value while consuming products / services, it will result into a good brand image, loyalty, profit and competitiveness. several authors state that perceived value influences customer satisfaction, loyalty, and other important actions (cronin et al., 2000). also, some authors conclude that perceived value is positively related to purchase intentions (chen et al., 2017; pham et al., 2018). earlier research shows that perceived limited product offerings increase consumer value and brand preference (verhallen, 1982). this attitude is supported by the understanding of solomon (1994) that items with limited supply are of high value, while those readily available are less desirable. therefore, consumers generally consider high value products to be rare and unique, and the shortage of such products greatly stimulate the demand. 2.4. environmental impact it is of great importance to mention another factor that can have an impact on purchasing foreign brands, that is, the influence of environment. to be more precise, it denotes a change in the behaviour that happens due to the influence of other people, intentionally or unintentionally. gladwell (2000) states that new products or trends are designed by creative innovators. then come the early adopters, followed by an early ma3 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) jority. at this point, a large number of people are already consuming the idea or product, and the normative and informative influence urges others. as gladwell explains, the early majority is followed by the so-calle, late majority, and then finally there is the group called backlog, typically very conservative and resistant to change. a study conducted by ergin et al. (2010) found a statistically significant influence of the environment (others) on the consumer's intention to buy foreign brands. therefore, this factor should not be neglected when trying to explain the intention of consumers in serbia to buy foreign brands. 2.5. purchase intention purchase intention is measured as a dependent variable that depends on various external and internal factors. it is the conscious plan of an individual to buy a certain brand of product. the intention to buy refers to the estimation how probable it is that consumers will or at least will be ready to buy a certain product or service in the future. increasing purchase intention implies increasing purchasing opportunities (dodds et al., 1991; schiffman & kanuk, 2007). if there is an intention to buy a particular brand, then an evaluation of all brands available in the market is required (teng et al., 2007). the intention to buy is a probability that a certain product will be bought (dodds et al., 1991). there is a high correlation between intentions and actual behavior. rana and paul (2017) concluded that purchase intention is positively correlated with consumer behaviour and attitude. the stronger the intention to undertake a particular type of behaviour, the more likely it is that the behaviour will be put into action (sapic, 2017). having consumers with a positive purchase intention creates a customer loyalty to a certain brand that drives consumers to the actual act of buying. 3. research methodology the subject of research in this paper is to examine the factors that influence the intention of domestic consumers when buying foreign brands. the main objective of the research is to find out whether perceived quality, prestige, perceived value and environmental impact affect the intention of domestic consumers to buy foreign brands, and consequently the purchase of these foreign brands. the defined subject and the aim of the research have been set on the basis of previous research in this field, in which the above mentioned factors were used (ergin & akbay, 2010; hanzaee & taghipourian, 2012; rodrigo et al. 2019; sapic et al., 2018). empirical research was conducted by data collecting and analysis. based on the previous studies mentioned, a selection of the findings was modified and included in the questionnaire. the questionnaire is structured so that in addition to general data on respondents such as gender, age, education and level of monthly income, it also contains findings that determine the factors that influence the intention of domestic consumers when buying foreign brands. respondents expressed their level of agreement in the questionnaire using a five-step likert scale (1 – strongly disagree, 5 strongly agree), which is one of the most commonly used techniques for answering and drawing concrete conclusions in this type of research. perceived quality was analyzed in the questionnaire using the first six findings (ergin & akbay, 2010; hanzaee & taghipourian, 2012). brand prestige was analyzed through findings 7 10 (ergin & akbay, 2010; hanzaee & taghipourian, 2012), while environmental or other influences were evaluated based on findings 12 15 (ergin & akbay, 2010). the last factor, perceived value, has been evaluated through findings 16 18 (ergin & akbay, 2010; hanzaee & taghipourian, 2012). consumer intent, as a dependent variable (variable), in this research was tested through findings 19 21 (rodrigo, kahn & ekinci, 2019; sapic, furtula & filpovic, 2018), while purchases were valued through the last two findings 22 and 23 (sapic, furtula, & filipovic, 2018). in accordance with the defined goal and the subject of the research, the authors set and tested the following hypotheses: h1: perceived quality has a statistically significant effect on the intention of domestic consumers to purchase foreign brands. h2: brand prestige has a statistically significant effect on the intention of domestic consumers to purchase foreign brands. h3: the environment has a statistically significant influence on the intention of domestic consumers when buying foreign brands. h4: perceived value has a statistically significant effect on the intention of domestic consumers to purchase foreign brands. 4 dragana tomašević, dragana gašević, marija vranješ 2022/27(2) h5: the intention of domestic consumers to purchase foreign brands has a statistically significant impact on the purchase of foreign brands. because the paper analyzes whether there is a statistically significant difference in the mean values between individual categories of respondents (viewed by their demographic characteristics) in terms of buying foreign brands, the following hypotheses will be set and tested: h6: there is a statistically significant difference between gender variable towards purchase of foreign brands. h7: there is a statistically significant difference between the education variable towards purchase of foreign brands. h8: there is a statistically significant difference between the age variable towards purchase of foreign brands. to determine the relationship between the observed variables, the hypotheses were tested using the results of descriptive statistics, correlation analysis, as well as simple and multiple regressions. statistical software spss 19.0 was used to analyze the data collected. figure 1: research model 4. research results and discussion in determining the factors that influence the intention of domestic consumers to buy foreign brands and then the purchase itself, the interview method or questionnaire technique was used. data were collected from the respondents electronically in the period from 15.07. to 05.08.2019. in the aforementioned period, a total of 158 respondents provided answers to the statements defined in the questionnaire. the demographic characteristics of the respondents will be shown in the following table. table 1: demographic structure of respondents (n=158). source: prepared by the authors (spss 19.0) based on table 1, it can be concluded that the participation of women in this survey (64.6%) is higher than the participation of men surveyed (35.4%). if we look at the age structure, we notice the presence of almost all age groups, with the most significant participation being people from 25 to 34 years (44.3%) and people from 35 to 44 years (38.0%) of age. the smallest number of respondents is comprised of the youngest respondents aged 18-24 (4.4%) and the oldest respondents over 55 years (5.1%) old. in terms of educational structure, the participation of respondents with secondary education (32.3%) and respondents with higher education and titles of masters and phd (31% each) can be observed. there were no respondents with lower education, while the participation of respondents with higher education was only 5.7%. 5 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) perceived quality consumer intent when buying foreign brands brand prestige environmental impact perceived value buying foreign brands demographic characteristics frequency % gender men 102 64.6 women 56 35.4 age 18-24 7 4.4 25-34 70 44.3 35-44 60 38.0 45-54 13 8.2 > of 55 8 5.1 education lower 0 0 secondary 51 32.3 higher 9 5.7 high 49 31.0 master/magister/doctor 49 31.0 in order to determine the homogeneity and heterogeneity of the respondents' attitudes regarding the intention to purchase foreign brands, a descriptive statistical analysis was performed and the arithmetic mean and standard deviation for each statement included in the questionnaire were calculated. it can be observed that the highest values of the arithmetic mean are the statements that belong to the perceived quality. specifically, the respondents agreed that the quality of a foreign brand is significant to them (m = 4.42), and that the quality of a foreign product affects their positive attitude towards a foreign brand (m = 4.25). on the other hand, the lowest average value was recorded when stating that the brands owned by the respondents provided prestige, status and respect by members of society (m = 1.70). similarly, for the two statements with the highest average values, the most homogeneous attitudes of the respondents were observed. in other words, the slightest deviation of the responses of each individual respondent from the average value was observed when stating the importance of the foreign brand quality for them (sd = 0.933), while the biggest difference in the answers of the respondents was observed in the statement that owning foreign brands gives them status (prestige) in society (sd = 1.423). since all the findings are grouped into 6 variables, it is necessary to evaluate the reliability of the variables so defined, as well as the internal consistency of the findings associated with those variables. for this purpose, the author used the cronbach's alpha coefficient. according to the results presented in table 2, it is observed that the value of this coefficient for all variables is above the recommended 0.7, indicating the corresponding reliability and consistency of the findings (nunnally, 1978). it should also be noted that the reliability coefficient for the entire model is 0.809. table 2: cronbach alpha coefficient value source: prepared by the authors (spss 19.0) prior to applying the regression analysis, it is necessary to make a correlation analysis, i.e. to check the degree of dependence between the six variables defined in the model. based on the results presented in table 3, we can conclude that there is a statistically significant correlation between all variables in the model and that it is of moderate intensity. the correlation coefficient between consumer intent as a dependent variable and all four independent variables (perceived quality, prestige, environmental impact, and perceived value) is generally of moderate intensity and ranges from 0.3 to 0.6. it should be emphasized that the most significant degree of dependence, i.e. correlation, exists between the perceived value, as an independent variable, and the intention of the consumer, as the dependent variable (r2 = 0.573). table 3: correlation matrix ** the correlation is statistically significant at the 0.01 level. * the correlation is statistically significant at the 0.05 level. source: prepared by the authors (spss 19.0) after the correlation analysis was performed, multiple regression analyses were performed to confirm or refute the research hypotheses. the following independent variables were used in the model: perceived quality, prestige, environmental impact, and perceived value, while consumer intention is set as the dependent variable. also, multi-collinearity, i.e. the presence of high dependence between independent variables, will be tested, which often makes it difficult to examine the influence of independent variables on the dependent variable. the results of the regression analysis are presented in the following table. 6 dragana tomašević, dragana gašević, marija vranješ 2022/27(2) variable cronbach alpha coefficient perceived quality 0.790 brand prestige 0.792 environmental impact 0.783 perceived value 0.747 consumer intention 0.758 buying foreign brands 0.804 variable 1 2 3 4 5 6 perceived quality 1 0,349** 0,338** 0,418** 0,457** 0,403** brand prestige 0.349** 1 0.585** 0.595** 0.333** 0.174* environmental impact 0.338** 0.585** 1 0.588** 0.375** 0.193** perceived value 0.418** 0.595** 0.588** 1 0.573** 0.425** consumer intention 0.457** 0.333** 0.375** 0.573** 1 0.618** buying foreign brands 0.403** 0.174* 0.193** 0.425** 0.618** 1 table 4: results of multiple regression analysis (dependent variable = consumer intention) source: prepared by the authors (spss 19.0) as can be seen, based on the results shown in table 4, perceived value contributes most to predicting the intention of domestic consumers to purchase foreign brands (β = 0.475, t = 5.466, p = 0.000) h4 is confirmed. multiple regression analysis found that perceived quality also significantly contributed to the prediction of the dependent variable (β = 0.268, t = 3.796, p = 0.000) h1 is confirmed, while brand prestige and environmental impact did not have a statistically significant effect on the intention of domestic consumers to purchase foreign brands (h2 and h3 are rejected). also, we can conclude that the assumption of multi-collinearity in the regression model is fulfilled, i.e. there are no independent variables that correlate highly with each other. specifically, the variation factor value ranges from 1.24 to 1.89, which is significantly lower than the vif cutoff value of 10. in order to test the last set of research hypothesis, we will apply a simple regression analysis. consumer intention will be used as an independent variable in testing this hypothesis, while buying foreign brands will be set as a dependent variable. the test results of this hypothesis will be presented in table 5. table 5: results of simple regression analysis (dependent variable = purchase of foreign brands) source: prepared by the authors (spss 19.0) a simple regression analysis found that there was a statistically significant effect of the intention of domestic consumers to purchase foreign brands (β = 0.618, t = 9.827, p = 0.000), and that there was no problem of multi-collinearity due to the presence of only one independent variable. thus, we conclude that the hypothesis of h5 is confirmed. in addition to the above relationships, the paper analyzes whether there is a statistically significant difference in the mean values between individual categories of respondents (viewed by their demographic characteristics: gender, age and education) in terms of buying foreign brands. for this purpose, the t test of sample independence was used to determine whether men and women differ in their purchases of foreign brands. also, one-factor analysis of variance (anova) was used to determine whether age and educational status affect the acquisition of a foreign brand. the results of these tests will be presented below. table 6: results of independent t-test (dependent variable: purchase, control variable: gender) source: prepared by the authors (spss 19.0) based on the results shown in table 6, we can conclude that the variance of these two categories of respondents is homogeneous (f = 0.000, p = 0.992), and that women and men differ significantly in terms of buying foreign brands (t = -3.125, p = 0,002). so, we conclude that the hypothesis of h6 is confirmed. many previous research studies have concluded that gender has a significant impact on consumer purchase intention (chen, 2013, omar et al., 2017). table 7: results of one-way analysis of variance anova (dependent variable:purchase, control variable: education) source: prepared by the authors (spss 19.0) 7 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) variable t sig. vif perceived quality 0.268 3.796 0.000 1.244 brand prestige -0.071 -0.834 0.406 1.797 environmental impact 0.047 0.555 0.580 1.770 perceived value 0.475 5.466 0.000 1.894 variable t sig. vif consumer intention 0.618 9.827 0.000 1.000 control variable levene's homogeneity test independent t-test f sig. t sig. gender 0.000 0.992 -3.125 0.002 control variable levene's test homogeneity anova f sig. t sig. education 1.086 0.357 4.405 0.005 the results of the leven test show that there is an equality of variance in the results in each of the five groups of respondents observed by educational profile (f = 1.086, p = 0.375), and that the basic assumption for the analysis of variance is fulfilled. further analysis shows that there is a statistically significant difference between the mean values of buying foreign brands in the observed groups of educated status (t = 4.405, p = 0.005) – h7 is confirmed. in a subsequent comparison, the mean values of the second and fourth groups of respondents were found to be statistically significant. in other words, respondents who have a college degree differ significantly from those who have a university degree in terms of buying a foreign brand (md = -0.729, p = 0.003). also, this result is in line with other research studies which showed that there is a statistically significant relationship between education as control variable and consumers’ purchase intention (paul & rana, 2012; wang et al., 2020). table 8: results of one-way analysis of variance anova (dependent variable: purchase, control variable: age) source: prepared by the authors (spss 19.0) in this case, where the age of the respondents was used as a control variable and its influence on the purchase of a foreign brand was determined, the results of the leven test showed that there was no homogeneity of variance in the results in each of the five groups of respondents by age (f = 2.560, p = 0.041), and that the basic assumption for the analysis of variance was not fulfilled. the results of a robust welch test that is resistant to violating the assumption of homogeneity of variance (f = 2.260, p = 0.092) show the same. due to the impossibility of applying a one-factor analysis of variance in the previous case, the authors decided to apply a non-parametric alternative, i.e. kruskal-wallis test (results will be shown in table 9). tabela 9: results of the kruskal-wallis test (dependent variable: purchase, control variable: age) source: prepared by the authors (spss 19.0) the results of the kruskal wallis test shown in table 9 show that there is no statistically significant difference in foreign brand acquisition between the five different age groups (χ2 = 8.535, p = 0.074) – h8 is rejected. voung and khanh giao (2020) proved that the relationship between age as control variable and consumers` purchase intention was not statistically significant. therefore, we conclude that certain demographic characteristics have a significant influence on the purchase of foreign brands, that is, men and women, as well as persons with secondary and university education differ in this point of view. other groups also differ in terms of purchase, but these differences are not statistically significant. 8 dragana tomašević, dragana gašević, marija vranješ 2022/27(2) control variable levene's test homogeneity welch f sig. f sig. age 2.560 0.041 2.260 0.092 control variable chisquare sig. age 8.535 0.074 the main purpose and aim of this paper is to determine what factors drive domestic consumers to buy foreign brands. based on the selection of relevant literature from previous research, the influence of four factors affecting the intention of domestic consumers in serbia to buy foreign products has been analyzed, namely: perceived quality, prestige, influence of others (environment) and perceived value. multiple regression analyzes revealed that there was a statistically significant effect of perceived quality and perceived value on the intentions of domestic consumers when buying foreign brands. the statistically significant impact of perceived quality on brand acquisition intention has been confirmed in many existing studies (baek et al, 2010; erdem, & swait, 2004; ergin & akbay, 2010; hanzaee & taghipourian, 2012; sapic et al., 2018). research conducted by ergin and akbay (2010) and thaler (1985) found a statistically significant effect of perceived value on consumer intentions when buying foreign brands. the remaining two factors (prestige and environmental impact) do not have a statistically significant effect on consumers' intentions in buying foreign brands and this finding is consistent with other research studies (chen et al., 2015; jeng, 2016). also, a statistically significant impact of consumer intentions on the act of buying foreign brands was determined, which is in line with a survey conducted in 2018 by sapic et al. finally, it was examined whether conslusion references [1] aaker, d.a. 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(1988). consumer perceptions of price, quality and value: a means-end model and synthesis of evidence. journal of marketing, 52(3), 2-22. doi: 10.1177/002224298805200302. received: 2019-11-26 revisions requested: 2019-11-28 revised: 2020-06-18 (2 revisions) accepted: 2020-08-02 11 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) 12 dragana tomašević, dragana gašević, marija vranješ 2022/27(2) dragana tomašević novi sad school of business, novi sad, serbia dragana.vps@gmail.com dragana tomašević is employed as a teaching assistant at the novi sad school of business. she completed her basic and master studies at the department of european economics and business at the faculty of economics, subotica. she is currently a phd student in the study programme of business economics, marketing. dragana tomašević has also been an active member of the marketing team of the novi sad school of business for many years. she has eight years of experience in preparing and performing exercises in courses: consumer behaviour, business economics, fundamentals of economis and business statistics. she is the author of numerous papers published in national and international conferences and leading national journals. dragana gašević novi sad school of business, novi sad, serbia draganag.vps@gmail.com dragana gašević holds a m.sc. degree from the faculty of economics, university of novi sad. she is a ph.d. student at the faculty of economics, university of kragujevac. since 2012 she has been employed as an assistant professor at the department of business economics at the novi sad business school. as author or coauthor, she published numerous papers in scientific journals and national and international conferences. marija vranješ novi sad school of business, novi sad, serbia vranjesmarija.vps@gmail.com marija vranjes holds a m.sc. degree from the faculty of economics, university of novi sad. she is a ph.d. student at the faculty of economics, university of kragujevac. since 2012 she has worked as an assistant professor at the department of business economics at the novi sad business school. as author or coauthor, she published a number of papers in scientific journals and national and international conferences. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02 26_2 nikolic2:tipska.qxd 15 marija nikolić tošović1*, violeta jovanović2 1lum jean monnet university, faculty of economics, italy 2megatrend university, faculty of management zaječar, serbia management: journal of sustainable business and management solutions in emerging economies 2021/26(2) * corresponding author: marija nikolić tošović, e-mail: mmarija.nnikolic@gmail.com entrepreneurial intention model: empirical results with management students in serbia doi:10.7595/management.fon.2020.0023 abstract: 1. introduction the success of entrepreneurial ventures depends on the quality of the entrepreneurial idea and the ability of entrepreneurs to realize it (vekic, fajsi & borocki, 2019). if we want to enlarge the number of enterprises, a closer explanation of all the phases and predictions of entrepreneurship is necessary. the first step of the entrepreneurship process is the entrepreneurship intention and in order to enlarge this exact phenomenon it is of great importance to look deeply into all the elements which can affect it. initial research lists personality attributes as the determinants for entrepreneurial intentions, which are followed by the involvement of individual difference (e.g., achievement motivation) as a significant influencing factor. nevertheless, potential entrepreneurs are not isolated and autonomous decision makers. they research question: this paper analyses which elements influence the entrepreneurial intention in serbian entrepreneurial practice. motivation: with this research, we want to draw attention of the public, decision-makers and entrepreneurs to entrepreneurship as a huge potential for the nation’s long-term economic growth in serbia. to enlarge the number of potential entrepreneurs and, therefore, the final number of entrepreneurs, a more detailed explanation of all the phases as well as the prediction of entrepreneurship is necessary. as far as the first phase is concerned, this research starts from the adoption of the theory of planned behaviour (ajzen, 1991) and tests relative contributions of motivational antecedents to the entrepreneurial intention (ei). mixed results from literature for model specifications, especially for the contribution of subjective norm (sn), lead to the general need for more empirical support. idea: considering findings that the influence of motivational antecedents on ei differs due to national cultures (linan & chen, 2009), we conducted the empirical investigation to test the model in the context of serbian entrepreneurial practice. data: primary data were collected from 191 responses to the questionnaire distributed among the students of master management studies and junior and senior students of undergraduate management studies at the faculty of management in the first semester of 2019/2020. tools: to confirm the construct validity and to improve the quality of the measurement model and its application to new dataset, methods that validate the model were applied: cronbach’s alpha, factor analysis, the heterotrait–monotrait ratio of correlations and the fornell-larcker criterion. to test the hypotheses, the structural equation modelling was used. findings: the proposed ei model achieved statistically significant explanatory power of almost 50% of the variations in ei, due to personal attitude (pa) and perceived behaviour control (pbc). the study adds empirical evidence in the context of serbian entrepreneurial practice about the role of sn as the antecedent of pa and pbc. age, a role model and work experience showed statistically significant influence as control variables. contribution: the study extends the literature by empirically testing ajzen’s theory in the context of an emerging economy and offers an input for practical implementation of findings. keywords: entrepreneurship, entrepreneurial intention model, theory of planned behaviour, personal attitude, subjective norm, perceived behaviour control jel classification: l26, m13, m20, o31 are influenced by a large number of microand macro-involving factors. according to neilsen and co-authors, the appropriate leadership style, decentralization, the organic organizational structure and low formalization have a significant positive influence on employees' entrepreneurial intentions (nielsen, marinkovic, & nikolic, 2019). the creation of preconditions for encouraging corporate entrepreneurship sustains the organisation’s long-term competitive position (nielsen, babic, stojanovic-aleksic, & nikolic 2019a). hockerts’ study shows that prior experience predicts social entrepreneurial intentions. the social entrepreneurial self-efficacy both has a strongest impact on intentions and is most responsive to the prior experience (hockerts, 2017). nonetheless, one of the most used theories in entrepreneurial literature is the theory of planned behaviour (tpb), (schlaegel & koenig, 2013) which investigates entrepreneurial behaviour through cognitive and social psychological models. in addition to social and cultural environment and economic variables, the government and the education system may represent important influencing factors. government policies and the education system should be oriented in a way that positively influences attitudes or intentions of entrepreneurs and potential entrepreneurs. the involvement of the theory, in this case the intention-based models, can help in creating the suitable education system and policies that support creative thinking, stimulate the entrepreneurship intention and, what is more, the entrepreneurship behaviour (linan, rodríguez-cohard, & rueda-cantuche, 2011). the implementation of long-term strategies of the education system will noticeably increase the entrepreneurial intention (diez-echavarria et al., 2019). literature shows that many studies on various health topics proved that changes in constructing the intention resulted in the change of behaviour. based on these findings, many successful behaviour changes have been implemented (fishbein, 2017). this paper analyses which elements influence the entrepreneurship intention in serbian entrepreneurial practice and offers input for further practical implementation of findings. 2. theory and hypotheses entrepreneurship is an intentionally planned behaviour resulting from motivation and cognition (krueger & carsrud, 1993, krueger & brazeal, 1994; krueger, reilly, & carsrud, 2000; linan, nabi & krueger, 2013; krueger, 2017). entrepreneurship can be a career choice, and therefore a conscious and long-planned behaviour. there are also cases where it can present results of a certain coincidental situation. if a surprising and potentially great opportunity appears, an entrepreneur may choose to start his/her mission at the moment. it can be concluded that the exact timing at the beginning of a new venture can be unplanned, nevertheless, the intention of the enterprise creation appears earlier in the entrepreneur’s mind. another possible trigger for the enterprise creation can be a unique event in the life of the entrepreneur, such as being looked down on; nevertheless, in this case, a long-lasting wish and desire to be a business owner preceded this event (fishbein, 2017; krueger et al., 2000). the additional attractiveness of entrepreneurship, as a career choice, lies in the possibility to participate in the labour market while retaining personal freedom (martinez et al., 2007). the entrepreneurial intention, as a conscious state of mind that precedes action (shook, priem, & mcgee, 2003), indicates the effort that a person will make to carry out that entrepreneurial behaviour (ajzen, 1991). the entrepreneurial intention may be defined as a mental state that represents a strong commitment to take entrepreneurial action in the future; therefore, it is a link between the beliefs of an individual and the corresponding behaviour (boyd & vozikis, 1994). the entrepreneurial intention as a good indicator of a particular action is also considered as a personal orientation that might lead to the venture creation. it can be pointed out that not all entrepreneurial intentions will lead to an action, but it is also true that no action will happen without intention (krueger et al., 2000). 2.1 the theory of planned behaviour literature recognizes entrepreneurial intention as a very important concept and in order to study the entrepreneurial intention, numerous different entrepreneurial intention models have been used (shapero & sokol, 1982; kent, sexton, & vesper, 1982). among them, the tpb has become the most powerful and prevailing concept in the research on entrepreneurial intention (fayolle & linan, 2014). the central construct in the tpb is the individual’s intention to perform a given behaviour (moriano et al., 2012). the prerequisite for this theory is that the behaviour has to be under volitional control. since entrepreneurship is con16 marija nikolić tošović, violeta jovanović 2021/26(2) sidered an intentional planned behaviour, it is possible to find the reason why many entrepreneurs, long before recognizing the opportunities for venture creation, have actually already made a decision to start a business (ajzen, 2002). the tpb combines two approaches of research into ei: the research in the relationships between attitudes and the entrepreneurial intention and the research in the connections between self-efficacy and the entrepreneurial intention (ajzen, 2001). according to the model, three intentional antecedents predict the intention best: the attitude towards the behaviour or personal attraction (pa), subjective norms (sn) and perceived behavioural control (pbc). pa is a “personal” desirability or a degree to which a person has a positive or negative evaluation or appraisal of the behaviour in question, in this case of being an entrepreneur (linan & chen, 2006). it has been developed on the basis of positive beliefs that are kept together for the benefits of being an entrepreneur such as financial rewards, independence/autonomy, personal rewards and family security, but also a negative impact factor such as a perceived risk (ozaralli & rivenburgh, 2016). sn is a social factor that refers to the perceived social pressure to perform or not to perform the behaviour. in this case, subjective norms refer to the views considered important by individuals who advise the individual to perform or not to perform certain entrepreneurial behaviours. more precisely, it measures whether “reference people” would approve of the decision to become entrepreneurs (linan and chen, 2006). krueger et al. (2000) suggest that those people are parents, significant persons, friends, role models or mentors. pbc or a perceived ability to perform a behaviour refers to the perception of the ease or difficulty of performing the behaviour and is assumed to reflect the past experience as well as the anticipated obstacles (kolvereid, 1996; autio, keeley, klofsten, parker, & hay 2001; krueger et al. 2000). it is an individual’s belief and confidence in his/her capability of performing the role of an entrepreneur (ajzen, 2002) and since it is a perception, it can also be called entrepreneurial self-efficacy (shook & bratianu 2010; moriano et al., 2012). in other words, pbc copes with perceptions, not the actual skills or abilities (kickul, gundry, barbosa, & whitcanack, 2009). the influence of these three motivational antecedents is positive, i.e., the better the attitude, subjective norms and perceived behavioural control, the stronger the intention of an individual to perform the behaviour. (autio et al., 2001; krueger et al., 2000). 2.2 proposed model of entrepreneurial intention the relative contributions of the three motivational factors for the intention explanation differ for each specific behaviour (autio et al., 2001). considering the entrepreneurial intention, most of the entrepreneurship literature proves that pbc has the strongest effect (peterman & kennedy, 2003, ajzen, 1991, moriano et al., 2012), therefore, it is expected that pbc is more decisive for action (kolvereid, 1996; autio et al., 2001; krueger et al., 2000). there are also studies that do not show any effects of sn on the business entrepreneurial intention (veciana et al., 2005; vinogradov et al., 2013; do paco et al., 2011; arrighetti, caricati, landini, & monacelli, 2016). guided by those results, some studies simply omitted sn from the initial model (linan & santos, 2007; linan, 2008) while some, such as linan with co-authors, found out the role of sn as an antecedent to pa and pbc (shirokova, osiyevskyy, & bogatyreva, 2016). taken together, the inconsistencies in defining and modelling sn strongly emphasize the continued need for further research on this antecedent, as well as theoretical elaboration and empirical investigation (weber, oser, achtenhagen, fretschner, & trost, 2014). by adopting linan’s and chen’s model we conducted the empirical investigation among serbian management students. we single out age, gender, knowing a role model, having work experience and self-employed experience as exogenous factors that had a positive indirect influence on intention and behaviour through motivational antecedents (linan & chen, 2006; linan & fernandez-serrano, 2014). considering that a controversy about the role of sn in the entrepreneurial intention model exists and that the results of the previous research are different, we hypothesize (figure 1): h1: personal attitude (pa) positively influences the entrepreneurial intention (ei). h2: perceived behavioural control (pbc) positively influences the entrepreneurial intention (ei). h3: subjective norm (sn) positively influences personal attitude (pa). h4: subjective norm (sn) positively influences perceived behavioural control (pbc). 17 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) figure 1: hypotheses of the entrepreneurial intention model 3. methodology to test these hypotheses, we used the samples of master and junior and senior management students from the faculty of management in zaječar (serbia), megatrend university, based on convenience and accessibility. using a student’s sample could be considered the most appropriate for this study as the study deals with the entrepreneurial intention of “potential entrepreneurs” (kickul et al., 2009). we considered particularly management students as the most suitable sample that could develop the intention of starting their own enterprise, due to their formal knowledge. consequently, the curriculum of the students in our sample includes the courses of entrepreneurship and small business management in their first and second years of university studies. further, the final year of their studies covers a period of life when career choices can be made and when the time between intention and behaviour is very short and that relation may be more reliable (conner & armitage, 1998). at that period of life, entrepreneurial conscience and the attitude towards entrepreneurship as career have already been formed. students' involvement in the entrepreneurial activity depends on their career plans and attitude towards self-employment (iakovleva, kolvereid, & stephan 2011). our initial sample consisted of 196 students. after the exclusion of the questionnaires that had a lot of answers missing, our sample numbered 191. the data used for the research were primary and they were collected through a questionnaire. at the beginning of the questionnaire, we explained the term entrepreneur, to avoid misunderstanding of this complex term. the e-mail contact was added for possible further dynamic research. questions about age, gender, knowing an entrepreneur personally (role model), whether they have work experience and self-employment experience (linan & chen, 2009) were included. questions 6 to 9 correspond to the elements in the entrepreneurial intention model (pa, sn, pbc, ei) and they were all measured by the likert-type scale (form 1 to 7, the scale is taken from the original entrepreneurial intention questionnaire), since the multi-item scales are more reliable than single ones (linan & chen, 2009). the following table shows the questions that measure the constructs. the questions were previously validated in the study of linan and chen (2009) and translated from english with the use of the back-translation strategy. the questionnaires were handed out in print in classes with the previous explanation of the aim of the questionnaire and the terms used in it, and by doing so we enabled a high percentage of responses. for data analysis, we used a smartpls version 3.2.6. and a spss version 23. to test the hypotheses, we used structural equation modelling, tools that are increasingly being used in behavioural science research since it models relationships among multiple independent and dependent variables simultaneously (linan & chen, 2009; gefen at al., 2000; esfandiar et al., 2019; iakovleva et al., 2011; valencia-arias et al., 2018). 18 marija nikolić tošović, violeta jovanović 2021/26(2) table 1: questions tested 4. results the essential psychometrics of the model were tested, and the first part of this section shows the results of reliability and validity tests of the scales, as well as the instrument and the constructs. the second part presents the descriptive statistics, and the last one deals with the results of testing hypotheses. 4.1 reliability and validity testing for reliability testing, cronbach’s alpha was used as a measure of internal consistency that shows how closely related a set of items are as a group. it is not unusual in social science research situations that the values of 0.7 and higher are considered acceptable (george & mallery, 2003). in our case the values ranged from 0.752 to 0.952 and therefore the scales may be considered as reliable. table 2: cronbach’s alpha validity represents the extent to which an instrument is accurate at measuring the construct under study, in this case the dimensions of the entrepreneurial intention (george & mallery, 2003). based on the literature proposition (linan & chen, 2009; george & mallery, 2003; anderson et al.,1988), the substantive validity can be assessed by using the two fundamental aspects of construct validity: convergent validity and discriminant validity. convergent validity is usually evaluated with the use of factor analysis, which is a statistical method that “explores the extent to which individual items in a questionnaire can be grouped together according to the correlations between the responses to them”, thus reducing the dimensionality of the data (hutchinson et al., 2006, p. 348). in situations when the factor structure is theory driven, a commonly used method to test the propound factor structure of the questionnaire is confirmatory factor analysis (cfa) (mcardle, 1996). the re19 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) construct questions sn if i decide to set up a firm, my close family will approve of that decision if i decide to set up a firm, my friends will approve of that decision if i decide to set up a firm, my colleagues and mates will approve of that decision pa being an entrepreneur implies more advantages than disadvantages to me a career as an entrepreneur is attractive to me if i had the opportunity and resources, i’d like to start a firm being an entrepreneur would entail great satisfaction for me among various options, i’d rather be an entrepreneur pbc starting a firm and keeping it operational would be easy for me i’m prepared to start a viable firm i can control the creation process of a new firm i know the necessary practical details to start a firm i know how to develop an entrepreneurial project if i tried to start a firm, i would have a high probability of succeeding ei i’m ready to do anything to be an entrepreneur my professional goal is to become an entrepreneur i will make every effort to start and run my own firm i’m determined to set up a firm in the future i have very seriously thought about starting a firm i’ve got a strong intention to start a firm some day ������� �� ���� �������� ������� ����� ��� ����� ����� ����� ����� ��������� ������� �� ������ ����� ���������� ��� ��������� ����� sults show that convergent validity can be assured since the factor loadings of the observable variables were higher than 0.5, with the average above 0.7 (bagozzi & yi, 1988). table 3: convergent validity the kaiser-meyer-olkin measure of sampling adequacy (kmo) and bartlett's test of sphericity were conducted to test how suited our sample was to the model. the kmo offered statistics that indicated the proportion of variance in the variables that might be caused by underly factors (child, 1990). bartlett's test checks if the correlation matrix is an identity matrix that would signify that the variables are unrelated and thus inappropriate for the factor analysis (levy et al., 2006, child, 1990). table 4: kmo and bartlett's test for our sample, the kmo test showed a high adequacy (0.844) and bartlett’s sphericity test was highly significant (p < .000), thus confirming the possibility to carry out a data reduction technique, and therefore analyse the factors that influence the entrepreneurial intention. the same results showed the coefficients for each of the factors (table 5). table 5: kmo and bartlett's test discriminant validity is the level to which measures of different constructs show correlation with one another (devon et al., 2007). the discriminant validity was evaluated by using the heterotrait–monotrait ratio of correlations (htmt) and the fornell-larcker criterion. fornell-larcker report supports the discriminant validity of our scales (table 6) since the comparison of the values in the matrix shows that the square roots of the average variance extracted, i.e., the values in the matrix diagonal, are larger in all cases than the off-diagonal values in their corresponding row and column (hair, j., hult, gtm, ringle c & sarstedt, m, 2014). 20 marija nikolić tošović, violeta jovanović 2021/26(2) ������� � �� ��� ������ ����� � � ����� �������� � ��������� �� � ���������� � �� ��� �������� �� ��� ���������� � �� ��� �������� ���� �� � ����� ��� ����� ������ ������ �� ���� � ������ �� ������ �� ������ �� ������ �� ������ �� ������ ������ ������� ��� �� ������ ���� ���� � ������ ���� ������ ���� ������ ���� ������ ���� ������ � �� � � !�������� ������ ������ ��� �� ����� ������ ������ ����� ������ ����� ��� �� ����� ��� �� ����� ������ ����� ������ ���" ��� ���� ������ ������ ���� ������ ��� ������ ������ ���� ������ kaiser-meyer-olkin measure of sampling adequacy. 0.844 bartlett's test of sphericity approx. chi-square 3579.351 df 190 sig. 0.000 factors kaiser-meyer-olkin value bartlett’s value personal attitudes 0.822 0.000 social norms 0.592 0.000 perceived behavioural control 0.864 0.000 entrepreneurial intention 0.863 0.000 table 6: fornell-larcker report the htmt as a new method for assessing discriminant validity outperforms earlier approaches. the confidence interval in the estimate of a correlation between each pair of factors has to be under 0.85 (voorhees, brady, calantone & ramirez, 2005) to support discriminant validity. table 7 proves that this condition is met in our sample and discriminant validity has been established between the reflective constructs. table 7: heterotrait–monotrait ratio of correlations 4.2 descriptive statistics the following tables 2 to 6 present descriptive statistics. table 8: descriptive statistics age table 9: descriptive statistics the average age of students in our sample was 25. a higher percentage of students were female (72%); the majority did not have any self-employment experience, but even 45% had some work experience, and almost 67% had a certain entrepreneur as a role model. 21 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) factors kaiser-meyer-olkin value bartlett’s value personal attitudes 0.822 0.000 social norms 0.592 0.000 perceived behavioural control 0.864 0.000 entrepreneurial intention 0.863 0.000 ei pa pbc sn ei pa 0.704 pbc 0.664 0.713 sn 0.279 0.440 0.533 n minimum maximum mean std. deviation age 185 21 45 24.99 5.596 value 21 25 26 30 31 35 36 40 41 45 frequency 74.6% 12.4% 3.2% 6% 3.8% frequency percent valid percent gender 185 96.9 100.0 male 52 27.2 28.1 female 133 69.6 71.9 missing 6 3.1 work experience 191 100.0 100.0 yes 86 45.0 45.0 no 105 55.0 55.0 missing 0 0 self-employed experience 188 98.4 100.0 yes 19 9.9 10.1 no 169 88.5 89.9 missing 3 1.6 role model 191 100.0 100.0 yes 127 66.5 66.5 no 64 33.5 33.5 missing 0 0 4.3 results of hypotheses testing to test the hypotheses, we tried to verify the model explained at the beginning of this paper (figure 1) with the structural equation modelling. the variables age, gender, presence of a role model, work experience and self-employment experience as control variables were used as items that influenced ei only through motivational antecedents (sn, pbc, pa). all the demographic variables are dichotomic, except age, which is measured in years. the value 1 means male for the “gender” variable and yes for other variables (know an entrepreneur personally, have self-employment experience and have work experience). the value 0 means the opposite. since the posesion of these characteristics may be connected with more favourable perceptions, it is expected that the relationship with all the control variables and intention antecedents is positive. after running the pls algorithm, we obtained the percentage of explained variance by explanatory variables (r2), factor loadings and standardized regression weights or the effect. the chosen method for the missing value was case wise deletion. we calculated t-statistics to determine with certainty that the regression weights were significant. table 10: pls algorithm of the model with standardized regression weights, factor loadings and p values then, with the recursive method applied, we eliminated the path with the lowest t-statistic and repeated with each iteration until all coefficients were significant at the 95% level of confidence and higher. for the purposes of clarity, the entrepreneurial intention model with only significant paths included is given in figure 2. the model shows the negative influence of age on sn, the positive influence of role model on pbc and the positive influence of work experience on sn and pa. sn has influence on ei, but the indirect one, only through pa and pbc. pa and pbc have a statistically significant direct influence on ei, the stronger one being the influence of pa. our model explained almost 50% of variance of ei (49.8%). therefore, it can be argued that all four hypotheses are proven. 22 marija nikolić tošović, violeta jovanović 2021/26(2) standardized regression weights t statistics p values age -> pa -0.091 1.064 0.287 age -> pbc 0.044 0.478 0.633 age -> sn -0.263 2.749 0.006 gender -> pa 0.105 1.417 0.157 gender -> pbc 0.086 1.202 0.230 gender -> sn -0.140 1.920 0.055 pa -> ei 0.416 5.669 0.000 pbc -> ei 0.354 4.927 0.000 role.model -> pa 0.106 1.504 0.133 role.model -> pbc 0.176 2.840 0.005 role.model -> sn 0.096 1.242 0.214 sn -> pa 0.356 4.701 0.000 sn -> pbc 0.488 7.961 0.000 self.empl. -> pa -0.008 0.094 0.925 self.empl. -> pbc 0.095 1.241 0.215 self.empl. -> sn 0.028 0.332 0.740 work.exp. -> pa 0.198 2.246 0.025 work.exp. -> pbc 0.082 1.151 0.250 work.exp. -> sn 0.243 2.998 0.003 figure 2: entrepreneurial intention model based on results with standardized regression weights, factor loadings and r2 * p< 0.05; **p< 0.01; *** p< 0.000 5. discussion as seen in the previous section, all hypothesized relations are completely accepted: pa and pbc have a statistically significant direct positive influence on ei, while sn has a positive influence on pa and pbc. these findings are in accordance with some previous findings in the literature in which subjective norms show a low or insignificant influence on entrepreneurial intentions (e.g., krueger et al., 2000; linan & chen, 2006; do paco et al., 2011, linan & chen, 2009, linan et al., 2011, arrighetti et al., 2016, vinogradov et al., 2013,). out of all of the relationships in the entrepreneurial intention model in tpb, subjective norms to intentions received the lowest support in literature (lortie & gastogiovanni’s, 2015). certain entrepreneurship scholars theorized that sn might act as an antecedent to pa or pbc (boyd & vozikis 1994). linan and chen empirically proved that sn would be „the first step in the mental process, acting as a first filter to external stimuli and thus influencing perceptions of pa and pbc“ (linan & chen, 2009, p.612) and called for a contribution to the study in different countries. hence, this research gives empirical evidence that the relationships of sn and ei are being mediated by pa and pbc with regard to senior management students in serbia. this can be understood as a fact that if social pressure to become an entrepreneur exists, it does not influence the entrepreneurial intention of the individual directly. this indicates that the choice of entrepreneurship as a career is based on one's own introspection and it may be interpreted as the fact that most of the students from the sample are in control of their lives. nevertheless, the effects of sn should not still be refused totally. moving further from the direct influence, consideration of the indirect effect that sn has via pa and pbc on ei shows better results. therefore, rather than directly changing a person’s intentions to become an entrepreneur, the approval of family, friends and colleagues of such a career choice persuades individuals to recognise it even as more favourable and gives them higher self-confidence that they can prove themselves. hence, as stated previously, such positive perceptions result in higher entrepreneurial intentions. our model explains a very high percentage of variance of ei. while in most studies pbc has the strongest influence on ei, in this study the most powerful one is the influence of pa. the explanation may be found in some cultural or social factors or it may be in the differences between the education programmes. the pbc component represents students’ own perception of their appraisal of knowledge and skills in a new venture creation. thus, students indicated that during studies they acquired a wider range of entrepreneurial skills and knowledge that can be applied after graduation. however, in our sample, the explanatory power of pbc in predicting ei is lower than the power of pa. it can be interpreted that, although students have certainly learned something at university, these newly acquired skills and knowledge are not so relevant to their decision to become entrepreneurs (weber et al., 2014) as personal desirability of being an entrepreneur. 23 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) as far as age is concerned, even though the average age of the students in our sample is 25, it should be mentioned that we had a group of respondents that dramatically differed in age (from 21 to 45), therefore it was possible to explain how age affected the entrepreneurial intention. surprisingly, the influence is negative, showing that younger people have higher intentions to pursue an entrepreneurial career. the explanation can be found in suggestions that the young people, regardless of the risk levels, show greater intentions to venture creation when they identify a good idea (diez-echavarria et al., 2019). additionally, in emerging economies (such as our case) the possibilities of having steady jobs for younger people are also weaker, which suggests that being an entrepreneur presupposes not so high economic and social risks as in developed countries (diez-echavarria et al., 2019). empirical results from the survey conducted by ceves in serbia reveal that 65% of the citizens answered that they would like to work for the salary in the public sector and just 30% would like to start their own business; in the same survey the youngest (aged 18 to 29) had the highest percentage of desire to be self-employed (36%) (ceves, 2014). it is more than evident that in the last three decades, female entrepreneurship has made a significant progress (kickul et al., 2008). nowadays there are more women who are self-confident and ready to take a risk. consequently, women as entrepreneurs are of ever increasing economic and social importance. our study only confirmed that the gender did not have a statistically significant influence on entrepreneurial intention. the role model confirmed a statistically significant positive influence on ei. this influence is also indirect, through motivational antecedents, actually through pbc. the influence can be explained by the logic that if an entrepreneur and his/her business are in a position to observe closer possible advantages and obstacles of the business, then it helps individuals to get their own impression of how easy or difficult it is to be an entrepreneur and to enlarge their personal desirability for entrepreneurship. the study of nowinski and haddoud confirms this and suggests that the key to promoting ei lies in the interplay of role models, attitudes towards entrepreneurship and entrepreneurial self-efficacy (nowinski & haddoud, 2019). whether role model activities are related to storytelling, especially successful role model and idol stories, (liu et al., 2019), or involving the respondent in professional activities, or employment (auken et al., 2006), they are more inclined to arouse the individuals’ ei by forming particular guidance and support, or by creating the environment that prompts entrepreneurial behaviour (barnir et al., ). according to the results of this study, work experience has a statistically positive significant influence. the literature on the empirical results of other countries confirms our findings (masoomi et al., 2016; soria-baretto et al., 2017; yuan et al., 2019). the entrepreneurial intention and behaviour are often considered a result of previous work experience. moreover, because of the lack of previous work experience, even if a student has a firm entrepreneurial intention, he/she might not act upon it until he/she accumulates enough experience to gain confidence to create the venture (carsrud & brannback, 2011). previous entrepreneurial experience of an entrepreneur can be considered as one of the main factors linked to the new venture creation (lee &tsang, 2001). however, our results show insufficient statistical evidence that lead to the fact that students with prior self-employment experience show a higher level of entrepreneurial intention. the explanation for this can be found in the specific overall economic situation in serbia. students generally have little self-employment experience and the attitude toward entrepreneurship is mostly negative in serbia (ceves, 2014). in our sample, even 10% of the respondents confirmed that they were previously self-employed, with approximately 5.7 years of this experience (the answers of the length of self-employment were 1 to 12 years). nevertheless, at the moment of survey all of them declared that they were not self-employed anymore. these findings call for further research. further studies should apply additional qualitative methodology in order to gain more thorough findings. 24 marija nikolić tošović, violeta jovanović 2021/26(2) our study enlarges the current body of literature with additional empirical evidence of the implication of tpb on entrepreneurial intention. the tpb has shown to be applicable to entrepreneurship, and this time the model has been proven via the sample of management students from an emerging economy. another contribution of the paper is in delivering empirical proofs to the ongoing debate of the influence of subjective norms. since some previous studies have not confirmed a significant direct relationship between subjective norms and the entrepreneurial intention, social capital literature indicates that these norms favourably affect pa and pbc (linan et al., 2011a). the results of this paper support doubt in the direct relationship and suggest that the role of subjective norms should just be antecedent to pa and pbc. concluding remarks and implications references [1] ajzen, i. 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(2018). constructs and relationships in the study of entrepreneurial intentions in university students. international journal of environmental & science education, 13 (1), 31-52. 27 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) 28 marija nikolić tošović, violeta jovanović 2021/26(2) [63] veciana, j. m., aponte, m., & urbano, d. (2005). university students’ attitudes towards entrepreneurship: a two countries comparison. the international entrepreneurship and management journal, 1 (2), 165182, doi: 10.1007/s11365-005-1127-5 [64] vekic, a., fajsi, a., & borocki, j., (2019). development of entrepreneurial ecosystem through university’s new companies. management: journal of sustainable business and management solutions in emerging economies, 24 (3), 33-47. doi: 10.7595/management.fon.2019.0012 [65] vinogradov, e., kolvereid, l. & timoshenko, k. (2013). predicting entrepreneurial intentions when satisfactory employment opportunities are scarce. education + training, 55 (7), 719-737., doi:10.1108/et-06-2012-0067 [66] voorhees, c.m., brady, m.k., calantone, r., & ramirez, e., (2015). discriminant validity testing in marketing: an analysis, causes for concern, and proposed remedies. journal of the academy of marketing science 44 (1), 119-134, doi: 10.1007/s11747-015-0455-4 [67] weber, s., oser, f., achtenhagen, f., fretschner, m. & trost, s. (2014). becoming an entrepreneur. sense publishers, roterdam [68] yuan, l.w., qalati, s.a., iqbai, s., hussain, r.y., & ali, s. (2019). impact of prior work experience on entrepreneurial intention and theory of planned behaviour in the context of pakistan. journal of entrepreneurship and organization management, 8 (2), 1-9. doi: 10.4172/2169-026x.1000268 received: 2020-06-08 revisions requested: 2020-09-12 revised: 2020-10-08 (1 revision) accepted: 2020-11-02 marija nikolić tošović lum jean monnet university, faculty of economics, italy mmarija.nnikolic@gmail.com marija nikolić tošović received her phd at the lum jean monnet university, faculty of economics in casamassima, bari, italy. she was a visiting researcher at the icre8 research centre in athens. her current research interests include entrepreneurship, social entrepreneurship, international entrepreneurship, comparative research, organizational behaviour, cross culture management, and sustainable development. violeta jovanović megatrend university, faculty of management zaječar, serbia violeta.jovanovic@fmz.edu.rs violeta jovanović, phd, is active in the fields of sustainable development, research and development management, organization and business management. she did her bachelor's and master's degrees in bor, at the technical faculty. her doctoral thesis titled “organizational learning as an influencing factor of sustainable management companies” was defended in 2016 at the faculty of management zajecar. she is a reviewer and a member of the association of economists and managers of the balkans. she has published several books and peer-reviewed papers. her papers are cited in scientific literature. the largest number of papers deals with sustainable development, organizational learning and social responsibility. since 2017 she has been an assistant professor at the megatrend university, faculty of management zaječar. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice #arelia eydis gudmundsdottir:tipska.qxd 1 arelia eydis gudmundsdottir1, inga minelgaite1*, svala gudmundsdottir1, christopher r. leupold2, thelma kristín snorradóttir1 1university of iceland, school of business, iceland 2elon university, usa management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: inga minelgaite, e-mail: inm@hi.is research question: this study examines the attitudes of 106 of iceland’s highest-level public officials towards their current work conditions and the constraints around them. motivation: rapidly changing internal and external environments create pressure on organizations to perform, which in turn place heightened demands and expectations on individuals who lead them. this situation demands to continuously revisit empirical evidence on perceived working conditions and work-related stress of top management. furthermore, specific contexts, e.g., organization or country, might provide new insights and contribute to the existing body of knowledge. idea: the aim of this study was to assess work conditions that could potentially contribute to work-related stress among top leaders in public agencies. in addition, gender differences regarding perceptions of workload, work-stress, and work-family conflict were examined. data: a 10-item questionnaire was sent electronically to all 154 leaders of the highest government institutions in iceland. the response rate was 69.2% (n=107). tools: the items were selected and adapted from the qps nordic questionnaire. all items were in five-point likert-type format (1=very rarely to 5=very often/always), where participants indicated the extent to which they experienced a variety of work-related stressors. findings: results indicated that these leaders are potentially at risk of elevated work stress due to insufficient budgets and flexibility to control workflows. likewise, there are strong patterns that indicate that, despite often feeling overworked and stressed, these leaders are given little feedback on their performance. compared to men, women appear to feel that their workloads are more burdensome, and statistically significant findings support this. there were no significant gender effects for overall work-family conflict or overall work stress, although patterns suggest that in women they are slightly higher on both. contribution: this paper provides information about public leaders’ attitudes in iceland towards stress-inducing work conditions, giving future researchers and practitioners a platform to better pinpoint how to provide necessary support. keywords: work-related stress, work-family conflict, human resource management, public organizations, managers jel classification: j24, j28, j63 perceptions of working conditions and work-related stress in iceland doi: 10.7595/management.fon.2021.0004 abstract: 1. introduction leading and managing others typically involve challenging work demands and high levels of responsibility that can often result in high levels of mental stress (muchinsky & howes, 2019). work-related stress among executives is a growing problem and scholars in recent years have responded by studying the subject with increasing frequency (connelly & gooty, 2015; harms, crede, tynan, leon, & jeung, 2017; russell, o'connell, & mcginnity, 2009). the ever-increasing demands of modern society and the speed at which it expects the highest quality results have directly impacted work environments and the leaders and employees in them. the work-related stress resulting from this growing pressure to deliver during continuous environmental changes can have serious consequences for employees and organizations (occupational safety and health administration, 2004). those working in public administration may be particularly susceptible to these negative effects, as they often face the same pressures but have fewer resources and less flexibility to help buffer them (ríkisendurskoðun, 2011a). similarly to that in the private sector, the workload of government employees has steadily increased and is a primary cause of their work-related stress (rikisendurskoðun, 2011b). the aim of this study was to assess work conditions that could potentially contribute to work-related stress among top leaders in public agencies. in addition, gender differences regarding perceptions of workload, work-stress, and work-family conflict were examined. this article first presents a brief literature review of a) work-related stress, b) managerial leadership and stress, and 3) the public sector in iceland. next, the research methodology and findings are discussed, as well as their implications and next steps are proposed. 2. literature review 2.1 workplace psychological health and work-related stress muchinsky and howes (2019) discuss the importance of workplace psychological health which they define as, “the mental, emotional, and physical well-being of employees in relation to the conduct of their work” (p. 348). the importance of workplace psychological health cannot be understated as the effectiveness of all organizational operations is ultimately a function of its employees’ well-being and ability to perform at optimal levels. in fact, cleveland and collela (2010) suggest that organizations consider their workers’ psychological health as a criterion for judging their own success. hans selye conceptualized stress as unspecific bodily reactions to pressure and external demands (selye, 1956). since selye’s initial writings, the body of stress research has proliferated over the decades and extended into organizational and employment settings. however, the unprecedented sense of urgency that organizations and employees around the world face to deliver in response to societal and global demands create a particularly urgent need for continued investigation into work-related stress and the conditions that cause it. concerning the scale of the issue, muchinsky and howes (2019) cite the findings of brough, et al. (2009), who estimated that 10,000 japanese individuals die annually from overwork. in certain cases, work-stress can be beneficial. challenge stressors, according to muchinsky and howes (2019), can include aspects of work that lead to a sense of accomplishment or improvement of skills. moreover, they can lead directly to better outcomes (mullins, 2010). however, hindrance stressors, muchinsky and howes (2019) note, are factors that inhibit personal fulfillment or effectiveness and create negative outcomes; it is these stressors and their impact that are in focus here. podsakoff, lepine, and lepine’s (2007) meta-anlaysis provide clear evidence of the negative impact that hindrance stressors have on performance, commitment, and turnover. in some cases, what begins as a challenge stressor becomes a hinderance stressor. for example, employees usually increase their efficiency and performance in the short term under certain types of pressure (e.g., an occasional aggressive deadline); however, if the pressure persists for a long enough period of time (e.g., unrealistic deadlines become the norm), employees experience greater difficulty (vinnuverndarstofnun evropu, 2013). work-related stress is defined as an employee’s experienced or perceived inability to cope with the demands and expectation that their job requires (quick & tetrick, 2003). thus, work-related stress not only influences employees’ specific task behaviors, but also how they perceive and interact with their environment, including other people (russell, o’connell & mcginnity, 2009). at a basic level, employees feel stressed when they perceive situations and their environment as threatening. in such instances, reactions are often physical, including rapid heartbeat, breathing difficulties, high blood pressure, and increased perspiration; as well as mental, including feeling anxious, depression, lack of focus, and decreased memory (quick & tetrick, 2003). the hypothalamic-pituitary-adrenal (hpa) axis reacts to psychological or physiological stress which consequently triggers all the other bodily and/or mental reactions listed above (bleker et al., 2018). longterm stress in the organization can even cause mental health disorders and other physical health-related problems for its employees (maslach, schaufeli & leiter, 2001). as a result of it negatively impacting their performance, employees’ work-related stress can have considerable negative impacts on organizational performance (muchinsky & howes, 2019). many causes of work-related stress have been identified, including changes in work, lack of security, workfamily conflict, long hours, high pressure to perform, poor support mechanisms, harassment, and bullying (badawy & scheiman, 2020; nixon et al., 2011; riggio, 2008). organizational factors, such as structure, competitive environment, and social and individual communication, can also contribute to work-related stress. furthermore, individual or personal skills and attributes can lead people to perceive and react differently to situations and thus experience the same stressful stimulus differently (harms et al., 2017; riggio, 2008). nonetheless, even though stressors are often individually perceived and experienced, it is important for organizations to at least monitor baseline assessments of the psychological health and work-stress of their employees. 2 arelia eydis gudmundsdottir, inga minelgaite, svala gudmundsdottir, christopher r. leupold, thelma kristín snorradóttir forthcoming 2.2 managers and work-related stress research has indicated that stress is often a natural consequence of managerial and leadership roles (bass & bass, 2008; day, sin & chen, 2004). indeed, gyllesten & palmer (2005) found that managerial roles bring more stress than non-managerial ones. due to the heightened potential consequences that their complex decisions might have (harms et al., 2017), leaders’ capacities to manage stress and turmoil in their environments are often stretched (fiedler, 1992; guðmundsdottir, 2016). this also creates a potential trickledown effect. research suggests that managerial leaders often play an influencing role in their subordinates’ stress levels (harms et al., 2017). this may not only be from the working conditions they create for their employees, but also from the emotional climate they create from their own stress levels. thus, managerial leaders can either decrease or increase their subordinates stress levels (cohen & wills, 1985). it is often suggested that organizations and societies are currently experiencing a lack of effective leadership in general (korzynski, 2014). while there are many dimensions of successful leadership, one would certainly be the ability to promote a supportive environment where others thrive, and produce quality and personally fulfilling work (harms et al., 2017; hannah, uhl-bien, avolio & cavarretta, 2009). as such, organizations must periodically take the pulse of their employees and their leaders to ensure that they have positive attitudes towards their work environments and do not suffer from the debilitating effects of undue levels of work-stress. 2.3 gender and work-related stress despite the increasing levels of participation of women in the workforce over the recent decades, the european agency for safety and health (2014) reported that substantial gender disparities still exist in terms of representation among senior positions in public administration institutions. indeed, the ministry of welfare report indicated that in iceland, one of the most gender egalitarian countries in the world, by 2011, only 30% of these highest positions in the public administration sector were held by women (rikisendurskoðun, 2011b). progress towards achieving a better gender balance continues, as does general progress towards greater gender egalitarianism overall. in many ways, iceland has been at the forefront in this transformation. minelgaite, guðmundsdottir, guðmundsdottir, and stangej, (2018) describe how iceland has attained the top standing in the world on the global gender gap index?year?, which examines differences between men and women on economic participation, educational attainment, health and survival, and political empowerment. the nation’s commitment to achieving greater gender equality was exemplified by the efforts of many individuals and organizations, exemplified by the icelandic government’s legislative actions that required at least 40% of corporate board compositions to be represented by each gender. as more women, particularly in iceland, attain more leadership positions in both the private and public sector, an empirical question arises whether gender differences influence workplace attitudes and variables (padavic & reskin, 2002), including work-stress issues. the european agency for safety and health (2014) has even questioned whether institutions should adjust their work environments to better manage gender-based workstress. liu, spector, and shi (2008) found evidence that men and women experience different stressors at work, with workload being the most commonly reported factor for the former, and interpersonal relationships and lack of autonomy for the latter. guðlaugsson, magnússon, and jonsson (2014) found that women experience more work-related and personal life-related stress than men, resulting in insufficient sleep and tiredness. other research has found similar evidence of gender differences in terms of causes of stress, responses to stress, and stress coping strategies (e.g., watson, goh & sawang, 2011). one area in which both genders suffer is work-family conflict. arising from the challenge of balancing work and family demands, work-family conflict leads to lower job satisfaction, performance, and commitment (amstad, meier, fasel, elfering & semmer, 2011), as well as poorer psychological (frone, 2000) and even physical health (wang, liu, zhan, & shi, 2010). historically, it has been presumed that women are more prone to suffer from work-family conflict than men; and there has certainly been research to support that (e.g., guðlaugsson et al., 2014). however, in the light of evolving societal changes around traditional gender norms and family roles, studies such as byron’s (2005) meta-analysis have challenged this assumption based on the fact that men are increasingly reporting the negative impacts of work-family conflicts, sometimes to the same extent as women. as employees (and particularly managers) struggle to meet the commitments and demands of their work and homelife, they experience what allen (2013) describes as a ‘scarcity of time.’ in turn, this creates stress and often creates conflict in both domains through a spillover effect. dierdorf and ellington (2008) found that work-family conflict is greater in jobs that require more substantial interactions among people to perform their jobs, which is not surprising given the additional time and emotional demands of managing interpersonal relationships. 3 management: journal of sustainable business and management solutions in emerging economies forthcoming to better understand the realities today that leaders and employees face in their work demands, work-stress, and work-family conflicts, empirical assessment is required. from there, informed decisions can be made as to how to address the findings. the primary objective of this study is to understand these issues in the context of iceland’s top government officials, and whether there are gender differences among them. 2.4 public administration in iceland many studies within various cultural and organizational contexts have shown that ensuring favorable working conditions and positive employee attitudes towards their work and organization is crucial for mitigating negative work-related stress (bass 2008; connelly & gooty, 2015). this is not limited to the private sector. perhaps because of their recognized criticality to serving their nations and fellow citizens while often operating with fewer resources and navigating through more bureaucratic channels to accomplish their work, government and public organizations are often keenly aware of the importance of providing a healthy psychological climate for their workers. employees and leaders from public agencies and governments around the globe have been a major focus of work-stress research. while much of such recent research has been conducted in the u.s. (see muchinsky & howes, 2019) and other western cultures such as australia (e.g., lindquist & cooper, 1999); new zealand (e.g., haar, 2006); canada (e.g., houfort et al., 2018); and italy (e.g., desimone, cicotto, pinaa & giustiniano, 2016), the prevalence of work-stress research extends into eastern cultures as well. a small sampling of empirical studies on work-related stress among national governments in asia alone include china (hao, hong, xu, zhou & xie, 2015); japan (deguchi et al., 2016); malaysia (gould-williams & mohamed, 2010); and india (naqvi, 2009). although relatively smaller by size and population, nordic nations have similarly attended to the importance of understanding and managing work-stress in government employees. two recent examples include sweden (erlandsson et al., 2012) and finland (kouvonen et al., 2007). some evidence of work-related stress within the public sector in iceland is available, such as the published work of fjarmalaraðuneytið (2012) who found that managerial leaders in public administration experienced a considerable level of stress, primarily due to their perceived lack of support from supervisors and institutions. however, particularly for such a small nation that prides itself on promoting psychosocial wellness (minelgaite et al., 2018), it is imperative to continue research in this area, ensuring not only that its government is effectively and efficiently run but also that the mental health of its administrators is considered in the process. in 2015, there were 160 leaders (58 women, 102 men) serving in iceland’s highest public institutional levels (fjarmalaraðuneytið, 2015), most of whom are appointed by the minister of the agency which they serve (alþingi, 1997). over recent decades, the role and functioning of iceland’s public institutions have undergone tremendous transformations due to factors such as globalization, changing citizen demands and expectations, technological advances, and national financial crises. the speed of transformation, scale, and complexity has been at times overwhelming for the nation’s employees, but particularly so for the public sector due to its inherently less flexible nature. this has led to different demands being made on leadership of public administration globally and in iceland (fjarmalaraðuneytið, 2000; rikisendurskoðun, 2011b). the pressure under these circumstances is high and can affect those that are supposed to lend a supporting hand to their subordinates. the abovementioned research does not elaborate on many aspects of work-related stress that could help managerial leaders and their superiors to improve work environments and determine whether all managerial leaders, regardless of sociodemographic characteristics, experience work-related stress similarly. the research presented in this paper attempts to contribute to filling this gap. 3. methodology a 10-item questionnaire was sent electronically to all 154 leaders of the highest government institutions in iceland. the response rate was 69.2% (n=107), and the final sample included 67 (of possible 98) men and 39 women (of possible 56); one participant did not indicate their gender. the items were selected and adapted from the qps nordic questionnaire, which is a well validated and frequently employed measure of a variety of psychosocial factors at work (lindstrom, elo, skogstad, dallner, gamberale, hottinen, & ørhede, 2000). minor wording adaptations of the original items were made in order to address the specific context of management within public administration organisations in iceland. all items were in a five-point likert-type format (1=very rarely to 5=very often/always), where participants 4 arelia eydis gudmundsdottir, inga minelgaite, svala gudmundsdottir, christopher r. leupold, thelma kristín snorradóttir forthcoming indicated the extent to which they experienced a variety of work-related stressors. in addition, gender differences regarding perceptions of workload, work-stress, and work-family conflict were examined. a summary of the aggregate results for items more specifically related to work stress, as well as comparisons between men and women are presented in chapter 4.2. all items were in a five-point likert-type format (1=very rarely to 5=very often/always). following neuman’s (2006) recommendation, the questionnaire items were pre-tested by two public agency managers to ensure clarity and relevance of the questionnaire. further validation of the questionnaire’s appropriateness included reviews and feedback on the items from a member of the ministry of finance and economic affairs, and another member of the state and human resource administration. 4. results 4.1 summary of responses to workand project-related items presented here is a summary of the aggregate results for each of the 10 items to which respondents stated their relative frequency of experience. number of hours worked per week. in terms of hours at work, over 65% of the respondents indicated that they worked more than 50 hours per week. almost 15% of the respondents reported working more than 60 hours per week, and no one reported working fewer than 40. this is thus an indication of the work demands that are put on these government leaders, which might undermine their work-life balance. figure 1: reported number of work hours per week clarity of work goals. overall, respondents reported having good clarity in work goals, as over 90% indicated they experienced them often or very often/always (see figure 2). while the goals are undoubtably challenging and likely a contributing factor to the number of hours worked, the fact that they are at least clearly stated likely reduces work-related stress. figure 2: reported frequency of experiencing clarity of work goals ability to finish tasks within desired timeframe. as seen in figure 3, respondents indicated that they are generally able to finish tasks within a desired timeframe. over half (55.5%) felt that they were either often or very often/always able to complete their tasks, and only 5.6% felt that they were very rarely/never able to do so. on the one hand, these results are encouraging and suggest timeframes are less of a work-stress issue. at the same time, perhaps it is because these individuals work longer than 40-hour work weeks that they are able to complete their required tasks. 5 management: journal of sustainable business and management solutions in emerging economies forthcoming figure 3: reported frequency of ability to finish tasks within desired timeframe sufficiency of the yearly budget for implementation of tasks. as seen in figure 4, these leaders struggle to implement their tasks within the constraints of annual budgets. over one-third stated that they very rarely/never felt the budget was sufficient for their needs, and the percentages steadily decline for those who were more satisfied. since these leaders are undertaking long work hours to accomplish goals they clearly understand, it would be reasonable to contend that not having sufficient resources to complete tasks is a source of work-stress. figure 4: reported frequency of sufficiency of the yearly budget for implementation of tasks degree of freedom to reallocate funds from one project to another. one possible solution for these leaders to address their insufficient budgets is to reallocate funds from one initiative to another. figure 5 indicates that respondents felt that they had some degree of freedom to do this, although not resoundingly so. most respondents were mid-range on this issue, with more having unfavourable views than favourable. that said, overall, this pattern is an improvement over satisfaction with the actual budget itself. in other words, while insufficient budgets may potentially elevate work-stress, at least there is a marginal degree of freedom to reallocate funds which may alleviate at least a small fraction of it. figure 5: reported frequency of degree of freedom to reallocate funds from one project to another 6 arelia eydis gudmundsdottir, inga minelgaite, svala gudmundsdottir, christopher r. leupold, thelma kristín snorradóttir forthcoming degree of freedom to influence the workload. figure 6 describes the degree of freedom managerial leaders of the public administration institutions have to influence their workload. results indicate that over half (57.4%) felt that they can only occasionally or very rarely/never influence the workload, and no one perceived that they very often/always could. this could be another potential work-stressor, as it prevents many of these leaders from managing control of their work. this may be related to the longer hours worked which may potentially be a function of achieving their well-defined goals. figure 6: reported frequency of degree of freedom to influence the workload being informed at least a week before new project starts. figure 7 indicates that, overall, receiving advance notice of new project starts appears to be less of an issue than insufficient budgets or inability to influence workloads. that said, a considerable percentage of respondents still expressed negative attitudes about this. for those individuals, as is potentially the case with any of these items, this issue likely causes stress. figure 7: reported frequency of being informed at least a week before new project starts receiving assistance in project implementation. figure 8 shows how much assistance respondents believe they get from their corresponding ministry regarding project implementation. over 80% of respondents obtain assistance only seldom or less often, which again may contribute to the longer hours worked. in addition to a generally perceived lack of resources, there is a similar perception of lack of help. leaders, particularly in executive ranks, are generally assumed to have the capabilities to manage their functions on their own. while such expectations are not always unreasonable, the data here indicate that these leaders might benefit from additional support. additionally, across the sample, this particular issue appears to be a legitimate source of work-stress. figure 8: reported frequency of receiving assistance in project implementation 7 management: journal of sustainable business and management solutions in emerging economies forthcoming acknowledgement from superiors for successful implementation of tasks. because there is no financial cost associated with it, one might implicitly assume that managerial leaders would be at least rewarded with supervisory recognition when a task is successfully implemented. however, as figure 9 indicates, this is not the case, as 87% said their performance is recognized seldom at best. concerning the earlier point about expectations that executive leaders should be able to manage their work with little or any assistance, the same might be said regarding their need for acknowledgement of a job well done. nonetheless, the absence of acknowledgement would certainly not alleviate work-stress. moreover, particularly for respondents who seek or require it as validation of their efforts, the absence may indeed cause stress. figure 9: reported frequency of acknowledgement from superiors for successful implementation of tasks receiving positive feedback for good performance. figure 10 depicts what might be the most prevalent issue facing this sample of leaders – positive feedback for good performance. related to figure 9, this may be because of perceptions that senior leaders should either not require feedback to validate their performance or should simply be able to assess and regulate their own performance. however, this pattern is even more negative than acknowledgement of successful implementation of tasks. perhaps this is because it is ‘easier’ or ‘more obvious’ for others to monitor specific project implementations because of their more defined nature than it is to give feedback for more general performance. with well over 90% of the sample reporting little to no performance feedback, this is certainly a potential a work-stressor, if not an inhibitor to overall organizational performance. figure 10: reported frequency of receiving positive feedback for good performance 4.2 summary and gender comparisons of perceptions of general work demands and stress presented here is a summary of the aggregate results for items more specifically related to work stress, as well as comparisons between men and women. perceived increasing workload. figure 11a indicates respondents’ perceptions of increases in their workload. results show that no one felt that they very rarely/never experienced increasing workloads, and only 8.4% occasionally. at the other end of the spectrum, almost half (47.7%) of the leaders perceived that their workloads increase often or very often/always. this pattern is similar to the number of hours worked, which leads to the question of whether these trends will continue, and if so, to what extent will it elevate additional work-stress on these leaders. 8 arelia eydis gudmundsdottir, inga minelgaite, svala gudmundsdottir, christopher r. leupold, thelma kristín snorradóttir forthcoming figure 11a: reported frequency of perceived increasing workload figure 11b presents a more detailed view of gender differences on perceived increases in workload. the biggest discrepancy is in the frequency with which men and women indicated that they perceived accumulating workloads very often or always (only 6.1% of men compared to 25.6% of women), followed by an almost 13% difference in the opposite gender pattern for seldom. as the distributions for both men and women were sufficiently normally distributed and their variances equal, an independent samples t-test was performed to ascertain whether a statistically significant difference existed between genders. in comparing the sample means between women (m=3.79, sd=.89) and men (m=3.33, sd=.81), a statistically significant difference was observed, t(104)=2.76, p=.01. in short, women perceived their workloads to be accumulating more frequently than did men. figure 11b: gender comparison of reported frequency of perceived increasing workload work-family balance. the sample’s work-life balance is presented in figure 12a. the negatively skewed distribution suggests that these officials did not feel that their family demands have a particularly negative impact on their work. somewhat surprising is the fact that, despite their heavy work demands and lack of resources and assistance, these leaders overall seem to have a better work-family balance than might be expected. figure 12a: reported frequency of personal/family demands having a negative impact on work 9 management: journal of sustainable business and management solutions in emerging economies forthcoming gender differences with regards to family life and its possible negative effects on work are presented in figure 12b, as literature suggests such differences exist due to gender role related contextual factors (see 1.3). a t-test found that there was not a statistically significant difference between women (m=1.72, sd=.86) and men (m=1.82, sd=.85), t(104)=-.60, p=.91. figure 12b: gender comparison of reported frequency of personal/family demands having a negative impact on work work-related stress. figure 13a shows the frequency with which the leaders experience work-related stress. again, a fairly normal distribution is presented, indicating variance in how much work stress they perceive. that said, over one-third still experience such feelings often or very often/always, which serves as a potential indicator of the negative impacts on the leaders and organization that would likely result. figure 13a: reported frequency of recently experiencing work-related stress gender differences were analyzed in recently experienced stress. figure 13b shows a trend where women (m=3.38, sd=1.18) appeared to report work-related stress more frequently than men (m=2.99, sd=1.11). however, a t-test did not detect a statistical significance at the conventional p<.05 level. using a more liberal p<.10 criterion did indicate a significant difference, however. probability levels aside, this result can at least be interpreted as a trend where women feel more work-stress. figure 13b: gender comparison of reported frequency of recently experiencing work-related stress 10 arelia eydis gudmundsdottir, inga minelgaite, svala gudmundsdottir, christopher r. leupold, thelma kristín snorradóttir forthcoming 11 management: journal of sustainable business and management solutions in emerging economies forthcoming conclusion and discussion 5.1 summary of results government institutions can be considered the lifeblood of nations, as they are tasked with ensuring the effective functioning of public services and the welfare of their citizens. their leaders bear great responsibilities and the burdens of stress that their counterparts in private organizations also do; however, often without as many resources or perhaps as much public scrutiny. the challenges brought about by the rapid pace of technology and change, coupled with the increased complexities brought about by globalization, are newer sources of stress for these leaders. nonetheless, while the same could be assumed for government leaders around the world, it is imperative that analyses of specific nations should be undertaken to better understand work dynamics and expectations in unique cultures. the present study examined the attitudes of the top government officials in iceland as they relate to potential work-stress. results indicated that these leaders are potentially at risk of elevated work stress due to insufficient budgets and flexibility to control workflows. likewise, there are strong patterns that indicate that, despite often feeling overworked and stressed, these leaders are given little feedback on their performance. leaders generally feel that they can complete their tasks in the required timeframe, however, this is perhaps because they are working that much harder and longer in order that they fulfill these challenges. although task clarity appears to be high, the lack of resources, control, and supervisor feedback can have a negative impact. former studies have proved that workload (figure 6) can not only increase stress levels, but that it is also one of the most frequent causes of burnout (ivancevic et al., 2020), and the same also stands for the lack of feedback for one’s performance (figure 10) (maslach & jackson, 1984). compared to men, women appear to feel that their workloads are more burdensome, and statistically significant findings support this. there were no significant gender effects for overall work-family conflict or overall work stress, although patterns suggest that women are slightly higher on both. both genders may be experiencing undue stress, but from an egalitarian perspective, at least they are doing so at similar levels, meaning this is potentially less of a ‘women’s issue’ as has often been assumed in the past. as discussed in the introduction, work-stress can have major negative impacts on the physical and mental health of employees and leaders, as well as on their own performance and that of the organization. as such, having empirical data to ascertain public leaders’ attitudes in iceland towards stress-inducing work conditions is essential to better understand exactly how to address the situation. the current study provides that information, giving future researchers and practitioners a platform to better pinpoint how to provide necessary support. 5.2 limitations as with all empirical endeavors, the study has limitations. the survey was a self-report measure that measured individuals’ own perceptions. as such, rating biases such as social desirability are possible. the survey was also administered at a single place in time, so it cannot be ascertained whether responses reflected a consistent pattern of feelings. a longitudinal study would help to determine the stability of the results and potential changes over time. the data here represent a variety of distinct organizations, each with its own specific culture and leaders. the results, however, are dispersed across them so fail to incorporate whether there are differences among them (i.e., a stricter performance-oriented culture as opposed to a more supportive relationship-oriented one). nuanced analyses within different government departments would delineate these differences. 5.3 implications and next steps a follow-up study should be conducted to more precisely explore the reasons behind the work conditions identified here and their dynamics. are these issues a function of a general culture, lack of resources, lack of the public’s awareness, inefficient operations, lack of talent, or a host of other possibilities? many organizations have implemented stress management interventions and wellness programmes as a means of assisting their employees. moreover, there is evidence that they have had positive effects on employees and the bottom-line of organizations (muchinsky & howes, 2019). likewise, the authors propose several interventions to mitigate the effects of work-family conflict, such as work-family enrichment, which is an effort to help workers transfer the positive experiences of one domain to the other. references [1] allen, t. 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(2011). gender influences on the work-related stress-coping process. journal of individual differences, 32(1), 3946. doi: 10.1027/1614-0001/a000033 received: 2020-11-11 revision requested: 2020-12-12 revised: 2020-12-28 (1 revision) accepted: 2021-01-08 arelia eydis gudmundsdottir university of iceland, school of business arelia@hi.is arelia is an associate professor at the school of business within the university of iceland, where she teaches an elective course on the future of work and leadership. her research areas are leadership, gender equality, and career development. arelia has published books and articles on leadership, gender equality, employment relations, career, and self-development. arelia has worked as a consultant for major icelandic organizations for over 20 years and has participated in public debates in both icelandic and uk media on her field of expertise. inga minelgaite university of iceland, school of business inm@hi.is inga minelgaite is a professor at the university of iceland, school of business. she also holds the position of a head of project management institute (ipm) at the university of iceland. her main research field is (cross-cultural) leadership and gender. inga is also interested in emerging fields of leadership such as neuroscience of leadership and followership. inga has fifteen years of experience working in senior and top management positions in various sectors of business and multiple countries. inga is a north-east-central europe area manager for the global preferred leadership and cultural values and a member of a number of other research networks. 14 arelia eydis gudmundsdottir, inga minelgaite, svala gudmundsdottir, christopher r. leupold, thelma kristín snorradóttir forthcoming about the authors 15 management: journal of sustainable business and management solutions in emerging economies forthcoming svala gudmundsdottir university of iceland, school of business svala@hi.is svala is a professor and currently serves as the vice head of faculty and acting chairman for the business research institute and the mba program at the school of business, university of iceland. she also serves as a board member at the national ballet school of iceland. her research field is within cross-cultural studies along with human resources. for the past nine years svala has taught change management, human resources and international management. christopher r. leupold elon university cleupold@elon.edu professor of psychology chris leupold is an industrial/organizational (i/o) psychologist, dr. leupold is the isabella cannon professor of leadership and a professor of psychology at elon university. he began his career working for the international management consulting firm personnel decisions international (since acquired by korn ferry) that specialized in leadership assessment and development, executive coaching, and organization development. during that experience, he worked with dozens of fortune 500 companies and across a wide range of industries. from there, he moved to the home depot where he was responsible for the leadership development, succession planning, and organization development for the eastern region. dr. leupold came to elon in 2003 and since that time has taught a variety of courses in the psychology department as well as in elon's mba program and elon's school of law. as the isabella cannon professor of leadership, he works closely with elon's center for leadership and supports leadership programming across campus. in addition to teaching, he has published in a variety of academic journals and continues to consult organizations in the above-mentioned areas. he also currently serves as associate editor for the european management journal and is a member of the editorial advisory board for the journal of leadership education. thelma kristín snorradóttir university of iceland, school of business thelma kristín snorradóttir has an ms degree in human resources management and services 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false 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terms of modern statistics, computer age statistical inference: algorithms, evidence, and data science. as described by the authors on the very first page of a preface, the discipline of statistics has a 250-year old history (since 1760s) and we are now in its most recent quarter (1950s to the present). this quarter is the computer and digital age, “the time when computation, the traditional bottleneck of statistical applications, became faster and easier by a factor of a million” (efron& hastie, 2016, p.xv). the book explores how statistics has evolved during the past years, under the influence of computers and digitalization, giving us, as authors please to say: “…an aerial view of a vast subject, but seen from the height of a small plane, not a jetliner or satellite”(efron& hastie, 2016, p.xv). the publication covers a broad set of topics regarding the statistical methods and statistical inference, examined from multiple viewpoints. efron and hastie observe these topics through the frame of electronic computation, which is, as they refer to it, central for their book. due to the very nature of statistics, not every topic in the book was computer-related. nevertheless, an extensive number of topics were the descendants of the computer and digital age, such as bootstrap, proportional hazards, large-scale hypothesis testing, big data, and the machine learning algorithms. above all, one of the most popular statistical concepts processed in the book is data science, “a particularly energetic brand of the statistical enterprise” as authors like to call it. “algorithms are what statisticians do while inference says why they do them,” and the concept of data science is “emphasizing algorithmic thinking rather than its inferential justification” (efron& hastie, 2016, p.xvi). the publication consists of three parts. part i: classic statistical inference deals with the typical traditional viewpoint of the inferential theory. the authors explain the need for handling the concept of statistical inference, by referring to it as the system of mathematical logic for guidance and correction when interpreting the observations of natural scientists in an attempt to “judge the accuracy of their nature science ideas”. the part i includes the following topics: algorithms and inference, frequentist inference (with frequentism and frequentist optimality), bayesian inference (withbayesian/frequentist comparison list), fisherian inference and maximum likelihood estimation (with fisher information, mle, conditional inference, randomization), and parametric models and exponential families (with univariate and exponential families, multivariate normal distribution, multinomial distribution). in this part, efron and hastie debate on the strengths and weaknesses of the three prime statistical inference theories: frequentist, bayesian, and fisherian inference. they make an immense divide and give a detailed comparison of the bayesian versus frequentist disputes. an interesting outlook of the authors states the following: “sir ronald fisher was arguably the most influential anti-bayesian of all time, but that did not make him a conventional frequentist. his key data analytic methods—analysis of variance, significance testing, and maximum likelihood estimation—were almost always applied frequentistically. their fisherian rationale, however, often drew on ideas neither bayesian nor frequentist in nature, or sometimes the two in combination” (efron& hastie, 2016, p.38). in this chapter overall, efron and hastie encourage the reader to look at the method or a technique from one of the three viewpoints, and then to raise a question and to compare the benefits of each approach. dissimilar to restrictions of slow mechanical computation that sculpted classical statistics, the new computational possibilities from the end of the 20th century have opened the door to fresh, more expansive, and useful statistical methodologies. part ii: early computer-age methods consists of nine chapters: empirical bayes, james-stein book review of: computer age statistical inference: algorithms, evidence, and data science by bradley efron and trevor hastie, cambridge university press, 2016, series: institute of mathematical statistics monographs (5), 495pp., isbn13: 9781107149892, isbn10: 1107149894, online isbn: 9781316576533, doi:10.1017/cbo9781316576533 78 marina dobrota 2019/24(1) estimation and ridge regression, generalized linear models and regression trees, survival analysis and the em algorithm, the jackknife and the bootstrap, bootstrap confidence intervals, cross-validation and cp estimates of prediction error, objective bayes inference and mcmc, and postwar statistical inference and methodology. as authors remark, while “journals of the 1950s continued to emphasize classical themes: pure mathematical development typically centered around the normal distribution, …in the 1990s a new statistical technology, computer enabled, was firmly in place” (efron& hastie, 2016, p.75). chapters in part ii describe major developments from this time period. the ideas of statistical methods of the “postwar era” are not crucially different from those classical methods, but their computational demands, which judging by the authors have grown 100 or 1000 times, undoubtedly are. so, rather than enlarging the classical methods, for example the james–stein estimator, the jackknife, or the bootstrap merely speak for a different use of modern computer capabilities: “they extend the reach of classical inference” (efron& hastie, 2016, p.181). further on, the authors get to “the story of statistics in the twenty-first century”, where computational demands have grown again “by the factor of thousands” (efron& hastie, 2016). in the third part of the book, large-scale inference and prediction algorithms are targeted, such as boosting and deep learning. as opposed to the typical traditional viewpoint, these topics mostly illustrate the data science point of view. part iii: twenty-firstcentury topics covers seven chapters: large-scale hypothesis testing, sparse modeling and the lasso, random forests and boosting, neural networks and deep learning, support vector machines and kernel methods, inference after model selection, and empirical bayes estimation strategies. in the 21stcentury, statistical algorithms continue to pursuit massive data sets, while inferential analysis strives to rationalize the algorithms (efron& hastie, 2016, p.271). we now face colossal data sets, both in terms of entities and variables. we were anticipating it for years, and the time has finally come, we are there now: tons of data and the necessity to determine how to use them. “something important changed in the world of statistics in the new millennium. twentieth-century statistics … could still be contained within the classic bayesian–frequentist–fisherian inferential triangle (efron& hastie, 2016, p.265). this is not so in the twenty-first century” (efron& hastie, 2016, p.446). topics like false-discovery rates, post-selection inference, empirical bayes modeling, or the lasso, still fit within the abovementioned triangle but others, such as neural nets, deep learning, boosting, random forests, and support-vector machines, are rushing towards the computer science. each chapter is concluded with the notes and details section, the touch that significantly enhances and builds up the publication. they hold the derivation details, links to frequentist, bayesian, or fisherian inference, and comments on historical relevance. finally, in epilogue, authors give a very short time-line, starting from the 1900s with karl pearson’s chi-square paper, all the way through to 2016 with modern data science and big data. it is drafted in the epilogue how the spotlight of statistical progress has converted between applications, mathematics, and computation throughout the 20th and 21st century. as authors like to say, it is intriguing but tricky to surmise on the future of statistics. a demand for statistical analyses is growing incessantly, and as a result the data science has boomed. “a hopeful scenario for the future is one of an increasing overlap that puts data science on a solid footing while leading to a broader general formulation of statistical inference” (efron& hastie, 2016, p.452). authors intended to preserve a technical level of discussion in the publication, appropriate to masters’-level statisticians or first-year phd students. nevertheless, by reading this book, the veteran statisticians can find a compact summary of chronological statistics, students can find a guide to statistical inference that can upgrade the most books of an introductory statistics, and other interested audience can find vast discussions on modern topics in statistics. accepted: 2018-11-01 marina dobrota university of belgrade, faculty of organizational sciences, serbia dobrota.marina@fon.bg.ac.rs marina dobrota is an assistant professor at the university of belgrade, faculty of organizational sciences, where she completed her phd thesis in the field of operational research and computational statistics. she has published a number of research papers in scientific journals, conference proceedings, or monographs, both international and national. the main subjects that she teaches are the theory of probability and statistics. her research focus lies in composite indicators, econometric modeling, and data science. her research interests include statistical inference, data analysis, data mining, and time series analysis. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02 26_3 stoiljkovic maric:tipska.qxd 13 aleksandra stoiljković, slobodan marić* university of novi sad, faculty of economics, subotica, serbia management: journal of sustainable business and management solutions in emerging economies 2021/26(3) financing and success/performance of small businesses in serbia doi:10.7595/management.fon.2020.0022 abstract: 1. introduction it is not hard to notice within the selected field of research and relevant scientific literature that small enterprises have a great importance and role in the economic and overall social development of a country. due to the importance of small enterprises and their specificity in contrast to medium and large enterprises, the selected field of research is small enterprises operating in serbia. the sub-segment of micro enterprises is excluded from the scope of research. in order to determine the stated field of research precisely, it is necessary to point out the characteristics of small enterprises from a quantitative and qualitative aspect owner/entrepreneur/manager. in addition to non-existent or inadequate management practices, some of the crucial problems encountered by small businesses, are limited resources and financial instability (scarborough, 2012). therefore, it is necessary to point out first of all the potential sources of financing of a company, but also the availability and importance of certain sources of financing for small enterprises. some * corresponding author: slobodan marić, e-mail: marics@ef.uns.ac.rs financing represents a general problem for small enterprises with numerous constraints. defining the problem of research will eliminate the answer to the following research question: does the financing of small enterprises, based on the volume and structure, determine business performance, i.e., success? as well as the overall problem orientation of this research, motivation is related to the analysis of business performance, i.e., success of small enterprises in relation to the nature of financing small businesses. it has to be defined 'the idea is to identify and define the role of financing as a factor of competitiveness and performance in small business operations, as the general objective of the paper. lack of financial resources is one of the most common causes of failure of small enterprises. the main hypothesis is: there is a significant correlation between the volume and structure of sources of financing and the performance of small enterprises. data: secondary data from the reference databases (serbian business registers agency) for 2018, which include 150 cases, serve as the relevant basis for the realization of the research within the adequately set area of the research. tools will be used to study the relationship, i.e., connectivity of selected research variables based on regression analysis in the frame of parametric quantitative procedures. business performance variables, measured by indicators of profit and revenue growth, with variables of volume and structure of financing as is equity and % of equity as a structure; measures like time in business, total revenue, total number of employees, represent the size and age of business. findings point to the conclusion that the volume of financing as well as the participation of own capital contribute to the business performance of small enterprises, which is measured by the most relevant variables in terms of profit and total revenue. contribution: based on the facts presented, we can say that all research assumptions have been confirmed, and the presented research results are significant and representative for future managerial practice of small businesses. the key contribution of this research is identification of an optimal financing structure for business performance of small enterprises. keywords: small businesses, financing, capital structure, success, performance jel classification: m13, l25, g32 characteristics of small enterprises largely determine their financing structure as well as the capital structure, understood as a long-term aspect of the financial structure of the company, which significantly differentiates them from the financing structure and capital structure of large enterprises. it is also very important to note the necessity of precise attitudes and a full understanding of the meaning of certain categories in order to make the results of this research clear and unambiguous and fully usable. the need to separate success and performance as well as their definition arises for the reason that these categories represent key variables in the research. the notion of the performance of small businesses, that is, the owner/ entrepreneur/manager’s success, we could say, is a subjective category as a measure in achieving a set of the company goals that can be unambiguous and reflect individual motives. due to all its specificity in terms of, above all, business capacity, the competitiveness of small enterprises is a very sensitive segment. also, an important factor of competitiveness is financing of small enterprises observed from the aspect of the structure of sources, and therefore the availability of financial resources. a highly significant outcome in this area is that numerous employees who are, in fact, members of the entrepreneur’s family, as well as the consequent insufficiently defined hierarchy, may jeopardize a company’s performance in terms of annual sales of goods and services and annual profits. a very important result in this area is that a large number of family member employees, and unclear hierarchy among them, can endanger a company's success in terms of annual income and annual turnover (mihic et al., 2015). a result like this represents a sufficient reason for defining the research area precisely. the financial market in serbia shows a low level of activity, what can be concluded based on the global competitiveness report for 2017, where access to finance is cited as one of the most problematic factors for doing business. the specific features of small businesses that determine the limitation of some sources of finance have the effect of making the issue of financing small businesses one of the key issues, given that access to finance is one of the key factors of competitiveness of small enterprises. this taken into consideration, the situation should be viewed in two ways. first of all, to what extent do small enterprises fulfil the necessary conditions in terms of adequate users of certain sources of financing in the form of creditworthiness and, second, availability of financial resources on the market. in this way, we will attempt to explain how the limited access of small enterprises to different sources of financing reflects on their success/performance by analysing the existing financing structures of these enterprises. accordingly, the central research question is: does the financing of small enterprises, based on the volume and structure, determine business performance, i.e., success? in this respect, the clarification and understanding of the concept of small business success is very important, and a distinction will be made between the terms success and performance, which are often highly interconnected, and are even considered to be synonyms. 2. an overview of prevailing views in the field of research – from entrepreneurial ventures to small enterprises stokes and wilson (2010) made a distinction between entrepreneurs and small enterprises, stating that the entrepreneur is an individual or a group of individuals acting as the main actors in the process of implementing an entrepreneurial idea, while a small enterprise is a certain organizational and legal form that is the result of an entrepreneurial process, as a next phase in the maturity of a business venture. the authors also distinguish the quantitative and the qualitative definitions of small businesses. the quantitative definition is based on the number of employees, the amount of revenue and total assets, which, as criteria for defining, vary from country to country. according to the law on accounting and auditing of the republic of serbia ("official gazette of the republic of serbia", no. 62/2013 and 30/2018), the boundary values of these indicators are clearly defined, of which enterprises should meet the reference value in at least two of the above criteria in order to be classified into one of the categories of a vertical economic structure. when it comes to the qualitative aspect of small businesses, stokes and wilson (2010) point out that this aspect is based on three distinctive features of small businesses: 1) a small enterprise is usually managed by one owner; 2) a small enterprise has a relatively small share in the market; 3) it is independent in decision making process because the owner does not depend on other companies or shareholders. burns and dewhurst (1996) reported that small enterprises tend to be managed in a personalized way. this can be interpreted through the fact that the owner has an active participating role in all facets of the management process and every higher-level decision-making event. similarly, hill (2001) points out that one of the basic specifics of small businesses is a high involvement of the entrepreneur. the owner-manager seems to be part of every business action. according to cuervo, ribeiro and roig (2007), the owner of a 14 aleksandra stoiljković, slobodan marić 2021/26(3) small company is an individual who sets up and runs a company to achieve the foremost goal of pursuing personal ambitions. the predominant business activities need to be the principal income source, thus absorbing most of the entrepreneur’s time, as well as employing the company’s resources. the company owners consider the business to be an integral part of their personality, interwoven with the family’s requirements and aspirations. what separates a small enterprise from an entrepreneurial venture is the existence of a strategic, long-term orientation or the existence of aspirations for sustainability (wickham, 2004). essentially strategic orientation implies the existence of a long-term commitment of small businesses to accomplish business activities that are defined in strategic goals and defined by the mission and the vision of a business (lekovic & maric, 2015). jennings & beaver (1997) note that, regardless of the need for generic skills and abilities, the process of running small companies is different from routine and cannot be viewed by the same yardstick as professional management in larger enterprises reduced to a smaller scale in practice. the diversity of roles required of the owner-manager as the primary stakeholder frequently results in disharmony and antagonism, raising the possibility of improper decision-making, or even incongruous actions. therefore, these authors are of the opinion that the main cause of poor performance of small businesses is almost invariably a lack of management attention to strategic issues. the existence of a managerial orientation clearly separates a small enterprise from an entrepreneurial venture, but also an initial management practice qualitatively segregates small businesses from the medium-sized to a significant extent, as the next stage in development, where management is present at a higher, professional level. strategic management is vital for long-term competitiveness of small and medium-sized enterprises, and even more important in coping with crises. companies that pursue strategic management are capable of looking ahead into the time to come, so that their leaders have the opportunity and possibility to identify future problems beforehand, so that they can get ready for them far better. a successful manager of small and medium-sized enterprises must have a vision of the future development of their enterprise (vrchota & rehor, 2017). 2.1 financing as a determinant of success / performance of small enterprises to make a decision on financing, it is necessary to take into account the characteristics of the enterprises (size, industry, growth opportunities, the structure of assets, etc.) and choose the structure of debt and equity, which defines the financing structure of the company. the defined rules of financing represent the norms and standards that must be observed for the company to have a steady, liquid and profitable business, based on the relationship between fixed and current assets in the active capital and its own (longterm) and borrowed (long-term and short-term) assets, which represents the structure of the sources of financing (vuckovic et al., 2017). the long-term aspect of the financial structure of the company, understood as the ratio of own and borrowed sources of funds, is known as the capital structure of the company (ivanis, 2012). thanh and huong (2017) noted that the capital structure studies explore the influence of company-specific and state-specific factors on financing models of companies in particular areas. some company-specific factors that are mainly considered are profitability, opportunity for growth, tangibility, corporate tax shield, non-debt tax shield, size of company, uniqueness of industry and some macroeconomic factors such as rate of inflation and condition of capital market. however, it is unrealistic to expect that the growth and development of the company, as one of the crucial goals of the company, can be financed exclusively from its own and from those informal external sources, primarily because of their limitations. in order to increase profitability, it is essential for managers to concentrate their attention and efforts on amounts due from customers and stockpile control, which can be managed and tackled with stricter credit practices or lean manufacturing tools (hogerle et al., 2020). cressy and olofsson (1997) state that smaller businesses are more prone to financial risk, hence, as a consequence, they are exposed to more strains searching for external financing sources. according to jakovcevic et al. (2012), one of the biggest problems faced by small enterprises is the provision of financial resources, and they emphasize that financial institutions are hesitant when it comes to granting loans to small companies due to uncertainty of their business. berger and udell (1995) argue that minor and more recently set up companies are more probable to be exposed to higher cost of borrowing, i.e., interest rate, and obliged to provide a collateral. walker (1998) notes that many of the traditional sources of financing are not available to small businesses, and since small businesses have less affordable long-term sources or capital in traditional financial markets, they must rely on trade credits and bank loans. consistently with earlier published sources, our research establishes that the capital structure of small companies is based on short-term loans or, more particularly, on trade credit. 15 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) furthermore, inadequate availability of external financing sources is an obstacle to small and medium-sized companies when attempting to expand their business operations, because of insufficient communication between financial intermediaries and small and medium-sized companies (d’amato, 2019; motta, 2020). a large amount of the capital of small enterprises comes from the own funds of entrepreneurs and informal investors that are made up of family members or acquaintances of entrepreneurs. also, the author states that retained earnings represent a critical source of capital for small businesses. the capital structure of small enterprises significantly differs from the capital structure of large enterprises. difficult access to financing is a much larger constraint for small enterprises than for large ones because of the dependence of small enterprises on external sources of financing and absence of management practices (brinckmann, grichnik & kapsa, 2010). also, certain characteristics of small enterprises determine their capital structure significantly, as shown by different research. mateev et al. (2013) maintain that the size of a company is of essence in defining leverage ratios, as major companies are characterized by far higher leverage ratios than other companies. beck et al. (2008) conclude that small companies and companies in states with inadequate institutions are less likely to reach for external financing sources, notably loans from banks. scherr et al. (1990) and hamilton & fox (1998) argue that companies of minor size are less prone to issue equity to outsiders, so as to avoid conceding control. klapper et al. (2002) analyzed firm financing in 15 transition countries, including serbia (at that time the state union of serbia and montenegro). the authors find that the majority of countries are characterized by a comparatively low degree of finding financing sources from outside, with ukraine being the most resistant. companies in 6 (bulgaria, bosnia and herzegovina, russia, serbia and montenegro, slovenia and ukraine) out of the 15 countries have a very low debt ratios compared to companies from western europe. furthermore, they hardly use any long-term loans, which is a phenomenon that could point to an underdeveloped banking sector, inadequate collateral registries and underdeveloped regulations pertaining collaterals. the financial market in transition countries is generally poorly functioning. according to the global competitiveness report for 2017 (schwab, 2017), access to financing is stated as one of the most problematic factors in doing business in serbia. within the eighth pillar of competitiveness, which refers to the financial market development, most of the indicators have a very poor value and rank (compared to the 137 ranked countries) and it is particularly important to highlight the following indicators: � availability of financial services 3.6 (107); � affordability of financial services 3.0 (116); � financing through local equity market 2.9 (110); � ease of access to loans 3.6 (86); � venture capital availability 2.6 (95); � regulation of securities exchanges 3.6 (109). those indicators reflected the difficulties of access to financing for companies in serbia, especially for small businesses given their specific features. malhotra et al. (2007) believe that difficult access to financing is a much bigger constraint for small enterprises than for large ones. accordingly, we can state that the aforementioned weaknesses of small enterprises, due to the lack of strategic orientation and the lack of financial resources, are the most common causes of their failure. generally speaking, success implies survival and continuity, while failure is directly related to business failure (simpson et al., 2004). bruderl et al. (1992) and pennings et al. (1998) define success as a duration at work. also, success can be understood as achieving one's goals (dobbins & pettman, 1997). however, understanding success of the small businesses is very specific. this particularity arises from certain characteristics of small enterprises. as mentioned above, one of the basic specifics of small businesses is a high involvement of entrepreneur, and his involvement in every business action (hill, 2001) and so the incorporation of his beliefs, preferences, experience and expertise into the company itself (mccartan-quinn & carson, 2003). it is always a question of how the characteristics and attitudes of entrepreneurs have a significant impact on the success of the company, as well as on its expression. argue that every entrepreneur has their own criteria of success. however, if the entrepreneur’s subjective assessment of success is used as a measure of success, a comparison of the company on this basis would be ineffective. whose perception would be considered relevant to assessing and comparing the performance of different companies? in the endeavour to gain understanding of some associations and connections between the value system of entrepreneurs and the priority in their decisions to act, what needs to be viewed fundamentally are the imaginable extents and constituents of what is generally considered as a value system (lekovic & maric, 2016). based on universal requirements of human existence, the schwartz value theory defines 10 broad values (bardi & schwartz, 2003). 16 aleksandra stoiljković, slobodan marić 2021/26(3) what we can see in the schwartz theory is the value orientations that are organized theoretically on the grounds of complementarities, i.e., on a contradictory character or conflicting nature of motivational aims (lekovic & maric, 2016). if these elements of value orientations are presented in a circular view, which is characteristic of this author, then horizontal and vertical axes can be divided into four separate parts. one axis leads from ‘self-enhancement’ to ‘self-transcendence’, while the other goes from ‘openness to change’ to ‘conservation’ values (schwartz, 2012), which in a mutual relationship and connections can directly determine the value system of an individual. 2.2 measures of small enterprise performance in an effort to eliminate the issue of subjective assessment of the success, a distinction is made between the concepts of success and performance, which are often highly interconnected, and are often used as synonyms. it is stated that success refers to the achievement of set goals, and the concept of the success of small enterprises or owner/entrepreneur/manager is seen as a subjective, i.e., absolute category as a measure in achieving set goals that can be simple and unambiguous and can reflect individual concerns and motives (mccartan-quinn & carson, 2003). according to brush and vanderwerf (1992), when researchers use the word “performance”, it includes numerous criteria measuring alternate angles of performance. ) interprets performance as the aptitude of an entity to generate outcomes in a predetermined dimension, relative to an objective. therefore, for performance as a multidimensional, quantitative and qualitative expression of success in comparison with other enterprises or relevant groups of enterprises, we can say that it represents an objective, i.e., relative dimension of success (mccartan-quinn & carson, 2003). the development and expansion and of a company is normally established by its volume, which can, then, be analyzed by fluctuations in turnover, total amount of the statement of financial position, or number of workforce and through market share or the market value of the firm (murphy et al., 1996; virtanen, 1999). what is interesting to observe is that performance and success are, in some cases, evaluated by progress (reijonen & komppula, 2007). according to hall and fulshav (1993) the most unmistakable yardsticks of prosperity are profitability and progress. the standards of organizational performance were concentrated on indicators of productivity, these being the most objective and commonest criteria of efficiency used in studies (jevtic, jovanovic, & krivokapic, 2018). based on the above, it is clear that accurate assessment of performance is crucial to comprehending the success and failure of new projects and small companies (murphy et al., 1996). concepts of performance and success are viewed from the financial and non-financial aspects. performance measures such as quality and time are considered non-financial indicators but can be quantified. the second group of indicators such as autonomy and job satisfaction, which are also included in non-financial measures of success, cannot be simply quantified and included in accounting operations (reijonen & komppula, 2007). it is important to emphasize that success is viewed from a broader perspective, and, as stated above, it is often assessed subjectively, while the performance is usually assessed more objectively (reijonen and komppula, 2007). entrepreneurs, due to the subjective approach to the category of success, may consider that they have achieved success, while the relatively observed level of success can differ significantly (simpson et al., 2004). walker and brown (2004) suggest that the criteria of both economic and non-economic character are used to evaluate the success of a company, but the latter is more significant. personal contentment, pride in one’s position in a company and a flexible lifestyle are, in most cases, appreciated more than financial gains. according to murphy et al. (1996), the variables used to measure performance vary to a large extent. the most commonly used measures of performance are efficiency, growth and profit. according to research conducted by perez and canino (2009), growth, profitability and profit are used as the most common measure of the success of small businesses. small business owners often see the motive for starting a business in non-financial goals that require alternative success measures such as independence, job satisfaction, or opportunity to achieve life-work success (buttner & moore, 1997; green & cohen, 1995; kuratko et al., 1997; parasuraman et al., 1996), which are personal and perceived subjectively, and therefore more complex to ascertain. because of this, walker and brown (2004) conclude that economic standards are usually regarded as the most suitable yardstick for research into business success/performance, because they are easier to understand and more convenient to compare, both in terms of the existing data and for future evaluation. based on the above, the author's decision is to use indicators of survival in business (measured by the number of months of total business operations), profit, total revenue and growth indicators (measured by changes in revenue, changes in profit, changes in number of employees and changes in assets) as the objective measure of the performance of small enterprises. annual income was not accepted as a sole indicator of success since there are companies whose expenditures are higher than incomes, 17 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) which means that their operations could not, by any means, be described as successful (mihic et al., 2015). although gray (1998) states that owners of small and medium-sized enterprises are reluctant to increase the number of employees because they consider new employees as an additional cost rather than an investment, and walker and brown (2004) suggest that the number of employees is not the accurate or applicable measure of success for small businesses, reijonen and komppula (2007) point out the number of employees as one of the most important indicators of growth and success of small enterprises, so this measure will be used as one of the indicators of the performance of small enterprises. 3. methodology 3.1 sample and data the administrative classification of companies in serbia under the law on accounting and auditing ("official gazette of the republic of serbia", no. 62/2013 and 30/2018) recognizes the group the sector of small and medium enterprises and entrepreneurship. the sample based on small enterprises, in addition to the criteria of the number of employees, income and assets, is further differentiated by separation from medium-sized enterprises and entrepreneurs. stratification was performed on the basis of administrative regions. according to the available data of the business registers agency, a total of 2603 enterprises are classified in the group of small enterprises. the survey was conducted on 150 observations. the sample has the characteristics of a proportional stratified sample. stratification was based on the region so that the basic set from the spatial aspect is adequately represented. as shown in the previous part of the paper, the selected field of research is a subgroup of small enterprises, which excludes the category of micro enterprises (enterprises up to 10 employees). what makes small enterprises seem to be an officially accepted subject of economic activity is their management orientation and the declaration of intention for a long-term existence and achieving their mission. the existence of management orientation clearly separates a small enterprise from an entrepreneurial venture as visually explained by wickham (2004). however, the initial management practice also qualitatively segregates small businesses from the mediumsized to a significant extent, as the next administrative stage in development, where management is present at a higher, mainly professional level. that is why small businesses separated from the medium-sized segment with the excluded category of micro enterprises represent one homogeneous group or a qualitatively precise and clearly defined area of research. in the next segment, it is necessary to identify research variables in order to create preconditions for formulating research assumptions and adequate interpretation of research results at a satisfactory level of reliability and usability. 3.2 variables, hypotheses and methods the set concept of work seeks to examine the correlation of business performance variables, measured by indicators of profit and revenue growth, with variables of volume and structure of financing as is equity and percentage of equity as a structure. measures such as business time, total revenue and total number of employees, represent the size and age of business. companies of varying volumes and duration on the market may have varying characteristics in terms of organization and environment, which of course may have an effect on their performance. the variables below were included as controls for this reason. based on the above stated we start from the following research assumptions: h0: there is a statistically significant correlation between the volume and structure of sources of financing and the performance of small enterprises; h1: there is a statistically significant correlation between the volume of sources of financing and the performance of small enterprises; h2: there is a statistically significant correlation between the volume of own capital and the performance of small enterprises. in accordance with this research question, quantitative methods will be used for the research of relationship/correlation between selected research variables based on regression analysis and parametric characteristics of pearson correlation coefficient. 4. results and discussion a variety of factors determine the nature and specificity of small businesses, which defines the overall operation of small businesses and makes them different. any generalization during research and conclusions on operations of this type of enterprises is far more difficult and with a lower degree of reliability. 18 aleksandra stoiljković, slobodan marić 2021/26(3) such circumstances are influenced by the distinct personalization of the business entity, the inaccessibility of business data, and the omission of non-measurable factors of high influence on the area of small enterprises. based on the research concept and the goal of the research, the nature of the relations between the selected variables and the results of the research in table 1 were examined using the regression analysis at the level of the parametric alternative. in the analysis of the results of the research, we will primarily focus on the main goal of the research regarding the impact of the type of financing on the performance of small enterprises. in the financing area, indicators of total financing sources, growth of financing sources, own capital as well as increase of own capital were analysed. table 1. correlations **. correlation is significant at the 0.01 level (2-tailed). *. correlation is significant at the 0.05 level (2-tailed). source: authors’ calculation 19 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) total assets 2017 average number of employees 2017 total revenue 2017 profit 2017 own capital % of own capital number of months of business % of increase in the number of employees % of asset growth % of growth in total revenue % of profit growth total assets 2018 pearson correlation 1 sig. (2-tailed) n 150 average number of employees 2018 pearson correlation .124 1 sig. (2-tailed) .132 n 150 150 total revenue 2018 pearson correlation .546** .170* 1 sig. (2-tailed) .000 .037 n 150 150 150 profit 2018 pearson correlation .543** -.113 .710** 1 sig. (2-tailed) .000 .168 .000 n 150 150 150 150 own capital pearson correlation .934** .073 .501** .568** 1 sig. (2-tailed) .000 .376 .000 .000 n 150 150 150 150 150 % of own capital pearson correlation .085 -.117 .057 .111 .243** 1 sig. (2-tailed) .301 .154 .487 .176 .003 n 150 150 150 150 150 150 number of months of business pearson correlation .011 -.063 -.016 -.002 .058 .132 1 sig. (2-tailed) .898 .445 .841 .980 .483 .108 n 150 150 150 150 150 150 150 % of increase in the number of employees pearson correlation -.047 .180* .025 -.023 -.071 -.110 -.220** 1 sig. (2-tailed) .566 .027 .759 .775 .388 .182 .007 n 150 150 150 150 150 150 150 150 % of asset growth pearson correlation .205* .124 .241** .144 .105 -.157 .002 .134 1 sig. (2-tailed) .012 .131 .003 .079 .202 .055 .985 .102 n 150 150 150 150 150 150 150 150 150 % of growth in total revenue pearson correlation -.037 .085 .155 .164* .,052 .014 -.098 .385** .131 1 sig. (2-tailed) .654 .300 .058 .045 .525 .862 .232 .000 .109 n 150 150 150 150 150 150 150 150 150 150 % of profit growth pearson correlation .005 .008 .059 .055 -.009 -.026 .055 .114 .037 .234** 1 sig. (2-tailed) .950 .924 .476 .504 .915 .748 .504 .165 .652 .004 n 150 150 150 150 150 150 150 150 150 150 150 based on the results shown in the table, when it comes to the relationship between total financing sources and own capital, there is a strong positive correlation at the level of statistical significance, with values r = .934 (cohen, 1988), n = 150, p = .000 with coefficient of determination of 87.23%, which shows a common part of variance of two variables. we can say, based on these results, that the participation of own capital follows the movement of total financing sources, which indicates a stable structure. after consideration of financing structure results, the following comparison is carried out between the volume of the financing sources and the selected performance indicators. the result worth considering is the ratio of total financing sources and total revenue, as an indicator of performance; there is a strong positive correlation at the level of statistical significance, with values r = .546, n = 150, p = .000 with a coefficient of determination of 29.81% which indicates a common part of the variance of the two variables. the following result, that sets out the volume of financing sources and performance, relates to profits; there is a strong positive correlation at the level of statistical significance, with values r = .543, n = 150, p = .000 with a coefficient of determination of 29.48% which indicates a common part of the variance of two variables. a significant result, in the selected performance variables and in relation to the volume of financing, appears also in the percentage of asset growth. between these two variables there is a slight positive correlation, however, at the level of statistical significance with values r = .205, n = 150, p = .012 with a coefficient of determination of 4.20%, which indicates a common part of the variance of two variables, which is in this case negligible. in the analysis of results in the area of the own capital influence (absolute value) on the performance indicators, the profit in the form of a strong positive correlation at the level of statistical significance stands out, with values r = .568, n = 150, p = .000 with a coefficient of determination of 32.26% indicating a common part of the variance of two variables. in the analysis of the interdependence between the variable of own capital and the performance, a statistically significant, strong positive correlation with the variable of total revenue and values r = .501, n = 150, p = .000 with a coefficient of determination of 25.10% stands out, which indicates a common part of the variance of two variables. other selected business performance variables did not manifest significant correlation with respect to variables of volume and structure of financing sources. following the pearson correlation, a standard multiple regression procedure was performed in an effort to determine the impact of a group of independent variables of dominant volume and funding structure on performance (profit) indicators. the model was evaluated as a whole, significance was determined and individual evaluation of each independent variable in the model was performed. 20 aleksandra stoiljković, slobodan marić 2021/26(3) table 2. model summaryb model r r square adjusted r square std. error of the estimate 1 .791a .626 .610 20954.358 a. predictors: (constant), % equity, total revenue 2018, business period (31.12.2018.), average number of employees 2018, equity, total assets/liabilities 2018 b. dependent variable: profit in 2018 source: authors’ calculation table 3. anovaa model sum of squares df mean square f sig. 1 regression 104975852565.069 6 17495975427.512 39.846 .000b residual 62789170184.804 143 439085106.187 total 167765022749.873 149 a. dependent variable: profit in 2018 b. predictors: (constant), % equity, total revenue 2018, business period (31.12.2018.), average number of employees 2018, equity, total assets/liabilities 2018 source: authors’ calculation table 4. coefficientsa a. dependent variable: profit in 2018 source: authors’ calculation prior to analysing the results of the set model of multiple regression, we want to point out the fulfilment of the assumption of multicollinearity. in addition to the correlation coefficients, the values of tolerance and vif indicate this assumption. having in mind the limit values of the mentioned indicators (tolerance <0.10; vif >10) in table 4, we can say that the values are the indicator of all variables in the domain of limit values and that there is no problem of multicollinearity of variables included in the model. table 2, model summary, presents the result that evaluates the whole model using the coefficient of determination, r2. the coefficient of determination gives the answer to the question: which part of the variance of the dependent variable explains the model, i.e., the group of selected independent variables. the value of the coefficient of determination is r2 = .626, expressed as a percentage, the model explains 62.60% of the variance of the dependent variable or profit. in this case, the value of the corrected coefficient of determination does not need to be included in the analysis, since the sample size is significant, the actual value of the coefficient of determination is stable and there are no significant deviations from the corrected value of the coefficient. the prediction of the model, i.e., the value of the coefficient of determination is statistically significant, which can be seen based on the results of anova in table 3, which are f (6, 143) = 39.846, p <0,000. when evaluating each independent variable in the model, in order to determine their individual contribution to the total predictive power of the model, we will compare the standardized values of the beta coefficient. the highest absolute value of the beta coefficient has the variable total revenue 2018 (0.63), p = 0.000, which means that total revenue gives a statistically significant largest unique contribution to the model. the variable with a slightly smaller contribution at the level of statistical significance is the variable equity, the value of the beta coefficient is 0.513 and p = 0.002. in addition to the above two, another variable with a significantly smaller contribution but statistically significant is the average number of employees 2018, where the value of the beta coefficient is 0.513 and p = 0.002. these characteristics make a unique and statistically significant contribution to profit prediction as an indicator of performance/success. other significant results in the coefficient table (table 4) are the semi-partial correlation coefficients in the part column. when this indicator is squared, the indicator of the contribution of a certain variable to the total coefficient of determination is obtained. thus, the value of the variable total revenue has a semi-partial correlation coefficient of 0.523 when squared, a value of 0.27 is obtained, which shows that total revenue independently explains 27% in the values of the variable profit. the value of the variable equity has a semi-partial correlation coefficient of 0.162; when squared, a value of 0.026 is obtained, which shows that equity independently explains 2.6% in the values of the variable profit. the variable average number of employees has a semipartial correlation coefficient -0.229; when squared the value is 0.053, which shows that the average number of employees independently explains 5.3% in the values of the variable profit. compared to similar studies in serbia, we can say that the results are identical. the financial problems of small enterprises in serbia are a consequence of the unfavourable influence of financial leverage, growth of financial risk and inadequate financial structure. all these problems have reduced efficiency growth, which has negatively affected this segment of the economy (stevanovic et al., 2017). the study conducted in the usa produced results based on which it can be concluded that cost-effective companies rely more on loans as their predominant source of financing. despite the fact that interest on operating loans is tax deductible, increase in default risk results from higher debt levels, which, in turn, exposes companies to increased chance of bankruptcy (gill et al., 2011). 21 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) model unstandardized coefficients standardized coefficients t sig. 95% confidence interval for b correlations colinearity statistics b std. error beta lower bound upper bound zeroorder partial part tolerance vif 1 (constant) 7215.2 10331.476 .698 .486 -13206.85 27637.445 business period (31.12.2018.) -9.810 19.207 -.026 -.511 .610 -47.776 28.157 -.002 -.043 -.026 .974 1.02 average number of employees 2018 -365.7 81.744 -.235 -4.475 .000 -527.351 -204,184 -.113 -.350 -.229 .947 1.05 total assets/liabilities 2018 -.029 .019 -.246 -1,514 .132 -.066 .009 .543 -.126 -.077 .099 10.0 total revenue 2018 .095 .009 .630 10.224 .000 .077 .114 .710 .650 .523 .690 1.45 equity .071 .022 .513 3.167 .002 .027 .115 .568 .256 .162 .100 10.0 % equity -90.6 100.085 -.053 -.906 .366 -288.522 107.153 .111 -.076 -.046 .773 1.29 references [1] bardi, a., & schwartz, s. h. 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(1992). survival chances of newly founded business organizations. american sociological review, 57(2), 227-242. doi:10.2307/2096207 22 aleksandra stoiljković, slobodan marić 2021/26(3) the facts in the conclusion are provided, not by chance, but because of their significance when it comes to the deficiency of financial indicators in the analysis of small business operations. taking into account all the prominent specifics of small enterprises, in the subjective-objective relation, we point out the following deficiencies of financial indicators in small enterprises: indicators provide insignificant presentation if the company incurs loss; there is no clear definition specifically when it comes to the indicator; if we take into account the previous fact, the indicators can be calculated in the way that someone wants or in a way that suits them, which means that indicators can be subject to manipulation; following previous two points, the indicators are most often presented in the final statement without certain accompanying calculations or definitions; in the domain of analysis there are only financial indicators, while all other factors that may have consequences for the company's results are missing; if calculated over a long period of time for the purposes of long-term analysis, the monetary value is not the same throughout the year of the selected period due to the effects of inflation (hughes et al., 2007). considering all of the above, we approach the process of making conclusions in regard to research structure with a certain amount of reserve. the main results of the paper show that the volume of financing as well as the participation of own capital do contribute to the business result/performance of small enterprises which are measured by the most relevant variables in terms of profit and total revenue. based on the presented results of the survey within the analyzed sample, when considering the structure of capital, we can reach the conclusion that small enterprises rely heavily on their own capital (over 80%), which affects the stability of the business and also the business result and competitiveness. identical confirmation is found in similar research conducted in serbia by stevanovic, ivanovic-djukic and lepojevic (2017). based on the above research, we can see that the number of entrepreneurs has increased (at a rate of 58% in the period from 2004 to 2009). on the other hand, there are negative tendencies in the form of an increase in long-term liabilities (at a rate of 815% from 2004-2009). these trends resulted in a significant change in terms of indebtedness and increased financial risk, which ultimately affected the financial structure. there was a short-term effect in terms of business results, as financial problems arose very quickly. 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(2004). strategic entrepreneurship, prentice hall. received: 2020-09-01 revisions requested: 2020-09-27 revised: 2020-10-11 (1 revision) accepted: 2020-11-02 24 aleksandra stoiljković, slobodan marić 2021/26(3) 25 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) aleksandra stoiljković university of novi sad, faculty of economics, subotica, serbia astoiljkovic@ef.uns.ac.rs aleksandra stoiljković is a teaching assistant at the department of management, faculty of economics in subotica, university of novi sad, republic of serbia. she teaches business economics and economics in tourism, at undergraduate studies and cost management and modeling the development of tourism and hospitality, at master's studies. she is a phd student at the faculty of economics and the author of numerous papers in the field of business management and economics in tourism. slobodan marić university of novi sad, faculty of economics,subotica, serbia marics@ef.uns.ac.rs slobodan marić is an assistant professor at the department of management, faculty of economics subotica, university of novi sad, republic of serbia, where he teaches bachelor’s courses in principles of management and master’s courses performance management and contemporary management. he has taken part in many national and international scientific and research projects. in addition, he is the author and coauthor of numerous scientific and professional papers in the fields of management, performance management, entrepreneurship and project management. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03 savovic:tipska.qxd 23 slađana savović*, jelena nikolić, dejana zlatanović university of kragujevac, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(3) acquisitions, organizational culture and performance: empirical evidence from acquired company in serbia doi: 10.7595/management.fon.2021.0007 abstract: 1. introduction acquisitions are the most popular internationalization and growth strategies in developed economies. recent years record increasingly intense acquisition trend in emerging economies as well, where these transactions are perceived as a powerful and important mechanism in the development of markets and local companies. given that emerging economies are characterized by an obsolete socialist administrative heritage, inefficient human resources, obsolete management practices, and poor company performance (bogicevic milikic & janicijevic, 2009), the transition of these economies means changes in the institutional and economic environment, as well as changes in the way companies operate. the acquisition of companies that do not use their potential requires the acquiring company to implement radical changes, in order to improve the acquired companies’ performance, which, among other things, includes changes in organizational culture. organizational culture, as a complex organizational phenomenon, affects the sharing of common values, assumptions and norms, employee behaviour trend, as well as various management aspects. hence, the * corresponding author: slađana savović, e-mail: ssladjana@kg.ac.rs research question: the purpose of this paper is twofold: first, to examine the effects of acquisitions on organizational culture in terms of the degree of change in certain organizational culture dimensions, and second, to examine effects of organizational culture differences on the acquired company’s performance. motivation: although many studies have examined the relationships among acquisitions, organizational culture and performance, especially the relationship between organizational culture differences and company performance in developed economies (chatterjee et al., 1992; weber & camerer, 2003; krishnan et al., 1997), little attention has been paid to the research into these relationships in the emerging economies. understanding the cultural issues in the context of acquisition in the emerging economy will contribute to the literature and enable comparison of research results with results obtained in developed economies. idea: the core idea of this paper was to empirically evaluate the relationship among acquisitions, organizational culture and performance on the example of an acquired company in the republic of serbia, as the emerging economy. the paper focuses on exploring the employees' perceptions of organizational culture change in the period after the acquisition, as well as managers’ perceptions of the acquired company’s performance. data: the survey was conducted in the company operating in the republic of serbia which was the subject of cross-border acquisition. the sample consists of 344 respondents (managers and employees) from the acquired company. tools: descriptive statistical analysis, mann-whitney u-test and regression analysis were applied in the study. findings: the results of the research demonstrate that innovation as a dimension of organizational culture has changed to a greatest extent. further, the results show that there are no statistically significant differences in the ways of how managers and employees perceive changes in organizational culture. additionally, the results of the research show that organizational cultural differences have a positive influence on performance of the acquired company. contribution: this paper contributes to a better understanding of the significance of organizational culture changes in an acquired company in the emerging economy and formulates practical suggestions for the managers in future acquisitions. keywords: acquisitions, organizational culture, innovation, emerging economy jel classification: g34, m14, l25, o30 change in organizational culture in the post-acquisition period aims to improve the performance of the acquired company. studies in developed economies see changes in the acquired company’s organizational culture after the acquisition and the imposition of the acquiring company’s organizational culture as a source of conflict that can lead to no benefit from integration. a large number of studies highlight the negative effects of organizational culture differences on the acquisition performance, which arise as a result of conflict (chatterjee et al., 1992; datta, 1991; weber & camerer, 2003). however, some studies (krishnan et al., 1997) emphasize the positive effect of organizational culture differences, especially in situations where prior to the acquisitions, the system of values, beliefs and behaviours of employees in the companies did not contribute to achieving a satisfactory level of business performance (savovic, 2017). in such circumstances, the transfer of potentially good practices to the acquired companies improves post-acquisition performance. the study of organizational culture in the context of acquisitions in emerging economies is a significant research area. the paper analyses the effects of acquisitions on the change of organizational culture. information on acquisition effects on change in organizational culture, especially in the context of emerging economies, is especially important as it helps understand the possibilities for improving the acquired companies’ performance. empirical research was conducted on the example of a company in the republic of serbia that was the subject of the cross-border acquisition. the purpose of this paper is twofold: first, to examine the effects of acquisitions on organizational culture in terms of the degree of change in certain organizational culture dimensions, and second, to examine the effects of organizational culture differences on the acquired company’s performance. in accordance with the research purpose, the paper covers the following research questions: q1: to what extent has organizational culture in the acquired company changed? q2: do managers and employees perceive differently the degree of change in organizational culture in the acquired company? q3: what is the impact of organizational cultural differences on the acquired company’s performance? the paper structure includes four sections. the introduction is followed by literature overview, to explain different dimensions of organizational culture and highlight the importance of organizational culture in the acquisition processes in emerging economies. the third section explains the research methodology and research results. the final section presents concluding remarks, research contribution, limitations and future directions. 2. literature overview 2.1. the importance and dimensions of organizational culture literature offers numerous definitions of organizational culture to help understanding the concept and contents of organizational culture. schein (1996) gives one of the generally accepted definitions of organizational culture as “a pattern of basic assumptions by a certain group, which is invented, discovered and developed in the learning process, in order to solve the problem of external adaptation and internal integration”. it follows that organizational culture arises from the common experience of the organization’s members gained by solving everyday problems, which is why it is seen as an important group characteristic. organizational culture is of great importance because it represents a “powerful and invisible force” that directs individual and collective behaviour in an organization. organizational culture is understood as a shared social understanding, resulting in common assumptions and worldviews of the organization’s members (weber & camerer, 2003). it can also be defined as a system of norms, habits, assumptions and beliefs shared by members in an organization, reflecting a common perception of everyday customs and generally determining “the way things are done within an organization” (cartwright & cooper, 1993; weber, 1996). organizational culture represents the values, beliefs, and knowledge acquired through social interactions that serve to define and predict acceptable organizational behaviour (elsass & veiga, 1994). this implies that all members of an organization interpret the reality that surrounds them in the same or similar way and behave in a similar way in such a reality, which is reflected in organizational goals and practice. organizational culture contains the meanings of phenomena and events related to the way the organization works and can influence decision making in different ways: it provides a basis for identifying problems, setting goals, considering alternatives, their assessment and selection (zlatanovic, 2020). in accordance with the values and norms that permeate the organization, managers formulate strategies, design organizational structure and shape management style. in fact, organizational structure and strategy, leadership style, rewards and motivation derive precisely from the way managers and employees understand organizational reality and behave in it, which depends on a certain form of organizational culture. this means that organizational culture, through its impact on the behaviour of organization’s members, has an important 24 slađana savović, jelena nikolić, dejana zlatanović 2022/27(3) role in shaping other organizational and management components (janicijevic, 2012). this indicates that, in the process of strategic decision making, managers rely on the cultural values adopted, and apply the appropriate managerial style accordingly. managers’ beliefs and basic assumptions are subjective and can relate to various organizational aspects. in line with the conceptual understanding of organizational culture, its significance and the numerous elements that shape it, the important question is how to measure it. some studies confirm that the dominant assumptions and beliefs that characterize organizational culture can be isolated and measured with great reliability and validity if the key dimensions that shape organizational culture are identified (chatterjee et al., 1992; weber, 1996; weber et al., 1996; weber & tarba, 2011). literature offers various approaches to identifying key dimensions of organizational culture. with reference to different approaches to identifying dimensions of organizational culture, it is desirable to select research-specific dimensions, which requires taking certain steps (ginevicius & vaitkunaite, 2006): identify all dimensions available in different theoretical and empirical research; group and sort the dimensions according to the appropriate characteristics and select the dimensions considered to have the greatest study impact. quinn and rohrbaugh (1983) develop a typology of organizational culture based on two key dimensions identified in search for answers on how flexible the organization is and whether the organization is oriented inwardly or outwardly (as cited in schein, 2009). goffee and jones (1998) develop a typology of organizational culture based on sociality and solidarity within the organization itself as two key dimensions (as cited in schein, 2009). denison and mishra (1995) find four dimensions of organizational culture: adaptability, mission, employee involvement, and consistency. chatterjee et al. (1992) assess differences in organizational cultures based on five dimensions: innovation, top management communication with employees, autonomy and decision-making, reward system, and performance orientation. in the analysis of organizational culture, cudanov et al. (2017) use the hofstede's multi focus model that gives the overview of six dimensions of organizational culture: means-oriented vs. goal-oriented, internally vs. externally driven, easy going work discipline vs. strict work discipline, local vs. professional, open system vs. closed system, employee-oriented vs. work oriented. in addition to these, a large number of authors identify different dimensions of organizational culture, which is why it is desirable to systematize research and highlight the following key dimensions of organizational culture (as cited in spasojevic brkic et al., 2019): risk taking in the organization; the speed of organization’s response; the way of communication in the organization; the organization’s focus on goals or results; the degree of formalization in the organization; the reward system in the organization; the control mechanism in the organization; the attitude of the organization towards conflict; employee knowledge and competence; employee progress and development; the primary orientation of the organization. within the stated dimensions, weber and tarba (2012) believe that different beliefs and assumptions can be classified into the following seven areas, which they single out as basic dimensions of organizational culture: • level of innovation – managers with a strong focus on innovation and dynamic activities encourage a quick response to changes in the external environment and the reactions of competition. nikolic et al. (2018) point out that an innovatively oriented organizational culture should have the following characteristics: openness and flexibility, open internal communication, competencies and professionalism, inter-functional cooperation, employee responsibility and risk-taking. • risk taking – management philosophies and beliefs regarding risk taking are one of the main factors of differentiation between organizations. risk taking influences many decisions such as investment in new projects, acquisitions, investment in equipment and technology production, investment in research and development and the like; • horizontal relationship, i.e. horizontal communication flows – managers have different perceptions about the importance of cooperation and connections between different organizational units in terms of achieving organizational goals, as well as encouraging competition between organizational units to increase employee motivation and their effort; • vertical-hierarchical relationship, i.e. vertical communication flows – this dimension refers to the management attitude to subordinates, such as support, understanding and encouragement. managers differ in the degree to which they encourage subordinates to create new ideas, be creative, and take risks, in the same way they differ in enabling employees to openly express their opinions and to criticize; • degree of autonomy and decision-making process – this dimension shows the level of autonomy and responsibility that should be delegated in making important decisions, which determines the form of organizational structure, assigning roles and responsibilities to employees, and respecting procedures within the organization; • performance orientation – managers’ requirements in terms of performance and continuous improvement are important aspects of organizational culture and managerial style. management differs in its views on the requirements for continuous improvement and achievement of challenging goals; 25 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) 26 slađana savović, jelena nikolić, dejana zlatanović 2022/27(3) • reward system – organizational culture can also be linked to the way employees are rewarded. management’s approaches to the reward system are linked to their beliefs about the need to reward fairly and to link rewards to performance. the analysed dimensions predominantly rely on the classification given by chatterjee et al. (1992), where the way of communication in the organization is analysed in more detail through horizontal and vertical communication flows, and the degree of innovation is related to the degree of risk taking. also, based on the previously implemented systematization of different approaches to identifying organizational culture dimensions, we see that some of the chatterjee et al. (1992) dimensions appear in a number of studies. at the same time, it should be noted that numerous empirical studies rely on their dimensions, which is why they represent the theoretical basis for studying the relationship between acquisitions and organizational culture changes. 2.2 organizational culture and acquisitions in emerging economies the importance of organizational culture in the context of acquisitions stems from its impact on the way companies operate and perform in the post-acquisition period. as the two companies participating in the acquisition process have different organizational cultures, in the post-acquisition period it is necessary to carry out the process of harmonizing organizational cultures. nahavandi and malekzadeh (1988) conducted initial research in this area by developing a conceptual model of the process of harmonization of cultures consisting of four approaches: integration (a process characterized by structural equalization of two cultures and preserving the identity of both organizations), assimilation (a unilateral process in which the acquired company is ready to give up on its culture and identity and adapt to the culture of the acquiring company), separation (where minimal changes are required in the acquiring company and the acquired company, ensuring that both cultures remain completely separate) and deculturation (a process in which the acquired company loses its cultural identity but refuses to adapt to the culture of the acquiring company). cartwright and cooper (1993) also analyse acquisitions depending on the extent to which organizational culture needs to change and integrate, to identify the following three situations that may arise in the post-acquisition period (as cited in chmielecki & sulkowski, 2016): collaborative acquisitions – the success of acquisitions depends on the ability to merge two cultures and create a unique culture that has elements of both cultures, thus creating a “win/win” scenario; extension acquisitions – differences in culture between companies are considered insignificant and it is not necessary to harmonize organizational cultures; redesign acquisitions – the most common type of acquisitions in which the acquiring company has a dominant role and replaces the culture of a smaller or less successful company. the influence of organizational culture differences has long been the study subject in the scientific and professional community. however, the research results are contradictory, as certain studies highlight the negative impact of organizational culture differences (chatterjee et al., 1992; datta, 1991; weber & camerer, 2003), while some studies find a positive impact (krishnan et al., 1997; savovic, 2017). the negative impact of organizational culture differences is due to a conflict of cultures that occurs when the acquiring company imposes its organizational culture on the acquired company, where employees resist change. the conflict of cultures can lower employee commitment to goals and make them leave the organization. this has been the reason for the failure of a large number of acquisitions, especially in situations of intense differences in organizational cultures due to differences in national cultures. on the other hand, some studies show a positive impact of organizational culture differences on the acquisition performance, pointing out that when the two companies’ top management teams have different abilities and skills, the weaknesses of one management team can be offset by the strengths of another team, thus leading to positive effects on acquisition performance. the positive impact of organizational culture differences is particularly possible in emerging economies. after the acquisition in emerging economies, acquiring companies face the need to implement radical changes in the acquired companies, especially in those that were state-owned. an integral part of the process of change in these companies involves a change in organizational culture. obsolete managerial practices in state-owned companies, conflicting non-market goals, non-involvement of employees in the process of sharing information and decision-making, employee non-focus on challenging goals are essential characteristics of the organizational culture of many stateowned companies. companies with such an organizational culture do not realize their full potential, and, therefore, the need to redefine the organizational culture emerges as a necessity. hence, upon acquisitions in emerging economies, the change of organizational culture implies a process that takes place in three phases (markovic, 2017): 1) break with the past; 2) exploitation and 3) development and innovation. in the first phase, the company employees should face the fact that the existing way of doing business is no longer applicable. obsolete management practices and managers with no entrepreneurial spirit and vision lead to a transfer of managerial knowledge from the acquiring company that is in many cases a foreign one. in order to break with the existing business model and create conditions for the adoption of a new organizational culture, an authoritative management style is applied. in the second phase, two management styles are combined: authoritarian (applied in parts of the company resisting change) and democratic (in parts of the company interested in adopting a new organizational culture). since the exploitation of a foreign company’s knowledge and experience is not enough to achieve a long-term competitive advantage, the third phase requires developing innovation in the acquired company. management style is more democratically oriented, as employees should be stimulated and encouraged to develop creativity and innovation and actively seek different ways to solve business problems. in this context, it is crucial to change one of the key dimensions of organizational culture – innovation. the importance of developing employees’ inclination towards innovative behaviour is reflected in the fact that the generation and application of new ideas and knowledge are fundamental preconditions for the development of a sustainable competitive advantage (duksaite & tamosiuniene, 2009, eric nielsen, 2020). the ability to generate new ideas and develop new innovative solutions is crucial to achieving long-term profitability. innovation allows an organization to increase its efficiency through the improvement of internal processes, on the one hand, and by networking with external stakeholders, on the other hand. therefore, organizational innovativeness is seen as a necessary precondition for profitability, company growth as well as competitive advantages, i.e. for long-term sustainability (aleksic miric et al., 2019). 3. methodology and results of empirical research the research focuses on the example of a company that was the subject of an international acquisition carried out in 2011 by a belgian company, which is one of the world's leading companies in retail industry. in analysing this acquisition, we used quantitative and qualitative data. the primary source of data for conducting quantitative research was questionnaire. in qualitative research we used annual business reports of the acquired company, information gathered from the acquired company's web site, as well as information from business magazines. quantitative research, in combination with qualitative data, can have an important role in better understanding relationships among acquisition, organizational culture and performance. prior to conducting the survey, we contacted the company management to explain the objectives of the survey and obtain approval to distribute the questionnaire to employees. we ensured the representativeness of the sample by the distribution of questionnaires in all parts of the republic of serbia in which the company operates. the company has 6356 employees, and the survey focused on a sample of 344 employees, which represents 5.41% of the total number of employees. the characteristics of the sample are shown in table 1. table 1: sample's characteristics 27 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) �������� ����� �� � �� ����� ������� � � � �� ��� �� � ���� �� ���� ����� ������������� ��� ����� ����������� �����!"� ��#� � � ���$ �� %� ���� � �$��� ���� ����� ���$��� �%�� �%��� ���$��� ��� ����� �&��� �� ��� ������������� �� ����� '� ����(�)��*��+������,�� � � �-�� �%� %��� ��$�%� � � %��� ���$��� ��� ����� ���$ �� ��� � ��� �& �� � � ����� ������������� ��� ����� .�������� � � ����� � ���� �����������!���/����� �� ������� ��0�� � � ������#� ��� � ��� ����1��� ��������������� �� ��� � ���������������� �%� ���� � we analyse data using the statistical package for social sciences: spss 20.0 (coakes, 2012). the reliability and internal consistency of variables are measured using the cronbach’s alpha coefficient. descriptive statistics is used to measure central tendency (arithmetic mean) and to measure variability (standard deviation). testing the significance of differences between subsamples is performed using the mann-whitney u-test. in order to investigate the effects of acquisition on organizational culture, we measure organizational culture differences through employee perceptions of the degree of change in organizational culture after the acquisition compared to the period before the acquisition. organizational culture differences are measured by using items adopted from chatterjee et al. (1992) and later studies (weber, 1996; weber et al., 1996; lubatkin et al., 1998; weber & tarba, 2012). the five analysed dimensions were: innovation, communication of top management with employees, autonomy and decision making, reward system and performance orientation. respondents are asked about the degree of cultural differences before and after the acquisition. the acquired company’s performance is measured on the basis of the managers’ subjective perceptions. while all respondents answered questions related to the evaluation of organizational culture differences (n=344), only the respondents holding managerial positions answered questions related to the evaluation of performance (n=43). the performance of the acquired company was measured by items related to financial and non-financial indicators which refer to revenue growth, cost reduction, improved customer base and more. examples of items are: “revenue growth is higher than prior to the acquisition” and “the customer base has expanded after the acquisition”. a five-point likert scale is used to measure both variables, indicating the degree of managers’ agreement with the views expressed. respondents can choose between answers from 1 – i do not agree to 5 – i fully agree. accordingly, preliminary analyses come first: testing the reliability of the measuring scale, as well as testing the normality of distribution. the reliability of the measuring scale is measured by cronbach’s alpha coefficient. reliability is measured to check the degree to which variables are consistent with what they are supposed to measure. the value of cronbach’s alpha coefficient for organizational culture differences is 0.902, and for performance of acquired company is 0.958, which means that the items through which independent and dependent variables are measured have a high level of internal consistency, given that acceptable values of this coefficient are above 0.7 (nunnally, 1978). data analysis requires checking the normality of distribution of the research variables used. normality is confirmed by a statistically insignificant (random) deviation from normality, i.e. if the value of p > 0.05. in this case, the significance level of the kolmogoro smirnov test is p=0.00, which shows that normality of distribution has not been confirmed. this is the reason why a non-parametric test – the mann-whitney u-test – will be used in data processing. regression analysis is used to test the impact of organizational culture differences on the performance of the acquired company. table 2 presents the value of arithmetic mean of organizational culture differences, a variable that measures the perceived degree of differences in organizational cultures before and after the acquisition. the value of arithmetic mean of organizational culture differences (mean=2.99) is above 2.5, which means that respondents perceive that organizational culture has changed to a certain extent. table 2: the mean and standard deviation of organizational culture differences variable given the importance of the analysed organizational culture dimensions for identifying a certain type of organizational culture, it is necessary to determine which dimensions of organizational culture have changed and to what extent. table 3 presents the items through which the organizational culture differences are measured, as well as the values of arithmetic mean of the perceived differences. the research results show that innovation, as a dimension of organizational culture, has changed to a greatest extent, since the respondents agree most with the item “after the acquisition, there were changes in the company’s attitude towards innovation and creativity” (mean=3.13). the next dimension where change is seen is the performance orientation. this dimension is measured through the item “after the acquisition there were changes in the degree to which the company impacts on employees to improve their performance” and the value of arithmetic mean is above 3 (mean=3.01). with other items, the value of arithmetic mean is lower than 3. the dimension of organizational culture that least changes is the reward system, i.e. respondents agree least with the item “after the acquisition there were changes in ways of rewarding and encouraging employees” (mean=2.66). 28 slađana savović, jelena nikolić, dejana zlatanović 2022/27(3) �������� �� � �������� � ���� �� ������������� ��� ���� ����� �������� � table 3: items for measuring organizational culture differences – the mean and standard deviation the obtained result can be related to the view that acquisitions, as comprehensive organizational phenomena, imply a certain degree of change in the company subject to acquisition. the changes that occur as a result of the acquisitions can be of different scope, and most often include a change in organizational culture. after the acquisition process, the top management team changes and the management style changes (as part of the organizational culture), which should lead to a greater degree of innovation, as the obtained results confirm. in fact, in order to achieve the positive effects of the acquisition, it is necessary to change the existing system of values, beliefs and behaviour of employees in the acquired company, so as to promote and encourage their proactive action, as well as commitment toward achieving better performance. as the retail industry is one of the most dynamic and fastest growing industries, innovation is essential for the survival and development of the companies. after the acquisition, the acquiring company paid great attention to building organizational culture that stimulates creativity and innovation. by encouraging innovative thinking among employees, encouraging employees to make suggestions and actively seek different solutions that will meet the needs of consumers in the best way, the company has transformed the organizational culture, emphasizing innovation as its key dimension. the company fosters a value system which encourages learning and knowledge sharing. the training of employees is continuously organized, in terms of improving their knowledge, but also special education when it comes to introducing innovations in business. the company introduced e-learning as a new learning modality with the aim of making education more accessible to all employees. as stated in the annual business report, emphasis on employee education has resulted in an evident increase in the quality of service and revenue generation in retail stores. in the post-acquisition period, the company focused on research and development activities with the aim of increasing the level of knowledge and designing new applications of that knowledge, such as improving existing and developing new products, services and processes, including research for new software development. the company's efforts to strengthen innovation have led to a number of quality changes. in 2014 the sap retail module was implemented which sought to create higher value for consumers, as well as for employees in the company through improved processes and more efficient daily work. the application of sap retail solutions has provided a competitive advantage in the management of the range, prices and promotions. as speed is one of the key aspects that must be paid special attention to in the retail sector, the company focused on improving the logistics system. a centralized distribution centre has been opened, which is one of the most modern logistic centres, built in accordance with modern technological solutions that enable higher efficiency, preservation of product quality and reduction of costs and stocks in the entire supply chain. although it is one of the most modern facilities, the company continues to introduce new technological innovations. for example, preparations were made for the implementation of pick by voice in the distribution centre, for advanced voice commissioning in order to increase productivity. these are some of the examples that show how building a culture that encourages innovation has resulted in a number of qualitative changes which should lead to better performance. in addition to the analysed differences in terms of changing certain dimensions of organizational culture, differences in employees’ and managers’ perceptions of changes in organizational culture are examined. the results of the mann-whitney u test are shown in table 4. the analysis shows that there are no statistically 29 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) ������ �� � �� � � ���������� �� � � �������������� � ����� ������ �� ����� ������� ��� ������ ���� ���� � ��� ��� �� � � ��� ���� ����� ������ ���������� �� � � �������������� � ����� ������������� ����� ������ ��� ��� �� ������������������� ���������� ��������� � �� �� � ��!�� �� ��� ���������� �� � � �������������� � ����� ������ ����� � ������� � �������� �������������� ��!� ���� ����"� ���������� �� � � �������������� � ����� ������������� ����� ��� � ��������� �������������� ��� �������� ������� �� � ��� ���� � ���� # ��� �� � ���� �� !�� ���������� �� � � �������������� � ����� ������� ������ ��� �� ��� ����� ��� � ������������� ���� �$$� ������ � significant differences in the perception of organizational culture differences between employees and managers. this result confirms that the hierarchical structure does not play a crucial role in the perception of the implemented changes. organizational culture is a complex phenomenon that permeates the entire organization, which suggests that all employees, as members of the organization, in accordance with the roles they perform, perceive changes in organizational culture in a similar way. table 4: significance testing for differences in employees’ and managers’ perceptions of changes in organizational culture in order to answer the research question on the impact of organizational culture differences on the performance of acquired company, a regression analysis is performed. the results of the regression analysis are presented in table 5. table 5: results of regression analysis unstandardized (b) and standardized (β) regression coefficients are shown. *p < 0.05 the results show that the model is statistically significant (f=74.589; p=0.00) and explains 65.4% of variance of the dependent variable (adjusted r2=0.654). the results of regression analysis show that organizational culture differences positively and significantly affect the performance of the acquired company (β=0.814; p=0.00). 30 slađana savović, jelena nikolić, dejana zlatanović 2022/27(3) � ��������� � ���� ���� ����� ���������� �� ���������� �� � � ��������� ����� � ����� ������� ��� ������ �� ��� ��� �� ��� � ������������� � � ��� �� ��� � ���� ��� ������� ����� � ��!�� "��� � ��� ��� � ���� �� � ������� ���������� �� � � ��������� ����� � ����� ������ ����� � ������ � � �������� ���� ���������� � � ��� �� ��� � ���� ��� �����#� �� ��$ � ��#�� "��� � ��� ��� � ���� ��#� �����!� ���������� �� � � ��������� ����� � ����� ������ ������������ ������ ��� ��� �� ������ ������������� ����%�� ��� ��������� � �� � � ��� �� ��� � ���� ��� ����! � ��$!� � ��#!� "��� � ��� ��� � ���� ���� ������� ���������� �� � � ��������� ����� � ����� ������ �� ������������ ��� ��� ��� ���� ���% � ��� ��� �� � % ��� � � ��� �� ��� � ���� ��� ��!���� ���!� � �# �� "��� � ��� ��� � ���� �� � ����$ � ���������� �� � � ��������� ����� � ����� ������ ������������ �� � � ��������% ��� ����������� ��� �������� ������� �� � ��� ���� � ���� & ��� � � ��� �� ��� � ���� ��� ������� �$ �� � �$��� "��� � ��� ��� � ���� ���� ������� � �������� ������ � ����� ���� �� �� ��� �� ������ � ������ �� ���� �������� ��� ������ ������ �������� ��� � � ������ ����� ������ � � ��� �� !� � � ��� ����� � 31 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) conclusion and implications acquisitions in emerging economies are in many cases motivated by the efforts of acquiring companies to enhance the untapped potential of acquired companies. after the acquisition, the acquiring company must implement changes in the acquired company, which usually includes change in the organizational culture. in the acquired companies, the existing system of values, beliefs and behaviours promote inertia, inactivity and low employee commitment to achieving challenging goals (savovic, 2017). the organizational culture of such companies usually does not contain a strategic and proactive component. changing the organizational culture in the acquired companies aims to build a proactive organizational culture. in terms of changes in the organizational culture of the acquired company, changes in the following key dimensions of organizational culture are of particular importance: innovation, top management communication with employees, autonomy and decision-making, reward system and performance orientation. regarding these dimensions, it can be concluded that the company will create the basis for achieving sustainable competitive advantage and performance in the long term if it adopts values that promote innovation, stimulation and encouragement of employees and their involvement in the decisionmaking process. at the same time, the company should set clear performance and continuous improvement requirements, as well as a clear and fair system of employee incentives and rewards. the research results show that the acquired company changed all analysed dimensions of organizational culture, with the greatest degree of change in the dimension of innovation. changing the organizational culture after the acquisition and building a new proactive organizational culture is important for the future development and performance improvement of the acquired company. of particular importance is the change of the dimension of innovation, bearing in mind that the organizational culture that stimulates and encourages the development of new ideas and innovative solutions is of fundamental importance for achieving long-term profitability. in addition, the results of the study show that all members of the organization, regardless of their position and the role they perform, have the same perceptions of changing organizational culture. the change in organizational culture means the change in common values and beliefs after the acquisition in the same way, regardless of the hierarchical structure. hence, it can be concluded that both managers and employees have embraced the new cultural patterns that the multinational acquiring company has sought to implement in the acquired company in order to improve business and performance in the long term. the research results show that organizational culture differences positively and significantly affect the performance of the acquired company. this is consistent with the results of studies that confirm a positive impact of differences in organizational cultures on acquisition performance (krishnan et al., 1997; savovic, 2017). in this way, the example of the analysed company confirms that changes in the existing organizational culture and adapting it to the organizational culture of a successful multinational acquiring company brings positive effects and performance improvement. 4.1 theoretical and managerial implications the research results provide certain theoretical and practical contributions. as previous research of the relationships among acquisitions, organizational culture and performance in emerging economies is limited, these research results contribute to a better understanding of the significance of changes in different dimensions of organizational culture in acquired companies, particularly in the emerging economy. in this way, the study contributes to literature in the field of acquisitions and organizational behaviour. the research conducted emphasizes that if the existing organizational culture is not proactive and does not contribute to achieving good business results, it is necessary to adopt a new organizational culture. in crossborder acquisitions, where the acquiring company is a foreign company, the transfer of modern management practices is of special importance, since management in emerging economies must develop its capabilities and adopt new knowledge and skills from the current paradigm of change management. the results of the study also have certain practical implications. in this sense, the contribution of the paper lies in the implications that can be an important guideline for companies in future acquisition processes. an important implication for managers, who will be involved in the process of changing organizational culture, is to especially understand the importance of changing innovation as a dimension of organizational culture, in order to ensure orientation towards achieving good performance in the long term. 4.2 research limitations and suggestions for further research the key limitation of the paper is reflected in the fact that the research subject is one acquired company in the republic of serbia and, hence, the results of the study cannot be generalized. however, observing one case of acquisition provides a good basis for conducting a deeper analysis of the effects of acquisitions on the change in organizational culture. consequently, within the framework of future research, it is necessary to conduct a more extensive research into a larger number of acquired companies in the republic of serbia, but also countries in the region, in order to enable a more general conclusion about the effects of acquisitions on organizational culture changes. it would be important to analyse whether references [1] aleksic miric, a., petrovic, m., & anicic, z. 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(1998). managing mergers across borders: a two-nation exploration of a nationally bound administrative heritage. organization science, 9(6), 670-684. retrieved from https://www.jstor.org/stable/2640248 32 slađana savović, jelena nikolić, dejana zlatanović 2022/27(3) there are differences in changes in organizational cultures in the context of domestic vs. cross-border acquisitions. additionally, it would be important to explore the impact of organizational cultural differences on the acquired companies’ performance. it is expected that the results of future research, which will include a larger number of acquired companies, will confirm the positive effect of organizational cultural differences on acquisition performance. regarding expected results, we particularly want to emphasize the relevance of context in which acquisitions occur, i.e. context of emerging economies. as mentioned above, acquisitions in emerging economies, usually require radical changes, due to outdated managerial practices in acquired companies, non-involvement of employees in the process of information sharing, etc. among other things, such changes imply redefining the organizational culture in these companies. therefore, new organizational culture creates potential to develop richer knowledge structures and contributes to improving creativity and innovation of employees. given the small number of studies in emerging economies that focus on this issue, this would provide a significant contribution to the literature and allow comparison of the effects of acquisitions in emerging economies with research results in developed economies. the conclusions drawn may be significant in terms of identifying possible ways to enhance the effects of acquisitions in emerging economies. 33 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) [19] markovic, d. 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(2017). organizational culture differences and post-acquisition performance: the mediating role of employee attitudes. leadership and organizational development journal, 38(5), 719-741. [25] schein e. (1996). culture: the missing concept in organizational studies. administrative science quarterly, 41(2), 229-240. https://www.jstor.org/stable/2393715 [26] schein e., (2009). the corporate culture survival guide. san francisco: jossey-bass. [27] spasojevic brkic, v., tomic, b., brkic, a., & dondur, n., & josipovic, s. (2019). dimenzije organizacione kulture u multinacionalnim preduzecima. tehnika – menadzment, 69(2), 279-286. doi: 10.5937/tehnika1902279s [28] weber, r., & camerer, c. (2003). cultural conflict and merger failure: an experimental approach. management science, 49(4), 400-415. doi: 10.1287/mnsc.49.4.400.14430 [29] weber, y. (1996). corporate cultural fit and performance in merger and acquisitions. human relations, 49(9), 1181-1202. doi:10.1177/001872679604900903 [30] weber, y., & tarba, s.y. (2011). exploring culture clash in related merger: post-merger integration in the high tech industry. international journal of organizational analysis, 19(3), 202-221. doi: 10.1108/19348831111149178 [31] weber, y., & tarba, y. s. (2012). mergers and acquisitions process: the use of corporate culture analysis. cross cultural management: an international journal, 19(3), 288 – 303. doi: 10.1108/13527601211247053 [32] weber, y., shenkar, o., & raveh, a. (1996). national and corporate cultural fit in mergers and acquisitions: an exploratory study. management science, 42(8), 1215-1227. doi:10.1287/mnsc.42.8.1215 [33] zlatanovic, d. (2020). upravljanje inovacijama: konceptualno-metodoloski okvir. kragujevac: ekonomski fakultet univerziteta u kragujevcu received: 2020-08-19 revision requested: 2020-11-06 revised: 2020-11-23 (1 revision) accepted: 2020-11-30 slađana savović university of kragujevac, faculty of economics, serbia ssladjana@kg.ac.rs slađana savović is an associate professor at the faculty of economics, university of kragujevac, serbia. she holds a ms and a phd from the faculty of economics at the university of kragujevac. the main areas of her research interests are mergers and acquisitions, change management and acquisition performance. her research papers are published in journals such as journal of organizational change management, leadership and organizational development journal, international journal of productivity and performance management, economic annals, and others. she has been involved in research projects financed by the european union, the serbian government, and faculty of economics, university of kragujevac. about the authors 34 slađana savović, jelena nikolić, dejana zlatanović 2022/27(3) jelena nikolić university of kragujevac, faculty of economics, serbia jnikolic@kg.ac.rs jelena nikolić is an associate professor on the following subjects: introduction to management, business decision making, corporate governance and business negotiation, at the faculty of economics, university of kragujevac, republic of serbia. she earned her phd degree from the university of kragujevac, faculty of economics. her research focus is on strategic decision making, corporate governance and corporate entrepreneurship. she is the author/co-author of numerous scientific papers and monograph chapters. dejana zlatanović university of kragujevac, faculty of economics, serbia dejanaz@kg.ac.rs dejana zlatanović is an associate professor in the field of management and business administration teaching the subjects of innovation management, management science, business negotiation and new product development at the faculty of economics, university of kragujevac, the republic of serbia, where she earned her phd degree (in 2015). her research interest is focused on innovation management, systems approaches to management, business negotiation, innovativeness in higher education and corporate social responsibility. she has published about 50 papers in scientific journals and conference proceedings, as well as several chapters in the books. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03 dragan pamucar:tipska.qxd 23 dragan pamučar1, darko božanić1, nenad komazec1 1university of defense in belgrade, military academy, serbia udc: 005.334:504.2/.6 risk assessment of natural disasters using fuzzy logic system of type 2 doi: 10.7595/management.fon.2016.0016 1. introduction risk management is still a field of human interests not explored to an adequate extent. for that purpose, a large number of models are being developed. in scientific and professional community there is no unanimous agreement that there is a unique risk management method that can be used across the board. on the other hand, it is generally agreed that each system is unique and so that is consequently necessary to develop models which differ one from another. for that purpose, a large number of methods for assessing and managing risk are being used. methods that support decision-making are an important part in risk management, and also have specific role in risk quantification. fuzzy sets and fuzzy logic represent major areas of risk quantification. they are applied in different ways, individually or combined with other methods. one way of applying is the fuzzy logic systems (fls). 2. description of the problem despite significant technological progress, modern society is not free from the burden of crises that “a particular community, nation, or entire world may push into a state of chaotic conditions” (keković & kešetović, 2006, p. 15). a devastating impact of the crisis on parts of or on the whole of the community, as well as assumptions that such a crisis may emerge are the most important parameters which indicate a need to research this issue. one of the segments of this problem is predicting the occurrence of adverse events, in order to reduce their impacts as much as possible, and even to prevent any negative consequences. an indispensable element of such prediction is risk assessment. risk is a term that has been established in the field of crisis management. besides, like most concepts in social sciences, risk is defined in different ways. keković et al. (2011) suggest that risk is “any possibility in management 2016/80 risk assessment of natural and other disasters in the republic of serbia is defined using special methodology. this paper presents a model of improving the existing methodology by using a new generation of fuzzy logic systems (fuzzy logic systems of type 2). this type of fuzzy logic systems is a significant improvement of the existing fuzzy logic systems of type 1. fuzzy logic systems type 2 are based on the application of new interval fuzzy numbers that consider undetermined relative to classic fuzzy numbers in a better way. the fuzzy logic system presented in this paper translates vagueness and uncertainty, those that accompany risk assessment of natural disasters and other catastrophes, into an algorithm. this kind of algorithm makes the difference between data that are absolutely correct and those less accurate, those that clearly fit in the defined evaluation scales and those that are on the limit of values and so on. this kind of a model can help decisionmakers who conduct risk assessment of natural and other disasters since it is rather easy to use and does not require prior knowledge. thereby, the existing methodology is used as a cornerstone in the developed model. also, the model is significant for persons engaged in decision-making in other areas because it is a method that has not been extensively applied in science and practice, and whose development is at the beginning. keywords: fuzzy logic, interval fuzzy number, fuzzy logic system type 2, risk assessment, natural disasters 24 2016/80management the present system, which with a certain probability, can cause an unexpected change of quality, that is, cause the change or loss of the system” (p. 25). for avakumović et al. (2010) risk is usually considered to be the “uncertainty of loss” (p. 387). also, “risk is a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for” (vaughan & vaughan, 2008, p. 2). karović and komazec (2010) define risk as a “deviation from the expected” (p. 149). huang and rouen (2008) define risk as “a scene in the future associated with some adverse incident” (p. 682). usually, risk is defined as “a combination of possibility (probability) of an event and its consequences” (risk management terminology paper iso / rmtp, international organization for standardization iso tc 223 / sc). it can be concluded from these definitions that risk is usually associated with uncertainty, that is, something that is not safe. in that sense, williams et al. (1998) explain uncertainty on several levels: • state of absence of uncertainty, when the outcome can be predicted very accurately; • level of uncertainty 1, when the outcomes are identified and probabilities are known; • level of uncertainty 2, when the outcomes are identified and probabilities are unknown and • level of uncertainty 3, when the outcomes are not identified and probabilities are unknown. in order to prevent adverse events from happening or minimize their consequences, constant risk assessment is performed. there are several risk assessment methods1. for the purpose of assessing risk of natural and other disasters in the republic of serbia a specific methodology has been developed. it can be found in the guidelines on the methodology for risk assessment development and protection and rescue plans in emergency situations (2012). according to this methodology, risk assessment consists of three phases: identification, risk analysis and assessment. the focus of this paper is on risk analysis. this includes determining the level of risk, i.e., quantification of risk. very suitable mechanisms for quantifying risk are fuzzy sets theory and fuzzy logic. their contribution is reflected in the possibility of translating a completely unstructured set of heuristic assertions expressed in words into an algorithm (pamučar, 2014, p. 73). creating a fuzzy logic system based on an already existing methodology of risk assessment of natural and other disasters, can lead to developing new, more advanced models. 3. development of fuzzy sets and fuzzy logic systems of type 2 fuzzy sets and fuzzy logic systems (fls) of type 2 generalize fuzzy sets and fls of type 1, which allows managing a larger number of unreliabilities, insecurities and uncertainties. from the very beginning of fuzzy sets application, many have claimed that in case of fuzzy sets of type 1, affiliation functions do not demonstrate uncertainty, which contradicts the word fuzzy, since the meaning of the word refers to a large number of uncertainties. the question is what to do when there is uncertainty in the degree of affiliation to fuzzy sets (membership functions). the answer to this question was given in 1975 by lotfi a. zadeh. zadeh proposed a more sophisticated type of fuzzy sets, called fuzzy sets of type 2. a fuzzy set of type 2 allows uncertainty of affiliation function to be incorporated into the theory of fuzzy sets, and is a direct way to correct the deficiencies of fuzzy sets of type 1. this means that if there is no uncertainty, fuzzy set of type 2 reduces to a fuzzy set of type 1, which is analogous to reducing the probability to determination when unpredictability disappears. in order to symbolically distinguish the fuzzy set of type 1 from the fuzzy set type 2, the symbol (~) is placed above the symbol for the fuzzy set of type 2. thus, a denotes a fuzzy set of type 1, while ã indicates a comparable fuzzy set of type 2. zadeh did not stop at fuzzy sets of type 2; in his work of 1976 (zadeh, 1976), he carried out a generalization of fuzzy sets of type 2 into fuzzy set of type-n. this paper focuses only on fuzzy sets of type 2, since they are the next logical step in the progression of the fuzzy set of type 1 to fuzzy set of type-n (n = 1, 2,.... n). the work on fuzzy sets of type 2 stagnated in the period between 1980s and early 2000s, during which only a small number of papers regarding this topic was published. the researchers in this period were still trying to understand how to implement the fuzzy sets of type 1. that changed in the early 2000s as a result of work of professor jerry mendel on fuzzy sets and fls of type 2 1 the best known methods are: preliminary hazard analysis (pha), rapid method of ranking risk, study of risk of material and technological processes (hazop), fault tree and event tree, hazard analysis (hazan), analysis of errors/failures and their impacts (fmea), methods of maintenance management based on risk, the method for the analysis and assessment of the risks and dangers that may cause adverse events in the community, etc.. (vujović, 2009, p. 191). (liang & mendel, 2000; mendel, 2001; karnik & mendel, 2001). although researchers started to explore fuzzy sets of type 2 and fls of type 2 on a larger scale at the beginning of 2009, the implementation of these sets remained at almost an initial stage . a function that belongs to the set type 2 occurs when we show type 1, figure 1, right and left confidence interval limit, as it is shown in figure 1b. then we get type 2 function which is shown in figure 2. figure 1: the membership function type 1 (a) and membership function type 2 (b) in this case, for a particular value of x’, membership functions have different values of the degree of affiliation, so that we can determine the degree for each point (x’). by repeating the presented procedure for all the elements xx, we get a three-dimensional membership function which describes the type 2 fuzzy sets (castillo & melin, 2008; wu & mendel, 2008; mendoza et al, 2009). in three-dimensional membership functions of general fuzzy sets of type 2 (ã), figure 2, the value of the membership function at each point of the third dimension is described by the two-dimensional domain called footprint of uncertainty (fou). in the interval of fuzzy sets of type 2, the value of the third dimension is the same everywhere, which means that there is no new information contained in the third dimension. for that kind of set the third dimension is ignored and only fou is used to describe it. for this reason, the interval fuzzy set of type 2 model is sometimes called the fuzzy set of the first order of uncertainty, while the general fuzzy set of type 2 (with useful third dimension) is sometimes referred to as a model of fuzzy set of the second order of uncertainty. the footprint of uncertainty represents a blurring of membership functions for type 1 (figure 2). type 2 membership functions are defined (bordered by) with two membership functions of type 1, and , which are also called upper membership functions (umf) and lower membership functions (lmf), respectively. both functions, umf and lmf, are represented by a fuzzy set of type 1. therefore, it is possible to use only a set of fuzzy arithmetic operations of type 1 and to work to characterize the fuzzy sets of type 2. this means that those who know fuzzy sets of type 1 will not have to invest a lot of time to understand and use fuzzy sets of type 2. the restricted areas umf and lmf are called the footprints of uncertainty (fou), figure 2. figure 2: fou fuzzy sets of type 2 (gaussian and triangular membership functions) 25 management 2016/80 0 0.2 0.4 0.6 0.8 1 0 0.2 0.4 0.6 0.8 1 upper membership functions (umf) upper membership functions (umf) lower membership functions (lmf) upper membership functions (umf) upper membership functions (umf) lower membership functions (lmf) a) b) the fuzzy set of type 2 describes the “membership function” as shown bellow (melgarejo, 2007; khosravi & nahavand, 2014): (1) where the membership function of the fuzzy set of values taken from the interval that represents the primary level of affiliation of x, and represents the membership function of fuzzy set of type 1. in the case of the normalized fuzzy set of type 2 where the membership function is shown in figure 2. fuzzy sets of type 2 are widely used in fuzzy logic systems (fls), as they allow modelling of uncertainty that cannot be modeled by fuzzy sets of type 1. fuzzy logic systems described by at least one type 2 fuzzy set are also called type 2 fls. type 1 fls do not have the ability to describe and process the uncertainties that exist in fls rules, because they use fuzzy sets of type 1 in which the degree of affiliation is presented by individual numerical values. on the other hand, fls of type 2 are useful for operations in environments where it is difficult to determine the type and individual parameters of cryptographic affiliation and allow exploitation of uncertainties that occur in database rules. fuzzy sets of type 1 emerged as a consequence of inability to rigidly define membership of x in a set. it happens very often that a degree of membership of x in x cannot be determined only by 0 or 1. to describe the above uncertainties type 2 fuzzy sets are in use. similarly, in cases when it is difficult to determine the degree of membership of x as a real number in the interval [0,1], fuzzy sets of type 2 are in use. as well as with type 1 fls, type 2 fls input-output variables are related to if-then rules, where consequence (conclusion) rules are presented by fuzzy sets of type 2. type 2 fls are mostly used when circumstances of their application are too uncertain, or when the data set for training is “hit” by trees (uncertainty). generally, the type 2 fls consists of five elements: fuzzifier rule base, approximate reasoning algorithm (input-output processing), type-reducer and defuzzifier. the block diagram of the fls type 2 is shown in figure 3. figure 3: a fuzzy logic system of the type 2 it is known that the use of type 2 fls enables modelling and minimizing the effects of uncertainty in the base of rules. unfortunately, fls type 2 are more complex to model and understand than fls type 1 and therefore their use is not widespread yet (mendel, 2001; liu & mendel, 2008). as a justification for the use of fls type 2, castro (2008) suggests four sources of uncertainty with which the fls type 1 cannot be successfully handled: • meanings of words used in premises and in conclusion of rules can be uncertain (words mean different things to different people), • conclusion in rules may have uncertain (histogram) values, especially when the rule is formed on the basis of knowledge separated from the group of experts who do not have the same opinion on all matters, 26 2016/80management fuzzifier rules input-output processing defuzzifier type reducer output data processing the resulting fuzzy set of type-2 the input fuzzy set of type-2 the input vector the reduced set of fuzzy type-1 the output variable y = f(x) • values (measured values) that trigger input variables fls type 1 may be fuzzy, and thus uncertain, • data used for setting parameters fls type 1 may be uncertain (fuzzy). to describe these uncertainties we use fuzzy membership function type 2. fuzzy sets of type 1 are not able to describe such uncertainties because the functions of affiliation of type 1 have clearly defined levels of membership which are described with real numbers. on the other hand, fls type 2 enables modelling of such uncertainty since affiliation functions of type 2 are themselves degrees of fuzzy membership. the next section describes the basic elements of fls and type 2 risk assessment. 4. description of the model using the criteria and the matrix for risk analysis as defined in the guidelines on the methodology for risk assessment development and protection and rescue plans in emergency situations (2012), we can conduct a quantification of risk. the data analysis principle can be described in three steps (figure 4): • step 1 the values of four input criteria are defining: frequency, vulnerability, damage and criticality. the values are determined by using a five-point scale (each one of the five values of this scale is a standard methodology, • step 2 based on the values of input criteria, using the matrix defined in the standard methodology, the criteria became more closely defined (probability and consequences), • step 3 based on the values of the criteria, by applying the matrix defined in the standard methodology, the level of risk is determined. figure 4: the process of risk quantification the main problem of this methodology is that it only recognizes the integer values of input criteria, among the criteria and the level of risk. firstly, the linguistic descriptions of input criteria are used to define size, by assigning integers in the interval 1-5. next, only those values across all matrices are taken into account. the real situation often requires intermediate values not defined by the explanation given in the methodology. this is particularly important in the case of limit values between the size of the risk (very low, low, moderate, large or very large risk), as well as the acceptability of the risk (acceptable or unacceptable risk). since the methodology has three steps, due to rounding values into whole numbers in each step, a part of the reality is lost. in order to avoid this problem, a fuzzy logic system based on interval fuzzy numbers was developed (figure 5). 27 management 2016/80 figure 5: architecture fuzzy logic system type 2 risk assessment as has been noted earlier, the input criteria in the fuzzy logic system are the same as the standard methodology for assessing the risk of natural and other disasters: • c1 frequency – repetition of a specific adverse event in a given time unit. the criterion is described by five linguistic descriptors: very rarely, periodically, often, predominantly and very often; • c2 vulnerability current state of protection of the subject, or the sensitivity of the subject to potential hazards. the criterion is described by five linguistic descriptors: very large, large, medium, small and very small; • c3 damage measures the damage of the protected values. the criterion is described using five linguistic descriptors: very small, small, medium, large and very large; • c4 – criticality (c) is a measure of value and importance of the protected values and sensitivity to the effects of adverse events on the protected values. the criterion is described using five linguistic descriptors: minimal, small, medium, large and very large. the output variable is the level of risk, which describes the five linguistic variables: very small, small, moderate, large or very large risk (figure 6). the scope of confidence interval for each input variable is standardized as a numeric interval from 1 to 5. figure 6: fuzzy sets of type 2 which describes the input variables fls the value of the output variable is in the interval [1, 25]. functions of affiliation of output variables are shown in figure 7. as this is takagi-sugeno type of fls and type 2 membership function (mf), output variables are described by singleton functions. 28 2016/80management p p p p p p p p p x1 x2 x3 p p p p p p vl l h vh vl l h vh vl l h vh 1 f 1f 25 f 25f type reduction [ , ]i il ry y ry ly + 1 2 risk + 1 4 2 3 5 6 7 8 9 19 20 21 22 23 24 x4 vl l h vh p p p p 33 f 33f 30 31 32 33 figure 7: membership functions of output variables of fls parameters of output function of fls variables are given in table 1. table 1: parameters of “singleton” functions of fls type 2 the matrix from the standard methodology represents the basis for defining the rule base of fls for risk assessment. the structure of the rule base of fls type 1 and type 2 is the same. the only difference is in premises and conclusion rules. fls type 2 premises and conclusion rules describe the fuzzy sets of type 2, while in fls type 1 fuzzy sets describe the type 1. if we look at fls type 2 with n input variables and one output variable assuming that fls has m rules, l-rule can be presented in the following form , where f and g all represent fuzzy sets of type 2 input and output variables, respectively. when generating a rule base at the beginning it is important that each pair of membership functions ( ) and input variables ( ) join the corresponding membership function ( ) and output variable ( ). this leads to maximization of the number of rules in the database, which is 54=625. the base rules can be defined through accumulation of knowledge of experts to one of the known methods for basing the rules of the known range of numerical data such as methods which are shown in the wang and mendel (1992), kao and chen (2000) and ravi (2001) or some of the methods for creating a database of rules when there is no numerical data, such as the method shown in božanić and pamučar (2014). in the present case, the rule base is made on the basis of the matrix which is an integral part of standard methodologies for risk assessment. after a fuzzification of input data, the obtained input fuzzy sets are mapped to the output fuzzy sets by means of subsequent blocks. this is achieved by quantifying each rule using the theory of fuzzy sets in the mechanism of approximate reasoning. the approximate reasoning algorithm is implemented through stages of activation and accumulation of fuzzy sets (wu & mendel, 2002; wu & mendel, 2007; castillo & melin, 2008; yeh et al., 2011). results in fuzzy set of type 2 are obtained by laying out the significance of the rules (accumulation phase) (zhou et al., 2009). 29 management 2016/80 0 2.5 5.0 7.5 10 12.5 15 17.5 20 22.5 25 0 0.2 0.4 0.6 0.8 1 level of risk (y) vl l m h vh tag mf umf and lmf vly [ , ] [1.22,3.20] vlvlvly y y= = ly [ , ] [6.80,8.90] llly y y= = my [ , ] [12.0,14.2] mmmy y y= = hy [ , ] [17.1,18.8] hhhy y y= = vhy [ , ] [21.3,24.5] vhvhvhy y y= = in most cases where fls is applied it is required a real number should be obtained at the output that is measurable value, not a fuzzy set. for example, the result of “risk level is medium” rule is a fuzzy set. if the output from fls provides a fuzzy set, such information will not be of great benefit to the decision maker, because the “middle level of risk” is a linguistic term and the decision-maker should receive a numeric value, based on which he/she should determine the scale of the real level of the risk. hence, the resultant fuzzy set which is obtained as a result of the aggregation phase should be converted to a number. the conversion of the resulting fuzzy set into the number is performed in the block processing output (type reducer and defuzzifier). in fls type 1, output processing is called defuzzification where a fuzzy set of type 1 is mapped in the „crisp number“. there are several ways of “defuzzification” of fls type 1 which can be found in (pamučar et al., 2011). in type 2 fls output processing is somewhat more complex, because in order to move from a fuzzy interval set of type 2 to the number, you need two steps which are shown in figure 3. the first step is the application of type reducer, where the interval fuzzy set type 2 is reduced to a fuzzy set of type 1. there are several methods for reducing (khosravi & nahavand, 2014). the most commonly used type-reducer is the center-of-sets cos (mendel, 2001), which was used in this paper. in figure 3 we can see that the fls type 2 can have two outputs. the first output of fls of type 2 (out from type reducer) can be represented by a fuzzy set of type 1, which is a measure of uncertainty of the resulting output. other output fls and type 2 (output from defuzzifier) represent clear numerical values. the first output is a measure of uncertainty, due to uncertain input measurements that activated rules whose premises and conclusions are uncertain. as the standard deviation is used in probability and statistics for measuring unpredictable uncertainty around the mean values, the reduction of costly type 2 to type 1 provides a measure of uncertainty about a clear output of interval type fls of type 2. 5. testing models testing fuzzy logic system was carried out in the examples shown in table 2. in the same table results are compared to fuzzy logic system and standard methodology applied in the republic of serbia. table 2: comparative review of the results * risk risk obtained using standard methodology ** risk risk obtained using fuzzy logic system of type 2 30 2016/80management no. frequency vulnerability damage criticality risk * risk ** 1. 1 4 4 2 4 4.02 2. 5 4 4 2 12 12.07 3. 5 3 3 2 16 15.98 4. 1 5 2 4 2 2.01 5. 3 1 5 2 25 24.88 6. 5 2 3 4 10 10.00 7. 4 1 3 4 10 10.00 8. 2 1 4 4 12 12.06 9. 3 4 4 3 6 6.04 10. 4 1 5 1 20 19.99 11. 2 5 1 3 1 1.02 12. 5 1 2 5 5 5.04 13. 2 3 5 3 8 7.99 14. 2 1 2 1 16 15.99 15. 1 5 1 1 3 3.02 16. 5 4 3 3 9 9.00 17. 4 3 5 2 15 15.03 18. 3 5 5 3 8 8.04 19. 4 2 4 1 20 19.98 20. 4 4 4 3 9 8.99 in table 2 we can see that the developed fuzzy logic system gives approximately identical results as the standard methodology, with a negligible average error that amounts to 0.027. by mapping the fuzzy logic systems into the adaptive neural network, the error can be further reduced. literature [1] avakumović,c., milinković, s., & vujačić, n. 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(1992). generating fuzzy rules by learning from examples. ieee transactions on systems, man and cybernetics, 22(6), 1414–1427. doi: 10.1109/21.199466. [25]williams, c. a., michel, l. s., young, s., & young, p. s. (1998). risk management and insurance. international editions. new york: mcgraw-hill/irwin. [26]wu, d. & mendel, j. m. (2007). uncertainty measures for interval type 2 fuzzy sets. information sciences, 177(23), 5378–5393. doi:10.1016/j.ins.2007.07.012. [27]wu, d. & mendel, j. m. (2008). a vector similarity measure for interval type 2 fuzzy sets and type 1. fuzzy sets. information sciences, 178(2), 381–402. doi:10.1016/j.ins.2007.04.014. [28]wu, h. & mendel, j. m. (2002). uncertainty bounds and their use in the design of interval type 2 fuzzy logic systems. ieee transactions on fuzzy systems, 10(5), 622–639. doi: 10.1109/tfuzz.2002.803496. [29]yeh, c.y., jeng, w.h. & lee, s.j. (2011). an enhanced type-reduction algorithm for type 2 fuzzy sets. ieee transactions on fuzzy systems, 19(2), 227-240. doi: 10.1109/tfuzz.2010.2093148. [30]zadeh, l. a. (1976). the concept of a linguistic variable and its application to approximate reasoning– 1. information sciences, 8(3), 199–249. doi:10.1016/0020-0255(75)90036-5. [31]zhou, s. m., garibaldi, j. m., john, r. i., & chiclana, f. (2009). on constructing parsimonious type 2 fuzzy logic systems via influential rule selection. ieee transactions on fuzzy systems, 17(3), 654–667. doi: 10.1109/tfuzz.2008.928597. receieved: september 2015. accepted: septembar 2016. 32 2016/80management 33 management 2016/80 dragan s. pamučar dragan s. pamučar was born in rijeka, croatia. he earned his bs degree from the technical military academy in belgrade in 2003 and his ms degree from the faculty of transport and traffic engineering in belgrade in 2009. he earned his phd degree from the university of defence in belgrade, department of logistics, in 2013. his main research interests include organization design, fuzzy logic, genetic algorithms, neural nets, multicriteria decision making models, rough sets, etc. he is an assistant professor at the university of defence in belgrade, department of logistics, teaching operations research and organization in transport. he has published several academic articles or papers in international journals, including yugoslav journal of operations research, asia-pacific journal of operational research, economic computation and economic cybernetics studies and research, environmental impact assessment review, expert systems with applications. darko božanić university of defence in belgrade dbozanic@yahoo.com darko božanić works at the military academy. he earned his bs degree from the military academy in belgrade in 1999 and his ms degree from the faculty of political sciences in belgrade in 2011. he is currently a ph.d. student at the military academy, university of defence in belgrade. his areas of interest include: energy security, multicriteria decision making and defense management. nenad komazec university of defence in belgrade nkomazec@gmail.com nenad komazec works at the military academy. he earned his bs degree from the military academy in belgrade in 1996 and his ms degree from the faculty of security in belgrade in 2006. he is currently a ph.d. student at the military academy, university of defence in belgrade. his areas of interest include: risk management, protection and rescue and security management about the author 34 << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 1048576 /lockdistillerparams false /maxsubsetpct 100 /optimize true /opm 1 /parsedsccomments 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08 26_3 sanja marinkovic:tipska.qxd book review doi: 10.7595/management.fon.2021.0027 the challenges that humanity has faced in 2020 and that are still present, are reflected in the economies around the world, in the professional and private lives of individuals, but also in the establishment of priorities and plans for the future. while certain industries are experiencing a steep decline in business, some new industries are evolving, perceiving challenges as new business opportunities. the questions posed today in organizations around the world are similar: should new business ideas, new business models and paradigms be promoted in a turbulent and unpredictable period of time, or should we just "put out the fire" until the worst is over. you can search for the answers in a new book by nadya zhexembayeva entitled the chief reinvention officer handbook: how to thrive in chaos, published in october 2020. dr. nadya zhexembayeva is a business owner, author, educator and 4-time tedx speaker. she works, writes and educates in the fields of innovation, leadership, and sustainability. her work is known to students of iedcbled school of management, an executive education center based in slovenia, where nadya lectured as the coca-cola chaired professor of sustainable development. in 2011, together with chris laszlo zhexembayeva co-authored her first book, “embedded sustainability: the next big competitive advantage,” published by stanford university press in the us and greenleaf publishing in the uk. the book was proclaimed to be one of the best sustainability books of all times by bookauthority. in 2014, nadya released her second book, “overfished ocean strategy: powering up innovation for a resource-deprived world,” which was named best book of 2014 by soundview executive book summaries. as a consultant, nadya has helped such organizations as the coca-cola company, erg, kohler, l’oreal, ibm, cisco, erste bank, henkel, knauf insulation & many others to reinvent their products, processes, & leadership practices. her name today is recognized all over the world, as ventures magazine calls her “the reinvention guru” and tedx navasink calls her “the queen of reinvention.” she presented her vast experience in a new book that she successfully promoted at a time that is by no means conducive to commercialization. but since she is guided by the approach “turn every disruption into your greatest opportunity”, she is extremely active on social networks where through lectures, workshops and certified seminars she maintains contacts with business partners and numerous companions around the world. countless contacts she has made over the years with academics and practitioners worldwide are a great inspiration for nadia, and the new book itself, according to the author, was created with the contributions of a community of 3000 reinventors, practitioners from more than 40 countries. the first impressions of the book are the methodological approaches. it is interesting how nadya approaches current topics, observes the issue on a global level and then presents it with simple examples and understandable comparisons. the book is innovative and very well designed. as a living book, it is electronically available followed by many programs and courses that nadya organizes in this challenging time, such as certified reinvention practitioner, stellar club, free modules and lectures, workshops and many support activities for those who are using the book as a consultant, a learning aid or for personal reinvention and growth. the book is an evidence of nadya’s statement "the challenge we face isn't about trying to survive until things stabilize, but rather about learning to thrive in constant chaos”. 89 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) sanja marinković university of belgrade, faculity of organizational sciencies, serbia abstract: book review of: the chief reinvention officer handbook: how to thrive in chaos. (2020) nadya zhexembayeva, ideapress publishing, p. 275, isbn: 978-1646870325 jel classification: o31, o32, q55 in a contemporary business environment, there is no longer a dilemma whether an industry should be innovative or not, one can only differentiate the intensity of innovation that would be expected in specific fields. however, nadya indicates a large percentage of innovation processes, which do not end and do not lead to commercialized innovation. therefore, her focus is not on disruptive innovations, but on reinvention as a concept that can be applied in any organization regardless its size, sector, and geographical location. the book offers several definitions of reinvention, where the following is comprehensive: „a systematic approach to thriving in chaos that includes ongoing anticipation, design, and implementation of change via continuous sense-making, anticipatory and emergent learning, and synthesis of cross-boundary, cross-disciplinary, and cross-functional knowledge“. in line with today's situation and terminology, one definition of reinvention is also interesting: „an immune system designed to ensure systematic health for individuals and organizations“. zhexembayeva notes that globalization, technology, interconnectedness and other trends bring volatility and uncertainty. management today seems to be becoming a stack of old tools and assumptions. emphasis is placed on the shorter life cycles, products, processes, as well as the organization and changes required in the management approach compared to the periods of stable life cycles we have had in the past. the question that inevitably arises, given the uncertainty and intense changes in the environment, is whether the strategy is necessary at all, i.e., whether it is possible to define a relevant and usable strategy. the answer given in the book is that the strategy cannot be any rigid plan but it must be in a format that allows continuous reinvention. the book highlights a quote from peter drucker „the greatest danger in times of turbulence is not the turbulence, it is to act with yesterday’s logic”. in the new, changed conditions, approaches, methods and techniques must change. an important takeaway that stands out is “what got you here, won’t get you there”. disruptive changes are reflected in the modern environment, which is why the crisis is no longer seen as an isolated project that should be managed in a certain turbulent period. changes become part of the business which will follow us in the future, anticipating changes and their consequences, become a necessary competence, and the ultimate success is to use change as a source of competitive advantage. in a turbulent business environment data from the past are “more dangerous than helpful”. emphasizing the importance of change management as a continuous process today, it is pointed out that managing change can be learned. from the aspect of the industry in which it is located, the company may be in a situation where the industry gives priority to reinvention, but if the company does not reinvent, it can very easily be overcome and suppressed by competitors. if reinvention is neglected at the industry level, the entry of start-up companies that have recognized the possibilities of innovation in the observed area can change the character of the industry, but also open some new opportunities for existing companies. the reader can read the entire book in a provided sequence or read only the individual chapters they find interesting and important at a particular time. a creative and pictorial map of contents is used instead of the standard table of contents. numerous resources are cited as an invitation to the reader to further deal with this topic. literature suggested by the author is a must-have on the shelves or in the folders. the book is a reading for those who need to understand management concepts, but also for those who have been in the field for a long time and who can compare the ideas presented by nadya with the existing and generally accepted approaches in practice. management teachers and educators can use this book as a basis for creating and improving courses and workshops. by studying this book, the reader can re-examine the existing concepts and practices, get new ideas about what can be interpreted and done differently. the three key units are marked with inspiring titles such as 1. why business sinks? which explains titanic syndrome and helps identify whether a business is suffering from it. the titanic syndrome diagnostic is an easy-to-apply tool that defines the organization reinvention needs, as a beginning of the reinvention process. 2. what to do to stay afloat – explains the significance of reinvention using toto matrix (today tomorrow matrix) 3. how to make your company watertight? it explains why many businesses stick through the prism of the titanic syndrome, defined as “a corporate disease in which organizations facing disruption create their own downfall through arrogance, excessive attachment to past success, or inability to recognize and adapt to the new and emerging reality”. 90 sanja marinković 2021/26(3) as change is now present in all aspects of our life, the book helps the reader be comfortable with change, through explanations, but also through many usable approaches. the book includes hands-on tools and practices that can be used right away in any organization. the book also offers practical resources, 9 field-testing tools: worksheets, 25 perforated and ready to use cards and case studies. the worksheets are clear and easy to understand so that the reader gets the desire to fill them out right away. one of the new tools is a stellar strategy canvas for adaptive planning. it is a strategy model that contains five steps with key questions and tables to fill in, and they provide a graphical representation and indicate the key points of compliance or non-compliance. although it is written in an easy-to-understand language, reading the book requires concentration and active participation. with this book, you are not in the role of a passive reader; it is important to use the tools, to fill in worksheets, test the concepts and approaches and draw your own conclusions. the book also leaves a significant visual effect, facilitates memory with the help of photographs, illustrations, sketches, comic sketches and tables that represent associations to a particular topic or exercise. all this indicates that the book can be a useful reading matter for practitioners, interested in new management approaches in change and innovation management. the book is a significant resource for business educators, who may use the book to get significant ideas for conducting and improving their own courses and programs. it inspires one to improve business, one’s personal life, but also the educational programs. we should have in mind that much of the management models and tools that we teach and use have been developed for conditions that can be considered significantly more stable than those we have today. today, sustainable development as a topic is in focus of many authors. although the author herself deals with issues of sustainability, the book advocates the approach “sustainability doesn’t drive life. change does”. this book explains how to accept change and turn it into opportunity since without it we cannot survive in new conditions. enabling the concepts, tools and worksheets, the author is sending the main message that “reinvention is not a spectator sport. you have to start putting theory into practice. start today”. recommended literature: zhexembayeva, n. (2020). “change is not a project.” the european financial review, nov-dec, pp.12-15 zhexembayeva, n. (2014). overfished ocean strategy: powering up innovation for a resource-deprived world (vol. 36, no. 11). berrett-koehler publishers. laszlo, c., & zhexembayeva, n. (2011). embedded sustainability: the next big competitive advantage –stanford business books. accepted: 2021-05-27 sanja marinković university of belgrade, faculity of organizational sciencies, serbia sanja.marinkovic@fon.bg.ac.rs sanja marinkovic, phd is an associate professor of the department for management of technology, innovation and sustainable development at the faculty of organizational sciences. she is an author and co-author of several books and more than 70 scientific papers. she is a lecturer for the dual award master programme international business and management, validated by middlesex university, london. her research and teaching interests are in the fields of technology and innovation management, service digitalization, and technology commercialization. she was a guest speaker at an international conference imcsm19 on the topic: technology entrepreneurship and challenges of commercialization, and a lecturer for the summer school course: corporate culture, hr and innovation at the lille catholic university, france. she attended several programs in technology transfer and commercialization, organized by the joint research center (jrc) of the european commission, and imta-international management teachers academy, bled. she is a founding member of stellar reinvention club led by nadya zhexembayeva. in the period from 2015 to 2021 sanja was a vice dean for international cooperation at the faculty of organizational sciences. 91 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08 mladen cudanov:tipska.qxd 77 mladen čudanov, marian taicu udc: 330.1(049.32) book review doi: 10.7595/management.fon.2016.0023 methodological guideline books for scientific papers are increasing in importance along with the growth of research output. research output is estimated to grow annually by between 3% (bornmann & mutz 2015), on a sample of leading indexing bases, and 8% (elango, rajendran & bornmann 2015) on a wider sample. most researchers agree that the growth rate of research output is exponential, which is in line with moore’s law as well as with the fact that information and communication technologies are core technologies for producing and disseminating research results. there is generally no lack of research methods literature, but contributions coming from our own, balkan region like this one written by vasile dinu, gheorghe s voiu, and dan-cristian dabija are rare and potentially interesting both to our authors and at least part of the readers. the second important reason for interest in this book is that, instead of frequent approach based on instant superficial “snake-oil” tricks to get your research published, it describes a theoretical background by a thorough and detailed description of main issues of concern in a novel and changing research publishing environment. it forgets neither wisdom of greek philosophers nor modern issues specific for the internet age. although the title of the book humbly determines it as a work in economics, its findings are widely applicable in management, organization and business related disciplines, as can be confirmed by examples given. on the sound theoretical foundation this book also develops its practical side with lots of specific examples and good practice guidelines. further, the book is structured in a very logical and understandable way, making it easy to read it both cover-to-cover and partially, as a practical guideline for a specific issue which has emerged. the book is divided in five main chapters. the first chapter, titled “economic research and communication of its results, in the general context of scientific research” is introductory. firstly, the authors define and position the role and the goal of research in the modern society and economy, both of which are based on knowledge. the modern research environment is described, followed by a section which describes economic research in the contemporary environment. that subsection is not directly interesting to the readers from the fields of management, organization and business, but the rare gem valuable and rare in our fields is a detailed and expert analysis of interdisciplinary, transdisciplinary and multidisciplinary applications. a practical contribution of this chapter is a four-step abstraction of research workflow, immanent not only to economy, but also to other research fields, management, business and organization included. the proposed workflow includes detailed explanations of: 1. data and information gathering phase; 2. choosing a research method which is fit both for the data and for the research question and then selecting means to interpret and present the research findings phase; 3. specification of the hypothesis, followed by description of models and tests required for its acceptance/rejection phase; 4. reasoning using the laws and contradictions phase. the second chapter is focused on the main metrics of research success, ever since garfield (1972) and hirsch (2005) published their milestone papers. citation networks determine the influence the research will have, and authors present simple rules for optimization of the paper structure which consequently influences management 2016/80 dinu v., săvoiu g. and dabija d-c (2016). conceiving, writing and publishing a scientific paper an approach in the context of economic research [ a concepe, a redacta si a publica un articol stiintific o abordare in contextul cercetarii economice]. bucharest, romania: editura ase the future citations. recommendations cover a wide set, from the presentation of tables, figures and textual findings, to general parts of the article. again, the authors’ experience confirms the old wisdom that a whole is more than the sum of its parts, and authors who follow all simple recommendations gain synergetic effects instead of just minor incremental improvements. if young authors need to focus on practical aspects, the third chapter, titled “writing a scientific paper” is the starting point, because it explains exactly what its title proposes. craft and tools of the trade are explained, both in style and technique. young authors could gain benefit from the distinction between a “textbook”, an essay style and a desired scientific writing style which is characterized as precise, concise, clear and based on argumentative logic. the technique, which may differ from one publishing outlet to another, especially by fields, is described in a manner such as a skilled craftsman would advise its apprentice. the basic questions, such as referencing, figures and tables, title and format are covered. the authors focus on the harvard referencing style which is similar to other styles used in our fields, like chicago or apa. next, the fourth chapter focuses on the main issues plaguing research community – plagiarism. it also discusses anti plagiarism legislation and research ethics, as the chapter title proposes. instead of defining plagiarism as a discrete, even binary offense, the authors describe three common types of plagiarism as well as a legal framework and practical software tools used against it. finally, the authors underline the moral obligation of all researchers to restrain from any forms of plagiarism. the fifth and the final chapter, titled “publishing a paper in the field of social sciences” is more connected with the third than to the one directly preceding it. again, it is a practical guideline, helping the author to understand the system of journals, their indexing and ranking. a specific focus is on the romanian economic journals with international coverage, indexing and success. that information can be very useful to other balkan researchers, because due to the similarity of both fields and local issues, those journals are possible publishing sources for researchers from serbia, montenegro, croatia and other balkan/see countries. it is for this and for the previously mentioned reasons that book is of interest to a much wider readership than only those in romania. but due to a specific application of heller’s catch 22 and another example of inconsistence and illogical traditions in the context of research, it is currently officially printed only in romanian. before an unofficial english translation is proofread and published it needs to be positively reviewed in a wider international context, and in order to be positively reviewed, it needs to be printed in english. it is our hope that reviews like this will help it overcome this inter-step and be printed and widely available in the lingua franca of our research community, because it has a lot to offer to the wider balkan readership, to which it is closer and more aware of their specific issues. also, experience of all authors, measured in the number of published articles, hetero citations, h-index or i-index suggests what wider readership should hear what they have to say. it would be another step forward in the advancement of regional research and research in smaller countries with less economic strength. literature [1] bornmann, l., & mutz, r. (2015). growth rates of modern science: a bibliometric analysis based on the number of publications and cited references. journal of the association for information science and technology, 66(11), 2215-2222. [2] elango, b., rajendran, p., & bornmann, l. (2015). a scientometric analysis of international collaboration and growth of literature at the macro level.malaysian journal of library & information science, 20(2), 41-50. [3] garfield, e. (1972). citation analysis as a tool in journal evaluation. science, 178, 471-479. [4] brătianu c. (2016) conceiving, writing and publishing a scientific paper. an approach in the context of economic research. amfiteatru economic, 18(43), pp. 726-732 [5] dinu v., s voiu g. and dabija d-c (2016). conceiving, writing and publishing a scientific paper an approach in the context of economic research [ a concepe, a redacta si a publica un articol stiintific o abordare in contextul cercetarii economice]. bucharest, romania: editura ase. [6] hirsch, j. e. (2005). an index to quantify an individual’s scientific research output. proceedings of the national academy of sciences of the united states of america, 16569-16572. receieved: september 2016. accepted: september 2016. 78 2016/80management 79 << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 06 26_2 milic:tipska.qxd 67 tanja milić university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2021/26(2) doing business in serbia: key corporate stakeholders doi: 10.7595/management.fon.2021.0019 abstract: 1. introduction the republic of serbia belongs to the group of emerging economies striving to adopt market economy management practices. stakeholders occupy an important position in the strategic business planning process. according to evan and freeman (1993), stakeholders are classified as certain groups that provide value to business operations, and are vital to the survival and success of an organization. these are individuals and groups that are interested in the organization, that is, in the success of its business. they have certain requirements towards the organization, which are different, or even conflicting. satisfying expectations, and incorporating stakeholder values are important management task as well as part of corporate so* corresponding author: tanja milić, e-mail: tanja.milic@fon.bg.ac.rs research question: the aim of this empirical research paper is to determine key corporate stakeholders in the republic of serbia. motivation: serbia belongs to the group of emerging economies striving to adopt market economy management practices. stakeholders occupy an important position in the strategic business planning process. so far, research on corporate stakeholders in serbia is scarce, and does not provide enough data on this, for strategic business planning and strategic management, important topic. hence, the motivation for such a study determining the significance and role of certain corporate stakeholder groups for companies operating in serbia has arisen. investigating this issue can show, and thus help serbian managers, how to improve and/or redirect their strategic business decisions, and subjects they are aimed at, thus increasing the potential for making better strategic business plans, developing better business strategies, which will secure better business performance results. idea: the idea of the research is to examine the perceptions and attitudes of managers of business organizations operating in the republic of serbia in relation to selected relevant corporate stakeholder groups, and using investigated perceptions and attitudes of managers to evaluate the degree of significance and impact of selected relevant corporate stakeholders in the business life of the republic of serbia. data: empirical research was conducted on a sample of 107 respondents, managers of business organizations operating in the territory of the republic of serbia, randomly selected from publicly available databases of business organizations, public associations and media in serbia, using computer assisted web interview cawi technique. tools: analysis of the data was conducted in spss v20.0 statistical tool. data analysis in this study consisted of descriptive statistics. univariate analysis was used through the analysis of frequency tables and individual ranking statistics. nonparametric kruskal-wallis and post hoc mann whitney u test were used to test the significance of differences. findings: findings of the research have shown that, respectively, customers and owners hold leading positions among surveyed corporate stakeholders in serbia, successively followed by suppliers, managers, government institutions, employees, investors, distributors, competitors, community as a whole, media, local community, vulnerable groups, and, lastly, with the lowest significance, ngos. service organizations proved to be the most sensitive to corporate stakeholders issue, and commercial organizations the least. contribution: the main contribution of this paper is a systematic analysis of the stakeholder issue, and quantitative key corporate stakeholder identification in the republic of serbia. keywords: key corporate stakeholders, republic of serbia, strategic business planning, strategic management, business performance, emerging economy jel classification m21, m31 cial and economic responsibility (digman, 1990). stakeholders are also defined as groups or individuals who can influence or are influenced by an organization. they are interested in the nature of the company's business, directions of its development, and its competitive position. a stakeholder group can be defined as a collective of two or more individuals, who perceive, and evaluate themselves on the basis of shared norms, values, and goals in the context of a socio-economic issue (schneider & sachs, 2017). stakeholders can be classified into three groups: (1) internal stakeholders: owners, decision makers, unions and employees; (2) stakeholders appearing on the market: customers, suppliers, competitors; and (3) external stakeholders: government, financial institutions, political groups, trade associations (griffin & ebert, 1993). individual stakeholders play different roles in the survival and success of a business (phillips, freeman & wicks, 2003; phillips, 1997; evan & freeman, 1993). orientation towards stakeholders implies that within the strategic analysis, aspirations of internal and external stakeholders are considered and also the way in which they can affect the future strategic position of the company (milicevic, 2014). so far research on corporate stakeholders in serbia is scarce, and does not provide enough data on this, for strategic business planning and strategic management, important topic. investigating this issue can show, and hence help serbian managers, how to improve, and/or redirect their strategic business decisions, and subjects they are aimed at, thus increasing the potential for making better strategic business plans, developing better business strategies, which will secure better business performance results. the paper is organized as follows. after the introduction part, an overview of the scientific and professional literature is given, followed by a description of the research with an analysis of results. concluding remarks are provided at the end of the paper. 2. literature review besides the general requirement that organizations should run their operations in the most economical, efficient, and effective manner possible to increase performance, today, there is an increasing pressure for organizations to run their operations with their stakeholders in mind (khomba, kanguade-ulaya & hanif, 2013; metcalf & benn, 2012). being interested groups that have different stakes in company affairs, stakeholders need management’s attention that is to be incorporated in the corporate planning, and performance measurement systems (prozesky, 2010). the stakeholder theory was introduced to the strategic management field to address the organizational challenges of an increasingly interconnected and globalized society (schneider & sachs, 2017). in his very popular book, freeman (1984) argued that the predominating logic of profit maximization could no longer support the complexity of the contemporary business world. the development of, and emphasis on the stakeholder-centered approach that is grounded on the stakeholder theory is a result of visible shortcomings of the shareholder-centered approach, which tends to overemphasize the importance of shareholders as sole owners of any business entity, and in the process ignore significant roles that other stakeholders play in the sustainability of any business (khomba et al., 2013). besides shareholders, there are other stakeholders, such as customers, suppliers, employees, local communities, and the environment, which all have dual roles and act as instrumental towards provisions of inputs to companies, and also the consumption of companies’ products (prozesky, 2010). proponents of the stakeholder approach to management argue that such an approach is justified in the sence that distribution in the company is done towards all of those who create value (stovall, neill, & perkins, 2004). the stakeholder-centered approach to stakeholder management appears as a fair recognition to other stakeholders, because they provide resources, and receive benefits from the corporation (stovall et al., 2004). however, proponents of the mainstream shareholder-centered approach to corporate governance base their argument on the private property rights paradigm (stovall et al., 2004), which implies that, as risk-taking owners and providers of financial capital, shareholders tend to prefer to promote their own interests over those of other stakeholders. in its essence, it is contended that as primary owners of business, shareholders should hold the management team responsible for achieving the primary business goal in the form of maximizing shareholder wealth. the stakeholder approach is different from other strategic management theories in the part that it sees value creation as embedded in the relationships between organization and its stakeholders (freeman et al., 2010; post et al., 2002). the idea of the stakeholder theory lies in the belief that the purpose of an organization is to create as much value as possible for all of its stakeholders, whereby the integration of relevant stakeholder interests into the organizational value creation processes accounts for the business challenges in a society (freeman et al., 2010). the stakeholder theory grew to become one of the main management frameworks today, up to the point of having been described as a management theory of the 21st century suitable for understanding and redefining the role of business and value creation in society (freeman et al., 2010). 68 tanja milić 2021/26(2) the stakeholder theory has served to analyse and understand multiple phenomena in various fields of the organisational sciences, such as strategic management (strand & freeman, 2015; haksever et al., 2004; freeman, 1984), international business (lehtimaki & kujala, 2015), business ethics (purnell & freeman, 2012; phillips, 1997) and corporate responsibility (sachs & maurer, 2009; strand et al., 2015; brower & mahajan, 2013). the extant stakeholder theory research focuses on topics such as the identification of stakeholders, the evaluation of stakeholder legitimacy and claims, the role of business in society, and the taxonomy of stakeholder theories (scherer & patzer, 2011). in serbia, a majority of researchers emphasize the need for managers to know methods of identifying (jovanovic, milenkovic & dumonjic, 2017; losonc, 1997) and managing stakeholders, but with previously clearly defined priorities (krstic & trbovic, 2015; krstic, 2014; petrovic, 2012; nikolic & eric, 2011; vujovic, stefanovic & vucurevic, 2009), link the importance of stakeholders with company performance in tourism (vujicic, 2019; kicosev, radosavljevic, kovacev & djukic, 2011) and culture (terzic, 2016; jovanovic, 2012), and especially emphasize the stakeholder role in the process of adopting corporate social responsibility practices (culafic, 2015; rodic, 2012; figar & figar, 2011; kontic & kontic, 2010; predic, 2009; babic, 2007), as well as in the issue of corporate communications and reputation (krstic, 2014; mitic, 2013; djordjevic, 2010; popovic, 2010). jovanovic & delibasic (2014) have for the first time implemented the integrated qfd and fuzzy ahp approaches in the selection of supplier in one serbian company, translating stakeholder needs into evaluating criteria for suppliers, and prioritizing stakeholders, stakeholders' requirements, evaluating criteria and, finally, prioritizing suppliers. in the previous scientific research of corporate stakeholders in the republic of serbia, there is not a single paper that considers the relationship between the importance of individual groups of stakeholders from the aspect of managers operating in the republic of serbia. the elementary fact is that, both from the theoretical and practical aspects, this area is not yet sufficiently explored and applied. the lag in practice follows poor historical base and incomplete research. in domestic academic circles, the corporate stakeholders issue has not encountered particularly detailed elaborations. literature in this domain is scarce, and it comes down to only a few articles that deal with this topic in a non-comprehensive way. currently, a total of 70 electronically available scientific and professional papers containing the stakeholder as a key word have been published in the republic of serbia, but only 22 of them deal with stakeholders as the main topic. however, on the positive side, there are numerous papers dealing with individual groups of stakeholders from different points of view (table 1.). table 1: number of scientific papers published in serbia per individual stakeholder keyword (scindeks database) but, this is still insufficient for full understanding of the mutual significance and relationships of individual stakeholder groups, which is a neccessary precondition for directing managers how to prioritize among actual corporate stakeholder groups in the republic of serbia helping them to improve, and/or redirect their strategic business decisions, and gain better business performance results. 69 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) ������� �� �� �� ������ �� ������ �� ��� �� ������� �� ���� � � ������� ����� ������� ��� ����� ����� ������� � ��� ��������� ���� !��� �"��� � # ����$� � ����� %&�� � ��� ��������� � � � '��� ����� ������������ �� (���� �"�� $ ���� �# )�*�� *�������� ##� ��������� �� � &+��� � # ,'%� �� ,��$��� ����� � $���-����� �� 3. research method in order to identify key corporate stakeholders in the serbian economy, an empirical study was conducted. the research was based on the application of data collection methods from primary sources. the research was organized respecting the principles of the methodology of scientific research by mihailovic (2012). 3.1 research purpose and research questions the purpose of the research is examining perceptions and attitudes of managers of business organizations operating in the republic of serbia in relation to selected relevant corporate stakeholder groups and using investigated perceptions and attitudes of managers to evaluate the degree of significance and impact of selected relevant corporate stakeholders in the business life of the republic of serbia. in order to fulfill the purpose of research, in this regard, fundamentally, the research had defined the following subject of the survey: identifying and measuring attitudes of managers of businesses operating in the republic of serbia about selected relevant corporate stakeholders and the influence of selected relevant corporate stakeholders in the business life in the republic of serbia. as defined, research objective is to determine the degree of significance of selected relevant corporate stakeholders for managers of business organizations operating in the republic of serbia. the research is expected to lead to an answer to the following research question: to what extent selected relevant corporate stakeholders have an impact in the business life in the republic of serbia. 3.2 research participants participants in the study were managers of business organizations operating in the territory of the republic of serbia. the survey was conducted on a sample of 107 respondents. testing managers of business organizations has been conducted using quantitative research techniques via the internet (computer assisted web interview cawi) with previous consent from each subject for participation in the study. as a sample frame, publicly available databases of business organizations, public associations and media in serbia are used. 3.3 research instrument as a research tool for implementation of the method of collecting data from the primary sources the questionnaire was used, established on the basis of review of the scientific and expert literature and as recommended by mihailovic (2012), and in compliance with special needs of research. after demographic characteristics of respondents and data about the organization, the questionnaire contained questions pertaining to selected relevant corporate stakeholders. the results of cronbach’s alpha test of questionnaire as a measure of its reliability indicate the consistent reliability of results obtained (α>0.7) (cohen, manion & morrison, 2007). 3.4 research model the research model is based on examining perceptions and attitudes of managers of business organizations operating in the republic of serbia in relation to selected relevant corporate stakeholder groups, from the standpoint of economy as a whole, and by economy sectors. 3.5 data analysis items of the final questionnaire were analyzed using the spss v20.0 statistical tool. data analysis in this study consisted of descriptive statistics. univariate analysis was used through the analysis of frequency tables and individual ranking statistics. nonparametric kruskal-wallis test, and post hoc mann whitney u test were used to test the significance of differences. in the study, results with p<0.1 were declared significant (kim, 2020; kim & choi, 2019; wasserstein & lazar, 2016; mudge, baker, edge & houlahan, 2012). 70 tanja milić 2021/26(2) 4. research results 4.1 evaluation of the importance of selected corporate stakeholder groups for managers of business organizations operating in the republic of serbia research results of the importance of examined stakeholder groups for managers of business organizations operating in the republic of serbia are shown in table 2. table 2: statistical summary of univariate analysis of the importance of selected stakeholder groups for managers in the republic of serbia from the fourteen corporate stakeholder groups surveyed during the study, findings have revealed that most managers of business organizations operating in the republic of serbia recognise the crucial roles that different stakeholders play for the success and sustainability of their operations. such stakeholders include respectively observing customers, owners, suppliers, managers, government institutions, and employees. though above average, the study findings reveal that the recognition of investors, distributors, competitors, community as a whole, media, local community, and vulnerable groups as organisational stakeholders successively received lower rankings. the lowest significance was assigned to ngos, which received rankings below average. there is a clear research indication that managers in the republic of serbia primarily keep interests of those stakeholder groups that are primarily and directly linked to the value chain and essential business processes leading to service and product production and their sales on the market, gaining income and profit, and without which business operations would be seized. the less certain stakeholder group is linked to essential business process, the less importance it has. 4.2 evaluation of the influence of economy sector on corporate stakeholder importance for managers in the republic of serbia in order to determine key corporate stakeholders per economy sectors in the republic of serbia, the investigation of the influence of certain economy sectors, such as manufacturing, commercial, and service on the perception of corporate stakeholders is performed. the nonparametric kruskal-wallis and post hoc mann whitney u test were used to examine the significance of differences. results with p<0.1 were declared significant (table 3.). 71 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) ������� ��� ����� � ������ ���� ������ ����������������� � � ����� ���� �� �� �� � !� "� �� #��� � � ������� � �� �� ��� ��� ��� � � ���� ���� �� ������� � �� ��� ��� �� ��� ���� ��� ���� ���� ����� ��� ��� ��� ��� ��� ��� ��� ���� ���� ������� � �� ��� ��� ��� ��� ���� ���� ���� ���� ����!��� �� ��� �� ��� ��� ��� ��� ���� ���� "��� �#��� � ��� ��� ��� � �� ���� � �� ��� ���� ���� ����$� � �� ��� ��� ��� � �� ���� ��� ���� �� � %&�� � �� �� ��� ��� ��� ���� ���� ���� ���� ��������� � ��� ��� ��� ��� � �� � �� ��� ���� ���� '��� ����� ������������ �� ��� �� ��� ��� ���� ���� ���� �� � (���� �#�� $ ���� ��� ��� ��� ���� ��� ��� ��� ���� ���� )�*�� *�������! ��� ��� ��� ��� ��� ��� ��� ���� ���� ��������! �� � &+��� ��� �� �� ���� � �� ��� ��� ���� ���� ,'%� ���� ���� ��� ��� ��� ��� ��� ���� ���� table 3: economy sector impact on stakeholder group importance in relation to the importance of selected corporate stakeholders for managers of business organizations operating in the republic of serbia, it was examined whether there are statistically significant differences between respondents coming from three determined economy sectors: manufacturing, commercial, and service. results reveal that respondents from service sector comparing to respondents from manufacturing, or commercial sector, attach more importance to the following corporate stakeholder groups: media (1630 vs. 1015 vs. 2405; p<0.05), vulnerable groups (2000.5 vs. 810. vs. 2040.5; p<0.05), and community as a whole (2104.5 vs. 964 vs. 2184.5; p<0.1). also, from the same data can be seen that manufacturing sector attaches more importance to the same previously mentioned groups of stakeholders comparing to service sector. for all other investigated corporate stakeholders, no statistically significant differences were found (p>0.1). for statistically significant stakeholder groups, multiple comparisons were performed using the kruskal-wallis test of any pair of economy sectors. in this case, the test was identical to the mann whitney u test with normal approximation. again, results with p<0.1 were declared significant (table 4.). table 4: multiple comparisons of economy sectors per statistically significant stakeholder groups in relation to media, statistically significant differences were found in two pairs of economy sectors: (1) manufacturing and service sector (p<0.01), and (2) commercial and service sector (p<0.05). in the manufacturing and commercial sector pair no statistically significant difference was found (p>0.1). in relation to vulnerable groups, statistically significant differences were found in two pairs of economy sectors: (1) manufacturing and commercial sector (p<0.05), and (2) commercial and service sector (p<0.05). in the manufacturing and service sector pair no statistically significant difference was found (p>0.1). 72 tanja milić 2021/26(2) ������� ��� ����� ��������������� ����� � �� ������������ � �� ���������� ����� ��������� � �� ����������� �� �� ���!���� �� ���������� ��"�� ������ �� �� ���� ������� ������� ��� � ������ �� ��� � ������� ��� ��� ������� � ���� �� �� ����� ����� �������� ��� ��� �� ��� ��� �� � ��� ��� ��� ��� ����! �� � � � ������� ������� �� ���� "��� �#��� �� ������� ���� ������� �� ���� ����$ �� ������� ����� ������� ������� %&� �� ������� ����� ������� ������� ���� ���� �� ����� � ���� ��� ��� ��� ��� '�� �� ���������������� ����� ������� ������� ������� (��� �#� �$ ����� ������� ����� ������� �������� )�*���*�������!� ����� ������ ������� ������� ��������!������&+�� � ������� ���� ������� �������� ,'%�� ������ ����� ���� ����� � ������� ��� �������� ��� ����� ����������� ������������ ������� ��� ��� ���� ��� ������ �� �� ��� � �� � �� ��� ������ �� ������� � �� � ������� � ������ �� �� ��� � �� � ���� ��� ������� ��� �������� ����� �� ������ ����� ����������� ������������ ������� ��� ��� ���� ��� ������ �� �� ��� � �� � ���� ��� ������ �� �� ���� � �� � �� ��� ������ �� � � �� � �� � �������� ������� ��� �������������� ������!�� �� ����� ����������� ������������ ������� ��� ��� ���� ��� ������ �� ���� �� � �� � ��� �� ������ �� ��� � � � �� � ������� ������ �� � � �� � �� � �������� � 73 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) in relation to the community as a whole, statistically significant difference was found in one pair of economy sectors: commercial and service sector (p<0.05). in the other two pairs of economy sectors: (1) manufacturing and commercial sector, and (2) manufacturing and service sector, no statistically significant difference was found (p>0.1). references [1] babic, j. 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[49] wasserstein, r. l. & lazar, n. a. (2016). the asa statement on p-values: context, process, and purpose. the american statistician, 70(2), 129-133. doi: 10.1080/00031305.2016.1154108 received: 2020-11-26 revisions requested: 2021-02-15 revised: 2021-03-11 (2 revisions) accepted: 2021-03-17 tanja milić university of belgrade, faculty of organizational sciences, serbia tanja.milic@fon.bg.ac.rs dr tanja milić is an assistant professor at the faculty of organizational sciences, university of belgrade. she is engaged in the courses within the business economics and macroeconomics scientific field at undergraduate, specialist, and master studies. she is the author of a monograph, and the author or the co-author of scientific papers published in leading national and international journals and symposia. her scientific work was awarded at the national level by the belgrade chamber of economy. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice sasho kjosev:tipska.qxd 1 sasho kjosev1*, martin noveski2, nina mojsova kjoseva3 1ss cyril and methodius university in skopje, faculty of economics, north macedonia 2ministry of finance, budget and funds department, skopje, north macedonia 3sparkasse bank makedonija ad skopje, skopje, north macedonia management: journal of sustainable business and management solutions in emerging economies forthcoming public debt threshold in the republic of north macedonia doi: 10.7595/management.fon.2021.0018 abstract: 1. introduction in 2007, a financial crisis emerged from the u.s. financial system, namely from the banking sector, with the bankruptcy of lehman brothers. as a result, the fiscal imbalances of several countries grew in such a way that they caused a sovereign debt crisis, beginning in greece and then affecting all euro-area countries, especially the peripheral countries such as portugal, italy, ireland and spain (alfonso & alves, 2014). the recent global financial crisis triggered a series of orthodox, unconventional monetary and fiscal policies that led to a sharp increase in the sovereign debt of advanced countries. the massive debt build-up reignited the debate about fiscal sustainability and the impact of the accumulation of government liabilities on financial markets and on real economic performance (calderon & fuentes, 2013). government consumption plays an important role in the stability of the national economy, especially in periods of economic crisis (dudzeviciute, simelyte & liucvaitiene, 2018). however, a rapidly growing public debt is a concerning issue nowadays since it might jeopardize economic growth perspectives (mencinger, aristovnik & verbic, 2014). economic theory suggests that public debt has non-linear impact on economic * corresponding author: sasho kjosev, e-mail: skosev@eccf.ukim.edu.mk research question: is there a non-linear relationship between public debt and economic growth in north macedonia, in the form of an inverted u-shape? motivation: government consumption plays an important role in the stability of the national economy, especially in periods of economic crisis. however, a rapidly growing public debt is a concerning issue nowadays, since it might jeopardize economic growth perspectives. economic theory suggests that public debt has nonlinear impact on economic growth in the form of an inverted u-shape. in other words, it is believed that after a certain threshold, the public debt will have deleterious impact on economic growth. idea: given that such threshold varies significantly across countries, the aim of this paper is to calculate the turning point of the public debt impact in the republic of north macedonia. tools: for this purpose, we use non-linear multiple regression model for the real gdp growth rate as a dependent variable, general government public debt-to-gdp ratio (in nominal and squared terms) as a key independent variable, as well as several other controlling variables. since theory also suggests reverse causality between economic growth and public debt, we use two different estimation techniques (ordinary least squares and generalized method of moments) to deal with potential endogeneity, and to cross-validate the results. data: in this regard, we use annual data for the period 1998 – 2019, for 14 variables in total, obtained from several different data sources. findings: our results show that general government debt in the republic of north macedonia positively affects economic growth until it reaches around 30% of gdp, whereas further indebtedness after that turning point will most likely have a negative impact. contribution: given that current debt level is far above the estimated turning point, the need of urgent fiscal consolidation inevitably arises. this is especially important in the light of the ongoing covid-19 crisis, which imposed the need for strong government intervention and pointed out the importance of the fiscal space for such matter. keywords: public debt, economic growth, non-linear relationship, threshold, north macedonia, jel classification: c20, e60, h63 growth in a form of inverted u-shape (ueshina & nakamura, 2019; casares, 2015; bexheti, sadiku & sadiku, 2020; liu & lyu, 2021; etc.). in other words, it is believed that after a certain threshold, public debt will have a negative impact on economic growth. a high and growing public debt in north macedonia is a concerning issue, especially nowadays in light of the covid-19 pandemics. expansionary fiscal policy of the government in the past has resulted in several times increase in the public debt since 2008 (in nominal terms), exceeding even the maastricht criterion of 60% debt-to-gdp ratio in 2020. although expansionary fiscal policy was often justified by boosting economic growth, the real gdp growth rate did not follow the same track. on the contrary, unlike significantly higher growth rates in the pre-crisis period, it remained moderate, at times even negative, barely reaching its highest 3.9% in 2015. even though the european commission (2020) foresees economic growth of 4% in 2021, the upshot of the crisis is still unclear. garvanlieva andonova and nikolov (2019), also point out the continuous policy of fiscal expansion with optimistic growth scenarios as significant vulnerability for the debt-to-gdp ratios. in this regard, since emerging markets cannot sustain as high debt levels as the advanced economies (reinhart, rogoff & savastano, 2003), we wonder whether there is a possibility that public debt might also be a factor that endangers economic growth in north macedonia?! this is especially important in the light of the ongoing covid-19 crisis, which imposed the need for strong government intervention, and pointed out the importance of the fiscal space for such matter. namely, as tashevska, trpkova-nestorovska & trenovski, (2018) claim, countries should build fiscal buffers and reduce the fiscal burden of debt in good times, in order to be able to react in times of crisis. in this regard, the imf (2020) explicitly notes that the space for fiscal policy as main countercyclical stabilization tool in north macedonia is limited. hence, to help unlocking economy’s growth potential and reduce vulnerability to shocks, sound macroeconomic management, along with stronger efforts to improve public debt management, are recommended. given the above, this paper investigates the impact of government indebtedness on economic growth in north macedonia, whereby non-linear (quadratic) relationship is expected. in particular, we aim to estimate the threshold level (turning point) above which general government debt adversely affects economic growth. 2. literature review there is currently much cautionary talk in policymaking circles regarding the dangers to the economy’s future health posed by crossing a specific threshold in the ratio between government debt and gross domestic product. these fears have been fueled by the report “growth in a time of debt” (reinhart and rogoff, 2010) which argues that: (1) there is no association between debt and growth at low or moderate levels of debt, but that there exists a well-defined threshold (90%, in their estimation) of government debt relative to gross domestic product (gdp) above which economic growth is hindered; (2) emerging markets face lower thresholds for external debt (public and private)—which is usually denominated in a foreign currency, and (3) there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group. the relationship between public debt expansion and economic growth has attracted interest in recent years (gomez-puig & sosvilla-rivero, 2018a; ahlborn & schweickert, 2018; abubakar & mamman, 2020; etc.), spurred by a sharp increase in government indebtedness in some advanced economies following the global financial crisis (savoiu, jasko & ţaicu, 2014). economists tend to agree that in the short run an increase in public debt arising from fiscal expansion stimulates aggregate demand, which should help the economy grow (rosoiu, 2019). the longer-term economic impact of public debt accumulation, in contrast, is subject to a more expansive debate, whereby substantial attention has been paid to the examination of economic growth—public debt nexus (gomez-puig & sosvilla-rivero, 2017; bystrov & mackiewicz, 2020). while some empirical studies confirm the adverse impact of government debt on growth (rahman, ismail & ridzuan, 2019), a growing number of recent works investigate the aforementioned idea of optimal level of government debt and a non-linear, an inverted u-shaped debt-growth relationship. the point here is that there is no single turning point that could be applied to all countries (bentour, 2018) and a proper investigation is needed into factors that shape the debt impact on growth (butkus & seputiene, 2018). alfonso and alves (2014) analyzed the effect of public debt on economic growth for annual and 5-year average growth rates, as well as the existence of non-linearity effects of debt on growth for 14 european countries from 1970 until 2012. their results show a negative impact of -0.01% for each 1% increment of public 2 sasho kjosev, martin noveski, nina mojsova kjoseva forthcoming debt, and in addition they found average debt ratio thresholds of around 75%. gomez-puig and sosvillarivero (2018b) analyze the effects of all sources of nonfinancial debt (household, corporate as well as government) accumulation on economic growth in ten euro-area countries during the 1980–2015 period, using three models (a baseline, an asymmetric and a threshold model) based on the empirical growth literature augmented by debt. their findings suggest that while public debt thresholds are higher in peripheral than in central countries, private debt thresholds are higher in core euro-area countries. mencinger et al. (2014) examined and evaluated the direct effect of higher indebtedness on economic growth for countries in the eu which are in the epicenter of the latest sovereign debt crisis. they employ a panel estimation on a generalized economic growth model augmented with a debt variable, while also considering some methodological issues such as the problems of heterogeneity and endogeneity. the calculated debt-to-gdp turning point, where the positive effect of accumulated public debt inverts into a negative effect, is roughly between 80% and 94% for the ‘old’ member states. yet for the ‘new’ member states the debtto-gdp turning point is lower, namely between 53% and 54%. in their other article, mencinger et al. (2015) confirmed the general theoretical assumption where at low levels of public debt the impact on growth is positive, whereas beyond a certain debt turning point a negative effect on growth prevails. they calculated that the debt-to-gdp turning point is roughly between 90 % and 94 % for developed economies. yet, for emerging countries, the debt-to-gdp turning point is lower, namely between 44 % and 45 %. it is interesting to mention the analysis conducted by bilan and ihnatov (2015), who analyzed the relationship between public debt and economic growth for a panel of 33 european countries (28 european union member states and 5 candidate countries for european membership) over the period 1990-2011. the results confirm the existence of a „u inverted” relationship, with a maximum debt threshold of about 94% of gdp. after this threshold public debt is expected to negatively affect the economic growth rate, due to higher interest rates, fear of public debt unsustainability and severe budgetary consolidation measures. however, this threshold is found to be more than twice lower in developing european countries compared to the developed ones, as the former enjoy lower credibility, higher vulnerability to shocks and depend more on external capital transfers. on the other hand, gashi (2020) examines the impact of public debt in six countries from south-eastern europe over the period 2008 to 2017, by applying three different panel methods: the fixed effects model, the gmm method and the system-gmm method. the results confirm the existence of a „u inverted” relationship, with a maximum debt threshold of about 58% of gdp. after this threshold, public debt is expected to negatively affect the economic growth rate, due to fear of public debt unsustainability, higher interest rates and severe budgetary consolidation measures. most studies of the relationship between public debt and economic growth implicitly assume homogeneous debt effects across their samples. however, starting from a different perspective, ahlborn and schweickert (2018) challenge this view and state that there likely is a great deal of cross-country heterogeneity in that relationship. they argue that different degrees of fiscal uncertainty at comparable levels of public debt between three clusters of economic systems (liberal, continental and nordic) constitute a major source of heterogeneity in the debt-growth relationship. continental countries face more growth reducing public debt effects than especially liberal countries, while for nordic countries a non-linear relationship is shown, with negative debt effects kicking in at public debt values of around 60% of gdp. as a summary, there are certain points that should be noted: 1) the public debt sustainability is one of the most important concepts nowadays in both developed and transition countries. 2) the existing literature provides arguments on how government borrowing and increasing debt can stimulate, impede, or make no influence on economic development. 3) a growing number of recent research analyses in this field confirms non-linear inverted u-shaped public debt-growth nexus, however estimated public debt threshold level (or turning point) above which relationship turns from positive to negative, varies sharply across studies. this raises the need to analyze key factors that might determine this debt threshold. 4) despite extensive research which has already been undertaken, the issue as to whether there is a debt-threshold effect continues to be strongly debated. nevertheless, the choice of debt-threshold determinants is arbitrary. hence, it is imperative that a theory be developed that may lead us toward a more systematic approach to the choice. 5) although the effect of debt is undesirable, governments have to trade-off the incremental debt to stimulate aggregate demand and consequently growth. debt would not be the main point on the political and academic agenda if each economy possessed sufficient and structural mechanisms to deal with it (to concentrate on how efficiently each economy could improve its economic path). 3 management: journal of sustainable business and management solutions in emerging economies forthcoming 6) as a result, the identified public debt thresholds should not be appreciated as absolute landmarks for judgments but interpreted with caution. depending on the particularities of each country and the time period, but especially on the destination given to borrowed resources, the adverse effects may occur at even lower public debt ratios, while the contrary is also not to be excluded. 3. data and methodology following commonly employed methodological approach (checherita & rother, 2010; mencinger et al., 2014; bilan & ihnatov, 2015; etc.), we investigate the relationship between public debt and economic growth in north macedonia using the augmented growth model. essentially, it is a multiple regression model in which economic growth is a function of several factors, such as: labour and human capital, accumulation of physical capital, openness of the economy and external competitiveness, as well as the fiscal and monetary policy mix of the country. in addition, public debt variable is also included in the model, whereby nonlinear relationship with the dependent variable is assumed. for the purposes of our analysis, we use annual data for the period 1998 – 2019. the selection of independent variables is based on the empirical literature, whereas data are cross-checked among several different data sources, such as the data bases of the national bank and the ministry of finance of north macedonia, ameco database, and world development indicators database. this is especially important since this is the way to ensure consistency and reliability of the data, supported by credible institutions. mathematically, the theoretical model can be written as follows: (1) where: gdpg is real gdp growth rate (%), debt is general government debt (% of gdp), xi is vector of controlling variables, including real interest rates, monetary base m1 (annual change, %), net exports (% of gdp), exchange rate mkd/usd (average) and a dummy variable to capture unexplained shocks in 2011 and 2012, u is the error term. based on the literature review, a non-linear relationship in the form of inverted u-shape exists if both β1 and β2 coefficients are statistically significant, whereby β1 is positive and β2 is negative. this means that beyond a certain turning point public debt will have deleterious impact on economic growth. in this regard, the turning point (tp), as extremum value, is estimated using the following equation proposed by lind and mehlum (2007): (2) however, since tp is calculated as a ratio of the estimated parameters, where the denominator β̂2 can take values close to zero, it is likely that the moments of tp are undefined, as in the case of the cauchy distribution. in such case, theoretical literature provides several alternative methods for calculation of the confidence intervals for the extremum value. in particular, we employ two most widely used methods, the delta method and the fieller method, as suggested in hirschberg and lye (2005). the delta method concerns the approximate probability distribution for a function of an asymptotically normal statistical estimator, limiting the variance of that estimator. on the other hand, the fieller method is an analytical method for calculating the confidence interval of two ratios, where each part of the ratio may be from a different distribution. the two methods, as specified in equations 3 and 4, are used conjointly in order to cross-validate the results. delta method (3) fieller method (4)�� � ���� � �� � �� �� � �� �� �� � ����� ���� � �� ������� � ����� ������ � ����� � � ������� � ����� � ���� ��� ���� � ���� � � ������ � �� ��� �� ��� 4 sasho kjosev, martin noveski, nina mojsova kjoseva forthcoming �� � �� � � �� ������� � ������� ��� � ���� �������� where: regarding the model estimation, we primarily base our findings on the ordinary least squares (ols) method, although we also use generalized method of moments (gmm) to validate the results. the procedure follows deductive logic, given the limited and relatively small sample (22 observations). namely, using too many independent variables in case of small sample size might significantly reduce the degrees of freedom, thus jeopardizing the reliability of the obtained estimates. therefore, we start with an unrestricted empirical model, whereby gradually exclude statistically insignificant variables, until we end up with compact and reliable model (equation 1). this technique is also beneficial in terms of checking the robustness of the obtained coefficients since they are estimated using different model specifications. special attention in the model estimation procedure is paid to the assumptions of the classical linear regression model (clrm). firstly, all variables are subjected to unit root tests, in order to determine the order of integration of each variable. in order to prevent spurious results caused by using non-stationary variables in the regression, we use first differences of the non-stationary variables in the models (except for the public debt). secondly, we check the correlation coefficients and variance-inflation factors so as to prevent multicollinearity, as well as to eliminate variables that are uncorrelated, and/or highly correlated with the dependent variable. in this regard, unlike many empirical papers, we do not include real gdp per capita as a proxy for economic development of the country in our model, since it is integrated of order 1, and its first difference is almost perfectly correlated with the dependent variable. thirdly, we check the assumptions for normal distribution, homoscedasticity and absence of serial correlation in the model residuals. in this regard, in order to prevent any consequences of possible heteroskedasticity in the models, we use robust standard errors. finally, since the economic theory suggests possible reverse causality between economic growth and public debt (endogeneity), we re-estimate the model using generalized method of moments, whereby as instruments we use gdpg and debt variables with one lag, initially specified controlling variables under x in equation one, as well as several other growth-related variables according to the empirical literature. baum et al. (2002) suggest that if heteroskedasticity is present, gmm is preferable since estimators would have better efficiency than a simple iv estimators. however, gmm can have poor small sample properties. therefore, to ensure reliability of our findings, we estimate the models using both estimation methods, and calculate tps accordingly. limitations regardless of the strict methodology we follow, there are several limiting factors that we need to beware of. firstly, it is the data quality and consistency. namely, in spite of the general guidelines on wider scoping of the public debt (dippelsman, dziobek, & gutierrez mangas, 2012), there are numerous examples of methodological inconsistencies for their calculation across countries, as well as misinterpretations of the term public debt. consequently, there are many empirical papers with incomparable findings, due to the different data they rely on, mostly referring to different levels of the government. in order to expand our data sample to maximum extent, we use data on general government debt, instead of public debt, meaning that we do not account for the public enterprises’ guaranteed and non-guaranteed debt. another limiting factor might be the methodological approach itself. for example, empirical literature also suggests other econometric techniques for estimation of the public debt threshold level, mostly using dummy variables (hansen, 1999; wang, 2015; etc.). however, we believe that this approach is not always suitable, especially for small samples, and/or if there is an indication that the threshold has not yet been reached, or it is too close to the data range. also, unlike many studies that address this issue using panel data for a group of countries, we aim to make use of the country-specific conditions for a single country, north macedonia in particular. we believe that heterogeneity between countries, even from the same geographical region, might be a source of significant disparities (ahlborn & schweickert, 2018), imposing a need for generalization. finally, from time perspective, our analysis only focuses on the short run implications of the public debt, leaving long run macroeconomic impact for further research. 5 management: journal of sustainable business and management solutions in emerging economies forthcoming ��������������� � � ��� ���������������� � �������� ������������������ ���������� � ������ ���������� � ��� ���������� ��������� � ������ ��� ���������������������������������� � ������ ���������� � ��� 4. empiricl results in line with the previously established methodology, the theoretical model in equation 1 is estimated under several different model specifications, whereby highly correlated and statistically insignificant controlling variables are excluded. the final estimated model expresses the real gdp growth rate in north macedonia as a function of the public debt (in nominal and squared terms), real interest rates, monetary base, real exchange rate and net export. this model estimated using ols and gmm methods, whereby the results are consistent and unanimous (table 1). furthermore, estimated models are statistically significant and well-fitted, explaining approximately 90% of the variations in the dependent variable. diagnostic tests confirm that model residuals are normally distributed, with constant variance (homoscedastic) and serially uncorrelated. additionally, sargan-hansen j-statistics in the gmm estimate is low (6.64), which confirms the joint validity of the over-identifying restrictions even at 0.01 significance level, meaning that instruments are consistent (roodman, 2009). however, the endogeneity test fails to reject the null hypothesis that debt and debt^2 variables are exogenous (low difference in j-statistics), thus suggesting that maybe ols estimation is a better choice. in any case, the obtained results are unanimous, so the estimation method (ols or gmm) seems irrelevant. table 1: estimated coefficients (final model) 6 sasho kjosev, martin noveski, nina mojsova kjoseva forthcoming ��������� �� ���� �� ��������� ��� ����� � �� �������� ������� �� ��� � � ����� ��� � ������ ��� �� ��� � � ������ � � �������� � ��� � �� �������� ���� � �� ���� �� ����� �� ���� ��� ����� � � �� ��� ��� �� ���� �� �� �� � ��������� �� ��� ��� � �� �� � � �� �� ��� �������� � �� � �� ������ ����� !��� � � �� ��� � �"� ����� �� ��������� �������� �� � ��� �� ��� �� ��� ������������ �� ���� ���� ���� �� �������� � ����� �� � �� �� ������ � ������ � �� ���� ��������� � ���������� � ������� �������� � ��������� � ��� ��� ��� � ��� ��� � ��������� �������� � �������� � ���� �����!�"#$%#&'�(� )*+� ,��� �� �������� � ����� �� � �� �� ������ � ������ � �� ���� ��������� � ���������� � ������� �������� � ��������� � ��� ��� ��� � ��� ��� � ��������� �������� � �������� � �����-�� ���� � � ������� � �.�� �������� � �������� � � �/$�%�0�12%�!� ����� ����� ��3�����4%�''�$�� � �������� ���������� ��3�������'!#�� � �������� ���������� � 5�6����(7�� �� ��� �� �� � 8#$7/�� �$#�!�(!� ����� ����� �/$&%��9#!(2�� ����� ����� +�$%#'�:2$$�'��*����(!����'#0�� ����� �� 9;%!��!�(!���2�:$2((�!�$<(�� ������ �� ��(�!�!�(!� ����� �� 4�(!#!�� ������ � �� 8�(!#!%(!%:(� �� ����� ���20���%!=�!�(!��%>>��%��8�(!#!�� �� ����� � based on the estimated model, we calculate a turning point of around 30% of gdp, above which a further increase in the public debt would negatively affect the economic growth. furthermore, we calculate 95% confidence intervals using fieller and delta methods as specified in equations 3 and 4. calculated turning points based on the ols and gmm estimates of the model, along with their 95% confidence intervals, are shown in figure 1. although ols suggests slightly wider confidence intervals for (28.3 – 30.4), it is a relatively narrow interval which lies within the data range for the general government public debt (between 20.5 and 45.6). figure 1: calculated tps and their 95% confidence intervals although with much higher threshold (od around 58% of gdp), non-linear relationship between public debt and economic growth in north macedonia is also confirmed by gashi (2020) and fetai et al. (2020). however, given the overall macroeconomic situation in the country, it is hard to believe that macedonian econ7 management: journal of sustainable business and management solutions in emerging economies forthcoming ������������ �� ���� ���� ���� �2!�?� @� �#��� �$� $�(��!�(!#!%(!%:#'�(%0�%>%:#�:��#!�����@� �����#�������$�( �:!%"�'=� �����-�� ���� � � ������� � �.�� �������� � �������� � � �/$�%�0�12%�!� ����� ����� ��3�����4%�''�$�� � �������� ���������� ��3�������'!#�� � �������� ���������� � 5�6����(7�� �� ��� �� �� � 8#$7/�� �$#�!�(!� ����� ����� �/$&%��9#!(2�� ����� ����� +�$%#'�:2$$�'��*����(!����'#0�� ����� �� 9;%!��!�(!���2�:$2((�!�$<(�� ������ �� ��(�!�!�(!� ����� �� 4�(!#!�� ������ � �� 8�(!#!%(!%:(� �� ����� ���20���%!=�!�(!��%>>��%��8�(!#!�� �� ����� � �2!�?� @� �#��� �$� $�(��!�(!#!%(!%:#'�(%0�%>%:#�:��#!�����@� �����#�������$�( �:!%"�'=� 29,5 29,5 29,7 29,7 28,3 28,5 29,0 29,1 30,4 30,5 30,4 30,4 26 27 28 29 30 31 32 fieller method delta method fieller method delta method ols_2 gmm_2 % o f g d p tp low high omy could sustainably bear such a high burden of public debt, without jeopardizing economic growth perspectives. as literature suggests, threshold levels of around 60% are typical for many advanced economies, nordic countries for example (ahlborn & schweickert, 2018). on the other hand, emerging economies face lower thresholds, around 45% (mencinger et al., 2015). having in mind that general government debt is used in this analysis, instead of public debt (which is usually about 10 percentage points lower), a threshold level of 30% debt-to-gdp ratio seems reasonable and fully compatible with the majority of the empirical literature. references [1] abubakar, a. b., & mamman, s. o. (2020). permanent and transitory effect of public debt on economic growth. journal of economic studies. [2] ahlborn, m. & schweickert, r. (2018). public debt and economic growth–economic systems matter. international economics and economic policy, 15(2), 373-403. doi: 10.1007/s10368-017-0396-0. [3] alfonso, a., & alves, j. (2014). the role of government debt in economic growth. wp16/2014/de/uece, department of economics, lisboa school of economics and management. [4] baum, c.f., schaffer, m.e., & stillman, s. (2002). instrumental variables and gmm: estimation and testing. boston college economics working paper 545, 02 november. [5] bentour, el mostafa. (2018). on the public debt and growth threshold: one size does not necessarily fit all. cahier de recherche du creg, n° 2018.01. 8 sasho kjosev, martin noveski, nina mojsova kjoseva forthcoming the question whether public debt is a means of or a burden on economic growth is widely discussed in the scientific literature. the theory provides arguments on how government borrowing and increasing debt can stimulate, impede or make no influence on economic development. there is quite a lot of empirical research devoted to the analysis of the impact the public debt makes on economic growth; despite this, the results are ambiguous. the growing volume of recent research in this field confirms non-linear inverted u-shaped public debt-growth nexus, however estimated public debt threshold level (or turning point) above which relationship turns from positive to negative varies sharply across studies (butkus & seputiene, 2018). following this idea, our objective was to examine whether such relationship exists in the case of north macedonia, and if it does, to calculate the corresponding turning point. for this purpose, we use a multiple regression model for the period 1998 – 2019, having gdp growth rate as dependent variable, and general government debt-to-gdp ratio (in nominal and squared terms) as independent variables. our model also includes other controlling factors, as suggested in the economic growth literature, such as: labour and human capital, accumulation of physical capital, openness of the economy and external competitiveness, as well as the fiscal and monetary policy mix of the country. to ensure robustness and reliability of the results, the theoretical model is estimated under several different model specifications, using ols and gmm methods. the results undoubtedly go in favor of the hypothesis that public debt affects economic growth non-linearly in the form of an inverted u-shape, whereby we calculate the turning point for the case of north macedonia at around 30% of gdp. we also provide estimates for the 95% confidence intervals of this turning point, using fieller and delta methods. namely, ols estimates suggest confidence intervals ranging from around 28.5 to 30.5 % of gdp, whereas gmm estimates are even more precise, going from 29 to 30.4 % of gdp. given that current debt level is far above the estimated turning point, the need for urgent fiscal consolidation inevitably arises (tashevska & trenovski, 2017). however, even though general government debt level of 30% of gdp (as calculated) would significantly reduce the debt sustainability pressure in north macedonia, while promoting growth at the same time, it should not be mistaken as optimal level of indebtedness. namely, as imf suggests, to ensure resilience to shocks (such as the ongoing covid-19 crisis) without jeopardizing economic growth perspectives we need sufficient fiscal buffer to mitigate their impact. therefore, the optimal debt level for north macedonia would be somewhere below this point, depending on the fiscal capacity of the country. this research, however, has its own limitations as well. namely, the analysis essentially focuses on the short run implications of the public debt on economic growth in north macedonia. consequently, the employed empirical model does not contain any dynamics in it. that being the case, we believe that this research is a solid ground for further analysis of the long run macroeconomic impact of the public debt in north macedonia. acknowledgements some parts of this paper have been presented at the 1st international scientific conference on “economic and business trends shaping the future ebtsf”, held november 12-13, 2020 in skopje, n. macedonia. conclusion [6] bexheti, a., sadiku, l., & sadiku, m. 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(2017). testing fiscal sustainability in the republic of macedonia a var approach. 26th international scientific conference on economic and social development – "building resilient society" – zagreb, croatia, 8-9 december 2017. [35] tashevska, b., trpkova-nestorovska, m., & trenovski, b. (2018). estimating a fiscal reaction function for the south east european countries. proceedings of the isccro’18: the 2nd international statistical conference in croatia, opatija, croatia, 10-11 may 2018, “new advances in statistical methods applications for a better world“. [36] ueshina, m., & nakamura, t. (2019). an inverted u-shaped relationship between public debt and economic growth under the golden rule of public finance. theoretical economics letters, 9(06), 1792. . [37] wang, q. (2015). fixed-effect panel threshold model using stata. the stata journal, 15(1), 121–134. doi:10.1177/1536867x1501500108. received: 2021-01-27 revisions requested: 2021-03-07 revised: 2021-03-24 (2 revisions) accepted: 2021-03-25 sasho kjosev ss. cyril and methodius university in skopje, faculty of economics-skopje, north macedonia skosev@eccf.ukim.edu.mk sasho kjosev is a full professor with a phd in development economics. for more than twenty-two years he has been employed at the department of economics at the faculty of economics. he is also president of the association for regional development balkan economic forum. sasho’s areas of expertise are macroeconomic planning, development planning techniques, national accounts, sustainable development, labour economics, economics of innovation and agricultural policy. he participated in more than 30 eu, undp and world bank funded projects in the country, including the preparation of the national development strategy and national sustainable development strategy for macedonia. he authored 7 books and more than 60 articles published in domestic and international journals and conference proceedings. martin noveski ministry of finance, budget and funds department, skopje, north macedonia martin.noveski@finance.gov.mk martin noveski is a budget analyst in the ministry of finance of the republic of north macedonia with 10 years of professional experience. also, he is president of the association of economists, statisticians and econometricians sigma stat skopje. martin holds a master’s degree in statistical method for business and economy, specifically in advanced econometrics. in the course of his career martin has been involved in the implementation of several projects, domestically and abroad, and has participated in many training programs, including the ‘eu scheme for young professionals in the western balkans’, financed by the european commission. his fields of expertise are macroeconomic growth and development, fiscal policy and public finance management. nina mojsova kjoseva sparkasse bank makedonija ad skopje, skopje, north macedonia nina.mojsovakjoseva@sparkasse.mk nina has a professional experience of 18 years, out of which 8 years in the pharmaceutical industry and 10 years in the banking industry; she currently works as deputy director of finance department in sparkasse bank makedonija ad skopje, member of the steiermarkische sparkasse group. she is also founder and member of the board of directors of the association for regional development balkan economic forum. she holds a phd degree in finance and economics from the cracow university of economics in poland, with the phd thesis entitled: financial stability and access to bank credit: evidence from the eu members of the see region, with a reference to the republic of macedonia. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05_lidija barjaktarovic:tipska.qxd 47 lidija barjaktarovic1, katarina djulic2, renata pindzo3, ana vjetrov4 1, 2, 4 faculty of economics, finance and administration, fefa 3 ministry of trade, tourism and telecommunication management 2016/79 analysis of the capital budgeting practices: serbian case udc: 657.31 005.22:334.7(497.11)”2015” doi: 10.7595/management.fon.2016.0009 1. introduction development of the enterprises depends on their investment policies and their actual implementation. apart from the necessary financial means, it is advisable that the company uses certain capital budgeting techniques that will reduce the possibility for accepting unprofitable projects, especially within general trend of illiquidity of the serbian economy. thus, the focus of this paper will be on the investments on firms’ level and on capital budgeting techniques that companies and their cfos (chief executive officers) apply when evaluating new projects. specifically, the aim of this paper is to determine which capital budgeting techniques are most frequently used by the firms in serbia when evaluating investment projects including various business risks (sample of 65 companies, leaders in their industries) in 2015. to gauge the investment evaluation process in serbia and assess its adequacy (in terms of companies’ characteristics), we will compare our results with the results obtained from similar surveys conducted in the united states of america (usa), canada, western europe and central and eastern europe (cee). the following hypotheses will be tested: h1: payback criterion is the dominant investment evaluation technique in serbia. h2: factors such as size and ownership may influence the choice of capital budgeting technique. h3: the capm model is not the dominant model for estimating the cost of capital in serbia. this paper will be structured as follows: within the first section we present literature review along with relevant this paper addresses two major research questions: which techniques firms in serbia use for project evaluation, and how the serbian companies calculate their cost of capital. the authors have created the questionnaire and the sample consisting of 65 companies that responded to the enquiry (out of 392) during the year 2015. the results showed that payback criterion is the most dominant capital budgeting technique used by firms in serbia. further, the results revealed that large firms as well as multinational firms are more inclined to use discounted cash flow capital budgeting techniques and other sophisticated techniques. finally, the authors have concluded that the capm is not the dominant method for calculating cost of capital by the companies from the sample analyzing the overall sample. consequently, skilled human capital, the adequate knowledge and developed procedures may contribute to accepting capital budgeting techniques such as discounted cash flow analysis and other sophisticated techniques by larger portion of the companies in serbia. finally, existence of perfect financial market is a necessary precondition for implementing all these contemporary financial concepts and its development has to be posed as one of the priorities in the years to come. keywords: capital budgeting, capital budgeting techniques, capm, ownership, size of firms. findings of similar surveys in different countries and regions. in section two, the methodology is presented, including a detailed description of our questionnaire. within the third section, the results of our survey are presented and simultaneously compared to prior research in the usa, canada, western europe and central and eastern europe. in the end, we present the conclusions. 2. literature review this paper addresses two major research questions: which techniques firms in serbia use for project evaluation, and how the serbian companies calculate their cost of capital. there was a number of surveys that examined these questions. for instance, graham et al. (2001) have found out (in the sample of 4,440 companies and 392 cfos in the usa and canada) as follows: (a) most firms within the sample use the present value techniques for evaluating new investments; (b) firms frequently use company-wide discount rates in comparison to a project-specific discount rate; (c) large firms are more inclined to use both net present value as the main capital budgeting technique and the capital asset pricing model (capm) for cost of capital in comparison to small companies. however, ignoring the company size, one general rule apply for all and that is the fact that managers should invest in every project they know to have a positive net present value /npv/ (myers et al., 1984). furthermore, danielson et al. (2006) have found out (the survey included 792 small-sized companies in usa) than many small firms evaluate new investments using the payback criterion or even the owner’s gut feel. the reason is limited education background of some owners and small staff sizes. liquidity concerns and cash flow estimation challenges are the key reasons why small companies avoid using discounted cash flow techniques to evaluate projects. once again, the results confirm that the size of the firm may influence the choice of project evaluation procedures. further, it is important to bear in mind that the capital budgeting decision process remains one of the main decision areas confronting the contemporary financial manager, since its results help influence the firm’s future opportunities (gitman et al., 1977). consequently, it stresses the importance of the usage of capital budgeting techniques in everyday activities. vijay et al. (1995) connected research results (133 large canadian companies) indicate that: (a) canadian firms most frequently used dcf methods as well. (b) sensitivity analysis represents a frequently used technique for cash flow estimation along with management subjective estimates. (c) the standard models used for calculating the cost of capital are the capm and the dividend growth model. however, the results also show that the companies are prone to rely on non-standard methods for calculating the cost of capital. brounen et al. (2004) did the same survey as graham et al., this time in europe (on a sample of 313 european cfos). the results obtained in the survey imply that that european firms are keener on using the payback criterion, in comparison to dcf (discounted cash flow) techniques such as npv or internal rate of return (irr). these results crucially differ from the results acquired by graham and harvey in the usa: a) in determining the cost of capital there are certain similarities between european firms and us companies (capm appears to be the most frequently used model for estimating the cost of capital in comparison to historical average of returns or the dividend discount model). b) furthermore, the results confirm that the firm size positively correlates with the implementation of dcf methods and the capm, i.e. larger firms are more inclined to use these techniques. , moreover, andor et al. (2011) did some research for the cee (a sample of 10 countries: bulgaria, croatia, the czech republic, hungary, latvia, lithuania, poland, romania, the slovak republic, and slovenia). the results unanimously show that within the cee region: (a) the firms’ most important goals are liquidity and stability of cash flows; (b) approximately 17% of the companies within the sample do not apply formal written capital budgeting procedures, while 61% of the respondents that implement the latter use dcf techniques (npv and irr); (c) there is a preference for the payback criterion, as in western europe; (d) the corporate finance practice is influenced by the firm size and its ownership. consequently, large firms and multinational companies are more inclined to use a dcf analysis and more sophisticated techniques in comparison to smaller companies; (e) larger companies are more frequently using the capm. finally, dedi et al. (2007) did a similar survey in croatia (a sample of 234 selected legal entities), which is 48 2016/79management 49 management 2016/79 the most similar to serbia (historically, culturally and geographically connected).the results reveal that: (a) 22 % of the firms from the examined sample most frequently use npv and irr while 24% of the companies often use irr and the payback period (similar to the results obtained in the cee region); (b) 76% of the respondents have stated that they estimate the cost of capital using some formal technique, 40% of the respondents calculate the cost of capital according to the investors’ required return, 9% use the capm, and 40% determine the cost of capital using the wacc; (c) the usage of the capm is very low (coincides with the results obtained in the cee region); (d) 81% of the companies regularly did project cash flows’ estimations, and 73% of the companies assessed the project risk; (e) 42% of the companies used a riskadjusted discount rate. in the section results we will use the presented findings of our survey and comparethem to the presented results in different countries and regions. 3. methodology the authors have created a questionnaire (based on graham and harvey survey in 2001) comprised of four sections (45 questions): capital budgeting techniques and cost of capital, capital structure and pecking order theory, dividend policy and enterprise risk management concept (erm concept). this paper focuses on two areas and hence the first section of the questionnaire (15 questions): capital budgeting techniques and the cost of capital. our sample consists of 65 companies that replied to our enquiry (out of 392) during 2015. the aim was to cover most of the industries within the country and to include as many companies as possible varying in their size and ownership. within the sample, the companies range from micro to large companies (34% micro, 20% small, 20% medium, and 26%large).1 furthermore, the analysis of the ownership shows that 40% of the companies within the sample are foreignowned firms and 60% are domestic ones. in the end, 25% of the firms in our sample are manufacturers. the non-manufacturing firms are equally distributed across other industries: financial (20%), retail and wholesale (20%), tourism and hotels (15%), telecommunication (5%), it sector (5%) and consulting companies (10%). we have analyzed responses according to the companies’ characteristics (size, ownership, industry).the period of analysis is 2015. the respondents were asked: (a) to score how often they use various capital budgeting techniques when evaluating whether they should accept or reject a project. they had to rate the frequency by using a scale of 1 to 5 (1 meaning “never”, 5 meaning “always”); (b) whether they have an investment and development policy; (c) to answer if they make business plans and if they do projections of cash flows before making an investment decision; (d) the ways of calculating the project cost of capital; (e) to rate the frequency of implementing each method (capm, discounted dividend model etc.) using the described scale of 1 to 5; (f) about measures the frequency of risk adjustments of the discount rate and cash flows. the same method is used, i.e., the cfos had to describe the frequency of taking each risk factor into consideration for cash flow and discount rate adjustments. the revew of the draft of the questionnaire was done by financial experts. the questionnaires were then sent to cfos by mail. finally the answers were processed in the spss statistical program. the results are presented in the following section. 1 according to the law on accounting and auditing, the enterprises are classified into the following categories: micro: (annual average number of employees /aane/ ≤10; annual sales /as/ ≤ rsd 84,671,000 and annual average asset value/aaav/ ≤ rsd 42,335,000); small: (10 ≤ aane≤ rsd 50;84,671,000 ≤ as≤ rsd 1,064,433,000; rsd 42,335,000 ≤aaav ≤ rsd 532,217,000); medium: (50 ≤ aane ≤ 250; rsd 1,064,433,000 ≤as≤ rsd 4,233,541,000; rsd 532,217,000 ≤aaav≤ 2,116,770,000); large: (aane≥250; as≥rsd 4,233,541,000 and aaav≥2,116,770,000); 4. results the results referring to the choice of capital budgeting techniques (h1) are summarized in figure 1. figure 1: percentage of respondents (cfos) who always or often use given capital budgeting techniques (results from the survey conveyed by the authors) as presented, most respondents, in evaluating their investment projects, use the payback period (pp) 66% of them, the profitability index (pi) is used by 52% and npv is used by 50% of the surveyed. furthermore, 34% of serbian cfos always or often use techniques such as irr. finally, the least used techniques by the respondents are the sensitivity analysis (sa), the discounted payback period (dpp) and the accounting rate of return (arr). the rare usage of more advanced methods such as sensitivity analysis may be expected in the companies in serbia. our results are most similar to the results of andor, mohanty and toth (2011) in the cee. the results indicate that the mostly used capital budgeting technique in the cee is the pp (66%), an accounting based method such as the arr (60%) and finally, discounted cash flow techniques such are the npv and the irr (52% and 50%, respectively). the reason for frequent usage of the pp criterion both in serbia and in the cee regions is its close relation to liquidity. in serbia, inefficient and poorly developed financial markets have led to less frequent usage of discounted cash flow techniques. consequently, our h1 is confirmed, regarding the pp as the most dominant capital budgeting technique used by firms in serbia. the results of testing h2 are presented in figure 2. figure 2: percentage of respondents (cfos) who always or often use given capital budgeting techniques according to firm size (results from the survey conveyed by the authors) the results clearly indicate that larger firms are more inclined to use discounted cash flow techniques (dcf) such as npv and irr in comparison with smaller firms. furthermore, larger firms are more frequently using advanced techniques such as the sa. however, the implementation of the sa technique while evaluating a 50 2016/79management project is still on a poor level in comparison with the companies in the usa and canada. the pp criterion and pi are more used in smaller companies in comparison with larger ones. the results completely coincide with the survey conducted by harvey and graham in 2001 and andor et al. (2011). furthermore, the following figure shows the influence of foreign ownership on capital budgeting technique implementation. figure 3: percentage of respondents (cfos) who always or often use given capital budgeting techniques according to the ownership (results from the survey conveyed by the authors) the results in figure 3 confirm the findings related to the prior research, which state that large firms as well as multinational firms are more inclined to use dcf capital budgeting techniques and other sophisticated techniques. furthermore, 40% of the respondents working in foreign-owned companies frequently use the sensitivity analysis when evaluating project. the latter is higher in comparison to the average usage of the sa (20%) in our sample consisting of 65 companies. if we compare the results from our survey with the surveys conducted in both the usa and the cee region, we can see that there is a similarity between the findings. finally, our h2 has been confirmed regarding the importance of factors such as size and ownership for the choice of the capital budgeting technique. the results of testing h3 are presented in figure 4. figure 4: percentage of cfos who always or often use a given method (results from the survey conducted by the authors) the next question which will be analyzed is how firms calculate the cost of capital. the results clearly show (figure 4) that the most common model used for determining the cost of capital is historical returns on prior investments (34% of the sample). the frequent usage of this technique in comparison to the others is not surprising because it is easily understood by all. however, 48% percent of the respondents stated that upon determining the discount rate for each investment, they made a difference between the risk at the company level and the risk for that particular investment. furthermore, the respondents stated that they most frequently used the cost of capital as determined by a regulatory decision (18%) and the capm (10%). however, the 51 management 2016/79 frequency of the usage of any given technique is below 50%, implying the necessity of increasing the general knowledge regarding the cost of capital, its calculation, importance etc. moreover, it is crucial to emphasize that a larger percentage of the firms within the sample are private firms and their beta could only be calculated through analyzing comparable publicly traded companies, which in serbia presents a great challenge. the capital market in serbia is not efficient and liquid in comparison with capital markets in the usa and europe, which is the key obstacle in implementing the capm in the serbian companies. our survey in serbia has similar results as: 1) dedi et.al in 2007 (sample of 45 firms in croatia). they found out that that 76% of the companies estimated their cost of capital, 40% used a cost determined by investors’ expected returns, 9% used the capm, and 40% determined the cost of capital using the wacc. further, all the companies within the sample do not use only one model for the calculation of cost of capital. additionally, the survey revealed that 81% of the companies estimate project cash flows before deciding upon rejecting or accepting the investment. in serbia, 88% of the respondents stated that they did projection of cash flows regarding particular investment, which is a necessary precondition for further deciding upon the feasibility of the investment project. 2) andor et al. in 2007 in the cee, revealed the fact that most of the companies did not actually calculate the cost of capital. instead, they were inclined to use a general discount rate. the survey revealed that 80% of the companies were using general discount rate, while small percentage of the companies used the capm (9%). finally, the results from our survey indicate that large and medium firms and foreign firms are more inclined to use the capm (17%, 15% and 14% ) in comparison with small and micro and domestic ones (6%, 5% and 7%). furthermore, the results show that large and medium companies and foreign firms are more inclined to use historical returns on investment (arithmetic average) (60%, 37% and 70%, respectively) in comparison with smaller (small and micro) and domestic companies (24%, 10% and 16%, respectively). the results from our survey are presented in figures 5 and 6. (results from the survey conducted by the authors) finally, we have concluded that capm is not the dominant method for calculating cost of capital by both analyzing the overall sample and by dividing it into small subgroups following the size and the ownership of the firms within the sample. consequently, our last hypothesis, h3 has been confirmed. 52 2016/79management figure 5: percentage of cfos who always or often use a given method according to firm size figure 6: percentage of cfos who always and often use a given method according to the ownership our research confirmed that the majority of serbian companies use the pp, pi and npv as the dominant techniques for evaluating the project. expectedly, the least used techniques are the sa, dpp and arr. the less frequent usage of dcf (h1 is confirmed) techniques results from inefficient and imperfect capital markets in serbia and the difficulty in calculating the discount rate. further, our findings indicate that large firms as well as multinational firms are more inclined to use dcf capital budgeting techniques and other sophisticated techniques in comparison with small and domestic companies. the latter confirms our h2 that factors such as size and ownership have influence on the choice of a capital budgeting technique. furthermore, the results clearly show that the capm is not a dominant model for estimating the cost of capital in serbia (h3 is confirmed). the implementation of the capm is on the third place, where only 10% of the respondents stated that conclusion references [1] andor, g., mohanty, s., & toth , t. (2011). capital budgeting practices: a survey of central and eastern european firms. world bank , january, 1 45. [2] brotherson t., eades k., harris r., higgins r. (2013), “best practices in estimating the cost of capital: an update”, journal of applied finance, v. 23, iss. 1, pp. 15-33. [3] brounen d., jong a., koedijk k. (2004), “corporate finance in europe: confronting theory with practice”, financial management, vol. 33, no. 4, pp.71-101. [4] danielson m., scott j. (2006), “the capital budgeting decisions of small businesses”, journal of applied finance v.16, iss.2, pp.45-56. [5] dedi l., orsag s. (2007), “capital budgeting practices: a survey of croatian firms”, south east european journal of economics and business, v. 2, iss. 1, pp. 59-67. [6] graham j., harvey c., (2001) “the theory and practice of corporate finance: evidence from the field”, journal of financial economics 60, pp. 187-243 [7] gitman, l.j., forrester jr., j.r., (1977). “a survey of capital budgeting techniques used by major u.s. firms”, financial management 6, 66-71. [8] haas r., peeters m.(2006), “the dynamic adjustment towards target capital structures of firms in transition economies”, economics of transition, volume 14 (1), pp. 133–169. [9] lintner, j., 1956. “distribution of incomes of corporations among dividends, retained earnings, and taxes”, american economic review 97-113. [10] moore j., reichert k. (1983), “analysis of the financial management techniques currently employed by large us companies”, journal of business finance and accounting 10, (no.4 winter), 623-645. [11] myers, s.c., majluf, n. (1984) “corporate financing and investment decisions when firms have information that investors do not have”, journal of financial economics 13, 187-224. [12] vijay j., ashwani k.(1995), “capital budgeting practices in corporate canada”, financial practice and education, v. 5, iss. 2, pp. 37-43. receieved: november 2015. accepted: march 2016. lidija barjaktarovic faculty of economics, finance and administration, fefa lidija barjaktarovic has a phd in economic sciences in the sectors of banking and finance. at the university singidunum in belgrade she teaches banking, risk management and corporate finances (from 2008). she has been head of master study programs of business economics and public sector management at the university singidunum since 2015. she had a banking career in the period from 1998 to 2008. it started in jugobanka a.d. belgrade, after which she moved to the societe general yugoslav bank a.d. belgrade, and then to raiffeisen bank a.d. belgrade in order to be promoted to the head of the regional branch central serbia. in 2005 she moves to erste bank a.d. novi sad to become a director of corporate division. at the end of 2007 the erste group appoints her member of the corporate board and corporate working group on the level of the erste holding vienna. she published more than 30 papers in relevant journals and conferences, related to the banking and competitiveness of the serbian banking sector, project finance, risk management and collection management. she took part in more than 20 projects within the bank (on local and group levels), university singidunum and serbian ministry of science and technological development. 53 management 2016/79 they used this method when calculating the cost of capital. the reason for such a limited usage of this method may be hidden in the fact that most of the companies from the sample are private firms and their betas could only be calculated through analyzing comparable publicly traded companies. however, the capital market in serbia is not as efficient and liquid as capital markets in the usa and europe, adding another obstacle in implementing the capm in serbia. acknowledgment: this research paper was part of the project “advancing serbia’s competitiveness in the process of eu accession”, no. 47028, in the period 2011-2015, financed by the serbian ministry of science and technological development. about the author 54 2016/79management katarina djulic faculty of economics, finance and administration, fefa katarina djulic is associate professor teaching the corporate finance and corporate governance courses at faculty of economics, finance and administration in belgrade. she is also a senior consultant in the kpmg, belgrade since january 2012, in charge or governance, risk and forensic projects. ms. djulic holds a bachelor of laws from the university of belgrade, a master of laws (ll.m.) from northwestern university, a master in public policy from harvard university, jfk school of government, and a phd degree from the university of belgrade, school of economics. before joining the kpmg, ms. djulic worked as project manager for the serbian and montenegrin corporate governance projects of the international finance corporation (ifc), a part of the world bank, which supports private sector sustainable development. before the ifc, ms djulic worked as a legal adviser to firms in belgrade and new york and, afterwards, at the ministry of finance of the republic of serbia, first as an adviser to the minister and then as an assistant minister in charge of the financial system division. she also worked for european bank for reconstruction and development in london in the office of general council. ms djulic was a member of the board of directors in ddor, novi sad, a member of the supervisory board in jubanka, beograd and a chairwoman of the supervisory board in central securities depositary and clearing house, the republic of serbia. renata pindžo ministry of trade, tourism and telecommunication renata pindžo, phd is assistant professor of investment management and investment decision process at the faculty of economy, finance and administration (fefa), singidunum university, belgrade. since august 2014, she has been working as assistant minister in the ministry of trade, tourism and telecommunications, in charge of the tourism sector. for a period of six years before that, she was engaged as the assistant minister in the ministry of economy and regional development and in the ministry of finance and economy. she is a member of the national council for the tourism development of the republic of serbia. ms pindžo graduated from the faculty of economics, the university of belgrade where she obtained master degree in 2003. in may 2011, she obtained her phd. her experience includes more than 13 years in management consulting and financial advisory services. she has gained knowledge by providing consulting services to many domestic and international companies, including financial institutions and local municipalities during her engagement in deloitte. also, as consultant, she was engaged in world bank`s projects related to restructuring and improving the competitiveness of serbian economy. in the economic institute, ms pindžo worked on the research and market analysis projects. she has cooperated with many international institutions (usaid, ear, ebrd, dfid and giz) on complex projects of the restructuring of the serbian economy. she is the author of numerous scientific papers. ana vjetrov faculty of economics, finance and administration, fefa avjetrov@fefa.edu.rs ana vjetrov is a phd researcher at the singidunum university, belgrade and she has been working as a teaching assistant at the faculty of economics, finance and administration (fefa) in belgrade, serbia, on the business banking and investments management modules since 2009 and on corporate finance since 2014. in addition to teaching and research, she has been involved in the organization of various conferences and was a member of the organizational board. as of recently, she is a member of lse (london school of economics) research team within the project regional support to inclusive education in south east europe with special focus on vet schools. in addition, she is involved in the tempus project related to career guidance since april 2013. furthermore, during her studies she interned at hypo alpe adria bank, kpmg belgrade (auditing and financial consulting), and banca intesa for one year (corporate and retail banking). in 2010, ms. vjetrov led the team that won the second place at the international competition organized by cfa (chartered financial analyst) in budapest on the subject of the analysis of business performance of the magyar telekom. previous to her doctoral research and teaching post, ms. vjetrov earned a master’s degree with distinction in finance and banking at the faculty of economics, finance and administration and a bachelor degree in the english language and literature, faculty of philology, belgrade university. she has participated in various international conferences and published several 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04 26_3 biljana jovkovic:tipska.qxd 35 biljana jovković, stefan vržina* university of kragujevac, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2021/26(3) * corresponding author: stefan vržina, e-mail: stefan.vrzina@kg.ac.rs research question: the paper investigates the relationship between taxation and dividend payout decisions of companies in the republic of serbia. motivation: including taxation in dividend policy discussion may allow for better understanding of decisions of companies to pay dividends. prior worldwide research results on the impact of taxation on dividend policy are inconclusive, often contradicting and cannot be universally accepted. despite abundant research in previous decades, the key drivers of dividend policy of companies are still unknown and there exists a so-called dividend puzzle. in addition, the research on dividend policy of companies in transition countries (including the republic of serbia) is relatively scarce. on the other hand, research in transition countries is important as transition countries have a significantly lower level of capital market efficiency and liquidity, having a lower number of joint stock companies and a lower number of companies that regularly pay dividends. idea: since tax burden may be a significant obstacle for companies to pay dividends, it may be relevant to research into whether corporate income tax burden has an impact on dividend payout ratio of companies, as well as the impact of dividend tax that shareholders have to pay on the dividend payout. data: the study captured 23 companies listed on the belgrade stock exchange between 2013 and 2018 that paid dividends in at least one year. in total, the research involved 92 dividend payouts. research data have been retrieved from the business registers agency of the republic of serbia. tools: research hypotheses are tested using eviews and ibm spps software. statistical methods included descriptive statistics, correlation and regression analysis, as well as non-parametric statistical tests for independent samples. findings: the analysis shows that corporate income tax does not impact a dividend payout ratio of companies, indicating that companies do not consider the corporate income tax when deciding on dividends, mostly due to the effective tax rates being considerably lower than the statutory tax rate of 15%. also, statistical tests show that the dividend tax does not impact the dividend payout ratio, as there is no significant difference in the dividend payout ratio between companies whose largest shareholder is high taxed and companies whose largest shareholder is low taxed. contribution: research results may be of interest for company management when designing the dividend policy as well as for investors when deciding on shares investment in accordance with their tax preferences. keywords: dividend, dividend policy, dividend payout ratio, corporate income tax, dividend tax. jel classification: g30, g35, h24, h25. taxation and dividend payout: the case of the republic of serbia doi: 10.7595/management.fon.2021.0016 abstract: 1. introduction the dividend policy represents an important area of modern corporate finance. contrary to the traditional dividend irrelevance theory, most managers believe that the dividend policy influences company value (baker & powell, 1999). the dividend policy problem is further complicated with cross-country differences in tax systems and different tax treatment of dividends and capital gains. in addition, the relation between dividends and share repurchase (as two alternative ways of cash distribution to shareholders, usually with different tax effects) has been analyzed in the last two decades (grullon & michaely, 2002; brown, liang & weisbenner, 2007). in the republic of serbia (rs), corporate income tax and dividend tax may be important obstacles to dividend payment – there is a double taxation system imposed since income is first taxed at the company level (corporate income tax) followed by a taxation of income portion distributed to shareholders (dividend tax). however, it is worth noting that certain groups of investors are, at least partially, exempted from dividend tax. research on dividend policy of companies in the rs is limited due to lack of stock market development. serbian capital market is also characterized by the lack of liquidity (zivkovic & minovic, 2010). considering the bankocentric financial system of the rs, the role of capital market in company financing is minor (stakic, jovancai & kapor, 2016). in addition, a number of public stock companies in the rs is continuously declining with only a few companies paying dividends regularly. the research subject of this paper is the dividend policy of companies in the rs. the objective of the research is to examine the impact of corporate income tax and dividend tax on dividend policy of companies in the rs. as a proxy for dividend policy, used in the paper is the dividend payout ratio (dpr) – relation between dividend per share and earnings per share. in line with defined research subject and objective, the following research hypotheses are tested in the paper: h1: corporate income tax expense has a statistically significant negative impact on the dpr of companies in the rs. h2: dividend tax paid has a statistically significant impact on dpr of companies in the rs. to authors’ knowledge, this is the first research in the rs that analyzes the dividend policy from the tax aspect. although numerous studies have been conducted on determinants of dividend policy in emerging markets and developing countries, the impact of taxation on dividend decisions of companies in these countries is usually not examined (for example mehta, 2012; maniagi et al., 2013; benavides, berggrun & perafan, 2016; bostanci, kadioglu & sayilgan, 2018; franc-dabrowska, madra-sawicka & ulrichs, 2020). in other words, only few studies include taxation as a potential explanatory variable of dividend payout in these countries (for example amidu & abor, 2006; singla & samanta, 2019). the research contributes to the existing foreign results (primarily from developed countries) on the impact of taxation on dividend policy. the research results may be of interest for company management when designing the dividend policy as well as for investors when deciding on shares investment in accordance with their tax preferences. besides introduction and conclusion, the paper consists of four parts. he first part presents a tax aspect of dividend policy theories. the legal aspect of dividend taxation in the rs is shown in the second part, while in the third part the relation between taxation and decision on paying dividends is analyzed. research methodology and results are presented in the fourth part. 2. theoretical background: taxation and dividend policy a number of theoretical explanations of dividend policy have been noted in the past decades. however, there are not many studies that largley deal with the impact of taxation on dividend policy. some of the first dividend policy theories have not significantly discussed thetaxation factor. the bird-in-thehand theory argues that investors prefer dividend payment to capital gains due to the uncertainty of achieving capital gains in the future. on the other hand, modigliani-miller theory says that, assuming market perfection, dividend policy does not impact company value. however, at that time, there were indications of the impact of taxation on dividend policy. thus, gordon (1959) allows the impact of different tax treatment of dividends and capital gains on investors preference to non-dividend paying companies. miller & modigliani (1961) stress that different tax treatment of dividends and capital gains is the most important market imperfection requiring further research attention. the theory of tax preferences is a theory fully based on the taxation factor. although there are important cross-country differences in tax systems, capital gains are tax-favoured compared to dividend payment in most countries. therefore, investors prefer shares of non-dividend paying companies: if capital gains tax is paid at the moment of share sale, while dividend tax is paid at the moment of dividend payment – considering time value of the money, it is possible to achieve considerable tax savings when preferring capital gains and if capital gains tax rate is lower than dividend tax rate or if it is possible to offset capital losses with capital gains. 36 biljana jovković, stefan vržina 2021/26(3) tax preferential treatment of capital gains may also favour share repurchases over dividend payments as share repurchases are taxed on the basis of capital gains realized. for instance, grullon & michaely (2002) show that share repurchases have become highly popular among us companies, since companies finance their share repurchases with funds that otherwise would have been used to dividend payments. extension of tax preference theory can be found in explanation of different clienteles, i.e., different groups of investors. the clientele effect arises as a result of market imperfections, such as taxation or transaction costs. according to tax clientele effect, high-taxed investors (investors in higher tax bracket) prefer shares of non-dividend paying companies and vice versa. some of the first authors that supported tax clientele effect with empirical evidence were litzeberger & ramaswamy (1979), chaplinsky & seyhun (1990) and alli, khan & ramirez (1993). out of the recent research, dhaliwal, erickson & trezevant (1999) analyze listed companies in the us and find that the share of low taxed investors increases in companies that declare dividend payment along with the decline of share of high taxed investors. dahlquist, robertsson & rydqvist (2014) also support tax clientele effect finding that certain groups of investors are not interested in investing in shares of swedish dividend paying companies due to unfavorable tax treatment of dividends. maier & schanz (2016) analyze taxation of dividends and capital gains in european union and conclude that capital gains are tax-favored in comparison with dividends for individual investors, while the findings are contrary for corporate investors. the catering theory is one of the most recent dividend policy theories (denis & osobov, 2008). baker & wurgler (2004) argue that managers design dividend policy in accordance with investors preferences. thus, management initiates dividend payment when investors value dividend paying companies more than nondividend paying companies. therefore, assuming rational market participants, the company pays dividends when its shareholders want it, i.e., when shareholders are low taxed. desai & jin (2011) show that rational investors pay attention to tax effects of the company dividend policy, but also that management takes into consideration tax preferences of investors when deciding on dividend payment. chetty & saez (2010) tie dividend taxation with agency theory, i.e., relation between managers and shareholders. the dividend payment reduces cash flow under management control, reducing also chances for opportunistic behaviour of managers. however, unfavorable tax treatment of dividends can induce profit retaining, which can be used by managers to undertake unprofitable investments. these authors argue that the impact of dividend taxation on such welfare loss is higher than the impact of corporate income tax. jacob & michaely (2017) conclude that taxation factor has an important impact on the company dividend policy, with the fact that such an impact declines if there are conflicts between shareholders and management or conflicts among shareholders. the key reason for the unfavorable tax treatment of dividends can be found in their double taxation. in classical double taxation systems, firstly, there is taxation of company income, followed by taxation of income portion paid as dividends to shareholders. this problem has been reduced with integrated tax systems in which double taxation is, partially or wholly, eliminated. therefore, the finding of balachandran, khan, mater & theobald (2019) that it is more probable the company will pay dividends in imputation tax system is not surprising. 3. taxation and dividend decision 3.1 corporate income tax expense and dividend payout ratio corporate income tax expense represents reduction in profit available for distribution to shareholders. according to international accounting standard 12 – income taxes, applied by public stock companies in the rs, corporate income tax expense consists of current tax expense and deferred tax expense (benefit). current tax expense refers to income tax payable for reporting period, while deferred tax expense (benefit) represents a non-cash income statement position arising as a result of temporary differences between values of assets and liabilities in financial and tax evidence as well as unused tax credits and tax losses carryforward. at the same time, corporate income tax expense offers an opportunity to managers to adjust income in line with the desired dividend policy. dhaliwal, gleason & mills (2004) note that company management can inflate deferred tax benefit in order to increase profitability and make a basis for higher dividend payment. this particularly refers to situations when the company did not achieve the target profit and misuses deferred tax to achieve it. on the other hand, deferred income tax can serve as an instrument for income smoothing (frank & rego, 2006), making a base for stable dividend policy. 37 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) corporate income tax burden is usually proxied with effective tax rates. using income statement data, it is possible to calculate two effective tax rates, defined by hanlon & heitzman (2010): accounting tax rate (corporate income tax expense divided by pre-tax income) and current tax rate (current tax expense divided by pre-tax income). since corporate income tax expense is a negative income statement item, it is rational to assume that dpr is, ceteris paribus, lower in companies with higher corporate income tax burden. however, scarce empirical research did not support such assumption – on the contrary, amidu & abor (2006) and gill, biger & tibrewala (2010) studied ghanaian and us companies, respectively, and found that dpr was significantly higher in companies with higher corporate income tax burden. singla & samanta (2019) do not find the significant impact of corporate tax expense on dividend payout of construction companies in india. such findings indicate that companies do not consider pre-tax income and corporate income tax expense, but only net income, when deciding on dividend policy. 3.2 ownership type and dividend payout ratio prior empirical research shows that ownership concentration, at least partially, influences dividend policy. harada & nguyen (2011) show that ownership concentration in japanese companies implies lower dividends, while mancinelli & ozcan (2006) find a decline in dividend payments of italian companies with increase in voting rights of the largest shareholder. on the other hand, chen, cheung, stouraitis & wong (2005) find only partial relation between concentrated ownership of family companies in hong kong and dividend payments of these companies. ownership structure can also influence dividend payments. short, zhang & keasey (2002) find positive relation between share of institutional investors in ownership and dividend payments of british companies. also, in case of british companies, khan (2006) finds positive relation between the share of insurance companies in ownership and dividend payments and negative relation between the share of individuals in ownership and dividend payments. from the tax aspect, it is important to know the tax bracket of the largest shareholder, i.e., dividend tax rate applied on the largest shareholder. according to the rs regulation, a shareholder can be, on the one side, exempt from dividend tax (in the case of resident legal entity) and, on the contrary, taxed at maximum dividend tax rate of 20% (in the case of non-resident legal entity that is resident of the country that did not sign double tax treaty with the rs). in this regard, it is rational to assume that dpr is higher whenthe largest shareholder is in lower tax bracket and vice versa. there is no significant prior research examining the relation between tax bracket of largest shareholder and dpr. however, some research may refer to tax brackets. short et al. (2002) and khan (2006) note that institutional investors are tax-favored dividend payees in great britain, so it is possible that a positive relation between the share of institutional investors in ownership and dividend payments is a result of tax factors. 4. tax treatment of dividends in the republic of serbia 4.1 legal aspect of dividend taxation dividend taxation in the rs is conducted in accordance with the double taxation system. however, details of dividend taxation depend on whether the dividend payee is individual or legal entity and whether the dividend payee is a resident or non-resident of the rs. dividends that individuals receive are taxed in accordance withthe personal income tax law (the official gazette of the rs, no. 95/2018). according to article 61, dividends that individuals receive are considered as capital income, taxed at 15% rate applied on gross dividend. in general, dividends that non-resident individuals receive are also taxed at 15% rate. however, the tax burden can be reduced if the dividend payee is a resident of the country that signed a double tax treaty with the rs. non-resident individuals have to prove residency of the country that signed the treaty in order to apply lower tax rates than those agreed upon in signed treaties. dividends that legal entities receive are taxed in accordance with corporate profit tax law (the official 38 biljana jovković, stefan vržina 2021/26(3) gazette of the rs, no. 95/2018). according to article 25, dividends that resident legal entities receive are exempt from dividend tax. in the context of non-resident legal entities as dividend payees, they are generally taxed at 20% rate applied on gross dividend. similar to taxation of non-resident individuals, tax burden can be reduced if the legal entity is resident of the country that signed a double tax treaty with the rs, assuming that the non-resident legal entity proves residency of the country that signed treaty. it is interesting to note that dividend payment to residents of tax havens is also taxed at a 20% rate. according to article 40 of the corporate profit tax law, payments to legal entities that are residents of tax havens, are taxed at a 25% rate. however, these payments do not refer to dividend payment, but to payments of royalties, interest, rent and service fees. a potential problem of such a dividend taxation system can be found in the possibility for money transfer to countries with preferential tax system (tax havens). namely, the rs has signed double tax treaties with the netherlands, luxembourg, republic of ireland and switzerland, which are countries that are considered as potential tax havens or conduit countries for money transfer to tax havens (garcia-bernardo, fichtner, takes & heemskerk, 2017). dividend tax is a kind of withholding taxes, which means that a dividend payer must calculate and pay dividend tax on behalf of a dividend payee. dividend tax is paid at the moment of net dividend payment. 4.2 comparison of tax treatment of dividends and capital gains capital gains taxation is prescribed by a similar law as dividend taxation. individuals pay capital gains tax in accordance with articles 72-80 of personal income tax law, while legal entities pay capital gains tax as part of profit taxation, in accordance with articles 27-31 of corporate profit tax law. resident investors’ capital gains are taxed at a 15% rate that is similar to general individuals dividend tax. therefore, it might be concluded that resident individual investors are indifferent to dividends or capital gains. however, they may have tax preferences to capital gains due to, at least, two reasons: tax regulation of the rs allows offsetting of capital gains with capital losses and capital loss carryforward to offset future capital gains in the period of five years (according to article 78 of the personal income tax law and article 30 of corporate profit tax law), which enables effective capital gains tax rate to be considerably reduced and capital gains tax liability arises at the moment of sale of the shares, which potentially represents significant deferral of tax liabilities – however, such argument should be considered carefully, considering a possibility of future capital gains tax rate increase. provisions on offsetting capital gains with capital losses, timing of capital gains tax payment and capital gains tax rate are similar for taxation of capital gains of resident legal entities. in general, it should mean that, primarily resident, corporate investors should have tax preferences on dividends compared to capital gains, since they are exempt from dividend tax. regarding non-resident investors, tax preferences depend on individual case. in general, both dividends and capital gains that non-residents achieve are taxed at 20% for legal entities and 15% for individuals, whereby the mentioned possibilities on payment timing and offsetting capital gains with capital losses exist. therefore, in general case, these groups of investors should tend to capital gains. however, tax preferences of nonresidents might be under influence of terms from double tax treaties that the rs signed with other countries. 5. empirical research 5.1 context analysis, methodology and sample the research in this paper captured dividends of public stock companies listed on the belgrade stock exchange, paid between 2013 and 2018. corporate income tax and dividend tax rates were constant during the observed period. an important problem lies in the fact that most of the public stock companies (even companies in the main stock indices) in the rs do not, at least sporadically, pay dividends. zakic (2016) explains this by poor shareholding culture in the rs, high ownership concentration and global economic 39 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) crisis. in addition, listed companies in the rs are significantly financed with internal funds due to undeveloped stock market and expensive bank loans (malinic, dencic-mihajlov & ljubenovic, 2013). the largest public stock company in serbia – nis, novi sad – regularly paid dividends between 2013 and 2019 with 0.25 dividend payout ratio. on the other hand, this company did not pay dividends in 2011 and 2012, partially due to pre-tax losses in previous years. a vast majority of other public stock companies did not pay dividends on regular basis. in fact, many of them opt for share repurchases due to their preferential tax treatment over dividend payments. for example, one public stock company – dijamant, zrenjanin – published over fifty reports on share repurchases in the period between 2012 and 2017. using a panel regression analysis, the paper examins the impact of corporate income tax burden (proxied with accounting effective tax rate – acetr and current effective tax rate – cuetr) on dividend policy (proxied with dividend payout ratio – dpr), controlling for some firm-specific variables. following prior research (amidu & abor, 2006; denis & osobov, 2008; gill et al., 2010; mehta, 2012), profitability (prof), leverage (debtr) and size (size) proxies as well as p/e ratio (per) as control variablesare used. some authors (mehta, 2012; maniagi, ondiek, musiega, maokomba & egessa, 2013) use liquidity as control variable assuming that companies with higher liquidity reserves pay higher dividends. in our sample, liquidity (proxied with current ratio) and leverage (proxied with debtr) appear to have a strong correlation (pearson’s r = 0.647) so liquidity is not used in order to avoid multicollinearity problems. although not tabulated, regression results do not differ significantly if debtr is substituted with current ratio in formulated research model. we have also used industry dummies (according to eurostat industry classification) to control potential industry variations in dividend payout ratio. table 1 presents definitions of employed variables. table 1: definitions of employed variables source: authors’ calculation. note: for dividend paid in year t, financial data is retrieved from financial statements for year t-1 (share market price is retrieved at the end of year t-1), since dividend in year t is paid on the basis of previous year net income. in the line with defined variables, it is possible to formulate the following regression model: dpri,t = β0 + β1etri,t + β2profi,t + β3debtri,t + β4sizei,t + β5peri,t + εi,t (1) where etr refers to acetr and cuetr. the research has used tests of equality of independent groups in order to examine whether the largest shareholder’s dividend tax bracket influences the dpr. in other words, these tests examine significance of the difference in dpr between companies whose largest shareholders are low taxed and companies whose largest shareholders are high taxed. due to the lack of normal distribution of dpr, non-parametric mannwhitney tests are used. the sample did not capture either interim dividends or dividend payments of loss companies. the final sample represents unbalanced panel data with 23 companies and 92 observations. although the number of observations is relatively small, according to tabachnick & fidell (2007, p.123), the size of the sample is appropriate for running a regression analysis. following their formula (n > 50 + 8m, where n is minimum sample size and m is a number of predictors), the minimum sample size in our paper is 90. for the purposes of mann-whitney tests, there are 16 withdrawn observations due to the unavailability of clear ownership structure. the final sample in this case contains 76 observations. furtherly, due to the lack of the data on dividend payments before 2013, it was not possible to examine whether tax rate changes in 2012 and 2013 influenced dpr. 40 biljana jovković, stefan vržina 2021/26(3) ������ �� ���������� � ����� ���� ����� ���� ���������� ����������� ��� ������ ���� ��� ��� �� ������ � ������ ����� �� �� �� ���� �������� � � !��� ������ �� � �"�� � �� ������ �� � �# ���$��� �� %����� ��� &���'((� !����� !��� �� �� ���� �������� � !��� ������ �� � ����� %����� ��� $���'((� ��)*� � ��� �� ���� ��� � ��� ��� �������+���� ��$���'((� ��,��� � #�������� ����+�+��#�+��� ��������+���� ��� -./�� !���� ���0 � ������+�+����������������+���� ��� ���� ���� %��%��� � ��������� -��� ����1 ������ ���� ��� ��� �� ������ � financial data on sampled companies and ownership structure data are retrieved from websites of the serbian business registers agency (www.apr.gov.rs) and belgrade stock exchange (www.belex.rs). 5.2 research results presentation of research results contains descriptive statistics, correlation and regression analysis as well as mann-whitney tests results. table 2 shows descriptive statistics. table 2: descriptive statistics source: authors’ calculation. note: * , **, and *** indicate significance at the 0.1, 0.05, and 0.01 levels, respectively. dpr is higher than one in seven observations, meaning that companies paid a net income plus retained earnings as dividends. only six of 23 sampled companies paid dividends in each observed year, which indicates a lack of regularity of dividend payments in the rs. acetr and cuetr are, on the average, significantly lower than statutory tax rate of 15%. acetr is negative in ten observations due to deferred tax benefit higher than current income tax and deferred tax expense combined, while in five observations was 0%. this rate was higher than 15% in 24 observations. on the other hand, cuetr was 0% in 24 observations and higher than 15% in 23 observations. there are ten observations with prof higher than 20%. sampled companies are, on the average, dominantly financed with own sources since average debtr is relatively low. in addition, size is the variable with lowest variation, while per is the variable with highest variation. table 3: correlation matrix source: authors’ calculation. note: * , **, and *** indicate significance at the 0.1, 0.05, and 0.01 levels, respectively. pearson’s correlation matrix, presented in table 3, shows that there is no significant correlation between effective tax rates (acetr or cuetr) and dpr. on the other hand, significant and high positive correlation appears between acetr and cuetr. there is no high correlation among predictors, so problems with multicollinearity are not expected. table 4 presents panel regression results with random-effects (re) regression models reported. fixedeffects regression (and, therefore, hausman test) has not been employed due to time-invariant variables in the model and near singular matrix problem. furtherly, breusch-pagan lm test showed that re regression model is more appropriate than ordinary least squares model. regression results show that formulated regression model explains the important portion of dpr variation. in addition, variance inflation factors are lower than 10 for each variable in each regression model, so multicollinearity problems are not expected. 41 management: journal of sustainable business and management solutions in emerging economies forthcoming ������� �� �� � � ���� �� �� � � ���� �� � � � �� � ��� ����� � ������� � � � ��� ���� ��� � ���� � ���� � ����� ������ �� ��� ������ ���� �� ��� ��� �� � �� ��� ���� ���� �� �� ��� ������ ������� ������� �� ��� ������ ��� �� ������ ����� ������� �� � �� ��� �� � ��� �� ������� �� ��� ������ ��� �� ������ ��� � ������ �� ��� �� ��� ����� ������ ������ ������ ���� � � ��� �� �� ���� ���� � ��� �� �� � ������ ������ ��� � � ������� �� � �� � ��� � � ��� ��� � ����� ���� ���� ������ � � � � � � ���� ������ ������ � � � � � ������ ������ ��������� ������ � � � � ����� ������ ������ � ������ ������ � � � ������ �� ������ ������� ������ ��� ������ ������ � � ����� �� ������ ������ ������ ������ �������� ������ � �� � ��������� ������ �������� �� ������ ������ ������ ������ the impact of effective tax rates on dpr is extremely weak and negative, though insignificant, implying that companies in the rs design their dividend policies regardless of the corporate income tax expense. it is possible that companies do not pay attention to corporate income tax since corporate income tax burden in sampled companies is relatively low, i.e., considerably lower than statutory tax rate. furtherly, it is clear that companies rely only on net income when designing a dividend policy. such results of regression analysis can be partially explained with the fact that there are companies that paid the equal gross dividend (zitosrem, indjija, 10 serbian dinars per share) or had the same dpr in each observed year (nis, novi sad, 0.250) regardless of the variation of effective tax rates. table 4: random-effects regression analysis results source: authors’ calculation. beta coefficients in front of parentheses, t-values in parentheses; note: * , **, and *** indicate significance at the 0.1, 0.05, and 0.01 levels, respectively. among predictors, the impact of prof on dpr is negative and statistically significant. in other words, the more profitable the company is, the dpr is lower. size does not appear to have significant impact of dpr, while the impact of debtr on dpr is significant only in first regression model. finally, per has a significant positive impact of dpr in each regression model, since companies with higher per also have higher dpr, supporting the finding of mehta (2012). the presented regression results, with some insignificant variables and contradicting to some prior research, support attitudes that dividend puzzle still represents a corporate finance mystery. despite decades of worldwide research, the dividend policy is still not well explained (baker, powell & veit, 2002), although determinants of dividend policy tend to be constant over the time (baker & powell, 2000). on the other hand, jabbouri & el attar (2018) argue that dividend policy research needs important improvements given that prior research is inconclusive, contradicting and not universally accepted. the fact that some variables do not impact the dividend policy is not surprising given an undeveloped stock market of the rs and a low number of stock companies and dividend payments. in nearly similar circumstances, mehta (2012), rehman (2012), maniagi et al. (2013) and yusof & ismail (2016) report a high number of insignificant predictors of dividend policy in the united arab emirates, pakistan, kenya and malaysia, respectively. in the next part of the research, mann-whitney tests have been conducted in order to examine whether dividend tax bracket of the largest shareholder impacts dpr. table 6 presents the results of these tests. 42 biljana jovković, stefan vržina 2021/26(3) ������� �� �� ����� �� ��������� ��������� �� � ������� �� � ������� ����� � � � ���� � � ����� � � � �� ����� ��� !!� � �� �������� !!� � � �������� "�#�� !� ���� ����� �� � �� � �������� $�%� � � �� �� �� � � � �� �� � ��� ��� !! � � ���� �� !! � � ��� �� ��&�'��( &�))*�' +�' +�' �&,�'��& �� �� � �� �-./�� !!�� �� !!��� � table 5: results of mann-whitney tests source: authors’ calculation. research results show that companies whose largest shareholders are exempt from dividend tax have higher dpr compared to companies whose largest shareholders pay dividend tax, which is in accordance with tax avoidance motive. however, this difference is not statistically significant (panel a). on the other hand, companies whose largest shareholders are low taxed have lower dpr compared to companies whose largest shareholders are high taxed, which is contrary to tax avoidance motive. however, this difference is not statistically significant either (panel b). according to mann-whitney tests, the dividend policy of the companies in the rs is independent from the dividend tax bracket of the largest shareholder. furtherly, in terms of foreign-owned companies, it is worth noting that dividends are paid only when the largest shareholder is a resident of a country that signed a double tax treaty with the rs, such as germany, slovenia and russia. due to the treaty provisions, the dividend tax rate in these observations is reduced from 20% to 5%, 10% or 15%. 43 management: journal of sustainable business and management solutions in emerging economies forthcoming ������� � ���� ������������������������������������ �������� ������ �� ������� � ����� �� ��� � ����������� �� �� ��� ���� ���������� ��� ��� ����� ���������� ��� ���������� �� ����� � ! � "# $���� ��$%�&� �$ "'� ������� � ���� ���������������������������������������� �������� ������ �� ������� � ����� �� ��� � ����������� �� �� ��� �������������� ��� ��� � ������ � '�� ���������� ��� ���������� �� ��'�� !&� #%� '(�$���� �)$�('� �$#&(� the research in this paper captured 92 dividend payments of companies listed on the belgrade stock exchange between 2013 and 2018 in order to examine whetherthe corporate income tax and the dividend tax impact the dividend policy of companies in the rs. the results of the panel regression analysis show that the corporate income tax expense (proxied with accounting and current effective tax rates) does not impact dpr. such results indicate that companies do not consider the corporate income tax a burden when deciding on dividends, mostly due to the effective tax rates being considerably lower than the statutory tax rate of 15%. these results are contrary to the results of amidu & abor (2006) and gill et al. (2010). therefore, the first research hypothesis is rejected. mann-whitney tests show that the dividend tax does not impact dpr. there is no significant difference in the dpr between companies whose largest shareholder is high taxed and companies whose shareholder is low taxed. these findings can be explained with relatively low dividend tax rates. therefore, the second research hypothesis is rejected. furtherly, the research shows that foreign-owned companies pay dividends only if the largest shareholder is a resident of the country that signed a double tax treaty with the rs. in general, taxation and other predictors explain a relatively small portion of dpr variation. this is in line with baker et al. (2002) and jabbouri & el attar (2018) about the dividend policy as a mysterious corporate finance topic. the presented research results have some limitations. first, the sample size is insufficient though it is limited with rare dividend payments in the rs. second, it is possible that the research results would be different if the number of sampled companies or sampling period is changed. finally, the financial data are retrieved from statutory financial statements – it is possible that results would be different if consolidated data were used. the future research should include other south eastern european countries in order to compare the obtained results. in addition, it is useful to examine the tax treatment of dividend payment and share repurchase along with the treatment of dividends and capital gains. acknowledgements this paper is part of the project iii 47005, financed by the ministry of education, science and technological development of the republic of serbia. conclusion references [1] alli, k., khan, q., & ramirez, g. 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(2007). using multivariate statistics, 5th edition. boston: pearson education. [42] yusof, y., & ismail, s. (2016). determinants of dividend policy of public listed companies in malaysia. review of international business and strategy, 26(1), 88-99. doi: 10.1108/ribs-02-2014-0030. [43] zakic, v. (2016). politika dividendi akcionarskih preduzeća u srbiji. finansije, 71(1-6), 79-92. [44] zivkovic, b., & minovic, j. (2010). illiquidity of frontier financial market: case of serbia. panoeconomicus, 57(3), 349-367. doi: 10.2298/pan1003349z. received: 2020-12-06 revisions requested: 2021-02-09 revised: 2021-02-14 accepted: 2021-03-23 biljana jovković university of kragujevac, faculty of economics, serbia bjovkovic@kg.ac.rs biljana jovković is an associate professor at the faculty of economics, university of kragujevac, teaching courses in auditing and accounting of financial organizations. she obrtained her phd degree in 2012 in the field of auditing of financial statements of insurance companies from the faculty of economics in kragujevac and earned his master's degree in 2007 from the faculty of economics in belgrade. she graduated in 2002 from the faculty of economics in kragujevac. she is the author or co-author of more than 30 published papers and has participated in several scientific conferences. 45 management: journal of sustainable business and management solutions in emerging economies forthcoming about the authors 46 biljana jovković, stefan vržina 2021/26(3) stefan vržina university of kragujevac, faculty of economics, serbia stefan.vrzina@kg.ac.rs stefan vržina is a research assistant at the faculty of economics, university of kragujevac, teaching courses in business finance and financial analysis and planning. he is a phd student at the faculty of economics in kragujevac. in 2017, he received his master's degree, while in 2016 he graduated from the same faculty. he is the author of several published papers and has participated in international scientific conferences. the main fields of his research interest are corporate finance, tax accounting and financial analysis. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 08_85_1 book review:tipska.qxd book review doi: 10.7595/management.fon.2020.0005 abstract: the beginning of the review of this book that came out in a year that ended with the signs of the coming tremendous, (un)expected and sadly dire consequences of the global, potentially catastrophic, pandemic of the coronavirus (covid 19), which already consumed two quarters of 2020 all around the world (affecting not only the public health of the entire planet, already showing its economic, social, environmental and cultural effects, hence its impacts on the sustainable development pillars) should certainly start with the authors’ opening of the book where they state that they are “dedicated to our awareness of interconnectedness and the hope for a better future”, as well as with the following quote by the authors’: “without hope, i fear that life loses much of its purpose and actions become meaningless. so, if the distinctive knowledge of our time – which sets us apart from previous millennia of human history – is based on the certainty of anthropogenic activities irreversibly damaging the earth’s ecosystems at an uncontrolled pace and on the dreadful consequences of this new reality for any living organism, we also need to have hope (i.e., a belief system, faith, etc.) based on something equally tangible and ‘real’”. this is especially suitable because this book is about circular economy (ce) which aims to meet the challenges set before all societies and individuals who are unfortunately continually facing a plethora of environmental problems, contradictions, risks and uncertainties associated with future challenges of global sustainable development, where the only possible way to address them is through appropriate measures for environmental protection and development of global sustainability, which may include, first and foremost, sustainable management of natural renewable and non-renewable resources and an efficient use of energy. all of the above should be understood as a precondition for fulfilling the requirement and enabling the creation of goods needed for securing and improving social and economic well-being while preserving the environmental capital of the planet if we have invested interest in preventing, as amin maalouf notes so well: creating an unsustainable state that can result in potentially irreversible threats to human societies. since the last industrial revolution, economy has been viewed as a process that involves the extraction of available natural resources through a linear model of the economy in which the main paradigm is take – make/use – dispose, which in addition to the ruthless exploitation of natural resources, increases the amount of generated waste enormously. such linear economy has put humanity at the forefront of the following global threats and their implications: • climate changes and the consequent inability to meet basic human needs with rising commodity prices. • excessive consumption of non-renewable energy sources, primarily energy, leading to inflation, economic imbalance and stalled economic development, depending on raw material supply, and rising prices of goods and services. • excessive population growth leading to an increase in the price of land and basic goods, as well as an inability to meet the basic needs of people (water and food). 76 nataša petrović 2020/25(1) book review of: strategic management and the circular economy by marcello tonelli and nicoló cristoni. new york: routledge, 2019. | series: routledge research in strategic management. 235pp isbn 9781138103634 (hardback), isbn 9781315102641 (e-book) jel classification: q01 nataša petrović* university of belgrade, faculty of organizational sciences, serbia * corresponding author: nataša petrović, e-mail: natasa.petrovic@fon.bg.ac.rs on the other side of this model is the biosphere the oldest global "enterprise" on the planet that has been operating for over 3 billion years and successfully secures its survival. the production part of this system, made up of an infinite number of plants and small algae, processes about 200 billion tons of carbon annually into organic matter, producing about 100 billion tons of oxygen and 8 x 10kwh of energy. in full analogy with natural systems, economics should start with natural raw materials and continue with processing them into products. the products then go into the use phase, after which they become waste (recyclable) and reused as raw material. such production systems are ecological systems type iii, that is, closed-loop type in which all materials are included in the roundabouts, and such systems are the basis of the idea of ce, because human enterprise, as the authors state: “can no longer rely on its traditional economic paradigm and the latter presenting the solid rationale behind what has been framed as an alternative system that ‘opens up ways to reconcile the outlook for growth and economic participation with that of environmental prudence and equity’”. bearing in mind the above, the authors, on 235 pages covering all major topics of strategic management and ce, through four sections (an overview, circular economy strategy, ce strategic management and ce @ 360°) and 13 chapters (plus index of used specific terms from the authors) focused on the following: the challenges of the produce-use-dispose model; an introduction to the circular economy; a ce framework for action; ce-enabling technologies; business models for a ce; introducing the ce strategic process; ce data collection and prioritization: firm, industry, and external levels of analysis; ce data integration; determining your preferred ce position; gap analysis, ce strategy formulation, and planning; tools for ce analysis at a micro level; tools for a ce analysis at a macro level; conclusions. in their book, the authors showed a remarkable review of the most important elements of strategic management and ce shown through a series of examples regarding: exceeding planetary natural thresholds; scarcity of raw materials and price volatility; rising middle-class population; structural inefficiencies of the current economic model; biosphere and technosphere products; technological, regulatory, and social factors; ems vs ce; ce guiding principles; ce business objectives; ce areas of intervention; digital technologies; design and engineering technologies; net-zero innovation; servitization; product life extension; product residual value recovery; organizational culture; the ce strategic process; current strategy identification; idea trees; the vrie framework; five forces, pest analysis; supporting methods for undertaking pest analysis: interviewing key personnel; pest vs five forces matrix; swot analysis; strategic quadrant; approaches to internationalization; gap analysis; formulating a ce strategy; ce strategic planning; life cycle assessment (lca); life cycle costing (lcc); material input per unit of service (mips); material flow analysis (mfa); value chain analysis (vca); environmental input–output analysis (eioa); ecological footprint (ef); environmentally weighted material consumption (emc); land and ecosystem accounts (leac); human appropriation of net primary production (hanpp); environmental impact assessment (eia) and strategic environmental assessment (sea); cost–benefit analysis (cba) and cost effectiveness analysis (cea). finally, perhaps the most interesting part of the book refers to the net-zero innovation as a brand-new business model, that significantly differs from the traditional business models where the companies value only the increase of profits and salaries above all, not taking care of their products after they have been sold. as the authors state, the ce “progressively moved from theory to practice; hence, this also implies new business models that should ensure sustainable and responsible business operations that primarily highlight and implement proactive environmental practices. one such model is net-zero innovation, which means "environmentally friendly production processes, with inputs and final products carrying a negligible or no environmental footprint, if a net positive impact on the environment is not achievable." it should be noted that the ecological footprint (ef) methodology refers to the determination of a measure that represents the needs of the human biosphere (bioavailable land and water resources) and, on the other hand, the ability of the planet's ecosystem to absorb the waste that humanity generates. last but not least, after reading this book, every one of its readers can believe that there is still hope for humanity and, as the authors tonelli and cristoni quote victor hugo's eponymous quote: "you can resist an invading army; you cannot resist an idea whose time has come” because the time has come for circular economy that reflects a good and humane relationship with planet earth. accepted: 2020-04-10 77 management: journal of sustainable business and management solutions in emerging economies 2020/25(1) 78 nataša petrović 2020/25(1) nataša petrović faculty of organizational sciences, university of belgrade, serbia e-mail: natasa.petrovic@fon.bg.ac.rs dr nataša b. petrović is a full professor at the university of belgrade faculty of organizational sciences, serbia, where she acquired her m.sc. (1999) and ph.d. (2002) degrees in environmental management. she is the founder and head of the centre for environmental management and sustainable development. the areas of her research include: environmental management, sustainable development, green marketing, environmental education and education for sustainable development, environmental risk management, sustainable energy management, circular economy. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03 26_2 paunovic:tipska.qxd 29 mihailo paunović* university of belgrade, faculty of technology and metallurgy, serbia management: journal of sustainable business and management solutions in emerging economies 2021/26(2) * corresponding author: mihailo paunović, e-mail: mpaunovic@tmf.bg.ac.rs research question: this paper investigates the impact of human capital on the financial performance within entrepreneurial firms in serbia. motivation: in today’s knowledge-based economy, human capital, as the main component of intellectual capital, represents one of the primary value drivers. the competitiveness of developed countries is based to a large extent on investments in intellectual capital. in most oecd countries, investments in intellectual capital are growing dramatically and in some cases they reach or even exceed investments in tangible assets. this paper primarily builds upon the results of pena (2002) and hormiga et al. (2011) and, as far as the author is aware, it represents one of few studies of that kind in serbia. idea: the main idea of the paper is to examine whether human capital influences the financial performance of serbian entrepreneurial firms. dependent variables are indicators of financial performance, such as roa and sales revenue. independent variables represent various elements of human capital. data: the sample consists of young serbian companies from various industries with at least three employees, founded in 2015 whose financial statements were published in 2017. out of 1,559 such companies, 151 completed the survey and participated in the research. tools: factor analysis was used and numerical variables that represent the answers to the questions about human capital were loaded into factors. those factors as independent variables were used in multiple regression analysis (ols, fgls and ordered probit). findings: it was found that elements of human capital, such as the interaction of the entrepreneurial team, social skills and tenacity, and knowledge of the entrepreneur have a positive impact on roa. the interaction of the entrepreneurial team has a positive impact on sales revenue. on the other hand, social skills and tenacity and knowledge of an entrepreneur do not have any impact on sales revenue. contribution: the paper can help entrepreneurs and company founders, as well as economic and development policy makers to better understand the importance of human capital for improving financial and overall business performance of newly created ventures. keywords: human capital, intellectual capital, financial performance, entrepreneurial firm, serbia jel classification: c31, c35, m13, o34 the impact of human capital on financial performance of entrepreneurial firms in serbia doi: 10.7595/management.fon.2020.0010 abstract: 1. introduction in today’s knowledge-based economy, human capital, as the main component of intellectual capital, represents one of the primary value drivers. the competitiveness of developed countries is based to a large extent on investments in intellectual capital. the importance of intellectual capital is emphasised by the fact that in 2015 the share of intangible assets in the market capitalization of s&p 500 was 84%, which represents an increase by four percentage points in comparison with the period of 10 previous years (ocean tomo, 2017). in a large number of oecd countries, investments in intellectual capital are growing strikingly and in some cases they reach or even exceed investments in tangible assets. the rise of global competition, icts, new business models, and the growing importance of the service sector are the causes of an increased importance of intellectual capital to companies, industries, and national economies (oecd, 2011, p. 1). the subject of the paper is the analysis of the impact of human capital on financial performance of entrepreneurial firms in serbia. although there are various definitions of entrepreneurial firms, all of those firms are considered to be young and newly founded start-ups. for example, in one of the most prominent studies in this field whose results are published in the global entrepreneurship monitor global report (global entrepreneurship monitor, 2018. p. 21), businesses that are less than 42 months old are regarded as entrepreneurial firms. in accordance with that and due to the data availability, in this research entrepreneurial firms are defined as young serbian companies from various industries that were founded in 2015 and that published their financial statements in 2017. there are various definitions of intellectual capital in the literature. what is common to all of them is that intellectual capital represents a combination of immaterial resources such as knowledge, know-how, skills, data bases, organizational structure, procedures, corporate culture, values, relationships with buyers and suppliers, and firm’s reputation. in most definitions it is stated that intellectual capital is a non-monetary asset without physical substance, however, it has value or it can generate future benefits (choong, 2008, p. 613). there are also various categorizations of intellectual capital; one that is most widely used in the literature divides intellectual capital into three categories: human capital, structural capital, and relational capital. this classification was made within the project measuring intangibles to understand and improve innovation management meritum (2002). the paper focuses on human capital. since the subject of this research is entrepreneurial firms, human capital consists of the elements such as the entrepreneur’s knowledge, motivation, commitment, tenacity, social skills, and the interaction of the entrepreneurial team. financial performance indicators that are used in the research are return on assets (roa) and sales revenue. since this research focuses on young companies that were founded in 2015 only accounting performance indicators were used. the performance indicators such as economic value added (eva) and cash flow return on investments (cfroi) were not used since they require calculation of the cost of equity which is impossible to obtain in this case. the paper is organized into six sections. section 1 is an introduction. section 2 presents the literature review on the topic of intellectual capital and business performance. section 3 explains research methodology, which includes the development of research hypotheses, identification and description of the variables used in this empirical study. section 4 describes the sample. section 5 presents empirical findings. finally, section 6 contains concluding remarks, limitations, and recommendations for future research. 2. literature review there is a small number of studies about the impact of human capital (and more generally intellectual capital) on the performance of entrepreneurial firms. pena (2002) analysed the extent to which intellectual capital assets are associated with business start-up success in spain. the author shows that human capital of the entrepreneur, organizational capital, and relational capital are important intangible assets that are related positively to venture performance. the author points out that entrepreneurs who have a college degree, prior managerial experience and who are highly committed to start a new venture are more likely to create a successful company. hormiga et al. (2011) analysed the influence of intellectual capital on the success of newly created ventures. the sample consisted of 130 new companies registered in the canary islands that were between 3 and 42 months old. the results of this research indicate that human and relational capital play an important role in the development of new companies, while the structural capital is less important. the elements of human capital that are in positive correlation with the success of newly-created firms are the interaction of the entrepreneurial team, entrepreneur’s knowledge, resolve and commitment to the firm, while entrepreneur’s extrinsic motivation turns out to be negatively correlated with the success of newlycreated firms. ramos-rodriguez et al. (2010) analysed the influence of intellectual and social capital on individuals’ ability to recognize new business opportunities in the area of their residence. the study took place in spain and the results indicated that individuals’ access to the external knowledge gained through the social networks is the most important for developing the capacity to recognize good business opportunities. matricano (2016) investigated the impact of intellectual capital on start-up expectations of aspiring entrepreneurs in italy during the period of 2005-2010. the results of his study indicate that over the years 2005-2009 human, structural and relational capital affected start-up expectations. in 2010 human and relational capital affected startup expectations, while the results for structural capital were not statistically significant. khan at al. (2019) analysed whether intellectual capital affects venture creation decisions in india. their results outline that the components of intellectual capital, such as knowledge, skills and educational level of the entrepreneur, entrepreneurial opportunities, connections with other entrepreneurs and business angels, have a significant and positive impact on venture creation decisions. 30 mihailo paunović 2021/26(2) ugalde-binda et al. (2014) examined the influence of intellectual capital and personal characteristics of entrepreneurs on innovation results in costa rica. using the case study, the authors concluded that human capital and the characteristics of an entrepreneur have a significant impact on the firms’ results. petrova galabova (2014) studied whether entrepreneurial firms in bulgaria recognized and managed their intangible assets. based on the results of three case studies, the author concludes that entrepreneurial firms that participated in the study recognize their intellectual capital through its three components. human capital is the most widely acknowledged capital compared to structural and relational capital. unger et al. (2011) analysed the results of 70 research studies on human capital and entrepreneurial success. the authors concluded that there is a certain, however, significant relationship between human capital and success. moreover, they found that human capital is most important if it is task-related and if it consists of the outcomes of human capital investments (knowledge and skills) rather than human capital investments (education and experience). tovstiga & tulugurova (2007) investigated the impact of intellectual capital on enterprise performance in small innovative enterprises in the st petersburg region in russia. the results indicate that intellectual capital, particularly structural and human capital, is considered by russian managers to be a primary determinant of enterprise performance. zeghal & maaloul (2010) analysed the impact of intellectual capital on the firm’s economic, financial, and stock market performance. the sample consisted of 300 uk companies divided into three groups of industries: high-tech, traditional, and services. the results of this study reveal that companies’ ic has a positive impact on economic and financial performance. the authors also found that capital employed remained a major determinant of financial and stock market performance even though it had a negative impact on economic performance. as far as the author is aware, there are only few studies about the influence of human capital on the performance of serbian entrepreneurial firms. simic & slavkovic (2019) examined the relationship between human capital and innovativeness of entrepreneurial firms in serbia. the sample consisted of 121 entrepreneurs who have started their business in the last five years. human capital included elements such as entrepreneurs' education, entrepreneurs' previous experience and entrepreneurial self-efficacy. the authors concluded that education and self-efficacy had a positive impact on innovativeness, while the results for entrepreneurs' previous experience were not statistically significant. simic & ognjanovic (2019) analysed the impact of human capital efficiency (hce) on the performance of new ventures in serbia. the sample consisted of 29 companies nominated for the “entrepreneur of the 2016 year” award. the performance measures included net profit, roa, employee productivity and profitability. the results indicate that hce has a positive impact on all four performance indicators. janosevic & dzenopoljac (2012) examined the impact of intellectual capital on the performance of 300 largest serbian exporters. the results indicate that intellectual capital and its components do not have any influence on the firms’ export performance, such as export volume and export volume per employee. however, the authors found a positive relationship between intellectual capital and firms’ financial performance. they found that human capital has a positive impact on roa and employee productivity. janosevic at al. (2013) analysed the impact of intellectual capital on the financial performance of 100 serbian companies within the real sector that had achieved the highest profits in 2010. the authors found that human capital had affected roe and roa. on the other hand, other measures of financial performance, such as net profit, operating profit and operating revenue were not a consequence of an efficient use of human capital and intellectual capital in general. komnenic & pokrajcic (2012) analysed the impact of intellectual capital on corporate performance of 37 multinational companies that established their business in serbia from 2006 to 2008. the results of this study reveal that human capital has a positive impact on roa, roe and productivity, while structural capital shows a statistically significant and positive relationship only with roe. janosevic & dzenopoljac (2015) evaluated the impact of intellectual capital on market and financial performance of companies listed on the belgrade stock exchange during the period of 2010-2014. the sample consisted of 42 companies that made the belexline index. according to the research results, human capital, as a component of intellectual capital, positively affects financial and market performance of companies. komnenic et al. (2011) analysed the impact of intellectual capital on corporate performance of serbian banks. the sample included 24 banks which had consistency in producing positive value-added amount during the period of 2005-2008. the authors used roa, roe and productivity (asset turnover) as performance indicators. the results point out that human capital has a positive impact on all three performance measures. a similar study, conducted by bontis et al. (2013), examined the impact of intellectual capital on corporate performance of serbian banks during the period of 2008-2011. in this study, the sample consisted of 33 commercial banks, which was the total number of banks operating in serbia during the observed period. the performance measures included profitability, total assets, roa, roe, and employee productivity. the results demonstrate that human capital significantly affects only employee productivity. 31 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) bontis et al. (2015) measured the impact of physical, financial, and intellectual capital on financial performance in serbian hotel industry. the results of this study reveal that the financial performance of hotels in serbia remains predominantly influenced by an efficient use of physical capital. human capital, as a component of intellectual capital, has a positive impact on profitability and a negative impact on employee productivity. dzenopoljac et al. (2016) explored the impact of intellectual capital on financial performance of serbian ict companies. the analysis included 13,989 companies during the period of 2009-2013. the performance measures included roe, roa, roic, profitability, and asset turnover. the results of the study indicate that intellectual capital does not have a significant effect on financial performance. human capital had a positive impact regarding roic. djekic (2015) analysed the level of human capital development in serbia using the human capital index from human capital report of the world economic forum. the results indicate that the human capital in serbia is at a low level. the author concludes that the improvement of human capital requires a better socioeconomic environment, employment growth as well as a reform of education, health and labour markets. in many research studies and especially in those that were done on serbia, the indisputable influence of human capital and intellectual capital in general was not confirmed. one explanation for that is the fact that intellectual capital is not always a critical factor for success and the effects of intellectual capital cannot be achieved automatically (janosevic & dzenopoljac, 2016, p. 191). bearing that in mind, along with the idea that human capital should be of paramount importance in the first few years of life of newly founded companies, the following two hypotheses were proposed: h1: entrepreneurial firms that have greater human capital tend to have higher roa h2: entrepreneurial firms that have greater human capital tend to have higher sales revenue 3. research methodology the data about entrepreneurial firms were obtained through the questionnaire that had been sent to them as well as from their annual financial statements that were publicly available. research hypotheses were tested through multiple regression analysis in which the dependent variables are the indicators of financial performance, such as roa and sales revenue. independent variables represent various elements of human capital, but their exact number was determined after conducting the factor analysis. besides the independent variables, two control variables were used: the number of employees as the indicator of firm size and the type of industry (manufacturing, trade, services related to manufacturing and other services). in the multiple regression analysis, manufacturing companies were chosen as a base group and dummy variables were created for trade and service companies. in this research, the companies from the manufacturing and construction sections of statistical classification of economic activities in the european community nace rev. 2. (eurostat, 2008) were classified as manufacturing companies. the companies from the wholesale and retail trade; repair of motor vehicles and motorcycles sections were classified as trade companies. companies from transportation and storage, information and communication, and professional, scientific and technical activities were classified as companies that provide services related to manufacturing. finally, the companies from accommodation and food service activities, administrative and support service activities, financial and insurance activities, real estate activities, education, human health and social work activities, arts, entertainment and recreation and other service activities were classified as companies that provide other services. the data on financial performance indicators were obtained from the companies’ annual financial statements for the year 2017. sales revenue was taken directly from the companies’ income statements, while roa was calculated as the ratio of the company’s operating profit to the average value of the company’s total assets. in the literature, return on equity (roe), which represents the ratio of company’s net profit to the average value of equity, is often used as the indicator of financial performance as well. however, in this research roe was not used because the data necessary for its calculation turned out to be unreliable. a large number of companies in the sample had a negligibly small amount of equity (almost equal to zero). consequently, a number of companies had low amounts of net profit, yet extremely high values of roe. the data on human capital were obtained through the questionnaire in which the respondents received two sets of questions. in the first set of questions, the respondents were asked to assess various statements on a five-point likert scale (1-strongly disagree, 5-strongly agree). in the second one, the respondents were asked to write a certain number, for example, the length of work experience at the time their company was 32 mihailo paunović 2021/26(2) founded. since the data obtained in this way were not in the standardized form, they had to be converted into the values that range from 1 to 5 so that they could be comparable with the data from likert scale. the data were standardized using the min-max transformation, which was also used by the world economic forum (2017, p. 323). according to pena (2002) and hormiga et al. (2011), human capital is divided into five elements: (1) knowledge of the entrepreneur, (2) motivation, (3) commitment and tenacity, (4) social skills and (5) interaction of the entrepreneurial team. knowledge of the entrepreneur represents a key resource of a newly founded firm. it can be measured based on the entrepreneur’s level of education and prior work experience. in accordance with that and similarly to pena (2002, p. 184), the questionnaire contains four questions that are designed to measure entrepreneur’s knowledge. hormiga et al. (2011, p. 75) assert that entrepreneurs who are driven by intrinsic motivation are more successful than those driven by extrinsic motivation. entrepreneurs driven by intrinsic motivation usually establish their companies to put personal ideas into practice or to be independent and their own bosses. conversely, the main reason why entrepreneurs driven by extrinsic motivation establish their companies is the impossibility of finding a job. accordingly, the questionnaire contains three questions with the aim of measuring entrepreneur’s intrinsic and extrinsic motivation. since processes and routines are rarely developed in new companies, entrepreneurs have to make a greater effort to overcome that deficiency. because of that, commitment and tenacity of the entrepreneur represent important elements of human capital. commitment was measured based on the number of hours an entrepreneur spends working in his/her company per week and the percentage of the initial capital invested in the new company and originating from the savings of the entrepreneur. this method for measuring commitment was also used by pena (2002, p. 197). for measuring entrepreneur’s tenacity, two questions were formulated like those proposed by baum & locke (2004, p. 593). baron & markman (2003) indicate that two social skills, namely social perception and social adaptability, contribute to the success of new companies. they define social perception as the accuracy in perceiving others and social adaptability as the ability to adapt to a wide range of social situations (p. 42). the authors used five questions to measure social perception and five questions to measure social adaptability. out of those ten questions, four questions were taken and adopted for this research; two questions for measuring social perception and two questions for measuring social adaptability. companies are usually created by more than one individual and, for that reason, the interaction within the entrepreneurial team represents an important element of human capital. lechler (2001, pp. 270-271) indicates that healthy interaction among team members characterized by communication, coordination and cohesion is an important factor of a new venture success. out of 16 questions used by the author, five questions were taken and adopted for measuring the interaction within the entrepreneurial team. 4. sample description in 2015, 8,180 new companies were founded in serbia, but at the end of 2017, 7,197 companies survived, indicating that survival rate was 88% (cokorilo at al., 2018, p. 4). out of the total number of the companies that survived, 4,966 filed valid financial statements for the year 2017. the sample consists of young serbian companies from various industries with at least three employees. the companies were founded in 2015 and their financial statements were published in 2017. there are 1,559 such companies and they are presented in table 1. the reason why companies with less than three employees were excluded from the sample is that a large number of them had incomplete financial statements. moreover, many companies with one or two employees had financial statements that seemed inconsistent. for example, some of them reported large operating profit and small (almost equal to zero), yet positive net profit. the questionnaire was tested prior to being sent to entrepreneurs. the author asked several entrepreneurs to fill in the questionnaire and express their opinion about the questions and the structure of the questionnaire. the final version of the questionnaire was sent via email to the founders/entrepreneurs of the companies that were included in the sample. the author managed to find 1,164 email addresses to which the questionnaire was sent. the email contained a cover letter and the questionnaire in the attachment. there were four reminders along with the process of data collection lasting from december 2018 until april 2019. 33 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) in the end, 198 entrepreneurs completed the survey, which means that the response rate was 17%. out of 198 questionnaires that were received, 47 had to be excluded from further analysis. first of all, the companies whose owners did not answer a large number of questions were excluded from the research. if an entrepreneur skipped one or two questions, the sample mean values were added instead of the answers. afterwards, the answers of the entrepreneurs were matched with the companies’ financial statements. the companies which reported net loss above the value of their equity were excluded from the sample as well. the final number of companies that participated in the analysis was 151. table 1: companies that took part in the study 133 micro companies and 18 small companies participated in the research. most of the companies are from belgrade (38%) and novi sad (11%). table 2 shows the descriptive statistics for the companies included in the sample for the year 2017. table 2: descriptive statistics of the companies included in the sample for the year 2017 it is obvious that standard deviation and the range (the difference between the highest and the lowest value) are much higher in case of roe in comparison with roa. moreover, the mean and the median of roe seem to be at unrealistically high level. for all those reasons, roe could not be used as the indicator of financial performance in this research. 5. results and discussion as noted above, the data on human capital were obtained through the questionnaire while the data on financial performance indicators were retrieved from the companies’ annual financial statements for the year 2017. after the data on human capital were collected, the answers from the entrepreneurs were transformed 34 mihailo paunović 2021/26(2) ������� ���� � ������ � � � � �� ��� ���� ���� ��� ��� �� ��� ������� � ��� ��� ���� ���� ��� ���� ���������� � ��� ���� ��� ��� ��� �� ���� � � �!� �� ��� ��������������������� �������� ���� ���� ��� ���� "� �������� ������� �� #�� ���� ���� ��� ��� �� ��� ��� ����!����� ��������������� ���� ��� �� ��� ���"� ��#�� ������� �##�� �� ��� ���� ��� ��� ��� ���$�� ��� ����%�� ��� ������� �� ������ ����� � & � ��� ���� ���� ��� ���� $� %�&�� �������� � ! �'� �� �� ���' �##���� ������� �������& ��� � & � ��� ���� ���� (� ��� ���'�# � ����� &��������!!�������& ��� � & � ��� ��� ��� �� ��� ���) ��� ������� ������ ��� � & � ��� ��� ��� �� ��� ���*������������ � & � ��� ��� ��� �� ��� ���+�� �� ��� ��� ��� �� ��� ���,�#���������������� ���-��.�� � & � ��� ��� ��� �� ��� ���'���%�������� �#���������� ���� ��� ��� ��� �� ��� ���/��������& ��� � & � ��� ��� ��� �� ��� ���� (��) ''� � ''� �� ���� ���� ��� �� � �������� � ���� ������� �������� ������ �������� ������� ������� ������� !���� "�!��# ��� ������� �������� $������� ������� ���� ������ ������ %���!��# ��� ������� �������� $������� ������� ���� ������ ������ � &� $��'� ���'� ��'� ��'� ��'� � (� $��'� ���'� ��'� ��'� ��'� %�)*����#��)!��+���� �� ���� �� �� ��� into numerical variables and a factor analysis was conducted. numerical variables that represent the answers to the questions regarding human capital were loaded into factors. those factors represent independent variables used in the multiple regression analysis. a factor analysis was performed using spss, while a multiple regression analysis was carried out using stata. 5.1. factor analysis the questions regarding human capital were divided into five groups in accordance with the elements of human capital: (1) knowledge of the entrepreneur, (2) motivation, (3) commitment and tenacity, (4) social skills, and (5) interaction of the entrepreneurial team. the tables 3-7 show the percentage structure of the answers to the questions in which the respondents were asked to assess various statements on a five-point likert scale (1-strongly disagree, 5-strongly agree). for the questions in which the respondents were asked to write a certain number, descriptive statistics for the answers was presented. table 3: descriptive statistics and percentage structure of the answers to the questions on entrepreneur’s motivation table 4: percentage structure of the answers to the questions on entrepreneur’s motivation table 5: descriptive statistics and percentage structure of the answers to the questions on entrepreneur’s commitment and tenacity 35 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) ������� � �� � � ������������ ��� ��� �� � �� �������� ���� ������� ������ �� ������������ ������ ����� ��� ����������� ����� ��� �� ��� ��� ��� � � ������� ���� ������� ������ �� ���� � �� �������� ���� ���������� ��������� ������ �������� ����������� ����� ��� �� ��� �� !� !� "������� ���� ������� ������ �� ���� �� #� � ��������� ������ ����� ������ �������� ����������� ����� ��� �� "�� "� �� $� ���%���� ������������������� ����� ��� �� � ��� ��� ����������&�'����� � �����������# ��(� '��#�� ���������# ��(�"'�����#����# ��(��'� ��� ����� ��# ��(��')*��� �+�,���# ��-�� � � � � � � �� ��./� "��!/� �"�0/� ".�./� ���0/� "�"$� ����� ���������� � � � � �� �������� � ���� ����� ������������� �������� � ���� ��������� ������� ���� � ���� �� ���� ������ ����������������������� ��� � !�! � "��# � ���� � !��$ � $��%� ��"&� "������� � ���� ����� ������������� �������� � ���� ��������� ������� � ��� ��������������� � ���������������� #�! � '�# � "��# � ""�% � $$�� � $�'�"� ��"#�� $������� � ���� ����� ������������� �������� � ���� ��������� ������� � ��� ���� ���������� �� ��� ���� ���� � ������ ��# � "�% � �%�( � "��# � %$�� � !�"#�� (�#'$� ���������� �� �� � � �������� ���� ����������������� ������� � ��� ���� ��� �� ���� ��� �� ���� ��� ��� ��� ����� ������� � ���� ��������� �!��� ��� "�� ��� "������� ������ �� ����� "�� �� ����� �� ���� ���� #�� ��� �������� � � � � � � ���$�� ���� ��� �� ����������� �$���������������� �������� ��������% ����� ���&� ���&� '�'&� ���(&� �#��&� ���(� ��#(� ���$��� �� ����������� ���� ����)�������� ���� � ���������� ���� ����������� ���&� ��(&� ���'&� �'�'&� ����&� ���'� ��#(� table 6: percentage structure of the answers to the questions on entrepreneur’s social skills table 7: percentage structure of the answers to the questions on the interaction of the entrepreneurial team based on the answers to the questions about entrepreneur’s knowledge, it can be concluded that the entrepreneurs had, on average, 14 years of work experience when they established their companies, one half of them having more than 10 years of work experience. they had on average 8 years of work experience in related business activities and 5 years of work experience in managerial positions at the time they founded their companies. one half of them have a university degree. the entrepreneurs work 45 hours per week on average in their companies and one half of them work more than 50 hours per week. in more than one half of the companies, the initial capital comes exclusively from the entrepreneurs’ personal savings. regarding the answers to the questions about entrepreneur’s motivation, the majority of the respondents stated that the main reasons why they established a company are that they were not able to find a good job, they wanted to be independent and their own bosses and to put their personal ideas into practice. the question regarding the inability of finding a good job is the only question where 1 represents the highest performance and 5 the lowest performance. bearing that in mind, these answers suggest that a certain number of the respondents did not read the questions carefully. as a result, the answers to the question about the inability of finding a good job had very low correlation with the answers to the other two questions. for that reason, the question about the inability of finding a good job was excluded from the analysis. the answers to the other two questions were then loaded into one factor. however, it turned out that the individual kaiser-meyer-olkin (kmo) statistics for one variable (question) was below the minimum acceptable value of 0.5. in addition, the cronbach’s alpha for the factor motivation was 0.5 which indicates that those two questions are not reliable measures of entrepreneur’s motivation. consequently, all the questions about entrepreneur’s motivation had to be excluded from further analysis. the answers to the questions about tenacity, social skills, and the interaction within the entrepreneurial team suggest that a certain level of bias existed when the respondents were filling in the questionnaire. most of them tended to evaluate their human capital slightly better than it actually was. in fact, in most cases the respondents chose numbers 4 (agree) or 5 (strongly agree). 36 mihailo paunović 2021/26(2) ������� ��� �� �� �� � �� �� �� ��� ��������� �� � ���� �� � � �� ���� ����� ����� ������ ������ ������ ����� ����� ��������� ������ ��� ���������� ����������� �� � ��� �� � �!���� ����� ����� ������ ������ �"���� ����� ��"�� ����������#� �� ����$������$�����������!�������� ����� ����� ������ ������ ������ ����� ��"�� �������������������$��$ �� � � � �%��� � � � ���� #� � ���&������!�#�'��� '���������������!�(��� ����� ����� ����� ������ ������ ����� ��"�� �������� �� ����������� ������ �������� �� �� �� �� �� �� ��� ������� � �� ���������������� �� ���������� ����� � ������ ������������� ����� ����� ������ ������ ��� �� ����� ���!� ���"��#� ��� ������ ������ ������������������� ��� ������������������� � ������� ���������$���%� � ��������� �&������������������������������������'�� ����� ��!�� ������ �!���� ���!�� ��!�� ���(� ���"���� ������ ������ �����������)����#������&���� ������ ����)�������������*�$������ ����� ���&����� ����� ��!�� ������ � �� ������ ��!�� ��!�� ��+�������� ������ �$��&�� �� ������ ������� ��������$��������,����� ���� ����� ����� ������ ����� ��� �� ���� ��!�� ���-��������� ����&��������������� �� �� ������� � � ������ ���&���� ������ ������ ������������� ����� ����� ������ ����� ������ ��! � ��!�� besides the questions related to motivation, three more questions were excluded from further analysis because the answers to them had very low correlation with the answers to the other questions. these questions are: (1) how many hours per week do you work on average in your company, (2) what percentage of the company’s initial capital comes from your personal savings, and (3) the level of your education on a scale of 1 to 5. after all those questions had been excluded, the sampling adequacy was tested using the kmo test. the kmo statistic was 0.744 which is, according to field (2009, p. 647), regarded as good. all kmo values for individual items were also above the minimum acceptable value of 0.5 (the lowest value was 0.585). based on that, it can be concluded that the sample is adequate for the analysis. bartlett’s test of sphericity 2 (91) =761.999, p=0.000, indicated that the correlations between items were sufficiently large for factor analysis. factor analysis was performed and three factors were extracted. table 8 shows eigenvalues of extracted factors and the percentage of variance explained by each factor. table 8: eigenvalues and total variance explained according to kaiser’s criterion, four factors should be extracted and by jolliffe’s criterion it was 6 factors. kaiser’s criterion suggests retaining all the factors with eigenvalues higher than 1, while according to jolliffe’s criterion, the factors with eigenvalues higher than 0.7 should be retained (field, 2009, pp. 640-641). by looking at the scree plot, which represents a graph of each eigenvalue (y-axis) against the factor with which it is associated (x-axis), it can be seen that the curve has two points of inflexion. the first inflexion point occurs at the third factor and the second one at the fourth factor, which means that, according to this criterion, two or three factors should be extracted. figure 1: scree plot 37 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) ������� �� ��� ���� ��� �� ���������� ��� ����������� ��� ����� �� ������������ � �� ������ ��� ��� ����� �� ������������ � �� ������ ��� �� ������ ��� �� ��� �� ����� ���� � ���� � �� ���� � � � �� ������ ������ ��� �� ���� � � ���� � � �� � �� � ��� �� � ���� �� � � when four factors were extracted based on kaiser’s criterion, it was difficult to identify common themes among the questions that were loaded into the same factor and label the factors. when more than four factors were extracted, the results were even worse. the questions were loaded into factors without any order. therefore, the solution offered by scree plot was accepted and three factors were retained: (1) interaction of the entrepreneurial team, (2) social skills and tenacity, and (3) knowledge of the entrepreneur. those three factors in combination explain 55.47% of the variance. as a rotation method, orthogonal rotation (varimax) was used. table 9 shows factor loadings larger than 0.4 for the extracted factors after rotation. the variables are listed in the order of the size of their factor loadings, so the structure of the retained factors can be seen clearly. the factor scores were calculated based on anderson-rubin method. table 9: factor loadings after rotation all three factors have high reliabilities. cronbach’s alpha is higher than 0.7 for each factor, which is considered acceptable. based on that, it can be concluded that the interaction within the entrepreneurial team, the social skills, and tenacity and knowledge of the entrepreneur are reliable measures of human capital. table 10: cronbach's alpha 38 mihailo paunović 2021/26(2) ������� ���� ��� � � � �������� �� ��� �� ������������ ��� ����� ������� � ��� �������������� ������������������ �� �������� � � �������� �������� ��� ����� ���� ������ �� �� � ��� ���� ��� ���������������������� ���������������� �������������� ��� !� �� �� �������� �� ���� � �� ���������"� �� �� ���� �� ����� ��#�� � � ��� �������������� ��������� ��!�$� �� �� % �� �#� ��� �������������� �������������������� �� # ���� �� � �"�� ���&��"�������������' ��� ���� � ��� � � � ��� ��� & � ��� ���� ������ ��(�� ���$�� �� �� )&��"�� ������ ��� �������"� ���#������ ��� �������������� ��� ������ ����!� �� �� * � ����� �������� ����� �"� ��������� ����� � ����� ���������� �� ��!+�� �� ��� �� ����� �� ��� ���� ���� �������&���� ��� � ����� �� �� ���� �������� �� ��!++� �� ������� ��� �����"�� ����� ����������&������ � �� ���� ��� � ���� �&��,� ���� �� ��!��� �� ��������� ������ ��� # ��� ���� ������ �� ���� ������& ����� �� ����-� �� ��������������� �"�� ���"�� � ���� ���� ���� �� ��+ !� �� ������������ ���"��"��� ���� ����'� ��� ������ ��� �������� ����#� �������#�� ��� � ���������(��� �� ��.�+� �� /� ����#�� ��� �� ������������� 0 �����"�"����� ��� �������� ������ ��" �� �&��� ���" �� ������ � ���" ���� ����"1� �� �� ������ 0 �����"�"����� ��� �������� ����� ������������� ����� ��� & � ���� ��" �� �&��� ���" �������� � ���" ���� ����"1� �� �� ��!$�� 0 �����"�"����� ��� �������� ����� ������#�� ���� � � ��� � ��" �� �&��� ���" �������� � ���" ���� ����"1� �� �� ��!+�� ������� ������ �� ��� � �������� �� ����������� ������ �������� ������ � � ����� ������������� ��� ������ �� ������� ���������� ������� ������ 5.2. multiple regression analysis table 11 shows the results of the multiple regression analysis in which dependent variable is roa. p-values are shown in parentheses below the coefficient estimates. the results that are significant at the 10% level are bolded. table 11: the impact of human capital on roa in models 1, 2 and 4, the ordinary least squares (ols) method with heteroscedasticity-robust standard errors was used. in all three models heteroscedasticity was found, therefore, standard errors had to be corrected. in models 3 and 5, the feasible generalized least squares (fgls) method was used. according to wooldridge (2016, p. 260), the fgls estimator is not unbiased, but it is consistent and asymptotically more efficient in comparison with ols. model 1 contains only control variables as independent variables. a dependent variable is the natural logarithm of the roa. since some companies had negative roas and the log cannot be used if a variable takes zero or negative values, a constant was added to all variables before the roa was transformed. variables number of employees (p=0.033) and services related to manufacturing (p=0.000) are statistically significant. the companies with more employees have a slightly higher roa than the companies with fewer employees. the companies that provide services related to manufacturing have a 7.35% higher roa on average in comparison with manufacturing companies with the same number of employees. there is no significant difference in terms of the roa between manufacturing companies, trade companies and companies that provide other services with the same number of employees. control variables together explain about 22.15% of the variation in the roa in the sample. model 2 contains the elements of human capital and control variables as independent variables. the dependent variable is the roa. in this model, none of the variables that represent the elements of human capital is statistically significant. independent variables together explain about 23.66% of the variation in the roa in the sample. model 3 contains the elements of human capital and control variables as independent variables. dependent variable is also the roa, and the fgls method was used in this model. variables interaction of the entrepreneurial team (p=0.050) and social skills and tenacity (p=0.031), as the elements of human capital, are statistically significant and have a positive impact on the roa. the magnitude of the impact cannot be estimated because the model indicates how much the roa will increase if an element of human capital increases by 1, which is difficult to interpret. nonetheless, a positive impact of human capital on the roa is indisputable. independent variables together explain about 14.56% of the variation in the roa. 39 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) ���� ��� ��� ��� ��� ��� � � ��� ��� ��� ��� ������������ �� �� �� �� �� �� ������ � ��� ��������� � ������� ��� ��� ������� ������� �� �������� �������� �������� �������� �� ����� ������������ ��� ����� � ��� � � ������� ������� �� ��� ���� ���� ��� �������� �������� !��"���#���$����������%����&�� ����� � ������� ������� ������� �� ����� �� ��� ��� �������� �������� ���!� �"�!��# $�� �� �� �� �� �� '& (����$�� %�������� �����%� ����� � ������� ������� ������� �� ���� �� ����%��� �������� �������� �������� )����� ������� *������� *������� *������� *������� �� ���� ��� ���� ��� �������� �������� �������� ���+ �������������� $#��� ���� �� �� ���� �� ���� ������� ������� �� �������� �������� �������� �������� �������� ,��������+ ��� ������� ������� ������� ������� ������� �� �������� �������� �������� �������� �������� -�������� ������� ������� ������� ������� ������� �� �������� �������� �������� �������� �������� .����� �� � ����� ����� ��%�� ����� ����� /��(�0�.� �������� �������� �������� �������� �������� 1*�2&����� ����� � ������� ���� � ������� ������� 3�4�1*�2&����� 5� 5� ���� �� 5� ��� ��� '& (����$��(���+�� ���� � �� � �� � �� � �� � �� model 4 contains the elements of human capital and control variables as independent variables. in this model, the elements of human capital and the roa, as dependent variable, are ina logarithmic form. none of the variables that represent the elements of human capital is statistically significant. independent variables together explain about 23.61% of the variation in the roa. model 5 contains the elements of human capital and control variables as independent variables. the elements of human capital and the roa are in logarithmic form, and the fgls method was used in this model. variables interaction of the entrepreneurial team (p=0.058) and social skills and tenacity (p=0.078), as the elements of human capital, are statistically significant and have a positive impact on the roa. more precisely, the improvement inf the interaction within the entrepreneurial team by 10% leads to the increase in the roa by 0.24%. the improvement of social skills and increasing tenacity by 10% leads to the increase in the roa by 0.179%. independent variables together explain about 15.3% of the variation in the roa. the companies were divided into four groups depending on the magnitude of their roa, as shown in table 12, while using ordered probit model. in this model, the dependent variable takes the value of 0 if a company is in the first group, 1 if a company is in the second group, 2 if a company is in the third group, or 3 if a company is in the fourth group. independent variables are the elements of human capital. independent variables and control variables are in a logarithmic form. table 12: companies divided into four groups table 13 shows the results based on the maximum log likelihood method. in the first column, coefficient estimates and p-values (in parentheses) are presented. in the second and third columns, marginal effects calculated for the mean values in the sample are shown. the results that are significant at the 10% level are bolded. table 13: the impact of human capital on roa 40 mihailo paunović 2021/26(2) ���� ��� ��� � ����������� ��������� ��� � ��� �� � ������������ � ���� � ��� �� � ������������ � ����� � ��� �� � ��������� ���� � ��� �� � ��� �� ���� ��� � ���� ������ � �� ������������� �������������� ������������� ��������������� �� �� �� ������ � ��� ��������� � ������� �������� ������� �� �������� �� �� ����� ������������ � � ����!�� �������� �����!� �� �������� �� "��#���$���%����������&����'�� ��� ! � "��!#�$� ��%�# � �� &���#'(� �� )�������*����+����� �� �� �� (' )����%�� &�� ����� �������� ������� �������� �� �����!�� �� *����� �������� ������� �������� �� ����!��� �� ���+ �������������� %$�� !�!,$#� �������� ������� �� &�����(� �� ,��������+ ��� ����!�� �������� ������� �� �������� �� -'���� ����!�� �� �� �� �������� �� -'���� !�,�%�� �� �� &��� (� �� -'���� %�,%�!� �� �� &�����(� �� �� .���� � ����� '%�-$� �� /��)�0� � �� &�����(� �� �� /��'���1�� ����!�� �� �� (' )����%��)���+�� ���� �!�� �� �� since the companies are divided into four groups, the model has three cut off points which separate the groups. the second (p=0.088) and the third (p=0.006) cut off points are statistically significant, indicating that the way the companies are divided into groups is appropriate. the variables knowledge of the entrepreneur (p=0.073) and services related to manufacturing (p=0.000) are statistically significant. knowledge of the entrepreneur as the element of human capital has a positive impact on the roa. the entrepreneurs with vast knowledge have better chances that their company falls into the group with a higher roa. in this model, the sign of the coefficient estimate can be interpreted, not the magnitude. it can only be inferred whether the impact is positive or negative. however, based on marginal effects, it can be concluded that the entrepreneurs who improve their knowledge by 10% have 1.704% less chance that their company falls into the first group and 2.078% more chance that their company falls into the fourth group. the entrepreneurs who improve their knowledge by 50% have 8.52% less chance that their company falls into the first group and 10.39% more chance that their company falls into the fourth group. the first group consists of the companies whose roa was lower than 3%, while the fourth group consists of the companies whose roa was higher than 30%. table 14 displays the results of a multiple regression analysis in which the dependent variable is sales revenue. p-values are shown in parentheses below the coefficient estimates. the results that are significant at the 10% level are bolded. table 14: the impact of human capital on sales revenue in models 1, 2 and 4, the ols method with heteroscedasticity-robust standard errors was used. in all three models heteroscedasticity was found, so standard errors had to be corrected. in models 3 and 5, the fgls method was used. 41 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) �������� � ���� � ������ � ������ � ������ � ������ � ������ ���� ���������� �� �� �� �� �� ������ � ��� ��������� � ������� ������� ������� ������� �� �������� �������� ������ � ������ � �� ����� ������������ ��� ������� ������� ������� ������� �� �������� �����!�� �����!�� ����!��� "��#���$���%����������&����'�� ������� ������� ������� ������� �� �������� �������� �������� �������� ! �� �� ����"����� �� �� �� �� �� (' )����%�� &�������� ������� ����#�� ������� ������� ������� �� ������ � ������ � ������ � ������ � ������ � *����� ������� �������� ������� ����!�� ������� �� ����!��� �������� �������� �������� �������� ���+ �������������� %$�� $������� $������� ������� $������� $������� �� ������ � ������ � �������� ������ � �����# � ,��������+ ��� $������� $����#�� �!����� $������� $�����#� �� ������ � ������ � �������� ������ � ������ � -�������� ������� ����!!� ����!�� ������� ������� �� �������� ����!��� �������� �������� �������� .����� �� � ����� ����� ����� ����� #���� /��)�0�.� ������ � ������ � ������ � ������ � ������ � 1 �2'����� ������� ������� �����!� ������� ������� 3�4�1 �2'����� 5� 5� ������� 5� ������� (' )����%��)���+�� ���� ���� ���� ���� ���� ���� model 1 contains only control variables as independent variables. the dependent variable is the natural logarithm of sales revenue. variables: the number of employees (p=0.000), the services related to manufacturing (p=0.028) and other services (p=0.007) are statistically significant. the companies with more employees have higher sales revenue than the companies with fewer employees, which is expected and obvious. employing an additional worker on average increases sales revenue by 3.04%. the companies that provide services related to manufacturing have a 38.23% lower sales revenue on average in comparison with manufacturing companies with the same number of employees. the companies that provide other services have a 53.45% lower sales revenue on average in comparison with manufacturing companies with the same number of employees. between manufacturing and trade companies with the same number of employees there is no significant difference in terms of sales revenue. all the control variables explain about 23.31% of the variation in the sales revenue in the sample. model 2 contains the elements of human capital and control variables as independent variables. the dependent variable is sales revenue. none of the variables that represent the elements of human capital is statistically significant in this model. all the independent variables explain about 33.41% of the variation in the sales revenue in the sample. model 3 contains the elements of human capital and control variables as independent variables. the dependent variable is also the sales revenue, and the model fgls method was used. none of the variables that represent the elements of human capital is statistically significant. all the independent variables explain about 11.43% of the variation in the sales revenue. model 4 contains the elements of human capital and control variables as independent variables. in this model, the elements of human capital and sales revenue, as dependent variable, are in logarithmic form. variable interaction of the entrepreneurial team (p=0.079), as the element of human capital, is statistically significant and has a positive impact on the sales revenue. more precisely, the improvement of entrepreneurial team’s interaction by 10% leads to the increase in the sales revenue by 3.259%. all the independent variables explain about 24.75% of the variation in the sales revenue. model 5 contains the elements of human capital and control variables as independent variables. the elements of human capital and sales revenue are in a logarithmic form, and the fgls method was used. variable interaction within the entrepreneurial team (p=0.094), as the element of human capital, is statistically significant and has a positive impact on the sales revenue. the improvement in the entrepreneurial team’s interaction by 10% leads to an increase in the sales revenue by 1.897%. compared to the previous model, this model also reveals the positive impact of human capital on the sales revenue, but the magnitude of the impact is slightly lower. all the independent variables explain about 21.58% of the variation in the sales revenue. the companies were divided into three groups depending on the size of their sales revenue, as shown in table 15, while using the ordered probit model. in this model, the dependent variable takes value of 0 if a company is in the first group, 1 if a company is in the second group, or 2 if a company is in the third group. independent variables are the elements of human capital and control variables, and they are in a logarithmic form. table 15: companies divided into three groups table 16 shows the results based on the maximum log likelihood method. in the first column coefficient estimates and p-values (in parentheses) are shown. in the second and third columns, marginal effects calculated for the mean values in the sample are displayed. the results that are significant at the 10% level are bolded. 42 mihailo paunović 2021/26(2) �������� � ���� ��� �� ��� ����� ����� ��������� ����� ����������� ��� ���� �������������� ������ ����������� ��� ���� ����� ��� ����� ����������� ��� ���� !�� �� ���� ����� table 16: the impact of human capital on sales revenue since the companies are divided into three groups, the model has two cut off points which separate the groups. both cut off points are statistically significant, indicating that the way the companies are divided into groups is appropriate. however, none of the variables that represent the elements of human capital is statistically significant in this model. the first hypothesis states that entrepreneurial firms that have a larger human capital tend to have a higher roa. it was found that the elements of human capital, such as the interaction within the entrepreneurial team, social skills and tenacity and knowledge of the entrepreneur, have a positive impact on the roa. based on that, it can be concluded that the first hypothesis has been confirmed. the second hypothesis states that entrepreneurial firms that have a larger human capital tend to have higher sales revenue. it can be concluded that the interaction of the entrepreneurial team, as the element of human capital, has a positive impact on the sales revenue. social skills and tenacity, and the knowledge of the entrepreneur do not have an impact on the sales revenue. based on that, it can be concluded that the second hypothesis has been partially confirmed. 43 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) sales revenue oprobit marginal effects first outcome last outcome human capital interaction of the team 0.2286 -0.0643 0.0717 (0.304) social skills and tenacity -0.0059 0.0017 -0.0019 (0.987) knowledge of the entrepreneur 0.006 -0.0016 0.0018 (0.988) control variables number of employees 1.1873 -0.3340 0.3723 (0.000) trade 0.5510 -0.1368 0.1866 (0.064) services related to mfg. -0.2671 0.0787 -0.0801 (0.238) other services -0.6571 0.2155 -0.1708 (0.020) cut 1 2.2309 (0.033) cut 2 3.7608 (0.000) wald chi2(7) 27.58 prob > chi2 (0.000) pseudo r2 0.1117 number of observations 151 this paper examines the influence of human capital on financial performance of entrepreneurial firms in serbia. it makes a valuable contribution to the literature since the results of this study are comparable with the results of similar studies about the relationship between human capital (and more generally intellectual capital) and entrepreneurial firms’ performance. as shown by simic & slavkovic (2019) and simic & ognjanovic (2019), the results indicate that human capital has a positive impact on financial performance of serbian entrepreneurial firms. these results are also consistent with the results of similar studies that were conducted for other countries. for example, pena (2002) have shown that human capital of the entrepreneur, organizational capital, and relational capital are important intangible assets that are related positively to venture performance in spain. hormiga et al. (2011) have pointed out that human and relational capital play an important role in the development of new companies registered in the canary islands. based on the results of a case study that included conslusion references [1] baron, r. a., & markman, g. d. (2003). beyond social capital: the role of entrepreneurs’ social competence in their financial success. journal of business venturing, 18(1), 41–60. doi: 10.1016/s08839026(00)00069-0 [2] baum, j. r., & locke, e. a. (2004). the relationship of entrepreneurial traits, skill, and motivation to subsequent venture growth. journal of applied psychology, 89(4), 587–598. doi: 10.1037/0021-9010.89.4.587 [3] bontis, n., janosevic, s., & dzenopoljac, v. (2013). intellectual capital and the corporate performance of serbian banks. actuals problems of economics, 4 (142), 287-299. [4] bontis, n., janosevic, s., & dzenopoljac, v. (2015). intellectual capital in serbia’s hotel industry. international journal of contemporary hospitality management, 27(6), 1365 -1384. doi: 10.1108/ijchm-12-2013-0541 [5] choong, k. k. (2008). intellectual capital: definitions, categorization, and reporting models. journal of intellectual capital, 9(4), 609-638. doi: 10.1108/14691930810913186 [6] cokorilo, n., nikolic, s., milosevic, s., trajkovic, m., & djuric, s. (2018). start-up u srbijitrendovi i strukturna analiza. the ministry of economy of the republic of serbia. [7] djekic, i. (2015). improving human capital in serbia. ekonomika, 61(3), 133-150. doi: 10.5937/ekonomika1503133d [8] dzenopoljac, v., janosevic, s., & bontis, n. (2016). intellectual capital and financial performance in the serbian ict industry. journal of intellectual capital, 17(2), 373-396. doi: 10.1108/jic-07-2015-0068 [9] eurostat. (2008). statistical classification of economic activities in the european communitynace rev. 2. author. retrieved from: https://ec.europa.eu/eurostat/documents/3859598/5902521/ks-ra-07-015-en.pdf [10] field, a. (2009). discovering statistics using spss (3rd ed.). sage publications ltd. [11] global entrepreneurship monitor (2018). global report 2017/18. author. retrieved from: https://www.gemconsortium.org/file/open?fileid=50012 44 mihailo paunović 2021/26(2) three bulgarian entrepreneurial firms, petrova galabova (2014) concludes that human capital is the most widely acknowledged capital compared to structural and relational capital. khan at al. (2019) conclude that the knowledge, skills and educational level of the entrepreneur, entrepreneurial opportunities, connections with other entrepreneurs and business angels have a significant and positive impact on venture creation decisions in india. matricano (2016) indicates that human, structural and relational capital affected start-up expectations in italy. unger et al. (2011) analysed the results of 70 research studies that were undertaken for various countries and concluded that there was a certain, yet significant relationship between human capital and entrepreneurial success. the paper can help entrepreneurs and company founders, as well as economic and development policy makers, to better understand the importance of human capital for improving financial and overall business performance of newly created ventures. entrepreneurs and policy makers should pay special attention to those elements of human capital that turned out to have a significant impact on the roa and the sales revenue. the research has several limitations. the first limitation relates to a relatively small number of companies that participated in the study. out of 1,559 companies that were included in the sample, only 151 were analysed. the response rate was relatively low and some companies had to be excluded because the questionnaires that were received from them were incomplete. the second limitation relates to the fact that the conclusions of this research were made by using a reduced amount of data. when the questions were loaded into factors some information was discarded. in multiple regression analysis three factors that represent the elements of human capital were used as independent variables. those three factors in combination explain only 55.45% of the variance. the third limitation relates to data reliability. in the literature, the roe is often used as a performance indicator, but in this research the roe could not be used because the data necessary for its calculation turned out to be unreliable. the problems related to the reliability of financial statements were partially eliminated by using sales revenue as a performance indicator since its amount is difficult to present falsely. finally, the fourth limitation relates to objectivity of the entrepreneurs and their tendency to evaluate their human capital slightly better than it actually is, which could be noticed from their answers. future research on this topic can focus on the impact of intellectual capital on the business performance of entrepreneurial firms. instead of focusing only on human capital, future research may choose to focus on all three components of intellectual capital; such as human, structural, and relational capital. in addition, future research can analyse the impact of intellectual capital not only on the firms’ financial performance, but also on the firms’ market and operational performance. moreover, future research can include not only serbia, but also some other countries, such as west balkan countries or former yugoslavian states. in future research structural equation modelling (sem) can also be used. finally, instead of using this methodology, they can be based on a case study. in that way most problems related to the lack of objectivity and different perceptions of the respondents can be eliminated. however, the sample will have to be smaller because a researcher will have to visit each company and organize interviews with the owners. [12] hormiga, e., batista-canino, r.m., & sanchez-medina, a. (2011). the role of intellectual capital in the success of new ventures. international entrepreneurship and management journal, 7(1), 71-92. doi: 10.1007/s11365-010-0139-y [13] janosevic, s., & dzenopoljac, v. (2012). an investigation of intellectual capital influence on financial performance of top serbian exporters. ekonomika preduzeca, november-december, 329-342. doi: 10.5937/ekopre1208329j [14] janosevic, s., & dzenopoljac, v. (2015). the impact of intellectual capital on companies’ market value and financial performance. ekonomika preduzeca, november-december, 354-371. doi: 10.5937/ekopre1508354j [15] janosevic, s., & dzenopoljac, v. (2016). inovativnost kao komponenta intelektualnog kapitala. in v. marinkovic, v. janjic & v. micic (eds), unapredenje konkurentnosti privrede republike srbije (pp. 187203). university of kragujevac, faculty of economics. [16] janosevic, s., dzenopoljac, v., & bontis, n. (2013). intellectual capital and financial performance in serbia, knowledge and process management, 20 (1), 1-11. doi: 10.1002/kpm.1404 [17] khan, a.m., arafat, m.y., raushan, m.a., saleem, i., khan, n.a., & khan. m.m. (2019). does intellectual capital affect the venture creation decision in india?. journal of innovation and entrepreneurship, 8(10), 1-15. [18] komnenic, b., & pokrajcic, d. (2012). intellectual capital and corporate performance of mncs in serbia. journal of intellectual capital, 13(1), 106-119. doi: 10.1108/14691931211196231 [19] komnenic, b., tomic, r., & pokrajcic, d. (2011). intellectual capital as a valuable driver of corporate performance: empirical research on the banking sector in serbia. international journal of arts & sciences, 4(09), 283-298. [20] lechler, t. (2001). social interaction: a determinant of entrepreneurial team venture success. small business economics, 16(4), pp. 263–278. doi: 10.1023/a:1011167519304 [21] matricano, d. (2016). the impact of intellectual capital on start-up expectations. journal of intellectual capital, 17(4), 654-674. doi: 10.1108/jic-04-2016-0040 [22] measuring intangibles to understand and improve innovation management meritum (2002). guidelines for managing and reporting on intangibles. author. [23] ocean tomo. (2017). components of s&p 500 market value. retrieved from: http://www.oceantomo.com/intangible-asset-market-value-study/ [24] oecd (2011). new sources of growth: intangible assets. author. retrieved from: http://www.oecd.org/science/inno/46349020.pdf [25] pena, i. (2002). intellectual capital and business start-up success. journal of intellectual capital, 3(2), 180–198. doi: 10.1108/14691930210424761 [26] petrova galabova, l. (2014). recognition and management of intangibles by bulgarian entrepreneurial firms. journal of intellectual capital, 15(3), 376-391. doi: 10.1108/jic-05-2014-0056 [27] ramos-rodriguez, a-r., medina-garrido, j-a., lorenzo-gomez, j-d., & ruiz-navarro, j. (2010). what you know or who you know? the role of intellectual and social capital in opportunity recognition. international small business journal, 28(6), 566-582. doi: 10.1177/0266242610369753 [28] simic, m., & ognjanovic, j. (2019). human capital efficiency and competitiveness of leading entrepreneurial firms. in b. krstic (ed.), improving enterprise competitiveness (pp. 19-50). university of nis, faculty of economics. [29] simic, m., & slavkovic, m. (2019). the role of human capital in entrepreneurial innovativeness: evidence from serbia. facta universitatis, series: economics and organization, 16(1), 49-58. doi: 10.22190/fueo1901049s [30] tovstiga, g. & tulugurova, e. (2007). intellectual capital practices and performance in russian enterprises. journal of intellectual capital, 8(4), 695-707. doi: 10.1108/14691930710830846 [31] ugalde-blinda, n., balbastre-benavent, f., canet-giner, t., & escriba-carda, n. (2014). the role of intellectual capital and entrepreneurial characteristics as innovation drivers. innovar, 24(53), 41-60. doi: 10.15446/innovar.v24n53.43793 [32] unger, j.m., rauch, a., frese, m., & rosenbusch, n. (2011). human capital and entrepreneurial success: a meta-analytical review. journal of business venturing, 26 (3), 341-358. doi: 10.1016/j.jbusvent.2009.09.004 [33] world economic forum. (2017). the global competitiveness report 2017-2018. author. retrieved from: http://www3.weforum.org/docs/gcr720172018/05fullreport/theglobalcompetitivenessreport2017%e2%80%932018.pdf [34] wooldridge, j. (2016). introductory econometrics: a modern approach (6th ed). cengage learning. [35] zeghal, d., & maaloul, a. (2010). analysing value added as an indicator of intellectual apital and its consequences on company performance. journal of intellectual capital, 11(1), 9-60. doi: 10.1108/14691931011013325 received: 2020-02-24 revisions requested: 2020-04-25 revised: 2020-05-06 (two revisions) accepted: 2020-06-08 45 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) mihailo paunović university of belgrade, faculty of technology and metallurgy, serbia mpaunovic@tmf.bg.ac.rs mihailo paunović is a teaching and research assistant at the faculty of technology and metallurgy, university of belgrade. he teaches courses in engineering economics and enterprise economics and management at undergraduate studies. he is a phd candidate at the faculty of economics, university of belgrade. he holds a msc in accounting, auditing and corporate finance from the faculty of economics, university of belgrade and an international msc in business administration with the 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 5 27_2 jaroslav dado:tipska.qxd 47 jaroslav dad'o1, janka taborecka – petrovicova1, tamara rajic2* 1faculty of economics, matej bel university in banska bystrica, slovakia 2economics institute a.d., belgrade, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(2) * corresponding author: tamara rajić, e-mail: tamara.rajic@ecinst.org.rs research question: this study aims to propose and empirically examine a relationship quality model in a grocery retail setting in serbia. motivation: whereas relationship quality has been extensively studied in b2b settings and in developed economies, far less research attention has been devoted to the formation and effects of relationship quality in b2c exchange relations in developing economies. this especially holds true for eastern eupean emerging economies and the present research aims to fill this gap. idea: building upon previous research in service settings, this study proposes customer orientation as an antecedent to relationship quality, comprising relationship satisfaction, customer trust and commitment to a retailer, and attitudinal and behavioural loyalty as consequences of relationship quality. data: the study has been performed on a convenience sample of 453 grocery retail customers in serbia, by means of structured questionnaire. tools: upon supporting constructs’ validity, structural equation modelling (sem) has been applied to examine the proposed relationships. findings: the results of the study indicate significant direct impact of employees’ customer orientation on trust and relationship satisfaction. commitment to a retailer and relationship satisfaction emerged as direct antecedents to attitudinal and behavioural loyalty, whereas trust emerged as an indirect determinant of loyalty constructs. in terms of total effect, relationship satisfaction emerged as the most influential determinant of both facets of customer loyalty. contribution: the findings of the study which indicate significant indirect contribution of front-line employees’ customer orientation to attitudinal and behavioural loyalty of customers provide valuable insights for hr management of retail enterprises. in addition, by addressing relationship quality construct and its antecedents and effects in a b2c setting in thus far largely under-studied context, such as an emerging european economy, this study’s findings add to the growing body of knowledge on relationship marketing. keywords: customer orientation, relationship quality, trust, relationship satisfaction, customer commitment, attitudinal loyalty, behavioural loyalty, grocery retailing jel classification: m31, c30, d12 towards an integrative framework of relationship quality in a retail setting: evidence from an emerging economy doi: 10.7595/management.fon.2021.0020 abstract: 1. introduction relationship quality has received considerable attention among academics and practitioners over previous three decades. high quality relationships with customers have been shown to lead to customer retention, cross-selling opportunities, customer referrals, lower exchange costs, higher market share and better business performance (kim & cha, 2002; kim et al., 2006; qin et al., 2009; lo et al., 2017; santouridis & veraki, 2017; bakator et al., 2019; ledikwe et al., 2019; rajic et al., 2019; xu et al., 2020). relationship quality is also valued as a source of sustainable competitive advantage, as intangible aspects of high quality relationships that a company may establish with customers cannot be easily duplicated by competitors (athanasopoulou, 2009; qin et al., 2009; bowden-everson et al., 2013; kuhn & mostert, 2018; prayag et al., 2019). relationship quality is particularly relevant to service businesses, and especially in high-contact service settings, due to inherently intangible nature of services which causes customers’ uncertainty prior to a service delivery (palmatier et al., 2006; delacroix & guillard, 2016). whereas the construct of relationship quality has been extensively studied from the perspective of b2b relationships, far less research attention has been devoted to relationship quality in b2c exchange contexts (olavarrýa-jaraba et al., 2018), and according to athanasopoulou (2009) relationships in b2b settings differ from relationships in retail contexts. moreover, previous studies have mainly been conducted in the u.s., western europe and asia, whereas little is known of the formation and consequences of quality relationships in b2c exchange relations in emerging economies. this especially refers to emerging european economies, which have remained mostly under-studied, in comparison with asian developing economies. in addition, a number of previous studies modelled relationship quality as a global/composite construct (e.g. kim & cha, 2002; kim et al., 2006; cheng et al., 2008; castellanos-verdugo et al., 2009; rajaobelina & bergeron, 2009). contrary to previous research, this study addresses the construct at the level of its dimensions, following balaji’s (2015) and izogo’s (2016) assertions that customers are capable of making distinctions between different relationship quality dimensions and that a disaggregate model of relationship quality provides a better explanation of the formation of customer loyalty intentions. recent studies in the context of service businesses have pointed to the company’s customer orientation as an important precondition for the establishment of quality relationships with customers and documented significant impact of relationship quality on customers’ willingness to repurchase, continue relationship with a provider and spread positive word-of-mouth (castellanos-verdugo et al., 2009; lo et al., 2017; prayag et al., 2019). in order to address the aforementioned gaps in the literature, this study builds upon previous research in service businesses and aims to examine the impact of retailers’ customer orientation on relationship quality and the contribution of its constituents, trust, relationship satisfaction and commitment to a retailer, on attitudinal and behavioural loyalty of customers in the context of an emerging eastern european economy. serbian grocery retailing provided the context for this study. from the beginning of the 21st century serbia has opened its market to foreign entrants, whereas retail trade has experienced the highest deregulation in serbian business economy. consequently, grocery retailing in serbia has been increasingly exposed to competitive pressures and subject to significant changes. according to a recent research of the serbian commission for the protection of competition into the sales in non-specialized stores with food, beverages and tobacco predominating assortment, traditional grocery stores (with sales area less than 200 m2) still dominate the market with 80% in total number of retail stores, however, they have been gradually giving way to modern retail formats, instituted mainly by market entrants (commission for protection of competition of the republic of serbia, sectoral analysis, 2018). this trend has already been recorded in emerging economies opening their market to foreign companies (paul et al., 2016). whereas modern retail formats account for only 1% share in total number of stores, they generate 18% of total revenues (commission for protection of competition of the republic of serbia, sectoral analysis, 2018). according to the commission’s report, market entrants have not identified barriers to entry and further modernization and structural changes in non-specialized retailing of food, beverages and tobacco products are expected. the remainder of the paper is structured as follows: theoretical framework of the study is discussed in the next section and research hypotheses are proposed. this is followed by a brief overview of methodology and the discussion of research findings. theoretical and managerial implications are outlined subsequently and limitations of the study and directions for future research are highlighted. 2 conceptual framework and research hypotheses 2.1 relationship quality in a retail setting relationship quality has been explained as a customer’s reliance on salesperson’s integrity and his confidence in the future performance of a salesperson, which is based on previously satisfying interactions with the salesperson (qin et al., 2009). relationship satisfaction, trust in a provider and commitment to the relationship with a provider have been the most commonly suggested dimensions of relationship quality in b2c markets (hennig-thurau et al., 2002; athanasopoulou, 2009; lo et al., 2017; olavarrýa-jaraba et al., 2018; ledikwe et al., 2019). one should also be aware that although some consumers may be seemingly satisfied with a product or a service delivery, not all of them will be equally willing to engage into commercial relationships, as for some of them relational tactics may be perceived as implying the loss of privacy 48 jaroslav dad'o, janka taborecka – petrovicova, tamara rajic 2022/27(2) and intimidating (noble & phillips, 2004; delacroix & guillard, 2016). however, relationship hindrances are beyond the scope of the present study. moorman, zaltman and deshpande (1992) defined trust as ‘the willingness to rely on an exchange partner in whom one has confidence’ (p. 315). according to rajaobelina and bergeron (2009), trust comprises two elements, customers’ belief in an exchange partners’ expertise and a belief that the other party will behave in a responsive and mutually beneficial manner when new circumstances emerge. trust in an exchange partner reduces customer’s risk perceptions and instills confidence into customers of the exchange partner’s integrity and reliability (kim et al., 2006; wu et al., 2019). previous research has highlighted significant contribution of trust in an exchange partner in the formation of relationship satisfaction (balaji, 2015). de wulf et al. (2001) define relationship satisfaction as ‘an overall appraisal of his or her relationship with a retailer’ (p.36). it is an affective state which is based on consumer’s assessment of interactions with the retailer over the course of a relationship. as such it differs from a satisfying experience which results from a particular transaction with a retailer. moorman et al. (1992) explain customer commitment as an ‘enduring desire to maintain a valued relationship’ (p. 316). customer’s willingness to maintain a long-term relationship with a company is based on customer’s belief that continuing the relationship will bring higher net benefits than terminating it (hennig-thurau et al., 2002). commitment is regarded as a key driver of customer loyalty in service settings (fullerton, 2005; balaji, 2015). it stems from the provision of services which exceeds customer expectations (bowden-everson et al., 2013). whereas some previous studies addressed commitment as a multidimensional construct, consisting of continuance and affective commitment (fullerton, 2005; lee et al., 2007), or calculative, affective and normative commitment (bowden-everson et al., 2013), the authors of this study acknowledge prior findings and adhere to olavarrýa-jaraba et al.’s (2018) stance that in buyer-seller relationships customers feel no obligation to stay in a relationship, but their commitment stems from affective attachment to the provider. in addition, lee et al. (2007) claim that continuance commitment is a feature of b2b relationships, due to common existence of high switching costs, scarcity of alternatives and contractual nature of a relationship between exchange partners, which is not the case in highly competitive context of grocery retailing, where customer commitment is based on an emotional attachment towards a retailer. this study therefore builds upon a conceptual framework including an affective component of commitment. recent empirical research has indicated a significant impact of customer trust on satisfaction with a service provider (wu et al., 2019). the antecedents role of relationship satisfaction to relationship commitment has been also empirically supported (balaji, 2015). kim et al.’s (2006) research provided evidence of a significant positive influence of both trust and satisfaction on customer commitment to the relationship. according to lee et al.’s (2007) study, trust in a retailer positively affects customer affective commitment towards the retailer. on the basis of the above discussion, the following hypotheses are proposed: h1: trust in a retailer positively affects relationship satisfaction; h2: relationship satisfaction positively affects customer commitment to a retailer; h3: trust in a retailer positively affects customer commitment to a retailer. 2.2 customer orientation front-line employees’ attitude and behaviour towards customers in service encounters are widely acknowledged to have an impact on customer’s perceptions of a service experience and service company. customer orientation is an integral part of market orientation, in addition to competitor orientation and inter-functional coordination. customer and market orientation have been shown to positively affect the company’s performance (andreou et al., 2020; koshksaray et al., 2020) and overall satisfaction with the company’s export performance (njegic et al., 2020). understanding and satisfying customers’ needs in a manner superior to its competitors is at the forefront of customer orientation. according to saxe and weitz (1982), who were among the first authors to address the construct of customer orientation, customer-oriented behaviour is reflected in sales personnel’s efforts to understand customers’ needs and help customers achieve their goals, which provides a pathway to the establishment of mutually beneficial long-term relationships with customers. customer-oriented behaviour of service personnel contributes to customer satisfaction, fosters trust and commitment to the relationship with service provider (kim et al., 2006; qin et al., 2009; oraedu, 2019). guenzi et al. (2009) asserted that retailing personnel who behave in a professional manner and who are friendly with customers and benevolent instill trust into customers. friendly and helpful behaviour of grocery store employees has been shown to influence customer satisfaction and willingness to maintain relation49 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) ship with a provider (paul et al., 2016; roozen & katidis, 2019). based on these previous findings we propose the following hypotheses: h4a: customer orientation is positively related to customer trust in a retailer; h4b: customer orientation is positively related to relationship satisfaction; h4c: customer orientation is positively related to customer commitment to a retailer. 2.3 attitudinal and behavioural loyalty customer loyalty is regarded as the primary goal of relationship marketing and it has even been equated with relationship marketing (hennig-thurau et al., 2002). to remain loyal to a company customers should be satisfied with a company’s offering and trust the supplier (valenzuela et al., 2010). a number of studies differentiate between attitudinal and behavioural loyalty (e.g., mandhachitara & poolthong, 2011; lee et al., 2018; ledikwe et al., 2019; yao et al., 2019). according to watson et al. (2015), attitudinal loyalty is based on a strong positive attitude, i.e. customer preference for a particular entity, which stems from positive evaluations of previous exchange experience. in highly competitive environments, strong positive attitudes activate defensive processes causing customers’ resistance towards competitive offers. behavioural loyalty implies repeat purchase behaviour which is based on a strong preference towards an entity. it differs from repeat purchases caused by the lack of alternatives, high switching costs or inertia (dick & basu, 1994). previous research in the context of traditional and e-retailing has supported positive effects of relationship quality constructs on customers’ attitudinal and behavioural loyalty (de wulf et al., 2001; guenzi et al., 2009; park et al., 2017; ledikwe et al., 2019). based on these arguments, the present study puts forth the following hypotheses: h5a: trust in a retailer positively affects customer attitudinal loyalty; h5b: trust in a retailer positively affects customer behavioural loyalty; h6a: relationship satisfaction positively affects customer attitudinal loyalty; h6b: relationship satisfaction positively affects customer behavioural loyalty; h7a: commitment to a retailer positively affects customer attitudinal loyalty; h7b: commitment to a retailer positively affects customer behavioural loyalty. conceptual framework, which integrates hypothesized relationships, is displayed in figure 1. figure 1. conceptual framework 50 jaroslav dad'o, janka taborecka – petrovicova, tamara rajic 2022/27(2) customer orientation trust relationship satisfaction commitment attitudinal loyalty behavioural loyalty relationship quality h1 h2 h3h4a h4b h4c h5a h5b h6a h6b h7a h7b 3. methodology 3.1 sample and data collection the study was conducted on a convenience sample of grocery retail customers in serbia. data collection was performed by means of self-administered structured questionnaire. students attending marketing course assisted in data collection. respondents were addressed at their households. they were instructed by students to respond to questionnaire items taking into account their perceptions of a grocery retailer with whom they spend the most. out of 512 delivered questionnaires, 453 completely fully completed questionnaires were included in the final analysis. female respondents who agreed to participate in the study outnumbered male respondents (57% vs. 43%). in terms of age groups, the highest percentage of respondents belong to age group ‘up to 24 years of age’ (31%), followed by age groups ’25 – 34 years of age’ (22.9%) and ’35 – 44 years of age’ (20.5%). the frequency of other age groups is 15.1% (45 – 54 years of age), 7.6% (55 – 64) and 2.9% (65 and older). a majority of respondents reported being educated up to the secondary level (69.8%), followed by university education (14.2%), college education (9%) and elementary education (7%). 3.2 measurement instrument the measurement instrument used in this study was based on previous research. group discussions with retail customers preceded large-scale interviewing, on the grounds of which some modifications of the questionnaire were made, to enhance comprehensibility and readability of questionnaire items. customer orientation was measured using six indicators, adapted from the works of cheng et al. (2008) and lo et al. (2017), reflecting retail employees’ behaviour and attitude towards better understanding and meeting customers’ needs. trust was measured using four indicators adapted from kim and cha (2002). three indicators adapted from the study of de wulf et al. (2001) were used to measure relationship satisfaction. commitment was measured with three items adapted from the studies of lee et al. (2007) and olavarrýajaraba et al. (2018). attitudinal and behavioural loyalty were measured using two items per construct, which were adapted from the works of mandhachitara and poolthong (2011) and watson et al. (2015). all items were measured on a 7-point likert-type scale ranging from 1-strongly disagree to 7-strongly agree. 3.3 data analysis data analyses have been performed in compliance with anderson and gerbing’s (1988) two-step approach, which implies the assessment of the psychometric properties of constructs by the application of confirmatory factor analysis (cfa), followed by the estimation of structural model and path coefficients. spss 17 and amos 16 were used for data processing. 4 results 4.1 measurement model analysis confirmatory factor analysis was applied to examine the adequacy of the measurement model. the analysis resulted in a good fit of the model to the data. the overall fit indices were χ2/df = 1.902, gfi=0.941, agfi=0.919, cfi=0.976, tli=0.971, nfi=0.951, rmsea=0.045. as the strength of relationships among latent variables can only be meaningfully interpreted if construct validity, comprising convergent and discriminant validity, is established, the study first focused on the examination of these types of validity. evidence in support of convergent validity of the study’s constructs was provided by the acceptable level of composite reliabilities of the constructs (ρ≥0.60; bagozzi & yi, 1988) and average variances extracted higher than 0.50 (fornell & larcker, 1981), with the exception of variance extracted of customer orientation, which was slightly lower than 0.50, and statistically significant standardized factor loadings above 0.50 (anderson & gerbing, 1988), as presented in table 1. 51 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) table 1: measurement model results *note: cronbach alpha coefficients are calculated for factors containing at least three items, spearman-brown coefficients are presented for two-item constructs reliability of the constructs was assessed by calculating cronbach’s alpha coefficients, i.e. spearman-brown coefficients in case of two-item constructs (eisinga et al., 2013). as all coefficients were higher than the lower threshold of 0.70, evidence was provided in support of constructs’ reliability (hair et al., 2010). evidence in support of discriminant validity was provided as none of the 95% confidence intervals (ci) of constructs’ correlations included unity (anderson & gerbing, 1988), as presented in table 2. bootstrapping procedure with 500 bootstrap samples was applied to obtain confidence intervals. 52 jaroslav dad'o, janka taborecka – petrovicova, tamara rajic 2022/27(2) ������� �� ��� ���� ��� �� ��� ���� ��� ������� ������� ��� �� � ����� ��� ����� ������ �� ��� �� � �� ������ !� ��� �" ������� � ���� ���� � � ����� ������ ��� � �� ����������������������������� �� ��� ������ �� ��� � � � � �� ������������������������!� �������� ����� ����� ������ ��"��� � ����� � � � �� ���������������������� ����� �� ����� ����������������!� ��� �����#���$������%�������� �� ��"� � ��� ��� � � � �� ������������������ &������!��'����'�� ���� �����#� ������ ��" �� � ��� � � � � �� �������������� ��� ���� ����� �� ��� �����#������� �� �"� ��� �� � � � �� ����������������(����� �����#� '�� ��� ���� ��������� ��"��� � �"��� � � � � ��� � � ��"�� ��� �� ���� � )����� ������&�������������� ��� �� � � � � )����� �������������� � ������ ��" � � � � )����� ��������������'��� �� ��� �"����� � � � )����� �������� ����� �����#� �� ���� ������ � ���� � ������ � � � ��� �������� � ���� ����� � � �� �� ��� �� ��� �� *���(������!� $���� ������ �������� �� �� ������ ������ ������ � � � � *������������ �� �������� �� ���� �� �����������&��!� ���������!����� ��� ��������&����� ��� �� ���� � � � � *������ ��������� �� ������� ��������*� ��(���� �� ������ ������ ����"� ��""�� � � � ���������� � � ��""� ������ ���� � *��������� ��������� ������ �� ���� �� ������ �� ��� � � � � )������ ������������!��� ��������� ���������������!�������� ����"� ��� ��� � � � *�����������������'����!��!� �� ���� �� ������ �� � � � ����� � � � ��������� � ��� ��� � � ��� � ���� � ��� � *��������������� �(�� ���!���'�� � ������ ������ ������ � � � � *�������� ������ �������(�������� � ���� ������ ������ � � � ��� ���� � ��� ��� � � �� �� ���� � �� � *�'���������� �������� ������ ��������� ������������� ��� ������ ������� ��� �� � � � � *��� ���� ����&����� ��������� ���� ������������ �� ������ ������ ������ ������ � � � � table 2: correlations among the constructs and 95% confidence intervals of correlations note: correlations are significant at the 0.05 level; 95% confidence intervals of correlations are given in brackets acceptable measurement model analysis allowed for the examination of proposed structural relationships. prior to the examination of the structural model, the presence of common method bias was examined, by the application of the cfa technique. the common method variance can mask true relationships between variables and pose a problem in marketing research (mackenzie & podsakoff, 2012; podsakoff et al., 2012). it may happen when responses are collected on the same scale format, from the same source, at the same point in time and by means of a single questionnaire, as was the case with this study. in line with statistical remedies suggested by podsakoff et al. (2012), the cfa analysis was applied to examine the presence of the common method variance. lack of fit of a single-factor model indicated that the common method bias was not a serious problem of this study (χ2/df = 8.850, gfi=0.701, agfi=0.630, cfi=0.771, tli=0.745, nfi=0.750, rmsea=0.132). 4.2 structural model analysis structural equation modelling yielded acceptable model fit, as indicated by the following indices: χ2/df = 1.947, gfi=0.939, agfi=0.918, cfi=0.975, tli=0.969, nfi=0.949, rmsea=0.046. the results of sem, which are presented in table 3, provide support for 9 out of 12 hypotheses. direct, indirect and total contribution of the constructs to attitudinal and behavioural loyalty is displayed in table 4. table 3: structural model results 53 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) � ������ � � � �� ����� � ���� � � ��������� � ���� ������ ������� ��� ��������� �� ��� ���� � � ���� �� ��� ���� ������� � ���� ���� � � ��� ����� ������ � ������ � ��� �������� � ���� ����� ����� ������ � �� !�� �� �� ����!� " �� �#� � ���������� ����� ������ " ����!� ����� ������ " �� ��� �� � ����!� " �� ��� � $�����%�� � ��& ��& ����! ����!� " �� ��� �� !� ����# " �� ��� ����� ����� " ���#�� �� �� ������ " ������ � '�� (��� � ��& ��& ����� ���� � " ����!� ����� ������ " ������ ���!� ��� �� " ������ �� �! ��� �! " ������ ����� ��� �� " ���� � � ������� ��� ��� �������� � ������ ������� ������� � �� �� � ������� ����� � ��� ���� � � ��� ���� ������ ������ ������ ��� ������ � ��� ���� � � ��� ����������� ��� � ��� !� ����� ������ ��� ������� ���"���� ��� � ������ �� ��� ������ ��� �����"� ���������� � ������ �� � ���#�� ����! � ������ ��� ��$��"� ���������� � �������� � ��� ���� � � ��� ���� ������ ����� ������ ��� �����"� ���������� � ����������� ��� � ������ ��#��� %� � ����� ��� �������� ���& � ����� � �'� '� ��� �� ���!�� %� � ����� ��� ��$����� ���(���)����� � �'� '� *������ *��###� %� � ����� ��� � ����� � ��� ���� � � ��� ������& � ����� � �'� '� ��!��� ���!� � ������ ��� � $���� � ��� ���� � � ��� ������(���)����� � �'� '� �� ��� #����� ������ ��� �!���"���� ��� ���& � ����� � �'� '� ����#� ���� � ������ ��� �!$��"���� ��� ���(���)����� � �'� '� ���� � � !�� ������ ��� � although trust did not emerge as a significant direct determinant of attitudinal, nor behavioural loyalty, findings of the study indicate statistically significant indirect contribution of trust to loyalty constructs, mediated via satisfaction and commitment, as presented in table 4. both commitment and relationship satisfaction emerged as direct antecedents of customers’ loyalty intentions. in terms of total effect, relationship satisfaction emerged as the most significant driver of both attitudinal and behavioural loyalty. this finding highlights the importance of establishing satisfying relationships with customers to reap the benefits of being recommended to other prospective customers and ensure future sales. according to this study’s findings, customer orientation directly contributes to trust in a retailer and relationship satisfaction and indirectly determines commitment towards the retailer and customers’ attitudinal and behavioural loyalty. table 4: direct, indirect and total effects note: *parameter estimate is significant at the 0.05 level; **significance at the 0.01 level; co–customer orientation, tr–trust, sat–relationship satisfaction, cm-commitment, al-attitudinal loyalty, bl-behavioural loyalty 5. discussion this study aimed to propose and empirically examine a relationship quality model in heretofore under-studied context of b2c exchange relations in an eastern european emerging economy. in line with previous research (balaji, 2015; izogo, 2016), relationship quality has been modelled as a disaggregated construct, comprising trust in a retailer, relationship satisfaction and commitment towards a retailer. taking into account total effects of relationship quality constructs on attitudinal and behavioural loyalty of customers, the findings of this study concur with prior research indicating significant effect of relationship quality on customer loyalty (taylor et al., 2018; ledikwe et al., 2019; prayag et al., 2019). not surprisingly, relationship satisfaction emerged as the strongest direct determinant of both attitudinal and behavioural loyalty and the most significant precursor to loyalty intentions, in terms of total effect. this finding indicates that customers’ loyalty intentions are to the greatest extent influenced by customers’ impressions of having a good relationship with a retailer and customers’ recognition of the retailer’s efforts towards regular customers. consistent with the findings of previous research in b2c settings (izogo, 2016; lo et al., 2017; olavarrýajaraba et al., 2018; prayag et al., 2019), the present study indicates that the enhancement of retailers’ customer orientation, i.e. employees’ courteousness and willingness to help customers, positively affects customer trust in a retailer and relationship satisfaction. in spite of a non-significant direct effect of trust in a retailer on attitudinal and behavioural loyalty, findings of this study indicate a contributional mechanism of trust in the enhancement of customers’ willingness to spread positive word-of-mouth and continue purchasing from the same company. as such, this finding is consistent with balaji’s (2015) results indicating satisfaction and commitment as mediators of trust – customer loyalty relationship. one should also note that commitment towards a retailer, in spite of its significant direct effect on attitudinal and behavioural loyalty, does not play a decisive role in ensuring customer loyalty intentions in the context of grocery retailing. in terms of total effect, customer orientation emerged as a more influential determinant of loyalty, in comparison with commitment. this finding may indicate that in the context of services rich in search and experience qualities, such as grocery retailing, commitment towards the provider is less significant than customers’ perceptions of service personnel’ positive attitude and behaviour for the formation of loyalty intentions. the adopton of customer orientation by front-line retailing employees, as indicated by this study’s findings, is relevant for the establishment and maintenance of quality relationship with customers, which is expected to bring in new customers, by referrals of the existing ones, and contribute to retailer’s future earnings, by customers’ repurchase behaviour. 54 jaroslav dad'o, janka taborecka – petrovicova, tamara rajic 2022/27(2) � �������� ���� ��������� ���� ������ ���� � ��� ��� ���� � � ��� ��� ���� ��� ��� ���� � � ��� �� ��� � � � � � � �� ��� � � � ���� ������� ������ � � �� ��� � � ������� ������ � � � � ����� ��� �� ������� � ��� ��� ������� � ������ ������� ������� � ��� � ����� ������� ������ ������ ��� �� ������� ������ ��� �� � ����� ������ ��� � ����� ������� �� �� ������ �� ��� � ����� ������ ������ � ����� �� �� � references [1] anderson, j. c., & gerbing, d. w. (1988). structural equation modeling in practice: a review and recommended two-step approach. psychological bulletin, 103, 411–423. doi:10.1037/0033-2909.103.3.411 [2] andreou, p. c., harris, t., & philip, d. (2020). measuring firms’ market orientation using textual analysis of 10-k filings. british journal of management, doi:10.1111/1467-8551.12391 [3] athanasopoulou, p. (2009). relationship quality: a critical literature review and research agenda. european journal of marketing, 43(5/6), 583-610. doi:10.1108/03090560910946945 [4] bagozzi, r. p., & yi, y. (1988). on the evaluation of structural equation models. journal of the academy of marketing science, 16, 74–94. doi:10.1177/009207038801600107 [5] bakator, m., djordjevic, d., cockalo, d., & bogetic, s. (2019). the impact of consumer-company relationships on brand loyalty. management: journal of sustainable business and management solutions in emerging economies, . doi:10.7595/management.fon.2019.0016 55 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) theoretical and managerial implications by examining the antecedent role of employees’ customer orientation and the contributional mechanism of relationship quality constructs to the formation of customers’ loyalty intentions, in the context of a service industry exposed to rising competitive pressures operating in an emerging economy, this study contributes to relationship marketing literature. to the best of our knowledge, this is the first study to illuminate the contributional mechanism of relationship quality constructs to the development of customer loyalty in a b2c context in an emerging european economy. this research findings have the potential to assist retail managers in the development of effective relationship marketing strategies. taking into consideration the strongest direct impact of satisfaction on attitudinal and behavioural loyalty, the findings of this study indicate that retailers should invest into the establishment of satisfying relationships with customers and therewith provide the foundation for the establishment of long-term cooperation with customers. a significant positive impact of customer orientation on trust and relationship satisfaction also bears important managerial information for retailers. on the grounds of these findings, human resource managers should ensure that the relevance of respectful attitude towards customers, understanding, anticipating and satisfying customers’ needs are instilled into retail employees and reinforced by training, supervision and rewarding activities of hr departments. limitations and directions for future research some limitations of the study should be noted. researchers are advised not to generalize this study’s findings to the context of grocery retailing in emerging economies in general, as the study has been performed on a convenience sample of grocery retail customers of one emerging economy. this study’s findings are based on cross-sectional data, which only allows for correlational inferences to be made. therefore, future research should be conducted using a longitudinal study design. in addition, as this study was conducted in a single-country setting, cross-national research is welcome to uncover whether cultural differences have an impact on the development and effects of relationship quality in a retail industry in emerging economies. one limitation of this research is also reflected in average variance extracted of customer orientation construct, which emerged slightly lower than the lower threshold of 0.50. this drawback of the study possibly indicates that there are some additional facets of customer orientation which are relevant from the perspective of grocery retail customers, but which have been overseen in the course of this study. therefore, future researchers are advised to probe more deeply into the construct of customer orientation, especially taking into consideration the relevance of its total effect on the formation of customers’ loyalty intentions. one should also be aware that not all customers are equally willing to establish relationships with service providers (noble & phillips, 2004; rajaobelina & bergeron, 2009). as evidenced by delacroix and guillard (2016), some consumers feel social anxiety in commercial exchange settings, i.e. reluctance to establish relationships with sales personnel. as customers differ in terms of relational preferences, future research would benefit from examining the moderating role of relational preference on the impact of customer orientation on relationship quality constructs. it would be especially interesting to study the aforementioned moderating influence in service settings which require longer interactions or interactions which are repeated over time or non-standardized interactions, and particularly in emerging economies where customers are less accustomed to self-disclosure in commercial exchange relationships. another drawback of this study is the proposal of employees’ customer orientation as the sole antecedent to relationship quality. recent research in service settings has suggested significant impact of service quality, price fairness and relationship benefits on relationship quality (oraedu, 2019; prayag et al., 2019). therefore, proposal and examination of a more comprehensive framework of relationship quality would be an avenue worthy of future examination. conclusion [6] balaji, m.s. 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(2020). from corporate environmental responsibility to purchase intention of chinese buyers: the mediation role of relationship quality. journal of consumer behaviour, doi:10.1002/cb.1857 57 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) 58 jaroslav dad'o, janka taborecka – petrovicova, tamara rajic 2022/27(2) [52] yao, t., qiu, q., & wei, y. (2019). retaining hotel employees as internal customers: effect of organizational commitment on attitudinal and behavioral loyalty of employees. international journal of hospitality management, 76, 1-8. doi:10.1016/j.ijhm.2018.03.018 acknowledgements the authors gratefully acknowledge the scholarship for research stay in slovakia granted by the slovak academic information agency, which facilitated collaboration on this study. received: 2020-08-27 revisions requested: 2020-11-11 revised: 2021-02-20 (2 revisions) accepted: 2021-03-16 jaroslav ďaďo faculty of economics, matej bel university in banska bystrica, slovakia jaroslav.dado@umb.sk jaroslav ďaďo is a full professor at the faculty of economics, matej bel university in banska bystrica, slovakia. his main specialization is marketing and related disciplines, such as strategic marketing, international marketing, marketing communication, brand management. he participated in the mba program organized with nottingham trent university and as a lecturer he cooperated with a number of foreign universities (in england, poland, turkey, lithuania, czech republic, hungary, ukraine). he has participated in a number of slovak and international research teams and published a number of research papers and books related to marketing analysis, international marketing, services marketing, marketing strategies. janka táborecká–petrovičová faculty of economics, matej bel university in banska bystrica, slovakia janka.taborecka@umb.sk janka táborecká – petrovičová is an associate professor, deputy head of the department of corporate economics and management and a member of scientific committee at the faculty of economics, matej bel university, banská bystrica, slovakia. previously she worked as a module leader and consultant within the mba study in cooperation with nottingham trent university. her research interests cover areas of consumer behaviour, strategic marketing and biometric technologies. she published various papers in scientific journals in these fields and participated in many domestic and international projects and conferences. currently she is also an editorial board member and reviewer in various international journals. tamara rajić economics institute a.d. belgrade, serbia tamara.rajic@ecinst.org.rs tamara rajić is a research associate at economics institute a.d., belgrade. her research focus is consumer behaviour across service industries. she received her ph.d. from the faculty of organisational sciences, university of belgrade. results of the studies in which she participated have been published in total quality management & business excellence, journal of economics, e&m economics and management and presented at a number of national and international conferences. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 3 27_2 milica nikolic:tipska.qxd 25 milica nikolić*, milica maričić, dejana nikolić university of belgrade, faculty of organizational sciencies, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(2) consumers’ perception of csr activities: what does it mean for companies? doi: 10.7595/management.fon.2021.0017 abstract: 1. introduction the sphere of corporate social responsibility (csr) and social responsibility is a prevalent subject in this century, especially in the covid-19 era. nevertheless, the term dates back to the distant past, as back as the roman empire when people organised in groups that had a powerful social impact and helped the homeless, poor, and ill (chaffee, 2017). in today’s business, during the pandemics, the csr activities encompass making dollar contributions to support medical care workers, food banks, and schools, providing free laptops for children learning from home, phone chargers to hospitals so that patients and workers could stay in touch with their loved ones more easily, and others (manuel & herron, 2020). according to porter and kramer (2006), there are four main reasons why companies should turn to adopting the concept of csr in their business practices: moral obligation, sustainability, license to operate, and reputation. the aspect on which this study focuses is reputation. namely, previous research showed that * corresponding author: milica nikolić, e-mail: milica.nikolic.ssfon@gmail.com research question: the paper develops a conceptual model for exploring the factors which impact the consumers' word of mouth (wom) and willingness to pay (wtp) for products and services of socially responsible companies. motivation: the paper is based on the research of castaldo et al. (2009), pivato et al. (2007), rim and kim (2016), and jarvis et al. (2017) concerning the consumers’ perception of corporate social responsibility (csr) and measurement of the effectiveness of csr activities. accordingly, our paper tries to provide companies with valuable information on how the consumers’ perception of csr activities impacts the consumers’ trust, awareness, purchase intention, and future behaviour. idea: the proposed model is based on three pillars: perception of csr, moderating effects, and willingness to pay and recommend and strives to shed light on their mutual relations. the goal is to better understand the complex mechanisms and consequences of the consumers’ perception of csr activities of companies. data: to verify the proposed conceptual model, a questionnaire was developed and distributed. in total, 265 respondents participated in the research. tools: structural equation modelling (sem) analysis was employed to explore the relationships between defined factors. findings: the findings illustrate that both attitudes towards csr and csr companies have an impact on the level of trust and purchase intention. when it comes to wtp and wom, only the level of trust and purchase intention have an impact. interestingly, the respondents' awareness of the companies’ csr activities did not have an impact on wtp and wom. the model indicates that the companies should communicate their csr activities which will lead to greater trust and purchase intention leading to higher consumers' willingness to pay and recommend the companies’ products/services. contribution: the study empirically explores how the perception of csr and csr activities potentially influences the wom and wtp on products and services of socially responsible companies and provides a roadmap on how companies can increase the benefits of their csr activities. keywords: corporate social responsibility, conceptual model, consumer awareness, wom, wtp jel classification: m14, m31, c38, c52 csr activities might lead to competitive advantage, better relations with stakeholders, employees, and consumers, corporate image, and corporate reputation (almeida & coelho, 2019). therefore, it is in the company’s interest to engage in csr to improve its reputation and recognition. although there are many reasons and benefits for a company to engage in csr, the issue that emerges is how to measure the company-specific value of csr activities. csr effects can be hard to identify and measure. different approaches have been proposed: composite indicators (maricic & kostic-stankovic, 2016), impact models (weber, 2008), conceptual models (castaldo et al., 2009), various key performance indicators (ekatah et al., 2011), and others. the research question this study strived to answer is how to measure and explore the effects of consumers’ perception of csr and businesses of companies who are socially responsible. in this vein, the authors created a three-pillar conceptual model and tested the relationships between perception of csr (measured through attitude towards csr and attitude towards csr companies), moderating effects (measured through awareness, trust, and purchase intention), and willingness to pay (wtp) and word of mouth (wom). the proposed model attempts to integrate several concepts, improve the currently devised ones and fill in the gaps in the csr literature. the paper is organised as follows: the next section reviews several previously defined conceptual models on the topic of csr, while section 3 focuses on the in-depth introduction of the proposed conceptual model and the rationale for its construction. the following section covers the conducted research, model verification, and managerial implications of the obtained results. section 5 sees the concluding remarks. 2. measuring the consumers' attitude towards companies which engage in csr activities companies that engage in csr activities require feedback on the effectiveness of their csr projects. just some of the questions which arise are: has the perception of the company and its products/services changed because of the conducted csr activities? do csr activities impact sales? how does the public observe the company for its csr activities? one of the approaches to answering these questions is a conceptual model development and its verification using a structural equation modelling (sem) analysis. herein, we will present a number of models which acted as a guide for the development of our model. castaldo et al. (2009) in their research examined the missing link between csr and consumer trust in the case of fair trade products. they used five constructs in their model: consumer csr, trust in fair trade, trust in retailer private-label fair trade products, brand loyalty and willingness to pay a premium price. they concluded that the reputation of a retailer for respecting the rights of consumers and satisfying their needs positively adds to the trust of consumers toward fair trade products. also, they confirmed the hypotheses that consumers will pay a higher price and be loyal to fair trade products. pivato et al. (2007) researched the impact of csr on consumer trust in the case of organic food. their structural model examined the link between the corporate social performance of retailers, trust in organic products, trust in private-label organic products and brand loyalty in private-label organic products. they tested three hypotheses, and the results provided strong support for all of them. the assumption that consumer perception of csr performance is positively related to trust in organic products was confirmed. also, they concluded that trust in organic products correlated positively with trust toward private-label organic products and that trust in private-label organic products positively correlated with brand loyalty. rim and kim (2016) analyzed the dimensions of csr skepticism and their impacts on public evaluations toward csr. using sem analysis, they evaluated links between skepticism toward informativeness, disbelief, skepticism toward altruism, and cynicism. they concluded that skepticism toward altruism was a significant predictor for supportive behavioural intentions and consumers' attitude toward companies. the disbelief factor and informativeness factor were identified as significant predictors for negative consumer attitudes toward companies. one more significant conclusion is that the higher the public’s skepticism toward informativeness and the higher disbelief the public attributes to corporate csr activity and csr communication, the more negative attitudes toward companies they develop. customer engagement in csr was examined by jarvis et al. (2017). they made a model containing six constructs: csr initiative preference, customer engagement in csr, customer loyalty, age, gender, and length of time as member. they concluded that there is a positive relationship between a member’s prefe26 milica nikolić, milica maričić, dejana nikolić 2022/27(2) rence for a csr initiative and their intention to be loyal to the sports club and between a member’s preference for the csr initiative and their intention to be engaged in the csr initiative. also, the positive link between a member’s intention to be engaged with the preferred csr initiative and their intention to be loyal to the sports club was proven. engagement with the preferred csr initiative mediates the relationship between a member’s preference for the csr initiative and their intention to be loyal to the sports club. 3. proposed conceptual model in this section, the proposed conceptual model which strives to quantify the effects of different factors on the perception and purchase intention of products and services of companies which are socially responsible will be presented. the model is based on six constructs, one measured variable and their mutual relations. the respected elements and the related hypothesis are listed below. attitude towards csr the first construct of the model has the goal to explore the consumers' attitude towards csr. it is assumed that the fact the consumer is acquainted with the term csr and pays attention to csr activities of companies, it will later affect his/her purchase decision-making. the same viewpoint was held by marin and ruiz (2007) who showed that the attitude towards csr impacts the company-consumer congruence and identity attractiveness and ramesh et al. (2019) who explored the impact of attitude towards csr on brand attitude, brand image, and perceived quality. attitude towards csr companies it is believed that the attitude towards companies which are or are not socially responsible differs (mohr & webb, 2005). it is assumed that if a consumer has a positive attitude towards socially responsible companies, he/she is going to have trust in the products and services of that company and will be, eventually, willing to pay more. this assumption has been researched by pivato et al. (2007), who concluded that socially responsible companies could gain a competitive advantage in those economic branches in which trust is the key for choosing consumers. creyer and ross (1997) researched the influence of ethical behaviour of companies on the wtp a higher price. they concluded that ethics, as an aspect of socially responsible business, positively impacted the willingness of a consumer to reward that kind of company act and pay a higher price. awareness maignan (2001) showed that consumers had little awareness of csr activities of companies. in the model, awareness is defined as to how much the respondents recognise companies as csr active. the fact that the respondent recognizes a company as a socially responsible one indicates that the company has communicated and positioned itself on top of the mind of the respondent which might lead to positive wom and wtp as shown in the model of maricic et al. (2019). purchase intention a purchase intention for buying a specific product depends on many factors. during the purchase decisionmaking process, the term of social responsibility appears in the mind of the consumers. holmes and kilbane (1993) conclude that consumers have a more positive attitude about a company if that company makes donations. however, their opinion is that this fact does not influence consumers' intention to buy a product of that company. later on, dahl and lavack (1995) have concluded that the size of donation increases a purchase intention, after all. the findings of this research pointed to the conclusion that the products which showed the donation of the smaller amount of money were less attractive to the consumers and vice versa. the two studies indicate that csr activities and perception of them can have an impact on purchase intention. trust trust is a fundamental asset in every business and non-business relationship (pivato et al., 2007). the point of view taken in this paper was that consumers have more trust in socially responsible companies. likewise, our goal was to study how having trust in a company affects other constructs. the assumption was that if the company is socially responsible, a consumer will have more trust in their business, just because the company cares about the community. castaldo et al. (2009) confirm the assumption that consumers who 27 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) trust in the specific company are accordingly willing to pay a higher price for a product or service of that company. also, if a consumer trusts a company, it is expected that he/she will share his impressions with other people. willingness to pay (wtp) willingness to pay a higher price for a specific product or service primarily depends on consumers' priorities and perception. namely, in some research it is defined as a trade-off that exists when making a purchase decision. the trade-off is between social and traditional features of the product/ service (marquina & morales, 2012). it is believed that the csr activities of a company can eventually lead to increased wtp. abrantes ferreira et al. (2010) show that there is a significant connection between wtp and a purchase intention. marquina and morales (2012) showed that csr could contribute to brand value and customers’ higher wtp. word of mouth (wom) consumers frequently rely on informal and personal communication sources in making purchase decisions (bansal & voyer, 2000). recommendations and spreading information influence consumers' opinion and inform them about socially responsible activities of the company, but also on consumers' purchase intention. yu and tang (2010), in their research, conclude that wom will be most favourable when it is positive, richly described and conveyed in a strong manner. east et al. (2008) studied the influence of positive wom type (pwom), encouraging brand choice, and negative (nwom), discouraging brand choice, on purchase intention, and concluded that impact of pwom was generally greater than nwom. hypotheses and conceptual model the proposed conceptual model is given in figure 1. accordingly, the model is divided into three pillars: perception of csr, moderating effects, and willingness to pay and recommend. based on the literature review, it is hypothesised that there is a positive impact between the pillars: h1: perception of csr has an impact on moderating effects h2: perception of csr has an impact on willingness to pay and to recommend h3: moderating effects have an impact on willingness to pay and to recommend figure 1: proposed conceptual model based on three pillars 4. conducted research 4.1 procedure, participants, and the survey to verify the proposed conceptual model, an online survey was conducted from mid-june until mid-july 2020. the survey was distributed on authors' linkedin and facebook profiles. after closing the survey, statistical analysis was performed using spss 25 and in amos 22. spss was used for descriptive statistics, while amos was used to verify the structural conceptual model. the survey consisted of eight parts. the first group of questions was related to demographic characteristics of the respondents while the following seven parts 28 milica nikolić, milica maričić, dejana nikolić 2022/27(2) are related to six constructs and awareness variable which make the conceptual model. the complete list of questions used to quantify the six constructs alongside the sources from which the questions were adapted from is given in appendix. all questions which measured the respondents' agreement with specific statements were measured on a four-point likert scale, ranging from 1 (strongly disagree) to 4 (strongly agree). to measure awareness of csr activities, the test of recognition was used. the test of recognition is a standardised test used when measuring the awareness of consumers in marketing research (stotlar, 1993). in this test, the respondents are expected to point out the companies which they believe have received the “george weifert” prize awarded by the chamber of commerce and industry of serbia as the national award for corporate social responsibility (privredna komora srbije, 2020). regardless of the award itself, this question served to examine the respondents' awareness. if the respondent was not familiar with the award as such and its winners, he/she, based on knowledge of the offered companies, experience with them, knowledge of their csr activities, should have concluded which companies in his/her opinion could have received this award. 4.2 sample characteristics the sample consisted of 265 respondents. all questions in the questionnaire were mandatory, so there were no missing data. we had 169 female respondents who make 63.8 per cent of the sample, and 96 male respondents who make 36.2 per cent. the disproportion in the gender of the respondents can be observed. however, such a result should have been expected as females are more prone to participating in online surveys (smith, 2008). the mean age of the respondents covered by the sample is 26.74 with a standard deviation of 7.747. this indicates that different target groups are covered by the research. this is also confirmed by looking at the age of the youngest (19) and oldest (69) respondent. respondents most commonly came from belgrade (41.5%) and serbian cities with 20,000 to 100,000 habitants (27.9%) as the survey was distributed only in serbia. looking at the educational attainment of the respondents, 52.1 per cent of the respondents completed high school, while 36.2% have a bachelor's degree. lastly, the household income of the respondents was observed. most of them have a household income above rsd 100,000 (34.0%), followed by those with income between 70,000 and rsd 100,00 (23.4%). it can be observed that the population covered with the sample is urban, student population, and with the household income above average. 4.3 results of the test of recognition as explained above, in the test of recognition, the respondents had to mark the companies they believed were awarded as extremely socially responsible. in 2019, 15 companies were awarded the “george weifert” prize for corporate social responsibility. the question itself had 14 answers offered, of which seven were correct and seven were incorrect. namely, besides the seven companies which have received the “george weifert” prize, seven companies from the same industries have been offered. the complete list of companies offered is given in table 1. the average number of marked companies was 3.92. however, the average number of correct answers of respondents is 2.15, with a standard deviation of 1.601. only eight respondents identified all the correct companies. the rank of companies based on the number of times they were marked as a csr company and whether the company was the winner of the “george weifert” prize or not is given in table 1. the first thing that can be noticed is that most respondents observe the company dm drogerie markt as a socially responsible company, 144 (54.3% of all answers). considering that this company did receive an award for social responsibility in serbia, it can be concluded that more than half of the respondents correctly marked at least one company. this result also indicates that the company dm drogerie markt has managed to present and communicate itself as a socially responsible company to consumers. however, the next two companies which were marked as socially responsible more than 100 times were actually false answers. namely, 104 (39.2% of all answers) respondents recognised the company soko štark and 101 (38.1% of all answers) respondents recognised the company delhaize as socially responsible. looking down the list, it can be noticed that two companies have a similar number of responses: telegroup (28) and mk group (29). this is an interesting result, as one of these two companies is the correct answer. in 2019, the company telegroup won the “george weifert” award for socially responsible business in the category of medium-sized companies. 29 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) table 1: rank of companies based on the number of times they were marked as a csr company and whether the company was the winner of the “george weifert” prize or not 4.4 conceptual model verification the next conducted analysis was the verification of the proposed conceptual model. to do so, a sem analysis was employed. the sem analysis lays on the theoretical principles of principal component analysis and multiple linear regression (kline, 2005). this allows the analysis to be two-folded: it reduces the dimensionality of the observed phenomenon, while it allows the exploration of the relation between the newly formed latent factors (asparouhov & muthén, 2009). when applying the sem analysis, the literature suggests investigating the internal consistency of the observed constructs. namely, it should be observed how well the proposed questions measure a particular topic and whether the defined scales are consistent or not. to do so, cronbach's alpha was used (cronbach, 1951). literature suggests that values above 0.700 indicate solid consistency and that the sem analysis can be conducted (tavakol & dennick, 2011). the obtained cronbach's alpha per construct and number of questions within each construct are given in table 2. in our study, the cronbach's alpha ranges from 0.749 (purchase intention) to 0.923 (wom). it can be concluded that all proposed constructs have a satisfactory internal consistency and that the sem analysis can be conducted. table 2: number of items in each construct and obtained cronbach's alpha per construct the initial model had a solid fit to the data (chi-square=588.548, df=235, p<0.000, rmsea=0.075, cfi=0.887, nfi=0.828, srmr=0.1443). therefore, we used modification indices to fine-tune and enhance our model and removed all paths which were not statistically significant. the final model had a good fit to the data (chi-square=520.668, df=241, p<0.000, rmsea=0.061, cfi=0.911, nfi=0.848, srmr=0.057). the comparative indexes, comparative fit index (cfi) and normed fit index (nfi) are acceptable or marginally acceptable. the standardised root mean square residual (srmr) is slightly above the 0.05 threshold. taking into account all the above presented results, it can be concluded that the final model could be used to draw conclusions (hsu, 2013). the assessment of the final model is given in table 3. awareness can be modelled by the respondents' attitude towards csr companies. the impact is such that the more the respondents are interested in having information on csr activities of companies, the more they will recognise the socially responsible companies. the model has a low r square of just 6.3%. 30 milica nikolić, milica maričić, dejana nikolić 2022/27(2) rank company times marked as a csr company true/false winner 1 dm drogerie markt 144 true 2 soko stark 104 false 3 delhaize 101 false 4 telenor 96 false 5 nis 95 true 6 telekom srbija 89 true 7 metalac 85 true 8 infostud 3 81 true 9 erste bank 68 false 10 vega it sourcing 48 true 11 meridian bet 45 false 12 mk group 29 false 13 telegroup 28 true 14 ncr 27 false construct attitude towards csr attitude towards csr companies purchase intention willingness to pay trust wom number of questions 5 6 3 3 3 3 cronbach’s alpha 0.788 0.788 0.749 0.844 0.796 0.923 purchase intention and trust can, on the other hand, be modelled with both attitude towards csr and towards csr companies. in the two equations, all predictors have a positive, statistically significant impact, and the impact of attitude towards csr companies is slightly stronger. the obtained r squares are high. namely, 56.6% of the variability of trust and 54.4% of the variability of purchase intention can be explained by the respondents' attitude towards csr and csr companies. taking a look at the models of wom and wtp, only trust and purchase intention have statistically significant and positive impacts. the more trust the respondents have and the higher their purchase intention is, the higher the price they are willing to pay and the more they are prepared to recommend the product/service. the r squares are high, 62.6% for the model of wom and 60.8% for the model of wtp. table 3: assessment of the final model: construct, predictors, obtained standardised coefficients, c.r., and the r square note: *p<0.05, **p<0.01 4.5 discussion and managerial implications the obtained results show that the constructs attitude towards csr and attitude towards csr companies have a statistically significant impact on all modifying effects, except awareness. therefore, it can be said that hypothesis 1 is partially confirmed. this indicates that the more the respondents have a positive opinion on csr and its importance, the more they will trust the csr companies and consider buying products/services of csr companies. such information might be usefull for managers of csr active companies as it provides reasurement that consumers pay attention to companies’ csr activities, value them, and shape their oppion on the company accordingly (castaldo et al., 2009). on the other hand, the same constructs do not have a statistically significant impact on both wtp and wom, proving that hypothesis 2 is not confirmed. therefore, the companies should be aware that for willingness to pay and recommend, it is not enough for the respondents to believe positively in csr. these results are aligned with the results of al jarah and emeagwali (2017) who came to the same conclusion after performing meta-analysis. nevertheless, they should have in mind the indirect effect of attitudes towards csr and csr companies. both wtp and wom can be successfully modelled by most defined modifying effects, so we can conclude that the hypothesis 3 is partially confirmed. this hypothesis showed that for consumers to be willing to pay and recommend, they have to have enough trust and previous idea of purchasing products of csr companies. the obtained results are in accordance with the results of castaldo et al. (2009) and perrini et al. (2010). the managerial implication which derives from these results is that if the company is to increase their sales and positive wom, they should devote themselves to building trust with consumers based on their activities in the field of csr. the analysis of the test question provided more information about the perception of current market leaders when it comes to csr. the priority conclusion is that the company dm drogerie markt was identified by the largest number of respondents as socially responsible, and at the same time, it received the award for csr from the serbian chamber of commerce. this shows that the social initiatives of this company are very recognisable to consumers and that they appreciate and value them, but also that their projects are recognised by respected institutions in serbia. however, companies soko stark, delhaize and telenor were among the top five most representative companies in terms of csr, and none of them actually won the award. for these companies, it would be desirable to use this opinion among consumers to create new or apply for existing socially responsible initiatives in competitions of this type, such as the national award for corporate social responsibility. in that way, they would strengthen their reputation as companies which engage in csr (vlastelica bakic, krstovic & cicvaric kostic, 2012). 31 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) construct predictors std coeff c.r. r2 awareness attitude towards csr companies 0.252** 3.600 0.063 purchase intention attitude towards csr companies 0.712** 6.904 0.544 attitude towards csr 0.192* 2.962 trust attitude towards csr companies 0.683** 6.602 0.566 attitude towards csr 0.315** 4.697 wom trust 0.661** 7.207 0.626 purchase intention 0.204* 2.691 wtp trust 0.542** 6.372 0.608 purchase intention 0.338* 4.244 references [1] abrantes ferreira, d., gonçalves avila, m., & dias faria, m. 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(2009). exploratory structural equation modeling. structural equation modeling: a multidisciplinary journal, 16(3), 397–438. doi:10.1080/10705510903008204 32 milica nikolić, milica maričić, dejana nikolić 2022/27(2) this paper aimed to create a conceptual model that would measure the influence of different factors on the decision to purchase products and services of socially responsible companies. the model is composed of six constructs: attitude towards social responsibility, attitude towards socially responsible companies, intention to buy, trust, willingness to pay, and word of mouth and one measured variable, awareness. also, the model was examined on the results of an online survey conducted in serbia. the model verification shows that there are statistically significant relations between the proposed elements, that the consumers’ attitude towards csr and csr active companies acts as a significant predictor of their trust and purchase intention, and that the consumers’ wtp and wom on products of csr active companies are influenced by their level of trust and previous intention to buy. the detected relations could have managerial implications when it comes to doing business on the serbian market. it is of interest to observe how our results and conclusions align with previous studies on the topic of csr conducted in serbia. in their longitudinal study, cockalo et al. 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(1996). the behavioral consequences of service quality. journal of marketing, 60(2), 31–46. doi:10.2307/1251929 received: 2020-12-19 revisions requested: 2021-02-09 revised: 2021-02-16 accepted: 2021-03-25 milica nikolić university of belgrade, faculty of organizational sciences, serbia nikolic.milica@mail.com milica nikolić is a master’s student of informational technologies at the university of belgrade, faculty of organizational sciences. she completed her undergraduate studies of informational systems and technologies at the university of belgrade, faculty of organizational sciences. her fields of interest are data analysis, product management and human-computer interaction. milica maričić university of belgrade, faculty of organizational sciences, serbia milica.maricic@fon.bg.ac.rs milica maričić is an assistant professor at the university of belgrade, faculty of organizational sciences. she received her ph.d. at the same faculty, in the field of computational statistics. she specializes in the field of applied statistics and data analysis. her research interests include the development and evaluation of ranking methodologies, structural equation modelling, and multivariate analysis. she has published more than 40 scientific papers with an emphasis on isi indexed journals. she is an active member of the international statistical institute (isi). 35 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) dejana nikolić university of belgrade, faculty of organizational sciences, serbia dejana.nikolic@fon.bg.ac.rs dejana nikolic is a teaching assistant at the univeristy of belgrade, faculty of organizational sciences, department of marketing management and public relations. she is also a phd student at the university of belgrade, faculty of organizational sciences. her research fields are creative industries, marketing and public relations. she is also the author of more than 30 scientific papers in the field of 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 8 27_2 violeta cvetkovska book review:tipska.qxd book review doi: 10.7595/management.fon.2022.0004 everything we do in life is based on previous decision. we are complex beings who differ (by age, gender, education, experience, and so on), and our decisions determine whether we succeed or fail. employees are an organization's most valuable asset, and based on decisions taken, they can gain a competitive edge, be successful, and thrive in the long run, but they can also fail. how can we, as individuals and as members of organizations, cope more effectively with decision-making when numerous factors must be examined and we must choose among alternatives, prioritize, and forecast? in 1980, the eminent professor thomas l. saaty introduced the analytic hierarchy process, a multi-criteria decision making (mcdm) method that can deal with complex decisions by structuring the problem as a hierarchy (with goal, criteria, and alternatives), comparing the criteria regarding the goal, and the alternatives regarding each criterion using his scale of relative importance with 9 degrees; deriving priorities for criteria, local priorities for alternatives; overall priorities for the alternatives; check the consistency in the pairwise comparisons; conduct sensitivity analysis, and make the final decision. this methodology has been widely employed around the world since its inception. the ahp is the most commonly used mcdm method, according to a bibliography by mardani et al. (2015), which was based on 393 peer-reviewed articles published in journals between 2000 and 2014 (extracted from web of science). the theory of the ahp is brilliantly explained by saaty (2012) and brunnelli (2015), but there was a gap in the existing literature for a book that would teach readers, particularly corporate executives and students who lack operational research (or) knowledge and skills, how to apply this leading mcdm methodology in practical applications. as a result, enrique mu (who collaborated with the original author of ahp and was mentored by him) and milagros pereyra-rojas created a masterpiece named "practical decision making: an introduction to the analytic hierarchy process (ahp) using super decisions v2." each page of this book reflects their 15 years of expertise teaching and practicing ahp. the book is structured into three parts (part i is basic, part ii is intermediate, and part iii is advanced). part i consists of 3 chapters. in chapter 1, it is explained why there is a need for another method of decisionmaking. ahp decisions are straightforward (easy to understand and use), effective (the consistency is checked and adjusted where needed) and safe (the methodology is proven, i.e. used in more than 50 countries at the global level) (mu and pereyra-rojas 2017). in addition, in ahp, both tangible and intangible factors can be used. its popularity is growing due to the development of software packages that allow for faster problem solving, allowing the decision-maker(s) to focus more on the interpretation of the results and the ability to use ahp for group decision-making. in chapter 2, it explains the process of ahp application in 6 steps with a practical hypothetical example of purchasing a new car. the emphasis in this chapter is on acquiring knowledge and skills in using the ahp process with spreadsheets in excel. chapter 3 continues with the same example (with more criteria and alternatives) and the application of the ahp 6-step process in the 83 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) violeta cvetkoska ss. cyril and methodius university in skopje, faculty of economics-skopje, north macedonia abstract: book review of “practical decision making: an introduction to the analytic hierarchy process (ahp) using super decisions v2” written by enrique mu and milagros pereyra-royas (2017). springer nature. isbn: 9783-319-33860-6; isbn: 978-3-319-33861-3 (ebook); doi: 10.1007/978-3-319-33861-3. jel classification: d70 creative decision foundations' free software, super decisions v2. please visit its webpage for detailed information and the newest version, super decisions v3.2 (http://www.superdecisions.com/). part ii consists of 4 chapters. chapter 4 describes how, in the general model with three levels, we can add a new level, i.e. sub-criteria to one or more of the chosen criteria. chapter 5 is dedicated to the absolute measurement of ahp. more precisely, in cases when the number of alternatives is large or they are subject to change (add or delete), the relative measurement, which was considered until this chapter, is not the proper one. therefore, rating models are created where the alternatives are compared with a standard and not with the other alternatives regarding each criterion. the use of rating models for the selection of the next top salesperson is elaborated in cvetkoska and iliev (2017), while the financial decisions of a young population in developing countries are presented in kaftandzieva and cvetkoska (2021). the next chapter considers the rating model in super decisions v2, which can be easily developed and solved. chapter 7 introduces another type of analysis where ahp can be successfully implemented, and that is a benefit cost analysis, as well as benefit, opportunity, cost, and risk (bocr) analysis (saaty and ozdemir, 2004). for each element, a different hierarchy is created, and the authors point out that the 4 hierarchies for the bocr can be developed and solved in super decisions, but the calculations for the multiplicative ratio (b*o/c*r) should be performed outside the software. part 3 consists of 3 chapters. chapter 8 focuses on the use of ahp for group decisionmaking, where the opinions of several experts are required for complex problems or when the decision will have an impact on different stakeholders, and they should be included. the authors provide a thorough explanation of the process, using a real case example of the selection of a cloud service provider for the city of pittsburgh (mu and stern 2014). chapter 9 focuses on the ahp use in group negotiations and conflict resolution (saaty, 2012; saaty and alexander, 2013), and explains how the hierarchies can be created for each party separately by deep discussion with the facilitator and obtaining a solution that is beneficial for each party. the last chapter gives three different ahp practical applications, i.e. to evaluate eportfolio alternatives for a higher learning institution, to use the ahp model in public decisions (mu, 2014), and to elicit tacit knowledge in the process of decision-making. mu and pereyra-rojas (2017, p. 103) state the following: “…working with ahp is rather similar to working with lego blocks. the number of different blocks is rather limited and relatively easy to grasp; however, the possibilities of what can be done with them are rather unlimited. similarly, using a relative limited set of concepts: hierarchical modeling, pairwise comparison, consistency, synthesis, and sensitivity; it is possible to address a very broad number of decision-making problems and situations.” following their words, this book shows how to use and combine the ahp basic concepts in decision-making as demonstrated by more than 20,000 worldwide downloads of this book to date. video demonstrations of many book examples are also available as supplementary material. good decisions necessitate the utilization of high-quality data and quantitative methodologies that are given to decision-makers with a recommendation. as a result, this book is a must-read for all students and managers in the private and public sectors, as it will help them make better and faster decisions using a proven and powerful mcdm approach. note another springer book, titled “practical decision making using super decisions v3” with the same structure of current review but using the newest version of super decisions has also been published by the authors (mu and pereyra-rojas 2018). references: [1] brunnelli, m. (2015). introduction to the analytic hierarchy process. springer. [2] cvetkoska, v., and iliev, f. (2017). how to choose your next top salesperson: multiple-criteria approach. business systems research, 8(1), 92-112. [3] kaftandzieva, t. and cvetkoska, v. (2021). financial decision-making among young adults: an ahp approach, international journal of the analytic hierarchy process, 13(3), 458-482. [4] mardani, a., jusoh, a., nor, k. m. d., khalifah, z., zakwan, n., and valipour, m. (2015). multiple criteria decision-making techniques and their applications – a review of the literature from 2000 to 2014, economic research-ekonomska istraživanja, 28:1, 516-571, doi: 10.1080/1331677x.2015.1075139. [5] mu, e. (2014). an mcdm reflection of the fifa 2014 world cup golden ball award. the international journal of the analytic hierarchy process, 6(2), 124-131. [6] mu, e. and pereyra-rojas, m. (2017). practical decision making: an introduction to the analytic hierarchy process (ahp) using super decisions v2. springer nature. [7] mu, e. and pereyra-rojas (2018). practical decision making using super decisions v3: an introduction to the analytic hierarchy process. switzerland: springer international publishing ag. 84 violeta cvetkoska 2022/27(2) [8] mu, e. and stern, h. (2014). the city of pittsburgh goes to the cloud: a case study of cloud strategic selection and deployment. journal of information technology teaching cases, 4, 70-85. [9] saaty, t. l. (2012). decision making for leaders: the analytic hierarchy process for decisions in a complex world. third revised edition. pittsburgh: rws publications. [10] saaty, t. l. and ozdemir, m. s. (2004). the encyclicon: a dictionary of decisions with dependence and feedback based on the analytic network process. pittsburgh: rws publications. [11] saaty, t. l., and alexander, j. m. (2013). conflict resolution: the analytic hierarchy approach. pittsburgh: rws publications. violeta cvetkoska associate professor ss. cyril and methodius university in skopje, faculty of economics-skopje, north macedonia vcvetkoska@eccf.ukim.edu.mk violeta cvetkoska is an associate professor of the courses operational research, and fundamentals of business analytics, and head of the eui at ss. cyril and methodius university in skopje, faculty of economics – skopje. she holds a master's degree in operational research and quantitative methods from the university of belgrade, and a phd in economics from ss. cyril and methodius university in skopje. she excels at transferring her deep knowledge and skills to students and managers, enabling them to become data-driven professionals, helping companies obtain a competitive edge through operational research, business analytics, and artificial intelligence (ai). her international academic career has been developed by study visits and active participation in international conferences, symposia, and workshops at prestigious universities in europe, north and south america, and asia. she is a certified monsoonsim trainer, using this incredible ai-driven platform that focuses on experiential learning. she has published several scientific papers in international journals and conference proceedings. prof. cvetkoska actively participates as a member of editorial boards of international journals, scientific boards of international conferences, and as a member of international societies: croatian operational research society (crorr), society for economic measurement (sem), euro working group on multicriteria decision aiding, euro working group on behavioural operational research (bor) and informs information systems society. her current research interests include digital transformation, the green economy, performance measurement, smes, banking and finance. 85 management: journal of sustainable business and management solutions in 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 8 27_1 gasparik book review:tipska.qxd book review doi: 10.7595/management.fon.2022.0005 participatory budgeting has been part of public policy-making since 1989. it has been part of the governance of communities, local governments and other public institutions in various forms worldwide for three decades. in response to the expanding application of this phenomenon, there is a growing need for analytical exploration of it. the book entitled “international trends in participatory budgeting: between trivial pursuits and best practices” (2022), edited by experienced and internationally renowned experts (michiel s. de vries, juraj nemec and david špaček), provides a comprehensive researchers' perspective on participatory budgeting in europe and specifically on its introduction and implementation in the central and eastern european countries. a total of 28 authors (from belarus, brazil, croatia, the czech republic, the netherlands, hungary, germany, poland, romania, russia, italy, slovenia, slovakia, serbia, and sweden), who are experts in the functioning of local democracies and the operation of local governments, have contributed their inputs to the content of this publication. their previous research has focused, among other things, on innovative elements of democracy, most of them focusing on the cee region. in the context of their activities to date, it is not surprising that they have chosen to focus on participatory budgeting, an interesting but hitherto under-researched area. moreover, several of these authors have also worked as consultants in preparing various public policies, which has allowed them to see the topic from several perspectives. the book consists of 15 separate chapters. the first chapter, authored by de vries, špaček, nemec and genro, describes the beginnings of participatory budgeting in porto alegre. tarso genro, as one of the direct actors in the introduction and further use of this innovation, offers his first-hand perspective on the experience gained, which adds relevance and authenticity to the content presented in the chapter. for the other chapters, which map participatory budgeting initiatives in selected european countries, this first chapter is also a good introduction, allowing readers to more easily understand the reason for and importance of this democratic innovation in the field of budgeting. the following 13 chapters provide a fairly comprehensive picture of the experience with the introduction and further use of participatory budgeting in different european countries. the authors mainly describe practical experiences in their chapters, but they do not shy away from examples of good and bad practices or from various specific elements and tendencies. at the same time, the authors make use of a broad database (e.g., on the number and development of participatory budgeting initiatives, on public involvement in related processes, on the amounts of funds allocated for participatory budgeting purposes), which helps the readers to form a sufficiently rounded picture of the phenomenon described and analysed. the last chapter summarises the individual findings and the identification of common and different elements. its authors (de vries, nemec and špaček) point in particular to three main findings. first, they note that the first participatory budgeting initiative introduced in porto alegre differs significantly from the practice in the countries studied. in other words, this initiative played the role of a political inspiration. although it retained its original terminology in different circumstances, it was considerably modified in terms of content, not only in terms of the instruments used but also in terms of the objectives. an example is the empowerment of excluded communities, which was one of the central elements of the original brazilian model, but which played 81 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) mgr. jozef gašparík comenius university in bratislava, slovakia abstract: book review of: de vries, m. s., nemec, j. and špaček, d. (2022). international trends in participatory budgeting: between trivial pursuits and best practices. cham: palgrave macmillan. isbn 978-3-030-79929-8. a book review (written by jozef gašparík, comenius university in bratislava) jel classification: h61 only a secondary role in the conditions of central and eastern europe countries. second, participatory budgeting and its diffusion show that the process is not only lengthy and uncertain in countries with a relatively short experience of representative democracy but that several countries that are considered to be established representative democracies offer similar stories. the common denominator here appears to be political will. this may be influenced by various factors or drivers, such as limited resources, the extent of the competencies and autonomy of local governments, a tradition of representative democracy that does not actively call for the introduction of elements of direct democracy, or current societal developments in the country in question. third, the fear or reluctance of local government leaders to allocate a larger proportion of public budgets and the purpose of participatory budgeting appears to be a vicious circle. the public perceives the small amount of funds so earmarked as demotivating, and public participation in these initiatives is not high. electoral leaders perceive the low level of public participation as equally demotivating and read it as a message from the public indicating their lack of interest in co-determining the use of public funds. in this context, it will be extremely interesting to see whether the compulsory use of participatory budgeting, which has only recently been introduced in poland, for example, will help to overcome this vicious circle. at this point i will summarise the most important contributions of this publication. the first is the breadth of its focus, or rather the number of cases it offers. the publication provides an expert perspective on the practical grasp of participatory budgeting across 13 european countries. the authors of the individual chapters offer insights into the first experiences with participatory budgeting in the countries studied, including information on the first local governments and their institutional foundations necessary to launch the relevant processes. in addition, these chapters also provide information on the further diffusion of this innovation in each country. an interesting element is the variety of terminology used to refer to similar or even identical processes in the countries studied. in an interesting way, the publication shows that the phases of participatory budgeting can differ even within several examples of the same country. the authors try to take into account a larger number of cases and compare them with each other to reveal both similarities and differences between them. this also makes it possible to identify countries where participatory budgeting processes lean more towards the uniform and countries where participatory budgeting processes differ significantly in different cases. another important element mentioned by the authors is the role of citizens and the third sector. the publication works with data on the use of participatory budgeting, making it possible to compare the countries studied with each other to some extent. at the same time, it is possible to learn about the roles of civil society in the preparation and implementation of participatory processes. an interesting part is also the information on the amounts of earmarked funds that citizens can redistribute through this innovative tool. the publication gives readers a better idea of the financial range of the different local governments or institutions that have applied participatory processes in the countries studied. the authors of individual chapters also provide insights into the relevant legislative arrangements for participatory budgeting. on this basis, it is possible to consider whether the inhabitants of a given country have a legal right to this instrument or whether it is rather the will of the political leaders and inhabitants of a given local government that leads to the introduction and further use of participatory budgeting in practice. each chapter summarises a number of factors and drivers that have influenced the development and shape of participatory budgeting in a given country. it considers the role of citizens and the legislature in scaling up and implementing the process in practice. this allows readers to answer questions about how participatory budgeting has spread in the countries studied, the legislative anchorage and institutional background of participatory processes in these countries, and the role and power of citizens or the non-governmental sector through participation. of course, the authors do not shy away from identifying the barriers and limits that local governments have faced in introducing participatory budgeting, which potentially still hinder the further spread of this democratic innovation. in conclusion, this publication brings new insights and policy implications that can be used both in international comparative research and in practice. i can therefore recommend it not only as a must-read for all those directly interested in participatory budgeting but also as an interesting and inspiring reading for those interested in the quality of local democracy, the functioning of local governments, and the role and participation of citizens in the governance of public affairs. acknowledgement this work was supported by the slovak research and development agency under the grant no. apvv-190108: “innovations in local government budgeting in slovakia”. 82 jozef gašparík 2022/27(1) mgr. jozef gašparík faculty of arts comenius university in bratislava, slovakia e-mail: gasparik27@uniba.sk mgr. jozef gašparík phd. student at comenius university in bratislava. he is the author of several publications mainly oriented towards participatory budgeting in slovakia and czechia. he also worked as an expert at trnava self-governing unit where he was introducing participatory budgeting at high schools. 83 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03_ana nesic:tipska.qxd 27 ana nešić¹, danijela lalić² 1,2 university of novi sad, faculty of technical sciences management 2016/81 005.32:331.101.32 the impact of trust on job performance in organisations doi: 10.7595/management.fon.2016.0028 1. introduction the demands which contemporary organisations set before their employees have also initiated an increased commitment to people and their individual characteristics, among which trust occupies the most significant position. the problem of trust in organisational relations opens up numerous questions, such as: what it is the quickest way to establish trust, does trust depend on the characteristics of employees, does it depend on the structure and culture of the organisation, in which mechanisms is trust best maintained among staff and within the organisation itself, how do management styles affect the establishment of trust, can trust contribute to an increase in business results, as well as others – numerous questions to which great attention is dedicated in developed countries. organisation and management questions which require answers: in what way is organisational trust established, is it created based on managerial control, incentives, inspirational management or internal individual motivation? the preconditions for the development of trust, according to most authors who have studied trust, are the following: previous communication experiences as part of work behaviour, the existence and ways of using social connections and contacts, intentions behind activities and the similarities which exist in these engagements. the paper examines the concept of trust from the position of job performance, which can be influenced by trust issues. the consequence behind the existence of trust in interpersonal communication is often reflected in the reduction of risk perception, as well as in the cost reduction of joint endeavors. the benefits for all communication among participants based on trust are reflected in the cohesion in joint activities, reduction of potential opportunistic activities, reduction in formal contact use, increased reliability in creating business results, the predictability and openness in communication, as well as an increase in efficiency (steppänen et al., 2007). the starting point for the analysis of organisational trust in our work is to consider the trust as part of the internal relations between employees, not as personal characteristics and beliefs. 2. a theoretical approach to trust trust has become an important research topic in various disciplines, including management, ethics, sociology, psychology and economics. even though this multi-disciplinary approach has opened numerous theoretical access points (rousseau et al., 1998), it has also created confusion in defining and conceptualizing in circumstances governed by consistent change in all aspects of business, trust represents a significant factor in the behavioural patterns of organisations. of great importance for a successful communication in organisations is understanding the levels of trust among staff, employees and their management, and trust in the organisation itself. trust is a cohesive and motivating factor in work groups. also, based on trust are identification and commitment to the organisation, as well as the relationships of employees. in successful organisations special attention is given to the problems of trust and mistrust. this work considers different theoretical concepts of how trust is created and maintained in organisations, different dimensions of organisational trust, as well as the effects of trust in organisational performance. keywords: trust, organisation, employees, managers, business the very construct of trust. one group of theories consider trust to be instinctive, to evolve from the readiness to divide food in hunter-gatherer societies (nooteboom, 2003). other groups of theories maintain that people have a need for trust out of fear of punishment if they are unable to perform what is expected from them, in order to achieve their own individual goals; in order to demonstrate empathy, identification and friendship; or simply, because they want to trust (reynolds, 1997). some theoreticians view trust as a behavioural intention (mayer et al., 1995; rousseau et al., 1998), while others describe it as a communication determined by choice (lewis and weigert, 1985). a third group of theoreticians see trust as a synonym for one’s individual characteristics complemented by positive expectations from other individuals (butler and cantrell, 1984). some view trust as an aspect of personality which develops in an early period of development and remains relatively stable throughout life (rotter, 1967). finally, there are those theoreticians who treat trust as a synonym for cooperation and risk-taking (lewis and weigert, 1985) but also often as an operationalization of behaviour in communities (deutsch, 1958). in contemporary settings, studies of everyday human interaction have defined trust as a significant factor in maintaining social processes. from the approach and aspects of rational choice, trust is interpreted as a rational perception in which the benefits of trust will be greater than the risk that exists when efforts are invested in cooperation (hindmoor, 1998; warren, 1999). williamson even considers trust itself to represent a certain dose of risk (williamson, 1993). in fact, trust represents much more than a rational calculation of the individual because it is frequently based on commitment, even beliefs, with the presence of the emotional component, sometimes even a religious one, as well as with expectations that other individuals will treat us in the same way in which we treat others (newman, 1998; misztal, 1996; warren, 1999). trust represents a system of shared expectations, but is also a phenomenon which implies that every participant within the interaction is given a sense of certainty. the sense of certainty is provided by the fact that there exists a possibility to predict the future behaviour of the other party, to count on it and to trust it. understanding trust implies the differentiation between two fundamental components of trust: readiness to react in situations of vulnerability and risk (mayer et al., 1995) and reassurance guided by positive expectations (lewicki et al., 1998; mayer et al., 1995). trust is defined as the readiness of one party to accept the actions of the other party based on expectations that the other party will complete a specific task important for them, without the possibility of controlling their work (mayer et al., 1995). as zaheer and his associates (zaheer et al., 1998) claim, trust represents an individual tendency to believe in something you have determined on your own. trust also implies a reciprocal belief in the intentions and behaviour of others (kreitner and kinicki, 1998), a dependable reliance in the integrity, honesty, fairness and trustworthiness of others (funk and wagnalls, 1985), as well as a representation of an irrational choice of a person faced with uncertain events in which the expected loss is greater than the expected gain (deutsch, 1958). these definitions rely on a personal approach of the interpretation of trust in organisations. since it was necessary to include the social environment in explanation of trust, fukuyama defines trust, affected and shaped by a culture dominant in a society, as expectation of a regular, honest and cooperative behavioural patterns, believing that trust plays an important role in shaping economic performance of businesses and countries (fukuyama, 1995), as well as a set of social expectations formed on the foundations of people, processes or institutions shared by all and which include an economic exchange (zucker, 1986). from the aspect of interpersonal relations it is possible to define trust as a mutual relationship in which neither party will hurt the other, or use each other’s vulnerability (barney and hansen, 1994) and a belief which implies positive expectations about somebody else’s motives in communication, even when they occur in precarious situations (lewicki and bunker, 1996); such a wide range of definitions, on the one hand, makes it easier to give a unique access and analysis, but, on the other, makes it more difficult. meta-analysis indicates the importance of reciprocity in the given definitions of trust, or expectations of behaviour and intentions of others. taking into account the explanations offered, we believe that those do not fully explain the phenomenon of trust. the question is what is the liable decision of the individual to communicate with other people based on trust, if only until the moment when trust is lost. 28 2016/81management 3. organisational trust in works on organisational behaviour one is able to find various definitions of trust, but all of them refer to similar characteristics of human behaviour. trust is based on the observation of the other party in communication, via understanding the competence of the other party and their motives. the assessment of competence relates to a two-sided competence of both observer and the other party, through an observation of one’s own abilities and the abilities of those with whom he cooperates, as a competence that both of them can accomplish what the situation requires. observing the intentions and motives of individuals implies an overview of whether someone’s words, decisions or actions are motivated by mutual usefulness, rather than motives of self-interest. yamagashi (yamagashi and yamagashi, 1994) believes that organisations in which trust is fostered, are places where employees feel they have a better wellbeing than in other organisations, which is the starting premise in our perception of the role of trust in the organisation. the role of trust in organisational terms is not a one-dimensional phenomenon, and still depends on numerous factors. in that sense, mishra believes there are four dimensions of organisational trust. those are competence, openness and honesty, employee care and reliability (mishra, 1996). new studies by shockley and zalabak, ellis and winograd, have discovered another important factor which needs to be taken into consideration, as do the four previously mentioned, and that is identification (shockley-zalabak et al., 2000) which measures the level of attitude we have towards common goals, norms, values and beliefs, combined with the organisational culture. this dimension indicates how our feelings are connected to our management and associates. in order to explain trust within an organisation eberl used the game theory and the theory of attribution, describing trust as a fundamental relational phenomenon, regardless of whether it is between individuals or organisations. eberl makes a difference between trust that refers to the relative one-sided presumption of competence and the perception that the other party will not act opportunistically. the attribution processes shows whether or not the relationships based on trust will form. from the perspective of organizers, trust is especially relevant as a moderator that alleviates coordination (eberl, 2004). the famous thought experiment known as the “prisoner’s dilemma” explains, through the principles of game theory and in an interesting way, the access to trust and the development of it. two men arrested, separated at hearings, receive an identical offer. if they both choose the option to fully trust each other and do not admit anything, they both receive a minimum sentence. a selfish behaviour and shifting the blame to another prisoner leads to release, while if they both choose this approach they get a heavy penalty each. it logically follows that both prisoners will tend to show untrustworthy and selfish behaviour, because whatever one party decides, the other one will pass without maximum penalties. however, if the prisoners play cooperatively and help each other with silence, they both receive a minimum sentence. transferred to the field of organisation, cooperative behaviour based on trust will give better results and favourable outcomes for all parties. lewicki and bunker consider three phases in the development of trust in organisations: trust based on finance, trust based on knowledge and trust based on positive identification. they point out that the three phases of trust are connected in sequential development; they are not three separate types of trust. in circumstances where people are convinced their interests are protected, trust is developed. an increased identification allows employees to think like others and to develop a collective identity, common goals and common values. in that model, trust develops and changes over time (lewicki et al., 2006). in order to further clarify the subject numerous models of trust development are conceived. mayer’s model of trust development represents an integrative model of organisational trust, respecting the characteristics of the person who gives trust, then the person to whom trust is given and the role of risk in the establishment of trust in communication. the model of trust by donnie and cannon represents an integrated theory of several theoretical approaches and demands the assessment of the other party’s validity and benevolence. in the model, they study the characteristics of those who receive trust and those who give their trust. three factors contribute to an individual’s tendency to consider the trustworthiness of the other person, and those are the abilities based on compensation in order to secure what the trustee expects; then, the integrity based on facts that the other person is led by principles accepted by the person who gives their trust; and third, the benevolent behav29 management 2016/81 iour associated with the intentions of the person who places their trust that the other person will do the best in his ability for the person that places his trust in them. the model of trust development by sheppard and sherman (sheppard and sherman, 1998) indicates that trust is created depending on the specifics of the social context in which communication takes place, and is based on the overview of the context for the establishment of trust within that specific context. for trust to be established in a business context, it is necessary to observe the history of reliability of the other party, their attitude towards deceit, altruism, benevolence and care for others, which make up the desired characteristics for trust building. nor do even numerous models of the building of trust respond to concerns related to the phenomenon of trust in organisations. one additional reason is that in the studies indicators of negative connections between trust and organisational performances are found. for example, the langred study (2004) reveals how, in teams with high levels of individual autonomy, high levels of trust can lead to decreased effects in team performance, rather than in teams with low levels of autonomy and high levels of control. in their study wintrobe and breton (wintrobe and breton, 1986) argument that in conditions where conflict exists in vertical lines of communication between employees and colleagues and their management, trust at horizontal lines of communication is reduced. impersonal organisational trust relates to trust in organisational factors such as vision and strategy, top management, goals and abilities, technological and commercial abilities, fairness, fair processes and structures, roles, technologies and reputation, and the function of human resource management (mcknight et al., 1998; kramer, 1999; tan and tan, 2000). in organisation theory, the organisational culture in the sense of values, norms and identities influences the impersonal nature of organisational trust. multi-disciplinary studies with an emphasis on organisational trust have identified vision, strategy, decision-making processes, roles and managerial practice of human resources, as sources of impersonal elements of trust. the culture of the organisation, as a possible motivator and indicator of organisational behaviour, is a common indicator of effectiveness of organisational performance. the answer to the question of the relations between cultural characteristics and trust is given in the work by yamagishi and associates (yamagishi and yamagishi, 1994), whose careful examination of trust in japan and the united states of america refutes the common idea that trust is high in japan and low in the united states. their study examines how social culture affects organisational trust, with special interest in the question of what is the difference between trust in organisations found in collectivistic and that found in individualistic cultures. they differentiated trust between an individual level – a tendency to believe, and at an organisational level – part of internal relations among employees. in works about organisational behaviour there is consent that trust is an important factor in managerial processes. according to carnevale and wechesler (carnevale and wechesler, 1992), trust provides the foundation for security and reliability in the intentions and actions of the supposed parties. this idea is reflected in numerous theoretical examinations of trust and its effect on business attitudes, behaviour, activities and performances. dirks and ferrin (dirks and ferrin, 2001) see trust as a result of effects such as positive attitudes, higher levels of cooperation and other behaviour which contributes to positive business results of an organisation. in order to understand trust in organisations it is necessary to view various dimensions of trust, social circumstances governing the establishment of trust, organisational foundations for trust and personal dispositions that govern the development of trust. research in organisations has shown that the perception of trust must combine both approaches to trust, the organisational and the individual approaches. when it comes to mutual trust, it is of essential importance to define the reality of the relationship of mutual trust based on characteristics of the organisation and personal characteristics of employees (krasman, 2013). in the context of the organisation, trust is considered one of the crucial elements of organisational effectiveness. it can be seen as a cohesive force which maintains relations within the organisation (whitney, 1994). without trust people would not be able to work together, unless found in a controlling environment. the significance of trust grows to a large extent due to the effects trust has on forms of communication and the effectiveness of job completion, likewise in a reversed order. for example, when there exists a gap in trust among employees and their managers, chances that the observed manager is seen as the source of information are greatly lessened. lately, trust is considered 30 2016/81management the key to communication forms and the processing of information in an organisational context, to a large extent due to its influence on communication (zeffane, 2006). it is clear that trust in management can affect the course of information flow as well as the perception of clarity and preciseness of information. adequate explanations and timely feedback are largely connected with the levels of trust, as are accurate and future communication. numerous authors regard the relation between trust and task completion, expressed in most studies, as a cause; again, there are authors who regard the relationship as even stronger than the relationship of trust and attitudes towards other aspects of work, such as, for example, job satisfaction (judge et al., 2001). trust is also a significant aspect in risk-taking, which is of vital importance in numerous jobs where formal or legal control is not able to create desired results (hardin, 1991). in addition, trust positively correlates with effective commitment, through which the influence of work motivation is viewed (meyer et al., 2002). trust improves team work, leadership, goal setting and performance assessment (jones and george, 1998; mayer et al., 1995; mcallister, 1995) and contributes to satisfaction among employees and their dedication to organisation (flaherty, 1999). 31 management 2016/81 conslusion trust in relationships among employees in organisations is an important factor in the realization of organisational performance. however, it has been established in the majority of case studies that trust is built as the result of three factors which encourage trust: communication, collective problem-solving, and fairness in reward, as well as two factors which undermine it: conflict and egocentricity. bstieler argued that trust facilitates relations which precede trust, as well as performances which affect organisational behaviour (bstieler, 2006). studies on the development of trust have shown that individuals observe the reliability in others and express a willingness to engage in interaction with them, primarily as result of previous experiences in communication (solomon, 1960). for example, several studies have shown that the reciprocity in relationships increases trust, while the lack or violation of exchange undermines it (deutsch, 1958). interestingly, certain studies have also concluded that there are negative effects of high levels of trust in interpersonal relations, contributing to dysfunctional achievements in situations when there exists an over-reliance on certain people (molina-morales et al., 2011). distrust and doubt are often the problems in many organisations. distrust is defined as the absence of trust in others, a concern that people might act in a harmful and hostile way towards other people. organisational trust is more than the accumulation of individual trust at a determined level of relation. from the perspective of the organisation, it is possible to view trust through the dimensions of ability, benevolence, and honesty as the foundations of organisational behaviour. for the relation of employees towards both work and the organisation, institutionally based trust, which is the core of intraand inter-organisational trust since it spans beyond interpersonal relations, is the result of organisational identification with certain values and social practices, such as tradition, profession and written procedures. organisations with high levels of trust have a tendency to create products and services with less cost, because they employ highly 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(1986). production of trust: institutional sources of economic structure, 1840-1920. research in organisational behaviour, 8, 53-111. receieved: november 2016. accepted: december 2016. 33 management 2016/81 ana nešić university of novi sad, faculty of technical sciences ana nešić earned her phd degree at the university of novi sad, faculty of philosophy, department of sociology. also, she is a phd candidate at the faculty of technical sciences, department of industrial engineering and management, module of human resource management. she is the author of numerous scientific papers and she has successfully undertaken various team projects, within both academic and non-academic environments. danijela lalić university of novi sad, faculty of technical sciences danijela lalić, ph.d., is an associate professor at the department of industrial engineering and management, faculty of technical sciences, university of novi sad. she teaches undergraduate and graduate courses, both academic and professional (mba). her research interests include public relations (corporate communication) management, business communication, marketing, social media, and internet communication. danijela is especially interested in internet and intranet systems, networking, and new technology. she has uccessfully led a national scientific project and has participated in numerous international projects. danijela spent over two years studying abroad, in austria and slovenia (where she completed her doctoral studies and thesis, at the university of ljubljana, faculty of social sciences). she is the author of over 60 scientific and professional publications. her pr handbook (“examples of good practices in public relations,” vols. 1–3) is widely considered an excellent guide for professionals and students who have an interest in communication. danijela was an editor and lead translator of the textbook business communication today, published by pearson education. danijela is a founding partner of the promethod network solution system consulting agency, where she is involved in communication management and new media strategy development projects. through them she has cooperated with scientific institutions, public relations agencies and domestic and international companies. danijela contributes to the development of her profession by an active participation in the serbian public relations association. she is the president of the jury for national competitions and a past member of the board of managers. 34 2016/81management about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 08_84_3 savoiu_book reviewr:tipska.qxd 97 gheorghe săvoiu university of pitesti (romania), faculty of economics book review doi: 10.7595/management.fon.2019.0021 abstract: for all the great authors or for the most part of creative of contemporary authors, their origins, families and friendships confer or give a special “silhouette” to understand the roots of their scientific personality. nassim nicholas taleb remains a unique spirit and a multidisciplinary personality of the 21st century. nnt as the author abbreviates his own name in the text of his books was born in lebanon, in a family composed from a physician and an anthropology researcher, holding french citizenship and profound antiochian greek origins. in his latest and remarkable book entitled skin in the game: hidden asymmetries in daily life (2018). he recognizes the classic cultural influences, and the proof of this truth is on the first page of the work, as dedication to his brave friends ron paul and ralph nader, the first as “roman among greeks“ and the second as “phoenician greek spirit“. book after book, the nnt’s amplitude of creativity or his scientific personality is permanently expanded beyond the stability of the classical or ancient values being associated with the profound discernment of his scientific opinions and with the perspective of his modern multidisciplinary approaches. the most difficult aspect in the life of an author of scientific literature is not to become famous, but to keep all his works as bestseller. i believe that you can imagine how difficult it was for nassim nicholas taleb to write again such an incredible and valuable book about uncertainty and risks as level of probability of the success of a writer in modern world after his exceptional and almost brilliant collection of bestsellers, translated in 40 languages and entitled incerto a philosophical essay on uncertainty, a collection including fooled by randomness (2001), the black swan: the impact of the highly improbable (2007), the bed of procrustes philosophical and practical aphorisms (2010) and antifragile: things that gain from disorder (2012)… after reading the text of skin in the game: hidden asymmetries in daily life, you will know that he put not only his skin but also his soul again in the game inside the pages of his unique book to reach such a high level of probability of success. but, before you read the first words of this memorable book, do not forget to reserve a special place in your mind for taleb’s own words as a doubled virtual motto: “the symmetry of skin in the game is a simple rule that’s necessary for fairness or justice” together with “never trust anyone who doesn’t have skin in the game. without it, fools and crooks will benefit, and their mistakes will never come back to haunt them.” this dual or ambivalent motto helps anyone to understand how an excellent mathematician can solve apparently in a philosophical manner, but essentially in a practical view, a great variety of the risks and probability problems after a two decades process of meditating about how to think in uncertainty conditions specified in the real business and life… a bestseller should always be a book that is both well-written and well-structured, from each section of it, the author being always with eyes focused on the reader. nnt introduces an additional criterion of the “two book review of: skin in the game: hidden asymmetries in daily life by nassim nicholas taleb. random house & penguin, new york city, 2018, 304 pp. isbn-13: 9780141982656 and isbn-10: 0141982659 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) sources of the photos: https://www.elefant.ro/incerto-fooledby-randomness-the-black-swan-thebed-of-procrustes-antifragile-paperbac k_c366f46c-c661-4d07-898b9a1189ae0f1c decades” as retrospective and prospective coverage: a book will be a bestseller resilient in time or durable if it can be anticipated two decades earlier in other works of the same author (continuously), but also if it can be read as intensely in the future or on long term period, defined symmetrically or even equally with the same two decades but since editing (innovatively). skin in the game: hidden asymmetries in daily life is structured into 8 parts: i) introduction; ii) the first look at an agency; iii) that greatest asymmetry; iv) wolves among dogs; v) being alive means taking certain risks; vi) deeper into agency; vii) religion, belief, and skin in the game; viii) risk and rationality and 19 sub-sections or chapters. the sub-parts or chapters are polarized in relation to the contents and concentrated in the 5th and 6th books, which together contain no less than ten subsections, which practically translate a specific heterogeneousness of the bestseller based on the condensed contents in the central part and on the usual interest of the author for real life, inspired by the vital process of taking certain risks, and with deeper introspection into agency, to find out more and more hidden asymmetries. all 19 chapters are preceded by a long introductory part, which may be the most detailed and directly exposed section you have ever read, as a proof of the author’s high respect for his major theoretical notions and for his audience, containing nothing else but a triple prologue as a long and paradoxical route of ideas both mythological and ancient, classical and modern, retrospective and prospective, from antaeus to heracles, from seneca to diogenes or antipatros, from hammurabi to kant, from bob rubin to donald trump, based on the decision-making process under uncertainty, asymmetry or opacity, simultaneous on ancient heuristics and mediterranean ethics systems. from the informational risk, to the symmetry of human activities, from the sharing of information in any transaction, to the specific rationality of complex systems, one reaches the importance, prevalence and ubiquity of symmetry to partially end with skin in the game, through entrepreneurial spirit involved as example and finally with soul in the game with ethical and religious materialization. multiplying symbols cover book background or its specific way of reasoning, from antaeus as symbol of the essential contact with earth or reality to hammurabi as the source of the ancient principle “an eye for an eye“, from hannibal as the symbol of the famous latin expression “unus sed leo“, to modern effect lindy, according to which “everything that survives, survives for some reason“... “le style c’est l’homme”, one of the most used quotation in the process of delimitation of the writers’ universe, belonging to the comte de buffon, usually translated as “you may know a man through his writing”, is the most adequate frame to personality of nnt, an amazing writer with a natural hobby as a philologist, in fact not only a connoisseur of ancient greek, classical arabic, latin, aramaic, syriac, hebrew languages, but also of the modern ones as french, english, spanish, italian etc. a deep sense of self-irony characterizes nnt style and this aspect is similar as impact of his exceptional humor, and also by his necessary cynicism, which interweaves with the precision of language specific to a rigorous mathematician and statistician, that remains difficult to be defeated on the field of terminological correctness and applied issues. in the end, all of these style elements give birth to a writer’s most valuable scientific personality, expanding his conceptual creativity, prooving to the readers his unimaginable paradoxes, metaphors, aphorisms etc. i quote some synthetic phrases or syncretic statements, a few texts able indeed to make him more wellknown in spite of the fact that is famous already, based on his expressions really able to underline the uniqueness of nnt’s style, both scientific and literary, full of self irony and humor, a style that clarifies the meaning of his ideas and emphasizes the truth of his prophetic phrases and the veracity of his ideas, in the following lines: “beware of the person who gives advice, telling you that a certain action on your part is “good for you” while it is also good for him, while the harm to you doesn’t directly affect him.” “let us return to pathemata mathemata (learning through pain) and consider its reverse: learning through thrills and pleasure. people have two brains, one when there is skin in the game, one when there is none. skin in the game can make boring things less boring. when you have skin in the game, dull things like checking the safety of the aircraft because you may be forced to be a passenger in it cease to be boring. if you are an investor in a company, doing ultra-boring things like reading the footnotes of a financial statement (where the real information is to be found) becomes, well, almost not boring.” 98 gheorghe savoiu 2019/24(3) https://www.elefant.ro/skin-in-thegame-hidden-asymmetries-in-daily-lifehardcover_8c9ac53c-abec-4676-b332837bd8016e77 “thirty-nine percent of americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and 73 percent will spend a year in the top 20 percent.” “freedom is always associated with risk taking, whether it leads to it or comes from it.” “science isn’t the sum of what scientists think, but exactly as with markets. had science operated by majority consensus, we would be still stuck in the middle ages.” “the market is like a large movie theater with a small door.” “the knowledge we get by tinkering, via trial and error, experience, and the workings of time, in other words, contact with the earth, is vastly superior to that obtained through reasoning, something selfserving institutions have been very busy hiding from us.” “if you can’t put your soul into something, give it up and leave that stuff to someone else.” “you will never fully convince someone that he is wrong; only reality can.” “the good is not as good as the absence of bad.” (excerpts from nassim nicholas taleb, 2018. , random house & penguin, new york city) if you want to select and understand with a better accuracy many of the specific applied research methods or adequate manner of reasoning in taleb’s perceptions take into account the importance of a complete sense of morality of what you will read inside his work. reading the book, do not forget to identify in the general behaviour in business the dual solutions of ethics well known as the golden rule of benevolence based on ancient statement “do unto others as you would have them do unto you”, as a major text in the christian faith, and the silver rule of reciprocity, based on a relative contrary option formulated as “don’t do to others what you wouldn’t want done to you”, advocated first by confucius(1992), and after by cicero (1971) (tullberg, 2012). nnt‘s option for a robust silver rule as final solution in a real life or business is more than obvious inside his book and many times justified as a mandatory negative expression: “do not treat others the way you would not like them to treat you”. both force and originality of nnt’s books come from his permanent inter-, trans-, crossand multidisciplinary approaches. it is only sufficient to find out how he extends a sociophysics method, used by serge galam (2012) and known as a renormalization group, when he explains the domination of the intolerant minority, or how he structures the inequality in the static and the dynamic, based on the conceptualization of the mathematical statistics of the ergodicity, in order to completely and simply delete or abolish thomas piketty’s (2014) controversial arguments, from the economy of inequality etc. telling me with who do you really look similar and, in this way, understanding better who you really are and what value your ideas have for your audience or common readers, could ultimately be a way to get to know more profoundly not only taleb but also his books. reading the works of nnt, including black swan and antifragile, but especially those concepts or text fragments referring to the mediocristan, bureaucristan, markets without intelligence, the lucky fool or the guy called robber, thief or villain who transfers all the risks to a stupid person, my first thought flew to carlo cipolla (1978) and especially to the comparable creativity as an impact of his last book, entitled the basic laws of human stupidity. nnt’s pragmatic conclusions are remarkable and the distance between taleb and cipolla becomes huge when he states that if a thing declared wrong works or a fool produces money then they will cease to be described by expressions related to human imbecility or human stupidity and non-creativity. in fact, nnt confirm that markets without intelligence are just as efficient as those with excess intelligence. instead of an epilogue about what nnt told me about in skin in the game: hidden asymmetries in daily life, i prefer an answer structured as half question / half conclusion. what remains after one forgets everything he has read a lifetime is culture or his mind training to survive, and after you will read this latest book by nassim nicholas taleb, the sensations of the freshness of the language, careful investigation, scientific realism, and exceptional philosophical and moral rigor will amplify your remaining active memory on a higher scientific knowledge level and will transform even your personality in a lindy effect... 99 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) 100 gheorghe savoiu 2019/24(3) about the author references [1] cicero, m.t. (1971). selected works, london: penguin books. [2] cipolla, c. (1987), the basic laws of human stupidity, whole earth review, spring 1987, retrieved from: http://www.extremistvector.com/content/stupid.html [3] confucius, (1992). the analects of confucius, new york: quality paperback book club. [4] galam, s. (2012). sociophysics: a physicist's modeling of psycho-political phenomena (understanding complex systems), berlin: springer verlag. [5] piketty, t. (2014). capital in the twenty-first century, cambridge, ma: belknap press. [6] taleb, n.n. (2001). fooled by randomness, new york city: random house & penguin. [7] taleb, n.n. (2007). the black swan: the impact of the highly improbable, new york city: random house & penguin. [8] taleb, n.n. (2010). the bed of procrustes philosophical and practical aphorisms. new york city: random house & penguin. [9] taleb, n.n. (2012). antifragile: things that gain from disorder, new york city: random house & penguin. [10] taleb, n.n. (2018). skin in the game: hidden asymmetries in daily life, new york city: random house & penguin. [11] tullberg, j. (2012). the golden rule of benevolence versus the silver rule of reciprocity. journal of religion and business ethics, vol. 3(1), article 2. retrieved from: https://via.library.depaul.edu/jrbe/vol3/iss1/2/ gheorghe săvoiu university of pitesti, româniag savoiu@yahoo.com gheorghe s voiu, phd, is associate professor at the department of accounting, faculty of economics, university of pitesti (romania). gheorghe s voiu graduated with mba from the bucharest academy of economic studies (commerce department – commerce section), and acquired a phd degree in economic sciences from the faculty of economic cybernetics, statistics and informatics, bucharest academy of economic studies (romania). besides pedagogical activities, he held a position of manager at the general board of statisticsargeþ county – pitesti. he held a position of dean of the finance – accountancy faculty, to constantin brâncoveanu university in pitesti, between 2003 and 2006. since 2014, he has also been an associate researcher at ince “costin c. kiri escu” of the romanian academy, part of the new centre of mountain economics ce-mont. he is a (co)author of more than 30 books, of 20 papers isi thompson (web of knowledge), with hindex isi thompson = 4 and of more than 200 indexed journal and conference papers.he was also engaged as a project manager or member of a project team in more than 10 projects. the major domains of interest: statistics, econometrics, econophysics, sociophysics, logic, philosophy, economics, marketing research, human ecology, management methods, demography, price universe and interpreter indices, rural tourism. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02 mijatov:tipska.qxd 11 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) * corresponding author: maja mijatov, e-mail: majam@dgt.uns.ac.rs research question: the research is oriented towards determining implementation of the ethical code in hotels, located within the national park of serbia, kopaonik, and its effects on perception of organisational social responsibility dimensions among the hotel employees. motivation: application of the ethical code is the first step towards clarifying the standards of acceptable business practices to various stakeholders of the organization, including the employees (supanti, butcher, & fredline, 2015). in this regard, this research is focused on identifying the manners in which the application and content of the ethical code can affect the perception of social responsibility. idea: the ethical code and public discussion with employees on topics in the field of ethics might affect the perception of employees regarding the organisational social responsibility. in this way, it could contribute to development and strengthening of employees' awareness of the problems of the wider community, as well as business activities that might endanger or help society to overcome these specific problems. besides, the idea was to research into the implementation of these ethical issues in the business operations in the national park. data and tools: the survey research was conducted within popular tourism destination in serbia, kopaonik, on the sample of 211 hotel employees. findings: the research results show that application of the ethical code shapes the perception of legal and economic dimension of organisational social responsibility. also, the research results indicate the fact that the form in which the ethical code is applied shapes the employees’ perception of philanthropic, legal, economic and ethical dimensions of organisational social responsibility. in addition, results of the research indicate that the usage of the ethical code, as a means of information, shapes the employees’ perception of legal and ethical dimension of organisational social responsibility, while the organization of meetings on ethical issues shapes the employees’ perception of philanthropic dimension of organisational social responsibility. contribution: the research results might have scientific and practical application as guidelines for improving the business performance in the operation of numerous organizations in the field of tourism, primarily in hotels, but also among the others in the tertiary sector. keywords: ethical code, organizational social responsibility, employees, hotel, kopaonik jel classification: d79, d91, j53, j8, m12, m54, z32, z39. maja mijatov*, aleksandra s. dragin, vladimir stojanović, anđelija ivkov džigurski, milena nedeljković knežević, kristina košić university of novi sad, faculty of sciences, department of geography, tourism and hotel management, serbia ethical code and its influence on the employees’ perception of organizational social responsibility doi: 10.7595/management.fon.2021.0021 abstract: 1. introduction contemporary business conditions raised the interest of academics and practitioners related to implementation of the ethical code and organizational social responsibility activities within the different business sectors. in addition, another important characteristic of contemporary business is related to the necessity of defining the standards of behaviour within a specific business environment. the organization could clarify the standards of acceptable business behaviour to internal and external stakeholders by adopting and implementing the ethical code, which can contribute to raising the awareness and commitment related to responsible practice of all business stakeholders, including the employees (paine, deshpande, margolis, & bettcher, 2015; saha, cerchione, singh, & dahiya, 2020). in previous decades, numerous organizations were oriented towards establishing the rules of acceptable business behaviour. however, the main role of these rules in shaping the organizational culture is different nowadays in comparison with the previous decades. thus, the main focus of the ethical code is reoriented from writing the comprehensive rules towards aligning the organizational rules with values of each business environment, in order to bring prescribed rules closer to employees. these changes represent a consequence of the fact that investors, customers and other stakeholders are increasingly interested in cooperation with organizations with high ethical standards and commitment to organizational social responsibility, which is the main reason why management of different organizations increasingly focuses their efforts on ethical issues, as important aspects of organizational culture (yidong & xinxin, 2013; frye, 2020). accordingly, this research is oriented towards identifying the impact of the ethical code on the employees’ perception of organizational social responsibility within hotels located at kopaonik, that are operating within the territory of the national park, which additionally imposes the necessity of implementing the responsible business operations. it is also important to consider the fact that these hotels are located within a popular centre of winter tourism in serbia, with a constant need for employing the seasonal workforce, which makes this destination an interesting business environment for researching the human resources, together with their perceptions of organizational social responsibility and related ethical issues. 2. literature review 2.1. ethical code ethical code is one of the most developed and represented components of normative systems for managing the business ethics worldwide (schwartz, 2001). previous studies showed that ethical code might shape the employees’ behaviour (adams, tashchinan, & shore, 2001; malloy & agarwal, 2003; hassan, pandey, & pandey, 2020), according to the fact that it could be considered as a manual that might help employees to make a difference between acceptable and unacceptable behaviour within specific business environment, on the basis of providing a guidance for ethical issues. thus, ethical code could help employees in better understanding of organizational values. it could also influence alignment of organizational and employees’ attitudes throughout performing their business tasks. besides that, ethical code could help employees from different cultural and social backgrounds in their adaptation to business conditions across different geographic and cultural settings (schwartz, 2001), which is particularly important for the tourism sector, due to intensive employment of aforementioned seasonal workforce. however, the impact of the ethical code on the employees’ behaviour might also depend on the manner in which organizations use this instrument. therefore, one of the main tasks of this research was oriented towards identifying the level of implementation, as well as the form of the ethical code in hotels located at kopaonik, including the manner in which its content might shape the employees’ perceptions of organizational social responsibility within this destination, with the main aim of gaining the data that could help hotel management in improving their relations towards the employees, due to the fact that employees could shape the quality of provided service, as well as the overall business success. 2.2. organizational social responsibility numerous organizations consider their role in society, which is the main reason of increased orientation towards implementation of standards related to organizational social responsibility within their businesses (lichtenstein, drumwright, & bridgette, 2004; stojanovic-aleksic & boskovic, 2017; fernandez gago, cabeza garcia, & godos diez, 2020), on the basis of applying the activities used for improving the wellbeing of local or wider community, beyond the organizational interests and often beyond responsibilities prescribed by the law (mcwilliams & siegel, 2001; kong, antwi adjei, & bawuah, 2020). as the first one who proposed multidimensionality of organizational social responsibility, carroll (1979) noted that social activities of organization could be divided into several dimensions, including the ethical, philanthropic, economic and legal responsibility. thus, ethical responsibility is related to organizational activities that are not prescribed by the law, but are expected by society, while philanthropic responsibility includes activities that go even beyond the social expectations. the economic dimension is related to socio-economic or financial aspects of concrete organization, defined from operational perspective. nevertheless, organizational social responsibility activities are often shaped by the regulatory requirements, as it is indicated by a definition of legal dimension of organizational social responsibility (carroll, 1979; carroll & shabana, 2010). these categories might provide a comprehensive report on the construction of organizational social responsibility, 12 maja mijatov, aleksandra s. dragin, vladimir stojanović, anđelija ivkov džigurski, milena nedeljković knežević, kristina košić 2022/27(3) while they could also serve as reminders on motives, or even concrete organizational social responsibility practices that could be categorized into one of the aforementioned categories (carroll, 1979; carroll & shabana, 2010). 2.3. correlation between the ethical code and the concept of organizational social responsibility ethical code may encourage implementation of organizational social responsibility if its content is transparent to employees, as well as if the organization initiates discussions related to ethical issues within the business environment. in this way, or more precisely on the basis of discussions with employees who are also the members of particular local community or wider society, organizations can become aware of problems outside the organizations and within the environment in which they operate (trong tuan, 2012). management support is also valuable in accepting and implementing the organizational social responsibility activities. therefore, it is important to provide the managers’ understanding of all potential benefits that organizational social responsibility could provide, in order that they enable the development of this feeling among the employees within the lower organizational levels. it is also important that employees, based on their personal experience, may notice that organizations are oriented towards encouraging organizational values that support social responsibility (supanti, butcher, & fredline, 2015). thus, employees might feel more secure in organizations with organizational social responsibility activities, while such sense of security might even reduce their intentions to leave the organization (vitaliano, 2010). in respect to that, this research is oriented towards identifying the manner in which standards of acceptable business behaviour were defined, as well as the manner in which they were represented to employees within the service industry, on the sample of hotels in the leading ski centre of serbia. finally, the main aim of this research is related to identifying the employees’ perception of the concept of organizational social responsibility, through ethical and other dimensions, by applying the carroll’s model, given its high representation in foreign research (matten & moon, 2008; scherer & palazzo, 2011; orlitzky, schmidt, & rynes, 2003), as well as neglected usage in previous research conducted in serbia. 3. methodology 3.1. instrument this research was conducted on the basis of the questionnaire that was formed after the literature review of previous research related to the ethical code and organizational social responsibility. the entire content of the questionnaire could be divided into several sections. the first section covered the questions related to general information on whether there is the ethical code within hotels located at kopaonik, as well as in which form the ethical code is implemented and represented to hotel employees. the second section of questions was related to organizational social responsibility, according to the aforementioned carroll’s model of social performances (carroll, 1979; carroll & shabana, 2010), based on the previously mentioned understanding that organizational social responsibility contains four dimensions: economic, legal, ethical and philanthropic. also, carroll’s research, conducted in 1979 (carroll, 1979), with precise definition of the model of social performances, is cited for 12,846 times in the existing literature, according to the google scholar’s basis [https://scholar.google.com / scholar? cites = 3879112735652133758 & as_sdt = 2005 & sciodt = 0.5 & hl = en]. the research conducted concerning kopaonik also started from the abovementioned four dimensions of organizational social responsibility that were previously identified and explained in details within the research conducted by mijatov, blesic and dragin (2018). the third section of the questionnaire covered the questions related to the content and the manner in which the ethical code is considered and applied within the organization, based on the 11 items formed for the purpose of researching the ethical issues in tourism of serbia (dragin, jovanovic, mijatov, majstorovic, & dragin, 2019a; jovanovic, mijatov, dragin, simat, & majstorovic, 2019b). this part of the research covered the employees’ attitudes regarding the consideration and application of the ethical code within their hotels as a source of information, educational resource, a guidance for protection of the employees, as well as regarding their attitudes on the level to which the ethical code is related to products or services, customers, employees, competition, marketing, or other aspects (where respondents had the opportunity to provide additional answers). finally, employees were asked to express their attitudes on transparent discussions 13 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) about ethics and ethical dilemmas within their organization, as well as regarding the frequency of organizing the meetings about ethics and ethical dilemmas. 3.2. sample and data collecting procedure the survey research was conducted at kopaonik in 2015. hotels within the kopaonik area are characterized by 25% of the long term permanent employees, who are well acquainted with the researched business environment. on the other hand, it is also important to indicate that 75% of the other employees, those employed during the season, also spend several years in the same business environment. the praxis of the management of the surveyed hotels, which is primarily oriented towards employing those individuals who already worked within the same business environment during the previous seasons, resulted in the fact that 55% of the respondents have up to five years of working experience in the hotels at kopaonik (primarily within the newer hotels that have been in operation for less than five years), or even longer (emphasizing 20% of those employed between six and ten years and 10% of those employed between 11 and 15 years, mainly within older hotels within this destination). responses were collected on the basis of the survey research, by using the standard pen and paper procedure. respondents were informed regarding the anonymity of the research. the survey research included the employees who showed the interest in participating, so the sample might be considered as a convenience. before starting with the survey research, individuals employed within the supervisory positions were contacted in order that they should explain the main idea of the research to their employees. besides that, supervisors also participated in the survey research as the respondents. with their help, a sample of 211 respondents was collected (obtaining the 70.59% of entire hotel facilities within kopaonik). more precisely, the authors distributed 300 questionnaires to the respondents and 236 of them returned the questionnaires. however, part of returned questionnaires was not completely filled in, which is the main reason why 25 questionnaires were excluded from the final data analysis. collected data were analysed in spss 17.0 (software package for social sciences, 17.0), by using the following statistical methods: descriptive statistics, exploratory factor analysis (for grouping the items related to organizational social responsibility into a smaller number of factors, as part of the study conducted by mijatov, blesic and dragin (2018), t-test and analysis of the variance (for determining the influence of implementation and form of the ethical code on the employees’ perception of organizational social responsibility) and regression analysis (general linear models continuous variables, for determining the influence of the content and the manner in which the ethical code is considered and applied within the organization on the employees’ perception of dimensions of organizational social responsibility). 4. results the research results related to implementation of the ethical code point to the fact that as many as 78.2% of the respondents indicated that they are employed within hotels with implemented ethical code. however, 19% of the respondents do not know if the ethical code is represented within the hotel they work with, while only 2.8% of them indicated that the ethical code is not represented within the business environment of hotel where they are employed. furthermore, 43.1% of the respondents indicated that the ethical code is represented in a verbal form within their business environment, while 34.6% of the respondents stated that the ethical code is represented in a written form. however, 22.3% of them do not know in which form the ethical code is represented within their business environment. in general, the research results indicate that the ethical code is not sufficiently transparent within hotels at kopaonik, due to the fact that it is represented in a written form even within hotels whose employees stated that ethical code is represented exclusively in a verbal form within their business environment, which points to their insufficient transparency. furthermore, the research results of the analysis of the variance indicates that there are significant differences in the employees’ perception of legal (f = 3,178; p < 0.05) and economic dimensions of organizational social responsibility (f = 4,137; p < 0.05), on the basis of the implementation of the ethical code within hotels included in the study. the research results represented within figure 1 point to the employees’ perception of the legal dimension of organizational social responsibility based on the representation of the ethical code within the business environment. thus, employees’ perception of the legal dimension of organizational social responsibility is higher among the respondents in hotels with an implemented ethical code, comparing to the employees’ perception in hotels where respondents stated that there is no ethical code within their business environment, but also in comparison with those who stated that they were not sure whether the ethical code was implemented within hotels they work for. 14 maja mijatov, aleksandra s. dragin, vladimir stojanović, anđelija ivkov džigurski, milena nedeljković knežević, kristina košić 2022/27(3) figure 1: implementation of the ethical code and the employees’ perceptions of legal dimension of organizational social responsibility (f = 3,178; p < 0.05) (source: research results) furthermore, employees’ perception of the economic dimension of organizational social responsibility is higher among the respondents in hotels with implemented ethical code, compared to the employees’ perception of those who do not know if the ethical code exists within their business environment. these research results are represented in the figure 2. figure 2: implementation of the ethical code on the employees’ perceptions of economic dimension of organizational social responsibility (f = 4,137; p < 0.05) (source: research results) 15 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) � implementation of the ethical code l eg al d im en si on o f or ga ni za ti on al so ci al r es po ns ib il it y ������������yes no i do not know � implementation of the ethical code e co no m ic d im en si on o f o rg an iz at io n al s oc ia l re sp on si bi li ty the research results of t-test indicated that there are significant differences in the employees’ perception of all dimensions of organizational social responsibility between the respondents employed within hotels where the ethical code is implemented in a verbal form and those employed within hotels where the ethical code is implemented in a written form, which is represented within table 1. thus, a higher perception of philanthropic (t = -2,506; p < 0.05), legal (t = -2,932; p < 0.01), economic (t = -4,223; p < 0.01) and ethical dimension of organizational social responsibility (t = -2.217; p < 0.05) is indicated by the respondents who are aware that the ethical code is represented in the written form within hotels they work for. table 1: dimensions of organizational social responsibility according to the form of implementation of the ethical code note: *. correlation is significant at the .01 level. **. correlation is significant at the .05 level. source: research results on the other hand, the implementation of the multivariate general linear models points to the fact that two out of 11 items related to the content and the manner in which the ethical code is considered and implemented within the organization have shaped the employees’ perception of dimensions of organizational social responsibility. thus, consideration of the ethical code as a source of information shaped the employees’ perception of two dimensions of organizational social responsibility: legal and ethical (table 2). thus, employees’ perception of the legal dimension of organizational social responsibility is higher among the respondents employed within hotels where the ethical code is always considered as a source of information. the same results are recorded in the case of the employees’ perception of ethical dimension of organizational social responsibility. also, the lowest perceptions of legal and ethical dimensions of organizational social responsibility are recorded among the respondents employed within hotels where the ethical code is never considered as a source of information. finally, the frequency of organizing the meetings about ethics and ethical dilemmas has also shaped the employees’ perception of the philanthropic dimension of organizational social responsibility. thus, the strongest perception of the philanthropic dimension of organizational social responsibility is recorded among the respondents employed in hotels where such meetings are always organized, while it is the lowest among the respondents employed in hotels that failed to organize the meetings on ethical issues. table 2: general linear models, organizational social responsibility note: *. correlation is significant at the .01 level. **. correlation is significant at the .05 level. 16 maja mijatov, aleksandra s. dragin, vladimir stojanović, anđelija ivkov džigurski, milena nedeljković knežević, kristina košić 2022/27(3) ���������� � ��� ��� ���� � ���� � �������������� ������� � � ��� ��� � � ��������� ������ ���������������������������� ������������� ������������ �� � !"� � ##� �$ %!&''� (�������������������������� ������������� ������������ �� # "$� # #)� �$ )�$�'� *����������������������������� ������������� ������������ �� � &"� # $$� �# $$�'� * ��������������������������� ������������� ������������ �� � +,� # "&� �$ $",''� ��������� ����� ��� ���� ����� ������� ����������������� ��� ���� ����� � ���������� ����� ����������������� ��� ���� ����� ����������� ���� ��� ��� ����� �������� ��� ������� � ����� ������� � �� � ��� ������� � ������� ������� � ������� � �� �� � ����� �� �� � � � �� � ��� ���� �� �� � ����� �� � �!� ���� ���" #� ��$ ��� ���% ��&' ( ������� ��� %�)" ��') *���� �%� %�%' %��� +�,�$� �&� %�-& %�"' �������� � �� � � �� � �������� �. �� ������ ��� ������� �������� � � ����/�� �� � ���&� �� � �!� ��%% #� ��$ ��� ��%" ( ������� ��� ���� *���� �%� ��%' +�,�$� �&� %��! �������� � � � 5. discussion the research results point to the fact that the presentation of the ethical code in hotels has shaped the employees’ perception of the legal and economic dimensions of organizational social responsibility. thus, stronger perceptions of both dimensions are recorded among the employees who stated that the ethical code is implemented within hotels they work with, as it was expected. also, a stronger perception of all dimensions of organizational social responsibility is indicated by the respondents who state that the ethical code within the hotel they work with is represented in a written form, so it seems that the ethical code might contain certain parts that are related to organizational social responsibility. the research results are in line with the findings of trong tuan (2012), who indicates that ethical code can strengthen the employees’ perception of organizational social responsibility if it is transparent and if it points to the problems that might exist outside the organizational framework. the basic points expressed within the ethical code reflect the ethical principles that emerged as a need for solving the problems that might exist in almost all social communities, so it is imperative for managers and business owners to ensure that their business activities are in line with the ethical code, but also with wider social expectations (hassan, 2007; huimin & ryan, 2011; paine et al., 2005; yaman & gurel, 2006; abugre & anlesinya, 2020; peifer & newman, 2020; sigurdsson & candi, 2020). ethical codes of successful organizations are usually based on several principles. the principle of committee refers to the fact that management and employees are considered to be executors of specific organization, responsible for protection of organizational resources, as well as for performance of job-related duties on behalf of the organization. this principle requires the employees’ conscientiousness, carefulness and efforts in order to protect tangible and intangible assets of organization. the second principle is reliability. the classic type of breaking the reliability principle includes non-compliance of a given promise or signed contract. the next principle is related to transparency, whose basic ideas of honesty and respect for truth are treated as ethical imperatives. furthermore, the principle of respect is a starting point of almost all ethical rules, while it leads directly to protection of health, safety, freedom of expression and protection of privacy within the business environment, with disapproval of humiliation and other forms of offenses that could violate basic human rights. it also involves positive efforts oriented towards development of human resources, while it often involves expressed altruism towards those who are disabled or particularly vulnerable in some other way. however, the principle that mostly emphasizes the connection between business ethics and organizational social responsibility is related to the principle of the active member of society and the fact that ethical codes could vary in a degree to which organizations feel they should be active in addressing the current social issues. members of society have certain responsibilities for maintaining the common resources, such as natural environment, public spaces, but also the entire community. therefore, organizations as active members of a society are also expected to repair the damage caused to the common resources as a consequence of their business operations. beyond the basic idea, the principle of the active member of the society also implies a willingness of the organization to deal with the public social issues, which implies additional contribution on the basis of investing in charities, supporting community or helping in addressing the broader-scale social problems. finally, the principle of responsibility implies a willingness to cooperate with other parties that might be threaten by organizational activities (paine et al., 2005). all of these principles should be more actively included in ethical codes of hotels located at kopaonik, due to the fact that they do not sufficiently indicate the necessity of operating in accordance with organizational social responsibility in their current form. in case of shaping the employees’ perception of organizational social responsibility within kopaonik, the research results point out that content of the ethical code and the manner of its consideration and implementation shape the employees’ perception. thus, the consideration of the ethical code as a source of information shaped the employees’ perception of legal and ethical dimensions of organizational social responsibility. in both dimensions, it could be noticed that employees’ perceptions increase along with the increase in using the ethical code as a source of information. therefore, employees will show express awareness of the fact that the hotel is oriented towards complying with the legal aspects of the business if they notice that hotels they work with use the ethical code as a source of information, since the ethical code itself is a legal act that organizations, hotels in this case, need to apply in their business operations. the same case with the ethical dimension of organizational social responsibility indicate that the ethical code might clarify to the employees what kind of working conditions they can expect in kopaonik hotels and what kind of relations between the employer, employees and customers are encouraged, by establishing the openness and collaboration between the previously mentioned stakeholders. furthermore, the frequency of organizing the meetings about ethics and ethical dilemmas in hotels located at kopaonik shaped the employees’ perception of philanthropic dimension of organizational social responsibility. thus, the perception of the philanthropic dimension of organizational social responsibility 17 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) increases along with the frequency of organizing such meetings in hotels. therefore, throughout these meetings, one of the topics is related to hotel’s orientation towards helping the wider community. thus, employees’ awareness of philanthropic dimension of organizational social responsibility will increase in a situation when they notice increased hotels’ efforts oriented towards improving the business reputation on the basis of the volunteer activities aimed at members of society that need help. the research results support the fact that the ethical code and public discussion with employees about ethics and ethical dilemmas might shape the employees’ perceptions of organizational social responsibility (supanti et al., 2015; trong tuan, 2012; vitaliano, 2010; mccandless & ronquillo, 2020; wang, xu, & wang, 2020). accordingly, the research results could contribute to developing and 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[29] sigurdsson, k., & candi, m. (2020). saying and doing: social responsibility declared and applied. creativity and innovation management, 29(1), 128-140. doi: 10.1111/caim.12340. [30] abugre, j. b., & anlesinya, a. (2020). corporate social responsibility strategy and economic business value of multinational companies in emerging economies: the mediating role of corporate reputation. business strategy & development, 3(1), 4-15. doi: 10.1002/bsd2.70. 19 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) 20 maja mijatov, aleksandra s. dragin, vladimir stojanović, anđelija ivkov džigurski, milena nedeljković knežević, kristina košić 2022/27(3) [31] mccandless, s., & ronquillo, j. c. (2020). social equity in professional codes of ethics. public integrity, 22(5), 470-484. doi: 10.1080/10999922.2019.1619442. [32] wang, y., xu, s., & wang, y. (2020). the consequences of employees’ perceived corporate social responsibility: a meta analysis. business ethics: a european review, 29(3), 471-496. doi: 10.1111/beer.12273. received: 2021-01-28 revisions requested: 2021-03-20 revised: 2021-03-23 accepted: 2021-04-08 maja mijatov university of novi sad, faculty of sciences, department of geography, tourism and hotel management, serbia majamijatov@gmail.com; majam@dgt.uns.ac.rs maja mijatov, phd, is a research assistant at the faculty of sciences – department of geography, tourism and hotel management (university of novi sad). her main fields of interest are business ethics, corporate social responsibility, organisational behaviour, human resources, management. she is an author and co-author of different papers presented at the conferences and within different academic publications. currently she is a member of the international project globe 2020, as one of four researchers from serbia, while she also was a member of the project approved by the ministry of education, science and technological development of the republic of serbia. aleksandra s. dragin university of novi sad, faculty of sciences, department of geography, tourism and hotel management, serbia sadragin@gmail.com; aleksandra.dragin@dgt.uns.ac.rs aleksandra dragin, phd, is a full professor at the faculty of sciences, university of novi sad. her research field includes human resources with specific interests in tourism, local communities, demographic transition and social responsibility activities. she published 198 scientific bibliographic units. she participated in numerous research activities, scientific conferences, seminars, round tables around the globe. she has participated as a member, expert, coordinator, reviewer or secretary in 24 projects. she is a member of the commission for the 21 adoption of standards in the field of tourism and related services at the institute for standardization of serbia (iso / tc 228). vladimir stojanović university of novi sad, faculty of sciences, department of geography, tourism and hotel management, serbia vladimir.stojanovic@dgt.uns.ac.rs vladimir stojanović, phd, is a full professor at the faculty of sciences (department of geography tourism and hotel management), university of novi sad. he is a human geographer. his research field covers sustainable development in tourism, local communities in nature protection and ecotourism. he participated in numerous research activities, scientific projects, conferences, seminars. he is a member of the national council for tourism development of the republic of serbia. about the authors 21 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) anđelija ivkov džigurski university of novi sad, faculty of sciences, department of geography, tourism and hotel management, serbia andjelija.ivkov@dgt.uns.ac.rs anđelija ivkov džigurski, phd, is a full professor and a chairman of the chair of social geography at the department of geography, tourism and hotel management, faculty of sciences (university of novi sad). she conducts research in geography and tourism geography and lectures in various geography and tourism subjects. from 2005 until today, andjelija ivkov-džigurski has been a supervisor on 166 final papers (10 phd dissertations). she is an author of 216 scientific papers, 15 books (1 student’s book, 3 handbooks and 11 monographs) and 1 tourist guide. since 2006 she organized, together with students, 49 charity events. she has been involved in 34 projects so far. since 2007, she has been a chairman of the serbian commission for standards in tourism and related services (iso/tc 228) at the institute for standardization of serbia. milena nedeljković knežević university of novi sad, faculty of sciences, department of geography, tourism and hotel management, serbia milena.nedeljkovic@dgt.uns.ac.rs milena nedeljković knežević, phd, is a full professor at the faculty of sciences, university of novi sad. she obtained a phd in human resource management in 2009 at the faculty of technical sciences, university of novi sad. she defended her second phd dissertation in 2016, in the area of behavioral economics at the faculty of economics and the faculty of philosophy (interdisciplinary), university of novi sad. her research interests are within the area of management, management of human resources, organizational behaviour and entrepreneurship. kristina košić university of novi sad, faculty of sciences, department of geography, tourism and hotel management, serbia kristina.kosic@dgt.uns.ac.rs kristina košić, phd, is a full professor at the faculty of sciences department of geography, tourism and hotel management (university of novi sad). from october 2015 she has been a chairman of tourism at the department of geography, tourism and hotel management. her main fields of interest are rural and spa tourism. she is an author and co-author of different papers 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08 85_2 book review_devedzic:tipska.qxd book review doi: 10.7595/management.fon.2020.0008 for those who are unfamiliar with the name, jesse itzler is a businessman, ultra-marathon runner, ex-recording artist who produced arena songs for professional sports teams, the founder of marquis jet and zico coconut water among others and part-owner of the nba’s atlanta hawks. the ladies who are reading this might not care about none of those things but might be further intrigued by the fact that he is the husband of self-made billionaire and founder of spanx, sara blakely, who he often talks about throughout his writing. it goes without saying that you can learn a lot from self-made millionaires and billionaires just by listening to one of their interviews alone or by reading through their bios online, but it is even better when you can read a book they wrote based on their own unusual and unconventional experiences (even if it is not a business book). that is where “living with the monks” jumps in. “living with the monks” is jesse itzler’s 2nd book, following his wildly popular and successful “living with a seal” (which is, hands down, one of my favourites). “living with a seal” follows jesse’s life as he is trained by arguably the toughest navy seal of all time (david goggins). it is raw, honest and teaches valuable life lessons and discipline through struggle. as you can probably imagine, “living with the monks” is on the opposite end of the spectrum in terms of intensity but is just as honest and successful at delivering valuable life lessons. the book focuses on self-awareness, failure, change, dealing with distractions, but most of all, happiness and our relationship with time. without going into too many details, some of my favourite lessons and key takeaways from the book are: • “most of our goals get shattered because we don’t block out the noise.” • “decide that you want it more than you’re afraid of it.” • “failure is tied to not trying, it has nothing to do with the outcome.” • “effort is the true source of pride. not results.” “living with the monks” is full of great quotes like these that are bound to make you think. i advise you to take a pen and paper out, because you will be taking a lot of notes. however, despite what you may believe after reading the above quotes, i would not classify this as a self-help book at all. how jesse gets to these thoughts and quotes is what is interesting. it is more of a personal, confession-like story where you get to choose whether you want to draw valuable conclusions from it or not. if not, you can just enjoy the ride. 88 ivan devedžić 2020/25(2) book review of: living with the monks by jesse itzler. new york: center street, 2018. 304 pp isbn 9781478993421 (hardback) ivan devedžić university of belgrade, serbia * corresponding author: ivan devedžić, e-mail: idevedzic@gmail.com abstract: what i particularly like about it is the writing style. jesse’s writing is honest, easily digestible and often quite funny. he does not try to sound too poetic or come off as a mystery novel writer, he just keeps it really simple. you are probably not going to devour the book in one sitting, but it is likely that you will finish it very quick. it is entertaining and educational at the same time, which makes you want to continue reading asap. you get a very natural and human feel from it, as if you were reading a memoir of a friend you know really well. if you strongly dislike occasional bad language or cussing, you might not like his style, but for me it was refreshing and satisfying to realize that a person of his stature is actually quite normal and grounded. it makes everything more relatable. what is also interesting about this book is that the story is not linear. as a reader, you often jump back in time to experience a flashback or to catch up with another storyline that has been going on in parallel. if you find that to be distractive or if you strictly prefer for the writer to “stick to the point and not beat around the bush”, this book might not be your cup of tea. funny enough, jesse is very much aware of this and addresses it when talking with his editor, questioning whether there is enough material for a book in the first place. personally, i did not mind the non-linear storytelling, but i would definitely argue that “living with a seal” is much more stable and linear. all of the above was just a general overview or perhaps even vague, so let’s get a bit more specific (but without spoiling anything). early on in the book, jesse realizes that he is somewhat on autopilot and a bit overwhelmed with his repetitive and work-centric daily life (aren’t we all?). as per his usual self, he starts looking for ways to shake things up. after all, stepping out of his routine is how he became an ultra-marathon runner or invited a navy seal to live with him for a month, in the first place. that is how and why the idea of living in a monastery starts to slowly creep into his mind. we get to know the author, his background and his lifestyle throughout the first few chapters. we get to experience some of his previous extreme endeavours, while the idea of living in a monastery grows and starts to occupy his thoughts. he deliberates whether leaving his wife and four kids for such an experiment is worthwhile but decides to go through with it anyway. as the day approaches, he gets more and more excited, only to have that excitement be stripped away and replaced by confusion and a bit of anxiety once he finally arrives at the monastery. it turns out that it is not what he had in mind… almost instantly, he starts questioning his readiness to go through with the experiment and whether he is doing the right thing in the first place. he starts thinking too far ahead to his last scheduled day at the monastery, instead of being present. on arrival, jesse experiences a bit of a cultural shock and sensory overload and through that it is when we first start to examine our relationship with time and the fact that it is likely out of balance. unfamiliar surroundings, the differences between the monks, as well as many of their habits and choices leave him baffled in perpetuity. the lack of cell phone reception, being away from family and having to adjust or change his routines make him restless. as a passionate runner, he does manage to find solace in looking forward to his free time, knowing he will engage in some form of physical activity. as such, he is eager to finally be allowed into the monastery’s training centre and attend one of the famed training sessions, not knowing he is in for another surprise… be that as it may, jesse still finds a way to learn something new, despite unforeseen circumstances. he passes it all on to the reader and that is where the true value of “living with the monks” lies. throughout this whole experiment, it is interesting to follow the development of jesse’s thought process from shock, over disappointment and tension, to slowly quieting his mind, embracing the situation he is in and re-learning to appreciate the little things. he analyses his preconceived notions; he lets go of expectations and learns how to control his thoughts and deal with distractions. in a way, he starts becoming a part of the team after a while and gets to partake in a couple of unique social activities outside of the monastery as well. towards the end of his stay, he even starts feeling a little sombre that it is time to leave. he re-enters his old world, equipped with a heightened sense of awareness and pent-up excitement to get back to his family. in the end, we get to see how living with the monks has affected his behaviour, emotions and overall outlook on life. jesse reintegrates into society and picks up where he left off, presumably a little calmer, wiser and at peace. finally, i would suggest that you read both “living with the monks” and “living with a seal”. it is not absolutely necessary, but i do recommend it. if i were you, i’d read the latter first, simply because it happened 89 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) 90 ivan devedžić 2020/25(2) prior to and partially inspired the monastic experiment. however, if you are still not convinced, consider listening to episode #1127 of the joe rogan experience podcast (jesse itzler is the guest). you can also find it on youtube. both books and much, much more is discussed throughout the interview, after which you will definitely know whether something like this piques your interest or not. i hope you find this book review useful, thank you for reading through it and good luck! suggested further readings and next steps: • joe rogan experience #1127 with jesse itzler • jesse itzler “living with a seal” • jesse itzler “living with the monks” • joe rogan experience #1080 with david goggins • joe rogan experience #1212 with david goggins (2nd guest appearance) • david goggins “can’t hurt me” accepted: 2020-04-18 ivan devedžić university of belgrade, serbia e-mail: idevedzic@gmail.com ivan devedzic is an ipma certified project manager, composer and digital nomad. he has worked for a y-combinator backed, silicon valley start-up for almost 3 years, managing 10 cross-functional, remote teams of specialists from all over the world. during his tenure, he has worn multiple hats, but the majority of his work has revolved around creative project management. he has more than 750 successfully delivered projects under his belt. ivan graduated from 4 music schools, most recently from a certificate course at musicians institute college of contemporary music in los angeles, where he lived for a year in 2017/18. it is around that time that he first started travelling while working remotely. he lived in 4 countries (on 3 continents) and has travelled to almost 50. his most recent stint was a 14-month long journey across central america and south america, which involved diving throughout the caribbean, hiking up dozens of volcanoes and much, much more. ivan is a passionate storyteller and is frequently involved in developing compelling narratives, solutions, audio and visuals. as a co-founder of 2 former start-ups, he is no stranger to entrepreneurship either and is currently focusing on personal projects, mentoring and public speaking. he obtained his bsc and msc degrees at the university of belgrade, where he recently taught his first class, as a guest lecturer. ivan is a big nba fan, he is passionate about fitness and is obsessed with growth and reaching his full potential. for book recommendations, 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice book review_dorota miskiewicz:tipska.qxd dorota miśkiewicz, bartosz oliwa* university of szczecin, faculty of economics and management, szczecin, poland book review doi:10.7595/management.fon.2021.0003 the most common definition of sustainable development is about meeting the "needs of the present without compromising future generations' ability to meet their own needs". this very broad definition captures well the essence of the subject – however at the same time leads us to ask how to achieve it. elkington, the creator of the well-known concept of the "triple bottom line" or "people, planet & profit" suggests four ways of the development through "the breakthrough compass". depending on the power of the changes and the number of the people, effects upon the future progress could range from the negative breakdown to positive breakthrough. according to the author, to achieve the breakthrough and stop the overrunning planetary boundaries, humanity will have to shift their mindsets, technologies and business models (elkington, 2017). regarding "the breakthrough compass" there is a need to pay attention to the financial system. there are at least three reasons for this. firstly, the financial system is an inseparable component of human development. secondly, the financial system also has an exponential scale of impact, and thirdly, it influences the enormous number of people. this means that the financial system plays a crucial role between the future's breakdown or breakthrough. the importance of the role of the financial system has been shown during the two crises: the global financial crisis and the covid-19 crisis. the former could be considered as the breakdown, while the latter has the chance of being a breakthrough – at least to some point. nonetheless, these crises have also shown the importance of the social and governance risks with a mixture of the environmental risk – also regarding the latest risk factor especially concerning the covid-19 crisis1 (plowright et al., 2015). the subjects of sustainability, financial systems and their role, significance and complementarity have been outlined in the book finance and sustainable development: designing sustainable financial systems edited by m. ziolo. in the book, the author regarded his main task to be the delivery of the methodological approach for designing and assessing the sustainable financial systems, while taking an approach of prioritizing environmental, social and governance risk factors known behind the esg acronym. the intention behind the main idea was to take into consideration the esg risk factors in the decision-making process of financial institutions and to identify and assess their impact on sustainable financial systems. to achieve this goal, the approach of clear division into sustainable and unsustainable financial systems was taken. the whole book consists of the introduction and thirteen chapters. however, it could be divided into three informal parts. the first part consists of two chapters (chapter 2 and chapter 3) which introduce the readers to the subject of sustainable finance and esg factors. chapter 2 addresses various research questions related to the inclusion of sustainable development’s multidimensional, holistic, and long-term perspectives in finance and points to necessary changes in the academic curriculum aligned with the concept of sustainable finance that could enhance the efficiency of sustainable funding. thus, this chapter fills a significant gap in the existing literature regarding sustainable development issues. abstract: book review of: finance and sustainable development: designing sustainable financial systems. (2020) editor m. ziolo, routledge, taylor&francis group, london and new york,p. 290, isbn: 978-0367819767 jel classification: g00, o16, q01, q56 * corresonding author: bartosz oliwa, e-mail: oliwa.bartosz@outlook.com dorota miśkiewicz, bartosz oliwa forthcoming 74 management: journal of sustainable business and management solutions in emerging economies forthcoming 75 chapter 3 explains the relationship between the various components of sustainable development with the main emphasis on esg risk factors – factors that constitute an increasingly important aspect in the risk management process. at the same time, this chapter answers the questions on which factors are most important for sustainable financial systems and what the relationships between these factors are by using the research tools in the form of fuzzy cognitive maps. the second informal part of the book includes chapter 4 to chapter 10. each of the chapters focuses on a different part of the financial system, focusing mainly on different financial sectors. in chapter 4, the central focus is on the sustainable, socially responsible or green banking sector. the two perspectives – micro and macro – were taken. the micro-level perspective points out the specifics of the banks' business models and the sustainable financial products/services developed by banks. this approach helps diagnose the role that sustainable banking plays in addressing environmental and social issues. the macro-level perspective is based on the analysis of the international framework, guidelines and principles of responsible banking issued by various organizations whose primary purpose is to help banks monitor and finance socially and environmentally sustainable economic activities. the final outcome of this analysis is presented by maps that illustrate the european countries' banking systems and allow to identify those countries where involvement in sustainable financial behaviour is most developed. chapter 5 describes how financial institutions use to monitor and respond to the market needs in terms of adapting the financial products and services, such as customer segmentation, designing sustainable value in business models, and designating sustainable financial products. the following chapter (chapter 6) centers on the insurance sector and its problems and challenges that must be faced in the context of the emergence of new challenges created by esg risk factors with an emphasis on the environmental aspect. the chapter also provides information about sustainable insurance forum initiative, which is intended to create the global network of insurance supervisors and regulators in the area of sustainable finance. the main focus of chapter 7 is the capital market which is considered as a very flexible tool that could meet the economic, environmental and social factors. moreover, the capital market has become the leading promoter of structural reforms of traditional enterprises. therefore, the purpose of the chapter is to take a closer look at the role od the capital market in promoting sustainable development. chapter 8 presents the definition, meaning and essence of crowdfunding, and presents its market size and structure. this chapter explains the rationale of crowdfunding as an innovation and verifies the compliance of the crowdfunding assumptions with the concept of sustainable financing in micro and macroeconomic perspectives. the additional value of this chapter is the boston consulting matrix, which classifies the crowdfunding projects by financial risk and value creation. chapter 9 aims to provide an answer as to whether sustainability rating agencies can meet the requirements set by investors who value and promote the idea of sustainable development and assess the impact that investors' requirements may have on the sustainable rating industry trajectory. the state and public finances role in undertaking activities supporting the implementation of sustainable development goals is presented in chapter 10. this chapter shows why strategies and government policy must systematically change production and consumption patterns and encourage the protection of natural resources. the importance of ecological taxes as an instrument of influencing the attitudes of enterprises and households was presented, as well as the role of public expenditure in financing investments and technologies conducive to environmental protection and social inclusion. the third informal part that consists of the remaining chapters contains information mainly about the processes combined with sustainable finance and sustainable financial system. chapter 11 presents information about sustainable investments, such as a typology of sustainable investment and its role in achieving sustainable development goals. it also explains the factors, trends and different evaluation methods used by investors to conduct research on responsible investment. furthermore, it outlines the instruments used and identifies barriers to the diffusion of responsible investing. in this chapter, very interesting innovative financial instruments based on sustainable investing can be found, especially those in the form of listed equity, bonds, hedge funds, and private equity. chapter 12 focuses on the theoretical aspects referring to the financial system, financial stability and sustainability. this chapter presents the methodological approach that helps develop recommendations for a sustainable financial system and proves that environmental, social, and governance risks do matter. chapter 13 presents the mechanisms of controlling and monitoring sustainable goals on the example of india. the chapter highlights the importance of the need for an external audit of sustainability reports. this chapter can definitely serve as a useful source of information for various groups, including decision-makers, regulators as well as scientists and companies. in chapter 14, readers are introduced to an overview of the new trends and non-financial reporting challenges. they can also learn about historical developments that allow them to better understand the prevailing trends in non-financial reporting. the book is an interesting and valuable voice in the discussion of the role of financial systems in sustainable development. a major advantage of this book is that it comprehensively deals with issues related to the subject of a sustainable financial system. at the same time, it is the first book that looks at sustainable financial systems as opposed to sustainable finance in general. the authors demonstrate a thorough knowledge and understanding of the subject of sustainable development and the role of esg risk factors as crucial for sustainable financial systems. hence the book should be treated as the valuable source of information that adds up to the future breakthrough. this book is essential for leading representatives of academia, practitioners, executives, officials, graduate students in economics, phds and anyone interested in the future of global finance. references [1] elkington, j. (2017). saving the planet from ecological disaster is a $12 trillion opportunity. harvard business review, 4. retrieved from https://hbr.org/2017/05/saving-the-planet-from-ecological-disaster-isa-12-trillion-opportunity. [2] plowright, r. k., eby, p., hudson, p. j., smith, i. l., westcott, d., bryden, w. l., ... & tabor, g. m. (2015). ecological dynamics of emerging bat virus spillover. proceedings of the royal society b: biological sciences, 282(1798), 20142124. doi: 10.1098/rspb.2014.2124 notes: 1 it is important to note that the environmental risk factor will be increasing due to the progressing global warming and related climate change. accepted: 2021-01-08 dorota miśkiewicz university of szczecin, faculty of economics and management, mickiewicza 64, 71-307 szczecin, poland dorota miśkiewicz, ma, phd student at the faculty of economics, finance and management at the university of szczecin. she obtained her master's degree in administrative law and european studies european project management. she is a co-author and implementer of many european projects in the financial perspectives 2004-2006; 2007-2013; 2014-2020 implemented in public administration, educational units and third sector organizations. professionally, she supports the business sector. the main topic of the author's scientific interests is the study of financial markets in creating sustainable development. privately, interested in the financial issues of public administration. bartosz oliwa university of szczecin, faculty of economics and management, mickiewicza 64, 71-307 szczecin, poland, : oliwa.bartosz@outlook.com bartosz oliwa, ma, phd student at the faculty of economics, finance and management at the university of szczecin. he obtained his master's degree in finance and accounting and european studies – european project management. a co-author of many european projects in the financial perspective for 2007-2013 implemented in public administration, educational units and third sector organizations. professionally involved in research on the real estate market and the situation of non-financial sector enterprises. the main topic of the author's scientific interests is the research into the role of financial markets in creating sustainable development. privately interested in the issues related to data science: 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice marija lakicevic_ danijela pantovic:tipska.qxd 1 marija lakićević1, danijela pantović1*, aleksandra fedajev2 1university of kragujevac, faculty of hotel management and tourism in vrnjačka banja, serbia 2university of belgrade, technical faculty in bor, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: danijela pantović, e-mail: danijela.durkalic@kg.ac.rs research question: the objective of this paper is to examine the level of the development of spa tourism with a special review of the wellness tourist offer of the republic of serbia, and also which factors of this tourist offer we should pay special attention to and improve, to achieve the highest level of tourist loyalty. motivation: the tourism potential of the republic of serbia has not been sufficiently researched and that served as a basic motivational factor. idea: considering the tourist potential that serbia has and partly the work of han et al., (2017), the fact that spa tourism is the fastest-growing sector in the entire tourism industry, and that the wellness tourism offer is a very important segment of spa tourism, there is a need to identify factors that influence the visitors' loyalty formation for such tourist destinations. as the republic of serbia has a lot of wellness centres, it represents a very convenient location for conducting such research. data: this research included 298 guests of wellness centres in vrnjačka banja: "solaris", "aleksandar", "merkur", "zepter", "kralj", "slatina" and "iwa wellness centre". data collection was performed during july and august 2019. methods: the pls-sem method was used in this paper to test the defined research hypotheses. factors that contribute to loyalty and revisit for the wellness and spa tourist destination were investigated, and they were measured by the appropriate number of questions: quality of wellness and spa tourism, the value of wellness and spa services, attraction of wellness and spa tourist destination and satisfaction with wellness and spa tourist destination. all attitudes were measured using a five-point likert scale. results: the quality and value of wellness and spa services positively impact the affection for wellness and spa tourist destination and satisfaction with wellness and spa tourist destination, while the attraction of wellness and spa tourist destination positively affects satisfaction with wellness and spa tourist destination and tendency to revisit by tourists. the existence of a positive influence of satisfaction with wellness and spa tourist destination and the desire to revisit the tourist loyalty formation was also shown. contribution: improving the quality, value, and effect with the republic of serbia as a wellness and spa tourist destination will increase the satisfaction of visitors and their desire to revisit this tourist destination, which will lead to greater loyalty in the future. this will increase the revenue generated from this type of tourism and accelerate local and regional development. keywords: spa, wellness, tourism, visitors’ loyalty, tourist destination, vrnjačka spa. jel classification: z32, z33 investigating factors of customer loyalty formation for wellness spa doi: 10.7595/management.fon.2021.0031 abstract: 1. introduction modern trends in the tourism market are moving away from the concept of mass tourism related to destinations located on the seacoast and/or mountain ski resorts (vukovic et al., 2015; brandao et al., 2019). modern tourists are increasingly choosing tourism which will separate them from everyday life and provide them with new experiences and pleasures. so today, spas have become some of the most attractive tourist places that are not exclusively related to health tourism. spa tourism is the fastest-growing sector in the entire tourism industry (han et al., 2018; tomic & kosic, 2020). spa hotels offer accommodation with available individual treatments, massages, and services for spa visitors whose focus is on health and well-being (han et al., 2019; szromek & wybranczyk, 2019). the republic of serbia is extremely rich in thermal and mineral resources that are not fully developed and efficiently used (valjarevic et al., 2018; ristic et al., 2019; gulan et al., 2020), so it is necessary to dedicate more attention to the exploitation of these potentials. being a relatively new form of health tourism, the wellness industry is increasingly attracting the attention of marketing experts. this industry plays a significant role in tourism because there is an enrichment of the tourist offer through various facilities, related to recreation, beauty, and relaxation, i.e., renewal of the physical and spiritual condition of tourists. it is quite certain that the trend of the "health industry" will mark the tourism of the 21st century (smith & diekmann, 2017). wellness packages are aimed at the proactive side of users, including their attitude towards disease prevention, health improvement, and maintaining the quality of life (de la hoz-correa et al., 2018; kocic & radakovic, 2019). accelerated pace of life, insufficient physical exercise, pollution, and especially exposure to stress endangered the mental and physical health of people. people tend to look for the way out by using the facilities aimed at a more purposeful use of free time, where wellness is the "answer" to the current needs of modern tourists (islam, 2012). today, the wellness concept is the closest to the answer to the needs of modern people regarding health, and it has a harmonious and comprehensive influence on the functioning of the organism. as a new approach in accepting a healthy lifestyle, it includes those facilities and methods that have a positive effect on the sensory, physical, emotional, intellectual, social, aesthetic, and spiritual aspects of a person (mondok, 2019). in this sense, it can be said that wellness consists of seven basic dimensions: physical, social, emotional, intellectual, professional, spiritual, and environmental dimensions. given the intensification of investments in wellness tourism in the republic of serbia, it is very important to improve the offer of this type of tourism to increase the number of tourists. accordingly, numerous authors have examined the phenomena of the spa and wellness concept in the function of tourism development. some authors conclude that spas in the republic of serbia have a significant comparative advantage compared to a large part of europe, so it is necessary to work intensively on the development of wellness tourism product in serbian spas, especially in the most visited vrnjačka spa, which has been engaged in organized tourism development for more than 150 years and is in the second place regarding the number of tourists (dimitrovski et al., 2019). numerous authors state that spa and wellness tourism is present in many parts of the country, but that tourists usually visit only well-known spa destinations out of habit (valjarevic et al., 2017). the popularity of wellness tourism has increased in recent years due to the development of travelling based on activities, rather than the destination (ahani et al., 2019). spa centres in the republic of serbia have a great potential to meet the needs and requirements of domestic and foreign tourists who are looking for a complete experience of spa and wellness tourism. it is necessary to innovate the tourism product in the sense for this spa destination to use its full potential. following the above, the objective of this paper is to identify key factors influencing the tourist loyalty formation for a wellness and spa tourist destination. 2. literature review being a relatively new form of health tourism, the wellness industry is increasingly attracting the attention of marketing experts. as for the other services and products, customers make their decision on the selection of wellness and spa destination according to its quality and value. topalovic & marinkovic (2020) state that modern tourist companies should focus on creating and delivering value to their customers because it represents a significant source of competitive advantage. according to these authors, tourist services can be better viewed and understood if they are analyzed through a multidimensional approach to value because tourists can simultaneously enjoy the functional, social, emotional, and other features of the destination when visiting a destination. thawornwiriyatrakul & meeprom (2020) indicated that the relationship between the perceived quality of service and satisfaction is positive and significant. loke (2020) confirmed the positive relationship between quality and satisfaction both in the case of medical and wellness tourists. affection and satisfaction are positive and significantly related to quality and value, considering that they are results of quality and value (chua et al., 2015; peng et al., 2017; silvestri et al., 2017). taking into account the importance of the quality of services, han et al., (2019) emphasize that hotels in spa destinations should actively improve the quality of their spa services by providing pleasant experiences for tourists, increasing their level of satisfaction, and encouraging their desire to revisit the destination.some authors emphasized that, by visiting the wellness and spa destination, the consumers strive for hedonic experiences and not just its utility (tsai et al., 2012; loureiro et al., 2013; kiatkawsin & han, 2017). in addition, albayrak et al., (2017) and peng et al., (2017) pointed out that various cognitive factors (e.g., recreation activities, service, quality of atmospherics and food) had a significant impact on consumers' affective responses and that such asso2 marija lakićević, danijela pantović, aleksandra fedajev forthcoming 3 management: journal of sustainable business and management solutions in emerging economies forthcoming ciations eventually exerted a significant impact on satisfaction. chua et al., (2015) pointed out that tourists' perception of quality (physical environment, interactional, and outcome quality) and value are essential contributors to inducing their satisfaction. according to the mentioned relations among quality, value, affection, and satisfaction, the following research hypothesis have been derived: h1: the quality of the wellness tourist offer has a positive impact on the affection towards a wellness tourist destination by visitors. h2: the value of the wellness tourist offer has a positive impact on the affection towards a wellness tourist destination by visitors. h3: the quality of the wellness tourist offer has a positive impact on the satisfaction of visitors with a wellness tourist destination. h4: the value of the wellness tourist offer has a positive impact on the satisfaction of visitors with a wellness tourist destination. the role of affective experiences in the tourist decision-making process is very important. providing tourists with such experiences is becoming a crucial factor of success in wellness and spa tourism (hashemi et al., 2015; campon-cerro et al, 2020). it is especially important for achieving consumer satisfaction (assaker et al., 2011; chua et al., 2015). satisfaction is, on the other hand, often emphasized as an important factor of loyalty (hashemi et al., 2015). han et al. (2018) state that there is a significant degree of interdependence between product performances, destination experience, and satisfaction and that these factors allow a satisfactory prediction of destination loyalty. they concluded that satisfaction is of great importance in creating loyalty, as well as that the destination experience and satisfaction also indirectly affect loyalty. loke (2020) pointed out that the relationship between satisfaction and loyalty is less obvious for wellness tourists in comparison with medical tourists. besides its impact on loyalty, tourist satisfaction is also positively correlated with their intentions to revisit.in the marketing literature, but also in the literature related to tourism, a revisit to a destination is considered a very important factor of tourist loyalty, so this factor in customer loyalty forming is very important to analyze, not only in wellness and spa tourism but in all forms of tourism (sapic et al., 2018). emphasizing that satisfaction can lead to revisiting and recommending the visited destination to other tourists, hashemi et al. (2015) believe that spa travel companies should focus on ensuring customer satisfaction. moreover, a satisfied and returning customer who will share their positive experience with other people is the best advertisement for the least money (vildova et al., 2015). based on the above theoretical and empirical studies regarding the relationship among affect, satisfaction, loyalty, and revisit intentions, the following research hypotheses have been identified: h5: the affection for wellness tourist destination by visitors has a positive impact on their satisfaction with a wellness tourist destination. h6: the affection to a wellness tourist destination by visitors has a positive impact on their desire to revisit the destination. h7: satisfaction of visitors with wellness tourist destination has a positive impact on their desire to revisit the destination. h8: satisfaction of visitors with a wellness tourist destination has a positive impact on the loyalty of visitors. h9: the desire of tourists to revisit wellness tourist destination has a positive impact on their loyalty to the destination. the defined nine hypotheses will be tested in this study to investigate relations among the mentioned concepts in wellness and spa tourism in the republic of serbia. 3. methodology the pls-sem method (partial least squares structural equation modelling) was used in this paper to test the defined research hypotheses. pls-sem is a method of modelling structural equations of least squares that is often used in the study of customer attitudes and behaviour. the key advantage of this method is most often that the application of this method effectively explains the variance that predicts the relationships between latent variables and maximizes the explained variance. a large number of studies using this methodology in this specific area (majeed et al., 2018; lai & hitchcock, 2017; gim, 2018; zhang & xiong, 2020; afthanorhan et al., 2017), served as motivation for choosing this methodology in the research of the set research hypotheses. 3.1 defining latent variables and questionnaires in order to investigate the variables that influence customer attitudes and behaviour, and which have been investigated in previous research in this area, an appropriate questionnaire containing the questions from previous studies has been created. the questions were adapted and adjusted based of the results of previous research by han et al. (2017). additionally, it should be emphasized that the questions and variables taken from the literature are adapted to the subject of research in this paper – the research of factors that contribute to the wellness services users' loyalty to spa tourism and influence the future customers' behaviour. this paper investigates five factors that contribute to loyalty, which are measured by an appropriate number of questions (statements): quality of wellness and spa tourism (5 questions), the value of wellness and spa services (2 questions), affection to wellness and spa tourist destination (4 questions) and satisfaction with wellness and spa tourist destination (3 questions), while the tendency to revisit was assessed based on answers to 3 questions. on the other hand, the level of loyalty was assessed based on answers to 4 questions. all attitudes were measured using a five-point likert scale, where 1 means "i strongly disagree" and 5 means "i strongly agree". in addition to these questions, the questionnaire contains six questions related to the demographic characteristics of the respondents regarding gender, age, the country in which they live, the environment in which they grew up, and where they now live (urban or rural) and employment status. 3.2 data collection this research included 322 guests of wellness centres in vrnjačka spa: "solaris", "aleksandar", "merkur", "zepter", "kralj", "slatina" and "iwa wellness centre". this spa is selected since it is one of the largest tourist centres in the republic of serbia which has a significant number of wellness spa hotels. before completing the questionnaire, the participants were given a detailed explanation of the research and the objectives of the research. data collection was performed during july and august 2019, when traditionally there is the highest concentration of tourists. the initial sample size was 322 subjects, however, 24 respondents had missing data, and so they were not included into the analysis. the analysis was performed on a sample of 298 respondents. 3.3 sample structure there are slightly more women in the sample (56.5%) than men (43.5%). regarding the age structure, it can be said that the largest number of respondents are aged 31 to 40 (33.6%). there were 23.5% respondents aged 19 to 30, 23.2% aged 41 to 50, 10.7% aged 51 to 60, while the least represented were respondents under the age of 18 (3%). the majority of respondents grew up in an urban environment (71.5%) and currently live in such an environment (87.5%). the largest number of respondents is from serbia (78%) and there is a smaller number of respondents from other countries (22%). it should also be noted that the majority of respondents were employed (65.8%), 15.1% were unemployed, 9.7% work occasionally, while the smallest number of respondents were retired (9.3%). finally, data on the number of respondents by wellness centres where the survey was conducted should be provided. most respondents stayed in the wellness centre "solaris" (47%), 20.1% in "merkur", 11.7% in "aleksandar", 8.1% in "kralj", 5.7% in iwa wellness centre, and the least number of respondents stayed in the "zepter" (1.3%). 4. results based on a review of the literature, it can be concluded that numerous factors affect loyalty and revisiting the wellness centre, however, for research purposes the authors used the theoretical model which is proposed by han et al. (2017) and which is shown in figure 1. 4 marija lakićević, danijela pantović, aleksandra fedajev forthcoming figure 1: theoretical model the smart pls 3 software package was used to assess the model parameters. the model measurements were evaluated based on the standardized square root of the average residual square – srmr, chi-square, shown in table 1. table 1: model measurements based on the results in table 1, it can be concluded that the obtained results show a satisfactory level of fitting in the proposed model. primarily, srms is 0.032 which is less than the recommended value, chisquare/df is less than 3, while nfi is slightly lower than the recommended limit of 0.9. to assess the validity of the model, the value of cronbach's alphas was calculated by the corresponding p-values, and the results are shown in table 2. table 2: cronbach's alpha value based on the data in table 2, it can be seen that the model is valid, having in mind that all cronbach's alpha values are higher than 0.7 (nannally, 1978) and statistically significant at the level of p <0.05. as an additional measure of validity, the value of the average variance extracted (ave) was calculated and the results are shown in table 3. 5 management: journal of sustainable business and management solutions in emerging economies forthcoming ������� ��� �� � ���� ������������� ��� �� � ��� �� ��������� ������� ����� ������ ������ �� ����������� �� �� ��� ���� ������ ������ �������� ����� �� ������ ��� ������ ��� ��� ��� ���� �������� ������� � ����� ��� ����������� � ����� !!����� ������ ������ ������ �� ����� ������ "�#����# ��� �� ��� �� ���� � ����� � ������ $�����# ���� � ������ ���� � ������� ������ %��� ��� � ��� � ��� � ������ ���� ��� ������ ���� !����� ��� �� ��� � ������ � � � � ������ ����� ������ ������ ��� �� � �� ������ table 3: value of average variance extracted (ave) from table 3 it can be concluded that according to this indicator the model is also valid, considering that all ave values are higher than 0.5 and statistically significant at the level of p <0.05. after checking the fitting and validity of the model, the calculation of the values of the regression coefficients was performed, and the initial results of the pls-sem model are shown in figure 2. figure 2: initial results of the pls-sem model based on the results presented in figure 2, it can be concluded that all regression coefficients are positive, as defined in the research hypotheses. however, in order to test the set hypotheses, it is necessary to calculate the appropriate p-values for all regression coefficients, which determines the statistical significance of the obtained coefficients. table 4 shows the results of the bootstrapping process. table 4: regression coefficients after the bootstrapping process 6 marija lakićević, danijela pantović, aleksandra fedajev forthcoming variables original sample o) sample mean (m) standard deviation (stdev) t statistics (|o/stdev|) p values affection 0.784 0.783 0.025 31.895 0.000 loyality 0.770 0.768 0.028 27.262 0.000 quality 0.692 0.691 0.039 17.547 0.000 revisiting 0.850 0.850 0.023 37.631 0.000 satisfaction 0.846 0.846 0.024 35.458 0.000 value 0.838 0.837 0.035 23.911 0.000 original sample (o) sample mean (m) standard deviation (stdev) t statistics (|o/stdev|) p values affection revisiting 0.327 0.328 0.065 5.000 0.000 affection satisfaction 0.521 0.520 0.066 7.903 0.000 quality affection 0.511 0.508 0.074 6.934 0.000 quality satisfaction 0.207 0.213 0.072 2.863 0.004 revisiting loyality 0.523 0.523 0.069 7.531 0.000 satisfaction loyality 0.321 0.321 0.075 4.280 0.000 satisfaction revisiting 0.555 0.553 0.065 8.491 0.000 value affection 0.288 0.293 0.073 3.965 0.000 value satisfaction 0.156 0.151 0.065 2.407 0.016 the results shown in table 4 indicate that all regression coefficients are statistically significant at the level of p < 0.05. given that the regression coefficient that shows the relation between the quality of the wellness tourist offer in the wellness tourist destination and the effect of this wellness tourist destination by visitors is positive and relatively high (0.511), it can be concluded that hypothesis h1 is confirmed. a positive regression coefficient (0.288) was also obtained for the relation between the value of the wellness tourist offer and the impact on wellness tourist destination by visitors, based on which it can be concluded that hypothesis h2 was confirmed. the next relation that was tested was that between the quality of the wellness tourist offer in the wellness tourist destination and the satisfaction of visitors. a positive regression coefficient of 0.207 was obtained in this case as well, so it can be concluded that hypothesis h3 was also confirmed, coinciding with the results obtained by thawornwiriyatrakul & meeprom (2020) and loke (2020). the lowest regression coefficient was obtained for the relation between the value of the wellness tourist offer in the wellness tourist destination and the satisfaction of visitors (0.156). certainly the obtained positive regression coefficient for the relation between the two mentioned variables indicates that hypothesis h4 was also confirmed. this confirms the claim of other authors (chua et al., 2015) that quality and value have a significant impact on satisfaction, and ultimately, on customer loyalty. within hypothesis h5, the relation between the affection towards wellness tourist destination by visitors and their satisfaction was examined. a high positive regression coefficient of 0.521 indicates that this hypothesis has been confirmed, confirming the findings obtained by albayrak et al. (2017) and peng et al. (2017). the examination of the relation between the affection towards the wellness tourist destination, as a wellness tourist destination, by visitors and their desire to revisit wellness destination is defined within hypothesis h6. a positive regression coefficient (0.327) was obtained for this relation, so this hypothesis was also confirmed. the highest regression coefficient in the value of 0.555 was obtained for the relation between the satisfaction of visitors with wellness tourist destination as a wellness tourist destination and their desire to revisit this wellness tourist destination was tested through hypothesis h7. as a positive regression coefficient was obtained, it can be concluded that this hypothesis was also confirmed. these results confirm the need to improve the tourist affection towards the destination and increase customer satisfaction to increase revisits. loyalty is one of the variables that are very often examined in the literature on the attitudes and behaviour of tourists. in this paper, loyalty is analyzed within the last two hypotheses. in that sense, the relation between visitors’ satisfaction with a wellness tourist destination and loyalty is defined by hypothesis h8. given that a positive regression coefficient (0.321) was obtained, it can be concluded that this hypothesis was confirmed, which was pointed out also by hashemi et al. (2015) and han et al. (2018). finally, for the relation between the desire of tourists to revisit a wellness tourist destination and their loyalty to this wellness tourist destination, which was tested under hypothesis h9, a positive regression coefficient was obtained, so it is concluded that this hypothesis was also confirmed. this result is in line with findings obtained by hashemi et al. (2015) and vildova, et al. (2015), indicating that increase in revisits will lead to increased loyalty and attraction of new tourists as a result of sharing the positive experiences by already loyal tourists. 7 management: journal of sustainable business and management solutions in emerging economies forthcoming the obtained results of the study confirmed that all analyzed factors (value, quality, experience, satisfaction and revisit) have a positive effect on the formation of loyalty. although the investigated factors have a significant impact on tourist loyalty, the weakest regression coefficient vas obtained for the relation between the value of the wellness tourist offer and the satisfaction of visitors with this wellness tourist destination, indicating that special attention should be put on increasing the value of wellness tourist destinations offer in the future. optimizing the tourist offer is of crucial importance for the improvement of wellness tourism, intending to increase the number of tourists who are interested in this type of vacation. this would provide a dynamic local development, boosting the development of other activities that complement the tourist offer in this destination. this research obtaines significant practical implications for practitioners and wellness spa servise providers considering that it explains the relationships among analysed variables and provides the basis for supply adjustments to meet tourists’ needs and maximize business performances, by incresing their loyalty. the findings have implications for the strategic marketing process of both hotels and wellness and spa destinations. an appropriate understanding of tourists’ loyalty formation is a key factor in improving inventing marketing strategies for tourist retention and revenue increase in both hotels and tourist destinations. the analyzed model integrated key concepts such as quality and value of wellness spa destination, affection, revisiting, satisfaction, and loyalty and identify inter-relationships among them. improving the quality and value of destination have a positive impact on affection and satisfaction and further on loyalty creation and post-purchase behavior of tourists. conclusion references [1] afthanorhan, a., awang, z., & fazella, s. 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(2015). measuring customer satisfation and loyalty in spa companies. marketing & trade, 18(1), 151-168. doi: 10.15240/tul/001/2015-1-012 [38] vukovic p., cavlin g., & cavlin m. (2015). complementarity in the development of rural tourism with the development of thermal baths, spa and wellness tourism, economics of agriculture, 62(1), 259270.doi: 10.5937/ekopolj1501259v [39] zhang, y., & xiong, y. (2020). a culture-oriented model of consumers’ hedonic experiences in luxury hotels. journal of hospitality and tourism management, 45, 399-409. doi: 10.1016/j.jhtm.2020.07.009 received: 2021-03-03 revisions requested: 2021-03-25 revised: 2021-06-15 (3 times) accepted: 2021-08-25 marija lakićević university of kragujevac, faculty of hotel management and tourism in vrnjačka banja, serbia marija.lakicevic@kg.ac.rs marija lakićević has been working at faculty of hotel management and tourism in vrnjačka banja from its establishment, i.e., from 2011. her first position was the assistant for a narrow scientific field of general economics, and in 2013 she obtained the title of assistant professor, and in 2020, an associate professor also for the narrow scientific field of general economics. she is the subject lecturer on the following teaching-scientific subjects: basics of hotel management and tourism (bas), tourist transportation management (bas), special interest tourism (bas), cultural tourism (bas) and tourism and space (das). she is a mentor for final theses on basic academic studies, as well as a member of numerous committees for final and graduate master theses. marija lakićević has published numerous scientific, authored and coauthored papers in the field of tourism. danijela pantović university of kragujevac, faculty of hotel management and tourism in vrnjačka banja, serbia danijela.durkalic@kg.ac.rs danijela pantović holds a phd degree in economics, obtained at the faculty of economics, university of kragujevac in 2021. she works as an assistant professor at the faculty of hotel management and tourism in vrnjačka banja, university of kragujevac, serbia. she has had a number of papers published in journals and international conferences proceedings. her main areas of interest are hotel management and tourism, cultural tourism and european union tourism. aleksandra fedajev university of belgrade, technical faculty in bor, serbia afedajev@tfbor.bg.ac.rs aleksandra fedajev holds a doctoral degree from the university of kragujevac in the area of economics and she received this scientific degree in the year of 2015. since the year 2008, she has been working at the technical faculty in bor, university of belgrade and, now she is an associate professor, teaching the following subjects: bases of business economy, bases of market economy and planning and control of costs. her areas of interest are economic development, economic policy, business economics and business environment. she is the author or co-author of two books and numerous scientific papers in international and national journals, as well as in proceedings from international and national conferences. 10 marija lakićević, danijela pantović, aleksandra fedajev forthcoming about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08 book review molnar:tipska.qxd book review doi: 10.7595/management.fon.2022.0012 the book ”quo vadis entrepreneurship education?” edited by erika jáki and loretta huszák provides a thorough appraisal on the danube cup international conference hosted by the corvinus university of budapest and the budapest university of technology and economics in 2022. the conference's aim was to provide both a platform for entrepreneurship education research and the student startup pitch competition, giving a unique blend of theoretical and practical approaches to the subject. the book describes how, over the years, the danube cup transformed from being a student startup competition to a full-fledged scientific conference thanks to international cooperation. the book contains a survey by krisztián póta and loretta huszák, which aimed to collect information on entrepreneurship/startup development practices at the danube cup partner universities. representatives of all partner institutions believe they can support students with business ideas by creating a student entrepreneurship hub, providing related education, and supporting students in attending international competitions. they also feel that sharing best practices between danube cup partner universities is the most needed form of cooperation. the conference consisted of five sections: startup/entrepreneurship research, entrepreneurship from a broader perspective, best practice sharing, entrepreneur education in practice, “ecosystem”: supporting student startups. section one was titled startup/entrepreneurship research and contained presentations from venture financing, entrepreneurship education and managerial research fields. from the presentation of patrícia becsky-nagy and balázs fazekas we learned that the participation of private venture capital investors in the hungarian public venture capital programmes did not lead to better performance due to the issue of moral hazard. then natalia vinogradova and alexandra novac gave an overview of how entrepreneurial higher education contributes to the entrepreneurial competencies of moldovan students. diána dóra beke, andrea sólyom, and andrea juhászné klér developed a model for organizational learning based on empirical experience from top technology startups from all around the world, which can be built into higher management education. nikolett deutsch, ilona hoffer, and viktor nagy-borsi highlighted the main international trends in entrepreneurship education development and explored the focus of current programming activities. péter halmosi, erika jáki, marta aranyossi, and patrícia becsky-nagy compared educational methods and practices applied in leading hungarian business development masters programmes and examined the penetration of transformative new business and technology trends. section two was titled entrepreneurship from a broader perspective and contained presentations about entrepreneurship from the managerial and ethical perspectives. the first presenter, tamás farkas introduced his literature review on the development of dynamic capabilities. constanze ruesga rath talked about the emerging research field of intercultural entrepreneurship. dániel martin baranyi and lászló trautmann, in their presentation, argued that using constructivist pedagogy in economics courses can support the efficacy of the teaching process. isaias rivera analyzed a reform effort on the globalization process as an alternative to reach deglobalization. anisha shahani explored the problem of universities being unable to provide hands-on experience-oriented education to future entrepreneurs, and the need to move education beyond the classroom. finally, andrás bethlendi and árpád szűcs talked about the phenomenon of “unicorn” startups in the context of entrepreneurial higher education. abstract: book review of: jáki, e., & huszák, l. (2022). quo vadis entrepreneurship education? corvinus university of budapest, budapest: hungary. isbn | 978-963-503-909-8 jel classification: l26, i25 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) 81 molnár endre mihály, institute for entrepreneurship and innovation, corvinus university of budapest, hungary section three was titled best practice sharing and contained presentations about novel approaches in entrepreneurial higher education. to start, benjamin monsorno and jakob polish talked about the challenges of industrial business model innovation. jános vecsenyi, pál danyi, and viktor borbély showed the validity of a “learning by doing” mba course concept and identified its key success factors. lászló kállay presented his student-generated case study teaching concept as a novel way to balance theory and practice in entrepreneurial education. attila petheő gave an overview of his 20 years’ worth of teaching experience, showing the evolution of teaching methodologies from frontal lecturing to the case-study based harvard business school methodology ending with blended learning. judit csákné filep and gigi timár presented their course, during which students in small groups create a solution and business plan for a certain problem in the span of a week. finally, anikó grad-gyenge and vanda orbulov introduced the hsup programme, which is focused on innovation, startups, and entrepreneurial skills. section four was titled entrepreneur education in practice and contained presentations exploring how to innovate in entrepreneurial education. péter tasi and elinor vettraino explored the team academy teaching method, which originated in finland and its adaptions in different countries. pál danyi, tamás iványi, and jános vecsenyi segmented students into three categories based on various attributes and identified the course criteria that are most appropriate for the different groups of students. márton gosztonyi explored how a university course can serve as a tool for empowering disadvantaged communities. rudolf dömötör, monique schlömmer, johanna wiesner introduced a unique event series designed to connect students from different disciplines and help transfer their ideas into viable businesses. finally, balazs horvath, akos r. wetters, and alessandro tomasi found that in order to maximize student teamwork performance, teams must be assembled with a high weight on the entrepreneurial archetypes of participants. section five was titled “ecosystem”: supporting student startups and contained presentations about improving the gender balance, startup centres, and the law support system of entrepreneurs. nelly rahimy and kevin koziol presented their female founders' academy concept aimed at improving the ratio of female entrepreneurs in startups. loretta huszák and katalin oborni showed how formal mentorship and counseling can stimulate entrepreneurial ambitions in female students. sean patrick sassmannshausen shared best practices on growing a startup center within a university of applied sciences. rudolf dömötör and monique schlömmer introduced the changemaker programme, which offers low-barrier entrepreneurship training for children. finally, kai von lewinski highlighted the importance of entrepreneurial law clinics that help small enterprises and startups to avoid legal pitfalls. the book titled ”quo vadis entrepreneurship education?” edited by erika jáki and loretta huszák documents well the evolution of the historic international entrepreneurial scientific conference and student pitch competition, the “danube cup”. it also provides a wide overview of the current research areas of entrepreneurial education, which were fascinating to experience due to the authors high degree of practical knowledge and innovative suggestions to improve several aspects of entrepreneurial higher education and fostering creativity and innovation in university students. therefore, i suggest this book to anyone who wants to get a feel of where startup education research is headed. endre mihály molnár corvinus university of budapest, hungary molnar.endre@uni-corvinus.hu endre mihály molnár has a phd degree in corporate finance and works as an assistant professor at the corvinus university of budapest, institute for entrepreneurship and innovation. he also works part time as a financial plan consultant for a large investment company. his teaching portfolio includes subjects related to venture capital, corporate finance, and business planning. his research areas are early-stage corporate financing and venture capital, and in connection with these fields he was involved in several research projects and is a reviewer in scientific journals. molnár endre mihály 2022/27(3) 82 about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 2 27_2 ivana markovic:tipska.qxd 13 ivana marković*, biljana rabasović, nikola stojanović western serbia academy of applied studies, valjevo department, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(2) *corresponding author: ivana marković, e-mail: ivana.markovic@vipos.edu.rs research question: the goal of this research is to describe how the concept of brand personality and its dimensions affect customer satisfaction and loyalty. motivation: creating brand personality is an efficient differentiation strategy, used by numerous companies for building and sustaining competitive advantage. brands with personality are considered as real people and can be described using human characteristics. therefore, consumers can establish connection with them more easily, which increases customer satisfaction and brand loyalty. idea: the main idea of this paper was to empirically evaluate the relationship between the concept of brand personality and its dimensions and customer satisfaction and loyalty. data: the information for this purpose was gathered through a survey that included 191 participants. tools: collected data were statistically analyzed using descriptive statistics, reliability and regression analyses in order to test the hypothesis. findings: the results have proved that the brand personality plays a significant part in building satisfaction and loyalty. furthermore, results indicate a significant positive relationship between all five brand personality dimensions and satisfaction on loyalty, with excitement and competency as dominant. contribution: this paper provides new insights significant for the serbian-speaking audience and is genuinely useful since it stresses the importance of brand personification and its influence on success. therefore, it can be used by brand managers to aid the process of establishing and sustaining strong brands keywords: brand, brand personality, satisfaction, loyalty jel classification: m30, m31 the influence of the brand personality concept on consumer satisfaction and loyalty doi: 10.7595/management.fon.2022.0001 abstract: 1. introduction advancements in technology have made it possible to recreate or copy a majority of the products` physical characteristics. therefore, brand managers are forced to create differentiation factors through intangible brand elements that are more challenging to copy (starcevic, 2016). like people, brand has its own identity: name, symbols, physical attributes, country of origin, as well as its character – a brand personality. brand personality has been described as the sum of human characteristics added to the brand that defy that brand, e.g., competent, modern, fun, active, etc. personalizing helps consumers to better understand the brand, and to eliminate the feeling of insecurity during the purchase or usage of a product or a service. consumers choose and make connections with a brand whose human characteristics they appreciate and identify with. due to the possibility to express their own personality, show their achievements, success, and social status through brands, consumers have a sense of contentment. it is known that a satisfied customer is likely to repeat the purchase, therefore building brand loyalty. loyal customers are a foundation for success – repetitive purchases increase sales and profits. this research intends to synthesize theoretical and practical knowledge into an in-depth analysis about brand personality, focusing on presenting this concept as a generator of satisfaction and brand loyalty among the mobile phone industry. this study contributes to the field by offering new information on brand personality as a generator of satisfaction and loyalty. these findings are highly beneficial for the serbian-speaking scientific community due to its rarity and uniqueness. a large body of domestic literature deals with the ways in which we measure brand personality, adjustments of the measuring scales to various cultures, as well as the effects of the brand personality upon numerous aspects of business. the authors are not aware of any empirical research within the domestic literature that connects the concept of brand personality with satisfaction and loyalty. therefore, the key benefit of this research is going to be filling the gap within that field of research through offering new findings with both theoretical and practical implications. the results should point out benefits of brand personalization for improving customer satisfaction and loyalty. this paper opens with presenting current theoretical and practical state within the field, followed by methodology and the sample structure description. the next part provides the results of empirical research. the paper ends with the conclusion, discussion about the benefits and limitations of the research, as well as the possibilities for future research. 2. literature review 2.1. brand personality based on the most cited definition, “brand personality is a set of human characteristics related to a brand” (aaker, 1997), brands can easily be described as a person by adding typical human characteristics – age, sex, social status, as well as certain personality traits – gentle, sensitive, kind, family-oriented, joyful. depending on how long the brand has been present in the market, it can be considered as young or old, so nokia can be considered as an old and huawei as a young brand. slim cigarettes, due to their appearance, are considered feminine, while marlboro has a strong masculine character. brands with lower price and quality are perceived as blue-collar brands, while more expensive, high-quality brands are recognized as persons of high social status. the reason for adding human characteristics to objects is to easily understand and make connection with it. several studies indicated that consumers are going to choose brands that match their personality the most (seimiene, 2012; tan et al., 2016; tuzcuoglu et al., 2018). seimiene (2012) in her theoretical model of emotional connection between brand and consumer personalities concluded that the main traits of both brand and consumer personalities should be similar; in that way consumers will more likely choose a certain brand. akin (2017) states that placing a product with a generic name directly leads to decreased market share since that product is now seen as common. it is also more difficult to establish good communication with prospective consumers since it is highly challenging to present such brand efficiently, and to make people remember a brand with a weak or no personality. brand personality affects brand love, brand trust, brand commitment and purchase intention (becheur et al., 2017; mao et al., 2020; tong et al., 2018) and enables companies to create unique positions of their brands in their consumers’ minds, therefore increasing brand equity (helmi et al., 2019; kiriri, 2019; starcevic, 2016). since brand personality is more difficult to imitate, it provides sustainable competitive advantage (aaker, 1997; helmi et al., 2019; lim, 2013; sung et al., 2010; starcevic, 2016). 2.2. brand personality dimensions and measuring scale the intangible nature of brand personality makes this concept hard to measure. a most commonly used scale for measuring brand personality is created by aaker (1997). matching the personality scale used in psychology, known as the big 5, aaker (1997) created the scale which includes five key brand personality dimensions: sincerity, excitement, competency, sophistication, and ruggedness. to measure precisely, each of the five factors is described with appropriate traits, so the model ended up with five personality dimensions described with 42 characteristics. brands associated with sincerity are down to earth, honest, wholesome, cheerful, family-oriented, sincere, real, and genuine. in general, this dimension covers the idea of warmth and acceptance. sincerity brands are usually food, safety or hospitality brands, like coca cola or pampers. excitement dimension refers to being daring, spirited, imaginative and up to date. brands positioned as exciting are usually intended for younger population, promising them the sociability, energy and activity. tiktok, nike, mtv are brands dominantly described by this dimension. competence is defined in terms such as: reliable, intelligent, and successful. banks, insurance companies, logistics firms, medical or it brands are mostly positioned as competent, e.g., ups, volvo, microsoft. sophistication refers to upper-class, glamorous, good-looking, 14 ivana marković, biljana rabasović, nikola stojanović 2022/27(2) charming, feminine, and smooth. in most cases luxury, expensive and superior brands are associated with this dimension. sophisticated brands are tiffany & co, nescafe, and mercedes. the fifth brand personality dimension, ruggedness, is associated with outdoorsy, tough, masculine, western, and rugged. rugged brands emphasize power and strength: jack daniels, jeep, harley davidson (davies et al., 2017; starcevic, 2013). relying on aaker scale, numbers of scholars have developed different brand personality measurement tools. due to cultural differences of certain countries, these scales are often adapted accordingly. for the purpose of her brand personality research, starcevic (2013) has adjusted the scale, in alignment with the perception of the participants on the serbian market. she left out all items not related to personal characteristics, eliminated all items similar to participants, and excluded all items not suitable for describing related brands or not adequate for the questionnaire. for example, the ruggedness factor was renamed to strength, which was more understandable and appropriate for serbian respondents. the final scale consists of the five basic factors and additional 32 description features. the overview is provided in table 1. table 1: aaker scale adjusted to serbian market. source: starcevic (2013) 2.3. satisfaction marinkovic defines satisfaction as “the emotional response of a customer to the experience related to purchase of a certain product or a service” (marinkovic, 2012, p.50). satisfaction is the consumer’s assessment of the amount of fulfilling his/her desire or need, in comparison with his/her expectations (rizwan et al., 2014). brands that deliver values that exceed their customers’ expectations will result in high satisfaction levels among their customers (helmi, 2019). consumers’ expectations largely depend on their previous experiences with the product, on independent reviews, as well as on information provided by the seller. if this information is not aligned with the actual performance of a product or a service, the consumers’ expectations are going to be set high, certainly leaving the customer unhappy (kotler, 2006). a satisfied customer is more likely to repeat a purchase and spread positive verbal propaganda about a brand or an organization (leninkumar, 2017). on the other hand, a consumer who is not happy with the purchase is very likely to share negative information about it, and to choose another product for the next related purchase (milisavljevic et al., 2005). it is well known that it is significantly more cost-effective to keep the existing customers than to attract new ones; the importance of satisfaction is obvious. a high satisfaction level is widely recognized as a significant factor of loyalty. however, it is not a rule that high satisfaction will positively affect loyalty (helmi, 2019). consumers prone to experimenting tend to choose a different product each time, despite positive experiences with the previous ones (kamble et al., 2019). 2.4. loyalty customer loyalty is affection or deep dedication to a product, a service, a brand or an organization. (oliver, 1999). marinkovic defines loyalty as “devotion to a brand or a business subject based on a strong positive opinion, which results in repetitive purchases” (marinkovic, 2012, p. 144). it is a multidimensional construct consisting of two components: attitude and action (leninkumar, 2017) that can be weak or strong. loyal buyers do not desire to change brands, they are faithful and less price sensitive. since they perceive a specific brand as unique, they are ready to pay extra for that brand, even if there is a more affordable option (nobre, 2010; shin et al., 2019). companies with a strong base of loyal customers have an advantage on the market. loyal customers are prone to sharing positive brand-related experiences to the people they are in touch with. therefore, such companies can save significant resources on advertising (shin et al., 2019). “loyalty is considered as one 15 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) brand personality dimensions characteristics sincerity realistic, family-oriented, fair, honest, kind, cheerful, sensible, friendly excitement bold, trendy, interesting, fun, cheerful, youthful, whimsical, genuine. extraordinary competency reliable, tireless, competent, successful, responsible, confident, governing sophistication sophisticated, charming, well-bred, glamourous, elegant strength powerful, sporty, persistent, strong, tough of the key elements for achieving a long-lasting business success” (akin, 2017). it is recognized as an important factor that contributes to achieving competitive advantage in an extremely competitive and dynamic business environment, in comparison with other companies (leninkumar, 2017). forming a loyal customer base enables advantages such as cutting marketing costs, better positioning in the stores, attracting new while keeping old customers (akin, 2017). based on loyalty, other advantages can also be achieved, such as a larger market share, positive word-of-mouth, establishing premium price level, and ultimately increasing shareholder value. (arjun et al., 2012; helmi et al., 2019). loyalty results in increased sales and profits (al-maslam, 2015). 2.5. defining research hypothesis numerous scholars have researched brand personality and its influence on satisfaction and loyalty, from different standpoints (adinehfar et al., 2016; bilgili et al., 2015; choi et al., 2017; chung and park, 2015; kwong and candinegara, 2014; lombart and louis, 2016; mann and rawat, 2016, rafidah, 2021; tuzcuoglu et al., 2018; yang and lee, 2019). many confirmed positive relationships between brand personality, satisfaction and loyalty with a few opposite conclusions. furthermore, many studies indicated the influencing variation of brand personality dimensions, depending on consumer characteristics (tuzcuoglu et al., 2018), brand origin (yang and lee, 2019) or various brands (chung and park, 2015). yang and lee (2019) examine the influence on brand personality dimension in forming the affective loyalty towards midto low-end fashion brands in korea. sincerity, competence, and excitement have been identified as determinants of affective loyalty. it is reported that each dimension had different levels of influence, depending on the product origin. competence and sincerity had significant influence on affective loyalty towards western and eastern brands, and excitement as a brand personality trait has been identified as the most powerful dimension in forming the loyalty towards eastern brands. in their study, mann and rawat (2016) examine consumers’ affection and brand personality regarding their experience with cell phones. they identified that brands recognized as sincere, exciting, and competent create emotional attachment with consumers. further, their findings demonstrated that consumer emotional attachment with the brand has a positive influence on satisfaction and loyalty. another study, focusing on mobile phones, examined brand personality effects on brand asset management. in order to fulfill the objective of the research the authors have used the concept of consumer selfidentification with the brand. results have shown a positive relationship between attractiveness, distinctiveness, and self-expressive value of brand personality. consumers’ identification with a brand has been affected by these relationships, having a direct influence on word-of-mouth, and an indirect effect on brand loyalty. according to the results of the study, authors have concluded that the essential role in creating and maintaining brand personality is communication (kim et al., 2001). bilgili and ozkul (2015) have studied the relationship between brand awareness and brand personality and its effects on consumer satisfaction and loyalty. they concluded that brand awareness directly influences brand personality creation, while brand personality has a direct impact on customer satisfaction and brand loyalty. another study, investigating into the relationship between brand loyalty and brand personality, had in focus the variations of effects of different traits of brand personalities between two famous mobile phone brands (apple and samsung). first, the study confirmed a significant positive relationship between brand personality and brand loyalty. second, the results indicated that the effect of certain brand personality traits will vary according to the brand. furthermore, sincerity and competence dimensions had significant effect on loyalty for both brands. on the other hand, excitement had positive effects for apple and negative effects for samsung. this variation is explained by different characteristics of samsung and apple mobile phone users (tuzcuoglu et al., 2018). chung and park (2015) confirmed positive effects of brand personality on brand loyalty and discovered that dimensions of brand personality effect would vary depending on the mobile phone brand. according to the results, brand personality dimensions – excitement, competence, and sophistication, are the most influential factors that affect consumers’ brand loyalty on the european mobile phone market. further, the study indicates the differences in impact among all five brand personality dimensions on brand loyalty across the top four mobile phone brands (samsung, apple, nokia, and sony). for instance, sincerity had a positive effect only with the brand loyalty of sony, and ruggedness was positively associated only with samsung and apple brands. 16 ivana marković, biljana rabasović, nikola stojanović 2022/27(2) although a large number of scholars have confirmed a positive influence of brand personality on brand loyalty, there are studies with the opposite results. kwong and candinegara (2014) observed the relations between brand experience, brand personality, brand satisfaction and brand loyalty in the tobacco industry. according to their findings, a significant positive influence is found only between satisfaction and loyalty. on the other hand, brand experience and brand personality were insignificant to consumer loyalty. lombart and louis (2016) found a significant positive influence of brand trust and brand attitude on retailer brand personality, but no influence of brand personality on brand loyalty. accordingly, four research hypotheses are generated: h1: brand personality has statistically significant positive influence on customer satisfaction. h2: brand personality has statistically significant positive influence on customer loyalty. h3: all five brand personality dimensions have statistically significant positive influence on customer satisfaction. h4: all five brand personality dimensions have statistically significant positive influence on customer loyalty. 2.6. research framework according to the defined research hypothesis, research framework is composed and presented in figure 1. the research framework gathers brand personality and its dimensions, satisfaction and loyalty into one, assuming the interconnected relationships among the variables. figure 1: research framework 3. sample structure and research methodology all data have been collected using a questionnaire method, through an online interview. the first three questions were related to socio-demographic characteristics of the interviewees, such as age, sex, and level of education. the fourth question required the interviewees to provide information about the cell phone they use, followed by four questions about the phone brand. mobile phone brands were chosen as the objects of the research due to the fact that many people have an opinion and attitude towards that brand since the interaction with the cell phone is usually frequent. the remaining questions were actually statements, 23 out of 29 were related to the brand personality, 3 to satisfaction, and 4 to loyalty. respondents used a fivedegree likert scale to express their opinion (1 do not agree at all, 5 completely agree). statements included were taken from the relevant literature and adjusted accordingly. thus, statements related to brand personality were taken from the studies of aaker (1997) and starcevic (2013), followed by satisfaction-related statements from the research of bilgili and ozkul (2015), and loyalty related statements by rizwan (2014) and coauthors’ scale. an online survey was conducted from june 29th until july 6th 2020., involving 191 interviewees. the sample was segmented according to age, sex, and level of education. age wise, the sample contains 43% of the people between the agees of 18 to 30, 31% between 31 and 40, 17% between 41 and 50, 7% between 51 and 60, and 2% above 60 years of age. regarding sex, we had 60 male (31%) and 131 female participants (69%). education-wise, 27% (52) participants obtained a high school diploma, while majority have a college degree, around 73% (139 participants). collected data were processed and analyzed using spss. regarding statistical analysis, descriptive, reliability, correlational and regression analyses were used. 17 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) 4. research results to examine how appropriate and homogenous the results are, descriptive analysis was conducted, calculating the arithmetic mean and the standard deviation. the results are shown in table 2. results have shown that the most positive attitude relates to satisfaction, or more precisely to the following statement: “i think i have made a good decision choosing that cell phone brand”. the most negative attitude is related to the courageous characteristic within the excitement group of adjectives used to describe brand personality. table 2: descriptive analysis and scale reliability author’s calculation using spss 18 ivana marković, biljana rabasović, nikola stojanović 2022/27(2) statements arithmetic means standard deviation cronbach’s alpha brand personality 0.976 sincerity 0.935 truthful 3.61 1.209 realistic 3.82 1.142 honest 3.52 1.200 fair 4.02 1.131 friendly 3.76 1.246 excitement 0.911 trendy 4.07 1.126 interesting 4.04 1.058 courageous 3.45 1.284 creative 3.51 1.256 original 3.66 1.270 competence 0.935 reliable 4.06 1.129 competent 3.82 1.153 successful 3.82 1.205 responsible 3.66 1.254 self-confident 3.79 1.187 sophistication 0.900 sophisticated 3.74 1.172 charming 3.66 1.215 well-bred 3.71 1.204 elegant 4.01 1.119 strength 0.872 powerful 3.87 1.137 persistent 3.58 1.162 strong 3.71 1.292 satisfaction 0.967 i am satisfied with the brand of my cell phone 4.27 0.945 this brand has fulfilled my expectations 4.25 0.904 i believe i have made a good decision to buy this brand’s product 4.28 0.941 loyalty 0.884 i am ready to recommend the brand of the phone i use 4.21 0.945 i consider myself loyal to the phone brand i currently have 3.84 1.119 i would purchase the same phone brand again 4.09 1.060 i am not interested in purchasing any other mobile phone brand 3.48 1.349 reliability of the measuring scale has been analyzed using cronbach’s alpha. values of this factor range between 0 and 1. if its value is higher than 0.7, the scale is considered reliable and consistent (hair et al., 2014). the results in the table 2 prove high internal coherency of variables. table 3: correlation analysis **value considered significant at 0.01 author’s calculation using spss table 3 presents the results of the correlation analysis conducted to determine the relationship strength between variables. based on the results of the pearson’s correlation factor, statistically significant positive relation is determined at the 0.01 level between all variables. taking only brand personality and satisfaction (0.610) variables into account, as well as satisfaction and loyalty (0.694), strong linear correlation is determined. table 4: results of the simple regression analysis for testing the hypotheses 1 and 2 value significant at 0.01 author’s calculation using spss in order to test the research hypothesis, a simple regression analysis was conducted. results are presented in table 4. test results for the hypothesis 1 show that the independent variable brand personality has a statistically significant positive influence on the independent variable satisfaction – 37.2% of variability of the dependent variable has been described through this regression model. the same results were achieved by helmi et al. (2019), mann and rawat (2016), and bilgili and ozkul (2015). it can be concluded that brand personification, perception of brands as people, triggers emotional response among consumers, which results in satisfaction. therefore, the hypothesis cannot be rejected. according to the results of the testing of the second hypothesis, it can also be concluded that the influence of the independent on the dependent variables is positive and statistically significant, while 34.8% of variability has been described through this model. therefore, hypothesis 2 cannot be rejected. brand personality enables consumers to identify and connect with a brand, resulting in the sense of affection and dedication, so a consumer constantly purchases and uses a brand, therefore creating loyalty. the same results were achieved by akin (2017), bilgili and ozkul (2015), chung and park (2015), helmi et al. (2019), mann and rawat (2016), kimm et al. (2001), tuzcuoglu et al. (2018) and yang and lee (2019). table 5: results of the simple regression analysis for testing the hypothesis 3 value significant at 0.01 author’s calculation using spss table 5 presents the results of a simple regression analysis which is conducted in order to test hypothesis 3. the results indicate statistically significant positive influence of each brand personality dimension on variable satisfaction. having this in mind, the third hypothesis cannot be rejected either. this result is partially in line with findings of mann and rawat (2016). the highest b value can be detected for the excitement followed by the competence. dominance of the excitement dimension can be explained by numerous mobile phone applications which provide amusement and activity to the user; at the same time users need a reliable device and therefore competence as a dimension gains importance. 19 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) variables brand personality satisfaction loyalty brand personality 1 0.610** 0.590** satisfaction 1 0.694** loyalty 1 variables r² b t significance (p) standard error brand personalitysatisfaction 0.372* 0.610 10.574 0.000* 0.062 brand personalityloyalty 0.348* 0.590 10.041 0.000* 0.059 variables r² b t significance (p) standard error sincerity satisfaction 0.288* 0.537 8.749 0.000* 0.072 excitement satisfaction 0.349* 0.590 10.059 0.000* 0.067 competence satisfaction 0.338* 0.581 9.824 0.000* 0.069 sophistication satisfaction 0.311* 0.557 9.231 0.000* 0.069 strength satisfaction 0.307* 0.554 9.158 0.000* 0.072 table 6: results of the simple regression analysis for testing hypothesis 4 value significant at 0,01 author’s calculation using spss the results of the simple regression analysis conducted in order to test the hypothesis 4 are presented in table 6. according to the results, all five brand personality dimensions have a statistically significant positive influence on the loyalty variable. this result is in line with the study of chung and park (2015) and partly in line with tuzcuoglu et al. (2018). therefore, hypothesis 4 cannot be rejected. excitement followed by the competence dimension has the highest value of b coefficient; this is the same result as in hypothesis 3 test and it can be explained in the same way. 20 ivana marković, biljana rabasović, nikola stojanović 2022/27(2) variables r² b t significance (p) standard error sincerity – loyalty 0.258* 0.508 8.113 0.000* 0.068 excitement loyalty 0.359* 0.599 10.281 0.000* 0.062 competence loyalty 0.309* 0.556 9.187 0.000* 0.066 sophistication loyalty 0.279* 0.528 8.543 0.000* 0.066 strength loyalty 0.290* 0.539 8.789 0.000* 0.067 the research has been intended to examine if brand personality and its dimensions affect satisfaction and loyalty. the results of the research have confirmed that if a brand can be perceived as a human being and can be described using human characteristics, it can fulfill consumers’ expectations and trigger a sense of satisfaction. the research has also confirmed that brand personification has a significant role in establishing loyalty. participants have shown they are ready to recommend a brand with strong brand personality, that they plan to repeat a purchase, and that they would not switch to another brand. finally, the research has confirmed that each brand personality dimension separately has a positive influence on satisfaction and loyalty. the dominant dimensions are excitement and competence, as the mobile devices provide entertainment and need to be reliable. the research has several theoretical implications that expand knowledge about brand management. firstly, the study has offered new information about brand management as a tool used to predict satisfaction and loyalty, which used to be an insufficiently covered topic throughout domestic literature. papers on brand management lack empirical research, which directly increases contribution and value of this work due to quantitative empirical research that proves all tested relations. moreover, theoretical contribution is reflected in the measuring instrument that can be used for any related future research. the social contribution is seen in the practical application of the research results, which can be highly useful to brand managers for creating product policies, communication plans, and ultimately a business strategy. basically, researching brand personality leads to the clear picture about brand position in consumers’ minds, focusing on both strong and weak elements. this information is highly important for managers to decide which brand attributes should be stressed and improved. moreover, since the concept of brand personality is a superior tool for achieving competitive advantage, critical information about how to build a unique brand personality can be obtained. brand personality research can be conducted using numerous brands, which enables comparisons with competition, and eases identification of the differentiation points. accordingly, suggestion for businesses would be to focus on building brand personality matching the personality traits of their main consumers and to distinguish its brands from competitors’ brands by emphasizing personality traits which are relevant to the brand category and most appreciated by consumers. like many other economy-related research works, this contains several limitations. the first limitation is related to the structure and size of the sample. due to the nature of online surveys, the sample does not cover all market segments. second, the research covers only one product group (mobile phones), so the result cannot be generalized. the third limitation is related to the scale used for measuring brand concept. it consists solely of statements related to personal characteristics, while demography-related questions (age, sex, social status) were left out. during the survey process, it was observed that several participants had difficulties acknowledging a brand as a person. it turned out that their common trait was education within the natural sciences field. as a response to the aforementioned limitations, further research possibilities are discovered. first, the research should be conducted across a larger sample, combining in-person and online survey methods in order to cover all segments. then, it would be interesting to organize research on several product groups, to compare the importance of the concept of brand personality, depending on a product category. similarly, it would be engaging to expand the survey with questions conclusion references [1] aaker, jl. 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(2019). midto low-end fashion brand personality affects consumers’ perceived quality, commitment, and loyalty. social behavior and personality: an international journal, 47(7), 1-17. doi: 10.2224/sbp.7680 received: 2021-04-28 revisions requested: 2021-07-26 revised: 2021-11-23 (2 revisions) accepted: 2022-01-16 22 ivana marković, biljana rabasović, nikola stojanović 2022/27(2) 23 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) ivana marković western serbia academy of applied studies, valjevo department ivana.markovic@vipos.edu.rs ma ivana marković is a lecturer at marketing, market research and brand management courses at the western serbia academy of applied studies, valjevo department. since 2011. she has also been engaged as a guest lecturer at duale hochschule badenwürttemberg stuttgat, germany at the international marketing course. besides lecturing, ms. marković deals with public relations and organization of public events as a pr manager at the western serbia academy. biljana rabasović western serbia academy of applied studies, valjevo department biljana.rabasovic@vipos.edu.rs biljana rabasović is a professor with phd in marketing. she is employed at the western serbia academy of applied studies, valjevo department, where she teaches consumer behaviour, marketing services, business and market communication and introduction to tourism and tourism business. as a member of the vipos research and development center team, she participated in a number of projects for business and non-business entities. she is the author of more than twenty scientific papers and a co-author of two books. nikola stojanović western serbia academy of applied studies, valjevo department nikola.stojanovic@vipos.edu.rs nikola stojanović is an assistant teacher at the western serbia academy of applied studies for hr management, marketing and entrepreneurship-related subjects. he earned his master’s degree in hr management at northeastern university (boston, usa) and a graduate certificate in strategic management at harvard university (cambridge, usa). currently pursuing a phd degree at the faculty of organizational sciences, university of maribor. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 7 27_2 valentina djordjevic:tipska.qxd 71 valentina đorđević*, pavle milošević, ana poledica university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(2) machine learning based anomaly detection as an emerging trend in telecommunications doi: 10.7595/management.fon.2020.0002 abstract: 1. introduction anomalies are patterns in data that do not conform to a well-defined notion of normal behaviour (chandola, banerjee, & kumar, 2009). anomaly detection is a task of identifying instances whose behaviour significantly differs from normal or some expected behaviour in the data. the importance of anomaly detection can be seen in identification of faults (lin, ke, & tsai, 2015), failures (chernogorov, ristaniemi, brigatti, & chernov, 2013; chernov, cochez, & ristaniemi, 2015; mueller, kaschub, blankenhorn, & wanke, 2008), or frauds (yee, sagadevan, & malim, 2018) in the systems being modelled. * corresponding author: valentina đorđević, e-mail: valentinadj4@gmail.com research question: this paper investigates into how machine learning can be applied for the purpose of detecting anomalies in the data describing transport component within the cellular network. motivation: in the field of telecommunications, terabytes of data are generated each hour. this makes the manual analysis almost impossible to perform. there are thousands of components whose behaviour needs to be monitored, since anomalous behaviour could indicate a possible failure that can lead to network degradation, huge maintenance costs, and finally – a bad user experience. our goal is to try to catch anomalous behaviour automatically, and thus help domain experts when performing drill down analysis of the degraded base stations and their key performance indicators (kpis). idea: the main idea of this paper is to empirically evaluate the application of machine learning for the problem of anomaly detection, in the field of telecommunications, specifically to long term evolution (lte) networks. data: data used in the analysis contains information about base transceiver stations (bts) behaviour through the time. the data are gathered from a cellular network provider located in serbia. the data are collected on an hourly basis, for a period of two weeks, resulting in almost 700 thousand rows. the behaviour is assessed by 96 transport kpis coming from bts, describing the package losses, delays, transmission success rates, etc. tools: two main algorithms, ensemble-based isolation forest and autoencoder neural network, are elaborated and applied in order to identify patterns of anomalous behaviour. findings: the results show that machine learning can be successfully applied in the field of lte networks for the problem of anomaly detection. machine learning can significantly reduce the time needed for the domain experts to identify anomalies within the network. in addition to time efficiency, one of the algorithms tested is able to identify anomalous kpis separately, which is crucial when performing root cause analysis, by using drill-down approach, in order to identify which component is degraded. contribution: this paper enriches existing research related to anomaly detection in lte networks and provides an innovative approach to automated root-cause analysis of network degradation. keywords: anomaly detection, lte network, telecommunications, autoencoder, isolation forest, machine learning jel classification: c63, l96 in most cases, the completeness of the data directs the flow of the analysis. the information of anomalous behaviour is often not known or expensive to obtain, and in that case, only normal behaviour is modelled. when dealing with anomalies in the data, it is often needed to observe contextual features (such as time and space), among behavioural features that are usually analysed. many different techniques and approaches have been developed in order to deal with anomalies in the data, tailor-made to respond to different challenges such as data incompleteness, domain specificity, resource utilization and scalability. anomaly detection has been applied in a variety of ways in the field of telecommunications, especially in long term evolution (lte) networks analysis. in most cases, key performance measurements and parameters from radio and transport network have been analysed in order to identify anomalous behaviour. many different approaches, such as self-organizing networks (mueller, kaschub, blankenhorn, & wanke, 2008), ensemble methods (chernogorov, chernov, brigatti, & ristaniemi, 2016) and knowledge-based methods (karatepe & zeydan, 2014) have been tested. however, most of them have not been applied in the business environment. machine learning is the field of study that gives computers the ability to learn hidden patterns and internal structure of some system, without being explicitly programmed (samuel, 1959). during the past decade, machine learning techniques have been widely used for different kinds of problems, including anomaly detection (purarjomandlangrudi, ghapanchi, & esmalifalak, 2014). the main advantages of machine learning techniques in the field of anomaly detection are efficiency and automation. machine learning techniques are developed to handle unlabelled data, multivariate time-series data, scalable data and incomplete data (alpaydin, 2014). lte networks are a very attractive field for machine learning applications. telecommunications are one of the fastest growing areas, since enormous amounts of data are generated each hour, and there are thousands of key performance measures (kpis) and configuration parameters that should be tracked in order to analyse network behaviour and diagnose problems. it is almost impossible for transport and radio experts to analyse all these data and identify all base transceiver stations (bts) in the lte network that have anomalous behaviour. this process is nowadays mostly done by reduction of relevant kpis, where experts track only several main kpis and determine of anomalous behaviour based on that subset only. machine learning makes it possible to automatically analyse thousands of bts with hundreds of their behavioural and contextual features reflected in kpis, to identify the bts with deviant behaviour. most interesting types of applications of machine learning in the lte network analysis include anomaly detection and maintenance prediction. these two problems are the most challenging ones, and directly affect network performances and later – the user experience. the problems of sleeping cells and cell outages are analysed in detail (chernogorov et al., 2013; chernogorov et al., 2016; mueller et al. 2008). in (wu, lee, li, pan, & zhang, 2018), anomalies defined as sudden drops and correlation changes of kpis in a lte network are identified via regression based anomaly detection. the application of machine learning for smart nextgeneration wireless networks (5g) is presented in (jiang et al. 2017; hammami, moungla, & afifi, 2018; polese et al., 2018). in this paper, we aim to develop two different models for the purpose of anomaly detection in lte networks regarding the transport component of the network. the main task is to compare their performances and choose the model which is more applicable in case of the given problem. the problem includes identification of deviant values for a given set of kpis per bts, describing the transport performances. it is important to identify these deviations regarding all relevant kpis simultaneously, because their interdependencies also matter. anomaly is reflected in: • degradation of one kpi, while other kpis have expected values; • increase in one kpi, while other kpis have expected values; • multiple kpis have degradations or increase which indicates a problem on the network. the proposed model should be able to automatically identify anomalous behaviour in the lte network. it should determine which features are degraded and what the intensity of their degradation is, indicating a possible root cause of the deviant behaviour. the data used as an input come from the radio network, and contain the bts behaviour over time. this behaviour is reflected in key performance measures such as package delays, package losses, message transmission success rates, etc. the main characteristic of the model is that it enables continuous health checks, efficient problem diagnosis, and process automation. these beneficial characteristics are of high value for the business, since they could directly impact the process of decision making and network optimization, which can result in an enormous reduction of costs. we believe that this paper has a potential of showing how machine learning can ease and improve business 72 valentina đorđević, pavle milošević, ana poledica 2022/27(2) processes and thus condition the business transformation. the proposed solution has been tested on realworld data, and the results of the application are presented in the paper. this paper is structured as follows. in section 2 we cover the basic concepts of anomaly detection. section 3 is dedicated to introducing the machine learning as alternative approach to anomaly detection, where two main algorithms are elaborated: ensemble-based isolation forest and autoencoder neural network. in section 4 we present the case study, along with the problem definition and main requirements. section 5 contains main conclusions driven from the analysis, as well as directions for further research that are to be taken. 2. anomaly detection anomaly detection, as the field of study, has been researched within a wide range of application domains and underlying scientific approaches. the application varies from cyber-intrusions, credit card frauds and system breakdowns, to components faults and parameter misconfiguration. the application domains are also numerous, from banking, aviation and telecommunications, to insurance companies and software development. regarding the crisp-dm methodology, the process of anomaly detection usually starts with understanding the main concepts of the domain being analysed by chapman et al. (2000). further, it is necessary to cooperate with the domain experts, and to define the anomalous behaviour that should be identified and tracked. the analysis starts with descriptive statistics that helps identifying deviant behaviour and dimensions containing deviations on a high level of abstraction. after this step, it is determined whether the clustering of the data is needed prior to the identification of anomalies. for example, in a telecommunication network, there are several thousand cells, with different configurations and performances, and they are usually divided by the channel bandwidth, so the anomaly detection analysis should be conducted separately for different groups of cells. after the optional clustering process is done, the appropriate anomaly detection algorithm is applied. the most important step in this process is setting the optimal parameter values, which often includes consulting the domain expert, detailed research of the algorithm and the automation of parameter tuning. after the parameter tuning is done and optimal values are set, the algorithm is tested and evaluated against a new set of data and optionally other anomaly detection algorithms. when the appropriate algorithm is chosen and applied, the final step includes interpreting the anomalies, drawing conclusions and defining future actions that should reduce or prevent anomalous behaviour from happening again. anomaly detection techniques are numerous and versatile, but they can be classified into several groups, based on the data being available and the underlying mechanism used for anomaly score calculation. there are plenty of other classifications, which can be found in (agrawal & agrawal, 2015; chandola et al., 2009; hodge & austin, 2004). anomaly detection techniques based on the data can be grouped as follows: 1. supervised techniques includes modelling both the normal and anomalous behaviour. it is analogical to supervised approach for classification problem, and it requires labelled data. 2. unsupervised techniques searching for anomalies with no previous knowledge of the data. it is analogical to unsupervised approach used for clustering, where similar instances are grouped into clusters, based on some similarity measure whether it be distance, density or the position of the assigned node in a binary tree. 3. semi-supervised techniques a mixture of the previous two types. this approach includes modelling of just one type of behaviour, the most frequent – a normal one. it is considered to be semi-supervised since the model learns over the instances belonging to only one class. anomaly detection techniques based on the probability score calculation are of high variety, from probability and distance based, to reconstruction and isolation based techniques. a complete overview on the anomaly detection techniques can be found in the survey presented in (chandola et al., 2009). 3. machine learning techniques for anomaly detection machine learning techniques are widely used in the anomaly detection problem. some of the most common approaches are explained in a survey presented in (agrawal & agrawal, 2015). machine learning techniques are most frequently used when there is a need to work with multivariate, unlabelled data, containing lots of 73 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) noise. machine learning can be applied for anomaly detection in a variety of manners. some of the most popular cases include intrusion detection (buczak & guven, 2016; lin et al., 2015), credit card frauds (yee et al., 2018), and time series anomaly detection (malhotra, vig, shroff, & agarwal, 2015; radford, apolonio, trias, & simpson, 2018). for the purpose of anomaly detection, numerous different approaches were taken, e.g., artificial neural networks (schmidhuber, 2015) and bayesian networks (friedman, geiger, & goldszmidt, 1997). another interesting approach includes using forecasting models such as arima, as presented in (yu, jibin, & jiang, 2016). an example of anomaly detection by using clustering techniques is studied in (lin et al., 2015). in this paper, we analyse two different types of algorithms, ensemble-based isolation forest, and autoencoder neural networks. isolation forest, as an ensemble-based method, is used as a baseline model, since it is efficient and has already been used by the authors in other business user cases. due to its limitations, and as regards the superiority and expansion of neural networks in the past years, the other method is chosen as another approach. the main idea is to compare their performances and determine their convenience for the given problem of transport anomaly detection in the lte network. 3.1 isolation forest anomaly detection isolation forest (iforest) is a machine learning algorithm coming from a group of ensemble-based methods (liu, ting, & zhou, 2008). it runs in linear time and it is able to work with high-dimensional data with redundant features. the iforest algorithm approaches the problem of anomaly detection by isolating anomalous instances, while most of other anomaly detection algorithms are actually focusing on the profiling of normal behaviour, where the anomalies are interpreted as deviations from that normal profile. the iforest algorithm essentially works by generating a set of trees, called isolation trees (itrees) for a given set of data, after which the anomalies are determined by choosing the instances with the shortest average path length within the itree. the main idea is that anomalies should be easily isolated, since they are highly deviant and rare. the anomaly score and path length are inversely proportional, thus the shorter the path, the higher is the anomaly score for a given instance, and vice versa. since the iforest algorithm can work both in supervised and unsupervised modes, it works in two phases (liu et al., 2008): 1. training phase construction of isolation trees by random selection of sub-samples; 2. testing phase passing test instances through itrees to obtain an anomaly score for each instance. in the training phase, itrees are constructed by recursive partitioning of the given training set until instances are isolated or a specific tree height is reached, which results in a partial model. in the testing phase, an anomaly score is derived from the expected path length for each test instance. more details regarding the construction of the tree and the algorithm itself can be found in (liu et al., 2008). the path lengths are derived by passing instances through each itree. a simplified representation of an iforest is given in figure 1. figure 1: isolation forest algorithm there are two basic parameters within this method: the number of trees that will form the set and the size of the subsamples for the training. this algorithm quickly converges with a small number of trees and a small subgroup of data to achieve a high performance detection of anomalies and a high efficiency of execution. one way to detect anomalies is to sort data points according to their path lengths or anomaly scores; and anomalies are points that are ranked at the top of the list (liu et al., 2008). 74 valentina đorđević, pavle milošević, ana poledica 2022/27(2) technically, the isolation score is derived from the average path length (liu et al., 2008). since the structure of the itree is equivalent to the structure of a binary search tree (bst), the estimation of the average path length is analogical to the length of unsuccessful search in the bst. the average path of the unsuccessful search in the bst is calculated as: (1) where is the harmonic number and it can be estimated by + euler’s constant. the anomaly score of an instance is defined as: (2) where is the average of from a collection of isolation trees. from the equation (2), the following can be concluded: • when • when • when using the anomaly score , the following assessments could be made: • if instances return very close to 1, then they are definitely anomalies, • if instances have much smaller than 0.5, then they are quite safe to be regarded as normal instances, and • if all the instances return then the entire sample does not really have any distinct anomaly. figure 2 presents a relationship between expected path length and anomaly score. the anomaly score can be seen as decreasing with the increase in the expected path length. further information regarding the iforest algorithm can be found in (liu et al., 2008). figure 2: the relationship between the anomaly score (s) and the path length (e(h(x))) as previously mentioned, the main advantage of the iforest algorithm is that it can work both in supervised and unsupervised modes. it is a fast and efficient algorithm (liu, ting, & zhou, 2012), although it has some shortcomings (e.g., inability to work with multivariate time series). the application of iforest algorithm has been presented in various case studies, covering different problem domains such as streaming data analysis (ding & fei, 2013) and in log analysis (sun, versteeg, boztas, & rao, 2016). 75 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) 3.2 autoencoder anomaly detection artificial neural networks (anns) are computing models developed to handle complex, non-linear relationships and hidden structures in the data (yegnanarayana, 2009). ann consists of interconnected processing units, called neurons. a simple representation of a neuron is depicted in figure 3. the main task of a neuron is to process a certain input vector, perform some computations over it, and generate an output. thus, the general model of a neuron consists of a summing part (yellow area) followed by an output part (blue area). the summing part receives n input values, weights each value, and computes a weighted sum. the weighted sum in this context is called the activation value. the output part produces a signal from the activation value, by passing it through a chosen, usually non-linear, activation function. an artificial neuron can be mathematically represented by using the formula: (3) where is the input vector represented , is the number of input features, is the vector of weights represented as joined to each of the input values from the input vector, is the activation function used for transformation, and is the output value generated as a result of this transformation. represents the bias which is a constant used for getting the best fit over the data, given the input vector. figure 3: an artificial neuron ann generally consists of multiple interconnected layers, each containing an arbitrary number of neurons. it can be noticed that two layers are mandatory an input layer, used to take inputs for computation, and an output layer that generates computation results. the number of neurons in the input layer depends on the number of features that are given as inputs. the number of neurons in the output layer depends on the number, or more precisely the type of an output that should be generated. layers between the input and output layer are in charge of discovering the hidden structure in the data, and those layers are called hidden layers. the number of hidden layers and belonging units varies, which results in numerous architectures and network topologies, developed to handle different machine learning problems. for further information, consider reading overview presented by schmidhuber (2015). the autoencoder is a special architecture of a neural network that works in an unsupervised mode (an & cho, 2015; yegnanarayana, 2009; vincent, larochelle, lajoie, bengio, & manzagol, 2010). a simplified architecture is presented in figure 4. 76 valentina đorđević, pavle milošević, ana poledica 2022/27(2) figure 4: autoencoder architecture the main task of an autoencoder is to learn a pair of non-linear transformations (baldi, 2012): 1. encoder mapping an input x from the original space to another space, but optionally of higher or lower dimensionality; 2. decoder mapping an encoded input to its original space x’. the idea is, since anomalies are highly deviant and rare, that the autoencoder will not be able to learn those anomalous instances correctly, which results in a higher reconstruction error. a typical definition of the reconstruction error is given as follows: (4) another common approach is to calculate the reconstruction error by using the cross-entropy loss function: (5) the autoencoder introduces the reconstruction error as an anomaly score for a given instance. a fraction of instances with a highest reconstruction error are considered anomalous. the size of this fraction can vary, and it depends on the domain being analysed. traditional autoencoder and some modern modifications like variational autoencoder or mutual autoencoder are widely used in different fields, e.g., for anomaly detection in aviation (sakurada & yairi, 2014), automation (park, hoshi, & kemp, 2018), intrusion detection (lopez-martin, carro, sanchez-esguevillas, & lloret, 2017), etc. 4. experiment the data mining problem that we are focusing on is the detection of anomalies on the transport part of the lte network, by analysing transport kpis coming from bts. we are approaching this problem regarding the life cycle of a data mining project given by the crisp-dm reference model (chapman et al., 2000). the crisp-dm is highly compliant with the agile approach, often used in it projects. the first phase in this model is business understanding, which focuses on understanding the project objectives and requirements from a business perspective. this knowledge is then converted into a data mining problem definition and a preliminary plan is designed to achieve the objectives. the second phase is data understanding, where the goal is to become familiar with the data, in order to determine its predictive power, as well as its constraints. the following steps are data preparation and modelling, where data mining algorithms are applied in order to solve the problem. in the evaluation phase that follows, the results are evaluated, and if they are satisfying, they go to the deployment phase. otherwise, iteration through previous phases is done until satisfying results are not reached. 77 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) 4.1 problem setup business understanding. a telecommunication network is a collection of bts, interconnected by transmission links that enable communication between two distant entities. bts are connected to other bts or hubs via microwave links, while hubs are connected to the network core via optical links. the network core is the brain of a telecommunication network, and that is where all the requests are processed. while the message is being transmitted, it passes through several entities until it is being processed in the network core. thus, there are several problems that might occur. the one we are giving a focus on in this paper is anomalous behaviour of the bts regarding the transportation of packages. when the bts does not work properly, the user encounters a problem with the connection, which results in bad user experience. the idea is to detect anomalous behaviour of the bts, in order to analyse the root causes, and to define some actions that should prevent it from happening again. the main goal is to reduce faults, congestions and user complaints, as well as to improve the overall user experience. the project objective of this case study is to identify transport anomalies on bts. the main requirement is to enable this process to be carried out automatically. the data mining problem is defined as unsupervised anomaly detection. data understanding. the data available for the analysis contain information about bts behaviour through time. they are gathered from a cellular network provider located in serbia. the data have been collected on an hourly level, for a period of two weeks, resulting in almost 700 thousand rows. the behaviour is given by 96 transport kpis coming from bts, describing the package losses, delays, transmission success rates, etc. since labels indicating anomalous behaviour are not available, the choice of machine learning algorithms has been reduced to the group of unsupervised algorithms. data preparation. the data preparation phase is dedicated to creating a structure of the data convenient for analytical purposes. the data are transformed into a matrix form, where rows are bts/hour instances, while columns represent kpis values for each instance. testing hours are excluded from the analysis, in order to prevent drawing wrong conclusions. missing values have been imputed using regression-based technique presented in (white, royston, & wood, 2011). the iforest algorithm does not require additional feature normalization, while for the purpose of training the autoencoder, the data normalization has been performed. this has been done in order to assure that all kpis are of the same importance. modelling. the modelling phase includes building and applying various modelling techniques, tuning up the model parameters and obtaining model results. in this phase, two models elaborated in previous sections are applied – the isolation forest and autoencoder. the first step in the modelling phase includes training the iforest algorithm as a baseline model. the second step is dedicated to training the autoencoder as an alternative algorithm. the identical set of instances with their features has been passed to both models as an input. the output of this phase is the anomaly score for each instance. 4.2 results and discussion evaluation. performing the evaluation is always challenging when using unsupervised algorithms, but it is necessary in order to determine whether the models developed are able to meet the project objectives. one approach taken here is the evaluation performed by the domain experts. since it is impossible to evaluate each instance separately, another approach has been developed for labelling the data. in this approach, ten major kpis are filtered out of the kpis used in the modelling phase. based on the defined thresholds for these kpis, each instance is flagged as normal or anomalous. the output from the modelling phase is transformed in such way that a certain percentage of instances with the highest anomaly score is flagged as anomalous, while the rest is flagged as normal. this percentage is determined by the domain experts. since we have labelled the data, we can calculate accuracy score and perform rough evaluation of the models. false positive and false negative rates are also a popular metrics for this kind of problem (nakayama, kurosawa, jamalipour, nemoto, & kato, 2008). regardless of their significance, we have not presented them because they are of the same order of magnitude and had no effect on the algorithm selection in our case. however, we briefly discuss the importance of the individual false positive observation from the aspect of potential costs. furthermore, we reflect on transparency of the results and the possibility of preparing corrective actions when certain anomalies are detected. the table that follows shows a quantitative analysis, as well as main advantages and disadvantages of both approaches. it can be noticed that the iforest algorithm has a higher accuracy, but it is not accuracy that 78 valentina đorđević, pavle milošević, ana poledica 2022/27(2) only matters. it is more important to extract the kpis that are anomalous, for each instance separately. although the iforest is more efficient and faster, the autoencoder gives the output that is more valuable, regarding the interpretation of anomalous features and conclusion drawing. that is why the autoencoder is used as a more convenient approach in comparison with the baseline iforest algorithm. the summary is given in table 1, and the main findings are discussed below. this analysis proves that both algorithms are able to identify anomalies in the network with an accuracy of about 70%. the rates of false positive and false negative observations are of the same order of magnitude for either analysed algorithm. it should be noticed that the obtained results are incomparable with other studies in general, since anomaly detection accuracy highly depends on data. also, our dataset and labelling method are rather specific. still, in literature (ahmed, mahmood, & hu, 2016; krömer, platoš, snášel, & abraham, 2011), the accuracy of different algorithms for anomaly detection oscillates from 57% to 82%. therefore, it can be said that our results are in line with the state-of-the-art approaches. table 1: comparative and quantitative analysis of applied algorithms isolation forest has shown to be extremely fast, requiring minimal parameter tweaking. however, one of the biggest drawbacks is that it does not return anomaly score per each kpi separately. that seriously inflicts the transparency of the obtained results and it is unpopular among a majority of non-technical decision makers. also, the absence of individual anomaly scores limits the potential for preparing and undertaking corrective actions for specific anomalies. nevertheless, we believe that this limitation will soon be overcome, thus the real advantages of this algorithm among others will be clearly separated. regarding the autoencoder, we have had memory and time consummation issues. besides, it has a lot more hyper parameter tuning, and thus is more complex than the previous one. on the other hand, the autoencoder is able to extract anomaly score for each kpi separately. besides that, the anomaly score is also directly positively correlated to the level of degradation, and this is the main information we wanted to gain as insight. this insight is of a very high value, because it gives us the opportunity not only to highlight anomalous bts and kpis, but also to rank kpis and extract most anomalous ones. when the information of most anomalous kpis is provided, domain experts can easily determine the root causes and define healing actions. one of the most important user requirements was to analyse all features simultaneously, and it was almost impossible to define thresholds for each kpi separately. that is the main reason why the unsupervised approach has been taken. we wanted to let the algorithm determine when each of the kpis is anomalous. the highest benefit could be seen in automated identification of anomalous kpis in a bunch of other kpis, which was extremely time-consuming for the domain experts when performing manual analysis. since the accuracies of the algorithms are rather even and the autoencoder is able to give anomaly score for each kpi separately, this algorithm is chosen as a more convenient approach for the problem being defined. the autoencoder’s ability to rank kpis from normal to the most anomalous ones has been proved to be very important in practice. this has led to prioritization of kpis in order to ease network analysis, i.e. simplification and speeding up the examination of degraded parameters and problematic networks configurations in the real world application. furthermore, it enables identifying possible strong causal relationships between anomalous kpis and alarms in the network, e.g., a degradation of established connections per79 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) isolation forest autoencoder accuracy 72% 69% advantages very fast and efficient good performances with redundant data works both in supervised and unsupervised mode gives anomaly score for each feature good with catching non-linear dependencies convenient for noise reduction disadvantages not possible to extract anomaly score for each feature not possible to visualise isolation trees takes too much time with high-dimensional data tries to capture as much information as possible, rather than as important information as possible 80 valentina đorđević, pavle milošević, ana poledica 2022/27(2) centage per cell and a complete failure of the cell. finally, for the most of detected anomalies, network operators or radio experts can define automatic healing procedures that would resolve the problem in a swift and easy manner. therefore, the proposed anomaly detection procedure would significantly improve performance of the network and reduce maintenance costs. still, some anomalies that require on-site solutions are detected with relatively high number of false positives. although false positive observations are usually of the particular interest for anomaly detection, in these cases it is an open question of whether the operator should send a team on site due to costs of a possible ‘false alarm’. references [1] agrawal, s., & agrawal, j. 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(2016). sequence-based detection of sleeping cell failures in mobile networks. wireless networks, 22(6), 2029-2048. doi: 10.1007/s11276015-1087-9 conclusion using machine learning for process automation and efficiency achievement has been proven as a useful approach with real-world application and remarkable benefits. it shows outstanding performances in solving problems containing vast amounts of data. in this paper, the machine learning techniques are used as a tool for automated anomaly detection in a specific field – lte cellular network. the data used for analysis contained transport kpis describing the behaviour of the base stations regarding the transport capabilities. two approaches have been analysed – an ensemble-based isolation forest algorithm and a neural network based autoencoder. both approaches have certain fortes. the iforest algorithm is fast and efficient, while the autoencoder is noiseproof and calculates a particular feature anomaly score. the main and the most valuable advantage of the autoencoder is its ability to return the anomaly score for each kpi. that is why the autoencoder is chosen as more favourable over the iforest. the future work will include training the models over the data containing more history, from three to six months. one of the biggest challenges will be the scalability. the idea is to aggregate the data on a daily level, in order to reduce complexity and hourly fluctuations. further, this analysis can be improved by adding more information regarding other kpis coming from transport network and network topology. this will improve the accuracy and give more valuable insights into which part of the network is degraded and can be used to find the root causes. finally, the main idea is to use the results of this analysis as a baseline for translating this problem into the problem of predictive analysis. acknowledgements this research was endorsed by things solver, d.o.o., serbia. we would like to show our gratitude to the vip mobile serbia, which provided us the data for the analysis. we would especially like to thank orđe begenišić, radio expert, vip mobile serbia, whose effective cooperation provided meaningful insights and domain expertise that greatly assisted the research. 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(2011). multiple imputation using chained equations: issues and guidance for practice. statistics in medicine, 30(4), 377-399. doi: 10.1002/sim.4067 [39] wu, j., lee, p. p., li, q., pan, l., & zhang, j. (2018, may). cellpad: detecting performance anomalies in cellular networks via regression analysis. in 2018 ifip networking conference (ifip networking) and workshops proceedings (pp. 1-9). ieee. doi: 10.23919/ifipnetworking.2018.8697027 received: 2019-03-12 revision requested: 2019-05-07 revised: 2020-01-13 (2 revisions) accepted: 2020-02-06 valentina đorđević university of belgrade, faculty of organizational sciences, serbia e-mail: valentinadj4@gmail.com valentina đorđević is a data scientist at things solver, and a master of science in business intelligence, at the university of belgrade, faculty of organizational sciences. her major professional interests include data science, machine learning, anomaly detection and time series analysis. pavle milošević university of belgrade, faculty of organizational sciences, serbia e-mail: pavle.milosevic@fon.bg.ac.rs pavle milošević, phd, is an assistant professor at the university of belgrade, faculty of organizational sciences. he is the author and co-author of more than 50 journal articles, chapters and conference papers. his major professional interests include: computational intelligence, systems theory and control, machine learning, metaheuristics and time series analysis. ana poledica university of belgrade, faculty of organizational sciences, serbia e-mail: ana.poledica@fon.bg.ac.rs ana poledica, phd, is an assistant professor at the university of belgrade, faculty of organizational sciences. she is the author and co-author of more than 40 journal articles, chapters and conference papers. her major professional interests include: computational intelligence, systems theory and control, machine learning, quantitative finance and time series analysis. 82 valentina đorđević, pavle milošević, ana poledica 2022/27(2) about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03 85_3 simic:tipska.qxd 23 marijana simić*, marko slavković, vesna stojanović aleksić university of kragujevac, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(3) * corresponding author: marijana simić, e-mail: msimic@kg.ac.rs human capital and sme performance: mediating effect of entrepreneurial leadership doi: 10.7595/management.fon.2020.0009 abstract: 1. introduction the essential role of entrepreneurs is based on understanding of the situation, implementation of business ideas and management of growth and enterprise development. in the initial stages of starting ‚a new venture, an entrepreneur usually faces the problem of the lack and limitation of financial and material resources (townsend, busenitz & arthurs, 2010), and the main asset and its advantage over existing competitors on the market is precisely the human capital. human capital implies a set of competencies (knowledge, skills, abilities) and other individual attributes that employees have (o'sullivan & sheffrin, 2007), acquired through the attainment of various education programmes, workplace training and acquisition of other experiences (becker, 1964). mincer marked a human capital as the cause of the inequality of income among employees (mincer, 1958). an upgrade to his work and achievements is the development of the human capital theory, which was developed to determine the importance of investment in education (becker, 1964; schultz, 1961), which contributes to the differentiation of employees based on the quality and quantity of knowledge they possess. on the basis of set theoretical postulates, human capital represents the economic value that employees provide to their employers, which at the same time rejects the traditional understanding, by which human capital expenditure is viewed as an expense rather than an investment (phillips, 2005). since leadership is classified as one of the key factors for the growth and development of each organization (harrison et al., 2015) and human capital as one of the factors indicating a clear distinction between enresearch question: the paper investigates the relationships between human capital and sme performance, introducing into the analysis the mediating effect of entrepreneurial leadership in the specific context of a transitional economy. motivation: the research of the mediating effect of entrepreneurial leadership contributes to a better understanding of the relationships between human capital and sme performance. as there is a small number of studies that have examined the role of entrepreneurial leadership in smes, the need for investigation is obvious. in addition, empirical evidence of the impact of human capital on sme performance is limited. idea: since leadership is considered to be a key determent of organisation growth, it is relevant to identify the relevance of entrepreneur’s leadership style and characteristics, as well as its role in the relationship between human capital components and success of smes in serbia. data: the study included 110 employees in serbian small and medium-sized enterprises with up to 50 employees. a questionnaire was used to measure the employees’ attitude towards human capital, entrepreneurial leadership, and organizational performance, as well as socio-demographic variables. tools: the data were prepared and analysed using statistical software ibm spss 24.0. statistical data processing methods used in this paper are descriptive statistics, reliability analysis and regression analysis. findings: the results of the analysis indicate that human capital has an indirect impact on organisational performance through the mediating effect of entrepreneurial leadership. contribution: the results can be used in making future decisions, measures and standards related to human resource management in the context of transitional economies, as well as to help entrepreneurs to lead their employees effectively and ‚‚‚‚survive in today’s turbulent business environment. keywords: entrepreneurial leadership, human capital, sme performance, smalland medium-sized enterprises (smes) jel classification: e22, e24, l26 trepreneurs and non-entrepreneurs (matricano, 2016) and a valuable resource in obtaining extraordinary performances (kato et al., 2006; unger et al., 2011), the question of the role of the leadership style of entrepreneurs and their character traits in the relationship between the two variables: human capital and sme performance is raised. by reviewing the results of the previous empirical studies, a gap is identified that is based on the insufficiently investigated influence of the entrepreneur's style on sme performance, as well as the mediator of the relationship between the intangible assets and the achieved results of smes. accordingly, the aim of research in the article is to explain the role of entrepreneurial leadership, as a mediator of the relationship between human capital components and sme performance in the case of a transition economy. 2. theoretical background and hypotheses 2.1 human capital in smes there are several reasons why the issue of investment in human capital, that is, the improvement of human capital is relevant to the field of entrepreneurship. first, human capital is vital to discovering and creating entrepreneurial opportunities. second, human capital helps in the exploitation of opportunities, defines the use of available resources, and thus the entire process of starting a new venture. third, human capital helps accumulate new knowledge and achieve competitive advantage. therefore, it is quite logical why the quality of human capital of members of the entrepreneurial team is the most common criterion used by capitalists in evaluating the performance of the venture (marvel, davis & sproul, 2016). since the importance of investing in people is recognized (becker, 1964; schultz, 1961), better human capital means that employees have a wider range of relevant knowledge and skills, which will probably contribute to higher growth prospects (kato et al., 2006; rauch & rijsdijk, 2013; unger et al., 2011) and enterprise sustainability on the business scene (bates, 1990, astebro & bernhardt, 2003). colombo and grilli (2005) state that individuals with a higher degree and quality of human capital have a more developed ability to reason and perceive opportunities in the environment, which represents the unique, and very often the key competence of the founders of the venture. as a kind of implication of conducted research and studies, the fact is that the ability, and in a broader sense, knowledge and skills of entrepreneurs represent a valuable resource in achieving superior performance, which partly compensates for the lack of business experience and resources, which are in turn often one of the most important arguments in the presentation in front of investors (kato et al., 2006). 2.2 entrepreneurial leadership creating a syntagm and developing a concept of entrepreneurial leadership is actually a result of connection between the leadership and entrepreneurship. leadership involves making influence and motivating followers in order to engage in the achievement of organizational goals (stojanovic aleksic, 2007). on the other hand, entrepreneurship, as a scientific field, deals with determining the manner in which they discover and exploit opportunities for the creation of future products and services (shane & venkataraman, 2000). according to given definitions of these phenomena, it is possible to create a whole list of attributes and activities, as a kind of synergy of entrepreneurship and leadership, such as the following: vision, focus on identifying opportunities, impact, planning, motivation, focus on achievement, creativity, flexibility, patience, perseverance, risk taking, uncertainty tolerance, self-confidence, proactivity and internal control locus (renko, el tarabishy, carsrud & brännback, 2015). the identified correlation and convergence of the area of entrepreneurship and leadership unambiguously rely on the trend of growing interest in the concept of entrepreneurial leadership. entrepreneurial leadership implies a unique way of thinking and skills that help entrepreneurial leaders to identify, develop and implement new business opportunities (thornberry, 2006). roomi & harrison (2011) defines entrepreneurial leadership as a process of formulating and communicating a vision in order to engage teams in order to identify, develop, and exploit the opportunity, which leads to the achievement of a competitive advantage. similarly to the foregoing, renko, el tarabishy, carsrud & brännback (2015) point out that entrepreneurial leadership implies influence on and direction of group members in achieving organizational goals that include identifying and exploiting entrepreneurial opportunities. 2.3 entrepreneurial leadership and performance bearing in mind the growing interest in the concept of entrepreneurial leadership, huang, ding and chen (2014) have identified several dimensions of this leadership style, by which they explain the leader's beha24 marijana simić, marko slavković, vesna stojanović aleksić 2020/25(3) viour and his actions in the context of entrepreneurial ventures relevant for its survival and development. first, the leader has to set high standards and work hard in order to achieve the desired performance. an entrepreneurial leader needs to be capable of identifying opportunities that will result in generating sustainable competitive advantage (ireland, covin & kuratko, 2009 in huang et al., 2014). second, respecting certain circumstances, the leader has to anticipate possible future events and formulate the desired image in the future. third, apart from formulating the vision and respecting a certain degree of uncertainty, an entrepreneurial leader has to inspire his followers and persuade them to accept his viewpoint (gupta, macmillan & surie, 2004 in huang et al., 2014). respecting the needs of followers and building trust among team members, an entrepreneurial leader enables the promotion of entrepreneurial self-efficacy and team spirit (breugst, domurath, patzelt & klaukien, 2012 in huang et al., 2014). finally, the leader ought to integrate people or things into cohesiveness in order to provide support from key stakeholders and obtain critical resources and information. by maintaining permanent contact with an internal and external environment, an entrepreneurial leader can anticipate potential resistance, which will provide for the success in exploiting the opportunity and creating value (kansikas et al., 2012 in huang et al., 2014). based on the previous elaboration of the established dimensions of the entrepreneurial leadership, a clear, unequivocal conclusion is drawn that the entrepreneur as a leader plays an important role in determining the achieved performance. first, an entrepreneurial leader defines challenges, absorbs uncertainty, contributes to the flexibility and commitment of team members. second, an entrepreneurial leader is very tolerant of uncertainty, persistent, creative, and enthusiastic and dynamic leader with high networking and communication capabilities, and these allow him to build entrepreneurial culture and organization. third, an entrepreneurial leader is prone to implementing change and introducing innovations, accepting risk, and often has an aggressive and proactive approach to competitors. fourth, an entrepreneurial leader behaves as an agent of change, enhancing the creativity of the team and encouraging members to participate in problem solving, defining quality standards, setting goals (chen, 2007). 2.4 the mediating role of entrepreneurial leadership we expect an entrepreneurial leadership to mediate the relationship between human capital and performance in the following ways. in the context of a new business venture, the entrepreneur represents the main driving force of innovation, which is fundamental to the continuity and sustainability of entrepreneurial ventures (renko et al., 2015). since the entrepreneur is the central figure of the entrepreneurial process, there are two reasons that point out the positive correlation between the human capital of the entrepreneur and the performance of the entrepreneurial venture: first, entrepreneurs are residual claimants of the substance of the enterprise, and consequently there is a strong incentive to exploit their human capital for the benefit of the enterprise; second, entrepreneurs appropriate an investment income, which is why they continuously seek to achieve a fair yield with an acceptable return period for investments, with a minimal use of external sources (cliff, 1998). the interest in entrepreneurial leadership has grown, since the efforts of the expert public so far have been focused only on the analysis of leadership styles in large organizations and the entrepreneurial behaviour of middle management of eminent corporations (gupta, macmillan, & surie 2004). in smes, the role of leadership is probably more significant than in large corporations, especially since in smaller organizations the line of separation of responsibility of leaders and managers is rather blurred (watson, storey, wynarczyk, keasey & short, 1994). therefore, we cannot talk about the success of entrepreneurial venture if the assumption of effective implementation of entrepreneurial leadership is not met (cogliser & brigham 2004). the importance of the created leadership style can also be justified by the current situation characterized by the internal environment of the enterprise, which primarily relates to a lack of standardized operational procedures, insufficiently developed managerial practice and an inadequately designed organizational structure that will enable recovery in case of failure (renko et al., 2015). entrepreneurial leaders are often associated with the transformational style of leadership (ling et al., 2008; renko et al., 2015). namely, a positive correlation between the transformational and the entrepreneurial leaderships in the field of their influence on the effectiveness of the process of formulation and implementation of the strategy, communication and intreperson relation within the enterprise was recognised (smit, de coning & visser, 2005). according to the transactional-transformation theory, transformation leaders influence the performance of a new enterprise by articulating a defined vision, great inspirational power and overcoming barriers such as risk aversion and status quo (ensley, pearce & hmieleski, 2006). compared to the transformational style, the transaction leader uses contingency rewards, which include material and non-material rewards for follo25 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) wers, to ensure the survival and growth of a new venture (jansen, vera & crossan, 2009). however, the effectiveness of transformational and transactional leaderships usually depends on the given organizational context, whereby the distinction is reflected in the willingness of the leader to carry out his entrusted tasks (gupta et al., 2004). contrary to the above-mentioned styles, entrepreneurial leadership is based on the assumption that a leader often has to act at a given moment without prior preparation and systematic planning of his activities (gupta et al., 2004; wang, tee & ahmed, 2012). this scenario corresponds to the environment in which there are new ventures faced with a high degree of risk and a number of barriers to growth and development of the venture. in addition, this clearly indicates the importance of effective entrepreneurial leadership in achieving the performance of a new venture (huang et al., 2014; feng jing, avery & bergsteiner, 2011), but also the importance of developing the dimensions of entrepreneurial leadership as a contemporary paradigm of survival on the contemporary market scene (chen, 2007). based on the given literature review and research subject, the following hypotheses are defined: h1: human capital has a statistically significant impact on the sme performance. h2: entrepreneurial leadership has a statistically significant impact on the sme performance. h3: the impact of human capital on the sme performance is greater in the case of effective entrepreneurial leadership. 3. methodology according to the given theoretical review, the subject of research in the paper is to explain the role of entrepreneurial leadership as a mediator of the relationship between human capital components and the sme performance. participants in this research were employees working between 5 and 12 years in smes that actively operate in central and southern serbia. primary data were collected using an exploratory research technique – a survey. the research was conducted in the period july–september 2018 using the instrument of the survey technique a questionnaire, which was specially conceived for this research. the selection of smes was based on availability criterion – we have selected enterprises in central and southern serbia whose employees agreed to take part in the research. the questionnaire, which is distributed to employees, consists of a total of 29 statements, while the degree of agreement with these statements was expressed on the five-point likert scale (1 absolutely disagree, 5 absolutely agree). the total sample number of 110 respondents was collected. regarding the structure of the sample by activity, that is, belonging to a particular business sector, the sample includes 22 enterprises (20%) who are engaged in production activities. the largest number of enterprises that are incorporated in the sample are in the wholesale and retail sectors (48%), while 35 enterprises are engaged in the service activities. below is a description of the structure of the sample from the aspect of the respondents who took part in the given research. table 1: characteristics of respondents: summarized review source: authors’ own calculation based on the survey statistical data processing was performed with the computer support of the statistical package for social sciences ibm spss statistics, version 23 (statistical package for social sciences). in order to determine the statistical significance, the confidence levels were used ά = 0,05, ά = 0.01. the following statistical methods were applied in the research: descriptive statistics, reliability analysis and multiple regression. 26 marijana simić, marko slavković, vesna stojanović aleksić 2020/25(3) �������� ����� �� ����� � ��� ������� � � ���� ��� ������ ����� � � � ���� �� � ������ ������� � � ������� �� ���� ���� �������� � � ��� �� ������ �������� � � ������ ������ �� ��� � ����� ����������� ������������� � � �� !" �� ����� !� #" ��� ������ #� �� ���� � � ������ table 2: variables, items and descriptive statisics source: authors’ research 27 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) �������� ��� � �� ��� �� �� ���� � ������ ����� ��� ������� �� �������� � �� ����� � ��� ������ �� �� ��� ������� � ������ � ����� �� ��� ��� �� �� ����� � �� ��� �� �� ��������� ���� � � ��������� ���� �� ��� ��� �� ������� ��� ��!� ��������� �� �� ��� � � � ����� � ��� ������������ ���������� ������������� ���� �" ��������� �� ��#�� �� �� ����� � �� ������ � ��� � � ���������������� �"����� !� ����� � ��� ���� � ��� ��#�� � ����������� ��� ������������ ���� �� ������� ����$��� �������� ��� �� ����� � ��� ������� ��� ������ �������� ��� ��������� � ��������������� �������� ��#�� �� �� ����� � ��� ����� ��� ������������� �� � �" ����������� ��#�� �� �� ����� � ��� ������������ �#������ ��#�� ��#�� � ������ ������� ���� ��� � � �������� �������� ���� ��� $� ����� � ��� ������ ���� �������������� �#������ ��#�� �������� ������ ��"��%� �� �� � � � � �� ��� ����� � ��� ������������ ������"��%� ��#����� ���� ��� ����� � ��� ������������ ��� ��#�� �������� ������� �� ����������� ����� ��� �� �� ������� ����� �� �������� ����� � � ��� ����� � �� �� � �� ������������������� ����������� ��#�� �� � � ����� � �� ��� �� � � � �������� � ������ �� ��� ��� ��� ��� ����� � ��� �����%� ���� �� �&� �%�#������ ���#������" �� '������� �� �� ���� �� ��!����� ��� ��������� � �� (������"����������� ��� � �� ����������������� �� ��� )������� �� *��%��� ����� �� �������������� ��� � �� ��������� �� ��� �� � +�#������������� �������� ���������������� ���������� �� ,���������� ���� ������ � ����� ������ ���� �� -�����������"� ������ �'� ��� �� ������������������� ����#������� ���� �'� �� ��� �� ���!�� ����$��� � ����! �������� " �#��� ��� $�%�& �� .��"�������� ������������������������� ��� �� ��������#��� ������� � � ��� ����#��#��� % �� �� ��������� % �� �����������������������#����"��% ��� ������������ � ������� �����#� � �����#����%��"���������� % �� � ��� �� �������� '� ���� ��� ����� � �� -������������� ���� ��� ���� ,�#���������"�# �����#����� �#��������� ��� ���� �� �� !� ���������������%�������� ������� ���� � ��������� ������������� �� �� /������� ��� ���#����"��%�� ������ ,�#�����������#�� �#���",���� ���� ���� ������ ��� ���� �� � ������� ��!$� � � � ��� �� ���� ���� ���#����"��% ����� % �� ����������������������������� �����#���� % �� �� �� (������ ������� ��� �� ���#����0���������#��������� � ��#����"��% ����� % � �������������� $� (���1���#������� �� �#����� �� ���������� � ���������� �� ��������� �������� ��� (���1���#������ � � ���#������ ���� ����#���� ���� � �� �� ��#�� ��� (���1���#����������� �#��� ����#����� ����������������#������� �#�����#���� �� ������ ��� ����� � ���� ��� � we measured the entrepreneurial leadership variable using 14 items according to a previous research by huang et al. (2014). these statements correspond to the explained roles of the entrepreneurial leader (e.g., framing the challenge, absorbing uncertainty, underwriting, building commitment, defining gravity). cronbach's was 0.934. we measured the sme performance by using the respondent’s subjective perceptions. the respondents were asked to evaluate the financial and non-financial indicators on the basis of their personal understanding of the situation in the current enterprise (tang et al., 2017; huang et al., 2014). we measured the performance by using 4 items. cronbach’s was 0.867. we measured human capital by using 11 items comprising the components of skills, knowledge & expertise (ske), intellectual agility and attitude (edvinsson & malone, 1997; tovstiga & tulugurora, 2007; khalique et al., 2015). respondents were asked to evaluate the entrepreneur's attitudes, knowledge and skills, his/her level of creativity, innovation and flexibility, and express degree of agreement with the attitudes of entrepreneurs and their motivation to manage the venture. cronbach’s was 0.862. 4. results and discussion in order to test the defined hypotheses, a multiple standard regression was performed. regression model 2 examines the nature and strength of the relationship between the identified components of human capital and the sme performance. the selected independent variables determine the performance of the enterprise in 24.8% of cases (r2 = 0.248). multicolorarity is not a problem, given that the variance inflation factor is less than 5 (vif = 1.392). the obtained results indicate that the analyzed human capital components have a statistically significant positive impact on sme performance, thus confirming the h1 hypothesis. regression model 3 was created to determine the statistically significant influence of entrepreneurial leadership on sme performance. the sme performance as a dependent variable was determined by a given independent variable in 39.3% of cases (r2 = 0.393). the results of a simple regression analysis unambiguously imply that the entrepreneurial leadership style has a statistically significant strong positive effect on perfromance, thus confirming the h2 hypothesis. a method developed by baron and kenny (1986) was used to analyze the median effect of the identified dimensions of entrepreneurial leadership in the relationship between human capital components and the performance of an entrepreneurial venture. the above procedure is based on the implementation of the multiple regression analysis, which implies: (1) determining the impact of human capital components on the entrepreneurial leadership style; (2) determining the impact of human capital components on the sme performance; (3) determining the influence of entrepreneurial leadership on the sme performance; (4) determining the impact of human capital components and entrepreneurial leadership on the sme performance. according to baron and kenny (1986), the mediator effect exists when in the last step there is a decrease in the influence of an independent variable on the dependent variable or the effect of an independent variable on the dependent variable becomes insignificant. in accordance with the procedure described and the results of multiple regression analysis, it can be concluded that hypothesis h3 is confirmed, since in the last step (model 4) the human capital component has an insignificant effect on the sme performance. table 3: results of regression analysis (mediating variable: entrepreneurial leadership) agenda: **p < 0.01; *p < 0.05. beta coefficient is shown. 28 marijana simić, marko slavković, vesna stojanović aleksić 2020/25(3) �������� ���� � ��������� ��������� ��������������� ���������� ���� �� ��������� �������� � � ����������� ���� �� ��������� �������� � � ����������� ���� �� ��������� �������� � � ����������� ��������� ��� ����� ���������������� ������ ������� � ����� � ! �����"�#$��$�����%� ���&�� ���'��� � ������ (����# ��� ���&���� ������� � �����'� � ������ �#��$�� ��$ ���)��� � � ��&�*��� ����*��� +�� ��� &� ����,� �� ' � ����*� (-./(�0� �*��'���� �'�,&���� *����*��� �,�*,���� � 5. practical implications and limitations the results of the conducted research have important practical implications. first, the obtained results are only a kind of confirmation of the dominant position that non-material resources constitute a key source of achieving superior performance. in the same way, encouraging investment in human capital is an existential condition of modern organization, especially in case of entrepreneurial ventures, which are inevitably faced with limited possibilities of creating a favorable competitive position in today's big "rivals". second, in addition to attending regular education programmes, it is necessary to concentrate efforts on developing innovative abilities, recognizing new, unusual solutions, enabling entrepreneurial ventures to take a unique position and contribute to their distinction in the context of intensifying market pressures. third, since knowledge, skills and abilities are just a tool in the hands of employees, it is necessary to motivate employees to ensure an effective implementation of existing competences. when asked about the motivation of employees, the request for the development of the appropriate style of leadership of the owner, i.e., the founder of the entrepreneurial venture, is added. since the substance of a particular style of leadership consists of personal characteristics, but also of the knowledge and skills of the leaders, it is necessary to ensure that the entrepreneur as the carrier of the entrepreneurial process (1) has confidence in his followers; (2) formulates challenging but realistic goals; (3) clearly communicates the defined vision and directs the work of his/her followers towards its realization; (4) creates a strong sense of community among employees and contributes to building a sense of commitment to the venture. as other research in the field of social sciences, the research conducted for the purposes of this paper has a number of limitations. the first limitation refers to the structure of the sample from the aspect of the core business. the sample constitutes entrepreneurial ventures that operate within the manufacturing, trade and services sectors, and each of these sectors has several specificities, which primarily relate to the performance of certain operations that may affect the observed variables in the survey. another potential limitation is the approach to performance measurement. the questionnaires were filled out by employees when asked to state their degree of agreement with defined items, which, among other things, related to the performance of the observed enterprise (wiklund & shepherd, 2003; huang et al., 2014; tang et al., 2017). on the other hand, there are studies in which the indicators used in the analysis were published in the official financial statements (chen, cheng & hwang, 2005; besharati, kamali, mazhari, & mahdavi, 2012; komnenic & pokrajcic, 2012). the third limitation refers to the size of the sample. compared to the studies previously carried out in this area, the need to increase the number of interviewed respondents is imminent. this constraint is due to the relatively underdeveloped business culture and the closure of external communications companies, which inevitably reflects the limited number of options for collecting questionnaires and increasing the number of units in the sample. 29 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) the importance of the conducted empirical research refers to a kind of affirmation of the entrepreneur as the key figure of an entrepreneurial venture, one who should possess certain personal predispositions, knowledge, skills and abilities. the contribution of the given research to the existing literature is clear. since in entrepreneurial activity there is a huge potential for improving national competitiveness, it is important to emphasize the figure of entrepreneurs as "fighters" for survival in the modern market arena. based on the obtained results of the multiple regression analysis it can be concluded that the development of human capital represents a necessary but insufficient condition for achieving superior performance. the leadership ability of entrepreneurs has an important role in an efficient and effective application of available knowledge, skills and capabilities of employees, which is why it is important to maintain the relations between entrepreneurs (leaders) and employees (followers). acknowledgements this paper is part of an interdisciplinary research project (number iii41010), financed by the republic of serbia’s ministry of education, science and technological development. conslusion references [1] astebro, t., & bernhardt, i. 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(2003). knowledge based resources, entrepreneurial orientation, and the performance of small and medium sized businesses. strategic management journal, 24(13), 13071314. doi: 10.1002/smj.360 received: 2019-03-20 revisions requested: 2019-11-02 revised: 2020-02-09 accepted: 2020-05-05 31 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) 32 marijana simić, marko slavković, vesna stojanović aleksić 2020/25(3) marijana simić university of kragujevac, faculty of economics, serbia e-mail: msimic@kg.ac.rs marijana simic is a ph.d student at the department for management and business administration, faculty of economics, university of kragujevac. in september 2016 she received her bachelor's degree. she defended her bachelor thesis entitled: “employee motivation with the purpose of improving organizational performance”, at the faculty of economics, university of kragujevac. the topic of her master’s thesis was related to human capital and entrepreneurship, and in october 2017 she received her master's degree. main fields of her research interest are human resources, entrepreneurship and organizational behavior. she was awarded a scholarship: dositej’s fund for young talents by the ministry for youth and sports. she is engaged as a young researcher at the project of ministry of education, science and technological development of the republic of serbia. also, as a young researcher she has participated in several international scientific conferences. marko slavković university of kragujevac, faculty of economics, serbia e-mail: mslavkovic@kg.ac.rs marko slavkovic is an assistant professor at the faculty of economics university of kragujevac. he received his ph.d. at the faculty of economics in kragujevac in the field of strategic human resource management. he holds the following subjects at graduate, master and doctoral academic studies: human resource management, international human resource management and strategic management in tourism. he participated in the preparation of a number of analyses, studies and projects for the needs of the subject of economy. as a consultant, he has been engaged permanently or occasionally by domestic and foreign companies. he is currently serving as vice dean for science at the faculty of economics in kragujevac. he is a member of the executive committee of the economist society of kragujevac. vesna stojanović aleksić university of kragujevac, faculty of economics, serbia e-mail: vesnasa@kg.ac.rs vesna stojanović-aleksić, phd, is a full professor at the department for management and business economics. she holds phd degree from the faculty of economics, university of kragujevac and teaches the following subjects at the same university: organization of enterprise, organizational behavior and leadership and organizational changes. her research areas are: leadership, organizational culture, organizational change, organizational behaviour and corporate social 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05 branka rodic trmcic:tipska.qxd 45 branka rodić trmčić1, aleksandra labus2, zorica bogdanović2, dragan babić3, aleksandra dacić-pilčević4 1college of medical professional studies belgrade, serbia 2university of belgrade, faculty of organizational sciences, serbia 3university of belgrade, faculty of medicine, serbia 4british american tobacco b.v.the netherland udc: 005.336.3:005]:614.2 usability of m-health services: a health professional’s perspective doi: 10. 7595/management.fon.2016.0022 1. introduction doing business or providing quality health information and services as well as exchanging information between entities in the health care sector without modern information and communication technologies and connections is almost unimaginable today.the implementation of information systems in organizations that provide health care services has made a big step forward. it has created a flexible and scalable system whereby healthcare workers and associates provide efficient and economic healthcare. isolated it environments in health institutions were standard once. today, mobile platforms are used in order to develop communication with traditional medical equipment (stethoscopes, devices for measuring blood pressure, ecg, eeg, etc.) as well as for the exchange of data, information and knowledge in the health care system. the availability of healthcare services, accessibility, quality and the price of health services represent a problem in many countries of the world (european commission, 2012) (european commission, 2012) (pricewaterhousecoopers, 2012). many factors, such as: insufficient financial resources, disability or restricted mobility, lack of knowledge, and even poor weather conditions or long waiting lines, may prevent peoples’ approach to health care services or education to improve health. mobile applications, sensors, medical devices and remote diagnostics are amongst numerous ways of rendering health care services. these technologies help cutting costs of providing health care services and connect the patients with health service providers (west, 2013). the subject of this paper is to analyse possibilities for application of mobile health care services within health institutions in serbia. the analysis of some prerequisite factors for succesful implementation of mobile health has also been presented. in addition, the percieved usefulness and availability of mobile health care services among health experts in belgrade has also been analyzed. 2. ehealth and mobile health electronic health or ehealth (e-health) has emerged as a field where medical informatics meets public health, and processes regarding providing health services and information generated and shared through the internet and related technologies (eysenbach, 2001). in addition to technical development, the broader meaning of this notion represents change in the way of thinking and acquiring positive habits and connecting for the purpose of improving health care on the local, regional and global levels, by the implementation of information and communication technologies (eysenbach, 2001). management 2016/80 in the modern world the use of information and communication technologies, computer networks and systems based on such technologies are the determinants of efficiency and operating performance in healthcare. this paper deals with the concepts of electronic and mobile health and opportunities of their implementation in the healthcare systems. this paper will analyze the factors that influence the acceptance of mobile healthcare services among employees in health institutions. the main goal of this paper was to analyze the possibilities of using mobile healthcare services in health institutions, as well as to analyze the predictors for successful implementation of mobile health services. the research results indicate a high level of knowledge regarding the usefulness and availability of services among healthcare workers in health institutions, which is the prerequisite for a successful implementation of mobile health in the healthcare system. keywords: ehealth, mobile health, mhealth, health services, healthcare, mobile health applications according to the definition of the world health care organization, electronic health (ehealth) represents using information and communication technology in the health care sector (world health organization, 2015). according to the republic of serbia information society development strategy for the year 2005, ehealth represents using modern information-communication technologies to satisfy the needs of citizens, consumers of health services, health experts, institutions providing health services and designers of the health care policy (ministarstvo nauke i životne sredine republike srbije, 2005). mobile health or m-health (mhealth) notion originates from the notion: electronic health. the notion mobile health is being used for both providing health services and public health, with the support of mobile appliances (world health organization, 2011). this includes healthy life styles applications, which either directly or indirectly improve health or the quality of life. such applications are often connected to medical devices or sensors (watches, bracelets, etc.). mobile health includes: personal health guidelines, health information providing applications, and reminders, using sms and telemedicine, via wireless communication (european commission, 2014). the mobile and smart phones market has advanced so much that even the least expensive phones have some kind of internet approach features. thanks to the low price and accelerated development of the mobile network worldwide, tens of millions of people who did not use to have access to telephone or computer, now use mobile devices as the everyday communication and information sharing tool. mobile communication gives new chances for spreading health information among developing countries people (world health organization, 2011). their ubiquity is the main reason for which the mobile technologies should be incorporated in the new technology solutions for providing health services. 3. technologies and conditions for application of mobile health services mobile phones in serbia are represented in 90.6% of homes, while the internet is present in 62.8% of homes (statistical office of the republic of serbia, 2014). outspread and ubiquity of the mobile technologies and the internet is the main technological condition for the implementation of mobile health services. there are several key characteristics of mobile technologies which make them superior to other information-communication technologies, particularly when applied in the health care sector (free et al., 2010). many appliances used in health care have wireless communication which allows continual monitoring and interaction regardless of the location of the user. in addition, there is the internet approach through a wap protocol and a broad band mobile internet. mobile devices are personal, the users always keep them with themselves, and are available at any time. the size is appropriate, they are not too large to be portable. modern smart devices are lightweight with a longer battery life. it is the combination of all those characteristics that makes them irreplaceable for the health care system implementation. depending on the field of implementation, mobile health care applications may be used for collecting clinical and general health information as well as for providing communication between people and the health care system. in addition, applications can provide health information, perform monitoring of the patient's health condition in the real time, and provide medical services directly (field of mobile telemedicine). smart phone applications are widely spread among the users and patients. among them, there is a great number, above 160.000 (research2guidance, 2015), of various commercial health care applications, which could be downloaded over the online shop application. such downloaded health care applications usually are not subject to standardization or quality control, so their use in medicine and health care have often been debatable. mhealth applications can be classified in nine categories (heidi et al., 2014), (un foundationvodafone foundation partnership, 2009), (ventola lee, 2014 may): 1. education. education systems and systems for increasing awareness about health, providing information on health promotion and prevention of the disease, education programmes, and forming virtual community. 2. remote monitoring and data access. remote data access aimed to help health workers in decision making. 3. patients monitoring. applications which provide treatment support in regard to control of treatment compliance, rehabilitation, physical exercise, collecting clinical data, etc. as well as the applications for reminding/scheduling appointments. 4. monitoring of the disease and epidemiology surveillance. provide real time surveillance of the contagious diseases. 46 2016/80management 5. „point-of-care“ support. used to provide permanent information regarding diagnostics, screening, treatment, access to health information system, as well as the decision making support systems via mobile phones or tablets, instead of previous static computers. 6. elearning. providing mobile platform for health education systems support, communication or continuous education or health workers training. 7. quality of life improving applications. applications for promoting healthy life styles, fitness and wellbeing. 8. systems for emergency medical interventions. provide alarms for accidents, emergency situations, and natural disasters. 9. applications for financial management. facilitate the use of smart cards or vouchers for mobile payments mobile health care services for promoting patient's health involve direct contact with a patient (pricewaterhousecoopers, 2012). these are the most common solutions for the prevention of disease, or are intended for persons suffering from certain diseases or are at risk for illness. numerous such solutions have been implemented with the intention to preserve and promote health, for example, for quitting smoking (riley, asif, & jersino, 2004), vaccination (vilella et al., 2004), wellness and promotion of mental health (ahtinen et al., 2013) (price et al., 2014). one aspect of the provision of health care services through the mobile health consultations by a physician or health care professional are motivational messages or reminders for vulnerable groups (ramanathana, swendemanb, comuladab, estrina, & rotheram-borus, 2013). several pilot projects in the underdeveloped countries, where living conditions are extremely poor and where there are obstacles for providing health care, mobile health care services have been shown to be an efficient solution for health care provision (un foundation-vodafone foundation partnership, 2009). the patient's vital signs monitoring may be significant in the patient's recovery monitoring, which can influence treatment cost reduction (chen et al., 2013). numerous commercial solutions for mobile health care applications with implemented sensors for measuring vital parameters for health promotion or measuring various stages of treatment, improving physical fitness and health life styles promotion (suunto, 2015), (basis science, 2015), (maiaa et al., 2014), (wu et al., 2009), (millings et al., 2015). solutions for health care system strengthening emergency service, support to health care providers, research and evaluation in health care, administration and jobs which do not include direct interaction with patients, but are primarily intended for improvement of health care workers efficacy within the health care system (pricewaterhousecoopers, 2012). remote monitoring and data access applications provide support for health care providers. such applications are mostly used for remote diagnostics in the primary health care; they have access to remote databases and help health care workers in decision making (wolters kluwer, 2015) (wolters kluwer, 2015). error! hyperlink reference not valid. for the purpose of research, mobile health services include services and tools which help health care experts to collect and analyze health information with the aim of monitoring health condition and epidemiology situation. such systems are support to decision making for health care founder, for example, as in the pilot project in senegal (world health organization, 2011). mobile health care services in the field of education in health care can be directed towards patients (customers) or to the health care workers where they are a part of the system to support access to databases of drugs and treatment protocols (world health organization, 2011). interoperability is a significant condition for mobile health care services implementation. interoperability in health care represents the possibility for the data and information generated by a health care or some other system to be available to another (health care) system, regardless of the technology that communication is based on. the ideal situation is that the systems involved in the interoperability comply with the standards, while in practice, such a situation is hardly feasible due to the lack of universal standards, rapid technological development, the existence of an inherited system or simply due to the autonomy of each system (bogdanović, stanimirović, & stoimenov, 2008). for communicating and exchanging information between the existing health care system and the mobile medical applications to be adequately supported, all participants in the exchange should support certain standards for data exchange, and security support. from the standards implementation point of view, electronic health care is the most complicated and the most challenging field for standardization. 47 management 2016/80 there are several reasons that make efforts to standardize electronic health so difficult. technologies used in health care are costly. then, the electronic health care systems include "big data", i.e., huge amounts of data that make up a multimedia diagnostic images, patient data, test results, research samples, information on insurance and financial reports and other data. ehealth standards do not apply to one isolated field of expertise but to hundreds of them. and the last, but not the least, reason for the difficulty in standardizing is the fact that the various launched initiatives for applying standardization charge for their applications, which increases the costs of introducing or improving the system of electronic health care. increasing costs often lead to cancellation of innovation based on ehealth (denardis, 2012). in addition to the technological requirements for the implementation of mobile health care services, it is of great importance for these services to be accepted by employees in health care institutions. research in the field of information and communication technologies in health care is largely based on the design of information technology solutions and their implementation, as well as on the quality of mobile health applications (stoyanov et al., 2015) while there is a lack of focus on the acceptance of implemented solutions among health care professionals and end-users (holden & karsh, 2010). however, there are numerous studies that have been conducted dealing with the prediction of behaviour and interpretation of the reaction of end users to a specific it solution in health care (holden & karsh, 2010). due to the expansion of information and communication technologies in all spheres of life, especially in the field of health care, the importance of theories that predict and explain the factors that influence the adoption and use of information and communication technologies in health care is growing. mobile health services are an emerging technology, commonly used voluntarily among the medical staff, so that the perception of the usefulness (wu, li, & fu, 2011) is of crucial importance in the acceptance of these solutions. the use of mobile health care services is directly related to the patient's health and quality of life. this fact is probably the reason for hesitation of health care workers to accept new services, including mobile health care services, especially when they are still in the testing phase and in the initial stage of implementation. the perception of usefulness may affect the type of technology that is applied in the solution, the size of the device where the software solution is implemented, the aesthetic design and an interface that is (not) easy to use (demiris et al., 2013). the degree of education and the health care workers’ age influence the perception of usefulness (illiger, hupka, von jan, wichelhaus, & albrecht, 2014), and these factors are associated with the understanding of the use of information technology. mobile devices with wireless functionality are intended for personal use among individuals and can provide immediate medical support to various activities anytime anywhere. however, the quality of service, such as service availability in real time, is the main "concern" for medical professionals. the reason is that the use of mobile health care is closely linked to the wellbeing and life of the patient. therefore, medical experts should ensure completeness and timeliness of mobile services access, before the use of the device. the knowledge about the availability of service refers to the extent to which knowledge is true that a certain innovation is accessible and timely, and many studies point to the perceived problem of availability when trying to understand the acceptance of mobile devices (deng, zhang, & zhang, 2012), (wu, li, & fu, 2011). 4. research methods the main goal of this paper is to review the possibilities of application of mobile services in health care, as well as to analyze the factors that are predictors of successful implementation of services which are the perceived usefulness and the perceived availability of mobile health care services among employees in health care institutions. according to the main goal, the hypotheses in this research are: h1: there is a high level of agreement with statements about usefulness of mobile health care services among employees in health care institutions. h2: there is a high level of agreement with statements about availability of mobile health care services among employees in health care institutions. the research was conducted among employees in health care institutions in belgrade from 19th may to 13th june 2015. fifty three health care workers and associates from the belgrade area participated in this study. the 48 2016/80management employees work in various types of health care institutions: health care centers, specialized clinics, hospitals, community health care centers and regional institutes. the sample was randomized, selected by the “snowball” model. the initial sample consisted of 12 health care workers and associates for which authors had contact addresses. with their help we came to the other health care workers and associates or their e-mail contacts. in order to implement the research an instrument – a questionnaire – was designed. the first part of the questionnaire consisted of nominal type questions that examined the demographic information and questions regarding the use of the internet. the second part of the questionnaire consisted of 5 questions that examined the usefulness and availability of mobile health care services. the possible responses were in the form of a 5-point likert scale: 5 i completely disagree, 4 i mostly agree 3 i have no opinion about it, 2 – i mostly disagree, 1 – i strongly disagree. the usefulness of a mobile health care service has been tested through agreement with statements that the list of doctors on duty with the possibility of video calls reduces the waiting time for consultations. then we examined the attitudes of the respondents to the online consultation with a physician over traditional visits. health care id in the phone can be a practical and reliable solution instead of a standard paper id and we examined whether respondents agreed with this statement. this group of questions also included attitudes as to whether the list of medical institutions with all relevant information (email, address, contact numbers, maps) is useful in the mobile phone and the extent to which mobile health care applications are useful for patients and health care workers. the availability of a mobile health care service was tested by the views of respondents on whether the mobile health applications allowed health care services to be portable and to what extent the mobile health care allowed access to health services for people in remote areas. health information for improving the health status are available at the same time for a large number of people through the health care mobile application, especially for the people in the territories affected by natural disasters, and thus make health care services available at the moment when they are indispensable. the participants were asked via e-mail to participate in the study, and the objectives and methodology of research were explained to them in detail. the model of mobile health care applications ("my mobile doctor"), which was set to google play was forwarded to the participants by e-mail. the respondents were given detailed explanations on the installation and purpose of the applications with mobile health care services. following ten days of familiarization and the use of applications, respondents were given a survey. the survey was given to the participants at their workplaces. they returned the completed survey the next or the same day (depending on the current business obligations). figure 1: mobile application "my mobile doctor" screens 49 management 2016/80 for statistical analysis we used the spss software version 20. when comparing the average values of the indicators, the analysis of variance (anova), both parametric and nonparametric types, were used. table 1 shows the descriptive statistics of the sample. table 1: descriptive statistics 5. results and discussion tables 1 and 2 show the indicators of usefulness and availability of mobile health care services and the mean of respondents' answers according to the likert scale of agreement with the attitude offered. table 2: mean and standard deviation of agreement with questions about usefulness of mobile health care services 50 2016/80management characteristic gradation frequency percentage (%) sex male 9 17.0 female 44 83.0 age group 18-25 0 0 26-35 8 15.1 36-45 27 50.9 46-55 12 22.6 56-65 6 11.3 66 and older 0 0 healthcare worker type physician 23 43.4 technician 22 41.5 health associate 8 15.1 education degree high school 11 20.8 college 11 20.8 university degree 7 13.2 post degree (master, specialization, phd) 24 45.3 health care institution hospital 10 18.9 specialized clinics 4 7.5 polyclinic 15 28.3 community health care centers 17 32.1 regional institutes 7 13.2 work experience less than and 5 years 3 5.7 6-15 years 17 32.1 16-25 years 25 47.2 more than 25 years 8 15.1 internet usage experience less than 1 year 0 0 1-2 years 3 5.7 3-5 years 11 20.8 more than 5 years 39 73.6 question mean sd mdoctor, list of doctors on duty with video call option and e-mail contact (with appropriate charging of services) would reduce waiting time for consultation, counselling, doctors’ orders, etc. 4.21 0.717 consultation and counselling with online doctor through video call (consultation for chronic diseases, doctors’ orders and other appropriate services) would be as useful as traditional doctors’ consultation. 4.17 0.778 health id card in mobile phone (in mobile health care application) is a practical, reliable and easy-to-use solution. 4.42 0.750 health institutions – list with a health care institution name, map, call option and e-mail option is a useful option in the smart phone. 4.74 0.593 mobile health care applications (mhealth applications) would be useful both for patients and for health care workers (in the role of provider or health care user). 4.56 0.574 table 3: mean of agreement with questions about usefulness of mobile health care services most of the participants display a high level of agreement with statements about usefulness and availability of mobile health care services (consultation and counselling with doctor, institution directories, health id card, etc.). thus the proposed hypotheses are confirmed. also, we examined the relation between the type of the health care institution where health care workers are employed and the perception of the usefulness of mobile health care services and found that there was no statistically significant difference between these categories. at the same time, the level of education of health workers did not significantly affect the perception of the usefulness of mobile health care services. the respondents of the age group of 36-45 year olds mostly emphasize the usefulness of mobile health care services with statistical significance (f=3.403; p<0.05), whereas there are no differences among the respondents’ age categories when it comes to the perception of service availability. a significant impact on the perception of the usefulness of mobile health care services has an internet usage experience. users whose experience exceeds five years evaluated positively the usefulness of mobile health care services to a significantly higher degree (f=4.986; p<0.05). 51 management 2016/80 question mean sd mobile health care applications would allow health services to be portable (available anywhere) and anytime (e.g., institutions directories, consultations and counselling with doctors, health records availability, etc.). 4.34 0.678 mobile health would allow availability of health care services to people in remote areas who have no or limited access to health care services (e.g. transportation, distance, lack of personnel, etc.). 4.34 0.758 through mobile health care applications, health care information in order to improve health condition or diseases prevention would be accessible to many people. 4.50 0.672 through mobile health applications, important messages and health information would be easily available to people from territories affected by natural disasters (e.g. floods, snowstorm, earthquake, etc.). 4.40 0.689 smartphone with mobile health care applications could facilitate access to health care services when needed. 4.34 0.618 mobile technology help health care services to be readily available, accessible and rendered in a satisfactory manner, all in an interesting way. there are many ways for improving the way of providing health care services, starting from mobile applications, sensors, devices for remote diagnosis and proper equipment. the results of this survey demonstrate that respondents who work in health care institutions in belgrade on average highly agree as regards issues of mobile health care services usefulness and availability. the maximum extent of mobile health care services usefulness has been perceived by the employees aged 36-45 and those who with 5 years’ experience in the use of the internet. a longer experience in using the internet and familiarity with modern information technologies have an impact on understanding their usefulness. the level of education had no impact on the perception of usefulness and availability of mobile health care service among employees in health care institutions. conslusion references [1] ahtinen, a., mattila, e., välkkynen, p., kaipainen, k., vanhala, t., ermes, m., et al. 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(2010). the technology acceptance model: its past and its future in health care. journal of biomedical informatics, 43(1), 159-172. [16] illiger, k., hupka, m., von jan, u., wichelhaus, d., & albrecht, u.-v. (2014). mobile technologies: expectancy, usage, and acceptance of clinical staff and patients at a university medical center. jmir mhealth uhealth, 2(4), e42. 52 2016/80management a basic drawback of this research is the subjectivity in the selection of the sample, which probably included participants who were already familiar with information and communication technologies. the future research should include a larger number of employees in health cate institutions chosen randomly. at the same time, future research should include a larger number of factors that describe the acceptance of mobile health care services among health care workers and associates, with the necessary testing of the existing infrastructure in the health care sector, which is a necessary condition for the development of such services. positive attitudes of the respondents in the sample regarding the questions about usefulness and availability of mobile health services show that mobile technologies have a potential to provide an efficient and economical alternative to some traditional health services and make a good starting point for further scientific research. a possibility for implementing mobile health care services in health care institutions in serbia are numerous. as a pilot project, pending the adoption of specific regulations and the provision of infrastructure, solutions that are used for scheduling and various reminders for patients can be deployed. services for informing the population about health care institutions and the available health care services, as well as implementation of the prevention programs aimed to improve health are certainly solutions that can be implemented and that would be a benefit to the entire society. 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(2015). mobile app rating scale: a new tool for assessing the quality of health mobile apps. jmir mhealth uhealth, 1, e27. [27] suunto. (2015, november 01). suunto foot pod mini. retrieved from http://www.suunto.com [28] un foundation-vodafone foundation partnership. (2009). vital wave consulting. mhealth for development: the opportunity of mobile technology for healthcare in the developing world. washington, d.c. and berkshire, uk: un foundation-vodafone foundation partnership. [29] ventola lee, c. (2014 may). mobile devices and apps for health care professionals: uses and benefits. pharmacy and therapeutics, 39(5), 356-64. [30] vilella, a., bayas, j.-m., diaz, m.-t., guinovart, c., diez, c., simo, d., et al. (2004). the role of mobile phones in improving vaccination rates in travelers. prev med, 38(4), 503-9. [31] west, d. (2013, october). improving health care through mobile medical devices and sensors. washington: center for technology innovation at brookings. [32] wolters kluwer. (2015). clinical drug information. retrieved from http://www.wolterskluwercdi.com [33] wolters kluwer. (2015). smarter decisions. better care. retrieved from uptodate: http://www.uptodate.com/home [34] world health organization. (2011). global observatory for ehealth. mhealth: new horizons for health through mobile technologies: second global survey on ehealth. global observatory for ehealth series. volume 3. geneva: who. [35] world health organization. (2015, mart). trade, foreign policy, diplomacy and health. retrieved from world health organization: http://www.who.int/trade/glossary/story021/en/index.html [36] wu, i.-l., li, j.-y., & fu, c.-y. (2011). the adoption of mobile healthcare by hospital's professionals: an integrative perspective. decision support systems, 51(3), 587-596. [37] wu, y.-c., chen, p.-f., hu, z.-h., chang, c.-h., lee, g.-c., & yu, w.-c. (2009). a mobile health monitoring system using rfid ring-type pulse sensor [abstract]. dependable, autonomic and secure computing, 1, 317-322. receieved: june 2016. accepted: august 2016. 53 management 2016/80 54 2016/80management about the author branka rodić-trmčić college of medical professional studies belgrade, serbia brodic@gmail.com branka rodić-trmčić is a lecturer at the college of medical professional studies belgrade and her main subject is health informatics. her current profesisional interests include: e-health, m-health, mobile technologies, internet of things, wearable computing. aleksandra labus university of belgrade, faculty of organizational sciences aleksandra@elab.rs aleksandra labus is an assistant professor at the faculty of organizational sciences. her current professional interests include: e-business, m-business, internet of things, eeducation, social media and e-health. zorica bogdanović university of belgrade, faculty of organizational sciences zorica@elab.rs zorica bogdanović is an associate professor at the faculty of organizational sciences. her current professional interests include: e-business, m-business, internet of things, computer simulation, e-education and e-health. dragan d babić university of belgrade, faculty of medicine, serbia dbabic@gmail.com; babicdra@med.mfub.rs dr sci med dragan d. babic, is an assistant professor of medicine, university of belgrade, at the desk of statistics and informatics in medicine. the areas of his scientific interests are: diagnostic tests, measuring the information content in the medical literature, meta-analysis, artificial intelligence. aleksandra dacić-pilčević british american tobacco b.v. the netherlands aleksandra.dacic@gmail.com aleksandra dacić-pilčević works at the british american tobacco b.v. in the netherlands. her current professional interests include: e-business, implementation of information systems, project management methodologies. << /ascii85encodepages false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04_84_3 miric:tipska.qxd 47 ana aleksić mirić, marina petrović, zorica aničić university of belgrade, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2019/24(3) organizational innovativeness: factors that drive innovations in social enterprises in serbia doi: 10.7595/management.fon.2019.0014 abstract: 1. introduction innovations have reached the forefront of interest in management and organization theory and practice for some time now. defined as incremental or radical product and/or process transformations (schumpeter, 1934), innovations include changes, (betz, 1998) as well as transformation of business concept or paradigm on which business is founded (guth and ginsberg, 1990). organizational innovativeness is seen as a necessary condition for long-term sustainability; many authors have discussed the importance of business innovation and have emphasized its positive contribution to profitability (zahra, 1993), company growth (thornhill, 2006), competitive advantages (porter, 1985), organizational learning and development (garciamorales, montes & jover, 2006), enhancement of company’s intellectual capital residing in people (human capital), relationships (social capital), and systems (organizational capital) (simsek and heavy, 2011), team * corresponding author: ana aleksić mirić, e-mail: anaa@ekof.bg.ac.rs research question: this paper explores factors that drive innovativeness of social enterprises in serbia. motivation: social enterprises are gaining importance on the global scale, being recognized for their potential to respond to both economic and social challenges, attract capital and generate income in non-traditional ways. innovativeness comes at the heart of their abilities to achieve their goals. this research is motivated by the idea to understand which factors influence innovativeness in serbian social enterprises, and to compare these results with the pool of 11 european countries. identification of the factors that make the difference between social enterprises that are innovative and the ones that are not, provides a chance for business owners/managers, as well as for social policies creators, to affect these factors and thus influence the boost of innovativeness and, consequently, success of socially oriented enterprises in serbia. additionally, building on results of a research conducted in 11 european countries, the authors’ idea is to perform a cross analysis of identified innovation factors in social enterprises in serbia with previously obtained aggregated results. idea: this paper was driven by the idea to identify the factors that make a difference in innovative behaviour of social enterprises. data: the analysis was conducted using responses from on-line survey of 69 serbian enterprises. we compared these answers to those of 837 social enterprises obtained via the same online surveys from 11 european countries, including serbia. tools: a statistical analysis was performed (using t-test for testing equality of means, z-test for testing equality of proportion, hi-square test, fisher’s exact test and some nonparametric tests to confirm the results obtained using parametric tests). the same tests were carried out on the data obtained from social enterprises in serbia and on the data obtained from all 11 countries examined in order to draw conclusions about the same or different influence of certain factors on the innovativeness of social enterprises. findings: we found that the awareness of their social mission, perception of innovation as an important factor, financing obtained via grant schemes and involvement of owners, board, customers and ngos are the most important drivers of innovativeness in serbian social enterprises. the european pool of explored ses report additional factors influencing innovativeness, which did not appear important in the serbian sample. contribution: this paper contributes to the research of determinants of the innovativeness of social enterprises by bringing original field data from serbia, and by providing comparison with the same pool factors examined in the sample of european countries. keywords: innovativeness, non-innovativeness, social enterprise, serbia jel classification: m10, m14, o31, o35 work within the company (fay et al., 2015) and development of a strong network of relationships with external strategic constituents (kandampully, 2002). on the people level, the innovation-driven strategy with its effects on the increase in flexibility and autonomy in the decision-making, reduces control by superiors and decreases work monotony, leading to a higher job satisfaction and employees’ well-being (bryson et al., 2009; park et al., 2015). innovations are recognized as important not only for organizational economic performance, but for its social performance as well (choi & majumdar, 2014; lehner, & kansikas, 2012; austin, stevenson, & weiskillern, 2006; mulgan, g, 2006; mumford & moertl, 2003; leadbeater, 1997). even if not initially inspired by social motives, development of a new product or service can affect improvement of living conditions of individuals or society in general (e.g., development of a new medicine), while technological innovations require engagement of different social actors or transformation of social structures with the goal of faster diffusion and adaptation (sharra & nyssens, 2018). in that manner, every innovation includes a certain social aspect which comes as a consequence of finding new ways of transforming input to output that has a higher value for the consumer, owner or the environment and a wider social community. however, our knowledge about social innovations and innovativeness of social enterprises, factors that drive their development or effects they provide is still modest, though business practice and policy discourse both express the need for deeper research into this area (zarkovic rakic et al., 2017; krstic, aleksic miric, & zarkovic, 2017; aleksic miric, & krstic, 2016; sinclair, mazzei, baglioni, & roy, 2018; alvord, brown & letts, 2004). recent research proves the importance and the necessity to further study this area. thus, bellucci examines the importance of innovation in some stages of the development of social enterprises, but also outlines the key challenges and barriers to their implementation (bellucci et al., 2018). similarly, while one group of authors explain the power and the role of the network of stakeholders to create social innovations and the sustainable business of socially oriented businesses (hazenberg et al., 2018), another group of authors, by adopting a resource-based perspective, examine the role of market orientation and ict competences in this process (sanzo-perez et al., 2015). some research on this topic relates to identifying the characteristics and attitudes of the decisionmakers in the se swith an aim to determine their relationship to fostering socially-oriented innovative activities (gauthier et al., 2018; testi et al., 2018). policy discourse also points to the importance of social entrepreneurship and social innovation in a wider social and political context. according to oecd findings (oecd, 2016), economic and industrial innovation results in greater inequality, and social entrepreneurs and private sector representatives are expected to play a key role in fostering innovative social policy (during et al., 2018). social innovations are not limited to newcomers only, but also have a very important role in the sustainability of already established systems (fuchs, 2014) through the introduction of social intrapreneurship.the need for identifying the key factors of innovation in social enterprises in serbia, as well as raising awareness about the importance of social entrepreneurship and social innovations in general, is a consequence of studies already conducted on other countries’ examples (see brandsen et al., 2016; biggeri et al., 2018) in which further research is called for. social enterprises (se) are usually seen as the key promoters of social innovation (di domenico, haugh, & tracey, 2010). being ambidextrous in their nature by simultaneously pursuing social and economic mission, social enterprises are focused on creation and implementation of innovative solutions so that they can meet this duality (doherty, 2014; pache & santos, 2012). on the one hand, social enterprises do their business on the profit-oriented company principles by focusing on long-term financial sustainability while, on the other hand, they pursue social goals as their primary founding reason. understanding both goals is mostly dependent on continuous innovative endeavours of the enterprise (jeraj et al, 2015; zahra, newey, & li, 2014; renko, 2013; gundry et al., 2011; zahra, gedajlovic, neubaum, & shulman, 2009). in this paper we explore the factors that influence innovativeness drivers in social enterprises in serbia. by doing so, this paper contributes to the understanding of factors that influence innovativeness of social enterprises in serbia, and provides comparison with the same pool of factors examined in the sample of european countries. the paper is structured as follows: section 2 brings a theoretical review of the factors that drive organizational innovativeness, section 3 outlines the methodology we used, section 4 brings research results into focus and compares serbian and european results. we end with summarizing the results and bringing implications from key comparisons. 2. what drives organizational innovativeness? the foundation for studying innovativeness in an organizational context was laid by zaltman, duncan and holbek’s book innovations and organizations (1973). how important innovation is for an organization was in particular highlighted by clark (1987) who argues that “innovation should be at the centre of study of or48 ana aleksić mirić, marina petrović, zorica aničić 2019/24(3) ganizations’’ instead of bureaucracy, structure and performance. in the critical review on organizational innovation literature, wolfe (1994) identified three streams of research: (1) diffusion of innovation research that focuses on exploring the pattern of an innovation through a population of potential adopter organizations, (2) organizational innovativeness research that focuses on exploring what determines organizational innovativeness and (3) process theory research that addresses the issue of processes organizations go through in implementing innovation (wolfe, 1994). the drivers of organizational innovativeness are mostly examined within the second and the third research area, as they are identified by wolfe (1994). damanpour and gopalakrishnan (1998) differentiated that the origin of innovation can be within the organization, in which case innovation is generated via factors associated with internal organization, or from the outer world, when innovation is generated outside organizational borders. following this line we systematize innovation drivers into four groups: external environment of the organization, macro-organizational factors, group (team)-level factors and people-related innovation drivers. external environment. frequent and unforeseeable changes in the environment are a critical source of uncertainty for a company. therefore, entrepreneurs/enterprises try to improve current circumstances and treat volatile environments as opportunities for changes and improvements (jensen, 2009); innovations appear as a result of these endeavours. this is confirmed by results of empirical studies that have found that, within a dynamic environment, the most successful enterprises are the ones distinguished by high levels of innovative behaviour (zahra, 1993). the contrary also applies. if the company is doing business in stable and predictable environment, it gets less motivated to pursue innovative behaviour. according to porter, competition is a specific element of external environment that contributes to innovations in a company, and in case a company today pays attention to its competitive environment, innovation becomes its key, and often, the only factor of success (porter, 1985). i addition to the drivers coming from external environment, numerous organizational factors also influence innovation generation. a number of research has focused on the influence the organizational structure has on innovativeness, applying a presumption that structural variables are a primary determinant of organizational innovativeness (damanpour & gopalakrishnan, 1998; kimberly & evanisko, 1981). wolfe, in a review, (wolfe, 1994) explains that criticism of this approach has mainly raised the issue of static and argues that innovativeness is a process, and that this process should be taken into account, as well as that not enough is known about how determinants of organizational innovation mutually interact. on the organizational level, the previously formed network of relationships with its stakeholders that actively participates in product improvement of products and processes or in design of new technological innovations (hart & sharma, 2004). group (team) level innovation drivers are explored within the context of structure, climate, team processes, member characteristics, and the leadership style, which determine whether the innovative potential of the team is to be realized. on the level of people involved (individual level), experience and education of managers and owners is among the most important innovation drivers. since knowledge is a fundamental factor in creation of new technological solutions, as well as in adoption of existing solutions (urbancova, 2013), many authors see owner/manager knowledge obtained through previous experience and education as a key factor for success of any organization (koellinger, 2008). additionally, innovative behaviour of companies is often attributed to personal satisfaction of employees, as well as to interpersonal relationships organizations. thus, innovations are more common in companies where employees show a higher level of satisfaction with personal as well as professional aspects of their lives (tu & hwang, 2013). on the other hand, benevolent relationships between employees are a firm basis for creation and distribution of knowledge, which is the main driving force behind innovations (abrams et al., 2003). 3. methodology this paper is closely linked to the research that evaluated the same pool of factors in 11 european countries, including serbia: albania, austria, denmark, england, france, germany, italy, poland, serbia, scotland and the netherlands (in alphabetical order) as presented in aleksic miric, petrovic & celikovic (2018). both research works are based on the same dataset, but here we focus exclusively on results gained from serbian respondents and refer to the eu results by comparing and contrasting our findings. the data were gathered by online questionnaire that was sent by e-mail to the population of social enterprises. respondents were owners or managers above the age of 18. the questionnaire consisted of several modules. the first three modules were designed to capture data on personal characteristics of the respon49 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) dents (such as gender, age, education, previous experience in founding/managing a social enterprise, motivation etc.), as well as on general characteristics of the enterprise (such as its type, size according to the number of employees, ownership structure, year of establishment, sector of economic activity, sales turnover, etc.). the other modules were devoted to the following dimensions of social enterprises: access to financing, main challenges and constraints for social enterprises, the role of innovation during the life-cycle of the enterprise, the influence of different categories of stakeholders on the decision-making process of the enterprise and the social capital of entrepreneurs. in the dataset, we had 90 enterprises from serbia out of which 69 could be identified as innovative or noninnovative social enterprises. the decision made by researchers was to distinguish innovative form non-innovative ses by defining innovative social enterprises (further marked as ise) as organizations that used innovations in doing business within the last three years, namely those whose managers or owners responded positively (“yes”) when answering the question “has your organisation innovated in terms of products, process, finance, or marketing in the last 3 years?” when filling in the questionnaire. opposite to this, ses whose representatives responded negatively to the question above were classified as non-innovative ses (further marked as nise). as stated earlier, our motive was to determine which factors encourage social enterprises to behave in innovative way. therefore, in our research, we focused on identifying factors that come from intra-organizational setting (micro and macro organizational factors) as well as those coming from external environment. table 1: questions tested in order to get an answer to the previously set research questions, a null hypothesis was tested to ensure that the specific factor (as questioned in table 1) does not affect organizational innovativeness. the null hypothesis in metric data states that the average value in ise is equal to the average value in nise, while in the case of non-metric data it is stated that a certain proportion within ise data is equal to the proportion within nise dataset. the null hypothesis was tested for each individual factor. the result of a statistical test 50 ana aleksić mirić, marina petrović, zorica aničić 2019/24(3) factor question external environment is contributing to solving a social or environmental issue an objective of your organization? which of the following sources of funding are available for social enterprises in your country? where did your organization get the funds to start its activity? which funds do you actually use in your activity? do you use bank loans, grants from projects, personal savings, donations/fundraising, crowdfunding, microcredit, regulated market (e.g., insurances), social investment or private investment for activity? did you innovate in response to a change in your external environment? please describe the degree to which the following categories of stakeholder influence the decision making in your organization (5 = high influence; 1 = no influence). what stakeholder engagement practices do you use: organizational-level factors is it important for your organization to grow? (e.g., increase the number or range of activities, recruit more employees, etc.?) how important was innovation in the start-up phase of your organization, i.e., in terms of products, process, finance, or marketing? how important are innovations in current phase? group-level factors in my team people generally trust each other. in my team people generally co-operate effectively. i generally trust people in my team**i can generally co-operate with my team members. the enterprise has a large network of business relations. individual-level factors does your organization employ paid staff? have you been involved in founding a social enterprise before this one? have you managed a social enterprise before this one? what is your main motivation to work in/ found a social enterprise? how satisfied are you with your professional life in general? what is your highest education qualification? do you identify yourself as a person with severe disabilities? provides a realized p-value based on which we reject or not-reject the null hypothesis. when the p-value is less than the significance level α = 0.05, the null hypothesis is rejected, otherwise it is not rejected. in case that we do not reject the null hypothesis, the conclusion is that the factor does not affect the innovation, i.e., that there is no difference between the ise and the nise regarding the examined factor, which is marked with the sign “=”. if the null hypothesis is rejected, we conclude that the factor influences innovation, i.e., that there is a statistically significant difference between the ise and the nise in terms of the investigated factor, which was marked with the sign “≠“. statistical analysis was performed using the t-test for testing equality of means, z-test for testing equality of proportion, hi-square test, fisher’s exact test and some nonparametric tests to confirm the results obtained using parametric tests. for numerical variables we used the t-test for testing equality of means between ise and nise. questions that have been taken into analysis for this research follow the likert item logics scale, like 1completely disagree, 2 –disagree, 3-neither agree or disagree, 4-agree, 5-completely agree. such variables have been considered as metric variables while testing, and we applied the t-test. the results gained that way have also been checked by the application of non-parametric tests. the analysis has shown the same results. for making statistical inferences in the chapter we used α=0.05. therefore, we conclude that the inference is valid both in case when data are treated as metric or as non-metric ones. 4 research results as explained, we have gathered the data on personal characteristics of respondents, their experience, general characteristics of the enterprise, access to capital, challenges and constraints, the role of innovation, the influence of different stakeholders on decision-making processes, and the social capital of entrepreneurs. the whole list of explored factors, derived from the questions in, is provided in. based on these data we investigated what factors influence innovativeness of social enterprises in serbia. this section explains which of the explored factors have proved (by using statistical tests as described in the methodology section) to influence innovativeness and in what manner. contribution to solving a social problem and innovativeness. recognizing contribution to solving a social or environmental issue as organization’s objective is reported to make a difference between innovative and non-innovative social enterprises. while both ise and nise report this as organizational objective, ises recognize it with statistically significant difference (table 1). table 2: contribution to solving a social problem and innovativeness – comparisons of column proportions (serbia) innovation importance in different stages of the life cycle. in comparison with nises, ises value innovation higher (mean value 3.9), and they value the importance of innovation in the start-up phase as well as in the current one. that means that those ses that innovate, consider innovation to be important in all phases of the organization’s life cycle (table 2). table 3: innovation importance in different stages of life cycle – testing equality of means (serbia) *offered responses: 1-not at all satisfied/important, 2-slightly satisfied/important, 3-moderately satisfied/neutral, 4-very satisfied/important, 5-extremely satisfied/important. no ise = 49 no nise= 20 51 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) question/factor ise nise is contributing to solving a social or environmental issue an objective of your organisation? yes 97.9% 78.9% no 2.1% 21.1% no of respondents 48 19 questions/ factors* test results pvalue mean value ise nise how important was innovation in the start-up phase of your organisation, i.e., in terms of products, process, finance, or marketing? 0.003 3.90 2.85 start-up funding and innovativeness. a source of funding (bank loans, grants from projects, personal savings, donations, fundraising, social investment, private investment) for starting the activity does not influence innovativeness in any case, except in cases the funds originated from grants. the same conclusion can be drawn about the source of financing at the time when the research was done – grants from projects in serbia influence innovativeness of social enterprises in such a manner that those who have used grants from projects innovate more in the start-up phase, as well as in the current (table 3). funding and innovativeness. we have tested the following sources of funding: bank loans, grants from projects, personal savings, donations, fundraising, social investment, and private investment and they do not influence innovativeness in ses. the only funding type that is connected to innovativeness is the use of grants from projects to start the activity which they actually use from the activity. table 4: funding and innovativeness – comparisons of column proportions (serbia) influence of stakeholders and innovativeness. in innovative social enterprises, stakeholders such as owner / boards of directors, employees, customers and users, third sector organizations and ngos and the community have a greater impact on decision making than in the non-innovative ones (). shareholders/ investors, suppliers and state and public administration make no difference in influencing the average impact on decision making between innovative and non-innovative enterprises. table 5: influence of stakeholders and innovativeness – testing equality of means (serbia) * by rule we apply alpha 5% with an exception in this case when alpha is 10% 52 ana aleksić mirić, marina petrović, zorica aničić 2019/24(3) grants from projects test results percent ise nise using grants from projects to start its activity? yes 38.8% 10% no 61.2% 90% using grants from projects for actual activity yes 49.0% 20.0% no 51.0% 80.0% number of respondents 49 20 g.1) degree to which stakeholders influence the decision making in organisation (5 = high influence; 1 =no influence) test results type of organisation n mean owner/boards of directors ise 48 4.3542 nise 20 3.7000 shareholders/investors = ise 48 2.5417 nise 20 2.3500 employees ise 48 3.4583 nise 20 2.6000 suppliers = ise 48 2.2083 nise 20 2.2500 customers and users* ise 48 3.5208 nise 20 2.9000 state and public administration = ise 48 2.7292 nise 20 2.6000 third sector organisations and ngos ise 48 2.4375 nise 20 1.6000 community ise 48 3.0417 nise 20 1.8500 stakeholder engagement practice and innovativeness. the type of stakeholder engagement practice was examined as well. we evaluated the influence of the following different practices of stakeholder involvement: dedicated telephone lines, public meetings, collection of feedback, surveys and evaluation of users’ satisfaction, advisory groups, stakeholder involvement in the reporting of activities (e.g., sustainability reporting), membership of executive boards and social media. innovative social enterprises are less likely to use collection of feedbacks, surveys and evaluation of users’ satisfaction as stakeholders’ engagement practices in comparison with non-innovative social enterprisers. when we analysed social media we saw that nise used social media as stakeholders engagement practice in a statistically higher percent than ise did (). table 6: stakeholder engagement practice and innovativeness – comparisons of column proportions (serbia) team characteristics and innovativeness. our statistical analysis shows that team members cooperate well in both ises and nise. however, trust levels are significantly higher among team members who work in ises than among those who work in nises. the cooperation level among team members is also higher in ise compared to nise. ises also appear to be more likely to develop diverse networks of business relations. table 7: team characteristics and innovativeness – testing equality of means (serbia) * offered answers to respondents: 1not at all, 2 a little, 3 – medium, 4 – quite a lot, 5 – completely. **realized p=0.1 when performed nonparametric test to verify results of t-test *** no ise = 47 no nise= 15 the section above analysed the factors that influence innovativeness of social enterprises in serbia. in addition, we run the same analysis for the sample of 837 social enterprises from 11 european countries. comparison of the results is provided in . that comparison shows that the european pool of explored ses reports additional factors influencing innovativeness, which did not appear important in the serbian sample. these are: availability of funding, innovativeness in response to a change in your external environment, orientation towards growth, having the paid staff, previous experience in founding/managing a social enterprise, motivation to work in/ found an se, professional life satisfaction, education level and being disabled. if grouped as external environment factors, organizational factors, group-level factors and individual-level factors, results show the following. table 8 gives a summary of the individual impacts of the investigated factors on the organizational innovativeness in 11 european countries and serbia. ˮyesˮ in the column means that the factor explored influence innovativeness, while ˮnoˮ means that the factor does not affect innovativeness. 53 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) what stakeholder engagement practices do you use? test results type of organisation ise nise collection of feedback, surveys and evaluation of users’ satisfaction yes 43.8% 85.0% no 56.3% 15.0% social media yes 60.4% 90.0% no 39.6% 10.0% number of respondents 48 20 statements* test results pvalue mean value ise nise in my team people generally trust each other 0.048 4.04 3.47 in my team people generally co-operate effectively = 0.122 3.93 3.60 i generally trust people in my team** 0.01 4.26 3.53 i can generally co-operate with my team members 0.02 4.43 4.00 the enterprise has a large network of business relations. 0.008 3.70 2.93 54 ana aleksić mirić, marina petrović, zorica aničić 2019/24(3) in addition to the above, the following factors have been tested: involvement in any economic activity (such as selling goods and services); independency of income from grants, donation, bequests, or benefactions; investing profits to fund core activities; opportunity of the respondents to decide/manage major issues in the enterprise (e.g., strategy, enterprise objectives, activities to be run, organization of team work, etc.); family history of entrepreneurship, gender of the respondents; and vocational education or training relevant for their current position. analyses show that these factors do not influence innovativeness in 11 european countries nor in serbia. table 8: influence of particular factors on the innovativeness of social enterprises in serbia and 11 european countries factor factors serbia 11 european countries* external environment solving social or environmental issues yes yes availability of various sources of funding for se no yes using grants from projects to start the activity? yes yes using grants form projects for actual activity yes yes innovative behaviour in response to a change in external environment no yes influence of stakeholders on decision making in se yes yes stakeholder engagement practices yes yes organizational factors importance of organizational growth no yes importance of innovation in the start-up phase of se yes yes importance of innovation in current phase yes yes group-level team work yes yes individual employing paid staff no yes previous experience in founding a se no yes previous experience in managing se no yes main motivation to work in/ found se no yes satisfaction with professional life in general no yes education no yes being disabled no yes conclusion and discussion in this paper we studied the determinants of organizational innovativeness within the pool of social enterprises in serbia. following the systematization of the innovation drivers into four groups: external environment of the organization, macroorganizational factors, group (team)-level factors and people-related innovation drivers we defined in the section 2, we make the following conclusions: external environment the influence of external environment is important for innovation in a sense that ise report being to a higher extent involved in innovation due to changes in the external environment, while nise report not being involved in innovation to a higher extent due to this same reason. innovative social organizations also report to be more prone towards developing more diverse network of business relations, and involving stakeholders (owner/boards of directors, employees, suppliers, customers and users, third sector organizations and ngos, and the community) in their decision-making process more. they are more likely to use collection of feedback, surveys and evaluation of users’ satisfaction and social media as stakeholders’ engagement practices in comparison with non-innovative ones. bank loans availability in the start-up phase, and grants from projects during development are connected to innovativeness of social enterprises. these conclusions are true both for serbia and for the whole european sample. in addition to this, the european pool also reports availability of funding sources and innovation in response to a change in external environment as innovation drivers coming from the external environment. the ise report to have at disposal the following sources of funding: crowdfunding, microcredit, social investment and private investment with statistically significant difference compared to nise. in statistically higher percent note: * for more detailed result on the european pool results please see aleksic miric, petrovic & celikovic (2018). references [1] abrams, l.c., cross, r., lesser, e., & levin, d.z. 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(2017). enabling ecosystems for social enterprises and social innovation: a capability approach perspective. journal of human development and capabilities, 18(2), 299–306. doi: 10.1080/19452829.2017.1306690 55 management: journal of sustainable business and management solutions in emerging economies 2019/24(3) ise also innovated in response to a change in external environment while nice in statistically higher percent did not innovate in response to a change in external environment. organizational factors among macro-organizational factors, awareness of their social mission, perception of innovation as important element of their doing business at an early stage of organizational development, and orientation towards growth are distinguished as important for organizational innovativeness. the serbian data pool also confirms the relatedness of awareness of their social mission and perception of innovation as an important element of their doing business at an early stage of organizational development with innovative behaviour of social enterprises. these conclusions are also true for 11 european countries, with an important notion that the eu data sample reports ise to rate growth as more important in comparison with nise. group-level factors another important characteristic of innovative social enterprises that seems to be influencing innovativeness is trust, as it is significantly higher among team members in ises. this is confirmed both in serbia and the eu datasets. individual-level factors the serbian data pool reports that individual level factors do not influence innovativeness of social enterprises. the european data pools report just the opposite: education of the founder/manager of a social enterprise and previous personal experience in founding or managing a social enterprise influences innovativeness in a positive manner. innovation seems to be connected to professional life satisfaction; also, respondents report being more satisfied with professional life in innovative than in non-innovative social enterprises. on the level of people involved, compared to non-innovative organizations, the innovative ones report to hire paid employees to a higher extent. in summary, exploring serbian ses we found that the awareness of their social mission, perception of innovation as important, financing obtained via grant schemes and involvement of owners, the board, customers and ngos are the most important drivers of innovativeness in serbian social enterprises. the european pool of explored ses report additional factors influencing innovativeness such as availability of funding, innovativeness in response to a change in external environment, orientation towards growth, having paid staff, previous experience in founding/managing a social enterprise, motivation to work in / found an se, professional life satisfaction, education level and being disabled. the most important differences occurred on the individual level of entrepreneur / manager of the se, which significantly influences innovativeness of social enterprises in explored european sample, while not in the explored sample of serbian social enterprises. 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(2017). welfare state and social enterprise in transition: evidence from serbia. voluntas: international journal of voluntary and nonprofit organizations, 28 (6), 2423-2448 doii:10.1007/s11266-017-9844-2, retrieved from https://link.springer.com/content/pdf/10.1007%2fs11266-017-9844-2.pdf received: 2018-02-05 revision requested: 2019-04-01 revised: 2019-04-18 (2 revisions) accepted: 2019-05-13 58 ana aleksić mirić, marina petrović, zorica aničić 2019/24(3) ana aleksić mirić university of belgrade, faculty of economics, serbia anaa@ekof.bg.ac.rs ana aleksić mirić is an associate professor at the faculty of economics, university of belgrade. she holds a msci and phd from the faculty of economics at the university of belgrade. she has been a visiting scholar at duke university’s fuqua school of business (usa) and carnegie mellon university (usa). she has been involved in research projects financed by the european union, the world bank institute, and the serbian government. these projects emphasized the effects that reforms to the serbian economy have had on growth, employment, competitive market structure, and the competitiveness of firms. ana has served as a consultant for both private and public organizations. she also has a rich publishing history, producing individual chapters and articles in several edited collections and scholarly journals. marina petrović university of belgrade, faculty of economics, serbia marinap@ekof.bg.ac.rs marina petrović is a teaching assistant at the faculty of economics, university of belgrade. she holds an msci from the faculty of economics at the university of belgrade. she is currently a phd candidate in statistics from the faculty of economics at the university of belgrade. she has taken part in research projects financed by usaid, the world bank, and the serbian government. these projects involved statistical analysis of the effects that reforms to the serbian economy have had on economic growth, the labour market, and education. her primary research interests are statistics, market research, and online surveys. she has contributed individual chapters and articles to several edited collections and scholarly journals. zorica aničić university of belgrade, faculty of economics, serbia zorica@ekof.bg.ac.rs zorica aničić is a teaching assistant at the faculty of economics, university of belgrade. she holds a msc. from the faculty of economics at the university of belgrade. while working on her msc., she was hired as a regional pricing analyst by a multinational pharmaceutical company. she is currently a doctoral student in the faculty of economics at the university of belgrade. she has been involved in research projects financed by the european union, the serbian government, and several private companies in serbia. her research focuses on entrepreneurship, corporate government, financial analysis, and facilities studies. she has served as a consultant for both privateand public-sector organizations, and has had her 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03_milos parezanin:tipska.qxd 25 miloš parežanin1, sandra jednak2, dragana kragulj3 1,2,3university of belgrade, faculty of organizational sciences, serbia management 2016/78 the impact of fdi on the economic growth of serbia udc:330.354.330.322(497.11) 339.727.22 doi:10.7595/management.fon.2016.0003 1. introduction the global macroeconomic trends indicate a growth of the public debt and the reduction of investments in other countries. this is characteristic of both developed countries and developing countries. the financing economic development through borrowing is especially difficult for developing countries. a low credit rating of developing countries leads to interest rates being at a higher level. further additional borrowing increases above financial liabilities in the form of even higher interest rates and loan installments due for repayment. attracting foreign direct investment (fdi) can be a good alternative for developing countries to overcome the gap between the need for accelerated economic growth, on the one hand, and the lack of capital, on the other. the recent empirical studies confirm the positive effect of foreign direct investment on economic growth in developing countries. foreign direct investments (fdi) are recognized as an important channel of international technology transfer and large scale production achievement. however, studies in european transition economies do not show such a consistent result. the cause can be found in the transition process itself, but also in the effects of the economic crisis. economic and political instability may not only slow down; sometimes it may also stop the capital flow. certain economic and political circumstances are the key determinants that establish the inflow of foreign direct investments into a host country (kragulj, 2003). various research explore the correlation between foreign direct investment and gdp. some of the studies show a positive correlation between those two variables (borensztein et al., 1998; campos and kinoshita, 2002; makki and somwaru, 2004; alguacil et al., 2011; giroud et al., 2012), while others show a negative correlation (hermes and lensink, 2003; stanisic, 2008; doytch and uctum, 2011). achieving economic growth, increasing productivity and employment, social cohesion and reducing pressure on natural resources is the aim of both the eu and serbia. as an eu candidate member, serbia is trying to adjust its strategies and policies to meet the eu regulations (jednak and kragulj, 2015). the aim of this paper analyzes the impact of foreign direct investment on the economic growth of the republic of serbia. the aim is to analyze the effects of the economic crisis on foreign direct investment impact on the economic performance of the serbian economy. this paper analyzes the period of 2000 2014, using the inward fdi performance index and pearson’s coefficient of simple linear correlation. the period before the economic crises (2000-2007) and the period after the beginning of the economic crisis (2008-2014) are analyzed separately, in order to observe the linear correlation between fdi and economic growth. the results of the research speak in favor of the existence of a strong and statistically significant correlation between fdi and observed macroeconomic indicators in the period of 2000-2007. the second sub-period was characterized by an absence correlation between fdi inflows and all the observed macroeconomic indicators. the results for the period of 2008-2014 can be explained by the effects of the global crisis on the serbian economy and the deterioration of all macroeconomic indicators in the given period. effects of the crisis on the serbian economy were very strong. keywords: foreign direct investments, economic growth, gross domestic product, exports, imports, unemployment, the republic of serbia this paper is to analyze the impact of foreign direct investment on the economic growth of the republic of serbia. the research has been conducted as an analysis of the influence of fdi on gdp, exports, imports and unemployment rate in serbia in the period 2000-2014. the method used is a linear correlation conducted on the world bank data. 2. overview of the serbian economy (2000-2014) year 2000 is determined as the real beginning of economic reforms in serbia and at the very start economic growth was present. production growth in serbia has been explained by the following factors: a) before 2000 serbia already had a market-based economy, b) there was macroeconomic stability present, which improved business environment and helped achieve economic growth, c) the country received foreign support and donations (at the end of october 2000), and d) the un sanctions had been lifted (begovic et al., 2005). the reforms were implemented quickly. an expansionary fiscal policy and a tight monetary policy were the main tools for developing a more favourable economic environment. a large number of enterprise privatizations was performed. the banking system, as a sector with a large inflow of foreign capital, was reformed as well. in addition, serbia received numerous foreign grants and aid. the lack of savings and domestic capital slowed down further reforms and the ability to finance consumption and investment. in such a situation, the solution was the inflow of foreign capital, especially foreign direct investments. foreign capital had an important role in achieving serbian economic growth. since then, fdi has been considered an essential factor in starting production and realizing economic growth. according to the development report of serbia 2010 (2011), the economic growth of serbia is based on domestic demand, imports and the need for foreign funds. in the period 2001-2008 the average rate of economic growth was 4.9%. the achieved economic growth was a consequence of the process of undergoing economic and social policy changes, institutional reforms and a favorable environment in the international capital market ( orđević and veselinović, 2010). however, serbia established a new model of growth. the new growth model was changed to pro-investment strategy and export-oriented economic growth. the new growth is based on the reform of the public sector, restructuring and infrastructure development. the main objectives of this model are correlated with the eu’s goals – reduction in unemployment rate, human capital improvement, investing in knowledge and technology, export-based growth, rational energy use and poverty reduction. accomplishing such objectives depends on – fixed investment increase, reducing the share of public consumption in the gdp, raising the share of exports in the gdp and reducing the current account deficit (jednak et al., 2013). although serbia implemented the new model of economic growth, the rise in production output was not achieved. the possible reasons could be the lack of domestic capital, fewer foreign investments in comparison with the 2000s due to the global economic crisis, a previously unstable political and business environment, insufficiently developed institutions, small domestic market or the distance from investing countries (erstin and uvalic, 2013). further on, the exports are not high enough because the most investments are made in the service sector which does not have a large share in serbian exports. during the time period 2000 – 2014, the fdi in serbia differed in volume and trend. the majority of inflows of fdi were through the privatization and acquisitions in the banking sector, while the greenfield investments were very low. merlevede and schoors (2009) analyzed the fdi inflow in 10 transition economies and found that the fdi inflow in those countries is primarily affected by the models of privatization implemented. the study demonstrated that the countries which mainly used models of internal privatization and free distribution of stock to their citizens, attracted significantly less investments than the countries whose privatization was largely based on the external model. the highest inflows of fdi were recorded at the beginning of the analyzed period and in 2006 (mostly due to fdi in the telecommunications sector), while the declines in fdi were in 2004, 2008 and 2009. the total net fdi during the entire period amounted to about €33.6 billion (2000-2014). foreign investors invested in serbia in the following sectors services sector (trade, banking, telecommunications, distribution of petroleum products, tourism) and production sector (beer, beverage, tobacco, food and metal and non-metals industry). the highest inflows of fdi came from austria, norway, germany, luxemburg, greece, the netherlands, italy, russia, slovenia and hungary. the highest foreign investments in serbia (2001-2011) are telenor (€ 1,602 eur mil), gazprom neft – nis (€ 947 mil), fiat serbia (€940 mil), delhaize (€933 mil), philip morris 26 2016/78management din (€733 mil), stada – hemofarm (€650 mil), mobilkom – vip mobile (€633 mil), agrokor (€614 mil), banca intesa (€508 mil), salford investment fund (€500 mil), eurobank efg (€500 mil), raiffeisen bank (€500 mil), mercator (€500 mil) and starbev – apatin brewery (€487 mil) (business info group, 2012). even though the inflows of foreign capital have been present in serbia, the country’s economy has not always had a good economic performance. fdis had a direct and an indirect impact on economic activities in serbia. moreover, various investments had a different time of realization and influence on the output increase. due to this fact, there is some difference between fdi and the gdp. based on this overview, the correlations between fdi and the gdp, exports, imports and unemployment will be analyzed in the following sections of the paper. 3. methodology and data this paper is based on applied methodology and research carried out in the previous period in the republic of serbia (šabić et al., 2012; jaćimović et al., 2013). a survey conducted in 2012 (šabić et al., 2012) found a high correlation between fdi inflows and gdp and between gdp inflows and exports, while the linear correlation between fdi inflows and the unemployment rate was very low for the time period of 2000 to 2010. jaćimović et al. (2013) conducted a linear regression analysis of the dependence of imports and exports of goods and services and the growth of the gdp per capita from fdi inflows. the time period taken into consideration by this research is from 1995 until the end of 2011. the inflow of fdi was the independent variable, while the dependent variables were the import and export of goods and services and the gdp per capita. this study led to several conclusions: 1) there is a strong linear correlation between these variables; 2) albania has the highest influence of fdi on the dependent variables; 3) bosnia and herzegovina has the lowest degree of correlation between variables; 4) the impact of fdi inflow on the gdp per capita is lowest in macedonia. however, the shortcoming of the research lies in the low statistical reliability of the used method. this is due to the fact that the only reliable correlation between the variables is identified in the case of albania, where we can see that €1 million of fdi inflow leads to an increase in exports of €3.56 million, the growth of imports of €5.73 million and the growth of gdp per capita by $4.3. in all other cases, r2 is lower than 0.5 which makes it impossible to analyze the remaining see countries. the authors detach themselves from the results and suggest different effects of the global economic crisis on the analyzed countries as the reason for these results. in this paper, the inward fdi performance index was calculated for the period from 2000 to 2014. subsequently, the linear correlation between fdi inflow and gdp per capita, fdi inflow and exports of goods and services, fdi inflow and imports of goods and services and fdi inflow and the unemployment rate for the same time period were analyzed. the inward fdi performance index ranks countries according to fdi inflows based on their economic strength (measured by gdp level). the index is calculated using equation 1: where fdii represents the fdi inflow for the observed country, fdiw represents the total amount of fdi in the world, gdpi represents the gdp of the country observed and gdpw the total world gdp. if the index value is higher than one, it indicates that the country attracted more fdi than it contributed to the total global production (measured by gdp) and vice versa in the case when the index is lower than one. the inward fdi performance index measures the country’s attractiveness for foreign direct investment according to its market size, while other factors are considered to be of equal importance. other factors may be various: political and economic stability, the presence of natural resources, development of infrastructure, business environment, opportunities for participation within the privatization process and similar (bandura, 2005). pearson’s coefficient of simple linear correlation will be used for measuring the degree of concurrence between: (1) fdi (x) and gdp per capita (y); (2) fdi (x) and exports of goods and services (y); (3) fdi (x) and imports of goods and services (y), and (4) fdi (x) and the unemployment rate (y) in serbia for the time pe27 management 2016/78 riod 2000-2012. the standard formula for calculating pearson‘s coefficient is used: to simplify the interpretation, the coefficient of determination r2, which represents the squared value of pearson’s coefficient, will also be used. the determination coefficient measures the degree of the variance of the two variables which is common; in other words, we examine the common part of the fdi variance and a) gdp per capita, b) exports of goods and services, c) imports of goods and services, and d) the unemployment rate in serbia for the observed period 2000-2014. the data on macroeconomic indicators are downloaded from the database of the world bank. the data were analyzed using the statistical software package ibm spss statistics 22. it was used to calculate the previously explained pearson’s coefficient of linear dependence. the inward fdi performance index for serbia for the period 2000-2014 was calculated based on the data obtained from the world bank. 4. results and discussion the inward fdi performance index for the observed period demonstrates different values by years (table 1), so it cannot be claimed that a trend in fdi inflows exists. the index has the minimum value in the first year (2000), as well as in 2001. in all the other observed years, the index exceeds the value 1, indicating that serbia attracted more fdi in relation to its economic strength in global terms, measured by the domestic gdp share in the world gdp. the highest value of the index is realized in 2003 (4.51) and 2006 (3.95). table 1: inward fdi performance index for the republic of serbia (2000-2014) based on the data, pearson’s correlation coefficient was calculated and the results are shown in table 2. table 2: correlations between fdi net inflow and gdp per capita, unemployment rate, exports of goods and services, and imports of goods and services (2000-2014) based on the obtained results, it can be concluded that there is a statistically significant correlation between fdi and imports of goods and services (r2=0.441) and fdi and gdp per capita (r2=0.440). the correlation between fdi and exports of goods and services is statistically significant at p<0.05. these results imply that there is no influence of fdi on the unemployment rate. to comprehend whether the global economic crisis had an impact on the relationship between fdi and the economic growth in the republic of serbia, the analyzed period of 2000-2014 was divided into two sub-periods: the period before the global economic crisis, from 2000 to 2007, and the period after the global economic crisis, from 2008 to 2014. 28 2016/78management year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 inward fdi performance index 0.20 0.66 1.92 4.51 2.51 2.44 3.95 2.12 2.18 3.12 1.61 3.50 1.23 1.76 2.27 fdi net inflow gdp per capita unemployment rate exports of goods and services imports of goods and services fdi net inflow pearson correlation 1 .663** .386 .519* .664** sig. (2-tailed) .007 .156 .048 .007 n 15 15 15 15 15 **. correlation is significant at the 0.01 level (2-tailed). *. correlation is significant at the 0.05 level (2-tailed). the obtained results for the first sub-period are shown in table 3. the results are considerably different from the results for the whole given period. table 3: correlations between fdi net inflow and gdp per capita, unemployment rate, exports of goods and services, and imports of goods and services (2000-2007) the correlation between fdi and the observed macroeconomic indicators is statistically significant at p<0.01. at the same time, fdi and exports of goods and services share 85.19% common variance (r2=0.852); fdi and imports of goods and services share 76,74% common variance (r2=0.767); fdi and gdp per capita share 77.62% common variance (r2=0.776) and fdi and the unemployment rate share 57% of explained common variance (r2=0.570). it is evident that in the period of 2000 to 2007, the highest linear correlation is present between fdi and exports and imports of goods and services, which may indicate that the fdi were mainly foreign-oriented. however, there is a positive correlation between fdi and the unemployment rate, which confirms that the increase in fdi inflow raises the unemployment rate. this can be explained by the fact that fdis were mainly the result of the privatization process, which implied rationalization of business operations, which in this way found a new owner. the obtained results for the sub-period of 2008 to 2012 are presented in table 4. table 4: correlations between fdi net inflow and gdp per capita, unemployment rate, exports of goods and services, and imports of goods and services (2008-2014) it is evident that there is no linear correlation between fdi and the observed macroeconomic indicators. the consequences of the economic crisis strongly affected the serbian economy. pearson’s correlation coefficient for the relationship between fdi and the gdp per capita is 0.699, while the coefficient of determination is 0.486, which indicates a weak connection between fdi and gdp per capita for the period 2008-2014. however, due to the shortcomings of pearson’s coefficient and its sensitivity to the size of the 29 management 2016/78 fdi net inflow 2000-2007 gdp per capita 2000-2007 unemployment rate 20002007 exports of goods and services 2000-2007 imports of goods and services 2000-2007 fdi net inflow 2000-2007 pearson correlation 1 .881** .755** .923** .876** sig. (2-tailed) .004 .030 .001 .004 n 8 8 8 8 8 **. correlation is significant at the 0.01 level (2-tailed). *. correlation is significant at the 0.05 level (2-tailed). fdi net inflow 2008-2014 gdp per capita 2008-2014 unemployment rate 20082014 exports of goods and services 2008-2014 imports of goods and services 2008-2014 fdi net inflow 2008-2014 pearson correlation 1 .699 -.340 -.151 .363 sig. (2-tailed) .080 .455 .746 .424 n 7 7 7 7 7 *. correlation is significant at the 0.05 level (2-tailed). sample, this relationship is not statistically significant, i.e., it cannot be confirmed with how much trust the obtained results can be accepted. there is a moderate inverse linear correlation between fdi and the unemployment rate (pearson’s coefficient equals -0.340), which confirms that there is no statistically significant correlation between these variables. the inverse correlation between fdi and the unemployment rate can be explained by the creation of new jobs through the inflow of investments by slowing down the privatization process in the period 2008 to 2014. references [1] alguacil, m., cuadros, a., & orts, v. (2011). inward fdi and growth: the role of macroeconomic and institutional environment. journal of policy modeling, 33(3), 481-496. doi:10.1016/j.jpolmod.2010.12. 004 [2] bandura, r. (2005). measuring country performance and state behavior: a survey of composite indices. new york: office of development studies, united nations development programme (undp). [3] begović, b., bisić, m., đilas, m., živković, b., matković, g. (2005). četiri godine tranzicije u srbiji, beograd: centar za liberalno-demokratske studije. [4] borensztein, e., de gregorio, j., & lee, j. w. (1998). how does foreign direct investment affect economic growth?. journal of international economics, 45(1), 115-135. doi:10.1016/s0022-1996(97)00033-0 [5] business info group (2012). foreign direct investments in serbia 2001-2011. available at http://www.big.co.rs/ 30 2016/78management conclusion for the developing countries, the transition economies and the countries which carry out economic reforms, foreign direct investments are the key factor for achieving better economic performances. those countries have a lack of domestic capital. thus, their model of economic growth is based on the foreign capital. however, some of the countries could not obtain output increase. this paper analyzes the serbian economy and the impact of fdi inflow on the economic performances gdp, exports, imports and unemployment rate for the period 2000-2014. the results show that in the analyzed period 2000-2014, there was a statistically weak correlation between fdi and macroeconomic indicators (gdp per capita, exports of goods and services, imports of goods and services). there is no effect of fdi inflow on the unemployment rate. in order to comprehend the effects of the economic crisis, the analysis was divided into two sub-periods: the period before the economic crisis, from 2000 to 2007 and the period after the financial crisis, from 2008 to 2014. in the first sub-period, the results show that there is a strong linear connection between fdi inflows and the observed macroeconomic indicators. the most important is the relationship between fdi inflows and the exports of goods and services. however, there is a strong and statistically significant linear correlation between fdi inflows and the imports of goods and services. those results do not speak in favor of reducing the constant balance of trade deficit. there is also a high correlation between fdi and the unemployment rate, which is primarily the consequence of the fact that fdi was attracted through the privatization process, which included restructuring and downsizing in order to increase efficiency as well as a small number of greenfield investments. the second sub-period was characterized by the absence of correlation between fdi inflows and all the observed macroeconomic indicators. the results for the period 2008-2014 can be explained by the effects of the global crisis on the serbian economy and the deterioration of all macroeconomic indicators in the given period. similar results for this period were obtained for the other see countries. the period 2008-2014 is characterized by the absence of linear correlation between fdi and economic growth in all analyzed countries except for croatia. a significant positive effect of fdi has been accomplished only in romania and bulgaria regarding the reduction of unemployment rate, while positive effects have been sublimated in the growth of the gdp per capita in croatia (kragulj and parežanin, 2015). impacts of economic crisis significantly disturbed the flows of capital in the analyzed countries and reduced their influence on economic growth. given the fact that serbia is one of the last european countries to enter the transition process, it has the advantage of the experiences of other countries at its disposal in terms of fdi inflow. [6] campos, n. f. and kinoshita, y., (2002). foreign direct investment as technology transferred: some panel evidence from the transition economies, centre for economic policy research, discussion paper no.3417. doi: 10.1111/1467-9957.00309 [7] development report of serbia 2010, (2011). ministry of finance and economy. available at http://mfp.gov.rs/userfiles/file/dokumenti/izvestaj%20o%20razvoju %20srbije%202010.pdf [8] đorđević, m., & veselinović, p. (2010). razvojne karakteristike srpske ekonomije u periodu tranzicije. škola biznisa, 21-30, visa poslovna skola novi sad. [9] doytch, n., & uctum, m. (2011). does the worldwide shift of fdi from manufacturing to services accelerate economic growth? a gmm estimation study. journal of international money and finance, 30(3), 410-427. doi:10.1016/j.jimonfin.2011.01.00 [10] elteto a., sass m., (1998). motivations and behaviour by hungary’s foreign investors in relation to exports. wp no. 88, institute for world economics of the hungarian academy of sciences, budapest. [11] estrin, s. and uvalic, m. (2013). foreign direct investment into transition economies: are the balkans different? lse europe in question discussion paper series, leqa paper no. 64/2013. http://dx.doi.org/10.2139/ssrn.2293100 [12] giroud, a., jindra, b., & marek, p. (2012). heterogeneous fdi in transition economies–a novel approach to assess the developmental impact of backward linkages. world development, 40(11), 2206-2220. doi:10.1016/j.worlddev.2012.03.018 [13] hermes, n., & lensink, r. (2003). foreign direct investment, financial development and economic growth. the journal of development studies, 40(1), 142-163. doi: 10.1080/00220380412331293707 [14] jaćimović, d., bjelić, p., & marković, i. (2013). uticaj svetske ekonomske krize na međunarodne investicione i trgovinske tokove u regionu zapadnog balkana. economic themes, 51(1). [15] jednak s., makajic nikolic d., kragulj d., vujosevic m., (2012). structure and performances of the sectors in serbian economic development. balcor 2013, xi balkan conference on operational research, conference proceedings,12-21. [16] jednak, s., & kragulj, d. (2015). achieving sustainable development and knowledge-based economy in serbia. management, 75, 1-12, doi:10.7595/management.fon. 2015.0015 [17] kragulj, d. (2003). ekonomska kretanja i strane direktne investicije u zemljama u tranziciji. management 32, 19-27. [18] kragulj, d., & parezanin, m. (2015). foreign direct investment and economic growth in times of economic crisis: evidence from southeast european countries. european scientific journal, october (1), 221-231. [19] makki, s. s., & somwaru, a. (2004). impact of foreign direct investment and trade on economic growth: evidence from developing countries. american journal of agricultural economics, 86(3), 795-801. doi: 10.1111/j.0002-9092.2004.00627.x [20] merlevede, b., & schoors, k. (2009). privatisation and foreign direct investment in 10 transition countries. post-communist economies, 21(2), 143-156. doi:10.1080/146313 70902778450 [21] šabić, d., vujadinović, s., milinčić, m., golić, r., stojković, s., joksimović, m., filipović, d., šećerov, v., & dimitrijević, d. (2012). the impact of fdi on the transitional economy in serbia–changes and challenges. acta polytechnica hungarica, 9(3), 65-84. [22] stanisic, n. (2008). do foreign direct investments increase the economic growth of southeastern european transition economies. mpra paper no. 8875, south/eastern europe journal of economics 1, 29-38. [23] world bank (2014). world bank indicators. retrieved from http://data.worldbank.org/ receieved: january 2016. accepted: march 2016. 31 management 2016/78 32 2016/78management about the author miloš parežanin university of belgrade,faculty of organizational sciences, serbia milos.parezanin@fon.bg.ac.rs miloš parežanin is employed at the faculty of organizational sciences, university of belgrade, serbia, as a teaching assistant for the scientific areas of business economics and macroeconomics he graduated from the faculty of economics, university of belgrade in 2009. currently he is a ph.d. candidate at the same faculty. miloš parežanin has participated in several scientific national and international conferences. his research interests include foreign direct investment, energy economics, competitiveness of the economy, european integration, economic development. sandra jednak university of belgrade, faculty of organizational sciences, serbia sjednak@fon.bg.ac.rs sandra jednak is employed at the faculty of organizational sciences, university of belgrade as an assistant professor. she has published numerous scientific research papers in international and national monographs, journals and conference proceedings. her teaching areas are introduction to economics, macroeconomics, microeconomics, economic development and the eu. her research focus is on the economic growth and development of see countries. besides, her research interests are economics of ict, knowledge (based) economy, energy economics, international economics and higher education. dragana kragulj university of belgrade, faculty of organizational sciences, serbia kragulj@fon.bg.ac.rs dragana kragulj, ph.d., is a full professor at the faculty of organizational sciences, university of belgrade. she was a chair of the department of economics, business planning and international management. she has published several editions of different textbooks on economics, two monographs of her own and over 100 scientific papers published in reputable national and international journals and conferences. she has been involved in several research projects. in addition to her teaching, she is occupied with research of macroeconomic problems, prices, market, inflation, economic development, investment, international trade, agriculture, energy economics, process of transition, international economic integrations, the european union. devedzic:tipska.qxd 1 vladan devedžić* university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming quo vadis, ai? doi: 10.7595/management.fon.2021.0001 abstract: 1. introduction it is very difficult, if not impossible, to define artificial intelligence (ai). the field is huge, it also overlaps with other fields and uses approaches and techniques from other fields. ai focuses on mimicking parts of intelligent human behaviour in machines, and human intelligence itself is extremely difficult to define – it is simply much too complex to allow for capturing in a single definition. as r.j. sternberg (1987) has put it, “viewed narrowly, there seems to be almost as many definitions of intelligence as there are experts asked to define it”. all the aspects of human intelligence – thinking, reasoning, abstracting, generalizing, planning, and many more – are also extremely complex; there is currently no scientific understanding of the nature of these processes. for the purpose of further discussion, a characterization of intelligence offered by henrik h. lund from the university of southern denmark is adopted here: intelligence is human “capability of creating a variety of behaviours, while complying with the givens of the system/environment.”2 in an attempt to understand the current state-of-the-art in ai at the time of writing this article, the article briefly presents several examples of systems labelled ai and puts the current ai hype in the context of gartner hype cycle curves for ai over the recent years. there is also a discussion on what businesses and managers should bear in mind when talking about ai and making decisions accordingly. the author's reflections on recent developments in ai follow, mentioning several important aspects that usually do not get much attention, converging into a set of indications of possible answers to the question put in the title of the article. 1 corresponding author: vladan devedžić, e-mail: devedzic@fon.rs 2 copied from one of h.h. lund's slides during his presentation that the author has attended long ago. research question: this article reflects on currently popular topics and future development and application of ai. motivation: ai has become a key technology in many areas – from business and services, to science engineering and engineering, natural language processing and news, publishing and writing, human resource management and education, medicine and healthcare, transportation and aviation, government, military and agriculture. idea: as the field advances and expands at an unprecedented pace, it becomes more and more difficult to distinguish between ai and other fields. data: the article is based on a qualitative analysis of relevant literature and direct insights into the field of ai during the last 35 years. tools: the article uses direct observation and content analysis to derive conclusions. findings: just like any other technology, ai has both its bright and its dark sides. there is a number of expectations, hopes and promises of ai that still remain to be fulfilled, yet new avenues for further development open day after day. contribution: the article attempts to put ai developments in different contexts and shed different lights on ai applications in general, ai applications in business, in particular, and current limitations, trends and challenges in the field. keywords: artificial intelligence, machine learning, neural networks, business, applications. jel classification: d80, l63, l86 2. examples of ai one of the best-known examples of ai is that of personal assistants, such as amazon alexa (amazon alexa, 2020) and google assistant (google assistant, 2020). these devices provide intelligent personal assistance, in terms of helping human users find the information they are looking for, add/retrieve events to/from their calendars, or giving directions when the users ask for them. the communication between the users and such devices is conducted in (a limited form of) the natural language. self-driving vehicles, such as those manufactured by the tesla company (tesla, 2020), collect relevant information from the environment and are capable of taking passengers and goods around without being driven by human drivers. when consumers want to watch a movie on netflix (https://www.netflix.com/), netflix uses its predictive, aibased technology (kaplan & haenlein 2019; aggarwal, goswami, hooda, chakravarty & kar 2020) to analyze the user’s previous choices and recommend other films to watch. similarly, amazon (https://www.amazon.com/) predicts what the users are interested to purchase (zhang & pennacchiotti, 2013; zeng, cao, chen & li 2019) based on their online behaviours. email services such as gmail (https://mail.google.com/) successfully filter spam (dada, bassi, chiroma, adetunmbi & ajibuwa, 2019) and suggest the users how to create replies to messages, pointing to which emails they have not replied to or have ignored. navigating with google maps (https://www.google.com/maps/) is easy, since google maps intelligently calculates the route (hu, wu, cho, & tseng 2020) taking into account the traffic conditions and road construction in order to recommend a faster route. automated image analysis (kazeminia et al., 2020) and object detection/recognition (liu et al., 2019) have become popular as well, and there are more and more services that the users can read their images into and the services will recognize the scene, parts of the scene and details on the images. likewise, speech-to-text services (myers, 2020) enable voice-based input of search queries when using search engines, as spoken input gets automatically converted to text (the search string). applications and services that are called ai today are typically based on training the system with large volumes of data in order to build a model that then accurately classifies input and predicts output when presented with new data from the same category. the accuracy is never 100%, however,it has already got impressive. at the time of writing this article (sept. 2020), the technology that enables many of these applications is deep learning (goodfellow, bengio, & courville, 2016). it uses neural networks with complex topography in order to successfully recognize different features of sound, images and other forms of input data and integrate them into accurate higher-level descriptions that allow the network to produce correct output (such as classification, prediction, and the like). deep learning is a subset of machine learning, a very important part of what is today called ai. 3. gartner hype cycle for ai the well-known gartner hype cycle curve, figure 1, provides a view of how a certain technology or application will evolve over time. gartner inc. publishes such curves each year, for different technologies, based on their complex methodology of analyzing technological trends. 2 vladan devedžić forthcoming figure 1: gartner hype cycle curve, general (source: https://commons.wikimedia.org/wiki/file:hypecycle-general.png, marked for reuse under creative commons license) the leftmost section of the curve (technology trigger) typically starts with some interesting research findings that investors, start-ups and venture capitalists see as promising in terms of generating some profit if the findings are built into products. this is followed by media promotion and advertising, and, if it generates enough attention among the general public, it can create expectations that are often not quite realistic (the peak of inflated expectations section). failing to fulfill these expectations, the technology/product(s) gradually slide into the trough of disillusionment, where the general press is not interested in promoting it further. still, some adopters and some investors remain interested, which is the enabler for the secondgeneration products that make the curve rise again, though at a slower pace and with more cautious expectations (slope of enlightenment). as more experience with the new products is gained and best practices are gradually developed, the curve reaches the plateau of productivity, with larger adoption (but still lower than it has been expected at the peak of the hype). if one follows gartner hype cycle curves for ai in recent years (hint: google search for “gartner hype cycle ai”, and see google images for the results), some trends emerge there: • deep learning is at the peak of inflated expectations for at least three years; it has started to slightly decline in 2020, but it is still there; • traditional machine learning is declining, as it was predicted (liu 2018) and is now sliding into the trough of disillusionment; • even natural language processing (nlp), in spite of the recent breakthroughs, seems to be slightly declining; • artificial general intelligence (agi) (rohrer, 2011) is on the rise; it has been there for quite some time, but the 2020 trend shows some ascension; agi refers to the endeavours of developing intelligent machines capable of performing intelligent tasks at the human level, rather than focusing on narrow aspects of intelligence without understanding the real nature of intelligence; • ai cloud services, or ai paas (platform as a service) has been on the rise for a number of recent years, and has entered the peak of popularity in 2020; ai paas is about putting a number of ai services (such as deep learning and natural language translation) in the cloud, making them run on powerful hardware that speeds up the training processes, and enabling end-users to access them through the internet; • edge ai – delegating ai processing to peripheral (edge) devices, rather than centralizing them on cloud services – is also getting popular; 3 management: journal of sustainable business and management solutions in emerging economies forthcoming • small data (olson, wyner & berk 2018) movement is on the rise – instead of using massive data volumes to train machine learning (typically deep learning) models, how about learning from just a handful of data, as humans typically do? 4. ai, business and managers managers and businesses should be aware of some important facts when it comes to ai today: • the ai hype is evident everywhere; it’s undeniable; • still, it is not clear whether ai can live up to the hype – there have always been promises coming from ai researchers, early adopters of ai technology and general press, many of which have failed to deliver; • what is often labeled ‘ai’ today is essentially not much more than brilliantly applied statistics; no true intelligence or true learning in the human-like sense is evident in today’s ai applications; in other words, no agi exists today; • one of the reasons why many deny any intelligence in ai systems is that they are still human-driven, and not autonomous; likewise, there is a lot of (human-generated) bias in ai systems as they are designed by humans who are inherently biased; • yet, when surveyed for their opinion on whether ai can replace managers in companies or not (schawbel, 2019), many respondents in different countries provided an affirmative answer; they only believed that ai was still inferior to humans when it comes to soft-skill management – showing empathy, coaching, promoting work culture and the like – for most other typical managerial roles, like financial and human resource management, the respondents believed that ai-powered robots can do better than humans; • ai has become an important marketing term – in many businesses and services it has become for companies “a matter of survival” on the market to advertise themselves as ai companies, or at least as companies that use ai in their business; however, a 2019 survey conducted by a uk-based investment firm has shown that about 40% of europe’s “ai companies” do not use ai in any way essential to their business (knight, 2019); • when hiring ai specialists to work for a company today, it is essential to realize that the set of skills needed includes a lot of database analysis and administration, a good command of sql, experience in programming, and a thorough understanding of data security; it is estimated that these activities consume 90% of ai specialists at workplaces, whereas for only 10% of their time they work on building and evaluating ai models; • model democratization (rao, 2020) is an important factor to take into account – with the rise of ai paas, such as automl from google, everyone can build and evaluate their models online, running cloud-based services that perform great (compared to human analysts) and companies do not have to care about providing and maintaining expensive hardware for model building and running. akter, michael, uddin, mccarthy & rahman (2020) give an overview of digital business transformation with ai. still, much of their overview can be subsumed by the third bullet point from above. in their own words: "ai can only work through learning from a vast amount of existing data. for example, airbus used their ai system to examine a production problem, calculate a vast amount of data, … the first step is to use big data, the second is to apply analytics, and the third is prediction". similarly, marr (2019) lists examples of how industry giants from usa and china use ai in their businesses. his text reads, e.g.: "artificial intelligence (ai) is integral in alibaba’s daily operations and is used to predict what customers might want to buy… [amazon] they collect a lot of data about each person’s buying habits and have such confidence in how the data they collect help them recommend items to their customers and now predict what they need even before they need it by using predictive analytics… tencent acquires huge amounts of information and insights about its customers that it processes and leverages to the company’s advantage…". and so on. now, go back to the last sentence of the previous paragraph and read the highlighted part; do you see a common pattern here? and then faggella (2020) quotes an example from general electric ("… take vast amounts of information recorded over time to develop its forecasts") and other companies. digitalsilk (2020) covers even more examples, the one from coca cola being typical ("… big data gives the intelligence to cap social media, mobile applications cloud computing and ecommerce off – giving companies like coca cola a toolset the way they approach it and business… this was backed by the more recent statement by coca cola global 4 vladan devedžić forthcoming director of digital innovation, greg chambers, that confessed 'ai is the foundation for everything we do', as they 'create intelligent experiences.' "). see again the third and the sixth bullet point from above and the things become crystal clear. 5. memories, dreams, reflections3 this section is inspired by the author's ~35-year r&d experience in the field of ai, as well as by the concerns about further developments in ai that model democratization might bring, as expressed in (rao, 2020). the author has started his study of ai at pre-internet times, when ai was understood much as the science and engineering of developing intelligent systems that, true, did focus on narrow aspects of intelligent behaviour as they do today, but also were always rooted in the understanding of intelligent behaviour as a very complex one, in the sense expressed by henrik lund (see the introduction section). moreover, the author remembers previous ai hypes, but also ai winters – periods in the history of the field characterized by the lack of funding and considerable decrease in interest in ai by both investors/industry and academia. the author is also perfectly aware of two phenomena that often shadow the results and achievements in developing intelligent systems. one of them is called ai effect (haenlein and kaplan, 2019). it refers to reactions to any kind of ai technology once it becomes widely understood and built into commercial products – that is the moment when an ai finding/result that has initially generated a lot of attention stops being that alluring and becomes an ordinary and massively used product that people take for granted. moreover, at that moment, this result typically also loses its 'ai' label and becomes 'just technology'. for example, long ago expert systems were developing under the ai umbrella, and then they each have become a technology per se. they have even almost lost their original names – now people more often refer to them as rule-based systems. the same goes for chatbots – nobody calls them ai chatbots anymore; they are just chatbots. the other phenomenon is called the frame problem (mccarthy and hayes, 1969; dennett, 1984). put simply, the frame problem means that it is very difficult, if not impossible, to specify all possible knowledge that characterizes the environment in which an ai system works. typically, the environment changes in response to the system's actions, and practical ai systems are designed with limited sets of beliefs of what can be changed in the environment in response to their actions. also, all actions that the system takes are specified by what exactly they do change when they happen and assuming that everything else in the environment will remain unchanged. however, the problem is how to create a manageable default set of rational and plausible assumptions of what does not change in the environment; it is tightly coupled with commonsense knowledge, which is inherently difficult to model and represent in practical ai systems. referring again to figure 1, there were several periods in the development of ai when a technological trigger was followed by hype and inflated expectations. technological triggers also trigger imagination, and if media join the game then many people start dreaming about things that are simply not possible. dreamers often forget that: • agi still does not exist; • the current understanding of the phenomenon of intelligence is still far from being sufficient to develop human-level ai systems; • human-level ai systems should be based on important principles of human intelligence that enable that variety of behaviors that lund points to; • unfortunately, these important principles and the very nature of intelligence is still unknown. some developments are not possible due to the limitations of current technology. in other cases, they are not possible because of the frame problem. as a result, even nowadays all ai developments result in very narrowly focused practical systems that definitely lack a variety of behaviours and, due to ai effect, few people would call them intelligent (although the 'ai' label is still attached to these developments). it is also an open question whether a large variety of behaviours is possible without the autonomy of ai systems, in terms of adapting to the environment themselves without human intervention. self-driving cars are a good example of partial autonomy, but they are not built on true, human-level intelligence. 5 management: journal of sustainable business and management solutions in emerging economies forthcoming 3 the title of this section is borrowed from the title of the autobiography of c.g. jung, published in 1961. however, the author was tempted to entitle this section is there any ai out there? in business, it is important to be aware of such facts. consulting firms often try to scare businesses and their ceos with stories about how costly it can be to miss the current ai wave; this is how they get their profit. but investing in what is called ai can be even more costly. what is called ai nowadays requires a lot of knowledge of math and statistics, and powerful and expensive hardware is often required for the purpose of training ai models. with ai paas, things seem to be much more affordable, but… here's a quote from (rao, 2020): "when company leaders talk about democratizing artificial intelligence (ai), it is easy to imagine what they have in mind. the more people with access to the raw materials of the knowledge, tools, and data required to build an ai system, the more innovations are bound to emerge. efficiency improves and engagement increases. faced with a shortage of technical talent microsoft, amazon, and google have all released premade drag-and-drop or no-code ai tools that allow people to integrate ai into applications without needing to know how to build machine learning (ml) models." however, this is exactly where problems can start. as rao (2020) carefully notices: "bias can lead to dangerous consequences, and they can become evident only after the product has been released… the key for company leaders is to avoid getting carried away by the hype." this can be interpreted as the fact that bias can lead to malicious developments and abuse of democratized models. it can also lead to a misuse of paas, as well as to overselling of possibly poor-quality paas. it is also important for company leaders to understand the fact that much of what is nowadays sold as ai is actually applied statistics and a lot of curve fitting. it is a good idea for them to take a glance at two famous memes45 that illustrate this point. ai has become so much overhyped and the label 'ai' so much oversold that everything is now called 'ai'. then, it is also good to pause and think: is intelligence just model building and curve fitting? true, the business world today is simply obsessed with data. more data, more data, more data … why? to better fit the curves and call that ai? what is wrong with calling it statistics? (except that maybe ai is a more catchy word?) the famous slogan that data is the fuel of modern economy is probably true today, but there is a question with no consensual answer yet: is curve fitting by building models with more and more data sufficient to call it machine learning (or, even more generally, ai)? this brings up several other important questions. what does learning have to do with it? do, for example, new employees in a company have to see millions of company's reports in order to figure out (build model, learn) how to write such reports? after all, do children learn what cats are by being shown millions of cats? is 'machine learning' a misnomer for an actually great application of statistics to nowadays extremely important part of business – data analytics? rao (2020) further warns: "yet as we curate data, algorithms, and models … the risk of misinterpreting them and applying them in the wrong context increases significantly. the danger of systemic misuse of models will rise… but who is accessing these (democratized) tools and models? have those users been appropriately trained – not just in the tool, but also in the underlying concepts? … business users are typically casual users; they have received extensive training neither in the statistical and mathematical concepts underlying the models nor in the specific processes required to build models." to illustrate how important this extensive training can be, note that neural networks (including deep ones) are very easy to fool – su et al. have shown (2019) that changing only one pixel in the input image can make the network classify the image in a completely wrong way. moreover, training deep learning models is an extremely complex process and it is practically impossible to know what exactly is happening inside the network during training. as a consequence, showing the network an image of an object that it is trained to recognize (say, a monkey) but on an unusual background, can also lead to an erroneous classification (say, the monkey can be classified as a human (yuille and liu, 2019)). 6 vladan devedžić forthcoming 4 https://devrant.com/rants/1494050/machine-learning 5 https://shorturl.at/mlruy this is to say that only thoroughly trained people should take responsibility in developing and deploying systems that we usually label ai – those who do understand that, for example, a single drop of rain on the camera of a combat drone can change not one, but several pixels of its input image, resulting in a wrong selection of the target to release the payload to. unfortunately, casual users of the so-called ai technology very often do not understand such potential dangers. it is not unusual to hear suggestions like "put some ai in there…" in designing a software product or app, as if it was "move that image on the screen 2cm to the left". under the surface, this indicates a serious lack of not only training, but also understanding of what true ai means (or at least what it should be about) beyond using it as a marketing term. in reality, this lack of understanding spans much further than just casual users in companies. even the most prominent researchers in ai, in neurosciences, in psychology, and in all other disciplines, still do not have a good understanding of the very nature of intelligence. this is why all of the models in any subdiscipline of ai and in any ai technology are built only on some creative, but unverified assumptions about intelligence. to illustrate this point, note that a great success in studying how the brain of an insect works (an insect, not a human!) has been achieved in 2018, when researchers have successfully used electron microscopy to map synaptic connectivity in the brain of fruit flies (drosophila melanogaster) in an unbiased way (zheng et al., 2018). however, it is still far away from understanding how the brain of that insect works, let alone being able to synthesize that brain – such an achievement is not even at sight. and now compare the brain of a fruit fly – the size of a poppy seed – to the human brain. is jeff bezos right when he calls today's human-powered pseudo-ai “aai” – artificial artificial intelligence (schwrartz, 2019)? 7 management: journal of sustainable business and management solutions in emerging economies forthcoming so, quo vadis, ai? it is very hard to say. on the one hand, the hype is still on and it is a fact that no previous ai hype has lived this long (it is since more than a decade that the last ai hype has started). one has to admit that the results achieved during this last period of ai development have been more impressive than ever before (see section 2). many ai systems are now trained on large volumes of data, and today data are available in tons – in companies, in government institutions, all over the internet. advances in hardware development have contributed to the acceleration of processing these large volumes of data. on the other hand, critics say that no ai system today is capable of exhibiting true, human-like intelligence and that what most people label ‘ai’ is actually just technology that is powerful and impressive, but not smart. thus, many predict that the ai bubble will burst soon and that the ai community might even experience another ai winter – cease of funding for ai research and development, due to the disillusionment and disappointment in technology that has been promising much, but eventually fails to deliver. as guidelines in trying to decide where ai is heading today and how to drive business decisions to this end, it might be helpful to: • watch for trends; gartner hype cycle curves for ai are a good source of information for businesses and managers, but keeping an eye on well-reputed ai community websites like ai topics (https://aitopics.org/search), figure 2, is probably even better for spotting emerging trends early: conclusion 8 vladan devedžić forthcoming m ac hi ne le ar ni ng r ep re se nt at io n & r ea so ni ng r ob ot s n at ur al la ng ua ge v is io n is su es c og ni tiv e s ci en ce g am es s pe ec h t he f ut ur e s ci en ce f ic tio n h is to ry s ys te m s & la ng ua ge s a ss is tiv e te ch no lo gi es c ha lle ng es h um an -c en te re d c om pu tin g 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 figure 2: current ai trends (source: ai topics, sep 2020, https://aitopics.org/explore/classifications?filters=taxnodes:technology%7cinformation%20technology%7cartificial%20 intelligence&from-taxnode=technology%7cinformation%20technology%7cartificial%20intelligence) • remember the context; figure 3 shows a non-exhaustive list of traditional ai topics, almost always discussed in books on ai – according to many, all these topics constitute ai as a field, not only a handful of those exposed on the ai topics website (figure 2); • bear in mind that, although it is not clear from figures 2 and 3, human intelligence (capabilities like search, knowledge representation, reasoning, problem solving etc.) is largely based on heuristics, which current ai systems largely lack; references [1] aggarwal, s., goswami, d., hooda, m., chakravarty, a., & kar, a. 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(2019). siri, siri, in my hand: who’s the fairest in the land? on the interpretations, illustrations, and implications of artificial intelligence. business horizons, 62(1), 15-25. 9 management: journal of sustainable business and management solutions in emerging economies forthcoming figure 3: topics studied in ai since its early days • be aware of the (sad?) fact that the term 'ai' is often abused; in his famous tweet, quincy larson mockingly notes (https://twitter.com/ossia/status/1097804721295773696?lang=en): when you're fundraising, it's ai. when you're hiring, it's ml. when you're implementing, it's logistic regression. acknowledgments parts of this paper have been presented as invited lecture at the xvii international symposium symorg 2020 –“business and artificial intelligence”. the paper has been recommended for further extension and review in the management: journal of sustainable business and management solutions in emerging economies. 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(2019). limitations of deep learning for vision, and how we might fix them”, the gradient, 2019. accessed: aug. 12, 2020. retrieved from https://thegradient.pub/the-limitations-ofvisual-deep-learning-and-how-we-might-fix-them/ [29] zeng, m., cao, h., chen, m., & li, y. (2019). user behaviour modeling, recommendations, and purchase prediction during shopping festivals. electronic markets, 29(2), 263-274. [30] zhang, y., & pennacchiotti, m. (2013, may). predicting purchase behaviors from social media. in proceedings of the 22nd international conference on world wide web (pp. 1521-1532). [31] zheng, z., lauritzen, j. s., perlman, e., robinson, c. g., nichols, m., milkie, d., ... & calle-schuler, s. a. (2018). a complete electron microscopy volume of the brain of adult drosophila melanogaster. cell, 174(3), 730-743.z. zheng et al. (2018). a complete electron microscopy volume of the brain of adult drosophila melanogaster. cell, vol. 174, no. 3, pp. 730-743. retrieved from https://www.cell.com/action/showpdf?pii=s0092-8674%2818%2930787-6 received: 2020-11-12 revisions requested: 2020-12-17 revised: 2020-12-28 accepted: 2020-12-28 10 vladan devedžić forthcoming 11 management: journal of sustainable business and management solutions in emerging economies forthcoming about the author vladan devedžić university of belgrade, faculty of organizational sciences, serbia devedzic@fon.rs vladan b. devedzic, phd, is a professor of software engineering at fos – faculty of organizational sciences, university of belgrade, serbia. he also used to teach several computer science courses at the school of electrical engineering, university of belgrade, as well as at the military academy of serbia (ex yugoslav military academy). his long-term professional objective is to bring close together ideas from the broad fields of intelligent systems and software engineering. his current professional and research interests include software engineering, programming education, intelligent software systems and technology-enhanced learning (tel). he is the founder and the chair of the good old ai research network. further details about his work and research can be found at http://devedzic.fon.bg.ac.rs/ << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice nedeljkovic:tipska.qxd 1 milena nedeljković knežević1, slađana nedeljković2, maja mijatov1*, jelena vukonjanski srdić3 1university of novi sad, faculty of sciences, serbia 2 eps, rb kolubara, serbia 3 university educons, project management college, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming moderator effects of the employees’ gender on the correlation between facets of job satisfaction and personality dimensions doi: 10.7595/management.fon.2020.0003 abstract: 1. introduction nowadays, the main source of competitive advantage in business is related to skills and knowledge of the employees. in addition, the employees’ job satisfaction is often considered in the literature as a significant predictor of organizational business performance (chi & gursoy, 2009; de leaniz & rodríguez, 2015). studies on the employees’ job satisfaction or their work motivation are typically based on a variety of sociological and psychological constructs (arthaud-day, rode, & turnley, 2012; lopez, babin, & chung, 2009). one of the widely used psychological theories within the job satisfaction studies is the big five theory, oriented towards the five dimensions of personality: extraversion, neuroticism, conscientiousness, agreeableness and openness to new experiences (howard, medina, & howard, 1996). numerous researchers focused their efforts on researching correlation between job satisfaction and the aforementioned employees’ personality dimensions (judge & zapata, 2015; berglund, johansson seva, & strandh, 2016; hahn, gottschling, könig, & spinath, 2016). it is also important to note that previous studies examined the influence of different fac* corresponding author: maja mijatov, e-mail: majam@dgt.uns.ac.rs research question: the research is oriented towards determining the moderator effects of the employees’ gender (structure) on the correlation between other research constructs, i.e., personality dimensions and job satisfaction. motivation: previous research on the influence of employees’ personality dimensions and gender as potential predictors of job satisfaction was also conducted in serbia. however, no studies could be found in the literature focusing on identifying the moderating effect of the employees’ gender on correlation between job satisfaction and personality dimensions. the results would be of practical importance and applicable in human resource management practice in different organizations, particularly in transitional societies. idea: the main subject of this research is oriented towards the employees’ dimensions of personality, according to the big five personality dimensions, on the one hand, and job satisfaction, on the other. the research was conducted within the conditions of transition, i.e., in the organization that will be under the organizational changes (such as privatization) in the following period. as transition may produce uncertainty of the job positions for the employees (especially within the large public-owned monopolistic enterprises), it could be considered that organizational changes, such as privatization, could affect job dissatisfaction to a significant extent. data and tools: the survey research was conducted within the large public-owned monopolistic enterprises in serbia on the sample of 116 employees. findings: the research results pointed out that the employees’ gender significantly shaped the correlation between all of the personality dimensions, on the one hand, and different facets of job satisfaction, on the other. namely, in case of male employees, statistical significance was shown between extraversion and pay, extraversion and operating conditions, conscientiousness and pay, conscientiousness and rewards, neuroticism and benefits. in case of female employees, the statistical significance was shown between agreeableness and benefits, conscientiousness and benefits and finally between neuroticism and supervision. contribution: the obtained results may have practical implications in the form of providing the database for further improvement of the human resource management within the transitional economies, such as serbian. keywords: job satisfaction, personality dimensions, big five theory, gender structure, transitional economy jel classification: d79, d91, j53, j8, m12, m54, z32, z39. tors that might influence job satisfaction, including job insecurity (hsieh & huang, 2017), status goal attainment (harari, thompson, & viswesvaran, 2018), organizational climate (otken & cenkci, 2015), leadership style (yeh et al., 2016), but also socio-demographic characteristics, such as employees’ gender (al-ajmi, 2006; mora & ferrer-i-carbonell, 2009). previous research on the influence of employees’ personality dimensions and gender as potential predictors of job satisfaction (matanovic, 2009) was also conducted in serbia. however, no studies could be found in the literature focusing on identifying the moderating effect of the employees’ gender on correlation between job satisfaction and personality dimensions. the research was conducted in the largest company in serbia, the public energy company elektroprivreda srbije (eps), within its branch “mb kolubara”. eps is the power backbone of serbia, supplying electricity for about 3.5 million customers and, according to the company profile for 2018, its revenue contributing with about 9 % to the serbian total budget revenue (eps 2018). the “kolubara” mine basin employs about 12000 workers and produces about 30 million tons of coal each year, providing for the generation of about 50 % of electricity in eps. even though eps is a public company, we consider conditions of transition (janicijevic, 2017) for this organization, as the serbian government considers, as conveyed to international monetary fund through the letter of intent, its transformation from a public into a joint-stock company, which could be also perceived by employees as a step toward possible future privatization. as transition may produce uncertainty of job positions for the employees (especially within the large public-owned monopolistic enterprises), organizational changes, such as privatization, can be presumed to cause significant job dissatisfaction (atari, barbaro, sela, shackelford, & chegeni, 2017; sun, kaufman, & smillie, 2018). the main subjects of this research are dimensions of the employees’ personality and their job satisfaction. the main task of the research is to determine their correlation, considering their gender structure, with the aim of providing a database that would enable the improvement of human resource management within the country in transition, such as serbia. 2. literature review 2.1. job satisfaction the job satisfaction definition that is widely used in the literature indicates that this construct is related to a pleasant and positive emotional state, arising from the evaluation of the job or overall work experience (locke, 1976). the research conducted by cronin, brady and hult (2000) showed that job satisfaction is a key variable that might affect the employees’ intentions and their attitudes, which is the main reason why their job satisfaction is often researched within the organizational behaviour (burke, graham, & smith, 2005). some of the following are the most frequently mentioned facets of the job satisfaction: pay, promotion, supervision, benefits, rewards, operating conditions, correlation with co-workers, nature of work and communication (spector, 1997), which will also be researched into for the purpose of this paper. numerous studies pointed out that employees who are satisfied with their job usually show a higher quality of business performance and they usually have a higher level of trust in the business environment of the organization (pantouvakis & bouranta, 2013; hur, moon, & jung, 2015). one of the most prominent researchers in the field of job satisfaction, paul spector (1997), highlighted the three main reasons that might determine the importance of the employees’ job satisfaction and factors that could contribute to its increase. the first reason reflects a rise of the awareness that employees must be respected as individuals, with specific personality traits, that could contribute to the general success of the company. the second reason is that the evaluation of the employees’ job satisfaction also serves as an indicator for the degree of employees’ work effectiveness. the third reason is that the organization takes the importance of the employees’ job satisfaction into consideration because it has a positive effect on the fulfilment of organizational goals, and it is manifested through the positive attitude of the employees’ towards the realization of these goals, in case of a high level of job satisfaction, while in case of the employees’ job dissatisfaction, it could cause their negative attitude (spector, 1997). 2.2. personality dimensions during the last two decades, there has been an increased interest among the researchers in determining the correlations between the employees’ personality, job satisfaction and general work motivation, mainly on the basis that values at both individual and organizational levels have always been perceived as a guide for specific action (janicijevic, 2017). there are numerous definitions of the concept of personality in the literature. one of the most cited definitions is established by eysenck (1967), who considered a personality as a more or less stable organization of the character, temperament, intellect and physical constitution that might determinate specific adaptation to the environment. 2 milena nedeljković knežević, slađana nedeljković, maja mijatov, jelena vukonjanski srdić forthcoming one of the basic questions in the psychology of personality is related to the nature and the number of fundamental and irreducible dimensions of personality, whose combination may significantly reflect the individual’s personality. there are different approaches to this problem. one approach is defined within the big five theory of personality. with less variability, most of the authors pointed to the following five dimensions of personality: extraversion, neuroticism, conscientiousness, agreeableness and openness to new experiences (walker & vetter, 2016; atari et al., 2017; sun et al., 2018). the first personality dimension is designated as extraversion and it is characterized by sub-dimensions such as cheerfulness (activity), cordiality, sociability and the dominance of empathy. in the organizational environment, an extravert wants to establish interaction with the other members of the organization and to develop a good correlationship with them. also, their desire for new experiences leads to readiness for accepting the challenging tasks, which, if successfully implemented, could lead to the establishment of successful correlationships with the superiors (antoncic, bratkovic kregar, singh, & denoble, 2015; ýrengün & arýkboða, 2015; liang, chia, & liang, 2015). on the other hand, people with high level of neuroticism are prone to focus on the negative aspects of the other people, which decreases their social skills. in the organizational context, the individuals with a pronounced dimension of personality labelled as neuroticism are prone to initiate different conflicts with their supervisor. in general, it could be said that this dimension is distinguished by several sub-dimensions, such as the lack of the emotional stability, feeling pressure, dissatisfaction and concern (antoncic et al., 2015; ýrengün & arýkboða, 2015; liang et al., 2015). furthermore, the third dimension of personality is designated as conscientiousness, characterized by subdimensions such as respecting the rules, systematic planning and performing the tasks, inflexibility and conformism. in an organizational environment, individuals with a high degree of conscientiousness are responsible, self-disciplined, persistent and productive, so this personality dimension is one of the best predictors of gaining the business success (ýrengün & arýkboða, 2015; liang et al., 2015). an individual with a pronounced personality dimension of agreeableness is motivated by the establishment of closeness with other people, which is also of particular importance for working in a team. the employee with this pronounced personality dimension is oriented towards cooperation. such a person is also sensitive and altruistic, but also expects to be treated in the same way. therefore, it could be said that the dimension of the personality labelled as agreeableness is characterized by sub-dimensions such as consideration and tenderness toward the others, the conflict avoidance and willingness to forgive (antoncic et al., 2015; liang et al., 2015). and finally, a person with a high degree of openness to new experiences is creative, with the ability to think in an unconventional way and easily adapt to different changes. the sub-dimensions characteristic of the openness to new experiences are independence, intellectual efficiency and intellectual curiosity (antoncic et al., 2015; ýrengün & arýkboða, 2015; liang et al., 2015). 2.3. personality dimensions and job satisfaction the compatibility of the employees’ personality and job requirements can positively affect their job satisfaction (judge & zapata, 2015; bui, 2017). the balance between the employees’ personality dimensions and the organizational job requirements can result in a better usage of employees’ skills and talents. therefore, one of the main tasks of the managers should be oriented towards meeting the needs of the employees’ personality, in order to achieve their better commitment to performing various business tasks (arthaud-day et al., 2012). a misbalance of personality and job characteristics, with dissatisfaction caused by situational factors, could lead to the emergence of: the conflicts among the employees, absenteeism, job abandonment and job fluctuation, indifference, alcoholism, workplace injuries, frequent illnesses, frequent diseases due to an increased sensitivity and reduced resistance of the stress-affected organism (judge & zapata, 2015; bui, 2017). on the other hand, a balance between the employees’ personality dimensions and the organizational job requirements can result in a better usage of the employees’ knowledge and skills, which is beneficial for the employees, because it may allow them to meet the needs for achieving and gaining higher job satisfaction and work motivation. the balance of personality dimensions and job requirements is also important for the organization, especially in the case of providing the quality when performing the business tasks. therefore, one of the important tasks of the managers is to meet the needs of the employees’ personality, in order to achieve their better commitment to the specific demands of the workplace (arthaudday et al., 2012; judge & zapata, 2015; bui, 2017). 3 management: journal of sustainable business and management solutions in emerging economies forthcoming 2.4. predictors in shaping job satisfaction factors that can influence an increase or decrease in job satisfaction may be related to the employees’ personal characteristics, such as: socio-demographic characteristics, personality dimensions, lifestyle, locus of control, cultural dimensions or the employees’ value system (chai, das, & rao, 2012; maruping & magni, 2012; li & chang, 2016), but also the factors related to the work itself, including: challenging business tasks, degree of autonomy, importance of work, or complexity of business tasks (donegani, mckay, & moro, 2012; kilili & bozdaðlar, 2013; choi, kim, lee, & lee, 2014; tansel & gazîoðlu, 2014). there are also different social factors, such as: rewarding system, full or part-time work engagement, interpersonal correlations and feedbacks, family situation, image of the organization, or general socio-economic conditions (eskildsen, kristensen, & gjesing antvor, 2010; loh, restubog, & gallois, 2010; karin andreassi, lawter, brockerhoff, & rutigliano, 2014). some of the research results (mora, ferrer-i-carbonell, 2009) indicate that males show a higher level of job satisfaction than females. however, according to the results of another study (okpara, sqillace, & erondu, 2005; jung, jae moon, & hahm, 2007), females may achieve a higher degree of job satisfaction than males, while there are also authors who consider that there are no significant differences in job satisfaction based on the gender differences (al-ajmi, 2006; koyuncu, burke, & fiksenbaum, 2006; frye & mount, 2007; petrovic, jovanovic, markovic, armenski, & markovic, 2014). females’ expectations regarding job satisfaction may be lower compared to the expectations of the males, and they are sometimes easier to be reached (kaiser, 2007). however, kelly (1989) argues that evaluation results of the females’ job satisfaction should be approached with a certain degree of caution because they could often be inclined to embellish their evaluation of job satisfaction, saying that they are satisfied with their job, even if they are not. in addition to the impact of the gender on shaping the employees’ job satisfaction, the impact of this sociodemographic characteristic could also be noticed in the case of shaping the personality dimensions. thus, chiorri, marsh, ubbiali and donati, (2016) pointed out that personality dimensions: neuroticism, agreeableness, conscientiousness and openness to new experiences are typically more pronounced among the females, which is also proven in the study of siegling, furnham and petrides (2015). on the other hand, iimura and taku (2017) emphasized extraversion, as a personality dimension that is more pronounced among the males. in accordance with the presented results of the previously conducted research, this research was oriented towards determination of the moderation effect of the socio-demographic variable ‘gender’ on the correlation between the employees’ personality dimensions according to the model of the big five and individual facets of their job satisfaction. 3. methodology 3.1. instrument the survey contained three groups of questions. the first group of questions was related to the socio-demographic characteristics of the respondents. for the purpose of this research, the respondents’ gender structure was the most important socio-demographic characteristic, as this research was focused on determining the moderating effects of the employees’ gender structure on the correlation between the other research constructs, i.e., personality dimensions and job satisfaction. the second group of the questions was reused from the standardized questionnaire for big five locator-bfl (howard et al., 1996), for obtaining the values for five dimensions of personality. these five, previously defined, dimensions of personality were tested based on the questionnaire with 25 items, with equal number of items dedicated to each dimension. for example, the respondents were asked to grade (on the scale from 1 to 7) their desire for social interactions as one of the items related to extraversion, their level of insecurity as one of the items for neuroticism, how creative they are in their job performance as one of the items related to openness to new experiences, the level of their kindness to others as one of the items related to agreeableness, and as an example of the items for conscientiousness the level of quality of their job performance. in case of the questionnaire for job satisfaction, the respondents expressed the degree of their agreement or disagreement on the scale from 1 (i completely disagree) to 6 (i completely agree) with the items from the standardized questionnaire on job satisfaction, formulated by paul spector (spector, 1997). this standardized questionnaire contains 36 items, which could be grouped into nine facets of job satisfaction. these facets of job satisfaction are: pay (example item: “i feel i am being paid a fair amount for the work i do”), promotion (example item: “there is really too little chance for promotion on my job”), supervision (example item: “my supervisor is quite competent in doing his/her job”), benefits (example item: “i am not satisfied with the benefits i receive”), rewards (exam4 milena nedeljković knežević, slađana nedeljković, maja mijatov, jelena vukonjanski srdić forthcoming ple item: “when i do a good job, i receive the recognition for it that i should receive”), operating conditions (example item: “many of our rules and procedures make doing a good job difficult”), correlation to co-workers (example item: “i like the people i work with”), nature of work (example item: “i sometimes feel my job is meaningless”) and communication (example item: “communications seem good within this organization”). 3.2. sample the research was conducted in the public-owned organization within the energy sector, in a small town that is almost entirely oriented towards this energy complex. other economic sectors are not significantly developed, although there are numerous opportunities for this, especially in the field of tourism (industrial tourism, cultural tourism, rural tourism). the sample consisted of 116 respondents, including male (44.8%) and female respondents (55.2%), out of 11,880 employees. the number of distributed questionnaires was 220, with 138 received responses (response rate 62.7 %) and 116 surveys were considered for the analysis, i.e., only those which were fully completed. a long-standing monopolistic position and highly bureaucratic organizational culture of the large public organizations in serbia, operating in the energy sector, influences the creation of a specific organizational environment. such a situation further provides unfavourable psychological framework for the upcoming changes, related to the privatization, because job alternatives for these employees could be greatly reduced and, therefore, it is important to understand the research results within this setting. 3.3. procedure the research was conducted during the year 2016. all of the respondents participated voluntarily in the survey research. they were informed that the research is anonymous, and they were asked to fill in the questionnaire truthfully. questionnaires were distributed in person within the organization, by using the standard pen–and–paper procedure. obtained data were analyzed by using the statistical program for social sciences (spss 17.0). descriptive statistics was used for analysing the respondents’ demographic characteristics, while the main statistical findings were gained on the basis of analysing the effects of the moderator (gender, in this case) on the level of correlation between the main constructs of the research: job satisfaction and personality dimensions. 3.4. data analysis for data processing, we used descriptive statistics and correlation analysis. further, we used a hierarchical regression analysis to investigate the moderating effect of gender on the regression between facets of job satisfaction (as a dependent variable) and dimensions of personality (as an independent variable). 4. results in table 1, the results of the descriptive statistics (mean and standard deviations) for the facet of job satisfaction and the dimensions of personality are provided. the table also gives the values of cronbach’s alpha for each dimension, which demonstrates their good reliability. table 1: descriptive statistics 5 management: journal of sustainable business and management solutions in emerging economies forthcoming name abbrev. n min max mean std. dev. αα pay jspay 116 1.00 5.25 2.71 .92 .766 promotion jsprom 116 1.25 4.75 2.96 .82 .757 supervision jssup 116 1.50 6.00 4.29 .93 .789 fringe benefits jsben 116 1.00 5.25 2.85 .87 .762 contingent rewards jsrew 116 1.00 5.00 2.76 .84 .761 operating conditions jsoc 116 1.00 5.50 3.56 .73 .750 coworkers jscow 116 2.25 6.00 4.27 .72 .732 nature of work jsnow 116 1.25 6.00 3.97 .92 .778 communication jscom 116 1.00 6.00 3.27 .99 .791 extraversion bfextr 116 2.40 7.00 5.58 1.19 .772 openness to new experiences bfopen 116 2.00 7.00 5.47 1.03 .702 agreeableness bfagr 116 2.00 7.00 5.76 1.10 .859 conscientiousness bfcons 116 2.00 7.00 6.15 .90 .780 neuroticism bfneur 116 1.00 7.00 4.23 1.28 .806 valid n (listwise) 116 the correlation between the facets of job satisfaction and the dimensions of personality is given in table 2. these results refer to the total sample of n =116 respondents. pearson correlation was used. in table 2, the statistically significant correlations were identified as follows: *p < 0.05; **p < 0.01. table 2: pearson coefficients of the correlation between facet of job satisfaction and the dimensions of personality gender as a moderator of the observed relations. first, the sample of n = 116 respondents was divided on the basis of gender of respondents. thus, in one subgroup there were 52 male respondents and the other subgroup included 64 females respondents. the results of the correlation analysis between the facets of job satisfaction and the dimensions of personality for gender are summarized in table 3. table 3: correlation coefficients between facet of job satisfaction and dimensions of personality for gender hierarchical regression analysis. hierarchical regression analysis examined the significance of the regression coefficient for the independent variables (dimensions of personality), the dependent variable (facets of job satisfaction), and gender as the moderating variable. the hierarchical regression analysis consists of three steps. in the first step dimensions of personality are predictors, in the second step dimensions of personality and gender are predictors, and in the last step, an interactive variable (centered) dimensions of personality x gender are added into the model. the moderating effect was tested by examining the change in the r-squared attributable to the interaction term. if the interaction term added at the final stage of the regression analysis produced a significant r-squared (i.e., significantly increased the amount of variance explained in the outcome variable), the gender can be said to be a moderator of the relationship between dimensions of personality and facets of job satisfaction. the durbin-watson test values are within the accepted range between 1,616 and 2,166 and it indicates that there was no autocorrelation problem with the data. the results of the hierarchical regression analysis (r-square and f change) are presented in table 4, with only those results where the moderating effect of gender was found. we further discuss only these results. 6 milena nedeljković knežević, slađana nedeljković, maja mijatov, jelena vukonjanski srdić forthcoming bfextr bfopen bfagr bfcons bfneur jspay -.199* -.244** -.044 -.207* .116 jsprom .054 -.036 -.063 -.004 -.018 jssup .231* .075 .059 .021 -.008 jsben -.126 -.184* -.073 -.247** .218* jsrew -.028 -.033 .021 -.171 .070 jsoc -.071 -.042 .012 .076 .006 jscow .164 .018 .066 -.018 .095 jsnow .170 -.021 .029 .068 -.149 jscom .033 .043 .049 -.076 .196* bfextr bfopen bfagr bfcons bfneur m f m f m f m f m f jspay -.358** -.071 -.233 -.253* -.018 -.061 -.355** -.116 .123 .123 jsprom .026 .079 -.028 -.040 -.016 -.096 -.192 .108 -.074 .041 jssup .193 .255* .149 .013 .024 .066 .117 -.042 .140 .255* jsben -.019 -.218 -.099 -.333** .153 -.241* -.204 -.287* .502** -.056 jsrew -.023 -.010 .057 -.090 .083 -.269* -.281* -.118 .220 -.015 jsoc -.347* .184 -.246 .124 -.147 .166 -.086 .193 .021 -.004 jscow .231 .093 .103 -.058 .141 -.032 -.026 -.013 .083 .078 jsnow .262 .109 .005 -.035 -.063 .108 -.062 .142 -.161 -.133 jscom .047 .023 .086 .004 .140 -.046 -.051 -.106 .315* .069 table 4: hierarchical regression analysis (r square and f-change) 5. discussion 5.1. moderation effects in case of male employees extraversion and the facets of job satisfaction. the research results show that an increase in personality dimension extraversion is followed by a decrease in the pay facet of job satisfaction among the male employees, which is not the case with the female employees. extraversion, as a personality dimension, is characterized by openness for meetings and socializing with the other people, as well as by individual desire for affection, gaining a high status within the hierarchal scale and being in the centre of other people’s attention (lmarinen, vainikainen, verkasalo, & lönnqvist, 2015). research conducted by lucas, diener, alexander, eunkook and shao (2000) show that only those sub-dimensions of extraversion related to sensitivity to rewards are in high correlation with the positive affectivity. the authors conclude that even though the sociability represents an important aspect of extraversion, it may be just one of the side effects to the high-sensitivity for rewards, which is present in individuals with high degree of extraversion. high affinity for rewards also means that there are high expectations among extraverts when it comes to gaining rewards (oehler & wedlich, 2018). this means that a low degree of satisfaction on rewards will be formed if those expectations are not fulfilled (this is characteristic for both male and female extraverts). as salary represents one of the most important rewards, it can be said that expectations of high payments are represented among the extraverts (kruyen, keulemans, borst, & helderman, 2019). however, males in particular are sensitive to this issue because money and material goods are important parameters of power, which is highly sought among the extravert men, who have ambitions to attain prestigious positions within the modern society. thus, such ambition is characteristic for the male employees with a high level of extraversion and who, therefore, have a pronounced need for gaining higher personal income, in comparison to extravert females, who desire to achieve a high standard of living and successful correlation with the other members of society, which is furthermore accentuated in conditions of the transition and high level of hierarchy. the second result indicates that with the increase in extraversion, satisfaction with operational conditions in male employees decreases. according to the questionnaire we used, good operating conditions imply that there are not many rules and procedures for good job execution. a male employee who has a pronounced extraversion is lively, sociable, loves to have fun. hence the possible explanation of the result is that a job requiring much administration with many rules and procedures causes dissatisfaction with the operating conditions for male employees with pronounced extraversion. female employees, on the other hand, may be more willing to follow the rules and procedures consistently, even in the case of their pronounced extraversion. conscientiousness and facets of job satisfaction. based on the research results, it is evident that the increase in conscientiousness among the male employees is followed by a decrease in the pay facet of job satisfaction, which is not the case in the sub-sample of the female employees. in the sub-sample of the male employees, there is evidently a large number of employees with a high degree of education and those at managerial positions. these employees are usually faced with a necessity of solving complex tasks, so the quality of their performances can depend on the level of their conscientiousness. according to the questionnaire, used for the purpose of this survey research, high perception of conscientiousness implies that employees consider themselves as highly motivated for work (which is partly measured by the item on persistence in performing their business tasks). therefore, they expect that their persistence, as well as high quality of their work performances, would be recognized by the management (or the owners). the high level of conscientiousness among the male employees, given the structure of this sub-sample, has significant organizational outcomes, which is not so evident in the case of high degree of conscientiousness among the female employees. considering the fact that the survey research was conducted within the organization 7 management: journal of sustainable business and management solutions in emerging economies forthcoming gender r2 f change sig. bfextr jspay .035 3.380 .049 jsoc .080 9.132 .003 bfagr jsben .047 4.948 .028 bfcons jspay .110 5.135 .007 jsben .142 5.316 .006 jsrew .086 3.987 .021 bfneur jssup .035 4.104 .045 jsben .125 10.032 .002 that is operating in the society with strong traditional values, where gender roles are largely divided, it is not unusual to consider that the role of the females should be focused on taking care of the family and the household (in the form of managing the family finance, controlling the children’s success in school, planning the holidays for the whole family and similar responsibilities), so conscientiousness, as a dimension of the female’s personality, is something that is expected. therefore, these research results could be also partly explained by the expectation of the male employees that the high level of their conscientiousness at work should be particularly rewarded with higher salary. wiersma and kappe (2017) also indicate the correlation between conscientiousness and the pay facet of job satisfaction. generally observed, they state that conscientiousness is difficult to observe throughout the selection process of the candidates for specific business position, but they also indicate that salaries of conscientious employees grow quicker, mainly on the basis of their intrinsic motivation and good organization (wiersma & kappe, 2017). the research results also indicate that the correlation coefficient between conscientiousness and the rewards facet of job satisfaction among the sub-sample of the male employees is negative and significantly different from zero, which is not the case with the sub-sample of the female employees. an explanation related to this research result is analogous to the previous one related to the level of correlation between conscientiousness and the pay facet of job satisfaction in the sub-sample of the male employees. thus, in the serbian society, males with a high degree of conscientiousness have an increased need, but also the possibility, to earn recognition for their achieved business results. it is a general opinion that within the serbian society, females still do not have an opportunity to achieve the same progress within the business environment as the men have. aware of this fact, females do not have high expectations that their high level of conscientiousness will be rewarded through adequate recognition, so the degree of misbalance between their expectations and the reality is lower, resulting in an insignificant change in the level of satisfaction with rewards with the increase in the level of conscientiousness among the female employees. this is similar to the findings that gender plays a role in determining the level of employee engagement, with female workers having enhanced work-life balance problems (srivastava & bansal, 2016) neuroticism and the facets of job satisfaction. according to the research results, a moderating effect was found in male employees on the relationship between neuroticism and benefit satisfaction. in this sample, the increase in neuroticism in male employees is accompanied by a significant increase in satisfaction with benefits, as opposed to female employees. given that a high degree of neuroticism, among other things, results in enhanced concern and pressure, a possible explanation for the results is that male employees are satisfied with the practice of benefits within this organization, including recreation and rehabilitation in wellknown resorts, which enables them to reduce stress levels. one of the points to measure benefit satisfaction is: i am satisfied with the benefits (rewards and rewards) i receive. on the other hand, female employees may have higher expectations in order to be satisfied with the benefits, especially if their distinct personality dimension is neuroticism. 5.2. moderation effects in case of female employees agreeableness and the facets of job satisfaction. an increase in the level of personality dimension labelled as agreeableness in the sub-sample of the female employees is followed by a decrease in the benefits facet of job satisfaction. the employees with a high level of agreeableness are characterized by the willingness to help others and to provide the necessary pieces of advice for new employees in performing their business tasks, replacing the colleagues when it is necessary, sharing the knowledge with other colleagues in a team, showing the understanding for possible colleagues’ mistakes in performing the business tasks and similar attitudes and behaviours. considering the fact that chances for advancement within the hierarchical scale are thinner for female employees (srivastava & bansal, 2016), it is not surprising that females are directing their expectations to gaining non-material benefits and, therefore, their disappointment could be greater if their expectations are not fully met. conscientiousness and the facets of job satisfaction. with increasing the value of personality dimension conscientiousness satisfaction with benefits decreases for female employees. a possible explanation for the result is that female employees with the pronounced personality dimension of conscientiousness, which implies that they are well organized, approach their duties with great care and perform them in a timely manner, expect adequate rewards for their dedication, self-discipline and high quality of work performed, while one of the points for measuring satisfaction with benefits is: “there are benefits we do not receive but we should be receiving them”. if there is a discrepancy between the expected and realized rewards, there will be dissatisfaction with this facet of job satisfaction, especially for female employees who are more sensitive to the absence of rewards (gifts) if they are expected. 8 milena nedeljković knežević, slađana nedeljković, maja mijatov, jelena vukonjanski srdić forthcoming 9 management: journal of sustainable business and management solutions in emerging economies forthcoming within the serbian society, the possibility of advancement within the hierarchical scale is still not equally accessible to female and male employees, so it could be said that females are not fully able to meet the need regarding the self-actualization, which might result in higher level of their willingness for satisfying the need for recognition (by gaining the non-material benefits) to a greater extent. therefore, it is possible that nonmaterial benefits in this organization are perceived as a compensation for different inequalities. in numerous western companies, females are often employed within the head positions of the whole organization, or some organizational units, and they are extremely successful. however, the percentage of successful female managers is still very small in transitional societies such as serbian, which may be related to the difficulties in overcoming the multi-role expectations related to gaining the balance between the family and business obligations (srivastava & bansal, 2016). neuroticism and the facets of job satisfaction. with the increase in neuroticism in female employees, the satisfaction with the relationship with superiors is increasing. as one of the characteristics of a person with pronounced neuroticism is the presence of dissatisfaction, concern and the presence of pressure, it is especially important for such persons to have a good relationship with their superiors, as it can help them to reduce the pressure at work. among the items that measure satisfaction with a supervisor are questions related to assessing the fair attitude of a supervisor towards an employee, as well as the question of assessing how much a supervisor shows interest in the feelings of employees. high scores related to these items indicate that the superiors are, in the estimation of female employees, empathetic and fair, which is especially significant for female employees with high levels of neuroticism. the “emotional dimension” of the quality of interpersonal relationships has an added value for female employees and they are encouraged to contact the manager when having problems, which is very important for establishing a high level of mutual trust. women with a dominant neuroticism dimension, characterized by the feeling of stress and pressure, are additionally satisfied with this job satisfaction facet if they perceive their superior as a supporting and understanding person. on the contrary, male respondents may have certain “brakes” in presenting their problems openly to their superiors, inter alia because of the stereotype that men should show firmness in coping with the difficulties and therefore prefer to find solutions to stressful situations by themselves (fiske, 2018). conclusion according to the research results, it is recommendable to create such an organizational culture in which the management will have the freedom to make a decision on providing the rewards, depending on the employees’ personality dimension assessment, their motivational preferences, as well as their business performances. for example, in case of extraversion, according to the research results, the rewarding system should be largely based on material stimulation, which may have a particularly beneficial effect among the male extravert employees in this organization. furthermore, management should provide an establishment of transparent criteria for rewarding the employees, including clear standards for evaluation of their performances, in order to establish a realistic estimate of the conscientiousness among the employees and to ensure their positive effects on business results of the entire organization. also, the management should realize that there are specific differences in the degree of communication needs among the employees. therefore, it is necessary to individualize the scope and the quality of communication with employees, in order to achieve their satisfaction regarding the communication facet, which is especially important before the upcoming organizational changes, such as privatization. therefore, the leaders of this organization should initiate and encourage the establishment of individualized contact with their employees, especially during the organizational changes, when good correlation with the manager is of importance for all employees. furthermore, it is important to provide the possibility for female employees to apply for various business tasks with a complex degree of responsibility, in accordance with their skills, which will reduce their dissatisfaction with the benefits and allow them to focus on other aspects of job satisfaction. finally, the management should consider balancing rewards according to the employees’ expectations and their contributions, leading to the development of good interpersonal correlations and boosting the employee performances. acknowledgment this research is part of the project ‘transformation of geospace in serbia past, current problems and solution proposals’, approved by the ministry of education, science and technological development of republic of serbia (project 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(2014). management-employee correlations, firm size and job satisfaction. international journal of manpower, 35(8), 1260-1275. doi: 10.1108/ijm-09-2014-0179 [56] walker, m., & vetter, t. (2016). personality processes and individual differences: changing the personality of a face: perceived big two and big five personality factors modeled in real photographs. journal of personality and social psychology, 110(4), 609-624. doi: 10.1037/pspp0000064 [57] wiersma, u. j., & kappe, r. (2017). selecting for extroversion but rewarding for conscientiousness. european journal of work and organizational psychology, 26(2), 314-323. doi: 10.1080/1359432x.2016.1266340. [58] yeh, s. c. j., yuan, k. s., chen, s. h. s., lo, y. y., chou, h. c., huang, s., & wan, t. t. (2016). the moderating effect of leadership on the correlationship between personality and performance. journal of nursing management, 24(7), 869-883. doi: 10.1111/jonm.12391 received: 2019-05-09 revision requested: 2019-09-30 revised: 2020-01-10 (2 revisions) accepted: 2020-02-06 milena nedeljković knežević university of novi sad, faculty of sciences, serbia e-mail: milena.nedeljkovic@dgt.uns.ac.rs milena nedeljkovic knezevic is an associate professor at the faculty of sciences, university of novi sad. she graduated with phd in human resource management in 2009 at the faculty of technical sciences, university of novi sad. she defended her second phd dissertation in 2016, in the area of behavioral economics at the faculty of economics and the faculty of philosophy (interdisciplinary), university of novi sad. her research interests are within the area of management, management of human resources, organizational behaviour and entrepreneurship. 12 milena nedeljković knežević, slađana nedeljković, maja mijatov, jelena vukonjanski srdić forthcoming about the authors 13 management: journal of sustainable business and management solutions in emerging economies forthcoming slađana nedeljković eps, rb kolubara, serbia e-mail: slakospo@gmail.com sladjana nedeljković, graduated and earned her interdisciplinary phd in sociology and tourism at the university of novi sad. she is employed at the mining basin “kolubara”. she is actively engaged in organization and lecturing at cultural and humanitarian manifestations. her research interests include: cultural tourism, sociology of culture, organizational culture. maja mijatov,phd university of novi sad, faculty of sciences, serbia e-mail: majamijato@gmail.com; maja mijatov is a research associate at the faculty of sciences, university of novi sad. her main fields of interest are the following: business ethics, ethical climate, corporate social responsibility, business performances, job satisfaction, organizational commitment, service orientation, management, human resources. jelena vukonjanski srdić, phd university educons, project management college, serbia e-mail: jelena.vukonjanski@pmc.edu.rs associate professor at the department of management and project management. her research interests are: organizational and national culture (globe model), organizational behavior, human resource management, leadership and organizational management. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails 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/includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04_zlatija jelenkovic:tipska.qxd 37 zlatija jelenković¹, lidija barjaktarović ² ¹raiffeisen banka a.d. beograd, serbia ²university singidunum beograd, serbia management 2016/79 the risk management functions in the conditions of globalization: case study of the republic of serbia1 udc: 005.334:005.44 005.332:338.124.2(497.11) doi: 10.7595/management.fon.2016.0010 1. introduction globalization is often defined as a phenomenon that primarily addresses the macroeconomic level in the relations between high income countries vs. law incomes countries. however, globalization is a microeconomic phenomenon as well, creating a need for new professions, new ways of organization of the company, the new management functions. the main change into organization of enterprises that occurred is a result of the nature of globalization as a transmission mechanism of the crisis, and the necessity to establish a structure to control and manage the risks. risk management has become an imperative of modern business, not only because of the needs of the enterprise itself, but also because of the international regulation imposed on the financial sector particularly, the issue that has advanced through institutional risk management (barjaktarović& ječmenica, 2011). although uncertainty and risk represent an integral part of the economic business, risk as a scientific field has a short history (barjaktarović, 2015). the coso organisation (committee of sponsoring organisations) adopted a document on risk management in enterprises integrated framework (enterprise risk management / erm / integrated frame) in 2004. management uses this concept to evaluate and improve daily operations, of which it is an integral part. the erm concept is defined as a process (initiated by the board of directors, management and other employees) which is an integral part of the strategy of the company, in order to identify potential events that could affect the business itself, as well as to improve risk management in the framework of the existing level of readiness for acceptance of a certain risk. this is a discipline of assessment, control, 1 the research presented in this paper is part of the project “advancing serbia’s competitiveness in the process of eu accession”, no. 47028, in the period 2011-2016, financed by the ministry of education, science and technological development of the republic of serbia . globalization, which represents an important transmission mechanism of the crisis, has led to the necessity for controlling various risks of business, setting a new line of management in companies, regardless of the main business activity they are engaged in. the economic crisis in general, and especially the global financial crises (2007 and the present one) led to bankruptcy, and thus to loss of funds of many businesses and individuals. therefore, it was necessary, on the one hand, to ensure confidence in the financial system and to maintain its stability. on the other hand, the development of corporate governance and separation of functions of ownership and management insisted on the creation of functions that directly report to the owners of capital, such as risk management and internal audit. the value of this paper is in emphasizing the new management function and raising awareness of the scientific public and businesses about the need for introduction of risk management functions in order to facilitate effective management of enterprises, although the survey (2012-2015) has shown that the existence of legal obligations, in this regard penal policy, is the only thing that effectively establishes and promotes this area. keywords: globalization, risks of business, enterprise management, risk, management risk 38 2016/79management financing and monitoring of all risks of the enterprises, with the aim of increasing value for its owners ( orđević & kostić, 2012). all risks are discussed at the same time within a coordinated and strategic framework (beasley et.al., 2008). furthermore, the authors (baxter et al., 2013) suggest a link application of the concept of erm, business performances (measured indicator roa) and market value of the company, which means that the market responds positively to companies that have a better use of the erm concept. also, research (barjaktarović et al., 2014) has shown that a successful implementation of the erm concept contributes to increasing the company’s value. according to the ifc (ifc, 2011) corporate governance has to define the structures and processes for the management and control of companies. the basic element of corporate governance is the general structure of corporate governance, which includes the general assembly of shareholders, the board, executive bodies, the commission board, the organs of internal control, external supervision, and the corporate secretary. referring to the current regulations on companies in serbia, establishing of the company’s accounting policies and risk management (law on commercial companies, 2015) is under the jurisdiction of the supervisory board or board of directors (depending on the legal form of establishment). relevant laws on the specific activity (in compliance with basel ii and solvency ii) define the way of risk management in banking and insurance sectors. this paper aims to show the way of establishing the functions of risk management, the main actors in risk control and the regulatory framework that exists in the world. the main hypothesis is that an institutionalized approach to risk management is achieved so that the businesses can establish risk management function. the research is based on data publicly available on the website of regulatory bodies in the country (the ministry of finance, the national bank of serbia / nbs / bse) and abroad (the basel committee and the committee of european insurance and occupational pensions supervision), oecd, ifc and atkearny, in the period from 2012 to 2015. data included regulations, reports on the work of specific business entities (as the economic entity, and external auditors) and external supervisory authority on the work of the whole sector analyzed in the case of the republic serbia these are: the central bank (narodna banka srbije hereinafter: nbs for the financial sector), the belgrade stock exchange (for listed companies) and the serbian business register agency (agencija za privredne registre hereinafter: apr, for the real sector) . the sample of companies analyzed includes 4084 companies operating on the day of 30.09.2015 in the republic of serbia, out which 30 are from the banking sector (the whole banking sector), 25 from the insurance sector (the whole insurance sector), 4029 companies operate in the real sector classified as large (including 7 companies whose shares are subject of trade within the belgrade stock exchange (4 prime listing, 3 standard listing) and medium-sized companies in accordance with the serbian companies law2, which represent over 80% of all companies in republic of serbia based on achieved turnover in 2014. this analysis is based on the financial statements obtained from the apr for the period 2012 – 2015, prepared by the abovementioned group of companies. according to the set hypothesis, the work consists of five sections, including the introduction and the conclusion chapters. in the second chapter we discuss the establishment of risk management. thereafter, the third chapter is devoted to the global regulatory framework for risk management. in the fourth chapter, research on risk management at company level in the republic of serbia will be shown. the final considerations will be presented in the end. 2 according to the serbian companies law, a large company is a company which: a) has more than 250 employees; b) generates an operating profit of more than є 35,153,220.39; c) owns assets in excess of є 17,576,606.04. medium-sized company is a company which: a) has between 50 and 250 employees; b) generates operating profit between є 8,838,522.61 and 35,153,220.39; c) has assets worth between є4,419,265.16 and 17,576,606.04. 2. establishment of risk management risk management has particularly brought into focus by the current financial crisis, in case of both financial and non financial companies. however, according to the oecd (oecd, 2014), there were no official records that could confirm that many companies apply the concept of risk management. according to the research conducted by mckinsey3 in 2011 and 2013, in 2011, 44% of the companies surveyed said their directors reviewed and approved management strategy, 14% confirmed that their management board had full understanding of risk management, and 14% of them devoted their time to this problem while in 2013 these results were somewhat better about one third of directors dealt with the problem of risk. risk management business represents a particular frame that mainly includes the identification of certain events and circumstances that are essential for the achievement of the goals of the company (threats and opportunities), assessing their impact, creating a responsible strategy and process monitoring. tracking or monitoring of possible risks is the responsibility of the task manager. while defending the company from the impact of different risks and opportunities, executives hold and create value for its shareholders, including owners, employees, customers, regulators and society at large. managers choose the right strategy for the management of certain risks, which usually involves several stages: • avoidance: the current activity leads to an increased risk; • reduction: taking action to reduce the potential risk impact; • alternative activity: decision-making and consideration of other possible steps to minimize the risk; • share or provide: transform or divide the size of the risk in smaller portions for funding; • accept: without taking action, because of the decision that was made on the basis of rational cost / benefit analysis (cost / benefit decision). to accomplish the company’s strategy, managers must share functions in the process of defining and managing business risks. the question is how to implement risk management principles in companies that so far, in an organized manner, have not had this function. different consultants provide different ideas and most of them come down to the following functions: • choose a sponsor among members of top management, • appoint a chief risk manager who integrates and proposes policy and chairs the risk committee for risk assessment, • appoint the other members of the committee for risk assessment and the holders of certain functions, • develop a framework to implement risk policy and ensure the participation of a third party. it is a fact that companies consider risk management to be the greatest challenge of management. 3. regulatory framework for determining risk management risks that companies face every day, can be divided into: • financial and • non-financial. financial risks are appropriate primarily for financial institutions, but also for companies whose finances are not part of their core business (the company in its annual reports according to the ifrs reports on capital management, credit risk, market risk and liquidity risk). in addition to this basic risk, most non-financial organizations are affected by other risks such as: risks of it equipment, environmental protection, food safety and the like (i.e., according to the coso, strategic, hazardous and operational). most attention is being paid to financial risk and risk management, where the most of the progress is made in both the regulation framework (basel ii and iii for the banking sector and solvency ii for insurance companies) and in organization of the structure of risk management. yet, neither of these structures nor rules can be blindly copied by the nonfinancial companies. 39 management 2016/79 table 1: risk governance requirements/recommendations for listed companies notes: “l/r/c” denote laws, regulations, and codes or principles respectively. “*” denotes the absence of a specific requirement or recommendation (outside the financial sector). source: oecd 40 2016/79management 41 management 2016/79 the analysis of various structures of risk in different companies (beasley et al. 2005) (lajily 2009) has concluded that four fundamental elements can be identified in the process of determining risk management needed to develop each company, whether financial or non-financial, as follows: 1. risk management has to be determined by the head of risk management; 2. appoint the members of the risk management board and ensure its independence status in relation to the board members; 3. provide support to the director general (chief executive officerceo). 4. provide audit by the best auditing firm (big four: deloitte, kpmg, pricewaterhousecoopers, ernst & young) in many jurisdictions, as shown in table 1, risk management is part of regulations issued by the government or possibly the chamber of commerce as part of the national business rules. thus we have the case rules for companies listed on the stock exchanges of new york (the new york stock exchange listed company rules-nyse), then combined rules of great britain (the uk‘s combined code) or the french rules or code (the french afep-medef code). the holders of risk functions in an enterprise as defined in most of the laws or rules of business are as follows: 1) board of management -. “the main role of the board as an internal mechanism of corporate governance is to define the strategic orientation of the corporation and to supervise and control the work of management in order to satisfy the interests of owners and key stakeholders” (nikolic, j. and eric, j., 2011). also, management is responsible for establishing an appetite for risk acceptance or tolerance, has the responsibility to define a strategy to take risks and to establish a whole system of assessment and risk control. the system must be compatible with the business strategy of the company. 2) chief risk officer (cro-general manager for risk management) in companies where this function exist as a separate body (usually large or companies in the financial sector), it is completely divided from the profit center and reports directly to the board of directors rather than the executive committee. but the boss function cannot be successfully applicable without the established system that is purposeful and effective. 3) the audit committee: according to eu directive (2006/43 / ec) on statutory audit, the audit board4 shall have the task to monitor the effectiveness of internal control in the company, internal audit where it is the applicable management and risk management system. also, similar rules exist in the us. members of the audit committee must have additional training, which is defined by law in many countries. according to eu directive for establishment of audit committees (2006/43 / ec) that states “a person can perform a statutory audit only if they have a university education or a corresponding equivalent, have completed a course in theoretical instruction, have done practical work and passed the examination in professional skills at the university or similar equivalent, which was organized / certified for such training by the state.” the directive further requires that the test of proficiency testing includes the part related to risk management and internal control. 4. case study: republic of serbia the authors conducted a secondary research, by taking it from the website of the regulators (nbs for banks and insurance companies, belgrade stock exchange for listed companies, apr for unlisted companies) as well as by analyzing the data acquired from sites of the sample’s companies. summarized joint research results are presented in table 2. the risk management process and the management of funds is the most developed in the banking sector, mostly influenced by the presence of foreign shareholders within banks equity structure and due to the fact that serbia strives to become a member of the european union and to harmonize its legislation within this sector, as well as the desire of the nbs to ensure the stability of the financial system of the republic of serbia. on the basis of the available data (nbs website) it can be concluded that the nbs performs: (a) the introduction of new standards in the performance of banks under the basel agreements and the eu directives, 4 according to rules of the new york stock exchange of listed financial companies those companies are obliged to have a board whose focus will be risk managment exclusively. (b) the direct or indirect control related to risk management, with particular attention to credit, market, operational and liquidity risk. nbs also publishes financial statements of all participants in the banking sector; however, reporting quality differs. thus, out of the total number of 28 banks that provide financial statements and auditors’ reports, 24 banks also provide the information required for the third pillar of basel ii (strategies and policies for risk management, including the competent authorities and responsibilities in the process of risk management, capital structure, capital adequacy, the internal assessment process of capital adequacy, the bank’s exposure to risk and approaches to measurement and assessment), which are of varying quality. table 2: risk management in the republic of serbia on 30th sept., 2015 source: the authors created a table on the basis of the available legislation, and information available on the websites of the analyzed sample of companies as well as the site of the apr for large and medium-size companies which are subject of analyses 42 2016/79management 5 belgrade stock exchange is a regultaor for listed companies the common features of all reports are as follows: (1) all 28 banks have following organizational structure of the risk management: the board of directors, the executive committee, the credit committee, the committee for asset and liability committee (alco) and function (department, service or department) to manage risk. other participants depend on the type of the joint-stock company in question, such as the ownership structure and the basic activities that the bank is dealing with. in doing so, the two banks, especially in the risk management process, emphasize the cro function. furthermore, 27 banks provide information on the site about the function of risk management, out of which 25 have the appropriate sector or service (of which 3 banks have more sectors for risk management, namely, from 2 to 5). 2) the risks that are subject of special management are: credit, market, operational and liquidity risks. all the other mentioned (up to 17) are subject of assessment, control and monitoring, with a particular focus on capital requirements for credit, market and operational risks. it can be concluded that the banks use the possibility of a regulatory framework to create risk management according to their risk profile. in doing so, they have always complied with the legal minimum, while the maximum depends on the expertise of individuals and the owners of capital, i.e., the banking group within which they operate. we emphasize that only five banks present an extremely high-quality risk management information in their release of data and information for basel 2 pillar 3 (on semi-annual and on annual bases). the risk management process is significantly less developed within the insurance sector. the legislator prescribes the method of management in the insurance company (especially emphasized on the nbs site is the president of insurance and actuary, that pay special attention to risk management through capital requirement and measures to solvency insurance. however, academic theories and teaching on the risk management process often fail to pay due attention to risk management in the insurance sector; they rather focus on quantitative indicators, based on previous experiences of monitoring (such as: solvency margin, guarantee reserves, asset quality, technically result), which is also stated in the report of the nbs as an improvement in corporate governance, the establishment of adequate systems of internal control and mapping of risk management procedures. accordingly, the nbs web site has brought balance sheets and income statements (excel table) for all insurance companies and the auditor’s opinion (2 sides), but only in case of 4 insurance companies and reinsurance companies the financial and annual reports can be found. according to them, the four companies are reporting on insurance risk and financial risk. referring to commercial companies, 1) out of 7 listed companies, annual reports can be found on the websites of 4 companies, with information about the 3 main risks (credit, market and liquidity). also, within the 4 reports it is stated that the company takes into account the risks, however, it is not defined which organizational bodies are responsible for dealing with them. regarding the management of the funds, success is seen through the report on cash flow management, and in particular showing liquidity risk management. 2) the apr site has published annual reports for 4022 large and medium-size unlisted companies in the real sector (which is a representative sample for making conclusions ). these reports contain information on 3 basic risks of business (i.e., credit, liquidity and market risk). in all of the reports it is stressed that the company takes care of risk of business without any referrence to the managment function in charge of it. unfortunately, the amount of information on risk management and resources present in the case of companies in the real sector is reduced to the legal minimum. finally, it can be concluded that the hypothesis is proven, which confirms that an institutionalized approach to risk management encourage the businesses to establish the risk management function (in case of banks and insurance companies). further, it implies the development of a tool for liquidity management in companies (the case of banks and insurance companies). 43 management 2016/79 literature: [1] allen & overy (2012): corporate governance comparative study, http://www.corporategovernancecommittee.be [2] barjaktarović, l. (2015) upravljanje rizikom, univerzitet singidunum, beograd [3] barjaktarović, l., vićentijević, k., vjetrov, a. (2014) risk analysis: henkel case, the book of proceedings finiz 2014, belgrade, p. 13-15 [4] barjaktarovic, l., jecmanica, d. (2011), osvrt na implementaciju standarda bazela ii u poslovanje bankarskog sektora srbije, menadzment 59, str. 71-77 [5] beasey m.s., clune r.&heranson d.r.(2005) “enterprise risk management: an empirical analysis of factors associated with the extent of implementation”the journal of accounting and public policy , 2005, vol. 24, 521-531 [6] beasley, m.,pagach, d., warr,r. (2008), information convezed in hiring announcments of senior executives oversiing enterprise-wide risk management processes, journal of accounting, auditing and finance pp.23:311-332 [7] baxter, r., bedard, j., hoitash, r., yezgel, a. (2013) enterprise risk management program quality: determinants, value relevance and the financial crisis, contemporary accoutning research, vol. 30 no.4, pp.1264-1295 [8] beogradska berza (2015) podaci iz trgovanja / dnevni podaci (available on site: http://www.belex.rs/trgovanje/dnevni_podaci, date of access 01/09/2016) [9] caruntu g.a i romanescu m.l.(2008) :“ treasury cash ows in the enterprise“,university of constantin brancusi targu jiu, romania online at http://mpra.ub.uni-muenchen.de/11238/ mpra paper no. 11238 [10] coso (2004) enterprise risk mnagement – integraed framework (available on site: www.coso.org/documents/coso_erm_executivesummery.pdf) [11] directive 2006/43/ec of the european parliament and of the council, consolidated text (2014), http://eur-lex.europa.eu/legal-content datum pristupa 14.01.16. [12] đjorđević, m., krstić, j. (2012) interna kontrola i upravljanje rizikom preduzeca od tradicionalnog do revidiranog coso modela. ekonomske teme, 2012 2 pp. 151-166 44 2016/79management conclusion the global financial crisis has in many ways changed the company’s everyday business perfomances. in order to survive, the company has to be confronted with various challenges. the main problem has been to record all risks to which the company is exposed. this has led to various changes within the company from the establishment of specific risk policies to the establishment of a system for risk assessment and special bodies dealing with risk management. within the paper it has been shown that an institutionalized approach to risk management encourages the companies to a establish risk management function (the case of banks and insurance companies). further, it implies the development of a tool for liquidity management in companies (the case of banks and insurance companies). the conducted research indicated that the banking sector mostly made progress within risk management and cash management. the insurance sector is significantly lagging behind regarding these functions in comparison with the banking sector, while the real sector is considerably behind regarding the process of risk management and cash management. the companies in serbia who recognized the importance of both management functions have engaged experts from the banking sector (risk sector, funds management sector, to work with legal entities) in order to become more successful in introducing both management functions (e.g., atlatnik group, victoria group, telenor, vip, etc./icap, 2013). unfortunately, the research conducted in the period from 2012 to 2015, pointed out that the functioning of the department for risk management functions properly only when it is imposed as an obligation by the regulatory body and when there are clearly defined public bodies which monitor the implementation of risk management at the level of a particular sector. it can be concluded that further training is necessary of both the personnel and the regulator; the companies should develop better risk management within the context of overall corporate management businesses. the allocation of significant resources is necessary for it support, and the effort as well provided by the companies for successful risk management implementation. 45 management 2016/79 [13] icap (2013) “how do cfos enforce a culture of credit prudence without constraining the sales potential of their companies”, 3rd credit risk management conference, belgrade, hotel metropol [http://www.icap.rs/default.aspx?id=9215&nt=18&lang=2, date of access 01/09/2016] [14] lajili k. (2009): corporate risk disclosure and corporate governance,journal of risk and financial management 2(2009) 94-117 [15] mayers s (1984): the capital structure puzzle, national bureau of economic research, cambridge, usa http://www.nber.org/papers/w1393.pdf [16] medjunarodna finansijska korporacija /ifc/ (2011) korporativno upravljanje – prirucnik, beograd [17] međunarodni računovodstveni standardi (ias), www.mfin.gov.rs/pages/article.php?id=10262(posebno vazan za istrazivanje msfi 7) [18] narodna banka srbije: http://www.nbs.rs/internet/cirilica/50/index.html, datum pristupa 09.01.2016.) [19] mckinsey reaserch: improving board governance: mckinsey global survey results (2013),http://www.mckinsey.com/insights/strategy , uvid 14.01.16 [20] nikolić j mr, erić j. mr (2011): uloga i vrste upravnih odbora u korporativnom upravljanju, managment br.60 [21] nyse: corporate governance guide,2014, wight pages ltd, london uk ,isbn: 9780-9565842-6-7 https://www.nyse.com/ [22] odluka o objavljivanju informacija i podataka banke (2015) sl.glasik republike srbije, br.4/2015 [23] odluka o sistemu upravljanja u drustvima za osiguranje i reosiguranje (2015) sl.glasnik republike srbije br. 51/2015 [24] oecd (2014), risk management and corporate governance, corporate governance, oecd publishing.http://dx.doi.org/10.1787/9789264208636-en [25] site of basel commitee, http: www.bis.org http://www.bis.org/bcbs/publications.htm (date of accessw 01/09/2016) [26] site of commitee of european insurance and occupational pensions supervision, https://eiopa.europa.eu/regulation-supervision (date of access 01/09/2016) [27] site of apr www.apr.gov.rs receieved:february 2016. accepted: may 2016. zlatija jelenković raiffeisen bank a.d. beograd zlatija.jelenkovic@raiffesenbank.rs zlatija jelenković has a master degree in economic sciences in the sector of macroeconomics, acquired at the faculty of economics university of belgrade. she has pursued a banking career since 1988 until the present moment, starting from jugobanka osnovna banka beograd to raiffeisen banka a.d. beograd, on various managerial positions. she is the author of several articles published in serbia and abroad in scientific and professional journals (for example, factor scan, bankarstvo,etc.). lidija barjaktarović university singidunum, beograd lidija barjaktarović has a phd in economic sciences in the sectors of banking and finance. since 2008 she teaches the courses in banking, risk management and corporate finances at the singidunum university in belgrade. she has been head of master study programmes: business economics and public sector management at the singidunum university. she pursued a banking career in the period from 1998 to 2008. she started in jugobanka a.d. belgrade, after which she moved to societe general yugoslav bank a.d. belgrade, and then to raiffeisen bank a.d. belgrade, to be promoted to the head of the regional branch of central serbia. in 2005 she moved to erste bank a.d. novi sad to become the director of corporate division. at the end of 2007 erste group appointed her a member of the corporate board and corporate working group on the level of the erste holding vienna. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04 stojanovic:tipska.qxd 35 nenad milijić*, anđelka stojanović, ivan mihajlović, ivan jovanović, momir popović university of belgrade, technical faculty, bor, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(3) * corresponding author: nenad milijić, e-mail: nmilijic@tfbor.bg.ac.rs safety climate in project-based organizations: multi-criteria analysis doi: 10.7595/management.fon.2020.0026 abstract: 1. introduction in recent years, contemporary projects, as well as companies that implement them, have faced increasingly complex challenges, both technical and socio-economic. the reasons lie in the very dynamic changes that occur in the environment, and on the other hand, in the time-consuming process of realization and complexity of projects, difficulties in their realization, and a high level of uncertainty (puska et al., 2018; li et al., 2019). in such circumstances, from a contractor's point of view, goals such as time, cost, quality, performance and employee safety, need to be achieved. however, in practice, employee safety very often remains a marginalized area of business. in addition, involvement of numerous entities in the implementation of projects using complex techniques and technologies contributes to a high degree of safety risks as well as to a frequent occurrence of injuries at work. therefore, the need for better employee safety performance research question: the aim of this paper is to determine the factors influencing safety climate in different industrial sectors in project-based organizations. motivation: systematic research on occupational safety is not so frequent in the republic of serbia. the lack of research that deals with safety climate in project-based organizations exploring the attitudes of employees in different industrial sectors is evident. in the research conducted by milijic et al. (2013) a model for measuring safety climate factors was proposed and the following step is to identify the most important safety climate issues for each industrial sector as a key to fostering better safety performance. chen et al. (2018a) concluded that engagement at all levels of the company is essential to fostering better safety performances as well as that safety awareness is the most important factor influencing workers' safety efficiency. the authors of the present paper seek those particular factors that adequately describe safety climate in project-based organizations by examining the attitudes of workers in different industrial sectors. idea: the main idea of this paper is to evaluate and rank safety climate in different industrial sectors and different workplaces considering the following five factors of safety climate: safety and competence awareness, occupational safety management commitment, safety training and tools, safety practices and procedures and organizational environment. data: safety climate analysis was conducted on a set of data collected as a part of a survey carried out in eleven project-oriented organizations operating in different industrial sectors on the territory of serbia. tools: this paper proposes a multi-criteria analysis of the data collected from a national survey using the entropy-promethee-gaia method. findings: a complete ranking of safety climate in project-oriented organizations based on the opinions of employees in different industrial sectors resulted in energy as the bestranked sector. on the other hand, the worst-ranked sector is high-rise construction. the results of the complete ranking of safety climate in project-oriented organizations based on the opinions of employees at different workplaces in different industrial sectors showed that the best-ranked alternatives were manager working places. when it comes to production workers on projects, the most favorable safety climate is in energy workplaces and for non-productive workers, while the most favorable safety climate is on projects in the field of mechanical engineering. contribution: adopting the conclusions from the paper can, in practice, improve safety climate along with safety at work in project-based organizations. keywords: safety climate, project-based organization, multi-criteria analysis, entropy-promethee-gaia jel classification: j28, j81 nenad milijić, anđelka stojanović, ivan mihajlović, ivan jovanović, momir popović 2022/27(3) 36 at work is obvious. numerous studies, as well as business practices, indicate that a more effective occupational safety management system is needed through safety risk management, communications enhancement, safety monitoring, and safety training (yang et al., 2012; sheehan et al., 2016; zaira & hadikusumo, 2017; versteeg et al., 2019). a more efficient occupational safety management system would accelerate the formation of a positive safety climate that would, in the long run, result in the reduction of workrelated injuries and ultimately lead to a more effective project implementation. therefore, there is an ongoing need for research that aims to uncover organizational factors affecting the improvement of safety climate, both on projects as temporary structures and within project-oriented organizations themselves. this would represent a major step forward in finding solutions applicable in practice. this paper is structured as follows. paper section 2 provides the literature overview on safety climate in project-based organizations. in section 3 the research methodology will be explained in-depth. section 4 presents research results and discussion. finally, the conclusion is given in the last section. 2. literature overview on safety climate safety climate can be defined as employee perceptions in terms of values, attitudes, policies, and procedures that signal and indicate the importance of workplace safety (zohar 1980; probst et al., 2019). given that safety climate has a positive effect on occupational safety and injury prevention (he et al., 2016; kasim et al., 2019), this concept was been the focus of research by numerous authors. their goal was to determine influential factors, both demographic and organizational (alruqi et al., 2018; newaz et al., 2019; kim et al., 2019; flatau-harrison et al., 2020). it should be emphasized that these factors may not be uniform in different world economies due to the influence of cultural differences etc. and the focus is on the uniformity of employees' perceptions. therefore, in order to create positive safety climate, it is necessary to reach a consensus of opinions, attitudes, understandings and finally, perception of safety among members of different professional groups involved in the project. by doing so, the basis for a satisfactory state of occupational safety has been formed, and the realization of projects, as well as functioning of entire projectoriented organizations, has been improved (huang et al. 2012). as it has already been said, safety of employees, as well as safety climate on projects, are characterized by certain specific features, so this is an area to which special attention should be paid. the greatest influence on the creation of positive safety climate on projects is represented by the safety system and employee awareness as well as their commitment to safety (marin et al., 2019). positive safety climate formed this way influences risks recognition, that is, the creation of adequate perception of risks in the workplace. consequently, such a situation results in the reduction of injury frequency at the workplace, i.e. the improvement of occupational safety (pandit et al., 2019). of course, a company's management system has a decisive role in almost all segments of business. thus, management commitment to occupational safety, i.e. safety practices, as well as commitment of co-workers, undoubtedly influence the formation of an effective occupational safety system. this connection is achieved through the creation and adoption of quality and purposeful safety training, procedures, as well as reduced work pressure, which actually highlights safety climate factors that are extremely important (stackhouse & turner, 2019). studying safety climate, other authors likewise emphasize the importance of management commitment to occupational safety both on projects and within project-oriented companies, but they also focus their research on adequate communication (curcuruto et al., 2018). communication in the field of occupational safety, as well as dissemination of information (information sharing and dissemination) also represent a significant factor of safety climate and positive creation. this factor is especially emphasized in critical situations and in places and times when for certain reasons there is a departure from the established procedures for conducting business activities. after all, communication is one of the basic activities of an occupational safety system regardless of whether the concept of safety climate is discussed at all (kasim et al., 2019). based on the results of numerous studies, it seems obvious that all the above mentioned factors of safety climate reduce risk levels and strengthen safety management (curcuruto et al., 2018; kasim et al., 2019; stackhouse & turner, 2019). hence, safety climate, that is, all its factors individually, can serve as a useful indicator of the level of safety at work, i.e. occurrences of occupational accidents. in addition, safety factors can become an analytical tool when studying deficiencies in an occupational safety system (chen et al., 2018b; marin et al., 2019). at this point, industrial sectors in which safety climate is most often studied seem worth mentioning. in the work of bamel et al. (2020) some of these industrial sectors are listed: construction industry, manufacturing, oil industry, agro-industry, transport industry, etc. (bamel et al., 2020). when analyzing projects, that is projectmanagement: journal of sustainable business and management solutions in emerging economies 2022/27(3) 37 oriented organizations, in the literature, exploration of safety climate can mainly be found on infrastructure projects (lingard et al., 2017; khodeir & nabawy, 2019), rail construction projects (stiles et al., 2018) and construction projects (saunders et al., 2017; marin et al., 2019; versteeg et al., 2019; winge et al., 2019; xia et al., 2020). questions about the importance of emphasizing safety climate studies in various industrial sectors remain open. the answer can be found in the fact that safety climate very often differs even among different professional groups within one and the same project (chen et al., 2018b; marin et al., 2019). very few papers in the literature compare safety climate in different industrial sectors and even fewer in project-based organizations, which represents a considerable research gap. one of these rare papers is the work of jiang et al., in which they presented a comparison of reliability of safety climate assessment in general as opposed to the assessment of safety climate in a specific industry (jiang et al., 2018). this is the main incentive for this research to be conducted comparing safety climate in different industrial sectors in project-based organizations. few studies are currently investigating safety climate in companies on the territory of the republic of serbia (milijic et al., 2014). when it comes to project environment, the number of such studies is even smaller. therefore, the aim of this paper is a multi-criteria analysis of safety climate in project-oriented organizations in serbia, while finding the related influential elements. 3. research methodology 3.1 questionnaire and data collection for the purpose of the present research, the methodology of a questionnaire for data collection was applied. the questionnaire was developed by the authors of this paper based on previous research related to the issues of safety climate and occupational safety in manufacturing companies (milijic et al., 2013; lin et al., 2008; turnberg & daniell 2008; hsu et al., 2008; jiang et al., 2010, saunders et al., 2017, chen et al., 2018a). the questionnaire consists of two parts. the first part contains 8 demographic questions, while the second consists of 29 questions divided into 5 groups related to safety climate on projects. the first group of questions (gq1), safety and competence awareness, deals with the understanding of responsibilities concerning workplace safety, and how employees deal with safety issues and obey the rules. the second group of questions (gq2), occupational safety management commitment, aims to assess how managers enforce occupational safety in relation to other business goals such as productivity or set deadlines. gq2 depicts the way in which employees perceive the position of safety climate in the workplace. gq3, safety training and tools, is a group of questions that is used to evaluate the level of employees' competence to respond to safety risks, adequacy of their training, and availability of safety equipment at workplaces. the group of questions that describe safety practices and procedures (gq4) approaches specific measures and procedures that are applied both in organizations and during the realization of projects themselves. immediate implementation of measures and procedures as well as the adequacy of responses to safety issues are evaluated. the last group of research questions gq5, organizational environment, refers to the implementation of safety measures and procedures when work pressure is taken into account. the survey examines whether safety procedures are being neglected or less respected when faced with deadlines, norms and project goals. an anonymous survey was conducted among employees of 11 project-oriented companies on the territory of serbia. the selected companies carry out projects in various industrial sectors: mechanical engineering (i1), furniture industry (i2), energy (i3), high-rise construction (i4) and civil engineering (i5). the survey was conducted on a sample of 121 employees. a 5-point likert scale was used to grade the respondents' answers, with values from 1 to 5, where 1 represents the smallest significance (i absolutely disagree with the given statement) and 5 represents the highest significance (i absolutely agree with the given statement). 3.2 entropy promethee gaia method this paper used the combined entropy – promethee gaia method in order to rank alternatives. the entropy method is often used as a tool for obtaining the weight of criteria. entropy is a measure of difference in the amount of information that is contained in the value of criteria. it represents the strength of criteria describing alternatives, i.e. each value of the alternative for each criterion contains information that can be measured through the value of entropy. weights obtained with entropy are based on the information given in the decision matrix and represent measures of information quantity contained in the value of criteria (hafezalkotob & hafezalkotob, 2016; chirag et al., 2016). alternatives criteria gq1 gq2 gq3 gq4 gq5 i1 4.25 3.46 3.70 3.75 3.14 i2 4.39 3.25 3.46 3.12 2.95 i3 4.29 3.64 3.76 3.74 2.87 i4 4.43 2.58 2.94 2.88 3.11 i5 4.10 3.44 3.49 3.63 3.12 nenad milijić, anđelka stojanović, ivan mihajlović, ivan jovanović, momir popović 2022/27(3) 38 for the final ranking of alternatives, preference ranking organization method for enrichment evaluation (promethee) was used. the implementation of the promethee-gaia method consists of several steps: first, defining all the elements of decision matrix (set of alternatives, set of criteria, importance of each criterion, preference functions for each criterion and criteria directions); then calculating the differences between two alternatives and preference of one alternative over another (nikolic et al., 2009; brans & de smet, 2016; zivkovic, et al., 2017). finally, the promethee ranking is based on determining the positive (φ+) and negative flows (φ-) for each of the alternatives. a positive flow of preference shows how much a particular alternative is prefered over other alternatives. if the value is greater (φ+ → 1), the alternative is more significant than the other alternatives. a negative flow of preference indicates how much a particular alternative is preferred over other alternatives. the alternative is more significant if the flow value is lower (φ→ 0). the complete ranking, according to the promethee ii method, is based on the calculation of net flow (φ), which represents the difference between a positive and a negative flow of preference. the alternatives that have the highest net-flow value are the best-ranked and so on until the lowest-ranked alternative (anand and kodali 2008; brans and mareschal 1994; brans et al., 1986). ever since the first usage until today promethee method has undergone various improvements. one of the most useful that complements entropy to the method was the introduction of the gaia plane that allows graphic presentation of obtained results (mareschal & brans, 1988). nowadays the promethee-gaia is successfully used in various research fields such as ranking and selection of business activities planning (kilic et al., 2015), education (murat et al., 2015; zivkovic et al., 2017; ishizaka & resce, 2020), occupational safety (milijic et al., 2014), as well as transportation (sennaroglu & celebi, 2018). in this paper, the entropyprometheegaia method based on 5 criteria was applied and the multi-criteria analysis of safety climate in project-oriented organizations in five types of industrial projects was made. five groups of questions from the questionnaire -factors of safety climate: gq1 safety and competence awareness, gq2 occupational safety management commitment, gq3 safety training and tools, gq4 safety practices and procedures and gq5 organizational environment were chosen as the criteria. alternatives were defined in accordance with the aforementioned division of industrial sectors: mechanical engineering (i1), furniture industry (i2), energy (i3), high-rise construction (i4) and civil engineering (i5). in addition, for each project type, a multi-criteria analysis of safety climate was performed for three job positions (manager (wp1), production worker (wp2) and non-production worker (wp3)). 4. research results and discusion after collecting the input data from employee survey, assigning a preference function, calculating the weight coefficients of the criteria by the entropy method and forming evaluation matrices using the visual promethee software package, ranking the climate safety level was performed in five types of industrial projects. subsequently, the same methodology was used to rank safety climate at different workplaces on projects. 4.1 multi-criteria analysis of safety climate in project-oriented organizations in different industrial sectors in this case, a multi-criteria analysis and the final ranking of safety climate level in project-oriented organizations in five different industrial sectors were performed. the baseline data for the implementation of the promethee method represent the average scores of respondents in the five industry sectors for all five groups of questions in the survey (table 1). table 1: baseline data for promethee calculation (safety climate in different industrial sectors) criteria gq1 gq2 gq3 gq4 gq5 weight coefficients 0.1997 0.2003 0.2000 0.2002 0.1997 preference function level level level level level min/max max max max max min rank alternatives + 1 i3 0.3252 0.0000 0.3252 2 i1 0.2252 0.0750 0.1502 3 i5 0.1502 0.1749 -0.0247 4 i2 0.1749 0.2002 -0.0253 5 i4 0.0250 0.4504 -0.4254 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) 39 in the following, after entering the input data, specifying the most favorable function of preference for the analyzed data type, and determining the weight coefficients of the criteria, an evaluation matrix was formed (table 2). on the basis of the evaluation matrix, the ranking of alternatives was conducted. table 2: preference functions and weight coefficients of the criteria for the evaluation and ranking of safety climate in different industrial sectors the results of the complete ranking (promethee ii) of safety climate in project-oriented organizations based on the opinions of employees in different industrial sectors, as well as the flows of preferences, are shown in table 3. additionally, the ranking results are shown on the gaia plane (figure 1). the gaia plane view is an extremely useful tool for drawing meaningful conclusions from the multi-criteria analysis. table 3: results of the complete ranking of safety climate in project-oriented organizations based on the opinions of employees in different industrial sectors based on the obtained results, it is noted that the best-ranked alternative is i3 (energy). this means that, based on the responses of the surveyed employees, safety climate on projects in the energy was rated very favorably, which is a significant prerequisite for a high level of occupational safety. on the other hand, according to the respondents, the worst-ranked alternative is i4 (high-rise construction). it can be concluded that safety climate in the energy (i3) and mechanical engineering (i1) projects is at a satisfactory level. when looking at projects in the field of civil engineering (i5) and furniture industry (i2), there is the need for improvement of safety climate. the decision stick (pi stick) on the gaia plane (figure 1) represents the weights of the criteria and indicates their reliability. because the weights of the criteria are determined by the objective method of entropy, the gaia plane shows a high compliance of the weight with the preferences obtained based on the respondents' answers. when it comes to the criteria, the gaia plane indicates that there are no conflicts between safety climate factors. the distance of criteria from the coordinate start of the gaia plane indicates that organizational environment (gq5) has the highest discriminatory value in the ranking, which means that this factor has the greatest impact on the overall ranking while the factor safety and competence awareness (gq1) has the lowest value. also, the gaia plane indicates that in civil engineering projects (i5), safety climate factors that need to be promoted are safety awareness and competency (gq1), training and safety tools (gq3), and organizational environment (gq5). when considering the opportunities for improving safety climate on projects in the furniture industry, the following factors should be emphasized: commitment to occupational safety management (gq2), training and safety tools (gq3), and safety practices and procedures (gq4). finally, for high-rise construction projects, in addition to the developed safety awareness and adequate competencies of employees, all other factors of safety climate need significant improvement. rank alternatives + 1 i3 0.3252 0.0000 0.3252 2 i1 0.2252 0.0750 0.1502 3 i5 0.1502 0.1749 -0.0247 4 i2 0.1749 0.2002 -0.0253 5 i4 0.0250 0.4504 -0.4254 nenad milijić, anđelka stojanović, ivan mihajlović, ivan jovanović, momir popović 2022/27(3) 40 figure 1: gaia plane of safety climate ranking in different industrial sectors in order to determine the magnitude of preferred relationships with a given safety climate ranking in different industrial sectors in project-oriented organizations, a sensitivity analysis of the criteria weights was performed (table 4). with this analysis it is possible to determine the stability intervals for each criterion. the stability interval defines the limits within the range of weight coefficients of a given criterion that can be changed without affecting the resulting ranking. for that purpose, the weight of only one criterion changes, while the relative weights of the remaining criteria remain unchanged (nikolic et al., 2009). table 4: weight coefficient stability intervals based on the results of the sensitivity analysis of the weights of the criteria used in the ranking of safety climate in different industrial sectors in project-oriented organizations, it is observed that a change in the ranking order would occur if the gq1 (safety and competence awareness), gq2 (occupational safety management commitment), gq4 (safety practices and procedures) and gq5 (organizational environment) change their values beyond the limits shown in table 4. on the other hand, even if the value of the gq3 (safety training and tools) criterion weights vary within very extreme limits, it would not cause changes in the ranking of alternatives. alternatives criteria gq1 gq2 gq3 gq4 gq5 i1 wp1 3.69 4.17 3.96 3.68 2.87 i1 wp2 4.46 3.23 3.51 3.79 3.05 i1 wp3 4.10 3.53 4.03 3.69 3.60 i2 wp1 4.47 3.48 3.65 3.21 3.02 i2 wp2 4.38 3.13 3.26 3.11 2.76 i2 wp3 4.13 3.17 4.08 2.79 4.00 i3 wp1 4.50 4.05 3.71 3.94 2.42 i3 wp2 4.18 3.54 3.79 3.69 2.89 i3 wp3 4.62 3.08 3.58 3.50 4.16 i4 wp1 4.50 2.25 2.50 2.36 4.00 i4 wp2 4.43 2.59 3.02 2.94 3.06 i4 wp3 4.25 3.00 1.67 2.00 3.00 i5 wp1 4.75 5.00 3.83 4.86 2.50 i5 wp2 4.04 3.35 3.41 3.51 3.10 i5 wp3 4.25 3.17 4.17 4.00 4.00 rank alternatives + 1 i5 wp1 0.6502 0.0214 0.6288 2 i3 wp1 0.4572 0.0500 0.4072 3 i1 wp1 0.3574 0.1570 0.2003 4 i3 wp2 0.2930 0.1428 0.1501 5 i1 wp3 0.2930 0.1999 0.0932 6 i2 wp1 0.2500 0.1572 0.0928 7 i1 wp2 0.2215 0.1572 0.0643 8 i5 wp3 0.2644 0.2071 0.0574 9 i2 wp2 0.2285 0.2359 -0.0074 10 i5 wp2 0.1930 0.2571 -0.0642 11 i3 wp3 0.1786 0.2857 -0.1072 12 i2 wp3 0.1572 0.3572 -0.2000 13 i4 wp2 0.1285 0.3931 -0.2646 14 i4 wp3 0.0714 0.5432 -0.4718 15 i4 wp1 0.0714 0.6504 -0.5790 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) 41 4.2 multi-criteria analysis of occupational safety climate in project-oriented organizations in different industrial sectors in the continuation of the research, a multi-criteria analysis and final ranking of occupational climate safety levels in project-oriented organizations in different industrial sectors were performed. the baseline data for the implementation of the promethee method represent the average estimations of the respondents for all five questionnaire groups in the three positions (manager, production worker and non-production worker) in all five industry sectors studied (table 5). table 5: promethee calculation baseline data (occupational safety climate in different industrial sectors) after determining the input data, the predefined function of preference and weight coefficients of criteria, an evaluation matrix was formed, on the basis of which the ranking of alternatives was made. the results of the complete ranking (promethee ii) of safety climate in project-oriented organizations based on the opinions of employees at different workplaces in different industrial sectors, as well as the flows of preferences, are shown in table 6. additionally, the ranking results are also shown using the gaia plane (figure 2). table 6: results of a complete ranking of safety climate in project-oriented organizations based on the opinions of employees at different workplaces in different industrial sectors nenad milijić, anđelka stojanović, ivan mihajlović, ivan jovanović, momir popović 2022/27(3) 42 based on the obtained results, it is observed that the highest-ranked alternatives are i5 wp1, i3 wp1 and i1 wp1, respectively. this result is expected, as managers have best evaluated safety climate in their workplaces. in addition, safety climate is also rated very favorably in complete industries in which these managers are engaged. when it comes to production workers on projects, the most favorable safety climate is in energy workplaces (i3 wp2). for non-productive workers, the most favorable safety climate is on projects in the field of mechanical engineering. on the other hand, the most unfavorable safety climate was found in all jobs in construction projects (i4 wp2, i4 wp3, i4 wp1, respectively). these are workplaces where almost all safety climate factors are needed. it seems very worrying that the absolute most unfavorable safety climate has been found among managers on building projects. this fact can be the cause and explanation for the generally unfavorable safety climate in these types of projects and ultimately very unfavorable occupational safety level of employees. the gaia plane positions of alternatives are such that those with similar profiles relative to the criteria are positioned closer to each other. finally, looking at the positions of the alternative in relation to the positions of the criteria, in figure 2, all the workplaces and safety climate factors that have been poorly evaluated can be observed, which is a starting point for the more detailed analyses. figure 2: gaia plane of the ranking of safety climate at different workplaces in different industrial sectors in order to determine the magnitude of the preferred relationships with a given ranking of occupational safety climate in project-oriented organizations in different industrial sectors, a sensitivity analysis of the criterion weights of the criteria was performed (table 7). criteria starting weight coefficients (%) stability intervals (%) min max gq1 19.970 17.70 20.03 gq2 20.032 19.26 33.29 gq3 20.002 19.93 20.96 gq4 20.021 19.95 22.52 gq5 19.972 18.85 20.05 safety climate as the basis for the formation of adequate occupational safety in an organization is a very important area of research. this area becomes even more significant when studying occupational safety in project-oriented organizations, that is, projects as temporary structures. in order to analyze the influential factors of safety climate in detail, multi-criteria analysis methods represent very useful tools. the multi-criteria analysis of safety climate in project-oriented organizations, i.e. on the implementation of various industrial projects leads to some significant conclusions. through the analysis of the sample industrial sectors with significant safety climate deficiencies were identified. in that sense, it is necessary to emphasize high-rise construction as an industrial sector in which safety climate shows serious shortcomings. in addition, the methodology applied allowed for a precise determination of factors whose enhancement would significantly improve safety climate in project-oriented organizations, both at the level of individual jobs and in the organization as a whole. at the industrial sector level, occupational safety, management commitment and organizational environment turned out to be the factors that, in terms of improving safety climate, require significant improvements. the analysis of individual jobs indicates that with a more appropriate occupational safety management commitment, safety climate would be improved in most of the jobs studied. adopting these guidelines would, in practice, improve safety climate in project-oriented organizations as well as occupational safety, which would, of course, reduce the number of workplace injuries as one of the imperatives of modern business. finally, with the presented methodology, it is possible to assess safety climate in any project-based organization and, in case of shortcomings, focus managers' attention on safety climate factors that need to be improved. conslusion management: journal of sustainable business and management solutions in emerging economies 2022/27(3) 43 table 7: weight coefficient stability intervals based on the results of the sensitivity analysis of weight coefficients of the criteria used in the ranking of 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(2017). the university of belgrade on arwu list part i: the impact of individual faculties on the achieved position using promethee-gaia method, serbian journal of management, 12(2), 171 – 187. doi: 10.5937/sjm12-13562 received: 2020-03-02 revisions requested: 2020-05-08 revised: 2020-07-01 (1 revision) accepted: 2020-07-26 nenad milijić university of belgrade, technical faculty in bor, serbia nmilijic@tfbor.bg.ac.rs nenad milijić, phd, is an assistant professor at the university of belgrade, technical faculty in bor, engineering management department. his main research interests include manufacturing management, occupational safety, project management and application of quantitative methods in management. he is the author or co-author of two books, three chapters in monographs, and over 80 papers published in scientific journals and at scientific conferences. anđelka stojanović university of belgrade, technical faculty in bor, serbia anstojanovic@tfbor.bg.ac.rs anđelka stojanović, msc, is a teaching assistant at the university of belgrade, technical faculty in bor, engineering management department. she graduated and completed her master studies at the technical faculty in bor, university of belgrade. currently, she is a phd student at the same university. she teaches the following courses: decision making theory, reliability theory, logistics, and theoretical fundamentals of the master work preparation. the areas of her research interest and competence are multi-criteria decision-making methods, statistical analysis, corporate social responsibility, and sustainable development. ivan mihajlović university of belgrade, technical faculty in bor, serbia imihajlovic@tfbor.bg.ac.rs ivan mihajlović, phd, is a full professor at the university of belgrade, technical faculty in bor, engineering management department. he teaches the following courses: production management, system theory, logistics and operational management. currently, the main focus is on exploring and solving problems related to operational management with the application of methods of linear and nonlinear statistical analysis, kinetic analysis of technological processes and ecological management. he is the author or co-author of four books, five chapters in monographs, and over 120 papers published in international and national scientific journals. ivan jovanović university of belgrade, technical faculty in bor, serbia ijovanovic@tfbor.bg.ac.rs ivan jovanović, phd, is a full professor at the university of belgrade, technical faculty in bor, engineering management department. he teaches the following courses: entrepreneurship, reliability theory, operational research 2, knowledge management. he is the author or co-author of 7 books, four chapters in monographs, and over 100 papers published in scientific journals and at scientific conferences. momir popović university of belgrade, technical faculty in bor, serbia mpopovic@tfbor.bg.ac.rs momir popović, msc, is a teaching assistant at the university of belgrade, technical faculty in bor, engineering management department. he has completed his undergraduate and master academic studies at the same university. currently, he is a phd student at technical faculty in bor, university of belgrade. he is a teaching assistant at the following courses: project management, decision theory, production management, reliability theory and management information systems. nenad milijić, anđelka stojanović, ivan mihajlović, ivan jovanović, momir popović 2022/27(3) 46 about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 7 27_1 violeta domanovic:tipska.qxd 69 violeta domanović* university of kragujevac, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(1) the relationship between esg and financial performance indicators in the public sector: empirical evidence from the republic of serbia doi: 10.7595/management.fon.2021.0032 abstract: 1. introduction in the public sector, performance can have different dimensions such as outputs, efficiency, service outcomes, responsiveness and democratic outcomes (boyne,2002). the performance of public organizations can be viewed from different perspectives: performance as production, performance as competencies/capacity, performance as good results and performance as sustainable results (dubnick, 2005). in order for public organizations to function better, it is important to evaluate and analyse performance. performance measurement encompasses several activities: defining the measurement object, defining performance indicators, data collection, data analysis, and reporting (van dooren, bouckaert & halligan, 2015, p. 32), and * corresponding author: violeta domanović, e-mail: violeta.domanovic@gmail.com research question: this paper investigated whether a relationship exists between environmental, social and corporate governance (esg) performance indicators and financial performance measures in the public sector. motivation: performance measurement plays a significant role in public management and public policy and could be considered to be a segment of the whole performance management process. growing awareness of climate change, human capital and corporate governance issues have imposed the necessity of introducing environmental, social and corporate governance performance indicators (esg) in public enterprises’ annual reports. esg performance indicators encourage investors to make socially responsible investment decisions (de lucia, pazienza & bartlett, 2020). hence, the paper is focused on the specifics of measuring performance in the public sector. besides, it is very interesting to acquire knowledge about the correlation between esg indicators and financial performance measures (kalaitzoglou, pan & niklewski, 2020; landau, rochell, klein & zwergel, 2020). idea: the purpose of the research is to highlight relevant performance measures in the public enterprises in the energy sector in the republic of serbia and to examine whether the application of the esg indicators implies better financial performance. data: four large serbian companies in the energy sector were analysed. data were collected on the web site of the agency for business registers of the republic of serbia. the observation period is from 2017 to 2019. the financial performance indicators are roa, roe and the economy ratio. tools: based on annual financial statements, non-financial reporting of public companies is monitored, whether companies invest in environmental and social protection, as well as whether they implement activities directed to more consistent implementation of corporate governance. the dynamics of selected financial indicators is analysed according to base and chain indices. findings: the results show that the public enterprises in the energy sector of the republic of serbia mainly report on traditional financial measures in their annual financial statements. one of them applies all esg indicators and the others do it partially. however, no direct and positive correlation between esg indicators and financial performance measures could be found. conversely, there is the case that esg indicators have no linkage with the financial performance measures. contribution: this paper contributes to the existing literature in the field of public enterprises’ sustainability. keywords: public sector, sustainability, esg indicators, financial performance measures. jel classification: m10, m21 plays a key role in the public sector reform, but it goes beyond the reform itself. it plays a significant role in public management and public policy and is a segment of the performance management process. measuring the performance of public organizations has certain specifics: process measures can also be output measures because they provide intangible products, i.e., services; outcome assesses the impact of a product or service on the defined goals of the production process and can be long-term or short-term; efficiency measures estimate the output level for a given input level, while effectiveness measures assess the level of outcome for a given level of input (wang, 2010, p. 38-41). growing awareness of climate change and human capital issues has shifted companies’ attention to aspects other than traditional financial performance measures. increasing attention is being paid to issues of sustainability and thus the availability of environmental, social and governance (esg) indicators encourages investors to make socially responsible investment decisions. hence, the paper is focused on the specifics of measuring performance in the public sector. specifically, the research focuses on contemporary environmental, social and governance (esg) performance indicators and traditional financial performance measures, as well. the purpose of the research is to highlight relevant performance measures in the public enterprises in the sector of energy in the republic of serbia and to examine whether the esg performance indicators imply better financial performance. some empirical studies analyse the impact of esg indicators on traditional financial performance measures as well as sustainability performance. de lucia, pazienza & bartlett (2020) investigated the accuracy of major financial indicators such as return on equity (roe) and return on assets (roa) of public enterprises in europe based on esg indicators and other economic metrics, as well as whether esg initiatives affect the financial performance of european public companies and how esg factors can contribute to advancing the ongoing debate on csr policies and practices in europe. ahmad, mobarek and roni (2021) re-investigated the influence of esg indicators on the financial performance of 351 uk firms in 10 industries. the authors analysed how composite esg indicator as well as its particular dimensions impact on market value and earnings per share as corporate financial performance. they concluded that this relationship depends on firm size. esg performance reflects the corporate social responsibility (csr) activities. rajesh and rajendran (2020) accentuated that esg scores could be an indicator for corporate sustainability performance. the authors examined the relationship between esg and sustainability performances. the authors found a " significant and negative moderating effect of esg performances". in order to more successfully implement strategy and policy into practice, it is necessary to make the priority list of esg score individual dimensions. nguyen and trinh (2020) point out that the companies should balance the costs and benefits of csr activities. this is because there is a non-linear relationship between csr activities and benefits in case of energy firms in vietnam. the paper starts from the following research question: rq: does a relationship exist among environmental, social and corporate governance (esg) performance indicators and financial performance measures in the public sector? in order to test the hypothesis, a qualitative methodology was applied, based on the study and descriptive analysis of the research problem. in addition, base and chain indices are used to monitor the dynamics of financial performance measures. accordingly, the paper first provides a theoretical overview of the correlation between esg performance indicators and financial and market performance. then, we carried out an empirical analysis of the performance of public enterprises in the energy sector in the republic of serbia from 2017 to 2019, after which relevant conclusions are drawn and future directions of research are defined. 2. literature review performance measurement plays a key role in the public sector reform (van dooren et al., 2015, p. 8; bouckaert & peters, 2002; poister, 2003, p. 17-18; lapsley & wright, 2004). growing awareness of climate change and human capital issues is shifting companies’ attention to aspects other than traditional financial performance measures. increasing attention is being paid to issues of sustainability and the availability of environmental, social and governance (esg) indicators encourage investors to make socially responsible investment decisions (de lucia et al., 2020). the companies that are devoted to the sustainability issues could exist longer and acquire greater market power than traditional ones. sustainability reporting has become the necessity of companies’ survival in contemporary business environment and there are a lot of discussions on sustainability reporting models gri, iirc, sasb (landrum & ohsowski, 2018; paun, 2018; 70 violeta domanović 2022/27(1) shoaf, jermakowicz & epstein, 2018). the new law on accounting of the republic of serbia on january 1, 2020, introduced the obligation of non-financial reporting, which is in line with the sustainable development goals that imply that countries should encourage large and transnational companies to integrate sustainable practice in business and include sustainability information in their reporting (law on accounting, 2019; responsible business forum, https://odgovornoposlovanje.rs/vesti/fop/obaveza nefinansijskog-izvestavanja-uskoro-i-za-kompanije-u-srbiji, access date 03.11.2020 ). bilbao-terol, arenas-parra, alvarez-otero and cañal-fernández (2019) accentuated that corporate sustainability is imperative in a contemporary business environment. the authors accentuated that all corporations should consider both the positive and negative consequences of their corporate decisions. they integrated "csr valuations with the financial performance in a unique measure of global sustainability performance". jintao, licheng, jiayuan, siqin, wadim and streimikis (2019) examined how the concept of corporate social responsibility affects the sustainability at the enterprise as well as the country levels. there was the energy sector in focus bearing in mind the importance of its economic, environmental and social impacts. the authors analysed the principal aspects of csr activities where energy companies might give a positive impact on the sustainable energy development: decreasing the negative environmental impact, economic and social development and good governance. the authors accentuate that csr could relieve the corruption risks in the energy sector and find that this is valid at the enterprise level. rongjia, chunping and weili (2020) investigated the differential effects of csr dimensions on corporate financial performance across sectors in china. the authors quantified csr efforts by corporate expenditures on csr practices and found that the environmental dimension was in negative correlation with the "financial performance in capital-intensive manufacturing industries". the hr expenditure impacts are negative on financial performance "in the tertiary sector and resource intensive manufacturing industries". on the other hand, investments in the community are in positive correlation with the "financial performance in resourceintensive industries and other secondary sectors". kemal and serife (2020) considered the impact of esg "performance on the economic performance of the standard & poor’s 500 companies". the authors concluded that esg model, generally, had a high impact on economic performance. however, they revealed that environmental performance had a weak relationship with the economic performance. saygili, saygili and taran (2021) examined corporate governance practices on "financial performance of borsa istanbul xkury-indexed companies during 2007–2019". the authors analysed four aspects of corporate governance: "shareholders’ rights, public disclosure and transparency, stakeholders’ rights, and board of directors’ functioning". the results showed that there was a positive correlation between stakeholder-oriented governance practices and financial performance measures, such as accounting measures for both financial and non-financial companies. besides, shareholder protection policies have a negative impact on accounting performance measures, especially for non-financial industries, while the corporate practices that are referred to board of directors and public disclosure vary between financial and non-financial entities. johnson, mans-kemp and erasmus (2019) examined the relationship between esg indicators and financial performance in south africa for 66 companies from six sectors, listed on the johannesburg stock exchange between 2011 and 2016. the authors observed the significant relationships between esg and financial performance depending on sectors. siminica, cristea, sichigea, noja and anghel (2019) examined the correlation between the csr dimensions – economic, environmental, social, financial performance (roa, roe) and corporate governance. the authors found that "csr economic dimension had a positive impact on roa, while csr environmental and social dimensions have a negative impact on roa, but corporate governance affects the financial performance measures in a positive manner". de lucia et al. (2020) concluded that there is a positive relationship between esg practices and financial performance indicators, such as roa and roe. this becomes more apparent when companies also invest in ecoinnovation, employee productivity and diversification, and equal opportunities policies. ahmad et al. (2021) found out that total esg indicator has a positive and significant impact on financial performance depending on firm size. considering the firm’s individual dimensions, the results are mixed. minutolo, kristjanpoller and stakeley (2019) investigated how disclosure of environmental, social and governmental practice and activities of the companies reflect on financial performance such as tobin's q and return on assets (roa). the authors found out that this relationship depended on the size of the company according to sales and capitalization. small companies are forced to focus on profit more than on esg disclosure and it was vice versa with large companies. 71 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) hussain, rigoni and cavezzali (2018) analysed the sustainability reports of 100 us firms that have the best performances and found that there was a poor and contradictory correlation between sustainability performance and sub-dimensions. liagkouras, metaxiotis and tsihrintzis (2020) made an algorithm in order make "socially responsible portfolios" and emphasized that investors’ welfare is in a negative correlation with the environmental and social aspects of their investments. chen-en, wen-min & shiu-wan (2019) explored the correlation between "corporate social responsibility and financial performance of the creative industry". the research result showed that csr has a significant positive impact on the financial performance of the creative industry. garefalakis & augustinos (2020) pointed out that esg indicators should be weighted since all esg factors are not of equal importance and suggested "the specific minimum and maximum weights per esg dimensions so we could better understand the mere complexity of such composite scores". rajesh (2020) examined which dimension of esg factors should be improved in developing countries, such as india. the author points out that environmental innovation score and csr strategy score have a significant impact on esg performance, while shareholders, management and human rights score have the lowest impact on total esg performance, respectively. hence, the author concluded that the companies in developing countries should improve their governance performance in order to get better sustainability score. fiaschi, giuliani, nieri and salvati (2020) examined what might be wrong with the application of esg factors and developed "an index of corporate misconduct in relation with the understanding of the universal human rights". daugaard (2020) points out that there are controversial opinions about the relationship between esg and financial performance. the author considered many other issues regarding esg investment, such as " human element, climate change, fund flows, fixed income and the rise of non-western player. kalaitzoglou, pan and niklewski (2020) investigated how specificities of companies affected the correlation between csr and corporate financial performances. the authors suggested the "threshold level at which the marginal influence of csr and financial performance become positive". landau, rochell, klein and zwergel (2020) investigated the role of integrated reporting in annual reports and accentuated the role of the reports’ quality for market valuation of the companies. grassmann (2011) investigated the interconnection between csr activities costs and firm value. integrated reporting on financial as well as non-financial performance was used as a moderator. grassmann (2021) revealed that integrated reporting had a positive moderating role in the relationship between environmental costs and company value, which is not the case for social costs and company value. huang (2021a) considers to what extent environmental, social and governance factors impact firm value and how institutional investors could merge these factors in their decision-making. the author starts from three different perspectives: conventional financial pointing out that esg factors have a positive and significant impact on corporate financial performance measures; agency theory pointing out that esg disclosure reduces informational asymmetry between managers and shareholders and stakeholder perspective pointing out that esg factors have an impact on all other stakeholder decision-making. huang (2021b) made a review and consolidated various theoretical and empirical studies referred to the correlation between esg factors and corporate financial performance measures. generally, the conclusion is that there is a positive and statistically significant but economically frugal interconnection. besides, the author found out that the environmental dimension had a stronger impact on corporate financial performance than social or governance ones. also, the correlation is stronger on operating performance than on accounting performance. on the other hand, the impact is stronger on accounting than on market performance. huang (2021c) integrated different approaches and theories in order to conclude why profit-seeking companies perform environmental, social and governmental practices and in what relationships these esg factors with the corporate performance are. kuzey, uyar, nizaeva and karaman (2021) state that there is no universal answer on the question whether csr practices impact corporate financial performance. they point out that it depends on metrics and on the sector. buallay (2020) made a comparison between the manufacturing and the banking sectors in terms of the level of sustainability reporting and the impact of sustainability reporting on financial and market performance. the author concluded that esg indicators have a positive impact on operational, financial and market performance in the manufacturing sector, but a negative one in the banking sector. nguyen (2021) has found out that there is no coherence between environmental and financial performance in heavily polluting industries in china. hence, the authors point out that there is a necessity of reporting more environmental performance, which would have significant influence on major stakeholders through making up their decisions, and what would give a positive impact on financial performance of the companies in heavily polluting industries. kuo, chen and meng (2021) examined whether esg practices in airline companies contributed to better corporate financial performance or not. the authors concluded that at the very beginning, esg practices and financial performance were in negative correlation and later on, the relationship between esg and financial performance gradually increased. the authors for the first time introduce airline owner72 violeta domanović 2022/27(1) ship type as a moderator between esg performance and return on assets as a corporate financial performance. okafor, adeleye and adusei (2021) examined the relationship between csr practices and corporate financial performance in u.s. tech companies. the authors revealed the positive correlation between csr and revenue, roa and stock value increase, but not with the tobin’s q. khaled, ali and mohamed (2021) revealed that it is more possible that companies which have better profitability measures and size would achieve better sustainability performance. besides, the financial leverage has a significant influence on corporate esg performance. hristov, appolloni, chirico and cheng (2021) gave a systematic review of the possibilities and limitations of introducing the environmental dimension into the performance management system. also, the authors developed a new and original conceptual model for introducing the environmental factors into the whole strategic management process. seong and cheol (2019) examined how managerial efficiency impacts on csr outcomes. the authors emphasized that "efficient managers are more interested in improving corporate financial performances than in environmental dimension of csr". cho and lee (2019) examined the relationship among "managerial efficiency, corporate social responsibility and financial performance and found, on average, managerial efficiency to be in positive correlation with a following change in corporate social performance, even though the coherence was weak at the level of total corporate social performance”. 3. research methodology in order to test the starting hypothesis, a sample of four large serbian companies in the energy sector was used. only companies with over 500 employees were taken. data were collected on the web site of the agency for business registers of the republic of serbia. table 1 shows the list of large companies in the field of energy supply in the republic of serbia. public companies in the field of energy have been singled out in relation to the definition of energy activity (the energy law (2018), https:// paragraf.rs/propisi/zakon_o_energetici.html. date of access 03.11.2020). table 1: list of public companies in the field of energy in the republic of serbia source: author, based on the energy law (2019) based on annual financial statements, non-financial reporting of public companies in the republic of serbia is monitored, i.e., whether companies invest in environmental protection (environmental indicator e), social protection and professional development of employees (social indicator s), as well as whether they implement activities directed to faster and more consistent implementation of corporate governance (governmental indicator g). in order to have a better tabular overview, the companies are numbered as follows: jp "elektroprivreda srbije" 1, "elektromreža srbije'' 2, jp '' srbija gas '' 3 and jp peu ''resavica '' 4. relevant financial performance indicators were calculated on the basis of data from official correct financial statements published on the website of the business registers agency (business registers agency, https://www.apr.gov.rs). the observation period is three years, i.e., from 2017 to 2019. the dynamics of selected financial indicators is graphically illustrated, based on the base and chain indices. the financial performance indicators are the rate of return on the average assets value (roa), the rate of return on the average equity value (roe) and the economy ratio. roa is calculated as the ratio between net profit and average assets value. roe is calculated as the ratio between net profit and average equity value. in some companies there was no possibility to calculate roe due to the fact that these companies in the observed years had a loss above the amount of capital due to a large loss from previous years and/or loss in the current year. the economy ratio is calculated as the ratio between total income and total expenses. the economy ratio threshold is 1. 4. results and discussion table 2 shows the representation of esg indicators in the annual financial statements of the observed companies. 73 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) ������� � �� �� � ���� �� ����� � �� �� � ��� � ���� �� �� �� �� ��� �� ������������������ ��������� � �� ��������������� �������������� ��� ���������� � �������� ���� !� "�����#� �"�����#�� table 2: esg indicators in annual financial statements source: author, based on the annual financial statements based on the data from table 2, it can be concluded that all observed large public companies have invested certain funds in environmental protection in all observed years. the company jp ''srbija gas'' and jp peu ''resavica'' pay special attention to social issues. not all companies take action to improve the public sector governance. ''elektromreža srbije'' undertook corporate governance activities in 2018 and 2019, and jp ''serbia gas'' have undertaken the same in all observed years. only jp ''srbija gas'' reports on all esg indicators in all years of the observed period. table 3 shows the financial performance indicators of the company jp "elektroprivreda srbije" from 2017 to 2019. table 3: financial performance indicators of the company jp "elektroprivreda srbije" in 000 rsd source: author’s calculation, based on data from public correct financial statements available on the website of the business registers agency, https://date of access 03.11.2020. table 4 shows the dynamics of financial performance for the company jp "elektroprivreda srbije" from 2017 to 2019. it can be noticed that in 2018, all observed indicators decreased. in 2019, roa increased by about 9% and roe by about 10% compared to 2017. it is important to point out that in 2019, there was a noticeable increase in roa and roe, by as much as 131, or 135%, respectively, compared to the previous 2018. it is important to point out here that the observed company in its annual financial statements reports on the environmental indicator, i.e., investment in environmental protection, but not on social and governance indicators. thus, it is hard to make a relationship between environmental indicator and financial performance indicators. table 4: financial performance dynamics for jp ’’elektroprivreda srbije’’in the period 2017-2019 source: author’s calculation *bi – base indices; ci – chain indices table 5 shows the financial performance indicators of the company "elektromreža srbije" from 2017 to 2019. 74 violeta domanović 2022/27(1) ���� ���� �� �� ����� ����� ����� �� �� �� �� �� �� �� �� �� �� �� �� �������� � �� � � � � � � � � � � � � ������ � � � � � � � � � � � � ��� ����� � � � � � � � � � � � � ���������� �� ����� � ����� ����� ����� ������� ���� ��� ��� ��� ������� ��� ����� ����� ���������� ���� ��������� � ������� ��� ����������� ������������������ ���������� �� ���� �� ���������� ����������� ���������� ���������� ���� ����� !���"���������!��#�� ������������ ��������� �� ������������ !���"���$#��%�!��#�� ������������ �� ��������� ����� ����&�� �������� ����� ����� ����� �������� ����� ����� �� �� �� � �!���"� � ����� ����� ����� ������ �� � �� � �� ���������� ��� ��� ��� ��� ��� ��� ����� ���� �� ���� �� ���� �� ��� � �� �� �� �� ��� ��� ����� ���� ���� ���� �� � � � ���� table 5: financial performance indicators of the company "elektromreža srbije" in 000 rsd source: based on data from public correct financial statements available on the website of the business registers agency, https://date of access 03.11.2020 table 6 shows the dynamics of financial performance of the company "elektromreža srbije" from 2017 to 2019. there is a decline in all indicators in all observed years, both in relation to the base year (2017) and in relation to the previous year (chain indices). the biggest drop is in 2019, in roa and roe, in comparison with 2018. a slightly smaller decline is noticeable in the economy ratio. the observed company has environmental and governance performance indicators in its annual financial statements, i.e., reports on investment in environmental protection and development of corporate governance, which did not have effects on improving financial performance in a given period. on the contrary, all financial performance indicators had been decreasing during this period. this result is not consistent with the research results of many empirical studies (ahmad et al., 2021; de lucia et al., 2020; liagkouras et al., 2020; rongjia et al., 2020; jintao et al., 2019). however, the result is comparable with those of other studies. kemal and serife (2020) revealed that environmental performance had a weak relationship with the economic performance. siminica et al. (2019) found out that roa is in a negative correlation with the environmental and social dimensions of csr. hussain et al. (2018) revealed that the coherences among different dimensions of sustainability performance and sub-dimensions are quite weak and contradictory. table 6: financial performance dynamics for ’’elektromreža srbije’’ from 2017 to 2019 source: author’s calculation *bi – base indices; ci – chain indices table 7 shows financial performance indicators for jp “srbija gas” from 2017 to 2019. table 7: financial performance indicators for jp “srbija gas” in 000 rsd source: based on data from public correct financial statements available on the website of the business registers agency, https://date of access 03.11.2020 *note: considering that the company has a capital of 0 in 2017 and 2018 because it made a loss above the amount of capital, therefore the rate of return on capital (roe) was not calculated. 75 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) ���������� �� ����� � ����� ����� ����� ������� ���� ������� �� ������ ��� �� ������� ���������� ���� ���������� ��������� ���������� ������������������ ������� �� ��� ������ ���������� ����������� ��� ������ ������ �� ���� ��� � !���"���������!��#�� ����������� ����������$�� ��������� $�� !���"���%#��&�!��#�� ��� ����� $�� ����������$�� ���� ������ �������� ����� ���� ���� �������� ����� ����� ����� �� � � ���!� � ����� ����� ����� � ������ �� � �� � �� ���������� ��� ��� ��� ��� ��� ��� ����� ���� �� ���� �� ���� �� ��� � � � �� �� ��� ��� ����� � � �� ��� �� ��� ��� ���������� �� ����� � ����� ����� ����� ������� ���� ������������ �������������������������������� ���������������������������������������� ���������� ���� ����������������� ���������������������������������������������������������� �� ����� ������������������ �������������������������������������������������� ��������������������������������� ��� ����������� ������������������������������������������������� ����������������������������������� �� !���"��������!��#�� ��������������� ����������������������������������������������������������� ���������� !���"���$#��%�!��#�� ����&�������!���'���$#��%�������&�������!���'���$#��%������������� ��������� �������� ������ ����� ����� �������� � � !���� �� � �"���#� � ��!�� ����� ����� table 8 shows the dynamics of financial performance of the company jp "serbia gas" from 2017 to 2019. there is a decline in the observed indicators in all years of the observed period. a drastic decline is noticeable in roa, by 70% compared to the base year and by 80% in 2019 compared to 2018. due to the realized loss above the amount of capital in 2017 and 2018, it was not possible to calculate the roe and monitor its dynamics. the economy ratio has declined, but not as drastically as roa, however, in a slightly smaller percentage. namely, in all years, the company is above the threshold of economy, that is, it operated economically, but that economy is getting smaller and smaller. it is important to point out that the observed company in its annual financial statements report on all esg indicators, but also, a positive link cannot be made between esg indicators and financial performance. namely, although the company made investments in environment protection, human resources welfare, corporate governance, roa and economy ratio decreased, and roe could not be even calculated because of a loss above the amount of capital. the results are also absolutely or partially consistent with those of other studies. saygili et al. (2021) showed that there was a positive correlation between corporate governance practices directed toward stakeholders and financial performance measures, such as accounting measures for financial and non-financial companies. on the contrary, corporate governance practices directed toward the shareholders had a negative impact on accounting performance measures, especially for non-financial industries. besides, corporate governance practices directed toward the board of directors and public disclosure deviate among financial and non-financial entities. kemal and serife (2020) found out that environmental performance does not impact so much on the economic performance. rongjia et al. (2020) conclude that the environmental dimension was in negative correlation with the financial performance in capital-intensive manufacturing industries; social and financial performance is in a negative correlation in the tertiary sector and resource intensive manufacturing industries. siminica et al. (2019) found that roa was in a negative correlation with the environmental and social dimensions of csr; roe was in a positive correlation with the economic and social dimensions, and corporate governance has a positive impact on financial performance. johnson et al. (2019) concluded that there is no unified relationship between esg and financial performance, but it depends on what sector this is about. hussain et al. (2018) revealed poor and discordant coherence among csr and financial performance. table 8: financial performance dynamics for jp ’’srbija gas’’ in the period 2017-2019 source: author’s calculation *bi – base indices; ci – chain indices table 9 shows financial performance indicators for jp peu ’’resavica’’ from 2017 to 2019. table 9: financial performance indicators for jp peu ’’resavica’’ in 000 rsd source: based on data from public correct financial statements available on the website of the the business registers agency, https://date of access 03.11.2020 *note: considering that the company has a capital of 0 in 2017 and 2018 because it made a loss above the amount of capital, therefore the rate of return on capital (roe) was not calculated. due to the realized net loss and loss above the 76 violeta domanović 2022/27(1) ������ �� � �� � �� ���������� ��� ��� ��� ��� ��� ��� ����� ���� �� ���� �� ���� �� ��� � �� �� �� �� �� �� ����� ��� �� �� �� ��� ��� ���������� �� ����� � ����� ����� ����� ������� ���� ��������� ��������� ������� � ���������� ���� ���������� ���������� ���������� ���������������� ������� ��� ����� ����� ������� ��� �������� ����������� ����������� ��������� � !"���#���������"��$�� ���� ������� ������������ ���������� !"���#���%$��&�"��$�� ��������"���'���%$��&� ��������"���'�� ��������"���'�� � � �%$��&� �%$��&� �������� �� �� �� �������� �� �� �� �� � ������� � ��� � ��� � ����� � amount of capital, it was not possible to calculate and monitor the dynamics of roa and roe. it is noticed that the ratio of economy is below the threshold of economy (that is, below 1), which means that the company did not operate economically, but economy has an upward trend. table 10 shows the dynamics of financial performance for the company jp peu "resavica" from 2017 to 2019. table 10: financial performance indicators for jp peu ’’resavica’’ from 2017 to 2019 source: author’s calculation *bi – base indices; ci – chain indices in 2019, there was an increase of 14% compared to 2017, and in 2019 by 9% compared to 2018. the observed company reports on environmental and social indicators, which had no effect on financial performance. namely, it was not possible even to calculate roa and roe because of net loss and loss above the amount of capital. thus, we might conclude that here is no relationship between environmental and social performance indicators and financial performance measures. such a result is comparable with the abovementioned results of other empirical studies (saygili et al, 2021; kemal and serife, 2020; rongjia et al., 2020; siminica et al., 2019; johnson et al., 2019; hussain et al., 2018). table 11 shows the linkage between implementation of esg indicators and financial performance. table 11: esg indicators and financial performance 77 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) ������ �� � �� � �� ���������� ��� ��� ��� ��� ��� ��� ����� ���� �� ���� �� ���� �� ��� � � � � � ���� ���� ����� � � � � ���� ���� �������� �� ������������������������� ���� ����������� ���� !"� ���� !"� �#�$�%&��� ��� �� �� ����� ��� � ��� � ����� ��� � ��� � ����� ��� � ��� � �� �� � ��� � ��� � ��� � � � � ��� � ��� � ��� � ��� � ��� ������� ����� � ����������� ����� ��%��'������������(�(��������� ���� ����������� ���� !"� ���� !"� �#�$�%&��� ��� �� �� ����� ��� � ��� � ����� ��� � ��� � ����� ��� � ��� � �� �� � ��� � � � �� � ��� � � � � � � � ��� � ��� � ��� ������� ����� � ����������� ��������������)������������ ���� ����������� ���� !"� ���� !"� �#�$�%&��� ��� �� �� �� ����� ��� � ��� � ����� ��� � ��� � ����� ��� � ��� � �� �� �� �� ��� � �� � ��� �� �� � ��� � ��� � ��� � ��� ������� ����� � ����������� �����*�����)���#������)���#�� ���� ����������� ���� !"� ���� !"� �#�$�%&��� ��� �� �� �� ����� ��� � ��� � ����� ��� � ��� � ����� ��� � ��� � �� �� �� �� �� �� �� �� �� � ��� � ��� � �� ������� ����� � ����������� � references [1] business register agency (agencija za privredne registre), retrieved from https:// date of access 03.11.2020. 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(2020). emerging new themes in environmental, social and governance investing: a systematic literature review. accounting & finance, 60(2), 1501–1530. doi: 10.1111/acfi.12479. 78 violeta domanović 2022/27(1) in public enterprises, performance measurement systems serve as a catalyst for improved service quality, better program effectiveness, greater customer responsiveness, or more efficient operations. however, measuring performance is not a panacea for all problems and challenges. many problems of public companies are not visible, at first glance they do not have simple solutions and they do not have enough resources to effectively address the problems. in addition, strategic decisions, priorities, goals and tasks are often made in difficult politicized contexts characterized by competing interests at different levels, strong personalities and abandonment of principles for the sake of some compromise. the social, economic and environmental spheres are interconnected so as to create a circular value chain of supply in the company. with this integrated strategy, companies are increasingly gaining a sustainable competitive advantage in the global market. hence, companies that practice business sustainability can survive longer than traditional companies and can achieve greater market power. the results of the research show that in public companies that do full or partial reporting on esg indictors, there is no direct and positive correlation between the application of esg indicators and financial performance. given the strategic importance of public companies on the efficiency of the entire macro economy, an important question is how to balance the level and dynamics between investments in environmental protection, social welfare of employees and development of corporate governance, on the one hand, and financial performance, on the other. this is aimed at long-term micro and macroeconomic stability. the research has certain limitations. first, there is a small sample to draw valid conclusions from and it is difficult to present general views regarding the correlation of esg indicators and financial performance of companies. second, the new law on accounting is in force in the republic of serbia from january 1, 2020, which envisages the obligation of non-financial reporting for public companies as well, so that the effects on financial performance would be observed in the future. third, only certain measures of economy and profitability are selected here, but there are also indicators of liquidity and activity of the company and the like. therefore, it would be good to increase the sample in the future and after the next three-year period to monitor financial performance and application of esg indicators, after which it will be possible to draw more concrete conclusions and propose measures to improve micro and macroeconomic efficiency. acknowledgements this paper is a part of the interdisciplinary research project (no. 41010), which is funded by the ministry of education, science and technological development of the republic of serbia. the first version of the paper entitled ‘’the specifics of performance measurement in the public sector: empirical evidence from the republic of serbia’’ was presented at the sixth international scientific conference entitled contemporary issues in economics, business and management – ebm 2020, which was held at the faculty of economics, university of kragujevac, on december 14th, 2020. it has been selected among the best for this journal. the author was invited to submit the extended version of the paper to the journal management: journal of sustainable business and management solutions in emerging economies. conclusion [10] de lucia, c., pazienza, p. & bartlett, m. 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(2018). toward sustainability and integrated reporting. review of business: interdisciplinary journal on risk and society, 38(1), 1–15. [44] siminica, m., cristea, m., sichigea, m., noja, g. g., & anghel, i. (2019). well-governed sustainability and financial performance: a new integrative approach. sustainability, 11, 4562, doi: 10.3390/su11174562. [45] van dooren, w., bouckaert, g., & halligan, j. (2015). performance management in the public sector. second edition. routledge. [46] wang, x. (2010). performance analysis for public and non-profit organizations. jones and bartlett publishers. [47] the energy law (zakon o energetici) (2018), retrieved from https://www.paragraf.rs/propisi/zakon_o_energetici.html. date of access 03.11.2020. [48] law on accounting of republic of serbia (zakon o računovodstvu republiike srbije) (2019). retrieved from https://www.paragraf.rs/propisi/zakon-o-racunovodstvu-2020.html. date of access 03.11.2020. received: 2021-06-25 revisions requested: 2021-07-28 revised: 2021-08-11 (2 revisions) accepted: 2021-09-22 violeta domanović university of kragujevac, faculty of economics, serbia vterzic@kg.ac.rs violeta domanovic is a full professor at the faculty of economics, university of kragujevac. she received her phd degree at the faculty of economics, university of belgrade, in the field of business economics and management. she teaches economics of enterprise and business performance management, at the undergraduate study level; performance measurement and control systems, at the master degree study; and economics of strategy and corporate governance theory, at the phd degree studies. her key research interests are performance measurement, control systems and corporate sustainability. about 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04 26_2 babatunde:tipska.qxd 47 babatunde onamusi abiodun* lead city university, department of management & accounting, nigeria management: journal of sustainable business and management solutions in emerging economies 2021/26(2) entry mode strategy and firm performance in emerging economy: moderating role of organisational structure and environmental turbulence doi: 10.7595/management.fon.2021.0012 abstract: 1. introduction extant literature upholds that in today's highly competitive market, the desire for organisations to consistently achieve significant market performance is critical for firms’ going concern (anning-dorson, 2018). the manufacturers of baby care products in nigeria have struggled to understand the complexities of entry mode strategy and how to use firm-specific capabilities to contain the threats from new entrants given the idiosyncrasies of the business environment in nigeria (euromonitor international, 2018); that is an economy that has transitioned from a low-income to a mid-income and towards an emerging economy within the middle-east and africa region. hence, the performance of these manufacturers as reported by their respective yearly financial * corresponding author: abiodun babatunde onamusi , e-mail: abiodunonamusi@gmail.com research question: this study assessed the combined moderating effect of organizational structure and environmental turbulence on entry mode strategy performance link focusing on baby care industry in lagos state, nigeria. motivation: the manufacturers of baby care products in nigeria have struggled to understand the complexities of entry mode strategy and how to use firm-specific capabilities to contain the threats from new entrants given the idiosyncrasies of the business environment in nigeria. also, considering the fast changing business environment and the need for firms to align internal organisational structure to manage the external environmental challenges, this study via the supposition of hage (1965) axiomatic theory of organisations examined the joint moderating effect of organisational structure and environmental turbulence on entry mode strategy performance linkage focusing on the baby care industry in lagos state, nigeria. idea: empirical submissions on the combined moderating effect of organizational structure and environmental turbulence on the interactions of entry mode strategy and organizational performance are sparse. hence, this study addressed this gap in literature. data: the survey research design and a sample of 518 employees engaged in fmcg manufacturers in lagos state, nigeria were adopted for this study. tools: a validated structured questionnaire was the instrument of data collection for this study and the hierarchical regression analysis was adopted to test the hypotheses formulated. findings: the results showed that the interaction between entry mode strategy and firm performance was positive and significant. further analysis revealed that the interaction term of organizational structure and environmental turbulence accounted for the rise in firm performance to suggest that organizational structure and environmental turbulence are joint significant moderators. this suggests that entry mode strategy appropriateness is key to firm performance and that the fit between organisational structure and the macro-environment is a precondition to higher performance. contribution: this study adds to recent empirical literature on the link between entry mode strategy, organizational structure, environmental turbulence, and firm performance within emerging economy context, and it provides additional support for the assumptions of the eclectic theory and hage’s axiomatic theory of organization. keywords: entry mode strategy, firm performance, organizational structure, environmental turbulence, eclectic theory, hage axiomatic theory, emerging economy jel classification: f23, l10, m31 statements suggested a downward trend in performance (frieslandcampina, 2017; procter & gamble, 2018; pz cussion, 2018; unilevel nigeria, 2018). corroborating this narrative was the euromonitor international report on infant care products in nigeria (2019) that stressed that the penetration of these infant specific products in nigeria is quite low and the category is still quite far from reaching its full market potential. perchance, the manufacturers’ weak capabilities to respond adequately to new competitors, and their not being able to effectively address the several challenges in the nigeria’s business climate may have resulted in the low performance of players in the baby care industry (onamusi, 2020). another course of concern is the attendant consequence of the coronavirus pandemic which to a large extent resulted in economy lockdowns, factory shutdowns, production restricted, revenue and job loss, to mention a few. scholars have examined issues bordering on entry mode strategy choice and on which factors determine the entry mode strategy in a different research context and adopted an array of methodologies (dahms, 2017; lai, lin, & chen 2017; onamusi, 2020; schu & morschett, 2017; yasmeen & viswanathan, 2017); nevertheless, only a handful substantiated the entry mode strategy performance linkage (arasa & gideon, 2015; brouthers, 2013; hollender, zapkau, & schwens, 2017; nisar, boateng, & wu, 2018; onamusi, 2020; teng, huang, & pan, 2017) in the developed and emerging economies contexts. the validity of their findings is not doubtful; nonetheless, the differences in research settings and the problem identified may suggest a diverse result, hence suggesting a need for this study. for example, onamusi (2020) has considered the performance-effect of entry mode strategy and the relevance of customer engagement in enhancing how new firms can enter a foreign market and achieve higher performance, however, the study did not consider the effect of changing environment (environmental turbulence) nor did it evaluate the relevance of organisational structure in managing the changing environment, and how both moderate the entry mode strategy performance link. given the fast-changing business environment and the need for firms to align internal organisational structure to manage the external environmental challenges, this study equally assessed the issue of under what conditions firms can achieve improvement in performance within an emerging economy’s context. hage (1965) axiomatic theory of organisations provide a theoretical explanation for how a firm can achieve this. according to hage (1965) an alignment between a firm’s organisational structure and the environment is a precondition for improved market performance. what the scholar advocates through this theory of organisational theory is that the structure of an organisation is environment specific. for example, an organic structure will work better in a turbulent environment, while the mechanistic structure will achieve better performance for firms that operate in a stable environment. however, empirical submissions on the combined effect of organisational structure and environmental turbulence on the interactions of entry-mode strategy and organisational performance are sparse. this may be because scholars have no reason(s) to combine two seemingly different business environment parameters, one within the internal environment (organisational structure) and the other external environment (environmental turbulence) to moderate the interactions proposed in this study. hence, this presents another gap worthy of study. given this discussion, this study addressed the question of what is the combined moderating effect of organisational structure and environmental turbulence on entry mode strategy performance linkage focusing on the baby care industry in lagos state, nigeria? 2. literature review 2.1 theory and rationale for hypotheses formulated this study adopted the eclectic theory (dunning, 2000) and hage axiomatic theory (1965) to substantiate the interactions between entry mode strategy, organisational structure, environmental turbulence, and firm performance. first, the eclectic theory is a valuable theory propounded by dunning to provide theoretical explanation for how firms can engage in international business and achieve significant performance through ownership, location, and internalization framework. achieving competitive advantage for a firm seeking cross-border engagement, can be done by possessing critical resources, identifying business locations where such firm can significantly access cheap factors of production, and where the firm can produce its market offering within its operations as against engaging third parties to do so (dunning, 2000). these forms the basis for choosing an appropriate entry strategy that commands superior firm performance. second, the hage axiomatic theory of organisation provided theoretical justification for the moderation interaction examined. hage (1965) suggested that organisation seeking to achieve significant progress should ensure an alignment between two seemingly different environmental factors; internal and external. firms who possess the ambidextrous capability will achieve superior performance. hence given the submission 48 babatunde onamusi abiodun 2021/26(2) of these two theories, this study posited that; entry mode strategy would have significant effect on firm performance (h01), more so, an alignment between organisational structure, and environmental turbulence would have significant combined moderating effect on the interaction between entry mode strategy and organisational performance (h02). figure 1: conceptual model: source: researcher’s conceptual model 2.2 empirical review moderating effect of organisational structure and environmental turbulence on entry mode strategy performance linkage the few empirical studies conducted to substantiate entry mode strategy performance linkage provided mixed results; perhaps the contextual differences, the study settings, unit of analysis, and the overall method employed in these studies (which vary) may have accounted for the divergence in findings. for instance, onamusi (2020) suggested that entry mode strategy explained significant variation in firm performance. similarly, acheamponga and kumahb (2012) established a link between the market entry strategy and perceived performance for multinational service firms in ghana. the scholars emphasised that entry strategies adopted by these firms explained positive and significant contribution to organisational performance. although the research context for both acheamponga and kumahb (2012) and onamusi (2020) differs as the latter focused on manufacturing companies in nigeria while the former examined the service industry in ghana, both studies substantiated the performance effect of choosing an appropriate entry mode strategy for organisations. in a related study in kenya, non-equity (licensing) and equity mode (direct investment) strategies were found to explain a significant variation in firm performance. in a meta-analysis of entry mode between 1980 and 2010 conducted by giachetti, manzi, & colapinto (2019), they found out that organisations that adopted the higher-control in terms of ownership of the means of production in developing economies achieved higher organisational performance more than other entry mode strategy such as non-equity mode strategy. this finding was corroborated by onamusi (2020) given that the hybrid mode strategy presented higher profit margin than other modes there by stressing the significance of entry mode strategy appropriateness for superior performance. authors who share similar outcomes with giachetti et al. (2019) and onamusi (2020), included awolusi (2013) and brouthers (2013). contrary to the findings established by acheamponga and kumahb (2012), giachetti et al. (2019), and onamusi (2020), hofer and baba (2018) found that equity and non-equity strategies had positive and statistically significant effect on small and midsized enterprises’ performance. also, some studies could not find any link between non-equity and firm performance (brouthers & nakos, 2004; hollender et al., 2017). as regards the combined moderating effect of organisational sstructure and environmental turbulence on the interaction between entry mode strategy and firm performance, there are studies written on the performance effect of organisational structure (al-qatawneh, 2014; nwonu, agbaeze, & obi-anike, 2017), and how environmental turbulence influence organisational performance (onamusi, asikhia, & makinde, 2019; zaidi & othman, 2015). however, studies that emphasised the joint moderating effect of both variables on the independent dependent interactions under investigation are sparse. this may be because scholars may have no reason(s) to combine two seemingly different business environment parameters, one within the internal environment (organisational structure) and the other external environment (environmental turbulence) to moderate the interactions proposed in this study. moreover, the empirical discussions on entrymode strategy so far in this study did not consider this objective mainly because the issues investigated in their studies differ when compared to this study. 49 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) � � � � � � � entry mode strategy � non-equity mode � equity mode � hybrid mode firm performance ��� ��� organisational structure environmental turbulence in this situation, a theoretical explanation will be employed to position the possible interaction effect to be expected. according to the axiomatic theory of organisations, hage (1965) suggested that alignment between a firm’s organisational structure and the environment is a precondition for improved performance. what the scholar advocated through his theory of organisational theory is that the structure of an organisation is environment specific. for example, an organic structure will work better in a turbulent environment, while the mechanistic structure will achieve better performance in firms that operate in a stable environment. to buttress hage (1965) assumptions, the contingency theory of fit-as-a-moderator equally strengthened this discussion in the sense that both organisational structure and environmental turbulence act as contextual moderators. precisely when the interactions between the independent and the dependent variables are enhanced as a result of a third variable effect than the contingency theory holds. 3. methodology context, data collection, measurement of variable, and analytical techniques the study adopted the survey research design with a population of 8,452 employees of fmcg baby care category. a sample size of 518 was scientifically determined using the research advisor. the stratified random sampling techniques were adopted to select employees from each management levels to aid faithful representation. in line with the survey research, a structured questionnaire was used for data collection because it offered an opportunity to collect the perceptions of respondents on issues under investigation. the questionnaire items were adapted from prior studies and they followed the likert type scale. after administering the 518 questionnaires during office hours in respective firms, they were collected, sorted and screened. the study achieved a response rate of 87.2%. in this study the dependent variable is the firm performance, the independent variable is the entry mode strategy, and the moderating variables are the organisational structure and the environmental turbulence. these variables are discussed taking into consideration their measures in previous studies. a prior study adopted a multi-item scale to measure the firm performance (asikhia, makinde, & onamusi, 2020; bendig, enke, thieme, & brettel, 2018; vij & bedi, 2016). the studies encourage the use of financial and non-financial measures because of the inherent weakness, in the use of one only. hence, to capture the complete picture with respect to performance, it became imperative to use the two organisational performance measures. as identified in earlier studies, the entry mode strategy is conceptualized as a categorical variable which includes: equity mode, non-equity mode, and hybrid mode (lin & ho, 2019; onamusi, 2020). the organisational structure acts as a circumstantial moderator that determines the extent to which the entry mode strategy influences organisational performance. it is measured as an organistic structure by prior scholars (covin & slevin, 1988; wilden, gudergan, nielsen, & lings, 2013) using a likert type scale. environmental turbulence equally acts as a moderator that affects how the entry mode strategy and firm-level capability influence the firm performance. it reflects the extent of changes experienced in a firm’s macro environment which presents both threats and opportunities (dess & beard, 1984; jaworski & kohli, 1993). both scholars employed a likert type scale to measure environmental turbulence. overall, this study follows a similar approach adopted by these prior studies to measure all the variables identified in this study. the study employed a hierarchical regression analysis to establish the combined moderating effect of organisational structure and environmental turbulence on the functional relationship between the entry mode strategy and organisational performance. 4. analysis and results table 1: validity and reliability test result source: researcher’s results 50 babatunde onamusi abiodun 2021/26(2) ���� ��� � �� � ���� ���� ������� ������ � ���� ����� ������ � � ��� ���� �� ����� �� ��� ����������� ������ ������ ������ �� ��� �������� ������ ����� ������ ������ ������ �� ���!��"�������� ���#�� ��#��� ����#� � table 1 presents the result of the factor analysis and the reliability statistics for the questionnaire used in this study. this was done to show that the instrument is valid and reliable. hence the ave value of above 0.50 and a cronbach’s alpha coefficient of above 0.70 suggest that the instrument is valid and reliable for this study. table 2: summary of hierarchical regression analysis for the moderating effect of organisational structure and environmental turbulence on entry mode strategy performance linkage a. predictors: (constant), entry-mode strategy *hybrid strategy is the reference category b.predictors: (constant), entry-mode strategy, organisational structure, environmental turbulence c. predictors: (constant), entry-mode strategy, organisational structure, environmental turbulence, ems*os*et denote entry-mode strategy* organisational structure * environmental turbulence d. outcome variable: organisational performance source: researcher’s field survey results table 2 presents hierarchical multiple regression results for the combined moderating effect of organisational structure and environmental turbulence on the effect of the entry mode strategy on organisational performance. in model one, entry mode strategy performance link was examined. the second model examined the effect of the entry mode strategy, organisational structure, and environmental turbulence on organisational performance. in the third model, the combined moderating effect of organisational structure and environmental turbulence on the entry mode strategy performance linkage was examined and discussed accordingly. in the first model, the entry mode strategy explained 8% of the changes experienced in organisational performance (r = 0.291, adj. r² = 0.080, f(2, 449) = 20.724, p = 0.000). in the second model, the entry mode strategy, organisational structure and environmental turbulence explained 29% variation in organisational performance (adj. r2 = 0.290, f(4,447)= 47.137, p=.000). in the third model, when the interaction term of entry mode strategy, organisational structure, and environmental turbulence were considered, it had a concomitant increase in organisational performance by 5.8% (δr2 = 0.058, δf = 40.198, p= 0.000) because 51 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) model1,2,3 beta t sig. r r2 adj. r2 r2 f sig. f change (constant)1 4.681 137.077 .000 .291a .085 .080 .085 20.724 .000 non-equity mode .244 3.972 .000 equity mode .303 6.215 .000 f & anova sig: 20.724 (2,449), p=.000 (constant)2 3.130 22.757 .000 .545b .297 .290 .212 67.419 .000 non-equity mode .313 5.797 .000 equity mode .119 2.511 .012 organisational structure .192 3.437 .001 environmental turbulence .414 8.504 .000 f & anova sig: 47.137 (4,447), p=.000 (constant)3 2.192 11.061 .000 .596c .355 .348 .058 40.198 .000 non-equity mode .977 8.365 .000 equity mode 1.113 6.818 .000 organisational structure .554 7.079 .000 environmental turbulence .489 10.144 .000 ems*os*et -1.044 -6.340 .000 f & anova sig: 49.056 (5,446), p=.000 r2 increased from 0.085 (in model one) to 0.355 (in model three). this result shows that organisational structure and environmental turbulence has significant joint moderating effect on the interaction between the entry mode strategy and the organisational performance. references [1] acheamponga, g., & kumah, b. (2012). impact of firm-level factors and market entry mode on performance: a study of service mncs in an emerging economy. management science letters, 2(2), 631-646. doi:10.5267/j.msl.2011.11.004 [2] alande, j. o. (2013). role of human resource management in devolution of counties in kenya. scp, 21(6), 588-598. [3] al-qatawneh, m. i. (2014). the impact of organisational structure on organisational commitment: a comparison between public and private sector firms in jordan. european journal of business and management, 6(12), 30-37. 52 babatunde onamusi abiodun 2021/26(2) conceptually, scholars have opined that organisational structure is a precondition for achieving organisational goals. according to gurianova, gurianov, and mechtcheriakova (2014), os is a construct which assists with the actualisation of effective decision making. similarly, but from a social networking context, islam, jasimuddin, and hasan (2015) viewed os as a system that governs communication patterns and interaction within an organisation, such that some standardised procedures and controls which improve organisational performance can be formulated over time. on the part of al-qatawneh (2014, p. 231), os "is a method by which organisational activities are divided, organised, and coordinated", hence implying that organisational structure provides the template for coordinating work activities within an organisation to achieve desirable objectives (alande, 2013). similarly to other scholars such as gurianova et al. (2014), islam et al. (2015) and alande (2013), wilden et al. (2013) pointed out that organisational structure is a circumstantial moderator that determines the degree to which a firm achieves a fit and align itself to achieve significant results in a dynamic environment. furthermore, environmental turbulence presents uncertain consequences for business firms. while its ripple effects may offer agile firms the opportunity and potentials for growth, the risks and challenges presented by the unpredictability of a turbulent environment are of concern to every firm in emerging economy, because managers are unable to make a reasonable long-time plan and make predictions that can aid performance (dess & beard, 1984). the narrative suggest that environmental turbulence could have both positive and negative effects for a firm operating within its scope. the hage (1965) axiomatic theory suggested a basis for a link between organisational structure and the macro environment. according to hage (1965) the fit between a firm’s organisational structure and the macro environment is a precondition for improved performance. these findings regarding the presence of a joint moderating effect of organisational structure and environmental turbulence on entry mode strategy performance linkage, is supported by scholars. the finding aligns with the hage axiomatic theory of organizations. according to hage (1965), the fit between a firm’s organisational structure and the macro environment is a precondition for improved performance. hage (1965) submission was corroborated by linton and lask (2017). the scholars opined that an appropriate blend of internal external organisational factors potentially enhances achieving competitive advantage. to buttress linton and lask (2017) assertion and hage’s (1965) assumptions and learn support for this study’s outcomes, the contingency theory of fit-as-a-moderator equally comes to bear. according to the contingency narratives, both organisational structure and environmental turbulence act as contextual moderators. precisely when the interactions between the independent (entry mode strategy) and the dependent variable (organisational performance) is enhanced as a result of a third variable (organisational structure*environmental turbulence), then the contingency theory holds. on the contrary, scholars have criticised the bases for this moderation (interaction) perspective. according to van de ven, et al. 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[31] onamusi, a. b. (2020). entry mode strategy, customer engagement and firm performance. journal of business and social review in emerging economies, 6(1), 99-112. doi:10.26710/jbsee.v6i1.866 [32] procter & gamble press release. (july, 2018). procter & gamble closes its agbara plant [web log post]. retrieved from [33] pz cusson nig. plc. (2019). press release on decreasing exposure to the nigeria market. retrieved from pz cusson nigeria website: [34] schu, m., & morschett, d. (2017). foreign market selection of online retailersa path-dependent perspective on influence factors. international business review, 26(4), 710-723. doi:10.1016/j.ibusrev.2017.01.001 [35] teng, l., huang, d., & pan, y. (2017). the performance of mne subsidiaries in china: does it matter to be close to the political or business hub? journal of international management, 23(3), 292-305. doi:10.1016/j.intman.2016.12.002 [36] unilever unaudited financial report (2018). retrieved from unilever nigeria website: [37] van de ven, a. h., ganco, m., & hinings, c. r. (2013). returning to the frontier of contingency theory of organizational and institutional designs. academy of management annals, 7(1), 393-440. doi:10.5465/19416520.2013.774981 [38] vij, s., & bedi, h. s. (2016). are subjective business performance measures justified? international journal of productivity and performance management, 65(5), 603-621. doi:10.1108/ijppm-12-2014-0196 [39] wilden, r., gudergan, s. p., nielsen, b. b., & lings, i. (2013). dynamic capabilities and performance: strategy, structure and environment. long range planning, 46(1-2), 72-96. doi:10.1016/j.lrp.2012.12.001 [40] yasmeen, k., & viswanathan, k. (2017). influence of country factors on entry-mode through knowledge and transactional cost economics: market entry evidence from construction firms. international journal of economics and financial issues, 7(3), 581-585. [41] zaidi, m. f., & othman, s. n. (2015). organisational capabilities, environmental turbulence, and npd performance: a study on malaysian manufacturing firms. procedia social and behavioral sciences, 172, 286-293. doi:10.1016/j.sbspro.2015.01.366 received: 2020-07-26 revisions requested: 2020-12-19 revised: 2021-01-01 (3 revisions) accepted: 2021-02-10 abiodun babatunde onamusi lead city university, department of management & accounting, ibadan, oyo state, nigeria onamusi.abiodun@lcu.edu.ng abiodun babatunde onamusi, ph.d., is a lecturer at the department of management and accounting lead city university ibadan, nigeria. he holds a ph.d. degree from babcock university nigeria in business administration and possesses specialization in accounting, international business, and strategic management. he is actively involved in post-graduate studies in teaching, research, and mentorship at lead city university. his research interest includes merger & acquisition, internationalization of firms, leadership, organization 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 4 27_2 sanja mitic:tipska.qxd 37 sanja mitić*, branko rakita university of belgrade, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(2) * corresponding author: sanja mitić, e-mail: sanja@ekof.bg.ac.rs research question: the topic of this study is marketing capabilities of early internationalising firms from serbia. motivation: as marketing perspective was found to be important for understanding the early internationalisation phenomenon, the aim of this study is to shed light on the marketing capabilities of early internationalising firms from serbia. this topic was widely examined in the developed countries, but there is an evident lack of research in developing countries, especially in the western balkans. understanding the specifics of early internationalising firms can provide valuable policy and managerial implications for stimulating export activities of small and medium-sized firms. idea: the idea of the paper is to identify the main marketing capabilities of early internationalising firms from serbia. data: primary data were collected through semi-structured interviews with the founders or managers of four firms from serbia, over the period from august 2018 to january 2019. tools: as this topic is not widely investigated in serbia and other western balkan countries, a case study method was found to be appropriate. primary data were completed with secondary data sources. findings: the results show that in terms of marketing capabilities, early internationalising firms from serbia express similar features as the ones already recognized in the literature. they develop differentiated, high quality and innovative products, specialized for a particular market niche or segment. contribution: this study provides the results of the first primary research on the marketing capabilities of early internationalising firms from serbia and offers valuable implications for managers, for developing an effective international marketing strategy, as well as policy implications for export support programmes and small and medium-sized firms’ policy. keywords: internationalisation, early internationalising firms, marketing capabilities, small and medium-sized firms, international marketing jel classification: m13, m16, m31 marketing capabilities of early internationalising firms doi:10.7595/management.fon.2020.0019 abstract: 1. introduction the internationalisation of small and medium-sized enterprises (smes) has attracted significant attention of researchers in the last two decades (morais & ferreira, 2020; martineau & pastoriza, 2016). contemporary business environment stimulates the internationalisation of smes, due to the rapid technological development and globalisation. in developed countries, the phenomenon of early internationalisation was identified, which led to the rethinking of the existing models and patterns of internationalisation. as the incremental models were not able to explain the rapid internationalising of smes, other perspectives emerged. in order to explain the appearance of early internationalisation firms, a new, born global model of internationalisation was developed. as marketing perspective was found to be important for understanding the early internationalisation phenomenon, the aim of this study is to shed light on the marketing capabilities of early internationalising firms from serbia. as there is an evident lack of the research of the early internationalisation of smes from serbia and the role of marketing capabilities in the process, which is widely examined in in the developed countries (hagen & zucchella, 2018; kalinic & forza, 2012; gabrielsson, kirpalani, dimitratos, solberg & zucchella, 2008), this paper aimed to fulfil that gap. the purpose of this paper is to provide the first insight into the characteristics of the early internationalisation of smes from serbia with the focus on marketing perspective, by recognizing the main marketing capabilities of early exporters, which was compared with the main findings in the literature. the following research question was proposed: what are the main marketing capabilities of early internationalising firms from serbia? as the first research of this topic in serbia, it should provide valuable managerial and policy implications for speeding up the internationalisation of smes. the paper is structured in six parts. after the introduction, a brief literature review on early internationalisation and the role of marketing capabilities in the internationalisation process will be presented (part 2 and 3), after which the methodological consideration of the research follows. the main part of the paper is dedicated to the presentation and discussion of the findings (part 5), followed by the conclusion. 2. early internationalisation phenomenon: literature review a gradual process of internationalisation has been used as the main theoretical framework for explaining and investigating firms’ internationalisation since 1970s (johanson & vahlne, 1977). the process of firm internationalisation was seen as a stage process, where the timing of moving from one stage to another is defined by the accumulation of knowledge about foreign markets. however, the appearance of the firms that do not internationalise their activities according to a gradual and incremental model, but exhibit rapid internationalisation and high-market commitment soon after inception (crick, 2009), announced the new era in the development of internationalisation theories. as learning and knowledge development are the key theoretical propositions of the uppsala model, it was accepted as a starting point for conceptualizing the patterns of early firms’ internationalisation (weerawardena, mort, liesch & knight, 2007). in contrast to the traditional, incremental model, the born global model of internationalisation emerged. this view holds that firms internationalise from inception, without a strong base on the domestic market, relying on network relations and an entrepreneur’s characteristics, rather than on physical distance, with competitive imperative to develop a cutting edge technology, innovative marketing strategies, high quality and specialized products for niche markets (chetty & cambell-hunt, 2004; cavusgil & knight, 2015; martineau & pastoriza, 2016; morais & ferreira, 2020). empirical studies revealed that traditional, stage models of internationalisation cannot explain the early internationalisation of small and medium firms, providing support for new, born global model of internationalisation (coudounaris, 2018; kalinic & forza, 2012; gabrielsson et al., 2008; jones, 2001; chetty & cambell-hunt, 2004). the majority of studies on the born global model of internationalisation identified a variety of marketing characteristics of early internationalising firms. the main considerations were regarding the small firms’ marketing capabilities, as they are capable of developing unique and distinctive products and services (gabrielsson et al. 2008; sharma & blomstermo, 2003; knight and cavusgil, 2004), offten using disruptive new technologies (neubert, 2016). products and process innovations represent some of the frequent ways of their market differentiation and positioning (hagen & zucchella, 2018; cavusgil & knight, 2015; chetty & campbell-hunt, 2004). they follow value-based strategies of creating innovative products, with high reliance on customer intimacy and greater market understanding (mort, weerawardena & liesch, 2012). strong customer and market orientation, especially concerning tailoring products to specific customer needs and managing customer relations, is often recognized (hagen & zucchella, 2018; rodríguez-serrano & martín-armario, 2019). regarding their segmentation and targeting strategy, the main findings were that they target primary industrial buyers (gabrielsson et al. 2008), and a narrow marketing segment, a niche market (zucchella, hagen, denicolai & masucci, 2016; gabrielsson et al., 2008, zucchella, palamara & denicolai, 2007). the main findings in the literature highlight the importance of marketing capabilities in the born global internationalisation model. in the next part of the paper the role of marketing capabilities in the internationalisation process will be further examined. 3. the role of marketing capabilities in the internationalisation process the marketing perspective of born global firms' emergence was important of understanding the early internationalisation phenomenon. entrepreneurial marketing (mort, weerawardena & liesch, 2012; kocak and abimbola, 2009), international marketing (knight & cavusgil, 2004) and strategic marketing perspectives (gabrielsson, gabrielsson & seppälä, 2012) are some of the different standpoints evident in the literature. dynamic capabilities perspective is used in this study, as a theoretical background for investigating the international marketing features of early internationalising firms from a developing country. based on the conclusion that weerawardena, et al. (2007) came to, it is a set of dynamic capabilities that enables firms to develop innovative and knowledge-intensive products, allowing them to create unique international 38 sanja mitić, branko rakita 2022/27(2) 39 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) positioning and rapid internationalisation. kocak and abimbola (2009) argue that dynamic capabilities reflect a path-breaking perspective, which is appropriate for investigating early internationalisation, as it also represents a path-breaking strategic choice. marketing capabilities are seen as a firm’s ability to transform resources into valuable outputs based on the classical marketing mix, by defining, developing, communicating and delivering value to target customers (vorhies & morgan, 2005; morgan, feng & whitler, 2018). vorhies and morgan (2005) identified eight marketing capabilities that contribute to business performance: product development, pricing, channel management, marketing communications, selling, market information management, marketing planning, and marketing implementation. weerawardena et al. (2007) have found that marketing capabilities are critical to identify and access international opportunities. main marketing capabilities of early internationalising firms mentioned in the literature are in the area of developing products, as they offer innovative, unique, customized and highly differentiated products, with high value added to international markets (gabrielsson et al., 2008; sharma & blomstermo, 2003; chetty & campbell-hunt, 2004). knight and cavusgil (2004) recognized key marketing actuators, which are inherent in the international competitive position of early internationalising firms: development of unique products, quality focus and leveraging foreign distributors’ competencies. additionally, they found important influences of technological competencies, and two organizational characteristics: international marketing orientation and international entrepreneurial orientation. as those intangible resources create value, they are also unique for every firm, hard to imitate, developed as a result of complex social structures, they can be seen as the main factors of developing a sustainable competitive position, from a resource-based perspective. as there is no significant research on marketing competencies of early internationalising small firms from western balkan countries this research aims to shed light on the issue. the following research question was proposed: what are the main marketing capabilities of early internationalised firms from serbia? 4. methodology as there is an evident lack of the research of early internationalising firms in serbia, a case study method was found appropriate. the research design used in the study was the multiple-case study design that was exploratory. the purpose of the research is to identify and explore the role of marketing capabilities in firms’ early internationalisation, and the main similarities and variations in regard to the born global internationalisation model. the multiple-case study research design is often used in the analysis of the early internationalisation of firms (neubert, 2016; langseth, o’dwyer & arpa, 2016; kalinic & forza, 2012). the unit of analysis was the firm. data were gathered through semi-structured interviews with the managers or owners of the chosen early internationalising firms. the primary data source was accompanied by several external sources (corporate websites, government agencies, media news), allowing the triangulation of the data as recommended by yin (2003). the sampling strategy is theoretical, rather than statistical, in accordance with the purpose of this research. the focus was on selecting the well-known and most relevant cases that can provide the key insight into the role of marketing capabilities in the internationalisation process. according to yin (2003), “because a sample logic should not be used, the typical criteria regarding sample size are irrelevant”, and the sample of 4 to 6 cases allows us to pursue literal and theoretical replications. the sample size between 4 and 6 cases is usual in the literature on early internationalisation and born global firms, especially in the countries where early internationalisation was an uncommon phenomenon, which appeared recently (andersson & wictor, 2003; andersson, 2004; thai & chong, 2008; kalinic & forca, 2012; kocak & abimbola, 2009; langseth et al., 2016; zucchella et al., 2016). in the process of firm selection, the following selection criteria were used: 1) first export (or other international activities) occurred within three years from inception, 2) the share of international sales in total sales is more than 50% (in the last three years) 3) the firm develops its own products and brands2. four serbian early internationalising firms from different sectors were selected. the expert for serbian start-up ecosystem was consulted during the sampling process. the main topics in the interview were: the introduction, the business history, the export strategy, international marketing strategy, in terms of market segmentation, targeting, and marketing instruments (price, product, 2 this way we wanted to exclude the firms that are operating as an outsourcing partners of multinational companies or other large firms from abroad from the research, as early-internationalization can be a consequence of international outsourcing activities (hätönen, 2009; hansen, schaumburg-müller & pottenger, 2008; niosi &tschang, 2009; di gregorio, musteen & thomas, 2009). although those firms were established for servicing international markets and have a high share of foreign sales in total sales, they are not included in the research. place and promotion). interviews were conducted over the period from august 2018 to january 2019. we systemized the data from different sources and analysed them by building single case studies. after the within-case analysis, a cross-case analysis was conducted, aiming to compare them and to identify and analyse the similarities and differences between cases. pattern-matching and cross-case synthesis were selected as appropriate analytic techniques. putting the information into different arrays in order to describe the main topics was used as a tool for data systematization. 5. results and discussion this section is structured in two parts. in the first part, every case will be described and in the second part the cross-case analysis will be presented. table 1: characteristics of the sample case no. 1, established in 2010, develops online games. the company introduced its product to the international markets from the inception. market segmentation and targeting. the company targets one specific global market segment with its main product. they conduct life-style segmentation, based on people's interest in one specific sport, since the game had such a topic. that way they redefined the usual segmentation strategy in the industry, since they did not target the general population of computer game players. marketing mix. the company developed its own version of an already existing product on the global market, as there were several similar products in the specific type of the game. the company differentiates its products by innovating 10% of the product’s features, as they add some unique attributes to the game. an additional difference from competitors is regarding the local adaption of the products, especially regarding the language. two years after launching the game, it was translated into more than 40 languages. regarding the price policy, the company is in mid-price range, compared to the prices of other games of that type. although the product was not new on the market, they introduced new distribution channels, in this case a new platform for online games. they created the first game of that type for social media platforms. in 2012, the game was released on android and ios platforms, becoming a cross-platform game, one of its kind. social networks were dominant as the marketing communication media, in the first several years, in developing countries. later, with entering developed countries and increasing the marketing budget, the company started using traditional media, such as tv, for advertising. company used sponsorship and public relations (in cooperation with local pr agencies), as additional communication tools. case no. 2 is a company that develops hardware for microcontroller architectures. their main product is development boards, but they have started developing compilers and supporting software. company was established in 2001 and started to export from inception. market segmentation and targeting. in the first several years, the company was oriented toward "do it yourself" market segment in developed countries, in the area of creating smart devices and remote controls for different in-house appliances. the company targeted business-to-business segment also. they have around 400 key accounts, but their main market remains business to consumer. marketing mix. the primary characteristics of the products are as follows: high quality, compatibility with different platforms of competitive products, a large number of new products, developing a new product standard in the industry, and launching well-designed packaging. they highlight that the customers always get fully tested and certified products, as a warranty of high quality. innovations are very frequent, as they 40 sanja mitić, branko rakita 2022/27(2) case no. 1 no. 2 no. 3 no. 4 year of founding 2010 2001 2002 2015 year of first export 2010 2001 2005 2015 industry information technology information technology biotechnology food product wholesale first foreign market turkey france croatia usa main foreign markets uk, germany, india, thailand usa, germany, turkey, austria ex-soviet union countries, iran usa, uk international sale in total sale (%) 100% 98% 40% 90% introduce one new product daily. today, their brand portfolio consists of around 1000 different products. compared to competitors, predominantly from china, the company offers products at higher prices. the company has organized the distribution using multiple channels: several global distributors, a large number of local distributors, direct sale to large key accounts and online sales through its website. the contact with the first distributor was initiated by a foreign importer from france. afterwards, using online search, the entrepreneur was actively engaged in distributor recruitment and selection process. marketing communications were primarily developed through international fairs and the corporate website. today the company uses a foreign marketing agency for public relations in presenting a new generation of products. case no. 3 is a bio-technological company which produces a microbiological products with applications in agricultural production. it was founded in 2002 and started exporting in 2005, first to neighbouring markets, and from 2007 to distant markets. market segmentation and targeting. the company targets individual farms and business buyers, oriented toward new technologies and organic agricultural production. marketing mix. in the first years, the company offered a unique and innovative product, with a wide application range. in the region, there were no similar microbiological products. as the company is oriented toward high investments in research and development, there is a high frequency of introducing new products. now, the company offers a wide range of microbiological products and organic fertilizers, with application in a specific area of agriculture production. the level of the specialization of the products was increased dramatically over time, so there are products adjusted to a specific usage, regarding the different types and phases of agricultural production or specific agricultural species. all products are certified and patent protected. the registration process of every product on foreign markets represents a high entrance barrier, which limited the pace of international expansion. apart from the main brand, the company developed several new brands and sub-brands. the company offers products with similar prices as international competitors. international distribution was organized through multiple channels: international distributors, selling departments on two international markets and an online sale channel. as the company has the expertise in the area which is new for the market actuators, it recognized the necessity to be actively engaged in educational activities on international markets. for that purpose and for dealing with key accounts, the company organized its selling departments on international markets. participation in different local events, fairs, seminars and appearance in foreign agricultural tv shows were recognised as main marketing communications tools. case no. 4 is a company specialized for food wholesale, established in 2015. the entrepreneurs developed their food products and a premium brand, based on food preferences on the main international market, while the production is outsourced to local food-processing companies. the company internationalised its activity from the inception. market segmentation and targeting. the company targets premium food products buyers in highly developed countries. their main focus is on the business to consumer market, but they also targeted the business to business market, such as restaurants and hotels. marketing mix. the company offers unique, high-quality products and a premium positioned brand. as the us market was not familiar with such products, some distributors expressed concerns regarding the selling potential. the company organized distributions through two channels: international distributors and online sales. a key point in the internationalisation of the company was the cooperation with the distributor from the usa, as a result of the previously established personal connections. as the company developed a premium brand, the prices were set accordingly. the main marketing communication tools were website and social media, public relations and various forms of sales promotion in the retail stores or local events. different forms of cooperation with food bloggers and local celebrities in the culinary business were some of the brand building activities. based on presented data we can conduct a cross-case analysis. market segmentation and targeting strategies. all the interviewed companies are focused on one narrow marketing segment or marketing niche in the international context. such specialisation in niche marketing is recognized in the case of born global firms from developed countries (gabrielsson et al., 2008; knight & cavusgil, 2015). such a market segmentation and targeting strategy is a consequence of the resource limitation, on one hand, and the specific product characteristics of analysed firms, on the other. the business to consumer market segment has a dominant share in the total revenue of all companies, although all of them target business to business market segments as well. this result is not in line with the major conclusion in the literature addressing bg from developed countries, where targeting industrial buyers prevails (gabrielsson et al., 2008). in three cases, companies have started to export to highly developed and/or distant countries which are not traditional trade partners of the home country. this international path is not in line with the traditional, stage internationalisation process (johanson & vahlne, 1977), but it fits with the born global model of internationalisation. the physical distance does not have a major impact on the internationalisation dynamics, nor on the export destination, as the role of network relations, learning capacity, marketing 41 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) capabilities and an entrepreneurial and proactive approach prevail in the born global internationalisation model (morais & ferreira, 2020; chetty & campbell-hunt, 2004). in one case, the traditional internationalisation pattern was recognized, as the company no. 3 started exporting to neighbouring countries before entering some distant markets, but the pace of the internationalisation was more rapid. the product strategy. in all cases, product and brand development capabilities were dominant. in the first case, the company developed innovative product features, locally adapted for large foreign markets and globally recognized brands. company no. 2 develops high quality products, features continuous product innovations, establishes new standards in the industry, and additionally adds value through packaging. company no. 3 is an innovator in the bio-technological preparations for agricultural usage, with high investment in research and development activities and new products development. company no. 4, as a food trade company, developed unique, high quality products and a strong, premium brand. as high quality, innovation and added value are dominant product capabilities, recognized in all cases, the findings are in accordance with the results from developed countries (gabrielsson et al. 2008; chetty & campbell-hunt, 2004). the marketing channels strategy. case no. 1 was unique regarding the distribution strategy as it used innovative distribution channels to customers, which was key in their market differentiation. the company was the leader in developing a particular game for social media and mobile platforms. in other cases, the results reveal the practice of multiple channels usage (although only online channels are recognized in the case no. 1, multiple online platforms were used for delivering the game) as the companies use an online sale channel and foreign distributors, while company no. 3 additionally establishes sales subsidiaries in foreign markets. in three cases traditional distribution channels have a major impact on the increase in international sales and further expansion. the research on the multichannel distribution strategy of early internationalising firms are not common, but some of the studies considered the issue. sinkovics, sinkovics and jean (2013) described the problem of a “virtual trap”, when firms rely too much on online sales channels, as an alternative to traditional distribution channels and physical market presence. the practice of establishing multiple channels is also recognized in the case of finnish born global firms (luostarinen & gabrielsson, 2006), as conventional single channels, ones that small and medium firms often use, due to limited resources and low international recognition of their brands, are not effective. in all cases there is evidence of online sales importance, already recognized in the literature, from the perspective of the general role of the information technology and the internet, as an external stimulating factor of small firms’ internationalisation (knight & cavusgil, 2004; knight, madsen & servais, 2004; sinkovics, et al., 2013). due to cost efficiency, the internet provides small firms with the access to foreign markets, in terms of identifying international market opportunities, international marketing communications and sales operations. according to mathews et al. (2016) internet marketing capabilities enhance international market growth. the price strategy. as there is an attitude that early internationalising firms do not use the low price strategy (cavusgil & knight, 2015), the price strategy is analysed with regard to the main competitors. in three cases such outcome has been confirmed. although the analysed firms conduct their business in one of the least developed european countries, where the average wages are among the lowest in europe (trading economics, https://tradingeconomics.com/country-list/), they do not focus on the low-cost strategy and price competitiveness. this result is in line with the orientation of the early internationalisation companies toward the high-quality strategy and adding value as a way of differentiating the offer. on the other hand, the study of competitive strategies of smes from serbia, even in case of those with high potential for growth and development, showed that they are generally focused on costs as a source of competitive advantage, targeting market segments by low-priced and average quality products (minovic, lazarevic–moravcevic & beraha, 2016). in the context of the product development capabilities and the price strategy, there is an indication of a vast gap between traditional smes and early internationalising smes. the marketing communication strategy. the marketing communication strategy of early internationalising firms has not been widely investigated in the literature. three main communication tools used by respondents were: online marketing communications, sales promotion activities, mainly through fairs and local events and public relations. such marketing communications are the consequence of the limited financial resources of bg firms, but also of the usage of information technology, as the main enabler of global market reach (chetty & campbell-hunt, 2004). they dominantly use the internet as the communication medium, at the beginning of their internationalisation. in the later phases, the pr activities occurred, as an important means for reducing the buyers’ perceived risk and creating trust (fill, 2009). pr as a marketing communication tool is important for creating trust on international markets (rakita & mitic, 2019), but also in case of presenting the newness on the market, as the majority of the companies are leaders in technology, in creating new industry standards and innovative products. 42 sanja mitić, branko rakita 2022/27(2) references [1] andersson, s. (2004). internationalization in different industrial contexts. journal of business venturing, 19(6), 851–875. doi:10.1016/j.jbusvent.2003.10.002 [2] andersson, s., & wictor, i. (2003). innovative internationalisation in new firms: born globals–the swedish case. journal of international entrepreneurship, 1(3), 249–275. doi: 10.1023/a:1024110806241 [3] cavusgil, t., & knight, g. (2015). the born global firm: an entrepreneurial and capabilities perspective on early and rapid internationalization. journal of international business studies, 46(1), 1-16. doi: 10.1057/jibs.2014.62 [4] chetty, s., & cambell-hunt, c. (2004). a strategic approach to internationalization: a traditiona l versus a born-global approach. journal of international marketing, 12(1), 57–81. doi: 10.1509/jimk.12.1.57.25651 [5] coudounaris, n. d. (2018). typologies of internationalisation pathways of smes: what is new? review of international business and strategy, [6] crick, d. (2009). the internationalisation of born global and international new venture smes. international marketing review, 26(4/5), 453 476. doi: 10.1108/02651330910971986 43 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) this study explored the marketing capabilities of early internationalising firms from serbia. as the marketing perspective of the early and rapid internationalisation process was not widely examined in case of serbia, the aim of this research was to recognize the main marketing capabilities of domestic early internationalising firms. such results provide a valuable insight for the firms that are planning international expansion in the future. the results show that in marketing capabilities, firms from serbia express similar features as the ones already recognized in the literature. they develop differentiated, high quality and innovative products, specialized for a particular market niche or segment. although serbia is a country where the average wages are among the lowest in europe, the low-price strategy was not used as the main competitive tool; on the contrary, the companies develop value adding strategies, as a way of differentiating the offer. traditional distribution channels have a major impact on international sales and further expansion, although the internet, as a cost-efficient sales channel, provides the firm with the easy access to foreign markets. as this study provides the results of the first primary research on the topic in serbia, it thus provides the first insight into the main marketing capabilities of early internationalising firms, stimulates debate and represents a starting point for further research in serbia and other western balkan countries. the study contributes to increasing the body of the literature on early internationalisation and provides support for the born global model of internationalisation in one developing, post-transitional country. the main policy implication can be proposed, in the area of export promotion programmes for assisting the smes and sme policy. an educational program aiming to develop the marketing knowledge and skills of entrepreneurs can foster the internationalisation and export results of small and medium sized firms. the distributor service program, for locating an effective representative or distributor, can be vital for rapid international expansion of small firms and, therefore, an important part of the government programme of export promotion. additionally, a program to encourage smes’ uptake of ecommerce is necessary, with adequate legal framework, due to the importance of online sales channels for early internationalisation. the results of this study can also be useful to entrepreneurs and managers, as a form of practical mentoring in the area of marketing with the aim to overcome the traditional internationalisation patterns and achieve a more rapid internationalisation. the results showed that a small, newly established firm, without extensive international experience can internationalise from inception and compete on a global scale. specific marketing capabilities can enhance that. main recommendations for managers are: 1) implementing global/international niche marketing, 2) developing multichannel distribution strategy which relies on online sales channels, but also on traditional distribution channels and physical market presence, which requires active engagement in finding international distributors, 3) promotional activities on international fairs and on the internet can be effective as communication tools for introducing products to the global/international market niche. the main consideration of the management should be investment in creating product and brand development capabilities, given the fact that one of the prerequisites for early and rapid internationalisation is the development of a unique, high-quality and innovative market offer. the main limitation of the research is associated with the typical constrains of the case study research. the research is exploratory in nature, with a descriptive framework, which limits the representativeness. for a generalisation of the results, it is necessary to include a larger number of cases, from different parts of serbia (since all the companies have their headquarters in belgrade), and from other western balkan countries as well, with the additional usage of a larger quantitative survey. in the absence of databases about early internationalising firms in serbia, further examination of the issue should start with mapping those firms. it is necessary to include more firms from traditional industries into the analysis, as the internationalisation process can be under the influence of an industry type. the research can include firms that follow traditional internationalisation patterns, as a control group, which can provide a better understanding of the specifics of early internationalising firms and their marketing capabilities. conslusion [7] di gregorio, d., musteen, m., & thomas, d. 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(2019). international marketing: from local to global perspective (međunarodni marketing: od lokalne do globalne perspektive), belgrade, serbia: faculty of economics, university of belgrade [31] rodríguez-serrano, m.a., & martín-armario, e. (2019). born-global smes, performance, and dynamic absorptive capacity: evidence from spanish firms. journal of small business management, 57(2), 298-326. doi: 10.1111/jsbm.12319 [32] sharma, d. d., & blomstermo, a. (2003). the internationalization process of born globals: a network view. international business review, 12, 739–753. doi: 10.1016/j.ibusrev.2003.05.002 [33] sinkovics, n., sinkovics, r. r. and jean, r.j. (2013). the internet as an alternative path to internationalization? international marketing review, 30(2), 130 155. doi: 10.1108/02651331311314556 [34] thai, m. t. t., & chong, l. c. (2008). born-global: the case of four vietnamese smes. journal of international entrepreneurship, 6(2), 72–100. doi: 10.1007/s10843-008-0021-y [35] trading economics, https://tradingeconomics.com/country-list/ [36] vorhies, w.d., & morgan, a.n. (2005). benchmarking marketing capabilities for sustainable competitive advantage. journal of marketing, 69, 80–94. doi: 10.1509/jmkg.69.1.80.55505 [37] weerawardena, j., mort, g. s., liesch, p. w., & knight, g. (2007). conceptualizing accelerated internationalization in the born global firm: a dynamic capabilities perspective. journal of world business, 42(3), 294–306. doi: 10.1016/j.jwb.2007.04.004 [38] yin, r. (2003). case study research: design and methods. thousand oaks, california: sage publications. [39] zucchella, a., hagen, b., denicolai, s., & masucci, m. (2016). early and accelerated internationalisation: the role of the niche strategy in a new generation of exporters. international journal of export marketing, 1(1), 27–47. [40] zucchella, a., palamara, g., & denicolai, s. (2007). the drivers of the early internationalization of the firm. journal of world business, 42(3), 268–280. doi: 10.1016/j.jwb.2007.04.008 received: 2020-02-28 revisions requested: 2020-05-12 revised: 2020-05-22 (3 times) accepted: 2020-08-05 sanja mitić university of belgrade, faculty of economics, serbia sanja@ekof.bg.ac.rs sanja mitić is an associate professor at the faculty of economics, university of belgrade. she holds a msci and phd from the faculty of economics at the university of belgrade. she teaches courses in international marketing, export management and international marketing management, in the bachelor and master programs at the faculty of economics, university of belgrade. her main areas of academic interests include: international marketing, food marketing, export management, born-global firms and early internationalization. she is a member of serbian marketing association, serbian scientific society of economists and european marketing association. branko rakita university of belgrade, faculty of economics, serbia rakitab@ekof.bg.ac.rs branko rakita is a full professor at the faculty of economics, university of belgrade. he teaches the courses in international business and management, international marketing and strategic marketing, in the bachelor, master and phd programs at the faculty of economics, belgrade university. the main focus of his scientific work is primarily related to international business, international marketing, brand management, cross-border acquisitions. he is a member of serbian marketing association, serbian pr association, serbian scientific society of economists and serbian association of economists. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # radovanovic:tipska.qxd 1 sandro radovanović*, marko ivić university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: sandro radovanović, e-mail:sandro.radovanovic@fon.bg.ac.rs research question: this paper aims at adjusting the logistic regression algorithm to mitigate unwanted discrimination shown towards race, gender, etc. motivation: decades of research in the field of algorithm design have been dedicated to making a better prediction model. many algorithms are designed and improved, which made them better than the judgments of people and even experts. however, in recent years it has been discovered that predictive models can make unwanted discrimination. such unwanted discrimination in the predictive model can lead to legal consequences. in order to mitigate the problem of unwanted discrimination, we propose equal opportunity between privileged and discriminated groups in the logistic regression algorithm. idea: our idea is to add a regularization term in the goal function of the logistic regression. therefore, our predictive model will solve both the social problem and the predictive problem. more specifically, our model will provide fair and accurate predictions. data: the data used in this research present u.s. census data describing individuals using personal characteristics with a goal to provide a binary classification model for predicting if an individual has an annual salary above $50k. the dataset used is known for disparate impact regarding female individuals. in addition, we used the compas dataset aimed at predicting recidivism. compas is biased toward africanamericans. tools: we developed a novel regularization technique for equal opportunity in the logistic regression algorithm. the proposed regularization is compared against classical logistic regression and fairness constraint logistic regression, using a ten-fold cross-validation. findings: the results suggest that equal opportunity logistic regression manages to create a fair prediction model. more specifically, our model improved both disparate impact and equal opportunity compared to classical logistic regression, with a minor loss in prediction accuracy. compared to the disparate impact constrained logistic regression, our approach has higher prediction accuracy and equal opportunity, while having a lower disparate impact. by inspecting the coefficients of our approach and classical logistic regression, one can see that proxy attribute coefficients are reduced to very low values. contribution: the main contribution of this paper is in the methodological part. more specifically, we implemented an equal opportunity in the logistic regression algorithm. keywords: algorithmic decision-making, algorithmic fairness, fair prediction models, logistic regression, equal opportunity. jel classification: c51, c52, i24 enabling equal opportunity in logistic regression algorithm doi: 10.7595/management.fon.2021.0029 abstract: 1. introduction usage of data mining and machine learning algorithms made many improvements in the decision-making process overall. for example, time to making a decision is reduced, decision-making accuracy is higher, which consequently led to greater income or reduced costs. the main reason for these improvements is that data mining and machine learning algorithms can take into account more criteria influencing the decision than a human expert is capable to process, and also the process it faster than the human can conduct (larose & larose, 2015). these algorithms utilize prior experience obtained from the historical data, create a model based on them, and recommend the best possible action. in the process of creating a prediction model, algorithms tend to reduce loss function that is directed toward the accuracy of the predictive model. however, predictive models can also systematically discriminate specific subgroups of people, thus making decisions unethical and prone to legal consequences (barocas & selbst, 2016). having the above mentioned in mind, one would like to create a predictive model that is both accurate and fair toward each subgroup of the population. the cost of being unfair can be very high. there are numerous examples of unfair practices that led to financial consequences. for example, google advertisements had the gender bias. namely, male google users receive more ads for higher-paying jobs and career coaching services in comparison with female google users (datta et al., 2015). however, there are examples of consequences that led to social unrest. algorithmic decision-making tools for criminal risk assessment such as compas resulted in the biased treatment of individuals based on race, i.e., similar individuals had different treatment due to race. while it is, from a mathematical point of view, easy to define accuracy (or loss function), fairness is not. the term being fair is a social science construct that is much dependent on the application or use, the context of the decision-making, and subjects that are influenced by the decision (corbett-davies et al., 2017). however, fairness often requires two groups of people, one being a privileged group, and other being a discriminated group. by collecting and transferring notions of fairness into mathematical constructs, a new theoretical and practical research area emerged called fair algorithmic decision-making. therefore, the challenge that this paper tackle is finding the definition of fairness that is suitable for the predictive models. after that, our aim is to convert it to a mathematical formula that is suitable for the optimization (i.e., linear or convex formulation) and implement it in the data mining and machine learning algorithms. the problem is challenging from both an algorithmic point of view and from a managerial point of view. from an algorithmic point of view, the problem occurs from the source of unfairness and discrimination. most often, the source of unfairness is unknown (chen et al., 2019) making it hard to identify and intervene in the algorithmic design. from a managerial point of view, unfairness in the decision-making process can lead to financial losses, or intangible losses (such as the brand of the company, loss of trust, etc.). in this paper, we implement equal opportunity as fairness in data mining and machine learning models. more specifically, instead of observing fairness on the dataset as a whole, we observe fairness only for the instances with the desired outcome. it has been shown that observing fairness on the complete dataset, although improving fairness as a whole, does not guarantee that every subgroup of people in the dataset will get an equal opportunity to achieve the desired outcome (radovanovic et al., 2020). however, the majority of papers in the literature observe and calculate fairness on the complete dataset (oneto & chiappa, 2020). if one needs to make a decision then fairness is not to be observed on the complete dataset, but rather on the instances where the desired outcome is achieved. this paper presents an approach for achieving equal opportunity in the data mining and machine learning models by introducing an adaptation of equal opportunity as a regularization function. equal opportunity means that each individual should have an equal opportunity of getting the desired outcome, or that a proportional number of individuals from each group (both discriminated and privileged) get the desired outcome. we selected the logistic regression algorithm since it is one of the most used algorithms in the field of data mining and machine learning (wu et al., 2008). besides being one of the most used algorithms, it is considered as an interpretable one (coefficients of the logistic regression are interpreted as the logarithm of odds of the outcome), and fast as well. we investigated the effects of the proposed algorithm by comparing the results with the logistic regression algorithm as a baseline algorithm, as well as with the fairness-aware logistic regression from which we derived our method and that is most similar to our approach (zafar et al., 2017, zafar et al., 2019). the experiments are conducted on the adult dataset (kohavi, 1996). this dataset predicts the census level of an individual, and it is known for having gender discrimination. in addition, to show the effectiveness of the proposed approach, we provide results on the propublica compas dataset (dressel & farid, 2018). more specifically, the compas is software used in the united states to get a score for recidivism. the score is obtained as a model that is learned using prior examples. this software caused a lot of discussion regarding racial unfairness and interested readers are referred to (washington, 2018). the remainder of the paper is structured as follows. in section 2 we provide a background where basic concepts of fairness and logistic regression are explained. in section 3 we provide a related work that contains a review of the papers regarding fairness in predictive modeling. section 4 will provide a methodology and experimental setup. in section 5 we provide results and discussion of the results, while section 6 concludes the paper. 2 sandro radovanović, marko ivić forthcoming 2. background creating an unfair decision using an algorithm can hurt the business and its performance. many known applications of data mining and machine learning models were subject to the consequences due to unwanted discrimination. examples of gender discrimination are seen mostly in the job hiring process and in advertisements. during the candidate screening, companies tend to use software that calculates the suitability for the job. attributes such as job experience, education, or age that are often used for such tasks are gender biased. one such software platform, xing, even ranked less qualified male candidates higher in comparison with more qualified female candidates (lahoti et al., 2019). in web advertisements, one could notice that after changing the gender in settings, male google users receive more ads for higher-paying jobs compared to female google users (datta et al., 2015). however, the cost of being unfair can be social unrest. one such application is criminal risk assessment software. in the usa, there are several such software and they may result in unfair predictions. more specifically, african-americans may have a higher probability of being imprisoned, compared to white-caucasians (dieterich et al., 2016). tools such as compas (dieterich et al., 2016), psa (majdara & nematollahi, 2008), and savry (meyers & schmidt, 2008) are well known and subject of many discussions in the social sciences. the source of unfairness can be in the data collection process, i.e., female participants are less often interviewed for the job position overall, thus leading the predictive model to believe that the male gender is more suitable for the job. further, the source of unfairness can be the decision-maker itself. for example, the decision-maker can favour male candidates in the selection process for job openings. then, the machine learning algorithm will reconstruct the decision-makers model and find that gender influenced the decision. besides, predictive models are more likely to amplify the discrimination (veale & binns, 2017). finally, the source of unfairness can be more subtle. even if a sensitive attribute (e.g., gender, race) is omitted from the dataset, the existence of proxy attributes can create unwanted discrimination. from the managerial point of view, it is worth noticing that the responsibility for unwanted discrimination is on the decision-maker and that legal consequences can be very dire. it is worth noticing that, every additional construct (fairness as well) may and most probably will lead to lower accuracy. more specifically, there is a trade-off between fairness and predictive accuracy (menon & williamson., 2018). after these examples of unwanted discriminations, many researchers from the industry started considering (un)fairness during the creation of the predictive models. as a result, several approaches are developed. however, prior to discussing the approaches, one needs to define and quantify fairness. in the literature, one can find two broad notions of fairness in algorithmic decision-making. first, one can discuss being fair on the individual level, or individual fairness. a decision-making model is individually fair if similar individuals obtain similar results (sharifi-malvajerdi et al., 2019). more specifically, the predictive model will generate the same output if the same inputs are provided. therefore, if two same candidates, one male, and another female, are evaluated for the job screening using the model that does not use gender as an input attribute, then both candidates will result in the same decision. in other words, gender will not influence the decision. this notion of fairness is omitted from this research. however, there are other definitions of individual fairness. one notion of individual fairness is adopted from the political philosophy and it is rawls's theory of justice (binns, 2018). this concept of fairness deals with the distribution of resources of the social goods and therefore its application is limited. this notion of fairness states that any inequality in the distribution of resources must benefit all participants, especially the least advantageous ones. this approach, called the rawlsian approach, tries to give an advantage to participants that have the lowest score obtained from the predictive model. optimizing for rawlsian fairness requires the maximin goal function (jung et al., 2019) or sequential optimization, i.e., leximax optimization (chen & hooker, 2020). therefore, this kind of fairness is better suited for governmental machine learning models (grace & bamford, 2020). individual fairness is criticized for not regarding a group belonging. more specifically, one can be individually fair, but some groups of people can be discriminated, and consequently obtain lower prediction scores. this notion of fairness is called group fairness. more formally, group unfairness is defined as systematic discrimination of the algorithmic decision-making model based on an attribute that individuals cannot control (i.e., race or gender). unfairness can have multiple origins (i.e., data collection process or decision-making process). most often, discrimination is unintentional or accidental, and this type of unwanted discrimination is called disparate impact (di). one can define disparate impact as a difference in outcomes between discriminated and privileged groups. this notion of fairness can be translated into a mathematical formula, as presented in equation (1): (1) �� � ���� � �� ��� � � 3 management: journal of sustainable business and management solutions in emerging economies forthcoming however, adjusting data mining and machine learning algorithms to satisfy disparate impacts may lead to unexpected consequences (radovanovic et al., 2020). it occurs that the discriminated group is still being discriminated in the decision-making. although on average disparate impact is satisfied, even at a 100% rate, instances from the privileged group will be more present in lower ranks (i.e., have a higher probability for the desired outcome). for many applications of data mining and machine learning, this is unwanted discrimination. for example, in job screening where the top ten candidates are hired, it is more probable to hire all male instances than to achieve equal distribution of male and female instances. therefore, we adopt another notion of fairness, called equal opportunity (eq). equal opportunity states that the difference in outcomes is the same for the desired outcome. the mathematical formulation is given in equation (2). (2) where y presents the real outcome. besides, if we introduce the assumption that the privileged group has a higher expected outcome, this ratio will be lower than one. although there are no formal thresholds for unfairness, one can adopt the “80%-rule” as reasonable allowable discrimination. 3. related work due to the uncertainty of the source of the unfairness and efforts invested in the mitigation of fairness, there are three strategies to mitigate unfairness. for every approach, one needs to know the values of the sensitive attribute s. more specifically, it has been shown that if the predictive model is unaware of the sensitive attribute (fairness through unawareness), it still provides unfair results because proxy attributes exist (chen et al., 2019). strategies are 1) pre-processing techniques, 2) in-processing techniques, and 3) post-processing techniques for that purpose. pre-processing techniques are designed to prepare data to be fair. more specifically, data are transformed in such a manner that it is not possible to recognize the sensitive attribute and consequently one cannot learn an unfair model. the simplest approach is to remove the sensitive attribute and all attributes correlated with the sensitive attribute (kamiran&calders, 2009). this will yield better results in terms of fairness, but without guarantees of achieving fairness. the downsides of this approach are the loss of information regarding output in the data at hand. one can further remove correlated attributes. however, correlation is a linear function of dependency, and the interaction of attributes that may lead to unfairness could not be recognized. one can also try to assign weight to instances to get fairer prediction scores (rancic et al., 2021). another approach, called massaging (kamiran&calders, 2012) aims at changing the output values in such a manner that the discriminated group gets the desired outcome in situations where similar instances originate from the privileged group have desired outcome. one can find the transformation of data values such that the sensitive attribute cannot be identified (feldman et al., 2015). this technique is called disparate impact remover. disparate impact remover (dir) changes the data in such a manner that repaired data cannot distinguish the value of the sensitive attribute. more specifically, for each attribute in the data set, instances from the sensitive group have their values increased (or decreased), while instances from the privileged group have their values decreased (or increased). in addition, a complete dataset can be transformed using matrix factorization techniques. one such approach (samadi et al., 2018) developed a fair principal component analysis. adjusting the data at hand might seem like an appropriate approach. however, with general data protection regulation (gdpr) one will violate the need for data accuracy. therefore, the application of such approaches, although helps to solve unwanted discrimination, is questionable. in-processing techniques present a set of approaches in which the learning algorithm is modified to simultaneously maximize predictive accuracy and maximize fairness. one can use constraint optimization for logistic regression, such as (zafar et al., 2017) where the constraint is regarded as disparate impact. more specifically, the disparate impact is converted into two linear constraints. thus, constraint gradient descent is used. constraints are presented in equations (3) and (4). �� � ������ � � � � ����� � � � � 4 sandro radovanović, marko ivić forthcoming � �������������� �� ������� ���� ����� ��� �������� ��������� ���������� ������� ��� �� ������������ �� � ����������� � �� ��������� ��������� ��� ����������� � �� ��������������������� �� ��� ����� �� � � � ��������������������� �� ������������� ����� ������ ����� ����������������� � �� ���� ������� ��� �� ��� ���� ����� ��� �������� �� �� � �� ��� � ���� ����� ������������ ��� �� ��� �� �� !"� �� !������� � #���� � � �� $�������� � %&�'(����)� *+������� ,��-.� ���� � ���� ������� ����� ��� � ��&� �� ��� � �� ���� ������� ���� ������������ �� ����,�'��� �� �������������������� �� ������� �� ��� (3) (4) besides having constraints, one can use regularization techniques. the regularization term is used to control the complexity of the model as an additional term in the goal function of the model. in this case, complexity presents the unfairness of the model. therefore, one will sacrifice prediction accuracy to achieve better fairness. prejudice removal regularization is presented in the paper (kamishima et al., 2012). more specifically, the following regularization term (equation (5)) is used. (5) this regularization function penalizes equalized odds for each group of a sensitive attribute for each output using conditional entropy of an output. this function is non-convex but can be converted to convex using approximation. one novel approach that can be related to regularization tries to explore the relation between predictive performance (accuracy) and fairness in terms of a pareto front. more specifically, instead of optimizing a goal function with a regularization term, one can tackle the fairness problem as a multi-goal optimization problem. this will yield a pareto front from which one can inspect the trade-off between accuracy and fairness (valdivia et al., 2021), or find the minimax solution (martinez et al., 2020). finally, one can use post-processing techniques, or adjust predictions to be as fair as possible. one can analytically find the best possible decision threshold for fairness (pleiss et al., 2017), or utilize linear programming for score adjustment (hardt et al., 2016). regardless of the approach being used, one needs to be aware that fairness is not the same as social welfare. by adjusting the learning algorithm to be fair in predictions, one may achieve lower welfare for each individual, or group of people (finocchiaro et al., 2021; kasy & abebe, 2021). thus, fairness constraint should be designed in such a manner that it enables contribution to the social welfare and provides equal opportunity to every individual. our paper presents a combination of the two presented approaches. we choose to use a simple presentation of the unfairness. for that purpose, we use a linear function similar to the one defined in the (zafar et al., 2017), but instead of using constraint optimization, we use regularization as in (kamishima et al., 2012). the regularization term is more used in the machine learning community. the reason for such behaviour is that one will surely get some model, while constraint optimization can yield an unfeasible solution. as a measure of fairness, we are more closely related to social welfare rather than to disparate impact thus enabling an equal opportunity to get the desired outcome. besides, it is shown that observing fairness using a disparate impact could result in unfair solutions in terms of equal opportunity to achieve the desired outcome (radovanovic et al., 2020). therefore, we adapt the learning procedure to ensure equal opportunity, which is different compared to other approaches in the literature. 4. methodology the methodology section consists of three parts. first, we discuss the implementation of fairness into a logistic regression, followed by a description of the data at hand, and finally an experimental setup. � � ������ �� � ���� �� �� ���� � ��� � ��� 5 management: journal of sustainable business and management solutions in emerging economies forthcoming � � �������������� �� �������� ����������� ����� �� ����� ���� �������������� ������� �� �� ����������������� ��� �� �� ��� �� ������ � ��������� �� � ���� ���� ��� ��� ��� ��� � �� � ������� ���� � � � ������ ���� ������� ��� �� ������ ������ �������� �������� ����������� � ��� �������������� � ��� ������� � ������ � � �������� ��� ������� ��� ������������� ��� ������� � ���� ���� ��������� � � ����� ����� ������������������� ��������� �� ��� � � �� �� ��� ������ �� �� ����� � �� �� �������� �������� �� ������� �� ����� �� �� ��� ����� ������ ��� �������� � �� � ��� ��������� ������ �������� �������� � ��������� ��������� ��� ��� � ������� �� ����� ����� ������ �� � �� � ���������� ��� ������������� ����� ��� ����� ������ �� �� ���� ���������� � ��� �� � �!�� �� ��"�������������������� ������������� ���� ������!����������#����� ������ ������$%$%��� � � ���� � � � � � � �� � ��� � � ���� � � � � � � �� � ��� 4.1 equal opportunity logistic regression logistic regression is one of the most popular classification algorithms in the area of data mining and machine learning (wu et al., 2008). the model obtained from the logistic regression is interpretable and provides an explanation of the decision being made, thus it is suitable for the what-if analysis. (james et al., 2013) the logistic regression algorithm minimizes the logistic loss function as presented in equation (6). (6) we introduce equal opportunity regularization through the function presented in equation (7). (7) more specifically, we take into account only the desired outcome (using y whose values are zero and one) and calculate the difference in the expected outcome between the discriminated group and the privileged group. the first part of the function calculates the average intensity of the predictions for the discriminated group for instances that had the desired outcome, while the second part of the function calculates the average intensity of the predictions for the privileged group for instances that had the desired outcome. we wish this difference to be as small as possible. the quadratic term assures us that both sides of the discrimination are penalized. (8) this regularization term is defined in such a manner that instances with the desired outcome have similar values of an outcome, more specifically equal opportunity. more specifically, the fairness measure previously described will be in the fair region (between 0.8 and 1) if function r is minimized. 4.2 data data used in this research are the adult dataset (kohavi, 1996). the adult dataset is a binary classification problem, where one tries to predict whether an individual is above or below the census line in the usa; more specifically, if an individual receives a salary higher than $50k. ������� � � � �� ���� �������� � �� �������� ���� � ��� � �� � � ��� � � � � � � ��� � � �� � � � � � ���� �� � ��� ����� � ��� � ���� � � �� � � � � ��� ����� � ��� � � 6 sandro radovanović, marko ivić forthcoming ������������� �� ��� ����� ����� ��� ��� �� �� ����� ������ �� ��� ������ ��� ����� ��� ��� �� �� �� � ���� ����� �� ���� �� � ����� ������������� �� �������� ��� ������������ �� ���� ������������ ��� ������� �� � �� ��� �� ��� �������� �� � �� �� ����� �������������� ���� � � � � ���� �� �� ���� �� ����� �� � ���������� ��������� ������ ������ �� � ������� � ��������� �� ������� ��� �� �� � �� � � ���� ������ ������ ���� �� �� � ��� ���������� �� � ��� �������� �������� ������ ������������ ������������ !"�� ��������� #"����������� �� ��� �$������ ������#%!&"� � ��� ��� �� � � ������� � � ��� � �� ���������� ��� ��� �������� ������� ��� ����� �� � � � ��� � �� � ���������� ��� � �� �������� ������ � �� ���������� ��� � �� �������� ��� �� ����� � ��������� � ��� ��� �� ������� �� ������� ��� � � �� � ���������� ��� � �� ��������� � ��� ��� ���� ��� ����� ��� � �� ������������� � ����� �� ��� �� ����������� �� � � �� � ������������� � � ��������� ��������������������������� ����������� ����� �������� �������������������� � ��� � �������� �� � ��� ���� � ��� ����� � ���� � ��� ��� � ��� ���� ������ ����� ���� �������� ��� ���� �� ��� ���� ��� �� ����� ���������� ���������� �������� �� � ��� ���� ���� ���� ���� � ���� � ������ � �������������� ����� ���� ���������������� ��������� ��� �� ��������������������� �������� ������� ��� ������ ����� �� ������ � ��������� � �� �� ���� ��� �� �������� ������ ����� � ��������� �� ���������� ��� ����� ��� ���� ��� �� ����� ��������� ���� �� ��� ���� �� � ��� ����� ���� ���� ������ !���� ��� �� �� ���������� ��� � ����� ���� "� � ���� �� ���� ���� ������ � ����� �� ��������������������������� ����� each individual is described using personal details (e.g., relationship status, education level, etc.). the predictive model is used mainly for the insurance companies (for creating insurance packages), as well as tax administration (for inspection purposes). the dataset consists of 32,561 instances and 13 attributes. these attributes present personal characteristics of an individual, such as age, work class, education level, occupation, relationship status, race, gender, capital gain, capital loss, working hours per week, and native country. using dummy coding we converted all attributes into 44 numerical attributes in the same manner as in (bellamy et al., 2018). this dataset is known for having gender bias. by observing the data, more specifically the desired outcome, one can notice a large disparate impact between male and female individuals. male individuals receive higher income leading to higher taxes paid, but also some benefits from the social system, as well as better insurance packages. another data used in this research is the propublica compas dataset (dressel & farid, 2018). this dataset contains more than 7,000 people (explained using eight attributes) arrested in broward country, florida. the data correspond to arrests between 2013 and 2014. the predictive task given in the compas dataset is to predict whether an individual will commit a crime in the future. attributes that are used to predict future criminal acts are the age of an individual, juvenile felonies count, decile score, juvenile misdemeanor count, juvenile other felonies count, total prior offense, days of screening before the arrest, and charge degree. however, the analysis of the compas results showed that the accuracy of the model is higher for whitecaucasian compared to african-americans. a more concerning fact is that the recidivism rate is nearly twice as high for african-americans than for white-caucasians. in addition, white-caucasians are falsely marked to not re-offend at a rate of almost 50%, while african-americans have a false-positive rate of 28%. 4.3 experimental setup since our goal is to enforce equal opportunity into a logistic regression algorithm, we must measure two sets of measures; namely, predictive accuracy and fairness. as a measure for prediction accuracy, we will use the area under the roc curve (auc). this measure of predictive accuracy is selected because it is decision threshold independent, or we can say that this measure is the general goodness of the binary classification model. it is derived from the mann-whitney u test, and it can be interpreted as the probability that a model discriminates desired and undesired outcomes. more specifically, it is a probability that the predicted value of a random positive instance ( y = 1) is higher than the predicted value of a random negative instance ( y = 0). since values of auc are interpreted as a probability, it ranges between zero and one, where one means perfect classification, while value 0.5 is interpreted as a random model. (cortes &mohri, 2004) measures of fairness are the disparate impact and equal opportunity. these measures are explained in the background section. the disparate impact, as a measure, should be equal to one. in that case, there are no differences between the privileged and the discriminated groups. a value higher than one and lower than one suggests that unwanted discrimination exists. however, the disparate impact is not a linear, nor a symmetrical measure. for example, di = 2 and di = 0.5 present the same level of discrimination, but in the first case the difference between the perfect value is one, and in the latter case it is 0.5. this can be evaded by adapting the disparate impact as presented in equation (9). (9) similarly, equal opportunity is a measure of fairness that should be equal to one. also, it is not a linear function, nor symmetrical. therefore, it is adapted in the same manner as the disparate impact, as presented in equation (10). (10) �� � ��� �� �� � � �� � � ��� �� � � �� � � �� � � �� � � �� � � �� � �� � � �� � � ��� �� � ��� � � � �� � � � � �� � � � � � �� � � � � �� � � � 7 management: journal of sustainable business and management solutions in emerging economies forthcoming in addition to testing equal opportunity logistic regression (eo-lr) as explained in section 4.1 with inner tenfold cross-validation, we will use classical logistic regression (lr) as a baseline. this will show how big the trade-off between predictive accuracy and fairness is. it is expected to have a loss in predictive accuracy (barocas & selbst, 2016), but the satisfaction of fairness should be of higher concern for the decision-maker. we also show the results of the fairness constrained logistic regression (zafar et al., 2017) where the disparate impact constraint parameter is set to 0.8 (and 1.25). the fairness constrained logistic regression (fc-lr) solves the disparate impact as a measure of fairness. as already discussed, this measure of fairness perhaps might still result in unfair results in terms of equal opportunity. therefore, we expect an increase in fairness, both in the disparate impact and the equal opportunity but not as good improvement in the latter measure as the proposed approach. also, we compare results with the preprocessing technique disparate impact remover combined with logistic regression (dir-lr). the disparate impact remover corrects the data in total, so that none of the attributes can distinguish the value of the sensitive attribute. the experiment is conducted using a ten-fold cross-validation. this means that the dataset is divided into ten random subsets. then, logistic regression models are learned on nine subsets, while being evaluated against the remaining one. this procedure is repeated ten times, so that a different subset is used for evaluation. it is worth noticing that the sensitive attribute is not used during the model learning phase as an input attribute, but as a piece of additional information for calculation of the regularization term. 5. results and discussion the results of the experiments are presented in table 1. values inside the table are presented in terms of average obtained values during ten folds with standard deviation. due to related samples in the crossvalidation, the standard deviation should not be interpreted as in statistical analysis, but as a measure of stability in performances. the best performances are presented in bold letters. table 1: predictive and fairness performances on adult dataset as expected, the best performing algorithm in terms of predictive accuracy is classical logistic regression (lr). this is seen by observing the auc, which is 0.8973. similar performance is obtained with logistic regression with disparate impact remover (dir-lr). this value of auc is very good for the predictive model. fairness constraint logistic regression (fc-lr) and our proposed algorithm (eo-lr) have a lower predictive performance. more specifically, eo-lr and fc-lr have a lower auc by 2% and 4%, respectively. it is worth noticing that our approach is better compared to fc-lr in auc. this is due to the different notions of fairness. while fc-lr tried to make a fair predictive performance for the whole group of instances(both those who did obtain the desired outcome and those who obtained the non-desired outcome), our approach focuses on getting the only equal opportunity. more specifically, our approach focuses only on instances that receive the desired outcome. also, based on the disparate impact as a measure of fairness the best performing algorithm is fc-lr. this result is expected because the fc-lr algorithm is created to satisfy disparate impact constraints. although the parameter c 1 was set to 0.8, the average value of the disparate impact is slightly better (closer to 1). this is due to the difference in the training and test dataset. therefore, this approach solves the problem of disparate impact. our approach ranked second, with disparate impact 0.6212. this value is slightly under the u.s. equal employment opportunity commission's “80%-rule”, but our approach did not aim to improve disparate impact directly. it is worth noticing that data preprocessing for fairness did improve fairness without the cost of predictive performance. however, this level of fairness is still not at a satisfactory level. finally, it is shown that our approach did perform well and solved the fairness measure for which it was implemented. based on the results for the equal opportunity fairness measure, our approach performed the best. the value is close to the perfect value, while fc-lr is ranked second with a slightly lower value, and classical logistic regression is third with greater distance compared to the first two. 8 sandro radovanović, marko ivić forthcoming ������� � �� � ��� ��� ��� ���������������� ����� � ������ � ������� �������� ����� ������� �������� ���������������� ���� �� ���� ��� ������ ������� �������� ��� � � �������� ���������������� ������� ����� � �������� ������� ���� � � ������� �������� this small reduction in the predictive performance indicates that it is possible to induce social sciences concepts (such as fairness) into a mathematical model of the learning algorithm and still obtain good predictive performance. an additional level of discussion is obtained by comparing the coefficients of the logistic regression. more specifically, we compared the coefficients of classical logistic regression and our approach. the most interesting ones are presented in table 2. table 2: comparison of the logistic regression coefficients for adult dataset as observed, there are changes in the coefficients of the logistic regression. some of the changes are even changes in the sign of the logistic regression (work class government, marital status married, occupation sales). some of the changes are in the intensity, such as work class private. however, it is interesting to notice that big changes are observed in the attributes that might represent gender. if we check coefficients that represent occupation, we can see that coefficients of those attributes are reduced to almost zero values. this means that these coefficients identified gender. therefore, they are reduced to the level that they do not influence the final decision. the results obtained on the compas dataset are explained in table 3. again, as expected logistic regression (lr) showed the best performance compared to fairness aware approaches. however, on this dataset, the difference in auc is much lower. more specifically, the largest decrease is by 1%. the increase in di and eo is much higher. therefore, the cost of fairness on the compas dataset is not high. fc-lr had the best value for the disparate impact, while the proposed approach eo-lr had the best equal opportunity. table 3: predictive and fairness performances on compas dataset since a small difference in predictive performance results in fair results, one can obtain it by small changes in coefficients of the logistic regression model. this is presented in table 4. the biggest difference is obtained in juvenile felony count and juvenile other felonies count, where coefficient dropped from 0.1486 to 0.1275 and 0.1635 to 0.1573, respectively. these attributes are deemed as unfair due to unfair practice in the data collection process (i.e., arresting people) (abrams et al., 2021; beckman & rodriguez, 2021). more specifically, individuals who are “young and black” are likely to be suspected and reported for crime or felony (leiber & johnson, 2008). in other words, due to cultural and historical biases toward africanamericans are more likely to be reported for felonies compared to white-caucasians. table 4: comparison of the logistic regression coefficients for compas dataset 9 management: journal of sustainable business and management solutions in emerging economies forthcoming ��������� � � � � ������� ���� ��� ��� �������� ������� ������� ����� � � ������� ������� � ��� �� � �� �� ��� � �����!� �������� � ��� �� � �� ��� �" � �������� ���!���� #���$ �����% � � ������� �������� #���$ ������ �&�� � �������� ������� #���$ �����'� � � � ����!�!� �������� ������� � �� � ��� ��� ��� ���������������� ���� �� �������� ������� ����� �� ������ �� ���� �������� ���������������� ����� � ����� �� ������ �� ���� �������� ��� ��� ����� � ���������������� ������� �� ���� �������� ���� �� ����� �� ������� ������ � ��������� � � � � ���� ���� �� ����� �� ���������������������� �� � �� �� ��� ������������� �� ���� �� � � ��������� ��!� �"���������� ������� ���� � �����������#������������������ �� ���� �� ���� $������������ �� ��� �� � � �"����������������%������"������ ���� �� ���� �� &#"����!������ ������� ������� 10 sandro radovanović, marko ivić forthcoming however, the proposed method has limitations. first, to find suitable regularization parameter λ, one needs to perform an inner (cross) validation. this may be time-consuming depending on the dataset size. although this is the problem with all fairness mitigation approaches, the cost of fairness can be very high. for example, one should hinder predictive performance just to achieve a satisfactory level of fairness. in extreme cases, the cost of fairness could lead to egalitarian policies. more specifically, a satisfactory level of fairness is achieved with a simple model where all of the coefficients are equal to zero. this leads to every individual receiving the same outcome. the consequences of such a model can be very demotivating for an individual (finocchiaro et al., 2021). for example, if everybody obtains the same resources, no matter how much effort is invested, why would an individual invest any effort? another limitation of this approach might be if equal opportunity is not the fairness measure one would like to introduce. in that case, one can adopt a disparate impact as presented in (zafar et al., 2017; zafar et al., 2019), equal odds (radovanovic et al., 2020), or custom regularization function. references [1] abrams, l. s., mizel, m. l., &barnert, e. s. (2021). the criminalization of young children and overrepresentation of black youth in the juvenile justice system. race and social problems, 13(1), 7384. [2] barocas, s., &selbst, a. d. (2016). big data's disparate impact. california law review, 104, 671. doi: 10.2139/ssrn.2477899 [3] beckman, l., & rodriguez, n. (2021). race, ethnicity, and official perceptions in the juvenile justice system: extending the role of negative attributional stereotypes. criminal justice and behavior, 00938548211004672. [4] bellamy, r. k., dey, k., hind, m., hoffman, s. c., houde, s., kannan, k., ... & nagar, s. (2018). ai fairness 360: an extensible toolkit for detecting, understanding, and mitigating unwanted algorithmic bias. arxiv preprint arxiv:1810.01943. conclusion with the rising problem of having prediction models that are both accurate and fair, there is a need to adjust the data mining and machine learning models. in this paper, we utilized a notion of fairness called equal opportunity. equal opportunity aims at providing every individual, no matter what race or gender, the same rights and the same chance of getting the desired outcome. the problem of implementing such fairness metrics is a source of unfairness. more specifically, data have inherited bias and unwanted discrimination that a learning algorithm needs to find and eliminate. we solved this problem by adding a regularization term that solves equal opportunity. proposed regularization presents an adaptation of the definition of equal opportunity, found in the fairness in algorithmic decision-making literature, to mathematical formulas in a linear form. because of that, our model remains convex, and therefore easy to optimize. experiments are conducted on the adult and compas datasets. the adult dataset is known for having gender bias. more specifically, male participants are privileged, thus getting the desired outcome more frequently. the compas dataset is known for racial bias and injustices. we tested our approach against classical logistic regression and disparate impact constraint logistic regression, as well as with fair data preprocessing technique disparate impact remover. the result suggests our approach gets the best equal opportunity for the data at hand, without greater loss in the predictive accuracy. although the disparate impact was not optimized directly, our approach did increase this measure as well. however, compared to the disparate impact constraint logistic regression, our approach did receive the lower disparate impact. this is because disparate impact constraint logistic regression is created and constrained to disparate impact. because of that, disparate impact constraint logistic regression has the best score for disparate impact, but the lowest score on the predictive accuracy. as part of future work, we would like to integrate both the disparate impact and the equal opportunity into one regularization term. additionally, we would like to test the proposed regularization term in a more complex learning algorithm, such as support vector machines or deep neural networks. finally, we would like to adapt the proposed method as a multi-objective optimization problem and find the best trade-off between accuracy and fairness using game theory, more specifically, using bargaining solutions. the decision-maker can choose between nash, kalai, or kalai-smorodinsky bargaining solutions. regardless of the bargaining solution, this allows a shift from a utilitarian point of view on predictions to a more egalitarian point of view on predictions. acknowledgments this paper is partially funded by the project onr-n62909-19-1-2008 (office of naval research): aggregating computational algorithms and human decision-making preferences in multi-agent settings. 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(2017, august). algorithmic decision making and the cost of fairness. in proceedings of the 23rd acm sigkdd international conference on knowledge discovery and data mining (pp. 797-806). doi: 10.1145/3097983.3098095 [10] cortes, c., &mohri, m. (2004). auc optimization vs. error rate minimization. in advances in neural information processing systems (pp. 313-320). [11] datta, a., tschantz, m. c., & datta, a. (2015). automated experiments on ad privacy settings: a tale of opacity, choice, and discrimination. proceedings on privacy enhancing technologies, 2015(1), 92-112. doi: 10.1515/popets-2015-0007 [12] dieterich, w., mendoza, c., & brennan, t. (2016). compas risk scales: demonstrating accuracy equity and predictive parity. northpointe inc. [13] dressel, j., & farid, h. (2018). the accuracy, fairness, and limits of predicting recidivism. science advances, 4(1), eaao5580. [14] feldman, m., friedler, s. a., moeller, j., scheidegger, c., &venkatasubramanian, s. (2015, august). certifying and removing disparate impact. in proceedings of the 21st acm sigkdd international conference on knowledge discovery and data mining (pp. 259-268). doi: 10.1145/2783258.2783311 [15] finocchiaro, j., maio, r., monachou, f., patro, g. k., raghavan, m., stoica, a. a., &tsirtsis, s. (2021). fairness and discrimination in mechanism design and machine learning. in proceedings of the 2021 conference on fairness, accountability, and transparency. [16] grace, j., & bamford, r. (2020). ‘ai theory of justice’: using rawlsian approaches to legislate better on machine learning in government. the journal of the society for advanced legal studies, 338. [17] hardt, m., price, e., &srebro, n. (2016). equality of opportunity in supervised learning. in advances in neural information processing systems (pp. 3315-3323). [18] james, g., witten, d., hastie, t., &tibshirani, r. (2013). an introduction to statistical learning. new york: springer. [19] jung, c., kannan, s., & lutz, n. (2019). a center in your neighborhood: fairness in facility location. arxiv preprint arxiv:1908.09041. [20] kamiran, f., &calders, t. (2009, february). classifying without discriminating. in 2009 2nd international conference on computer, control and communication (pp. 1-6). ieee. [21] kamiran, f., &calders, t. (2012). data preprocessing techniques for classification without discrimination. knowledge and information systems, 33(1), 1-33. doi: 10.1109/ic4.2009.4909197 [22] kamishima, t., akaho, s., asoh, h., & sakuma, j. (2012, september). fairness-aware classifier with prejudice remover regularizer. in joint european conference on machine learning and knowledge discovery in databases (pp. 35-50). springer, berlin, heidelberg. doi: 10.1007/978-3-642-33486-3_3 [23] kasy, m., & abebe, r. (2021, march). fairness, equality, and power in algorithmic decision-making. in proceedings of the 2021 acm conference on fairness, accountability, and transparency (pp. 576-586). [24] kohavi, r. (1996, august). scaling up the accuracy of naive-bayes classifiers: a decision-tree hybrid. in knowledge discovery in data conference (vol. 96, pp. 202-207). [25] lahoti, p., gummadi, k. p., &weikum, g. (2019, april). ifair: learning individually fair data representations for algorithmic decision making. in 2019 ieee 35th international conference on data engineering (icde) (pp. 1334-1345). ieee. doi: 10.1109/icde.2019.00121 [26] larose, d. & larose, t. (2015). data mining and predictive analytics. john wiley & sons. [27] leiber, m. j., & johnson, j. d. (2008). being young and black: what are their effects on juvenile justice decision making? crime & delinquency, 54(4), 560-581. [28] majdara, a., &nematollahi, m. r. 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(2020). fairness in machine learning. in recent trends in learning from data (pp. 155-196). springer, cham. doi: 10.1007/978-3-030-43883-8_7 [33] pleiss, g., raghavan, m., wu, f., kleinberg, j., & weinberger, k. q. (2017). on fairness and calibration. in advances in neural information processing systems (pp. 5680-5689). [34] radovanovic, s., petrovic, a., delibasic, b., &suknovic, m. (2020, august). enforcing fairness in logistic regression algorithm. in 2020 international conference on innovations in intelligent systems and applications (inista) (pp. 1-7). ieee. doi: 10.1109/inista49547.2020.9194676 [35] rancic, s., radovanovic, s., & delibasic, b. (2021, may). investigating oversampling techniques for fair machine learning models. in international conference on decision support system technology (pp. 110-123). springer, cham. [36] samadi, s., tantipongpipat, u., morgenstern, j. h., singh, m., &vempala, s. (2018). the price of fair pca: one extra dimension. in advances in neural information processing systems (pp. 10976-10987). [37] sharifi-malvajerdi, s., kearns, m., & roth, a. (2019). average individual fairness: algorithms, generalization and experiments. in advances in neural information processing systems (pp. 82408249). [38] valdivia, a., sanchez-monedero, j., & casillas, j. (2021). how fair can we go in machine learning? assessing the boundaries of accuracy and fairness. international journal of intelligent systems, 36(4), 1619-1643. doi: 10.1002/int.22354 [39] veale, m., &binns, r. (2017). fairer machine learning in the real world: mitigating discrimination without collecting sensitive data. big data & society, 4(2), 2053951717743530. doi: 10.1177/2053951717743530 [40] washington, a. l. (2018). how to argue with an algorithm: lessons from the compas-propublica debate. colorado technology law journal, 17, 131. [41] wu, x., kumar, v., quinlan, j. r., ghosh, j., yang, q., motoda, h., ... & zhou, z. h. (2008). top 10 algorithms in data mining. knowledge and information systems, 14(1), 1-37. doi: 10.1007/s10115-0070114-2 [42] zafar, m. b., valera, i., gomez-rodriguez, m., &gummadi, k. p. (2019). fairness constraints: a flexible approach for fair classification. journal of machine learning research, 20(75), 1-42. [43] zafar, m. b., valera, i., rogriguez, m. g., &gummadi, k. p. (2017, april). fairness constraints: mechanisms for fair classification. in artificial intelligence and statistics (pp. 962-970). pmlr. received: 2020-10-28 revision requested: 2021-03-24 revised: 2021-06-01 (2 revisions) accepted: 2021-06-21 sandro radovanović university of belgrade, faculty of organizational sciences, serbia sandro.radovanovic@fon.bg.ac.rs sandro radovanović is a teaching assistant at the university of belgrade, faculty of organizational sciences. he received his phd in information systems from the university of belgrade, faculty of organizational sciences. his research interests are decision theory, algorithmic decision making, machine learning, decision support systems, and algorithmic fairness. marko ivić university of belgrade, faculty of organizational sciences, serbia ivic.marko@gmail.com marko ivić graduated at the university of belgrade, faculty of civil engineering. during his studies, in 2002, he established his own company for adaptation of office spaces, apartments and buildings. in 2005 he went to the barcelona city government for professional training at the department for the organization of construction works for a one year professional training. his research interest lies at the intersection of civil engineering and decision support systems. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07 85_3 stangej:tipska.qxd 65 olga stangej¹*, inga minelgaite², christopher leupold³ ¹ vilnius university business school, lithuania ² school of business, university of iceland, iceland ³ elon university, elon, u.s.a management: journal of sustainable business and management solutions in emerging economies 2020/25(3) * corresponding author: olga stangej, email: olga.stangej@gmail.com research question: this article outlines and explains a unique cultural configuration of organizations in the nordics – the region that embodies linkages between sustainability, societal, cultural context, and organizational culture. motivation: our goal was to offer a holistic approach that incorporates national and organizational perspectives as they apply to nordic organizations’ culture, as culture is typically examined either through a) the lens of its national culture, or, b) through specific assumptions, beliefs and values, and artifacts that exist in the institution itself. idea: building on theoretical underpinnings from models of national culture and a separate framework for examining organizational culture, we examine how the links among cultural artifacts, espoused values and beliefs, and basic underlying assumptions are established in nordic organizations and how they complement previous findings about the nordic cultural cluster in general. findings: this integrative analysis suggests that the highly prominent central tendencies of the nordics across core cultural dimensions are deeply rooted as basic underlying assumptions within the nordic culture that are ultimately translated into a set of observable artifacts. likewise, the moderately expressed tendencies have not yet been transformed into underlying assumptions and are accompanied with mixed artifacts. contribution: this paper expands our existing understanding regarding the interplay of national and organizational culture in specific cultural cluster – nordic cluster, which is characterized by high achievements in sustainability-orientated societal-level outcomes. keywords: nordic culture, cultural configurations, organizational culture jel classification: m10 contouring sustainability: cultural configurations of nordic firms doi: 10.7595/management.fon.2020.0015 abstract: 1. introduction organizational development towards sustainability is a domain of holistic inquiry, where internal, external, and connecting drivers must be considered (lozano & von haartman, 2018). organizational culture, that has been repeatedly documented to be the cornerstone of corporate sustainability (linnenluecke & griffiths, 2010), can be considered a holistic manifestation of these drivers. therefore, context-specification investigation of organizational culture pertains to building our knowledge on development of organizational sustainability. as parodi (2015) notes, sustainability is a highly cultural phenomenon and “increased incorporation of cultural-scientific and cultural-theoretical considerations” (p.169) will contribute to the advancement of the discourse on sustainable development. such considerations of the linkage between organizational culture and sustainable development are also inextricably linked with the societal culture, since, as lozano and von haartman (2018) have noted, “no organization is an island” and organizational contexts, together with goals, will play a role in “their quest to better contribute to sustainability” (p. 520). the nordic region embodies these linkages between sustainability, societal cultural context, and organizational culture. the region has of late enjoyed a place in the global spotlight for the enviable success it has had in achieving a variety of sustainability-orientated societal-level outcomes (minelgaite, guðmundsdóttir, guðmundsdóttir, & stangej, 2018). for example, the nordics are recognized as the global leaders in gender equality and for their ambitious climate and energy policies (word economic forum, 2017). furthermore, nordic countries are performing particularly well on indicators related to employment and education (state of the nordic region, 2016). among a variety of other factors, the nordic values of modesty, trust and care are typically highlighted as culturally broad and pervasive factors that underly these and other impressive societal-level achievements of the nordics. at the same time, the nordic region is also increasingly attracting the attention of organizational science scholars due to its equally impressive achievements in management (minelgaite, et al., 2018). for example, nordic employees are noted as some of the world’s most motivated workers (eriksen, kruse, & larsen, 2006) and nordic companies are recognized worldwide for their innovativeness, competitiveness, and productiveness (chen, 2014). at the level of organizations, the same values of modesty, trust and care underlie the stability orientation in management and the high focus on stakeholder management (kvande & brøve, 2012) typical of nordic companies. research suggests that such organizational success is achieved through a special synergy between cultural norms and institutional structures that encourage quality relationships between companies and their stakeholders (gjølberg, 2010). these organizational outcomes are notable given that the nordic cultural context, particularly with its underlying values and resultant leadership style, is incompatible with typical anglo-american leadership narrative (sund, 2016) that has come to be the de facto prescribed approach in management literature. taken together, the broad national culture of the nordics and the more specific cultures of the organizations within it present an interesting point of study. this includes the work environment, where leaders routinely apply the norms of honesty and consensus and create an effective set of leadership principles that competitively position nordic companies in the global market (chen, 2014); that is part of a regional culture where economic interests are nested within broader societal ones (midttun, gautesen, & gjølberg, 2006). this specific type of success, which may at points diverge from other cultures’ typical definitions and criteria, stems from and perpetuates a certain nordic code that management scholars have tried to decipher either by focusing on nordic societal culture alone or on particular success stories of nordic organizations. as will be elaborated here, a sole reliance on either of these approaches may not be sufficient for thoroughly analyzing or completely understanding the organizational culture nested within its cultural (or national) cluster. however, the conceptualization offered here responds to the calls from prominent scholars to integrate and adapt both levels of culture – broad national and more specific organizational – in order to build a better understanding for business and management in cross-cultural settings (nardon & steers, 2009). research provides strong evidence that culture, both national and organizational, substantially affects organizational outcomes (oyserman, kemmelmeir, & coon, 2002), and hence, cannot be ignored. the effects of culture on organizational processes and outcomes are quite far-reaching including leadership (e.g., chan & drasgow, 2001), decision-making (e.g., mitchell, smith, seawright, et al., 2000); emotions and work-related attitudes (e.g., harpaz, honig, & coetsier, 2002), and allocation of rewards (e.g., gomez, kirkman, & shapiro, 2000). one might argue that globalization and tighter interconnectedness among nations diminishes the relevance of focusing on specific national cultures. however, an increasing body of research suggests that new challenges that globalization brings have amplified companies’ needs to more precisely understand specific local cultures in order to engage in better cross-cultural management (bhagat & steers, 2009; mihic, shevchenko, gligorijevic, & petrovic, 2019). indeed, the national culture profoundly influences organizational culture, and thus must be better understood (selnes, 1996) in today’s everchanging business environment. however, in order to contribute to a more effective cross-cultural management for business and advancement of theory, scholars need to focus on the role of culture and cultural variations in macroand micro-level processes in both specific organizational contexts, as well as national ones (bhagat & steers, 2009). therefore, the objective here is to provide an integrated portrait of both cultural perspectives, national and organizational, within the nordic cluster, and in this way articulate a more complete cultural configuration of nordic organizations. building on and synthesizing the theoretical underpinnings of some of the most prominent models of national culture, we suggest a framework to augment our understanding via the incorporation of an organizational perspective. our theoretical insights are contextualized within the specific nordic cultural cluster and provide an integrated view of not only its core cultural dimensions, but also of the basic underlying assumptions, espoused beliefs and values, and artifacts and observed perceptions found in nordic organizations. 2. mapping the organizational culture: a theoretical framework the landscape of cross-cultural studies is dominated by a number of impactful models that have established a solid framework for empirical research. however, the differences in the individual models’ orientations and foci on various different cultural aspects result in a rather fragmented set of empirical studies. nardon and 66 olga stangej, inga minelgaite, christopher leupold 2020/25(3) steers (2009) argued that the advancement of cross-cultural organizational research should build on commonalities and strive to achieve convergence among the existing models of national culture instead of debate on individual validities or development of new ones. as such, nordon and steers (2009) sought to synthesize the six leading models of the national culture authored by kluckhohn and strodtbeck, hofstede, hall, trompenaars, schwartz, and house and globe associates. their synthesis identified the common principal themes that best encapsulated cultural similarities and delineated differences. nardon and steers (2009) labelled these dimensional themes, or core cultural dimensions (ccds), as follows: • hierarchy-equality, which refers to the power distribution in organizations and society; • individualism-collectivism, which refers to the role of individuals and groups in social relationships; • mastery-harmony, which refers to the relationship with the natural and social environment; • monochronism-polychronism, which refers to the organization and utilization of time; and, • universalism-particularism, which refers to the relative importance of rules versus relationships in behavioural control. often using models that pre-date nardon and steers’ (2009), the cross-cultural studies on organizations tackle the deeper levels of culture through cross-cultural dimensions that portray the underlying values and beliefs of given clusters or geographic regions. however, the understanding of organizational culture calls for a more systematic and comprehensive approach. as leung and ang (2009) point out, the abundance of management studies through a lens of subjective culture, or the one that rests with values, beliefs, and assumptions; eventually narrows the focus and diminishes the conceptualization of institutions as entities that are themselves distinctively cultural in nature. the seminal works by schein, started in the early 1980s, set the framework for an analysis of the culture within an organization. these works complement the objective-subjective view on culture, proposed by triandis (1972) and stewart and bennett (1991), which acknowledges the existence of objective components (observable artifacts) and subjective components (psychological aspects) of culture. schein (1984; 2010) suggests that culture manifests itself through three levels: artifacts, espoused beliefs and values, and basic underlying assumptions; each of which progresses from a surface level one to much deeper levels. at the surface level, tangible and overt culture manifestations can be directly observed and experienced. while it may be difficult to deduce the culture solely from artifacts, schein suggests that the deeper levels serve as suitable perspectives for understanding the culture that they reflect. the two deeper layers, espoused beliefs and values, and underlying assumptions; are the conscious elements and form the basis of the culture. espoused beliefs, values, norms, and rules of behaviour guide the members of the culture and are practiced and exhibited by them to convey and reinforce the culture both to themselves and outsiders. as schein (2010) contends, values and beliefs have a potential to become shared, embedded, unconscious basic underlying assumptions. however, for this transformation to take place, the values must occasionally be tested. in the case of values that concern aesthetic or moral matters and cannot be directly tested, social validation is required, i.e., the confirmation of a value that emerges through the shared social experience of a group (schein, 2010). as schein (2010) notes, an underlying assumption evolves from a value or hypothetical belief to a fundamental assumption that “nature really works this way” (p. 27). schein further distinguishes assumptions from dominant value orientations, as the latter considers what solutions to problems individuals prefer amongst a number of alternatives. instead, underlying assumptions leave no room for other alternatives – they become taken for granted realities. hence, direct exploration and examination of organizational culture through the national lens also can lead to a partial disregard of the interaction between the institutional context and the national culture. such an approach also omits, what one might label, the flow of culture, or the sequence from artifacts to espoused beliefs and values to basic underlying assumptions. while it points at the dominant orientation of the culture, sole reliance on the national culture or isolation of one layer from the other may limit the comprehensiveness of the organizational culture. finally, it can potentially diminish the interrelationships between layers that may result in broken links between, for example, the artifacts or observer perceptions, and the espoused beliefs and values. for example, one of the most common peculiarities of the nordic culture is the emotionally non-laden or distant communication that a western observer might erroneously perceive as indifferent or even subtle hostility. similarly, the relaxed atmosphere in icelandic workplaces can often be mistaken for a somewhat nonchalant workplace attitude with little emphasis on results. the establishment of the links among the three layers of culture may be essential in structuring the cultural configurations and understanding how underlying assumptions, beliefs, and values translate into artifacts and manifest in practice. therefore, to unravel the cultural configuration of nordic organizations, we embrace all three layers through which the culture manifests: artifacts and observer perceptions, espoused beliefs and values, and basic underlying assumptions. we further embed the core cultural (national) dimensions of the nordic cluster that 67 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) are interrelated with the organizational culture into the framework. the artifacts represent the observable, outer layer of the organizational culture. the espoused beliefs and values are then nested as a deeper level of conscious elements of the culture. finally, the deepest layers involve both core cultural dimensions and the basic underlying assumptions. it is proposed here that the central tendencies across a cluster’s core cultural dimensions, or dominant value orientations, permeate the organizational culture and its underlying assumptions. it is assumed that the basic underlying assumptions actually drive the organizational culture. in line with schein (2010) it is assumed that these assumptions guide the perceptions and behaviour of individuals, regardless of possible alternatives that dominant value orientation otherwise takes into account. this approach is captured in figure 1. figure 1: conceptual framework for analyzing the cultural configurations of organizations. source: authors, based on nardon and steers (2009) and schein (2010) in line with the suggestion by leung and ang (2009), we simultaneously rely on both cultural and institutional perspectives and consider organizational culture together with its subjective and objective parts. in this vein, cultural perspective involves ecology (climate, terrain, environmental resources, disaster proneness), objective culture (human-made physical environment, other overt, objective elements, formal rules), and subjective culture (norms, values, beliefs, and knowledge). the institutional perspective encompasses regulatory, normative, and cognitive dimensions. this proposed model further builds on the integrative summary of core cultural dimensions by nardon and steers (2009) and schein’s (2010) framework as an approach to unravelling the organizational culture and its configuration in the nordic countries. we adopt the definition of cultural configuration suggested by leung and ang (2009) in extension to traditional definitions steeped in the cognitive approach, such as the ones by, for example, hofstede (1980). leung and ang (2009) thus conceptualize culture as, “the configuration of basic assumptions about humans and their relationship to each other and to the world around them, shared by an identifiable group of people,” which is “manifested in individuals’ values and beliefs, in expected norms for social behaviour, and in artifacts such as social institutions and physical items”. table 1 reflects the core cultural dimensions and central tendency-based assessments (i.e., the general ‘means’, so to speak) across countries in the nordic cluster. the left-most column lists the dimensions derived by nardon and steers (2009), and the one immediately adjacent to it provides the respective nordic central tendency for each. the following column headings are cultural layers in line with schein’s (1984; 2010) framework. the result is a matrix of core national cultural dimensions by layers of organizational cultural dimensions, with each cell summarizing the particular intersection of the two cultures – the cluster and the organizational. 68 olga stangej, inga minelgaite, christopher leupold 2020/25(3) artifacts in an organization and a cultural cluster espoused beliefs and values in an organization basic underlying assumptions in an organization central tendencies across the core cultural dimensions un a cluster table 1: core cultural dimensions and layers for the nordic cluster source: authors hierarchy-equality in a situation when equality as a shared value is deeply rooted in a culture to the point that it becomes an underlying assumption, it results into an egalitarian culture. from such a culture in the hierarchy-equality dimension emerges a balanced distribution of power and authority across society and its members, where broad and equal participation and fairness are promoted (dragicevic & mihic, 2020; nardon & steers, 2009; schwartz, 1994). in the nordic cluster, an underlying assumption that every individual must be treated equally permeates all societal and organizational domains. eventually, this underlying assumption attains the level of artifacts; perhaps the one of the most prominent among the nordics is a legal regulation around balanced gender representation on boards. less formal but equally representative of the assumption of equality include people addressing each other on a first name basis among all members. also evident is a more equal distribution of rewards and resources, and a general acknowledgement that everyone is seen as an equal participant. the strong sense of egalitarianism in nordic organizations is readily apparent to an outside observer, particularly one who is more familiar with traditional organizational power structures. in contrast to the classical vertical structure with authority centralized with a few at the top, nordic organizational structures are more horizontal with power dispersed more widely. likewise, from an organizational communication perspective, information is transmitted, even from top management to employees, more openly and directly, rather than through filtered channels or levels as would be typical in hierarchies. likewise, compensation policies focus on equitability and lack wide disparities in pay and rewards typical of hierarchical organizations. all these artifacts and many more point at the underlying value of equality and a shared belief that the societal and organizational structures should be built with respect to fundamental equality among its members. individualism-collectivism moderate collectivism in the nordic cluster emphasizes a certain degree of centrality of groups, including group goals and collective action (nardon & steers, 2009; trompenaars, 1993), although not to the extent that one would observe in an asian cluster. however, in early studies by hofstede (1980), nordic countries were found to score moderately high on individualism. although sometimes differing on which of dimensional anchors was chosen as the descriptive label, these authors ultimately include the modifier ‘moderate,’ suggesting that elements of both are evident in the nordic culture and that neither far outweighs the others. this ‘moderate’ standing is further supported by empirical findings that reflect a combination of individualism and collectivism. one example of these was an early study by hampden-turner and trompenaars (1993) on swedish management which the authors later characterized as ‘social individualism.’ the artifacts of social individualism can be primarily captured in the artifact of the social welfare systems, given the widespread reference to the nordic countries as welfare states. as hjorth (2008) denotes, individual independence, which has quite important significance in the nordic culture, has triggered the development of the physical and economic infrastructure which supports it. here, however, hjorth (2008) differentiates between the 69 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) �������� �� �� �� ������� ��� � ��� ������������ � ����������� � ��������������� ���� � ����� ����������������� ����������� ����� �� �� � ����� ���!��� "���� ����� #� ��� �� ��� ���$� #�������� ��� ���$� #��� ��% ���� ��� ���$� #��� ��% ���� ��� ���$� #��� ��% ���� ��� ���$� �������� ������ � ����� � ������� � ������������ ���� ������������ ���������������� � ���� � � ����� � �������������������� ��������������������� ����������������� �������� ����� � ����������� ������������ !������������ "�������� � ��������������� #�� �������$��� !����������%�������� �����������%������� � "����� �������� ������ � "�������� � ��������� #�� �������$��� � � "����������� �&�� ��������� "�������� � ������������ #�� �������$��� � � '����������� &������������� ������� � ��������������� � � � nordic individualism that is supported by the state, and the ‘self-made independence’ which is perhaps most markedly inherent in the culture of united states. in denmark, the move from collectivism to individualism has been evident in changes in the areas of the welfare state (kvist & greve, 2011). in contrast, vaara, tienari, and irrmann (2007) contend that danish individualism may be juxtaposed with the swedish “communitarian, consensus-seeking society” (p. 226). all these variations are evident in the light of, for example, essentially the same shift from welfare to workfare in social insurance systems that took place in both denmark and sweden from the early 1990s to 2000s (kananen, 2012). when one moves towards the entrepreneurial domain, as hjorth (2008) suggests, the public perception of individual independence in the nordics is shifted from a concept of a ‘natural right’ to an idea of a ‘possibility.’ likewise, institutional structures and management practices in the nordic cluster embody relationships between stakeholders and the companies (gjølberg, 2010). this is just one more example of the cluster’s unique positioning on the values of individualism and collectivism, which in turn emerge into artifacts in organizational practices. mastery-harmony based on schwartz’ (1994) framework, the mastery-harmony cultural dimension that nardon and steers (2009) more thoroughly identified, refers to the extent of achievement-orientation and control-seeking behaviour over the natural and social worlds. from a relationship perspective, moderate orientation towards harmony within the nordic cluster reflects the value of interpersonal relationships over achievement, living in harmony with nature and adjusting to the natural and social environments, and a general emphasis on social progress and the welfare of others. the nordics’ standing on this dimension also refers to striving to achieve a healthy quality of life more than achievements, nurturing traditions and expressing a certain scepticism towards change, and preferring seniority-based intrinsic rewards. finally, there is a general emphasis on economy, harmony, and modesty; and practicing an overall rather passive, reactive, and ‘feminine’ approach (nardon & steers, 2009). yet, as in the case of moderate tendency towards both individualism and collectivism, the positioning of organizational culture in the nordic cluster is not uniform with regard to the mastery-harmony dimension. in this domain, nordic organizations are well-known for their emphasis on harmony and for their ability to match their economic goals with the collective interests of society (midttun et al., 2006). however, as an example of iceland illustrates, this value, although it may be shared, is not necessarily transformed into a basic underlying assumption. for instance, the role of social responsibility in corporate culture only began to grow notably after the financial crisis of 2008 shook the society and the business landscape and triggered the reconsideration of values, beliefs, and instigated change in the organizational culture (jónsdóttir & steinþórsson, 2010). monochronism-polychronism the moderately monochronic tendency in the nordic cluster refers to a preference for sequential attention to individual tasks and a reliance on methodical approaches to planning and implementation; in other words, the nordics adopt a linear, single-minded and job-centered approach to their work (nardon & steers, 2009). punctuality and precise time management are the norm, as are one’s commitment to their job and their organization, separation of work and personal life, and a focused and dedicated approach to work (nardon & steers, 2009). the nordic cluster’s tendency towards moderation on the ccds applies again to the balance between monochronism and polychronism in the nordic organizations. the process of switching from the one end of the continuum towards the other can be illustrated through a well-known example of the corporate meetings. in the nordic working environment, which is often characterized as somewhat relaxed, being late is acceptable; however, only to a certain degree. commitment to one’s job and colleagues and the expectations to dutifully attend and actively contribute to meetings are general professional expectations for everyone. however, if a situation presents itself where an employee’s need to attend to child or family issues competes or conflicts with professional duties; commitment to the family and other important personal life duties may override the professional responsibilities. while this sensitivity to employees’ private lives and the promotion of healthy work-life balance by the nordic organizations is often celebrated, a question of differentiation between acceptable and unacceptable behaviour remains open. as such, this flexibility in practice also indicates that individuals themselves make their own choices regarding their work lives and personal lives; and in reality, there is a variance in the degree to which pole people gravitate. in line with schein’s framework (2010), it further suggests that there is no universal solution and reliance on one or another belief that is taken for granted. hence, beliefs and 70 olga stangej, inga minelgaite, christopher leupold 2020/25(3) 71 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) values associated with the monochronism and polychronism are not yet transformed into basic underlying assumptions. universalism-particularism the strongly universalistic culture in the nordic cluster is evident in a strong reliance on the rules and norms and intolerance for violating them. as such, individuals’ behaviours are uniformly regulated by a variety of mechanisms including rules, laws, formal policies, standard operating procedures, and social norms. moreover, these prescribed behaviours and the expectation that they are adhered to are not only accepted but strongly supported by societal members. these universalistic practices not only promote a hogher efficiency and predictability in society, but also preserve a sense of fairness and messaging that everyone is expected to follow the same rules regardless of their status. as strong universalists, the nordics focus more on commonalities among the members to preserve a sense of fundamental equality rather than accentuate individual differences that call out some as more exceptional than others. once transferred to organizational culture and coupled with egalitarianism and moderate uncertainty avoidance, this central tendency manifests through sets of corporate policies. these may include both clear regulations and rules in human resource management practices (warner-søderholm & cooper, 2016). still, whilst organizational culture, just like societal culture, is based on the expectation of following the rules, these may often remain unspoken or inexplicit. such a tendency may be linked with the balance between formality and flexibility (andreasson & lundqvist, 2018), which enables organization members to simultaneously nurture non-restrictive rules and autonomy. here, however, questions that are still rather open, tackle when and how rules are to be explicitly communicated. warner-søderholm and cooper (2016) noted, the relationship between cultural research and business communication practices, although being evident, remains under-investigated in the nordics. thus, a more nuanced understanding of enacting universalism through communication practices, and especially in relation to sustainability, is yet to be achieved. references [1] andreasson, u., & lundqvist, m. 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(1996). market orientation in united states and scandinavian companies: a cross-cultural study. journal of scandinavian management, 12, 139-157 doi: 10.1016/0956-5221(95)00053-4 [34] state of the nordic region (2016). accessed at http://norden.divaportal.org/smash/get/diva2:906913/fulltext01.pdf [35] stewart, e.c., & bennett, m.j. (2005). american cultural patterns: a cross-cultural perspective (2nd ed.) london, uk: nicholas brealey publishing. [36] sund, b. (2016). small fish in a big pond: norwegian leadership. accessed at https://www.researchgate.net/publication/312222301_nordic_leadership 72 olga stangej, inga minelgaite, christopher leupold 2020/25(3) 73 management: journal of sustainable business and management solutions in emerging economies 2020/25(3) [37] triandis, h. c. (1972). the analysis of subjective culture. oxford, uk: wiley-interscience. [38] vaara e., tienari j., & irrmann, o. (2007). crafting an international identity. in l. lerpold, d. ravasi, j. van rekom, & g. soenen (eds.) organizational identity in practice (pp. 215-230). london, uk: routledge. [39] warner-søderholm, g., & cooper, c. j. (2016). be careful what you wish for: mapping nordic cultural communication practices values in the management game of communication, international journal of business and management, 11(11), 48-59 doi: 10.5539/ijbm.v11n11p48 [40] world economic forum (2017). the global gender gap report, accessed at http://www3.weforum.org/docs/wef_gggr_2017.pdf received: 2020-04-14 revisions requested: 2020-05-16 revised: 2020-05-25 accepted: 2020-05-30 olga stangej vilnius university business school, lithuania olga.stangej@gmail.com dr. olga stangej is an associate professor at vilnius university business school (lithuania), where she delivers courses on entrepreneurship and is in charge of the entrepreneurship mba programme. her research, broader educational activities, and projects lie within the domains of leadership and family businesses. inga minelgaite school of business, university of iceland, iceland inm@hi.is dr.inga minelgaite is an associate professor at the school of business, university of iceland and head at institute for project management. her main field of research is cross-cultural leadership and leadership in project management. inga has published a number of articles, book chapters, and written a book on leadership in iceland ‘demystifying leadership in iceland’. inga is one of the leaders of global feels (fellow endorsed effective leadership and sustainability) research network. inga has more than 15 years middle and top management experience in various business sectors in multiple countries. christopher leupold elon university, elon, u.s.a cleupold@elon.edu christopher r. leupold, ph.d., is the isabella cannon professor of leadership and professor of psychology at elon university, located in north carolina, u.s.a. he earned his b.a. in psychology from the university of notre dame and his m.a. and ph.d. in industrial/organizational psychology at the university of north carolina and wayne state university, respectively. his primary teaching and research interests are in leadership assessment and development, teams, and organization development. dr. leupold also has over twenty-five years of experience consulting in these areas to organizations around the world, ranging from small start-up to fortune 50 companies. he is a frequent publisher in academic journals in his field and an active member of the society for industrial/organizational psychologists and american psychological society. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 06 goranka knezevic:tipska.qxd 59 goranka knežević1*, vladan pavlović2, radica bojičić2 1 singidunum university, faculty of business, serbia 2 university of pristina in kosovska mitrovica, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(3) does the achievement of gender equality in society reflect on gender issues in corporate governance: the case of the west balkan's banking sector? doi: 10.7595/management.fon.2021.0034 abstract: 1. introduction women's participation on boards of directors and how they could benefit from the financial results of firms has been widely presented in academic research (kirsch, 2018). even though, results gained by researchers are inconclusive. this put an emphasis to the question of board gender diversity and its real influence. this research question requires taking into consideration a broader perspective (social, political, and economic) and external factors influencing women's participation in the boards such as the human development status of a country, gender development, gender inequality, gender pay gap. these external explanatory factors can put more light on women's participation and their real position in making business decisions and influencing business results. we refer in this article to terjesen and singh (2008) who suggested the idea of how wider external structures and processes impact the enactment of women's careers, but they stated that these problems are underresearched in academic articles. on the other hand, tyrowicz et al. (2020) demonstrated that gender board diversity generally increased but women remain rare in both boards of firms in 41 emerging european economies. they found that more gender equality is not to a greater extent associated with women directors * corresponding author: goranka knežević, e-mail: gknezevic@singidunum.ac.rs research: driven by the idea that women do not realize their full potential in society based on not being equally paid, having lower education level than men and facing discrimination based on maternity leave have been a primary motivation to do the research on the following sources of data: hdi; gdi and gii indexes published for four west balkan countries and average data of women on boards for the same countries experienced in the most developed and female-dominated industry such as banking. this idea helps us formulate primary research questions -if a country has a better human and gender development index it should have more women that actively participle in business and have a real influence on decision making. our findings are in line with the fact that slovenia and croatia are leading countries in the west balkan region in terms of the index mentioned, therefore shaping a better place for the position of women in society. on the other hand, serbia has the lowest value of 2 out of 3 indexes. the similarity between bank board diversity can be found between serbia and slovenia. in those two countries, women occupy more positions on the executive boards, but fewer on the supervisory board. the situation is different for croatia and montenegro where more women are included in supervisory boards. contribution is that in western balkan countries it is arguable that women have no real influence on businesses and results of operations in the banking sector despite the fact that the mentioned countries have quite a good ranking in the gender development reports. keywords: gender, corporate board diversity, banking industry, west balkans jel classification: m41, m48, a13 on management boards in public and private european firms. country level gender equality and cultural institutions exhibit differentiated correlation with the presence of women directors in the management and supervisory boards (strom et al., 2014). in this research, we have chosen the banking industry mainly for two reasons. the first one is that the banking industry is generally not male-dominated. so, the fact that the largest percentage of women on boards among fortune 500 companies can be found at the supervisory board of a bank (43,75% of women on board) does not come as a surprise (deloitte, 2016, p. 15). the second one is that in the balkan region women make the majority of the graduated students of the faculties of economics and that is why they contribute more to the gender structure of the bank's employees. the importance of diversity in banks is underlined by the basel committee as well. namely, the basel committee published the document “corporate governance principles for banks” in july 2015 as part of its efforts to promote banking industry stability and to enhance corporate governance procedures which present the revised version of the document principles for enhancing corporate governance published in 2010. in this document, unlike the previous version of the document from 2010, the basel committee emphasizes the role of board diversity. to be specific, in the par. 48 (basel committee, 2015) where the structure of the board is discussed, the basel committee stated that “the board should be comprised of individuals with a balance of skills, diversity and expertise, who collectively possess the necessary qualifications commensurate with the size, complexity and risk profile of the bank.” although not explicitly mentioned in the text, it seems obvious that among others, the basel committee had gender diversity in mind, particularly when the effect of board gender diversity on performance and risks is known. gender diversity as a trend finds its place in the financing sector including the banking industry. banks are included in the transnational business feminist project (roberts, 2015). so, it seems that banks found themselves deeply involved in the global business gender equality case for the purpose of promoting more efficient growth in financial institutions and the elimination of gender deprivation in this sector. it is also argued by roberts (2015) that banks and accounting firms have sought to devise ways of assessing gender dividends to be gained from investing in women. gender diversity is not only found to moderate or be moderated by the influence of other economic and demographic variables but also to moderate or mediate itself in the relationship to bank performance (stefanovic & barjaktarovic, 2020). these authors found that exploring mediating effects become crucial in contemporary research of gender diversity and performance nexus. some studies examine whether social responsibility plays a role between the appointment of women to the bank's board of directors and performance, while other studies focus on board diversity indicators as moderators or mediators of board diversity and performance relationships. all these studies find that gender diversity and the real influence of women in making business decisions depend on other factors such as cultural, social responsibility, and socioeconomic (stefanovic & barjaktarovic, 2020). brieger et al. (2019) investigated the effect of country-level emancipative forces on corporate gender diversity around the world and explained how action resources, emancipative values and civic entitlements enable, motivate and encourage women to take leadership roles on corporate boards. their study shows positive single and combined effects of the framework components on board gender diversity. one part of the puzzle which is missing is the number of women appointed in central banks in different countries. a study by bodea (2018) finds support for the key hypotheses that gender diversity in the leadership of central banks is more likely in larger boards when national legislatures include more women and the central bank has more independence. in contrast to other research in this area, this paper does not solely address the issue of bank corporate board diversity, but it is focused on broader social and economic factors trying to emphasize that these factors have more influence on real women’s position in the economy and in banks than just measuring board diversity variable itself. this is done by taking into consideration western balkan countries such as croatia and slovenia as eu members, and two candidate countries such as serbia and montenegro. all these countries are chosen because they have similar geographic positions and similar paths of development in the banking industry. the rest of the paper is structured as follows. section 2 presents a literature review of human development indexes, board structure in the banking sector, and real women's participation in decision-making. section 3 demonstrates the research questions and research variables. section 4 demonstrates data, sample composition, and descriptive statistics. section 5 provides an analysis of the data which is followed by the conclusion of the paper. 60 goranka knežević, vladan pavlović, radica bojičić 2022/27(3) 2. literature review psychologists try to explain that men's and women's behaviour is influenced by different factors and they develop two theories: evolutionary psychology theory, social structural origin theory (eagly & wood, 1999), and role congruity theory (eagly & karau, 2002). evolutionary psychology theory points out that men and women differ psychologically and that is why they tend to occupy different roles in society. social structural origin theory emphasizes that sex differences are viewed as accommodations to restrictions imposed by society and different behaviour is affected by many factors such as individual, situational, and cultural. in contrast to that, role congruity theory points out that female leadership role and female gender role leads to two prejudices: 'a) perceiving women less favourably than men as potential occupants of leadership roles and b) evaluating behaviour that fulfils the prescriptions of a leader role less favourably when it is enacted by a woman' (eagly & karau, 2002). singh, et al. (2008) point out how men differ from women in the boardroom. andries et al. (2020) and adams and mehram (2012) explored the bank board structure and impact of board diversity on the performance and riskiness of banks across central and eastern european (cee) countries and demonstrated that banks with a chairwoman and a higher proportion of females among the members of a bank's board had experienced a higher level of profitability and tended to have a lower level of credit losses as well as a higher level of stability during the previous global financial crisis. strom et al. (2014) give a broader picture of women's leadership influence on governance and performance of microfinance institutions in 73 countries. younger firms with more female clientele and with non-commercial legal status are firms with more women appointed as board members. zhang (2020) did a cross country and crossindustry analysis and found that the more gender diversity has been normatively accepted in a country or industry, the more gender-diverse firms experience positive market valuation and increased revenue. baker et al. (2020) give a broad overview of all articles published in the board diversity area in the web of science while terjesen and searly (2016) explored gender quotas and caprio et al. (2007) explored bank governance and bank valuation. many researchers focus their research on gender diversity in the banking sector. choosing the members of the supervisory board and its composition is related to establishing the trade-off between monitoring and advising needs in the bank environment (garcia-meca et al., 2015). pathan and faff (2013) used a panel of large us banks and found that board size and independent directors decrease bank performance, while gender diversity improves it. chen et al. (2016) investigate into the role of gender diversity and its influence on mitigating internal control weaknesses in the banking sector. de cabo et al. (2012) investigates the gender diversity of european union banks (612 in the sample) and prove that the proportion of women on board is higher for lower-risk banks. adam and mehran (2012) found that having more independent directors had no influence on bank performance while enlarging the size of the board has a positive influence on the tobin q ratio as a proxy for bank performance. pathan (2009) emphasizes that board structure is relevant for bank risk-taking. berger et al. (2014) argue that a team perspective is very important for bank governance because a firm executive forms a team and interacts with one another in the decision-making process. de andres and vallelado (2008) found a u-shaped relation between bank performance and board size meaning that bank board size is related to the director's ability to monitor and advise management. liang et al. (2013) find that the number of board meetings and the proportion of independent directors have a significantly positive impact on bank performance in china, while board size has a negative influence. in serbia, literature regarding female position on the supervisory boards is quite rare. djulic and kuzman (2013) find that many successful women in serbia are fully unknown to the general public and women face some degree of discrimination in the labour market. stefanovic and barjaktarovic (2020) found that the gender diversity-performance relationship was indirect. the gender diversity of executive boards positively impacts bank performance, over a threshold level. pavic kramaric and pervan (2016) found that the growth of the proportion of women on management and supervisory boards negatively affected bank performance in croatia. pavic kramaric and miletic (2017) found that based on the critical mass theory that when the number of women on the management board reached from 20% up to 40%, this would improve the bank performance. drmac et al. (2017) researched whether the number of women in the supervisory boards of croatian companies traded at the zagreb stock exchange influenced their profitability measured by roa. from the contemporary research in western balkan countries, we can derive a conclusion that the number of women sitting on the boards (executive or supervisory) does not give enough conclusive evidence of their real impact on financial performance in banks as well as in some other sectors (knezevic et al., 2017). 61 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) some research in the non-financial sector in non-eu countries in the region shows a very low participation of women on boards (suklev et al., 2020) as well as the fact that women members are significantly younger than men (pavlovic et al., 2019), while some research conducted in eu countries bordering a country in our sample shows that companies with more women on their boards perform better (rossi et al., 2017) 3. research question development and variable discussion the human development index (hdi) measures the deprivation of certain group regarding essential capabilities such as long and healthy life, knowledge and standard of living. (undp, 2016, p. 201). ”the composite human development index (hdi) integrates three basic dimensions of human development. life expectancy at birth reflects the ability to lead a long and healthy life. mean years of schooling and expected years of schooling reflect the ability to acquire knowledge. gross national income per capita reflects the ability to achieve a decent standard of living.” (undp, 2016, p. 3). countries in which hdi is high are countries where women deprivation is not an issue. the gender development index (gdi) compares female and male hdi values. (undp, 2016, p. 3). so, this index is a ratio of hdi for women and hdi for men (undp, 2016, p.213). according to the undp human development reports, it ”measures gender gaps in human development achievements by accounting for disparities between women and men in three basic dimensions of human development—health, knowledge and living standards using the same component indicators as in the hdi.” much of the variation in hdi between women and men is due to lower income among women relative to men and to lower educational attainment among women relative to men (undp, 2016, p. 54). another index that measures gender influence is gender inequality index (gii). that index is a composite measure of inequality in achievements between females and males in three dimensions: reproductive health, empowerment and labour market (undp, 2016, p. 217). the higher the gii, the more inequality there is between men and women in the country in question. the idea of the paper is that the level of achievement of gender equality in a society is associated with the participation of women on the supervisory and executive boards of banks. hence we have developed the following research questions: research question 1: is the country’s hdi level related to the participation of women on the supervisory and executive boards of banks? research question 2: is the country’s gdi level related to the participation of women on the supervisory and executive boards of banks? research question 3: is the country’s gii level related to the participation of women on the supervisory and executive boards of banks? in order to give these answers, we have developed the following variables (table 1): table 1: variable description 62 goranka knežević, vladan pavlović, radica bojičić 2022/27(3) �������� �� ���� �� �� ������ �� ������ ��� � ��� ����� �������� ������������������ �� �� ��� ���� � ����� ��� ������ ��� � ��� ����� ������� ���� � � � ��� �� � ����������������������� � ��� ��������������������� ������� ��������� ��� ������������������� �������������� �! � ����������� �"�� ���� �� ��� ������ �� ���� � �! � ��������� �� �� ��� ���� � ����� ��� ������ � �� ��� ��� ���� � �! � ��� ������� ���� � � � ��� ��� ����������������������� " �! � ����������������"��� ������� ���������������� ������� �! � ��������� #$%��# ����$����� �����%��� � # ����$����� �����%��� ��#$%�&�'�!�� �� ��� ��� � ���� � ��� �������� �!� �������� �� ������ ��� !� � ���� ���� ��� � ���������� ����(��� ����� ���� �������� � ���� )��������� ���� �� ��!���� ��������� ��� � � ��*� ���� #$%� ������ ������� !������ ��������� +��� �� !���������!��������� ������ � ���� ���*� ,$%��,������$����� �����%��� � ,������$����� �����%��� &�-�� ������������#$%� ��� ����� #$%� ��� ��*� � ���� � ������ ���� ������� �� ������ ��� ������� ������ ����*� ,������ ��. �� ��� ��� ��,%%� ,������%��. �� ���%��� &�'�!�� �� ������� ��� �����!� ��� ��. �� ��� �� �!� �������� �������� ������ ���� ���� �� ������ � ���� ���&� �� ��� !� ��� ���������� ��������������������� �����)��*� ������������������������������������ � ��������������. �� ��*� gender development, human development, and gender inequality indexes are presented using secondary data from the undp and world bank databases. the number of women on board has been measured by counting the number of women currently seated at the respective banks in the countries in question. 4. data and analysis in the next section, the sample has been presented, as well as the results of statistical analysis. 4.1. sample description the data set for analysis consists of 30 banks operating in serbia, 28 operating in croatia, 16 in slovenia, and 15 in montenegro. the data used for this research came from the banks’ annual reports, individual bank's website, and the national bank of serbia, the central bank of montenegro, the croatian national bank, and the bank of slovenia's websites in the year 2016. based on the literature several variables are created for this research: the number of women on supervisory board, % of executive women on boards and from undp reports we extracted the following indexes for the period 2010-2016: human development index, gender inequality index, and gender development index. in all four countries, banks operate under the twotier board system: supervisory board and executive board. the number of women on the boards is measured by counting this number from the bank website and cross-checking the information with those published at the websites of countries’ central banks and by calculating the % of women on boards by dividing the number of women by the total number of the board member. 4.2 statistics four countries and their respective results in terms of gender equality in the banking sector are presented below. table 2: women on the two-tier bank board system in serbia, montenegro, croatia and slovenia source: authors' own calculation table 2 shows that the average number of women on the board in serbia in the year 2016 is 0.767 while the average number of women on the executive board is 0.967. when considering %, results are as follows: % of women on the supervisory board is 0.128 on average while in the executive board it is 0.269. obviously, boards are not gender-balanced and women occupy more seats on executive than on supervisory boards. table 2 also shows the average number of women on the board in montenegro in the year 2016 is 1.133 while the average number of women on the executive board is 0.800. in terms of %, the situation is different – in the supervisory board women participate with 0.200 while in the executive they participate with 0.164 this is quite low taking into consideration that the eu proposal for the gender directive requires at least 40% as a threshold. however, more women are on the supervisory boards (or just boards taken into the analysis) 63 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) ������� �� � ����� ������������� �������� ������������� ��������� �� � ��� ������ ������� �� �� ���� ���� !� � ������ �� ���"#!� � ����� ���$%!� �� ������ ���"&!� ��������� � ��� ����������� �������������� ������������� �������������� �������������� � ��� ����������� �������������� ������������� �������������� �������������� ��������������� ��������� � �! � ��������� ��"��������"�� ������������� ��"����������� ����������"��� #������ �! � ��� ������ �������������� �������������� �������������� �������������� $��!�����%�&����� ���� ��� ����� ������ �������������� ������������ �������������� ������������"� $��!�����%�&����� ���� �! � ��������� ����"��������� ������������ �������������� �������������� which is the case in other countries. in the banks in montenegro, boards are not gender-balanced and women occupy more seats on supervisory than on executive boards. table 2 shows that the average number of women on the boards in croatia in the year 2016 is 0.852 while the average number of women on the executive boards is 0.926. in terms of %, the situation is different: in the supervisory board women participate with 0.314 while in the executive they participate with 0.230. as an eu member country since 2013, croatia does care to correspond to eu trends in the area of gender equality, but it is quite far away from the proposal threshold of 40%. although, more women are on the supervisory boards on average expressed in % than on the executive boards. women do take leading positions in this country which is in line with eu gender criteria in this area. in montenegro and in banks in croatia, women occupy more seats on the supervisory boards than on the executive boards. table 2 shows that the average number of women on the boards in slovenia in the year 2016 is 0.67 while the average number of women on the executive boards is 1.17. in terms of percent of women on board, the situation is as follows: 0.165 of women participate in leading positions in the bank (supervisory board), while 0.240 of them are members of the executive board. so, like in serbia, in banks in slovenia, women occupy more seats on the executive boards than on the supervisory boards. as an eu member country since 2004, slovenia does not actively govern the state toward the eu directive proposal which introduces a gender quota of 40% like some early adopters of this quota such as france. the following indexes: human development index hdi), gender development index (gdi), and gender inequality indexes (gii) are presented for four countries from the undp website. hdi is a general index used for measuring the human development status of a country from the standpoint of a long and healthy life, knowledge, and a decent standard of living. the higher is the better. gdi is a measure of a gender gap in human development. gdi is a ratio of hdi for women and hdi for men. this index measures the gender equality gap. the higher the better is the criterion for this index. gii is the geometrical mean of measuring inequality in three important aspects: reproductive health, empowerment, and access to labour market. it exposes differences in the achievements between men and women in the country in terms of number of women taking seats in the parliament (empowerment), in terms of maternal mortality ratio and adolescence birth (reproductive health), and labour force participation rate of women and men (labour market variable). the lower this indexis, the lower is inequality and the better is the position of women in that country. in the next section (see: table 3 table 5) we have presented hdi; gdi and gii for western balkan countries in question. table 3: hdi in the period 2010-2016 source: authors' own calculations from table 3 a conclusion regarding the position of western balkan countries based on hdi mean value can be made: the best results are reached by slovenia, while the lowest by serbia. table 4: gdi in the period 2010-2016 source: authors' own calculations 64 goranka knežević, vladan pavlović, radica bojičić 2022/27(3) descriptive statistics n minimum maximum mean std. deviation hdi serbia 7 0.762 0.791 0.777 0.0096 hdi montenegro 7 0.793 0.809 0.801 0.0057 hdi slovenia 7 0.876 0.892 0.884 0.0049 hdi croatia 7 0.811 0.832 0.823 0.0075 valid n (listwise) 7 descriptive statistics n minimum maximum mean std. deviation gdi serbia 7 0.968 0.974 0.971 0.0021 gdi montenegro 7 0.955 0.966 0.960 0.0048 gdi slovenia 7 0.997 1.012 1.004 0.0049 gdi croatia 7 0.984 0.989 0.986 0.0018 valid n (listwise) 7 from table 4 the following conclusions regarding the position of western balkan countries based on gdi mean value can be made: the best results are reached by slovenia and croatia, while montenegro has the lowest rank among the countries. table 5: gii in the period 2010-2016 source: authors' own calculations from table 5 the following conclusions regarding the position of western balkan countries based on gii mean value can be made: the best results are reached by slovenia and croatia, while serbia has the highest inequality of females and males among these countries. the rule for this index is: the higher the gii value, the more disparities between women and men are present in the country. the lower the result achieved by the country is, the better the rank of the country in terms of not being exposed to the gender gap. table 6: the mean index values for the period 2010-2016. source: authors' own calculations table 6 represents the mean hdi, gdi and gii value for all the countries and period in question. it is obvious that serbia has the lower mean value of hdi index, while regarding the position of women compared to men expressed as gdi, it is positioned in the second in rank. gii for serbia is the highest meaning that the inequality in this country is higher than in others. table 7: summary view of the participation of women on board in the year 2016 source: authors' own calculations results in table 7 represent the idea that croatia has the higher average value of women on the supervisory boards while the lowest average is reached by serbia. women occupying executive positions lead to a different conclusion. serbia had the highest average value while the lowest is in montenegro. 4.3. discussion of results the supervisory board represents shareholders’ interest in the entity. it should supervise and advise the executive board and be directly involved in decisions of fundamental importance to the bank. the country with the highest participation of women on the bank supervisory board is croatia, followed by montenegro, slovenia and serbia. table 7 reveals that the second county in term of women participation on the supervisory board of banks is montenegro which also has the lowest gdi and the most unfavourable hdi and gii after serbia. on the other hand, the country with the highest participation of women on the bank executive board is serbia, followed by slovenia, croatia and montenegro. 65 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) descriptive statistics n minimum maximum mean std. deviation gii serbia 7 0.176 0.221 0.195 0.0175 gii montenegro 7 0.135 0.216 0.176 0.0271 gii slovenia 7 0.058 0.126 0.076 0.0229 gii croatia 7 0.127 0.158 0.142 0.0104 valid n (listwise) 7 ������� �� �� �� ������� ���� �� � ��� ����������� � � �� � ��� ��������� ���� �� ��� �������� ���� ���� ��� ������� ������ �� �� ����� �� ����������� �� ��� ������ �� �� ����� �� ��������� �� ��� ������� ��� �� ����������� � ��� ��������� ��� �� �������� ��� �� the observation of country indexes reveals that the only country in which gdi, gii and hdi are significantly different from other observed countries is slovenia. this is not a surprise when we know that for the year 2017, slovenia was ranked in the hdi ranking as 24th, croatia as 46th, montenegro as 51st and serbia as 65th (undp, 2019). despite the advantage of slovenia regarding the position of women in society, banks in slovenia have the lowest participation of women on supervisory boards, after banks in serbia. on the other hand, banks in slovenia have the highest participation of women on executive boards, not only in percentage but also in absolute values. regarding serbia, in two of the three indexes (hdi, gii), it has the lowest rank among the observed countries. despite that, women participation on executive boards of banks in serbia is the highest among the observed countries. on the other hand, women participation on supervisory boards is the lowest among the observed countries. montenegro took the second place behind croatia regarding women participation on the supervisory boards even though it has the lowest gdi and the most unfavourable gii after serbia. but absolute values reveal that only montenegro has an average number of women on the supervisory boards above than 1. thus, croatia's leading position is rather a consequence of less numerous board members than of higher women participation. on the other hand, montenegro has the lowest women participation on the executive boards. 66 goranka knežević, vladan pavlović, radica bojičić 2022/27(3) the study shows that the country’s hdi level is not related to the participation of women on the supervisory and executive boards of west balkans banks. it is shown that neither the country’s gdi level nor the country’s gii level is related to the participation of women on the supervisory and executive boards of these banks. according to our results, it can be concluded that the contextual factors that influence women participation on the bank's board are not clear. it seems paradoxical that a country that ranks well in terms of gender development and gender equality has at the same time, in the most developed sector like the banking sector, a male-dominated process for making strategic decisions without inclusion of women or with rare inclusion of women, while at the same time a country with the highest gdi and relatively unfavourable gii has the best score in women participation on supervisory boards. generally, women participation on boards is quite low. even when the percentage seems not to be so unfavourable, absolute values reveal that women on average on both boards in most of the cases took fewer than one seat. the exception is noticed just for the average number of women on supervisory board in banks in montenegro and the average number of women on executive board in banks in slovenia. but in both cases, the average number was slightly higher than 1. results also reveal that eu membership affects all three indexes (slovenia and croatia have the most favourable indexes), however, it does not affect the percentage of women on boards. the lack of women on boards could be the result of gender stereotypes or the result of the absence of enough high-quality female candidates applying for these positions. this is a problem of lack of resources or supply-side problem of the gender gap. thus, in terms of practical implications, this paper supports the notion that gender diversity is an important corporate governance issue; however, from the broader perspective, it is a more human development issue. this implies that the multi-lens explanation should be used in future research of this corporate governance phenomenon and gender diversity. some implications for policymakers can be derived. namely, if the proposal directive which requires a minimum of 40% of women in the board of companies whose shares are listed at the eu stock exchanges is accepted, the banks in croatia and particularly slovenia should have more gender-balanced supervisory boards. in serbia, as a non-eu member country, there is much to be done to close the gender gap that exists in terms of not having enough supply of adequate women candidates when applying for certain positions on bank boards. this is due to the fact that board position requires more time to be spent working and women cannot easily balance work and family. bodea 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(2020). all on board? new evidence on board gender diversity from a large panel of european firms. european management journal, 38(4), 634-645. doi: 10.1016/j.emj.2020.01.001 [35] singh, v., terjesen, s., & vinnicombe, s. (2008). newly appointed directors in the boardroom:: how do women and men differ?. european management journal, 26(1), 48-58. [36] suklev, b., debarliev, s., & drakulevski, l. (2020). structuring corporate boards: some facts and determinants from the macedonian setting. central european management journal, 28(1), 57-82. doi: 10.7206/cemj.2658-0845.22 [37] strom, r. o., d’espallier, b., & mersland, r. (2014). female leadership, performance, and governance in microfinance institutions. journal of banking & finance, 42(1), 50-75. doi: 10.1016/j.jbankfin.2014.01.014 [38] undp (2016). human development report, united nations development program, new york. [39] undp (2019). human development report, united nations development program, new york. [40] zhang, l. (2020). an institutional approach to gender diversity and firm performance. organization science, 31(2), 439-457. doi: 10.1287/orsc.2019.1297 received: 2020-01-17 revisions requested: 2020-08-21 revised: 2021-04-09 (3 times) accepted: 2021-05-25 68 goranka knežević, vladan pavlović, radica bojičić 2022/27(3) 69 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) goranka knežević singidunum university, faculty of business, belgrade, serbia gknezevic@singidunum.ac.rs goranka knežević was appointed as full-time professor at singidunum university. she has more than 20 years of professional experience in the field of accounting. she has published more than 60 articles in domestic and international journals and conference papers. she also published several papers at the clarivate analytics (former thomson reuters) ssci list in the year 2017-2020. vladan pavlović university of pristina in kosovska mitrovica, faculty of economics, serbia vladan.pavlovic@pr.ac.rs vladan pavlovic was appointed as a full-time professor in the field of accounting and auditing in 2012 at the faculty of economics in kosovska mitrovica (university of pristina in kosovska mitrovica, serbia). he has published numerous papers in international and national journals and participated in numerous conferences. radica bojičić university of pristina in kosovska mitrovica, faculty of economics, serbia radica.bojicic@pr.ac.rs radica bojičić was appointed associate professor in 2020 at the faculty of economics, university of pristina in kosovska mitrovica, serbia. she is the author of many published articles at the sci / ssci list (clarivate analytics), as well as many papers published in national journals and conferences in the country and abroad. her area of expertise is algebra, mathematical analysis, differential equation. she has been a member of research teams in the area of social sciences, especially economics. about the authors << 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # dana stojiljkovic:tipska.qxd 1 dana r. stojiljković , marko mihić, dragan bjelica university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: dana r. stojiljković, e-mail: dana.stojiljkovic@yahoo.com research question: the aim of this paper is to examine the financial success of projects in game development industry in comparison with to projects in other industries hosted on crowdfunding platform kickstarter.com. motivation: we live in the world of technology where companies arise and disappear on daily basis. the traditional way of financing was expanded with alternative online platforms. our goal was to conduct an empirical analysis of one crowdfunding platform (kickstarter.com) in order to understand if technology projects are doing better than other projects. if they do, what are the key factors for their success? idea: our goal was to better understand how crowdfunding model supports small indie development projects and projects in other industries. data: we used the data of 148.510 companies applied for crowdfunding financing between 2015 and 2020, published on the web crawler platform web robots. tools: all statistical analyses were performed using statistical software ibm® spss® statistics v.21. the data were presented using standard methods of non-parametric descriptive statistics (absolute and relative frequencies for medians and interquartile ranges for numeric outcomes). for testing of statistical significance of difference between two groups we used the pearson´s chi-quadrat test and mann-whitney test, where appropriate. the effect size for the 2x2 analyses was estimated using odds ratios. findings: the paper analyses the financial success of gaming and not gaming projects and tries to identify key factors for successful funding. we found a statistically significant higher prevalence of successful financing in game development projects, with 2.3 times higher odds of successful funding compared to not-gaming industry. our analysis of quantitative indicators such as the number of backers, goal amount, pledged amount, pledged amount per backer and pledged to goal ratio also showed that projects in game development statistically outperformed projects in other categories. promising game projects were supported by three times more backers on average and attained almost as double funds as other projects, while still sporting more modest pledged amounts per backer. these findings support the notion of crowdfunding being a viable modality of financing independent game development in emerging economies. contribution: this paper expands the existing research related to the crowdfunding platforms and indie development companies and formulates key factors for successful financing for technology startup firms. keywords: crowdfunding platforms, game-development industry, kickstarter.com, financial performance, factors of success. jel classification: o22, m13. performance analysis of indie gaming projects on crowdfunding platforms: evidence from kickstarter.com doi: 10.7595/management.fon.2021.0035 abstract: 1. introduction video gaming industry supported by strong technology development and various alternative financing models is becoming one of the main entertainment industries. a growing number of online platforms underpinning projects in various industries suggest that small companies/teams are able to hold up their creative projects without classical capital providers. the aim of this paper was to examine the performance of game-development crowdfunding projects compared to other projects, not related to games. we also discussed potential factors in game development industry that may have contributed to its financial success. we analyzed 148.510 companies that applied for funding on the platform kickstarter.com in the time period between 1.1.2015 and 31.12.2020. there is not too much literature devoted to financing of indie gaming projects on crowdfunding platforms. many research questions need to be answered. what is the prevalence for positive financing of gaming versus non-gaming projects? what is the impact of number of backers, goal amount, pledged amount, pledged amount per backer and pledged to goal ratio in the group of successfully/unsuccessfully financed projects on kickstarter.com? what is the impact of goal amount and pledged amount per backer in the group of gaming/non-gaming financed projects on kickstarter.com? which factors contributed to success in crowdfunding of gaming projects? we begin our study by describing the historical setting of video games industry and crowdfunding as an alternative model of financing. then we present a comprehensive literature review about the impact and scope of online investment platforms for startup projects. later we describe our methodology of empirical research followed by the results received. we then conclude with recommendations for academics and researchers. 2. literature background from its humble beginnings and the video game tennis for two designed by the physicist william alfred higginbotham onward (nyitray, 2011), the video game has represented a novel medium for design and a vigorous force driving the development of computer technology. over the last decades it has become a major part of entertainment industry featuring constant growth and innovation. the value of the video games market worldwide has increased significantly and is forecast to grow even further in the upcoming years, surpassing the 200 billion u.s. dollars mark in 2023 (statista, 2021). as of today, there are over 2.7 billion gamers worldwide (statista, 2021). two main modes of organization practices and production structures have developed across the gaming industry: the "indie" and the "aaa” games. aaa games are developed by large studios with a massive production and marketing budgets, mostly backed by a strong publisher agency (engelstatter & ward, 2016). it is also quite common that publishing agencies finance complete game development, paying video game developers royalties and thus having much say in all segments of the production process (maximumgames, 2016). boasting considerable budgets, these video games tend to be larger in scope, well-polished and feature-detailed, with realistic high-quality graphics and usually more hardware demanding. on the other hand, creative independent development teams tend to produce games without much interference from larger corporate structures (williams, 2009). indie games tend to be of smaller scope, shorter, featuring a more focused game play, more stylized art designs and having comparatively modest production budgets. nonetheless there are many examples of extremely successful indie games like world of goo, minecraft, and fez, to name a few (computer hope, 2017). independent game developers have managed to gain an increased access to the mass gaming market and digital distribution through third-party online gaming retailers such as valve’s steam platform (lin, bezemer & hassan, 2017). this platform provides distribution services to more than 47% of game publishers (businesswire, 2021). the platform's number of concurrent users peaked in may 2021 at 26.85 million (statista, 2021). another major factor of development is technological progression of gaming platforms and simplified usage of development tools which induced that most innovations tend to come from individual designers in the form of indie companies. due to global epidemic in 2019/2020 and imposed social distances, video games such as new horizons provided some benefits and spiritual comfort to their fans (zhu, 2021). some authors in behaviour sciences proposed that online gaming in general could be a healthy coping strategy for the majority to overcome protracted periods of social isolation (king, delfabbro, billeux, & potenza, 2021). according to steam game trends, 2020 was the year when gaming became a truly mainstream and socially acceptable pastime (indie to indie games, 2020). in 2020, 9,866 games released on steam, more than any other year in the past. that is 24,4% more than the 7,930 in 2019. the big increase in new game releases has exclusively come from indie developers, due to smaller, more manageable teams and shorter development schedules. comparing the numbers of games released in 2019 and 2020, steam reported a decrease of big budget aaa-games and medium-sized budget games releases by 20.5% and 10.9%, respectively. conversely, indie games saw a 25.6% increase in number published, as well as a nearly 20% increase in the average price per copy in the same time interval (indie to indie games, 2020). a significant improvement also came from average ratings of indie games. the indie games released in 2020 received on average 78% positive reviews in comparison with 74% in 2019 (indie to indie games, 2020). these data show that indie games have also improved 2 dana r. stojiljković , marko mihić, dragan bjelica forthcoming their quality. mobile gaming has also supported rapid growth of the global video gaming market (statista, 2021). it simplified the customer access to video games since they could be instantly purchased and tried out. it has also opened new markets for casual players (feijoo, gomez-barroso, aguado & ramos, 2012). in 2020 smartphone games accounted for almost 50 percent of video gaming revenue worldwide (statista, 2021). mobile games revenue is on track to surpass the 100 billion-dollar-mark by 2023 (statista, 2021). one of the most interesting aspects of gaming industry is the establishing of esports as organized video gaming championships, in which professional and amateur players compete against one another (statista, 2021). the rapidly growing phenomenon of esports as an intersection of gaming and sports offers an innovative wave of branding opportunities, engaging content, and activation for millions across the globe (statista, 2021). in the business life of an average company/project various indicators are used in order to measure the current status and future potentials. the challenge is to group them together and extract a sensible performance measure for adequate decision-making processes (franceschini, galetto & maisano, 2007). currently, there are several different approaches for developing such an integrative system: 1) the balanced scorecard method (kaplan & norton, 1996); 2) the strategic profit impact model, also known as the dupont model (lambert & burduroglu, 2021); 3) the critical few method (performance based management special interest group, 2001); 4) the models efqm (european foundation for quality management, 2021) and malcom baldrige quality award (malcom baldrige quality award, 2021). each of these major systems has strengths and weaknesses and is used for different purposes. they represent measures of individual relationships connecting various causal variables to various performance measures (capon, farley & hoenig, 1990). reviews of the financial performance literature have tended to be qualitative in nature (capon, et al., 1990). quantitative comparison of results from different studies is difficult, since model specifications and operationalizations of explanatory and dependent variables differ widely lacking tradition of systematic replication in order to quantify specific effects of particular causal variables in a wide number of situations (capon, et al., 1990). for the reasons mentioned above, key performance indicators for individual company/projects are mostly adapted versions of already established theoretical models which try to provide optimal information of current performance and future actions (franceschini et al., 2007). crowdfunding as a process of raising money from a broad group of people through an open call on various internet platforms provides financial support to talented individuals and their business ideas (bouncken, komorek & kraus, 2015). the kickstarter.com, a general crowdfunding platform, supports a range of projects such as video gaming development, photography, design, journalism etc. well-known companies such as oculus vr, popsocket, allbirds etc. were initially financed via “crowd funders” and this model constantly shows great potential for future growth. in 2019, it amounted at the global crowdfunding market to ca. usd 14.2 billion and is projected to double this amount by 2025 (crowdfunding market, 2020). this model of financing lends itself very well to all kinds of independent product development, including video games. creating, measuring, and managing performance indicators in gaming projects on kickstarter.com is crucial for successful financing. the most important indicators are count of backers, project goal amount, project pledged amount, industry branch, current financing status and fundraising deadline (kickstarter, 2021). a project leader is responsible for setting a realistic financial goal and the time-scope of the fundraising campaign (lax, 2017). funding on kickstarter.com is defined as “all-or-nothing” model, which means that a project needs to achieve financial goal and time deadline in order that pledgers be charged (kickstarter, 2021). the main idea is to protect developers and minimize risk for pledgers, so that developers have enough resources to finish their work. they are not expected to complete a project without the funds necessary to do so (kickstarter, 2021). on the other hand, pledgers are also well informed, and they are only funding creative ideas that are set to succeed. according to kickstarter.com, once a creator launches their project, the funding goal and deadline are locked in and cannot be changed. a standard platform fee amounts 5% for successfully financed projects. the funds are usually employed for research and development, manufacturing, packaging and/or labor costs (kickstarter, 2021). a study conducted by (lee & chiravuri, 2019) confirmed the importance of proper managing of performance indicators and showed that serial creators with positive initial crowdfunding are more likely to explore a new industry or product category in the crowdfunding market and to set a higher target capital for the subsequent campaign when they change a project category. another study (roma, petruzzelli, & perrone, 2017) from a sample of technology projects launched on kickstarter demonstrate that pledging a higher amount of money in crowdfunding can increase investors trust and provide subsequent funding if complemented by the presence of patents or a large network of social ties. 3 management: journal of sustainable business and management solutions in emerging economies forthcoming 3. methods for our empirical analysis, we used data from kickstarter.com hosted on web crawler platform webrobots.io. we analyzed 148.510 companies, which applied to the kickstarter.com funding in the time period between 1/1/2015 and 31/12/2020. for every project we tracked specific project indicators such as project id, project name, count of backers, country, year of launch, current state of project, goal amount in usd, pledged amount in usd and industry branch. all projects were divided into two groups based on industry: game development projects and other projects. game development projects represent all projects connected to board and video games development. other projects included art, comics, crafts, dance, design, fashion, film & video, food, journalism, music, photography, publishing, technology, and theatre. our primary outcome variable was the fundraising outcome. the data source defined four possible financing outcomes: successful, cancelled, failed and live financing. successful financing means that the project reached both its financial goal and fundraising deadline (52% of all projects). some 41% projects failed to amass the goal amount by the fundraising deadline. five percent of projects were cancelled prior to fundraising campaign launch for reasons such as deadline and/or the financial goal not being realistic. lastly, 2% of projects were “live”, meaning currently in the process of fundraising. since their end status had yet to be determined, they were excluded from the statistical analysis. we subsumed the cancelled and failed projects in the group named “unsuccessful financing”, thus making fundraising outcome effectively a dichotomous variable i.e., successful and unsuccessful projects. our secondary outcome variables were the number of backers, goal amount, pledged amount, pledged amount per backer and pledged to goal ratio. backers are individuals who pledge money to join creators in bringing projects to life, i.e., to support a creative process. they receive various rewards for their engagement as a creator's way to share a piece of project with their backer community (kickstarter, 2021). the more backers a project receives, the more chances it has to hit its goal amount and fundraising deadline. the goal amount is the amount of money creators are setting on kickstarter.com. according to kickstarter.com, once a creator launches their project, the funding goal and deadline are locked in and cannot be changed. the pledged amount represents the amount of money a specific project received from its backers. only projects whose pledged amount hits or overachieves their goal amount within a specific deadline will be successfully financed (kickstarter, 2021). based on our secondary outcome variables, we calculated two additional variables: average pledged amount per backer as well as pledged-to-goal ratio. they represent a fair measure of project success, relatively independent from its specific scope. we tested for differences between the groups of game development and other projects in terms of our primary outcome variable (financing outcome) across the whole sample, as well as on per year basis. in order to control the confounding influence of differences in financing outcome on the secondary outcomes, we stratified the research groups by financing outcome (successfully and not successfully financed projects) and performed a separate statistical comparison of the groups in each stratum. in addition, we stratified the research groups based on industry: game development and other projects and performed a separate statistical comparison of the groups in each stratum. all statistical analyses were performed using statistical software ibm® spss® statistics v.21. the data were presented using standard methods of non-parametric descriptive statistics (absolute and relative frequencies for medians and interquartile ranges for numeric outcomes). for testing the statistical significance of difference between two groups we used the pearson´s chi-quadrat test and mann-whitney test, where appropriate. the effect size for the 2x2 analyses was estimated using odds ratios. 4 dana r. stojiljković , marko mihić, dragan bjelica forthcoming 4. results we analyzed 148,510 projects in fifteen different industries, which applied to the kickstarter.com funding in the time period between 1/1/2015 and 31/12/2020. projects were located in the usa and canada (69%), europe (24%), the far east (3%), australia (2%) and mexico (2%). figure 1. financing status of projects per industry table 1 presents the comparison of frequency of successfully financed projects in gaming industry with projects from non-gaming industry. out of a total of 145,583 projects assessed, 71% projects in gaming industry met their financing goals in comparison with 51.5% projects in non-gaming industry. this difference was statistically highly significant, χ2 (1) = 1466.5, p < .001. projects in the gaming industry are 2.3 times more likely to be successfully financed than those in the non-gaming industry. table 1: comparison of frequency of successfully financed projects in gaming and non-gaming industry 5 management: journal of sustainable business and management solutions in emerging economies forthcoming �� ��� ��� ��� ��� ��� �� live successful failed canceled �� �� ��������� �� �� ������������� �� �� ������ ��������� � � �� ����� �� � ������� ������ �� ����� ��� ���� ����� �������� ��� � �� ����� ��� � ������� ����� � �� ����� ��� ���� ���� � � �� ����� ������� ���� ��� �������� �� ����� ����� ����� ����� table 2: yearly odds ratio for game development projects table 2 presents a yearly odds ratio for game development projects to be successfully financed in comparison with other projects. the two groups (projects) were compared in terms of the number of backers, the goal amount, the pledged amount, the pledged amount per backer and the pledged goal ratio, stratified by the primary financial outcome. the gaming projects significantly outperformed the non-gaming projects in all categories. these results follow a positive trend from 2015 onwards suggesting dramatic growth potential of this market and high performance of active projects, especially in 2020. only in 2019 the line did not follow a linear trend (odds ratio 1.838). this could be due to the fact that many campaigns were postponed from 2019 to 2020. this positive trend is also graphically given in figure 2, which represents the yearly trend in odds ratios of successful project financing in game development industry in comparison to projects in other industry branches. figure 2. yearly trend in odds ratios of successful project financing in game industry table 3 presents these comparisons within the stratum of projects which were successfully funded, whereas table 4 shows these among unsuccessfully financed projects. 6 dana r. stojiljković , marko mihić, dragan bjelica forthcoming status pearson chi-square odds ratio successful cancelled / failed frequency percent frequency percent 2 (df = 1) or 2015 gaming industry 754 46.70% 862 53.30% 16.590 1.231 non-gaming industry 12,853 41.50% 18,094 58.50% 2016 gaming industry 782 55.10% 638 44.90% 54.719 1.498 non-gaming industry 10,630 45.00% 12,990 55.00% 2017 gaming industry 790 61.20% 500 38.80% 89.056 1.730 non-gaming industry 10,488 47.70% 11,486 52.30% 2018 gaming industry 859 71.10% 350 28.90% 119.561 2.011 non-gaming industry 10,874 55.00% 8,909 45.00% 2019 gaming industry 896 73.40% 325 26.60% 86.601 1.838 non-gaming industry 12,298 60.00% 8,200 40.00% 2020 gaming industry 3,241 91.10% 317 8.90% 805.717 4.899 non-gaming industry 12,471 67.60% 5,976 32.40% ����� ����� ����� ����� ����� ����� ���� 2015 2016 2017 2018 2019 2020 table 3: comparisons within the stratum of projects which were successfully funded the median number of backers in group games was three times larger than in other projects. the median goal amount in group games was 1.3 times greater than in other projects. the median pledged amount in group games was almost two times higher comparing to other projects. on the other hand, the median pledged amount per backer in group games was 30% lower compared to non-gaming projects. the median pledged to goal ratio in group games was 1,6 higher than in the other projects. the difference in all categories was statistically significant. table 4: comparisons within the stratum of projects which were unsuccessfully funded the median number of backers in both groups was 3 and the difference was statistically insignificant (zu=1.6; p<0.001). the median goal amount in group games was 1.3 times higher than in non-gaming projects. the difference was statistically significant (zu=-6.9; p<0.001). the median pledged amount in group games was 20% lower than in the non-gaming group. the difference was statistically insignificant. (zu=-1.4; p<0.001). the median pledged amount per backer in group games was also 20% lower comparing to the non-gaming group. the difference was statistically significant. (zu=-6.0; p<0.001). the median pledged to goal ratio in both groups was less than 0.01. the difference was statistically significant. (zu=-4.3; p<0.001). the two groups were compared in terms of goal amount and pledged amount per backer, stratified by the industry. table 5 presents these comparisons within the stratum of projects in gaming industry, whereas table 6 shows these among non-gaming projects. table 5: comparison within the stratum of gaming development projects the median goal amount in successful projects was twice lower than in the cancelled/failed group. the difference was statistically significant (zu=-24,5; p<0.001). the median pledged amount per backer in successful projects was twice greater than in cancelled/filled group. the difference was statistically significant (zu=-25,3; p<0.001). 7 management: journal of sustainable business and management solutions in emerging economies forthcoming status successful mann-whitney games non-games median iqr median iqr zu p number of backers 211 72 545 70 32 163 -54.60 <.001 goal amount (in usd) 4497 1000 10159 3414 1000 10000 -8.10 <.001 pledged amount (in usd) 9410 2965 26257 5011 1731 13420 -28.70 <.001 pledged amount per backer 41.78 28.58 64.82 62.43 38.52 106.14 -44.30 <.001 pledged to goal ratio 1.89 1.21 4.27 1.21 1.05 1.95 -47.70 <.001 status unsuccessful mann-whitney games non-games median iqr median iqr zu p number of backers 3 1 9 3 1 8 -1.60 0.11 goal amount (in usd) 10,000 3,000 30,000 7,500 2,500 25,000 -6.94 <0.001 pledged amount (in usd) 42 1 399 54 1 439 -1.43 0.15 pledged amount per backer 22.25 5.5 55.83 27.97 8.24 62.5 -5.96 <0.001 pledged to goal ratio 5.0x10-3 0 0.06 8.7x10-3 0 0.08 -4.29 <0.001 games mann-whitney successful cancelled or failed median iqr median iqr zu p goal amount (in usd) 4497 1000 10159 10000 3000 30000 -24.46 <0.001 pledged amount per backer 41.78 28.58 64.82 22.25 5.5 55.83 -25.31 <0.001 table 6: comparison within the stratum of other projects the median goal amount in successful projects was twice lower than in the cancelled/failed group. the difference was statistically significant (zu=-94.9; p<0.001); the median pledged amount per backer in successful projects was almost three times higher than in the cancelled/failed group. the difference was statistically significant (zu=-135.7; p<0.001). 5. discussion research question 1: what is the prevalence for positive financing of gaming versus non-gaming projects? in this study, we provide empirical evidence on the relationship of projects successful financing in gaming and non-gaming industries. in our research, we found a 71% prevalence of successful financing in gaming industry projects, with 2.3 times higher odds of success compared to the not-gaming industry. this analysis was also separated on a yearly basis and showed positive trends from 2015 onwards. only in 2019 the line did not follow a linear trend (odds ratio 1.838). this could be due to the fact that many campaigns were postponed from 2019 to 2020. similar results were received (hadzinsky, 2014) analyzing 20 crowdfunded gaming campaigns on kickstarter.com. out of the 20 campaigns 12 were successful, while the remaining eight either failed or were cancelled, giving a success rate of 60%. he concluded that a crowdfunding gaming project will succeed more often than it will fail. our results indicate that there are many factors to be discussed in order to understand the success in crowdfunding of gaming projects. research question 2: what is the impact of the number of backers, goal amount, pledged amount, pledged amount per backer and pledged to goal ratio in the group of successfully/unsuccessfully financed projects on kickstarter.com? the number of backers in a group of successful projects is 3 times higher in the gaming than in the nont-gaming field. in the stratum of unsuccessful projects, the number of backers is similar in both fields with no statistically significant difference. this indicates that gamers as main pledgers are critical in supporting crowdfunding projects. it is not clear if there are some additional factors other than quality of the product, which motivates backers to support. in a study of crowdfunding financing (du, li & wanga, 2019) analyzed how the number of options in reward-based crowdfunding projects can be used to support the success of the projects. they found that the number of options could have an inverted u-shaped impact on the chance of having a successful crowdfunding project. an additional study on the dynamics of crowdfunding conducted by kuppuswamy & bayus showed that additional backer support is negatively connected to its past backer support. many potential backers do not contribute to a project that has already received a lot of support because they expect that other supporters will provide the additional funding. they showed that the diffusion of responsibility effects diminish, as the project funding approaches its closing date (kuppuswamy & bayus, 2013). the median goal amount in group gaming projects was 1.3 times greater than in other projects. this is true for both strata, i.e., for successful and unsuccessful projects and could be explained with increasing scale and complexity of projects which then increase the development costs (bosch & sijtsema, 2010). more interesting is that unsuccessful projects have 2.2 times higher goal amounts in comparison with successful projects, independent of the industry. it indicates that setting unrealistic goal amounts could be a significant predictor of financing issues in both industries. setting a meaningful goal is important so that backers get tangible value for their support and so to propel the campaign faster (hadzinsky, 2014). new research also shows that with an increasing number of crowdfunding platforms, fewer projects are able to achieve successful funding. this affected the number of backers to be reduced, higher goal amount increased and shorter duration to meet the funding goal increased the likelihood of achieving the funding goal. the results suggest that over time crowdfunding platforms increase reliance on costlier signals such as higher goal amount and shorter duration and reduce reliance on noisier signals, i.e., number of backers (devaraj & patel, 2016). in successfully financed projects the data indicates that the pledged amount is almost twice higher in gaming compared to non-gaming projects. this could be explained by the fact that many other industries such 8 dana r. stojiljković , marko mihić, dragan bjelica forthcoming other projects mann-whitney successful cancelled or failed median iqr median iqr zu p goal amount (in usd) 3414 1000 10000 7500 2500 25000 -94.91 <0.001 pledged amount per backer 62.43 38.52 106.14 27.97 8.24 62.50 -135.70 <0.001 as photography, journalism or music are not cost intensive as gaming development and hence their goal amounts were initially lower (bosch & sijtsema, 2010). in unsuccessfully financed projects this difference was not statistically significant. it is probably due to the backers’ dynamics so that many backers never came back to support specific projects if the final call and a project per se was not effective enough (kuppuswamy & bayus, 2013). the pledged amount per backer is significantly lower at successfully and unsuccessfully gaming projects than in other projects. this ratio could be explained as correlation of value a specific project receives from a backer. since gaming projects have statistically significant higher number of backers, it is to expect that a pledged amount per backer would be relatively low. considering that gaming projects have much higher goal amounts, calculated pledged-to-goal ratio aimed to standardize pledged amounts and scope of a specific project. this ratio was in gaming projects 50% higher than in non-gaming projects which points out an increasing readiness of investors/pledgers to finance gaming development compared to other projects. an additional factor which may support these results is that crowdfunding was primarily considered as a funding mechanism for game development due to known issues they face on alternative funding markets and it skills their backers possess (nuciarelli, li & fernandes, 2016). research question 3: what is the impact of the goal amount and the pledged amount per backer in the group of gaming/non-gaming financed projects on kickstarter.com? in order to analyze gaming and not gaming projects separately, we stratified the research groups based on industry. the two groups were compared in terms of goal amount and pledged amount per backer. the results showed that in gaming and other projects the goal amount was twice lower in successful than in unsuccessful projects, which confirms that setting unrealistic goal amounts is very often connected with financing issues. the second indicator, pledged amount per backer was in both groups twice higher in successful projects which is to be expected, since those projects successfully entered their final finance phase. research question 4: which factors contributed to success in crowdfunding of gaming projects? many authors recognized various factors of success of gaming projects in crowdfunding. (lax, 2017) described setting a realistic goal amount, providing attractive rewards to backers, using appropriate and informative materials in crowdfunding campaigns, open communication between team and supporters and flexible rewarding system as key parts in successful financing. our analysis confirmed the importance of factors already known in literature. in our opinion for the purpose of better understanding all factors supporting success of gaming projects in crowdfunding platforms could be summed up in three main groups: psychological factors, technological factors, and financial factors. using crowdfunding platforms to share creative ideas, to search for inspiration and connect with other creative individuals significantly promoted success in gaming projects (gerber & hui, 2012). this transparent production processes that crowdfunding entails can be considered as distinct from those that often accompany the conventional publisher funded model (smith & kilty, 2014). constant innovation coming from small startups in order to get enough attention in the saturated market reinforces positive effects in this industry (tschang, 2007). creation of the environment favorable for the proper project development refers to encouraging talented people with a clear vision to work on their own ideas, change the traditional method of financing and focus on strategic planning (milutinovic, stosic, & mihic, 2015). it can be therefore concluded that creativity and innovation from small indie companies, in both new gaming platforms and game software, are one of the driving forces behind success in the game development industry (kultima & alha, 2010). the development in informational technologies using popular web platforms such as unity.com provided free of charge valuable development tools for new entries, accompanied with udemy.com as a contemporary learning platform, providing learning materials at exceptionally low prices. unity.com as a cross-platform game engine has a vision to "democratize" game development by making it accessible to more developers. steam platform, as the largest digital distribution platform for pc gaming, is aiming at providing the best medium for distribution and sales of various indie video games. furthermore, gaming forums such as reddit, ign boards, resetera, nintendo life forums, game revolution etc. provide a great digital foundation for discussions and exploring new possibilities in gaming business. every company needs to be ready to learn and innovate. companies and leaders need to balance the efficiency of the information flow design with the effectiveness of the information exchange and carefully design their networks to enable appropriate balance between information flow network efficiency and effectiveness (petkovic, aleksic miric, & cudanov, 2014). crowdfunding is a valuable alternative to traditional banking funding which supports small creators to develop their ideas. as a reward-based system, supporters are not motivated by financial gain which reduces 9 management: journal of sustainable business and management solutions in emerging economies forthcoming 10 dana r. stojiljković , marko mihić, dragan bjelica forthcoming over the last decades the gaming industry has become a major part of the entertainment sector featuring constant growth and innovation. with this study we wanted to present a dramatical expansion of independent game-development companies supported by crowdfunding platforms and the excellent performance they achieved. the key finding of his study are the statistically significant, robust, and persistently higher odds in game development projects being successfully financed via a crowdfunding campaign, compared to projects not related to gaming development. promising game projects were supported by three times more backers on average and attained almost as double funds as other projects, while still sporting more modest pledged amounts per backer. more research is needed to better understand the key factors responsible for success of gaming development projects in comparison with projects in other branches financed via kickstarter.com. in our opinion, all factors could be summed up in three main groups: psychological factors, technological factors, and financial factors. it is also important to stress the increase in web platforms for development, learning and distribution providing free of charge valuable tools for new entries. it is probably the synergy of lucrative industry with significant growth potential, flexibility in rewarding models, increasing number of creative individuals in the gaming world, interactive communication between developers and backers and easier access to software and distribution channels which contributed to these results. furthermore, positive funding on a crowdfunding platform could serve as predictor of future demand of the production and may promote future funding through traditional funding channels. these findings support the notion of crowdfunding being a viable modality of financing independent game development in emerging economies. it is not clear in which way it will develop in the future, but it will surely remain one of the fast-growing industries in the modern world. risk of loss for creators. furthermore, positive funding on a crowdfunding platform could serve as predictor of future demand of the production and may promote future funding through traditional funding channels (belleflamme, omrani, & peitz, 2015). more research is needed to better understand the elements which played a dominant role in success of gaming development projects on kickstarted.com platform. we believe that the synergy of factors such as lucrative industry with significant growth potential, flexibility in rewarding models, an increasing number of creative individuals in the gaming world, interactive communication between developers and backers and easier access to software and distribution channels contributed to these results. with this work we wanted to point out the expansion of alternative financing in gaming industry, understood by many funders on crowdfunding platforms as one of important perquisites for the future success. it is not clear in which way it will develop in the future, but it will surely remain one of the fast-growing industries in the modern world. the key limitation of this study is the focus on projects and methodology from one crowdfunding platform kickstarter.com. the comparative analysis of various platforms would provide additional valuable information on this topic. we would also like to point out a potential limitation of methodology, since all projects in boarding and video games are treated as gaming projects, which might skyed our results. furthermore, all projects in the gaming segment were treated as indie development projects which cannot always be true. there could be some number of aaa companies testing their own development on the crowdfunding market. 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(2015). concepts and importance of strategic innovation in smes: evidence from serbia. journal of sustainable business management solutions in emerging economies, 20(77), 35-42. doi:10.7595/management.fon.2015.0030 [29] nuciarelli, a., li, f., & fernandes, k. j. (2016). from value chains to technological platforms: the effects of crowdfunding in the digital game industry. journal of business research, 78(1), 341-352. doi:10.1016/j.jbusres.2016.12.030 11 management: journal of sustainable business and management solutions in emerging economies forthcoming 12 dana r. stojiljković , marko mihić, dragan bjelica forthcoming about the authors [30] nyitray, k. j. (2011). william alfred higinbotham: scientist, activist, and computer game pioneer. retrieved from https://muse.jhu.edu/article/449252/summary [31] performance based management special interest group. (2001). analyzing, reviewing and reporting performance data. [32] petkovic, m., aleksic miric, a., & cudanov, m. (2014). designing a learning network organization. journal of sustainable business and management solutions in emerging economies, 73(1), 17-24. doi:10.7595/management.fon.2014.0029 [33] roma, p., petruzzelli, a. m., & perrone, g. (2017). from the crowd to the market: the role of reward-based crowdfunding performance in attracting professional investors. research policy, 46(9), 1606-1628. doi:10.1016/j.respol.2017.07.012 [34] smith, r., & kilty, l. a. (2014). crowdsourcing and gamification of enterprise meeting software quality. paper presented at the ieee international conference on utility and cloud computing (ucc). [35] statista. (2021). video gaming industry 2021. retrieved from https://www.statista.com/ [36] tschang, f. t. (2007). balancing the tensions between rationalization and creativity in the video games industry. organization science, 18(6), 989-1005. doi:10.1287/orsc.1070.0299 [37] williams, d. (2009). structure and competition in the u.s. home video game industry. international journal on media management, 4(1), 41-54. doi:10.1080/14241270209389979 [38] zhu, l. (2021). the psychology behind video games during covid-19 pandemic: a case study of animal crossing: new horizons. human behavior and emerging technologies, 3(1), 157-159. doi:10.1002/hbe2.221 received: 2021-07-04 revision requested: 2021-08-17 revised: 2021-08-21 accepted: 2021-09-11 dana r. stojiljković university of belgrade, faculty of organizational sciences, serbia dana.stojiljkovic@yahoo.com dana stojiljkovic is a phd candidate at the faculty of organizational sciences, university of belgrade. currently employed in volkswagen group services ltd. in emden, germany as production and finance controller. her research interests focus on finance management, production performance indicators and quantitative analytics. marko mihić university of belgrade, faculty of organizational sciences, serbia marko.mihic@fon.bg.ac.rs marko mihic is a full professor and head of department of management and project management at the faculty of organizational sciences, university of belgrade. he is a director of the centre for professional certification of managers at the faculty of organizational sciences and a managing partner at the serbian management centre. he is also one of the founders of the centre for microsoft project established in cooperation with microsoft serbia, certified lecturer in strategic management and leadership at the chartered management institute and member of the following professional institutions: academy of management and project management institute. his research interest includes project management, strategic management, cost-benefit analysis, change management and leadership. as an expert consultant, he has worked extensively for the serbian government institutions, as well as for several leading national and multinational companies and investors in serbia and the balkan region. 13 management: journal of sustainable business and management solutions in emerging economies forthcoming dragan bjelica university of belgrade, faculty of organizational sciences, serbia dragan.bjelica@fon.bg.ac.rs dragan bjelica is an assistant professor at the faculty of organizational sciences, university of belgrade with research interests in project management, strategic management, preparation, and evaluation of investment projects. he holds the most prestigious project management certifications, issued by the project management institute: project management professional (pmp) and agile certified practitioner (pmiacp). currently, he is a head of the project management centre at the faculty of organizational sciences, university of belgrade. he was a lecturer in over 50 educational programmes and expert seminars in the implementation of project management software and taken part in the implementation of over 20 scientific and commercial projects in the field of management in serbia and abroad. he has published over 70 scientific papers, peer-reviewed conferences and journals, three chapters in monographs, as well as one monograph under the title 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice #3 27_1 ana jovicic vukovic:tipska.qxd 21 ana jovičić vuković*, jelena damnjanović, nataša papić-blagojević novi sad school of business, novi sad, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(1) service quality of the higher vocational education doi: 10.7595/management.fon.2020.0025 abstract: 1. introduction education is the foundation of development and survival of society together with economic, political, and cultural growth. for more than a decade, the goal of education reforms in serbia has been the improvement of service quality provided by higher education institutions. providing high-quality service to satisfy and even exceed not only students’ but also other stakeholders’ expectations in higher education is the basis of creating competitive advantage of higher education institutions. in that way, institutions are creating a better image, reputation, and attract a larger number of enrolled students. at the same time, the opportunity for cooperation with economic, scientific, education and professional organizations is also raising. greater mobility, more shared projects, and other aspects, by consequence, improve the quality and the service provided by a higher education institution. * corresponding author: ana jovičić vuković, e-mail: dr.ana.jovicic@gmail.com research question: the paper will investigate the service quality of the higher education provided by the higher schools of vocational studies using servqual methodology. motivation: the paper will show the characteristics of higher education of vocational studies, and it will point out the significance of creating and maintaining a quality management system in higher education institutions. the new reform of higher education in serbia and establishment of academies of vocational studies are the main reasons why the question of service quality becomes one of the most important issues for higher education institutions and basis for competitive advantage, better image and reputation. also, a growing competition on the higher education market and a smaller number of prospective students are also problems which higher vocational schools are faced with. idea: the goal of this research is to find the differences between expected and perceived service quality. furthermore, the paper will show if there are differences between perceived service quality among the students of different study years, as well as differences between the students with state scholarship and the self-funded students. data: the research included 244 students of the first, second, and third years of bachelor studies from higher schools of vocational studies in novi sad, significant and the second-largest educational centre in the republic of serbia. tools: statistical methods used in this paper are frequency analysis, descriptive statistics, while the hypotheses are tested using the paired sample t-test, the independent t-test, and the one-factor variance analysis – anova. findings: the results of the research show that service quality of higher vocational education does not meet students’ expectations (sig.<0,001) and that the gap is negative for all dimensions of service quality (tangibles (-.32), reliability (-.52), responsiveness (-.49), assurance (-.33), and empathy(-.26)). it is also shown by this research that there are no differences in higher education service quality based on the status of students (sig.>0.05) and the year of studying (sig.>0.05). contribution: the results can be used as basis for introducing further measures to improve the quality of service provided by higher vocational institutions. keywords: service quality, servqual, higher education, higher vocational schools, serbia jel classification: i23, l89 the trend of decrease in the number of students, an increasing gap between the numbers of planned and those of enrolled students, as well as an increasing competition among higher education institutions in the republic of serbia, have influenced the need that students, as primary users of services, have to be considered as consumers (yousapronpaiboon, 2014). in such an environment, the quality of services provided by higher education institutions is becoming a key factor in differentiating and creating a superior experience of studying (woodall, hiller, & resnick, 2014; nixon, scullion & hearn, 2018). the choice of profession, a field of studies, and higher education institutions are some of the most important decisions individuals have to make during a whole lifetime, and these are made based on a complex set of personal preferences and capacities, but also on information obtained from the external environment. expectations formed before enrollment are the basis for the evaluation of higher education services in a particular higher education institution. students’ expectations are mainly focused on the quality of study programmes, knowledge and skills applicable in the labour market, a diploma recognized by employers and other higher education institutions, as well as an adequate academic environment (đonlagic & fazlic, 2015). service quality is based on students’ expectations, as well as on the perceptions of the received service. that is the reason why the essential task of every service organization, including higher education institutions, is to ensure students’ satisfaction through the levelling of received and expected services. higher education institutions can provide higher values for students through further efforts and thus exceed their expectations. this creates students’ enthusiasm and higher satisfaction, loyalty, and spread a positive image of the institution. quality monitoring in higher education is an obligation of every higher education institution and is possible to achieve through the application of several methods: self-evaluation, peer-review, analysis of statistical data, evaluation of students’ knowledge and competences, but also through stakeholder surveys (harman 1998), where the insight into the student satisfaction is most important. the results obtained in this way represent information of particular benefit to the management of higher education institutions for improving future performance (khanli, daneshmandi & choobineh, 2014), as well as for creating superior marketing strategies (gajic, 2012). previous studies on the quality of service in higher education in the republic of serbia, and especially in the case of vocational education are insufficient. they do not take the students perception as crucial for service quality (rodic lukic, 2016), which indicates an incomplete examination of this area and a necessity for the proposed research. the research into the service quality of higher education and the satisfaction of its primary consumers the students, is the subject of this paper. the primary hypothesis of this research is: h0. there is a difference between expected and perceived quality of service in higher vocational education. from this primary hypothesis, specific hypotheses have been defined: h1. there is a difference between perceived and expected service in higher education in terms of tangibles dimension; h2. there is a difference between perceived and expected service in higher education in terms of reliability dimension; h3. there is a difference between perceived and expected service in higher education in terms of responsiveness dimension; h4. there is a difference between perceived and expected service in higher education in terms of assurance dimension; h5. there is a difference between perceived and expected service in higher education in terms of empathy dimension. in addition, previous research has shown that certain socio-demographic characteristics, the students status and the background of students have an impact on satisfaction and perceived quality of service provided by higher education institutions (akareem & hossain, 2016; douglas et al., 2015; fajčíková & urbancová, 2019). besides the primary objective of the research, this paper also deals with differences in consumer perception of higher education services based on students’ status and the year of studying. h6. there are differences in perceived quality between the students with the state scholarship and selffunded students. 22 ana jovičić vuković, jelena damnjanović, nataša papić-blagojević 2022/27(1) h7. there are differences in perceived service quality between students of the first, second, and third years of study. this paper will show the main features of higher vocational education, and it will indicate the importance of providing a quality management system in higher education institutions. the results of the study will show the current state and level of service quality of higher education of vocational studies, and they can be used as a basis for the further direction of development and activities in the function of raising the quality of service provided by higher vocational institutions. 2. quality of service in higher education quality of service in higher education is based on the difference between perceived and expected service (parasuraman, zeithaml, & berry, 1988). the result of comparing the expected with the realized or received service determines consumers’ satisfaction or dissatisfaction with the service. the action plan for the implementation of the strategy for education development by 2020 (2015) says that quality in higher education is one of the key objectives for the development of education. responsible for the improvement and development of the quality of higher vocational education in serbia are the national entity for accreditation and quality assurance in higher education in serbia, the national council and conference of academies and higher schools. higher vocational schools in serbia have the obligation of the external quality check of the higher education institution implemented by the commission for accreditation. furthermore, higher education institutions have the obligation of performing self-evaluation and grading the quality of their curricula, classes, and work conditions. the education reform brings about new things because the new law of higher education (2018) introduces a direct influence of international factors on the quality. it is represented through the anticipation that the teacher of higher education institutions in serbia, but also the teachers who have specific titles in the higher education institutions that are not in the country, can be on the reviewers’ list in the accreditation process. in order to increase the quality of vocational education, a new reform of higher vocational education in serbia started in 2018, also including higher vocational schools in novi sad. the new reform of the government of serbia includes the formation of the academies of vocational studies. this can be achieved either by the transformation of the existing higher schools of vocational studies or by merging several higher schools of vocational studies into a new higher education institution the academy of vocational studies. numerous schools have already been joined into academies, yet this process has not been finalized to this day. the ever-growing competition on the higher education market, the opening of many private higher education institutions, a smaller number of potential students compared to that of a decade ago, labour market requests in terms of new jobs and professions, the need for internationalization, the lack of competent personnel for working in vocational schools and the insufficient connection between vocational education institutions and the labour market and practice – all these create the need for constant changes and the increased care for students. that being said, the service quality of higher schools is of crucial importance for achieving student satisfaction, which is why the research of the level of satisfaction with the higher education service is of great importance. the significance of the service quality in higher education is seen in its direct correlation with students’ satisfaction (dado et al., 2012; weerasinghe & fernando, 2018), and their loyalty (darawong & sandmaung, 2019). this is the basis for making a profit (șerban & stoian, 2019) and for creating the positive image and reputation (merchant et al., 2015), and it is one of the key factors for the students when it comes to enrolling at the competitive institution. if the expectations of students are not met, there is dissatisfaction, and if the perceived quality is low, these can all have severe consequences on the number of enrolled students, on spreading the negative image among other students, which can lead to the decline of the institution. service quality in higher education has been the main subject of research of many authors (e.g., dado et al., 2012; latif et al., 2019; teeroovengadum et al, 2019; hwang & choi, 2019; bsharat, & ibrahim, 2020). in serbia there are also many studies that focus on service quality and student satisfaction (e.g., dado, 2012; rodic lukic, 2016; jevremov, lungulov & dinic 2016, nesic et al., 2017; milojevic & radosavljevic, 2019) and a smaller number of studies that focus on students of higher schools of vocational studies (vranjes, gasevic & drinic, 2014; josanov-vrgovic et al., 2020; damnjanovic, jovicic vukovic, & papic-blagojevic, 2020). 23 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) there are different research methodologies for testing the service quality and student satisfaction in higher education: servqual (parasuraman et al, 1988), servperf (cronin & taylor, 1992), hedperf (abdullah, 2005), eduqual (mahapatra & khan, 2007), phed (sultan & wong, 2010), pgsqual (govender & ramroop, 2012), hiedqual (annamdevula & bellamkonda, 2012), hesqual (teeroovengadum, kamalanabhan & seebaluck, 2016), hieduqual (latif et al., 2019), univqual (marimon et al., 2019). the instruments mentioned above are differentiated in terms of concept, dimensions, and the numbers of variables. the servqual is one of the most frequently used models, and it measures the quality of service in higher education by using five dimensions of quality (reliability, responsiveness, assurance, empathy and tangibles (legcevic, 2009; shekarchizadeh, rasli, & hon-tat et al., 2011). 3. methodology the research included 244 students of the first, second, and third years of bachelor studies from higher schools of vocational studies in novi sad. this research used a pen and paper survey, which had two parts. the survey’s first part focused on students’ socio-demographic data (table 1). the second part included the usage of servqual methodology developed and tested by parasuraman, zeithaml, and berrydevel (1988; 1991; 1994). in this study, the adopted version of the servqual model in higher education was used (rodic lukuc, 2016). in the first part, the survey included 29 questions related to the expectations the student had. in comparison, the second part included 29 questions related to their perceptions of the service quality of the higher education institution they are enrolled at. table 1: socio-demographic characteristics of students source: calculations of the authors the students were required to state how much they agree with the statements on the likert scale ranging from 1 (the lowest value) to 5 (the highest value). the levels were divided into five dimensions: tangibles refer to the material elements of the service (nine items); reliability refer to the ability of the higher education institution to adequately respond to requests, without errors and on time (four items); responsiveness refer to the readiness of a higher education school to give quick service and to provide information about the time frames of the service (six items); assurance refer to the material and physical safety, as well as to the knowledge of the employees, the way they are addressing students and the level of trust the students have in the school (five items); empathy refers to service personalization in line with consumers’ requests and a better understanding of students’ needs (five items). furthermore, the total of the expected and perceived quality is calculated. it included all 29 items that refer to perceptions, as well as 29 items that relate to the expectations of students. the analysis of the research results included the calculation of the gap between the average values of the expected level of service and average values of perceived service quality. the results show whether the level of received service is below the expected service, whether it was in the line of expected service or whether it exceeded the expectations of students. the data were analyzed using frequency analysis, descriptive statistics. in contrast, the paired sample ttest, the independent t-test, and the one-factor variance analysis anova, were used for testing the hypothesis. 24 ana jovičić vuković, jelena damnjanović, nataša papić-blagojević 2022/27(1) variable category frequency valid percent gender male 84 34.6 female 159 65.4 place of residence rural 89 36.9 urban 152 63.1 year of study first 88 36.1 second 105 43 third 51 20.9 students’ status state scholarship 176 72.1 self-funding 68 27.9 4. results and discussion the results of the differences between perception and expectations of students in terms of the quality of higher education services were obtained using paired sample t-test. in the first part of the research, all dimensions of the servqual questionnaire were analyzed, and the hypothesis of the existence of differences between the expected and perceived quality was confirmed. it indicates a need for a more significant investment in the quality of service provided at higher education institutions. the process of accreditation and self-evaluation of higher education requires constant improvement and development of human, spatial and educational resources. also, the opinion of students, in addition to existing quality surveys, must be strengthened with additional research. the results presented in table 2 showed that there was a statistically significant difference within the pair results (sig.<0.05), which confirms the hypotheses h1-h5. this gap is negative for all dimensions, which shows that the services were of insufficient quality, and did not meet the expectations of students. the most significant differences were recorded with the reliability and responsiveness dimensions, whereas the smallest negative gap was filed with the empathy dimension. based on that, it can be concluded that the students were the least satisfied with the ability and readiness of the higher education institution to respond to their requests and provide the necessary information on time and with as few mistakes as possible. on the other hand, the existence of empathy and a better understanding of students’ individual needs has made this dimension the best evaluated. according to similar research, khanli, daneshmandi & choobineh (2014) showed that the smallest negative gap is found in the responsiveness dimension, whereas the most significant difference was in the empathy dimension (e.g., legcevic, 2009; shekarchizadeh et al., 2011). other studies showed that the smallest negative gap is in the case of the reliability dimension (e.g., legcevic, 2009) and assurance (dado et al., 2012). compared to the research of students at the university of novi sad (rodic lukic, 2016), the results were similar, with the most significant gap being recorded with the reliability dimension, which is in line with this research, while the smallest difference was found in the tangibles dimension. in order to examine the size of the influence of the observed variables, in table 2 shows the effect size for paired samples t-test (according to cohen (1988) values up to 0.01 show poor effect, up to 0.06 show medium effect, and over 0.14 show a significant effect). bearing in mind that the effect was estimated as significant for all data pairs, we conclude that there is a significant difference between the perceived and expected quality for all observed dimensions. it confirmed the h1-h5 hypotheses once again. table 2: paired sample t-test of servqual dimensions df=342, p-perceptions, e-expectations source: calculations of the authors moreover, the gap was calculated between the total of perceived quality and the total of expected quality of the service of higher education (table 2). the result has shown that the average value of the expected service (m=4.41) is higher than the received service (m=4.04) which further shows that there is a statistically significant difference (sig.<0.05), and that there is a negative gap (m perceived-m expected =-0.37). the results show that the perceived service quality is not in line with the expectations, which confirms hypothesis h0. these results are in line with the results of the previous studies (e.g., legcevic, 2009; dado et al., 2012; shekarchiza et al., 2011; ilyas et al., 2013, rodic lukic, 2016). 25 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) servqual dimensions – pairs m n sd t sig. servqual gap and rank effect size and result tangibles p 4.0119 243 .58408 -7.900 .000 -.32099 (3) 0.23 (large effect) e 4.3329 243 .48511 reliability p 4.0021 243 .73258 -9.972 .000 -.51749 (1) 0.28 (large effect) e 4.5195 243 .48413 responsiveness p 4.0412 243 .66539 -10.500 .000 -.49246 (2) 0.30 (large effect) e 4.5336 243 .46934 assurance p 4.2017 236 .85810 -5.589 .000 -.32966 (4) 0.23 (large effect) e 4.5314 236 .43451 empathy p 3.9802 243 .68895 -5.530 .000 -.26255 (5) 0.14 (large effect) e 4.2428 243 .62679 service quality total p 4.0429 233 .56889 -10.004 .000 e 4.4191 233 .40598 table 3: independent t-test according to the status of students df=232 source: calculations of the authors further analysis included the perception of the quality of service among students depending on their status, that is, whether they have state scholarships or they are self-funded. the independent t-test results show that at the level sig.<0.05, there are no significant statistical differences between dimensions’ average values. these measures were used to measure the quality of service between self-funded students and students with state scholarships (table 3) and hypothesis h6 is rejected. the previous study done on the students of the university of novi sad showed that there were statistically significant differences in the perceptions of service quality in case of all variables among the students with both the state scholarship and self-funded students, except when it comes the tangibles variable (rodic lukic, 2016), where the students with the state scholarship perceived that the service is of higher quality than the students who were self-funded. the other research by akareem & hossain (2016) showed that students with scholarships who received scholarships based on their success during studies had higher expectations in terms of service quality than those who did not have scholarships. the last hypothesis is tested using the one-factor variance analysis anova, to find the differences in the perceived service quality in higher education among three groups of students, classed on the basis of the year of studying. the results are shown in table 4. table 4: anova test according to the year of studying df=232 source: calculations of the authors based on the results, it is established that there are no statistically significant differences at the level sig<0.05 among the three student groups the students of the first, the second and third years of study, which is why the hypothesis h7 is rejected. the research results are in line with the results of the studies by the authors ilyas et al. (2013) and corts et al. (2000) and are not in accordance with the study of the author douglas et al. (2006) and jevremov, et al. (2016). the third-year students graded the quality of service with the highest average value (m=4.17) compared to other years. at the same time, the least satisfied were the students in the first year (m=3.9), which indicates that satisfaction is increased by the year of study. 26 ana jovičić vuković, jelena damnjanović, nataša papić-blagojević 2022/27(1) variable student status n m sd t sig. tangibles state scholarship 176 4.0385 .57960 1.050 .295 self-funded 68 3.9510 .59461 reliability state scholarship 176 4.0028 .76904 -.047 .963 self-funded 68 4.0074 .63034 responsiveness state scholarship 176 4.0341 .69014 -.337 .736 self-funded 68 4.0662 .59791 assurance state scholarship 173 4.1919 .93892 -.114 .909 self-funded 65 4.2062 .59158 empathy state scholarship 176 3.9784 .67966 -.130 .897 self-funded 68 3.9912 .71440 service quality total state scholarship 173 4.0480 .58479 .278 .781 self-funded 65 4.0249 .53157 variable year of studying n m sd f sig. first year 88 3.9608 .48375 2.231 .110 second year 100 4.0476 .62379 third year 50 4.1724 .58228 total 238 4.0417 .56973 27 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) until the implementation of the bologna process and the new conditions at the higher education market, the question of quality in higher education, even though it was essential, wasnot the key issue for the higher education institutions for many years. with the education reforms, the opening of many private higher education institutions, the decrease in the number of students, and the application for the resources with the international funds have become and are the crucial points that every higher education institution is faced with. the new possibilities of participation in the academic exchange, the lack of expert teaching staff, new requests of the labour market, and other changed circumstances that have happened in the last ten years are also in focus. on the other hand, the higher education institutions are constantly under pressure and expectations of the students who demand added value, so the question of quality and the constant improvement of the service of higher education becomes a key issue. the development of vocational education and raising the competencies of teachers employed in higher vocational schools are part of the national strategy for education development. its implementation is envisaged by individual actions defined in the action plan for the implementation of the strategy. the results presented so far have shown that this part of higher education has not been paid sufficient attention and that further investment is necessary to raise the quality of service at all levels. at the same time, the research of the analysis of the quality in higher education in the republic of serbia generally has not had the students of higher schools of vocational studies in its focus. therefore, the gap in this segment has been filled with this research. the results show that there is a negative gap between the expectation and the perception of the students. they also show that it is necessary to work on the improvement of all the aspects of the service. the effect size, according to cohen’s criteria, is proven as significant, and the authors believe that the issue of service quality in higher vocational schools, especially in the field of providing accurate and timely information, needs additional attention. strengthening the digital competencies of support services, greater digitalization of the teaching process, and greater transparency of relevant information could contribute to greater student satisfaction with the offered quality. moreover, it shows that there are no differences in the perception of the service quality between the state scholarship students and self-funded students. the results have shown that the perceived service quality is not statistically different from study year to study year. still, it has also shown that the rating of the quality of service increases by the year of study. the research results provide relevant information to the management of the higher educational institutions with the feedback on whether the requests and the students’ expectations were met. it can give information about the current level of satisfaction and the quality of service, or dissatisfaction of students as the most essential and primary consumers of the service. the results show that improvement of all the aspects of the service quality is needed so that the image and the reputation of the higher schools of vocational studies in novi sad and serbia can be improved. higher market orientation, flexibility, the measures for the improvement of quality, and the creation of added value for the students are of crucial importance to the institutions that this research deals with. the research has certain limitations in terms of the size of the sample, which is why the generalization of the results is not recommended. 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(2018). critical factors affecting students’ satisfaction with higher education in sri lanka. quality assurance in education, 26(1), 115-130. doi: 10.1108/qae-042017-0014 [43] woodall, t., hiller, a., & resnick, s. (2014). making sense of higher education: students as consumers and the value of the university experience. studies in higher education, 39(1), 48-67. doi: 10.1080/03075079.2011.648373 [44] yilmaz, v., ari, e., & gürbüz, h. (2018). investigating the relationship between service quality dimensions, customer satisfaction and loyalty in turkish banking sector: an application of structural equation model. international journal of bank marketing, 36(3), 423-440. doi: 10.1108/ijbm-02-2017-0037 [45] yousapronpaiboon, k. (2014). servqual: measuring higher education service quality in thailand. procedia-social and behavioral sciences, 116, 1088-1095. doi: 10.1016/j.sbspro.2014.01.350 received: 2020-04-15 revision requested: 2020-06-27 revised: 2020-07-19 (1 revision) accepted: 2020-08-25 29 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) 30 ana jovičić vuković, jelena damnjanović, nataša papić-blagojević 2022/27(1) about the authors ana jovičić vuković novi sad school of business, novi sad, serbia dr.ana.jovicic@gmail.com ana jovičić vuković, phd, is a lecturer at the novi sad school of business. she completed her phd studies in tourism and hospitality management at the university of novi sad, faculty of sciences. she acquired a bachelor‘s and a master‘s degree at two different faculties in the fields of tourism and hotel management and business economics. she worked as a research associate in international, national and provincial projects. she published more than 60 scientific papers in international journals and conferences in the field of tourism and hotel management. jelena damnjanović novi sad school of business, novi sad, serbia jdamnjanovic5@gmail.com jelena damnjanovic, phd, completed her graduate studies in international economics (ma and phd) in belgrade. currently, she is the director of the novi sad school of business (novi sad, serbia) and the professor of international business at the same school. her major academic interests are in international economics, european union and its enlargement, transnational corporations, foreign direct investments, globalisation, international trade and competition. jelena is the author and co-author of four textbooks, more than 40 academic papers (including contribution to the palgrave encyclopaedia) and a participant in international and government projects. nataša papić-blagojević novi sad school of business, novi sad, serbia npapic.blagojevic@gmail.com nataša papić blagojević, phd, is a professor of applied business studies and deputy director for projects at the novi sad school of business, the republic of serbia. her fields of occupational interest are economic statistics and application of statistical methods in economic research. as a professor, she teaches several subjects, such as quantitative methods in business, financial and actuarial mathematics and business statistics. she completed her phd studies at the university of niš, faculty of economics, in june 2015. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 35 radul milutinović1, biljana stošić2, marko mihić3 1,2,3university of belgrade, faculty of organizational sciences, serbia management 2015/77 concepts and importance of strategic innovation in smes: evidence fromserbia udc: 005.342:334.7(497.11) 005.52:005.33 doi: 10.7595/management.fon.2015.0030 1. introduction the studies show that companies cannot rely only on the effectiveness improvement and cost cutting if they strive to remain competitive. competitive advantage gained on the basis of operational effectiveness is shortlived, so companies that try to improve their performance should focus on the revenue growth (tse, 2013). therefore, companies’ strategic redefinition of business, definition of new game rules or new ways of competing, becomes a necessity if they want to offer new value for consumers, stakeholders and themselves. in today’s rapidly changing economic environment innovation becomes a necessity, not only through new product or service development, but also through finding new business models, which often implies changing the rules of the game (afuah, 2009). studies show that companies who prioritize innovation are also those with the highest increase in turnover. some 79% of companies that introduced at least one innovation since 2011 experienced an increase in their turnover by more than 25% by 2014 (european commission, 2015). competitive advantage is not just a function of how well a company plays by the existing rules of the game. it also depends on the company’s capability to break those rules (govindarajan & gupta, 2001). breaking the rules of the game means that the company can strategically redefine its business and play an altogether different game in order to succeed on the long-term basis (markides, 1997). with the intention to acquire a greater positive impact, individuals, groups and organizations across all sectors of society tend to enter the market with bigger ideas. being different and making difference are key drivers to business success whether developing a new product or service, creating a new hr program, improving finance procedures, introducing a new fundraising campaign or launching a new business (kaplan, 2012). regarding that, as a solution for breaking the rules of the game, bigger ideas, sustainable growth and profitability, govindarajan and trimble (2005) suggested strategic innovation. this paper aims to define a concept of strategic innovation given the impact it has on competitiveness, creation of growth strategies, new product categories and business models, as well as on changing the rules of the game on the existing market. in this sense, companies have to strategically redefine their business, to define new ways of competing in order to offer new value for consumers, stakeholders and companies themselves. if companies want to be successful they have to discover and exploit new strategic positions that emerge from time to time as industry evolves. supporting this, the paper presents strategic elements of the national innovation system (nis), which can significantly contribute to small and medium-sized enterprises (smes) to boost their business and to increase their competitiveness and innovativeness. starting from the strategic positioning map, the paper gives some of the possible answers to the question of how smes in serbia can improve their business, i.e., how the nis can influence smes in terms of increasing business success. keywords: strategic innovation, competitive advantage, nis, smes 2. theoretical framework understanding the strategic innovation one of the fundamental questions of innovation management refers to the strategic decision making in the field of development of new products, services, processes, organization, marketing, etc. (in accordance with oslo manual (2005)). these strategic decisions should make balance between companies’ ability and opportunities that exist in the environment so as to achieve long-term business objectives. regarding that, innovation strategy defining represents a key element of successful innovation management in the company (stošić, 2013). lately, a large number of companies added innovation as one of the fundamental values in their mission (johnston jr. & j. douglas, 2013). also, innovation strategy should support business strategy, where it acts as a mediator between the company and its environment in the innovation area. often, it represents a key step for the company’s entry on the existing market, however, also for gaining competitive advantage. companies are constantly in a position to make strategic decisions within the innovation portfolio, primarily in terms of defining the priorities of innovation projects, and establishing innovative competence. thus, innovation strategy should be synchronized with the technological, marketing, manufacturing and other functional strategies, as well as the strategy of intellectual property (stošić, 2013). innovation strategy is based on the business model and technology of the companies. this means that successful companies combine technological change with the change of business model for the successful implementation of innovation (epstein, davila, & shelton, 2005). it is very difficult for any company to successfully attack the established industry leaders or to successfully enter a new market where established players exist and not to rely on the benefit of new technological innovation. the strategy that appears to improve the success rate in those situations is the strategy of breaking the rule, i.e., the strategic innovation (markides, 1997). strategic innovation represents a holistic, systematic approach focused on generating beyond incremental, breakthrough or discontinuous innovations. only an intentional, repeatable process that creates a significant difference in the value delivered to consumers, customers, partners and other companies can be assumed as strategic innovation. it can be said that strategic innovation is a fundamentally different way of competing in an existing business (charitou & markides, 2003), which can aid continuous innovation, avoiding the danger of going along with what may appear to be best practices (prince, barrett, & oborn, 2014). kaplan (2012), in his work, named the process of changing the game as leapfrogging. in fact, leapfrogging is about creating something new or doing something radically different that produces a significant leap forward. if individuals, groups or organizations prefer to become the new leaders of the future they have to leapfrog old ways of doing things (kaplan, 2012). new game activities can be performed at all stages of a value chain in one business system (govindarajan & gupta, 2001; afuah, 2009). consequently, there are three main questions on which strategic innovators have to give answers if they want their rules to be the winning rules (figure 1). those questions are: “how can we make the value chain much more efficient?”, “how can we transform the value the customers receive?“ and “how do we expand the market size?” (govindarajan & gupta, 2001). 36 2015/77management figure 1: areas for changing the rules of the game (adapted from (govindarajan & gupta, 2001; afuah, 2009)) in accordance with figure 2, dramatic redesign of the end-to-end value chain architecture can be accomplished improving the efficiency of the end-to-end value chain. for example, ikea uses standardization by making one type of a product, which enables efficient transportation. dramatic reinvention of the concept of customer value is related to changing the value that customers receive. for example, in addition to selling hardware, the ibm moved into supplying total business solutions. a dramatic redefinition of the customer base is related to expanding the size of the market. for example, at the time when computers were used only in corporations and other institutions, apple made personal computers for individuals. therefore, a necessary requirement for becoming a strategic innovator is to identify gaps before everybody else does. gaps imply: (1) new, emerging customer segments or existing customer segments that other competitors have neglected; (2) new, emerging customer needs or existing customer needs not served well by other competitors; and (3) new ways of producing, delivering, or distributing the existing or new products or services to the existing or new customer segments (markides, 1997). 3. typology of strategic innovation a very important factor for defining the innovation strategy is a company competence, concerning the existing structure and knowledge. the innovation strategy and the company’s competence are related to the extent that some authors indicate strategy as the architecture that builds competence. the results of empirical research in this area show that the degree and nature of innovativeness are in close relation to the choice of strategy of the innovation leader or follower. companies that choose the first strategy mostly develop product innovation, while others mostly initiate process innovation (stošić, 2013). having in mind the innovation matrix, companies focus their resources in selected segments, and thus create a portfolio of investments. depending on the position of investment in the matrix, two types of innovation strategy can be recognized (epstein, davila, & shelton, 2005): playing to win (ptw) and playing not to lose (pntl). the “playing-to-win” strategy is a strategy of the innovation leader that, predominantly, relies on semi-radical innovations – the company invests in new technology or business model in order to be ahead of competitors. the leadership position is achieved on the basis of repetition of different types of innovation: incremental, semi-radical and radical (e.g., amazon.com, apple). in cases where the competitive environment is very uncertain, and where high internal constraints exist, companies opt for the “playing not to lose” strategy (e.g., johnson & johnson, hyundai). the pntl strategy typically involves more incremental innovations, in order to maintain the company in the existing environment, moving slowly and with lower risk (epstein, davila, & shelton, 2005). 37 management 2015/77 also, the strategy of the innovation leader and follower can be seen as proactive and reactive (urban & hauser, 1993). a proactive strategy is a strategy of the innovation leader – companies seek to predict and anticipate changes in the environment and thus to seize the opportunities. a reactive strategy is a strategy of the innovation follower – companies respond to the customers demand and needs and to competitors’ activity. in addition, literature on strategic innovation makes a distinction between incremental strategic innovation and disruptive strategic innovation (kataria, 2013). when it comes to incremental ones, value improvements are made on the existing customers and markets, which make them innovation followers, while organizations engaging in disruptive strategic innovation compete in such a way that the newly developed markets do not contain any competitors yet and competitive advantage is therefore automatically created, which make them innovation leaders. figure 2: strategic innovation typology (adapted from (kataria, 2013)) the disruptive strategic innovation is evidently a more aggressive strategy for creating competitive advantage then the incremental one. nevertheless, incremental strategic innovation is also aimed at creating competitive advantage but without disrupting the existing market. thus, regarding typology of strategic innovation, the most frequent case is that innovation leaders engage the ptw strategy, proactive strategy or disruptive strategic innovation, while innovation followers engage the pntl strategy, reactive strategy or incremental strategic innovation. 4. the role of national innovation system in strategic innovation concepts and policy approaches to innovation have changed considerably in the past years. until recently, large companies were considered to be the main driving forces of growth and innovation. nowadays, the interest has shifted to smes and networks of firms. still, smes usually face more barriers than large companies. thus, if smes want to overcome such barriers they have to rely more on external resources and partners (tödtling & kaufmann, 2002). it is for this reason that the paper presents some of the ways in which the national innovation system can strategically support or help companies to improve their innovativeness. the nis should have significant influence on successful realization of innovation. in accordance with the strategic positioning map (markides, 1997), the paper tries to give some of the possible answers on the question how smes in serbia can improve their business, i.e., what the nis should do to help smes to be more successful. generally speaking, strategy (business, market, technology) can be defined as a component that connects the company and its environment. when it comes to the innovation strategy, two powerful factors from the environment can be identified (stošić, 2013): 38 2015/77management • the national innovation system (nis), in which the company is incorporated and in which it acts. the nis can be defined as a complex network of companies, universities, research and development institutes, professional associations, financial institutions, educational and information infrastructure, state agencies and public resources, for generation, diffusion and application of scientific and technological knowledge in a particular country (oecd; eurostat, 2005). • the position of the company compared to the competitive environment. small and medium-sized enterprises and entrepreneurs are usually the most efficient segment of the economy. their main contribution is reflected in the increase of employment, gross value added and income, which is why they are considered to be the main driver of growth and development of the national economy. particularly important is their role in the transition countries that are facing the problems of high unemployment, low level of economic activity, lack of competition and lack of investment and wher large inefficient public enterprises still operate (erić, beraha, �uričin, kecman, & jakišić, 2012). smes are a particular target for innovation policy. one of the reasons is that they are facing big constraints regarding innovation or commercialization of innovations. some 63% of companies with between 1 and 9 employees declare that they have introduced at least one innovation since 2011, in comparison with 85% of companies with 500 employees or more. some 71% of companies with between 1 and 9 employees encountered difficulties commercializing their innovations due to a lack of financial resources, compared to 48% of companies with 500 employees or more (european commission, 2015). due to the importance of the sme sector in creating economic growth, both developed and developing countries are very interested in finding ways to stimulate smes in realizing innovations. speaking of serbia, smes represent the backbone of the economy. they constitute 99.8% of the total of active companies, employing approximately two thirds of employees in the non-financial sector and participate with a rate of about 30% in the formation of the gdp. the entrepreneurial sector of serbia in 2013 included 315,412 companies, representing 99.8% of the total number of companies (315,906) (figure 3). the smes generate 64.9% of employment in the non-financial sector by engaging 768,550 workers and 64.3% of turnover (narr, 2014). figure 3: number of business entities regardless of the global market, a large number of the innovation activities of enterprises is carried out and is linked to the national environment. therefore, the impact of nis factors is dominant, even when it comes to big companies. there are a lot of different incentives that the nis can provide or enable in order to encourage smes to be more innovative. innovation institutions, infrastructure, laws, strategies, different programmes are some of the mechanisms that can help smes overcome problems they are faced with. cluster is one of the basic innovation infrastructure means whose purpose is to enhance regional competitiveness and to encourage innovation in companies. the key contributions of clusters to companies are related to greater innovation, more efficient employment, economic development and entrepreneurs’ initiatives. their strategic importance for smes can be seen through: lower operating expenses (purchase is made at the cluster level; decrease in inventories of materials due to relationships established with suppliers at the clus39 management 2015/77 ter level; agencies and enterprises for provision of specialized and common services, such as marketing, accounting, consulting, professional and other services); lower expenses of new product/service development, diffusion of technology, exit to foreign markets, expansion of markets and opportunities for new business connections, possibility of a larger investment and development projects in the region, access to funds, soft loans, etc. according to the catalogue of clusters in serbia (2012), there are 40 clusters in serbia. the increasing trend in the number of clusters in serbia proves the need for clusterization in the sme sector. also, some types of innovation infrastructure important for the improvement of innovation and therefore strategic business of companies are business technology incubators and science and technology parks. the main idea of business technology incubators, according to the law on innovation activity (2013), is making available, for a fee, the office space, administrative, technical and other services to newly established companies or innovation organizations, maximum five years from their establishment. in serbia, there are currently 24 incubators. one of the well-known is the business technology incubator of technical faculties which comprises 51 smes and within which 40 innovations and 10 patents are developed. the aim of this type of innovation infrastructure is to create instruments for supporting young and educated people allowing them to start and develop their own business; to create conditions for direct commercialization of scientific research; to create new smes in the field of high technology (http://www.bitf.rs/cms/item/about/sr.html). similarly, a very important strategic factor for the improvement of companies’ innovativeness and competitiveness is the science and technology park. the aim of these parks is to give infrastructural and professional support to innovative companies for the purpose of their linking and faster implementation of new technologies, development and placement of new products and services, along with rapid technological development of the country (law on innovation, official gazette rs, no. 110/05, 18/10 and 55/13). one of the examples of this innovation infrastructure is the zvezdara science and technology park that started this year. consequently, there is a number of ways the nis can contribute to companies to strategically improve their business. knowing that many smes in serbia operate with negative business results, there is a need to introduceg mechanisms that would help such companies in order not to go bankrupt. one such mechanism is the law on consensual financial restructuring of companies, resulting from the need to overcome financial difficulties, i.e., insolvency of companies. financial restructuring is being implemented voluntary, with the consent of creditors and debtors, with the necessary presence of the mediator, in this case, the chamber of commerce. the aim is to create the best solution through joint efforts redefining the relationship between companies and creditors, which are primarily banks, and the chamber of commerce as an institutional intermediary (andrić, radulović, stefanović, brežančić, johnson, & nedić, 2014). 40 2015/77management strategic innovation represents a very important factor that companies should have within their business, and which should have a significant impact on improving the competitiveness of companies. when it comes to companies (primarily smes) in serbia, great attention should be paid to the creation of such environment that will contribute to increasing of innovativeness, employment, investments, as well as strengthening of the industrial sector. some of the key recommendations which are related to the creation of such environment, favourable for the proper company development, refer to the establishment of a well-rounded incentive system of company development in the growth and development phase, based on the best practices of highly developed countries; encouraging talented people with a clear vision to start their own business; change of the previous method of financing; provision of advice related to venture financing, strategic planning, support for integration into supply chains of large companies, internationalization of companies, etc; development of regulatory reforms directed toward removing obstacles for foundation of new companies, as well as creation of favourable conditions for growth of dynamic companies (narr, 2014). engaging strategic innovation, companies should take advantage of the aforementioned incentives with the establishment of “new game rules and market barriers”, along with new ways of doing business, aiming at gaining the position of innovation and market leader. thus, companies can change the rules of the existing game on the market using the elements of the nis and in that way identify gaps before everybody else does. conslusion references [1] afuah, a. (2009). strategic innovation: new game strategies for competitive advantage. routledge. [2] andrić, l., radulović, b., stefanović, m., brežančić, m., johnson, g. w., & nedić, b. (2014). vodič kroz sporazumno finansijsko restrukturiranje privrednih društava. partneri za demokratske promene srbija. [3] charitou, c., & markides, c. (2003). responses to disruptive strategic innovation. mit sloan management review , 44 (2), 55-63. [4] epstein, m., davila, t., & shelton, r. (2005). driving success: how you innovate determines what you innovate. [5] erić, d. d., beraha, a. i., �uričin, o. s., kecman, �. n., & jakišić, b. b. (2012). finansiranje malih i srednjih preduzeća u srbiji. institut ekonomskih nauka, privredna komora srbije. [6] european commission. (2015, september 30). innovation. from internal market, industry, enterpreneurship and smes. [7] freeman, c. (1987). technology and economic performance: lessons from japan. london: pinter. [8] gebauer, h., worch, h., & truffer, b. (2012). absorptive capacity, learning processes and combinative capabilities as determinants of strategic innovation. european management journal , 30 (1), 57-73. [9] govindarajan, v., & euchner, j. (2010). making strategic innovation work: an interview with vijay govindarajan. research technology management , 53, 15-20. [10] govindarajan, v., & gupta, a. k. (2001). strategic innovation: a conceptual road map. business horizons. [11] govindarajan, v., & trimble, c. (2005). 10 rules for strategic innovators. harvard university press. [12] johnston jr., r. e., & j. douglas, b. (2013). the power of strategy innovation: a new way of linking creativity and strategic planning to discover great business opportunities. new york: american management association. [13] kaplan, s. (2012). leapfrogging: harness the power of surprise for business breakthroughs. berrettkoehler publishers. [14] kataria, s. (2013). strategic innovation: a review and a theoretical framework. [15] law on innovation, official gazette rs, no. 110/05, 18/10 and 55/13. [16] markides, c. (1997). strategic innovation. sloan management review/spring , 38, 9-24. [17] narr. (2014). izveštaj o malim i srednjim preduzećima i preduzetništvu za 2013. godinu. beograd: ministarstvo privrede, nacionalna agencija za regionalni razvoj. [18] oecd; eurostat. (2005). oslo manual guidelines for collecting and interpreting innovation data (3rd ed.). joint publication. [19] palmer, d., & kaplan, s. (2013). a framework for strategic innovation blending strategy and creative exploration to discover future business opportunities. [20] prince, k., barrett, m., & oborn, e. (2014). dialogical strategies for orchestrating strategic innovation networks: the case of the internet of things. information and organization , 24 (2), 106-127. [21] stošić, b. (2013). innovation management – innovation projects, models and methods. belgrade: faculty of organizational sciences. [22] the cluster council. (2012). catalogue of clusters in serbia. klaster diš niš. [23] tidd, j., bessant, j., & pavitt, j. (2011). managing innovation. john wiley & sons.tödtling, f., & kaufmann, a. (2002). smes in regional innovation systems and the role of innovation support—the case of upper austria. the journal of technology transfer , 27 (1), 15-26. [25] tse, t. (2013). paradox resolution: a means to achieve strategic innovation. european management journal , 31 (6), 682-696. [26] urban, g. l., & hauser, j. r. (1993). design and marketing of new products. prentice hall. receieved: september 2015. accepted: november 2015. 41 management 2015/77 radul milutinović university of belgrade, faculty of organizational sciences, serbia radul milutinović is teaching assistant at the innovation management study course at the faculty of organizational sciences, university of belgrade, serbia. he holds a bsc degree in the field of management and a msc degree in the areas of project and investment management. at present, he is a phd candidate. his primary areas of research are innovation management, innovation project management and intellectual property. he has published numerous publications at national and international conferences and journals. biljana stošić university of belgrade, faculty of organizational sciences, serbia biljana stošić is professor of innovation management at the faculty of organizational sciences, university of belgrade, serbia. she holds a bsc degree in the field of information systems and msc and phd degrees in the areas of innovation and technology management. her research interest is oriented towards innovation management, project management and intellectual property. she has authored and coauthored numerous publications at national and international conferences and journals. she is the author of innovations in technology theoretical basis and methods of support; innovation management expert systems, models and methods; innovation management innovation projects, models and methods. marko mihić university of belgrade, faculty of organizational sciences, serbia marko mihić is an assistant professor at the faculty of organizational sciences, management department. his research interest includes management, project management, strategic management and change management. he has published 7 monographs and over 120 peer-reviewed papers. as an expert consultant, he has worked extensively for the serbian government institutions, as well as for several leading national and multinational companies and investors in serbia. 42 2015/77management about the author 04_milos milosavljevic:tipska.qxd 33 miloš milosavljević, nemanja milanović, slađana benković university of belgrade, faculty of organizational sciences, serbia management 2016/78 drivers of performance measurement use: empirical evidence from serbia udc:005.216.1 005.336.1:334.7(497.11) doi:10.7595/management.fon.2016.0002 1. introduction in the last decades, the interest of academics and practitioners for the efficiency of performance measurement system use has grown rapidly. (neely and bourne, 2000; epstein and manzoni, 2004; kaplan and norton, 2008; micheli and manzoni, 2010). practice shows that more than two thirds of attempts to implement a performance measurement system fail (mccun, 1998). sometimes, successfully implemented systems do not lead the organization towards fulfillment of strategic goals. that means that not every performance measurement system necessarily has to be useful and usable at the same time, as well as leading to business success, which is discussed in numerous studies (schneiderman, 1999; hudson, smart and bourne, 2001). therefore, efficient performance measurement use has become a focal point of interest for both academics and practitioners. extant literature provides valuable insight into the myriad of different uses of performance measurement systems. the most notable are: implementation of corporate strategy (simons, 1991), communication of strategy (atkinson, 2006; braam and nijssen, 2004; kaplan and norton, 2004), formulation of strategy (gimbert, bisbe and mendoza, 2010; bourne et al, 2000), clear and unbiased communication of goals in an organization (drew and kaye, 2007; mooraj et al, 1999), control purposes (simmons, 1995), performance management (bisbe and malagueño, 2012), employee evaluation, reward and compensation schemes (van veen-dirks, 2010), information feedback (widener, 2007; henri, 2006; tuomela, 2005; bisbe and otley, 2004). nevertheless, there is scarce evidence on the factors that affect diversification of performance measurement usage portfolio. these factors are important, as they drive a more effective use of managerial control mechanisms. there are few papers that deal with the factors influencing the ways performance measurement systems will be used. therefore, the objectives of this paper are to: determine the factors that affect the use of performance measurement systems, and examine their influence on performance measurement in serbian companies. to the best of the authors’ knowledge, the study of this kind has never been conducted before. the paper is organized as follows. section 2 provides theoretical background and development of hypotheses. section 3 elaborates on methodology used for the collection, processing and presentation of the data. section 4 deals with the results of this study and discusses them. theoretical contributions, implications and further recommendations are presented in the same section. finally, section 5 is reserved for conclusions. in the last decades, the interest of academics and practitioners for the efficiency of performance measurement system use has grown rapidly. the aim of this paper is to examine, articulate and test the relationship between maturity of performance measurement systems, strategic compliance of performance measurement and managerial orientation, on one side, and the portfolio of performance measurement uses, on the other. data were collected from 86 serbian companies. the results indicate that the most influential factor for diversified use of performance measurement is the maturity of the system. the paper also discusses theoretical contributions, implications for managers and scholars, and recommendations for decision-makers. keywords: performance measurement, maturity, strategic compliance, managerial orientation 2. theoretical background 2.1. performance measurement use most frequent use of performace measures and performance measurement systems is for business monitoring. the process of business monitoring includes all the efforts of the management that are directed towards gathering data from different sources, with the goal to prepare information on performance measures in the format most appropriate for reports, analyses and forwarding information to decision makers. according to kaplan and norton, (1996) business monitoring emphasizes the role of performance measurement systems as a mechanism of knowledge accumulation and creation of information feedback, so it is also a base for organizational study. this role is considered diagnostic, and the performance measurement system is awarded the role of monitoring of critical performances needed to achieve strategic goals and report on any deviations in business results (simons, 2000). malmi (2001), for example, states that certain companies use performance measurement systems exclusively as information systems, which means that their diagnostic role is in the focus while determining key performance indicators. in certain industries, reports for external users present a core base for performance measurement (yongvanich and guthrie, 2005). in this sense, it does not refer to traditional (obligatory) financial reports and consequential performance measures, but the needs for additional revelations demanded by either government regulatory bodies or important stakeholders. most common demands in this sense refer to intellectual capital (norreklit, 2000) and other non-financial performance measures (biondi and rebérioux, 2012). van veen-dirks (2010) emphasizes another important role, and it is evaluation and employee rewards. it can be said that employee performance evaluation and compensation for well executed plans is the most pragmatic use of performance measures. at the same time, it should not be forgotten that employee rewards lead to their own, as well as to organizational learning. performance measures are used as information foundation for making adequate business decisions. in references, this phenomenon is better known as performance management (bisbe and malagueño, 2012). companies use performance measurement systems through embedded management mechanism based on goals (malmi, 2001; jazayeri and scapens, 2008). in that way, performance measures should direct managers to the finding whether their decisions produce effects in accordance with set goals. moreover, problem solving, which is a base for decision making, spreads information through the organization and directs it towards further learning and development. in references, this use is referred to as interactive use of management control mechanisms (simmons, 2000). if the effects are not appropriate, another important use of performance measures comes into play – corrective actions. basically, performance measures are used in this sense to create action plans, their implementation and feedback, which completes the cycle of performance measurement. performance measures are also used for proper and meaningful communication towards the subordinates, which has been noticed in numerous studies (atkinson, 2006; murby and gould, 2005; braam and nijssen, 2004). communication in this sense includes distribution of information on performances, as well as on decisions on accomplishment measures, which integrate activities within an organization and through different organizational levels. if the performance measurement system is compatible with the strategy, performance measures can be ‘cascaded’ (gates, 1999) and, by that, goals can be transferred to lower organizational levels. this use is very important, because it is an assumption of organizational learning and knowledge management. measurement and benchmarking represent one of the business necessities, because they are very important for understanding of the position of an organization in relation to competition and for the search of key spaces for organizational growth. still, maseshwari and janssen (2013) suggest that measurement and benchmarking are not founded enough in general practice, but only what is directly visible is being compared. regardless of this qualification, comparison with other companies can be an important role of performance measures. performance measurement systems are also used for accomplishment and setting strategy feedback (malina and selto, 2001). that is visible through causal connections between strategy and accomplishment. based on that, it can be concluded that performance measures are used for the customization of corporate strategy. 34 2016/78management 2.2. system maturity and use of performance measurement performance measurement systems evolve during time. that evolution primarily refers to the very performance measures used in a system;to data gathering techniques, modelling of connections and relationships among indicators; then, to organizational learning and human resources development, which, on the one hand, gather, analyze and present data, but also change the very performance measures in order to harmonize them with strategic goals. finally, the technology used to gather, analyze and interpret results changes as well, in the direction of its automatization and software support. development of all these elements affects the maturity of performance measurement systems. by improving these areas, an organization gradually develops performance measurement through systematic identification of directions and areas that need improvement. so far, references offer numerous classifications of performance measurement systems according to their maturity. the following need to be pointed out: (1) “three types of bsc“ (speckbacher, bischof and pfeiffer, 2003), (2) “three types of performance measurement systems“ (garengo, nudurupati and bititci, 2007) and (3) “the evolution of performance measurement systems“ (kennerley and neely, 2003) the last mentioned model has important conclusions that are a starting point for this paper. namely, kennerley and neely (2003) point out that maturity depends on employees, business processes, the system itself and the culture. the more adjustable they are, the more mature the system will be, and the more important its use. accordingly, the study hypothesizes that: h1: system maturity positively affects the use of performance measurement systems. 2.3. strategic compliance and the use of performance measurement harmonization of performance measures and the whole control mechanism with the company strategy is an important determinant of the efficiency of a performance measurement system. in accounting (and wider, in social sciences), this phenomenon is called the phenomenon of localization of global control system. namely, it is an adjustment of the whole accounting information system (not only performance measurement system) to the needs of business units, but in a way that they are in harmony with the corporate strategy and contributing to the fulfillment of corporate goals. in this area, there are different findings on what influence the harmony between performance measures and strategy and the very use and adjustment of performance measures has. it is a general theoretical standpoint that the corporate global strategy must not be too localized in order to achieve corporate goals. still, there is an interesting case study presented by cruz, scapens and major (2011), which refers to a portuguese hotel that became part of a larger hotel group. namely, the authors found that it is possible to create a control mechanism that ‘works for local managers’, and that is harmonized with the corporate control system and corporate goals. still, most often multinational companies, through ‘big four’ audit firms, directly copy control systems onto regional companies (berreta and bozzolan, 2004). accordingly, the study hypothesizes that: h2: harmonization of performance measures with company strategy positively affects performance measures use. 2.4. managerial orientation and use of performance measurement business orientation of management refers to, as it has been pointed out, all principles that affect management business decision making (noble, sinha and kumar, 2012). it is a reflection of business philosophy and is a direct product of the organizational culture of the management, the set of their values and beliefs (zhou, yim and tse, 2005). often, references talk about business orientation as strategic orientation (theodosiu, kahegias and katsikea, 2012). still, this paper discusses orientation issues only conceptually and from a neutral standpoint, and only in the scope of its influence on the use of performance measures. the relationship between management business orientation and the use of performance measures has not received significant attention in academic and consulting circles. in a relatively modest collection of present knowledge, studies published by de aguiar, pinheiro and oyadomari (2014) and abernethy, bouwens and van lent (2013) should be singled out, despite the fact that these studies only tangentially reveal the nature 35 management 2016/78 of the relationship between managerial orientation and use of performance measures. actually, the study focuses on short-term, mid-term and long-term orientation and performances of managers, but orientation maturity includes orientation towards financial and non-financial performances of a company. moreover, the study directly links orientation and organizational success, while this dissertation assumes existence of an intermediary variable – use of performance measures. that means that, if managers prefer financial goals, they will use performance measures that are primarily financial, which can later lead to financial success. the basic assumption is that managers that prefer financial goals emphasize measurement of financial performance and vice versa. accordingly, the study hypothesizes that: h3a: managerial financial orientation positively affects a diversified use of performance measurement systems. h3b: managerial orientation towards buyers positively affects a diversified use of performance systems. h3c: managerial orientation towards employees positively affects a diversified use of performance measurement systems. h3d: managerial orientation towards internal efficiency positively affects a diversified use of performance measurement systems. 3. methodology data were collected using questionnaire as a research tool. the study applied computer-aided telephone interview as a technique, as it is more controllable, cost-efficient and adjusted to the needs of examinees (couper, 2000). prior to sending, the questionnaire was pre-tested in order to improve its readability. the pilot testing was done by 17 persons (11 with academic and six with practical background). the refined questionnaire was emailed to examinees together with a letter explaining the purpose of the study. it was emphasized that the acquired data are highly confidential and may only be used in statistical combinations and for scholarly purposes. the survey data were collected in 2015 (from mid-august to the end of october). 3.1. sampling procedure and data collection the study examined 668 companies from serbia. the lists of companies were provided by two representative institutions – the faculty of organizational sciences (university of belgrade) and the serbian association of managers. the two lists were combined and refined for duplicated companies. the e-mail did not reach 4.04% of e-addresses due to incorrect addresses, wrong respondents, automatic absence replies or other technical omissions. in total, 90 questionnaires were returned, but 86 have been accepted as valid (with more than 80% of correctly answered questions), making the response rate of 12.87%. the response rate for similar studies varies from 5 to 25% (e.g. van der stede, et al., 2005; lee & yang, 2011; bisbe & malagueño, 2012). the examinees were the ceos and senior managers of manufacturing companies. they were selected as the key informants in their companies, thus limiting the possibility of perceptual bias (teo & king, 1997). the key informants have the access to all relevant strategic information needed for the studies of this kind (yang, 2015). 3.2. measures the variables used in the study were multi-itemed and measured on a five-point likert-type scale ranging from ’absolutely disagree’ to ’absolutely agree’. for the maturity of performance measurement, the items were derived from kennerley and neely (2003) study. the maturity of performance measurement refers to the evolution phase in which the performance measurement system in a company was at the moment of the research. performance measurement system can be considered more mature if it is more harmonized with the goals that need to be achieved, if the measured items are related to the award system in a company, if it is more advanced in the sense of technologial base (e.g. software solution) and if there are frequent meetings dedicated to performance measurement systems. therefore, the items for maturity of performance measurement are: (1) compliance of managerial goals with performance measures, (2) compliance of rewards and compensation schemes with performance measures, (3) advanced software infrastructure for performance measurement, and (4) frequency of performance measurement at managerial meetings. 36 2016/78management regarding the strategic compliance, the items for assessing this variable were developed for the purposes of this study. the rationale was the best fit with the research settings. the items are listed in table 1. table 1: operationalization of strategic compliance managerial goals, according to the discussion in the theoretical background, can be mainly financial and non-financial. however, the non-financial objectives can be categorized as customer based, learning and growth oriented, and focused on internal efficiency. consequently, the study has encompassed the following managerial orientations: finance-oriented, customer-oriented, employee-oriented, and efficiency-oriented. finally, the items for the measurement of a dependent variable – use of performance measures, were created in accordance with the uses listed in section 2.1. the complete list is displayed in table 2. table 2: operationalization of dependent variable 3.3. demographics the examinee demographics was related to their function, experience, and specific experience related to performance measurement and management. all the examinees were executives – out of that – 35% ceos, 21.2% executives in controlling and information systems, 14.1% executives in operations, followed by marketing/sales executives (10.6%). examinees were experienced regarding the number of years of engagement in the examined companies (6 to 10 years 33.7%, followed by bordering values 2-5 and 1130 years). finally, 43.2% of examinees were involved in performance measurement on a daily to weekly basis, 38.3% were involved in this area on a monthly basis, 12.3% on a quarterly basis, whilst only 6.2% were involved in performance measurement only on an annual basis. the aforementioned indicates that examinees are very likely to be key informants of the surveyed company, thus providing reliability to the study. 37 management 2016/78 item we measure only a small number of vitally important business performances performances that we measure are harmonized with the business strategy our management always agrees on how to measure strategic success achievement of goals set by measures is always controlled by those whose performance is measured items that we measure point well to the way to achieve success items that we measure balance well short-term and long-term goals items that we measure balance well financial and non-financial goals item (we use performance measures for) monitoring external reporting employee evaluation decision making corrective actions communication with subordinates comparison with other companies/business units adjustments of corporate strategy 4. results and discussion 4.1. descriptive statistics summary table 3 depicts the most important uses of performance measurement systems. as shown in this table, serbian companies most often use performance measurement for monitoring and decision making purposes. on the other hand, adjustments of corporate strategy and benchmarking purposes are not as essential as aforementioned. the items are aggregated into one measure on a reliable basis (cronbach’s alpha = .808). table 3: summary descriptives for dependent variable these four categories were used to make questionnaires, and their mean values and standard deviations are presented in the following table. table 4: summary descriptives for system maturity and strategic compliance variables 38 2016/78management item mean std. deviation monitoring 3.67 1.241 external reporting 3.02 1.346 employee evaluation 3.53 1.185 decision making 3.74 1.019 corrective actions 3.42 1.184 communication with subordinates 3.04 1.313 comparison with other companies/business units 2.79 1.228 adjustments of corporate strategy 2.98 1.371 performance measurement use 3.2994 .93451 item mean std. deviation compliance of managerial goals with performance measures 3.64 1.005 compliance of rewards/compensations with performance measures 3.44 1.164 advanced software for performance measurement 2.93 1.263 frequency of performance measurement meetings 3.16 1.197 maturity of performance measurement system (matur) 3.2936 .88384 we measure only a small number of vitally important business performances 3.13 1.033 performances that we measure are harmonized with the business strategy 3.80 .875 our management always agrees on how to measure strategic success 3.51 .934 achievement of goals set by measures is always controlled by those whose performance is measured 3.41 .955 items that we measure point well to the way to achieve success 3.65 .922 items that we measure balance well short-term and long-term goals 3.45 1.046 items that we measure balance well financial and non-financial goals 3.50 1.059 strategic compliance (compl) 3.4898 .61467 financial orientation (fin) 4.46 .810 customer orientation (cust) 4.37 .946 employee orientation (emp) 3.30 1.284 internal efficiency orientation (intern) 3.43 1.261 it is interesting to notice that financial success is most important for serbian managers, closely followed by the need for customer satisfaction. here, we should especially point out the fact that none of the examinees stated that financial success is not important for the management, which undoubtedly speaks of the importance of financial success for serbian managers. employee training and efficiency of internal processes fall behind the previous two goals significantly. it cannot be claimed that these goals are not important to the managers, but they certainly are not as important as financial success. 4.2. hypotheses testing for the purpose of hypotheses testing, the study used the pearson moment two-tailed correlation analysis and the regression analysis. the correlation analysis is performed as a preliminary analysis, to test the relationship between dependent and independent variables. the correlation matrix is given in table 5. table 5: correlation matrix for dependent and independent variables the low to medium strength of relationships tested with correlations excludes potential multicollinearity among the variables. the maturity of performance measurement had the highest correlation coefficient with the use of performance measures, followed by internal efficiency orientation and employee-orientation of managers. the regression analysis points out that 59.8% of the variability of the use of performance measures was explained with dependent variables used in the hypothesized model (adjusted r2=.598). table 6: regression model 39 management 2016/78 fin cust emp intern matur compl use fin 1 .157 .060 .156 .140 .208 .171 cust 1 .345** .350** .484** .592** .370** emp 1 .606** .524** .368** .598** intern 1 .524** .361** .616** matur 1 .574** .721** compl 1 .462** use 1 **. correlation is significant at the level of 0.01 (2-tailed). model unstandardized coefficients standardized coefficients t sig. b std. error beta (constant) .544 .509 1.069 .289 fin .015 .093 .012 .160 .873 cust -.085 .091 -.091 -.930 .356 emp .130 .071 .186 1.829 .072 intern .175 .076 .241 2.296 .025 matur .535 .108 .523 4.961 .000 compl .055 .149 .038 .369 .713 r square .632 adjusted r square .598* f test 18.869 * p≤.01 a. dependent variable: use 40 2016/78management the statistics related to hypothesis 1 indicates that maturity of performance measurement positively affects the diversity of performance measurement use with the standardized coefficient (beta) .523 (and t-value 4.961). the findings of the regression model implicate that hypothesis h1 predicting a direct relationship between maturity of performance measurement and the diversity of performance measurement use was supported at .001 significance level. this finding indicates that performance measurement use changes over time. the initial design and set-up of performance measurement systems is often followed by information overload. information overload is created when managers struggle with information surplus. this dysfunctionality is created when signals and signs coming from different external sources are not properly processed and managed due to, for example, decreased efficiency, natural limitations, high costs, slow processing and the like (hetma ski, 2014). as the performance measurement system matures, becomes more harmonized with strategic goals and strong technological base and adequate software solutions are created, the use of the performance measurement system becomes more diverse and efficient. moreover, it is argued that maturity of performance measurement systems leads to effectiveness in carrying out data analysis and to higher self-confidence in the usage of data (martinez, et al., 2008). there is no statistically significant support for hypothesis 2 – compliance of performance measures with the strategy of a company does not necessarily predict the diversity of performance measurement use. adjustment of performance measurement systems to the strategy of a company does not necessarily mean that its use will be more diverse. explanations for this phenomenon can be at the level of speculation. an answer can be that a balanced use of measures harmonized with the strategy creates a top-down system of control and decreases the overall dynamics (voelpel, leibold&eckhoff, 2006) hypotheses h3a-h3d could only partially be accepted. managerial focus on finances, customers and learning and growth are not recognized in the study as predictors of diversified use of performance measurement systems. on the other hand, managers focused on the efficiency of internal processes tend to use performance measurement systems for multiple purposes. these results, combined with the findings of abernethy, bouwens and van lent (2013), point out that managers should never neglect internal processes and their reconfiguration. the use of performance measurement systems is a focal point of various scholarly and practical research. this paper aimed to explore the drivers of the diversity of performance measurement use. the results show that the used independent variables explained almost 60% of the changeability of performance measure use in the examined companies. the strongest predictor of performance measures use is the maturity of the measurement system. that points to the fact that most companies have to actively work on system development and to continuously improve and upgrade the system in technical, organizational and functional senses. theoretical contributions of the paper are multiple. despite the fact that the topic of business performance measuring is very current among scholars and practitioners, there are few papers that deal with the factors that affect the use of performance measurement systems. this paper adds to the scientific knowledge fund in that area. also, the paper developed a detailed methodology for measurement of the influence of different factors on the performance measurement use. there, the refined and validated questionnaire, which was used as a data gathering tool, should especially be emphasized. further on, studies of management accounting and control are mostly based on elaboration of a case study. this paper quantitatively processed data from 86 companies. finally, contributions of this paper also refer to the fact that the survey was done in serbia, where there are very few studies of this kind. due attention also needs to be paid to limitations and further recommendations for research. since the study is quantitative, it has methodological shortcomings that refer to statistical techniques applied to the data. further research should be focused on extensive in-depth analyses of the observed companies. besides, the study is cross-structural in its nature. the focus of further research could be shifted to temporal series and following of the development of performance measurement system use. conclusion references [1] abernethy m.a, bouwens j. and van lent l. 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[50] zhou k.z, yim c.k, and tse d.k. (2005). the effects of strategic orientations on technology-and marketbased breakthrough innovations. journal of marketing, 69(2): 42–60. receieved: january 2016. accepted: march 2016. 42 2016/78management 43 management 2016/78 about the author miloš milosavljević university of belgrade, faculty of organizational sciences, serbia milosavljevic.milos@fon.bg.ac.rs ph.d. miloš milosavljević is an assistant professor at the university of belgrade, faculty of organizational sciences. he teaches financial management and management accounting. he has participated in numerous consulting projects in the field of financial management and controlling. mr milosavljević authored or coauthored more than 50 articles and conference papers, text books and international monographs. nemanja milanović university of belgrade, faculty of organizational sciences, serbia nemanja.milanovic@fon.bg.ac.rs msc. nemanja milanović is currently employed as a teaching assistant at the university of belgrade, faculty of organizational sciences, department of financial management and accounting. his main fields of research interests are financial management, management accounting and startup funding models. he gained international professional experience through a number of international studies and professional exchanges and research projects.he is a member of the european finance association and youth committee of the national petroleum committee of serbia world petroleum council. slađana benković university of belgrade, faculty of organizational sciences, serbia benkovic.sladjana@fon.bg.ac.rs ph.d. slađana benković is a full professor at the faculty of organizational sciences in belgrade since 2014. she has participated in numerous projects. during 2007/2009 she spent a period of time at the george washington university, washington d.c. as a research fellow. she is president of the management board of the “endowment of milivoje jovanović and luka ćelović”, as well as a member of the management board of the “endowment of oko vlajković”. her teaching and research fields are financial management with a research focus on project finance, modalities of financing development projects of companies, technical evaluation of investment profitability and determination of corporate capital structure. she is a member of the european finance association and author or coauthor of more than 100 articles and conference papers, text books and international monographs. 04 nebojsa nikolic:tipska.qxd 35 nebojsa nikolić1, svetlana janković1, dejan vuletić1 1strategic research institute, ministry of defence, republic of serbia, udc: 005.52:005.33 005.583.1:355 interdepartmental cooperation in defence issues and strategic intelligence doi: 10.7595/management.fon.2016.0017 1. introduction interdepartmental, inter-organizational and more general interagency working groups are a relatively new and growing phenomenon, particularly in the public domain. they appear as an answer to new challenges and demands imposed as regards the existing organizational structures. the need for interdepartmental and interagency joint endeavour emerged in specific cases related to the un-ordinary, occasionally, and usually complex tasks that they have to perform. in such cases, resource, knowledge or even authorization of a single entity are not enough. hence, different organizations have to work together: exchange information, share resources, coordinate actions, and, in general, behave in a cooperative manner. however, different departments in a single large organization also have their internal relationship dynamics. in case of organizations with complex structures, more departments, interfering functions, formalized organizational behaviour, rigid communication procedures, administrative and decision making bottlenecks, there are many opportunities for improvement. this is particularly the case with public service organizations. on the other hand (other then public administration), in the field of business relationships and industrial markets, there is a reliable history of awareness of the “network perspective” and comprehension that actors do not operate in isolation (hakansson and snehota, 1995). efforts to improve organizational design of commercial companies are permanent and long-term. research studies on organizational design discussed issues about functional and project forms (galbraith, 1971) and proposed matrix organizational design. miles and snow (1986) pointed out the “dynamic network” as a new organizational form invented to respond to declining productivity and competitive requirements. they further developed the “dynamic network” concept and discussed it in the wider context of networks typology (snow and miles, 1992). the next step in the management 2016/80 the motivation for this paper comes from one successfully conducted empirical research about motivation of potential candidates to serve in the active reserve as a kind of military service which is recently introduced in the serbian army. the research team was faced with a set of problems related to the deadlines, resources and mandate issues. a solution was found in agile interdepartmental cooperation. firstly, we started with identification of missing resources and mandates of our research team. then, we investigated where we could find the missing issues. after that, we established lines for cooperation with other departments in the mod. the clarity of interdepartmental communication and concretisation of demands and expectations were crucial for success. in the end we realized the full potential of interdepartmental cooperation and started to think about that phenomenon in the wider context of defence and security issues. we found some other examples of interdepartmental cooperation in earlier efforts of the defence sector reform, as well as some results in other armies. the paper presents strengths and opportunities of interdepartmental cooperation through temporary engaged working groups in the specific defence sector environment, as well as potential obstacles. in a wider aspect, interdepartmental cooperation in defence and security issues becomes more and more important because of new security challenges we are facing today. keywords: military active reserve, recruitment, interdepartmental working groups, decision making, strategic intelligence, swot. development of network organization was the concept of a “spherically structured firm” (miles and snow, 1995), a kind of multi-firm network which is based on a set of the following principles: mutual independence, preference, non-competition and non-exploitation; flexibility and business autonomy; network democracy; expulsion; subcontracting limitless; entry openness; and exit freedom (miles and snow, 1995). the “network paradigm” became more important in the environment of globalisation process, and elevated network related research efforts very high as noted by borgatti and foster (2003). a dynamic aspect of the company’s capabilities, combined with two crucial relations of networked organizations (cooperation and competition), were recently elaborated through the experience of a famous global company (song et al., 2016). different issues have been taken into consideration both on “network paradigm” and in an environment of small transitional societies and their economies: čudanov et al. (2009) have investigated the influence of ic technologies (information and communication) on the decentralization of the organizational structure. they made in-depth research of more than seventy companies in serbia, and found out that: “decentralization is not a discrete but a continual process, and authority migrates slowly to organizational units where information is concentrated” (čudanov et al., 2009). also, they found that a way of using ic technologies and consequently created opportunities make the difference but not technology itself. organizational networks, and particularly efficiency aspect, were subject of research preformed by jaško et al., (2010), where they pointed out that the combination of analytical network and management perspective are crucial for the management of the efficiency of organizational networks. petković et al., (2014) used organizational network analysis in order to describe factors of influence for designing a learning network organization. petković and aleksić-mirić (2009) analysed the managing organizational knowledge in a process of downsizing. the last two works could be of particular interest for researchers and managers in the military and defence sectors, due to an almost constant process of transformation and reform, as well as a well known premise that the military, when it is not in its primary mission, always learns and conducts training and exercise. there is an increasing practice of establishing interdepartmental and interagency working groups on a temporal basis, particularly in large and complex public organizations. reasons for that can be various. sometimes it is because of the needs for comprehensive organizational changes which are initiated from the top political level from time to time. sometimes the reason is the need to unify efforts and resources for efficient supporting of an important, complex, temporary and usually unique task, such as: emergency situations, large scale public events (sports events, international conferences, music festivals, etc.) and similar occasions. in case of this work, the initial reason was a declared need by the top level decision maker, to make a kind of strategic intelligence (huff, 1979) and get some information as one of the inputs in making important decisions in the near future. for the purpose of illustration of successful interagency and interdepartmental cooperation in the public sector, led by an entity from the defence branch during the supporting provided to the execution of some important temporary event, the following information is given. the findings about preparations for security support of winter olympic games 2010 in vancouver (zekulin, 2009), suggest that inter-agency cooperation is a multi-aspect challenge with more and more problems on the horizon as the number of parties involved grows. it was a large scale event, unique in nature and time dynamics, but very demanding. interdepartmental and interagency cooperation was promoted (and ordered) by the top level strategic decision makers at the national level. all public services (including the city and regional authorities and services, various agencies, police and the military) were obligated to find ways for effective and efficient communication, cooperation, sharing resources, and overcoming any difficulties caused by different procedures, norms, organizational cultures, habits, etc. additionally, all of them had to be available and open-minded to work together with a large number of volunteers, who were also an important supporting component in a successful organization of the games. even in case of cooperation among “similar” entities (such as the military, police, security agencies), there are good opportunities for the development and elaboration of procedures for cooperation and experience exchange. other research (barr, 2004) explained in detail a close cooperation in the field among military and other organizations that were tasked to secure one high level international political meeting. one of the conclusions was that such a kind of inter-organizational, task-based cooperation should be expected more and more in the future. also, findings about problems arising from inter-organizational differences in command and control philosophies are similar in both research works. 36 2016/80management the phenomenon of temporary working groups is also interesting from the point of view of organizational science. as a matter of fact, working groups are formed when an existing organization cannot cope with some problem on the regular basis. the following section deals with the main characteristics of the problem solving approach through engagement of interdepartmental working groups. the third section presents an earlier example related to defence reform activities in the previous decade when more than a dozen of interdepartmental working groups were engaged in the analysis and proposal making for a number of important subjects in defence reform. the fourth section is dedicated to a detailed exploration of one smaller but novel case related to the task of identifying the level of propensity of the population to join the active reserve – a new and ongoing concept of temporary military service not only in serbia, but in many other countries who terminated military conscription system recently (szvircsev, 2014). 2. some aspects and characteristics of interdepartmental working groups the question of the best organizational design, or at least the most appropriate one, is relatively old (galbraith, 1971). unlike organizations in the field of market economy, organizational entities in the defence sector have limited possibilities to change themselves for at least one basic reason: a rigid administrative hierarchy. instead of complete organizational reengineering, interdepartmental working groups (idwg) are used as an alternative way as improvement and supplement of the existing working procedures. in that sense, the idwg in the defence sector are “invented” in order to support, accelerate and enhance regular interdepartmental cooperation. galbraith (1971) has pointed out two things which are crucial for an “effective coordination” among members of inter-organizational working groups: “authority” and “information” (galbraith, 1971). according to the authors’ experience with idwg in the defence sector, the main challenge for idwg was to find the right balance between the two mentioned components. different departments gave different levels of authorization to their representatives. also, departmental representatives in the idwg usually bring different levels of knowledge and experience (or “information” according to galbraith, 1971). a cooperative approach opens up some specific questions related to the mutual relations of participating in organizational entities. in addition to cooperation among departments, at the same time, they can compete with each other. this paradoxical situation of parallel existence of cooperation and competition is known as “co-opetition”. this term was proposed by branderburger and nalebuff (1995) with a basic idea of keeping in mind both aspects: cooperation and competition, in analysing inter-organizational relations. this approach is valuable and used even in contemporary analysis of internal “co-opetition” in modern companies (song et al., 2016). we found that “co-opetition” approach could be useful for the analysis and understanding of interdepartmental relations in the defence sector as well. interdepartmental working groups in the defence sector have some characteristics in common, namely: • temporary framework: idwg are usually formed for some specific and unique task which does not fall in the “business as usual” category; therefore, idwg are intended to operate in some time window, and after that they are dismissed. • team orientation: a idwg consists of more individuals that are expected to behave as team members; group decision making, ideally consensus, is preferred. • organizational heterogeneity: members of a idwg come from different departments of the ministry of defence (mod). • variety in knowledge of members of the idwg: professional experience, background, education, age, rank may vary at a large scale. • diversity in organizational cultures: each department, as well as each service branch have some characteristics which make them at least slightly different. • differences in administrative and working procedures and norms: sometimes these are a result of objective factors, but many times they are caused by personal preferences of different “chiefs” of departments. • double loyalty: members of the idwg are expected to be loyal to their new team – dwg, however, they have to remain loyal to their original departments (this is not the logical problem, unless in cases where the interests of idwg and original departments are different); many of potential 37 management 2016/80 problems which may appear here, could be managed successfully with careful communication and skillful negotiations between the idwg and corresponding departments. • group composition principle: very often the principle is “representation” (it is the case when original department assigns their representative to enter a idwg, with the main goal to formally satisfy the obligation to participate in idwg. the second principle is “delegation”, a case when the original department gives one senior official with higher mandate with the main intention to plead for original department. the third one is “sharing”, which is the case when the original department share their resources, knowledge and people to meet the needs of idwg. essentially, this is a question of proper (or preferred) balancing of the “authority & information” aspect (galbraith, 1971). • mandate issues. besides the existing departmental organizations, all of which already have prescribed responsibilities and authorizations, the problem arises when some idwg appears and interferes across areas that are already shared among the existing stakeholders. a detailed discussion of characteristics of the interdepartmental working groups presented through the tabular scheme of the swot analysis (strengths, weakness, opportunity, threats) can be found in nikolić et al. (2015). an imperative need for the creation of new organizational forms was pointed out by miles et al. (2010). they said that both market companies and national states have to try and find innovative organizational forms if they want to stay at their positions and increase wealth. they point out a number of keystones towards the possible future of organizations in the 21st century, which are the following: innovative change, collaboration and networking. the need for the innovative change came from the stance that classical organizational designs will not be capable enough of consuming contemporary challenges as well as opportunities, at least in regard to a desired efficiency and effectiveness, available resources and other limitations. there are some terms that are well known in the context of organizational changes in the defence sector: transformations, reform, transition, etc. this time, however, the centre of gravity of the organizational transformations is on the „innovative“. also, organizational units will have to permanently communicate (organizationally, technically, culturally) with a large number of other organizational entities of different kinds, sizes, cultures, interests, etc. it is worth mentioning that a novel research about “team resilience”: alliger et al. (2015) points out challenges which require team resilience, and finds that the role of teams will continue to grow. 3. interdepartmental cooperation in defence sector reform modern military organizations, and defence sector as a whole, are subject of frequent initiatives for large scale reforms. this is interesting not only in transitional societies, but in many other countries too, including the most developed democracies in the west. the public sector reform is always a sensitive issue and a very complex endeavour due to many different aspects: economic, social, political, psychological, technical, organizational. experiences and lessons learned from defence sector reforms and military transformations (around the globe, and domestic as well) could be useful at some level for other public sector branches. military transformations or defence reforms are often used as synonyms for marking such undertaken in the part of public administration related to the ministry of defence and armed forces. in serbia, we have already had a few waves of reforms during the last decades. one of them was in 2006, when the “defence reform group serbia-nato” (drg serbia-nato) was created. the main goals of the drg were declared to be the following: supporting and accelerating reforms in the defence sector; encouraging interdepartmental communication and cooperation; promoting project-oriented approach in reforms; effective use of foreign experiences and preparing participation in a special kind of cooperative program known under the name: “partnership for peace”, etc. the drg’s structure was complex and layered, with international and political leaders at the top of the group structure. at the lower level there were numerous specialized interdepartmental working groups marked as: “working tables” (wt). overall, 16 different working tables were established. all groups were composed of representatives from different departments and agencies. the compositional variety was additionally enlarged by a variety of ranks, experiences, titles and ages of participating individuals. those were interdepartmental working groups, as follows: wt-1-“development of procedures for defence cost and analysis”; wt-2-“development of the system for human resource management”; wt-3-“reform of military education system”; wt-4-“development of public relation strategy”; wt-5-“military bases conversion”; wt-6-“drafting a presentation document for pfp”; wt38 2016/80management 7-“development of the system for effective and efficient defence planning”; wt-8-“making a project of military professionalization”; wt-9-“development of civil-military cooperation”; wt-10-“development of a model for housing issues”; wt-11-“conversion of military material”; wt-12-“development of mid-term and long-term equipping plans”; “wt-13-“democratic control and reform of intelligence and security system”; wt-14-“reform of the military training system”; wt-15-“development of command and communication systems”; wt-16“development of a system for emergency management” (isac fund, 2006). evidently, the above mentioned working groups (originally “tables”) were different by name and main topic, and dealt with a very broad scope of issues and problems. accomplishments across groups were different, but the lowest common denominator was the same: methodological approach to the problem. all groups were interdepartmental, formed on a temporary basis, worked in parallel and produced some reports and offered these to higher authorities. no doubt that some positive moves were done. working groups made at least more informed decisions at the strategic level. also, the drg contributed to the exchange of ideas, information and experience among different departments. in general, groups used to operate in a relaxed way, which is immanent to the horizontal levels of hierarchy. beyond the drg type of working groups, there are other ad-hock working teams created to consider other issues, such as: emergency situation coordination, proposing drafts for new normative and strategic documents, international cooperation in specific fields (european integration, pfp-partnership for peace program, education, etc), organizational development, standardization, terminology unification, normative framework for defence science, etc. as military reforms and transformations are almost a constant in many countries, the research efforts are always actual (clarke, 2013) and similar modes of engagement are possible in the future. due to the specificity of the defence and the military issues compared to other public services, there is a lot of space for international exchange related to the experience concerning organizational transformation. many problems of the military organizations from different countries are similar and it can be useful to analyze lessons learned from others. 4. idwg in strategic intelligence on propensity to serve a proximate motivation for this paper was the experience gained from the engagement in one novel problem in the domain of interdepartmental cooperation in the ministry of defence. a number of departments were tasked to find solutions to a set of issues related to the implementation of the concept known as “active reserve“, ar. the active reserve (karanović, 2011; petrović, 2007), in the domestic context, assumes trained reserve component of the armed forces that could be engaged for manning military units for a predefined limited period. citizens who are in ar status are in a higher level of readiness in order to be engaged when it is needed. the relationship between the individual citizen who wants to belong to the active reserve pool and the state (that is, military organization ) is regulated by contract. in general, the main purpose of establishing the active reserve concept is to maintain a required level of operational and functional readiness of military units, staffs and defence organizations under the ministry of defence. similar concepts of recruitment already exist in some other countries (mod uk, 2012). it is supposed to be at a lower cost than holding permanently employed professional soldiers, but it still opens some questions concerning financial sustainability (alock et al., 2014). citizens who enter the status of ar pool, are expected to be invited for the training exercises and check-ups more frequently in comparison with all other people in the common reserve pool. in turn, they get some financial benefits for their higher readiness to serve. the importance of military reserve forces and the active reserve component particularly, grows with the process of professionalization of the military service and cancelling of the conscripts system in many european states (sedivy, 2013). active reserve issues are subject of research and experience exchange (keene, 2015), particularly in those states that rely more their reserve forces (catignani, 2004). one of the most important aspects of the active reserve concept is its recruitment principle. namely, ar is completely based on a voluntary principle. this fact involves a stochastic character in ar planning. consequently, some kind of empirical research was needed to indicate level of propensity to serve in the active reserve. the described constellation of influential factors was the most probable reason for the top decision level at the ministry of defence to place a demand for this kind of strategic intelligence. we used the term strategic intelligence here in the same sense as some earlier research in the field of the 39 management 2016/80 organizational sciences (as in huff, 1979), and not as it can be possibly understood in the military or intelligence service contexts. the task had to be done in a very short time, with limited resources, in parallel with current and regular tasks, and with unresolved questions related mainly to the issues of personal data protection, approval to access and interview a wider population, as well as other issues (nikolić et al., 2015). quick, efficient and effective response was needed, and a solution was found in the interdepartmental approach as a way of sharing and complementing resources, capabilities and knowledge among suborganizations that are inherent parts of a larger complex organization. a schematic idea of interdepartmental cooperation with tasks and responsibilities of each organizational entity is presented in table 1. table 1: interdepartmental share of tasks and responsibilities at the very beginning, section for the military duties (recruitment issues) from the department for human resources of the mod was very specific and clear in defining their requirements, deadlines and expectations. two main requirements were clearly emphasized and that resulted in placing two direct questions in the questionnaire related to the level of interest to join the ar as well as the level of interest to participate in the peace missions abroad. other elements of the questionnaire were developed on the basis of a broader consultation, expert talks and an in-depth review of the relevant literature on the similar topics. the final version of the questionnaire was sent to all departments and decision makers for final verification. after some improvement and corrections, the final verified version of the questionnaire was posted at the mod’s website (mod rs, 2014). we have succeeded in completing the preparation and realization of empirical research in a dozen of military units and garrisons in a short time thanks to efficient engagement of an interdepartmental working group, as well as thanks to a good will of all departments included in this endeavour. interdepartmental cooperation was particularly effective in defining the goals and scope of research, creation of the questionnaire, conducting field research in more military garrisons and regions, implementation of the electronic version of the questionnaire at the ministry of defence website, and informative promotion of active reserve issues at different media. it is worth mentioning that we tried to keep all “cooperative” correspondence and activities as simple, short and concrete as it was possible. in the end we realized that all activities have been finished smoothly, and that it was a consequence of good cooperation with other departments. hence this research effort was an initiator of new research ideas oriented towards the phenomenon of interdepartmental working groups in general, while previous experience from drg engagement was useful as well. 4.1. results of propensity probing finally, essential information about the product of this interdepartmental effort are: in less than two months (november and december 2014 collected were 708 usable responses to the questionnaire which was posted at the mod’s website (mod rs, 2014). it was a relatively good sample size for the analysis on propensity and motivation of the population to join a specific military service in active reserve on contractual basis. the response was dominantly a result of intensive and professional media activities and marketing support 40 2016/80management organization task department for human resources /section for military duty (recruitment) defence policy sector /strategic research institute department for public relations department for strategic planning /section for scientific issues section for informatics support section for public relations problem definition x problem structuring x x content/subject analysis x x questionnaire formulation x questionnaire verification x x x x x questionnaire posting at website x x informing the public x x gathering data x x data analysis x report to dm x x scientific reports x x performed in a synchronized manner with posting the questionnaire at the internet site. the department for the public relations of the mod did a very good job in informing the public about a new concept of active reserve and in promoting ongoing research about the propensity to serve. this case confirms some earlier findings about the importance of the public relations for the military (soldatović, 2013). the informatics section of the mod has obtained software implementation of the questionnaire, as well as the electronic data collection. the contents and the structure of the questionnaire were generated in a cooperative and iterative effort among military, psychology and informatics experts from the strategic research institute, as well as through the exchange of ideas with other experienced military officers and other employees across the mod. also, the process of the questionnaire creation has been strongly influenced by similar research in some foreign armed forces. particularly useful were the results offered by steinberg (1991), and wiggins et al. (2014). general findings from the conducted empirical research based on the electronic questionnaire were in favour of the active reserve. data showed that many of the respondents were very motivated to join the ar (nikolić, 2015 oct.). it was interesting that top motives to join the ar were (in this order): patriotism, earning new knowledge, gaining new qualifications, and then money as the motive – which was a little surprising. this result was different from the corresponding results from research in some other european states (szvircsev, 2008; taylor et al, 2015). one of very interesting findings was participation of quite a large number of female contributors: about 12% of the respondents were women. this level of interested female population for military service even outreach results from similar research conducted in much more developed countries with remarkable achievements in the field of gender issues in the military. also, there are other results related to educational and vocational structure, age, employment, etc. (nikolić and zivković, 2015). in spring 2015, the serbian mod announced a public call to recruit candidates for a hundred positions in the active reserve in different units and garrisons (mod rs, 2015). the lessons learned in accomplishing this research task generally agree with findings in some other domestic research (petković and lazarević, 2012), particularly when considering an alternative approach, that is, using the outsourcing approach instead of sharing the existing capacities of a large organization as is the mod. as a matter of fact, in case of outsourcing the research, even more people would be engaged: experts in law and finances would be needed to formulate, conduct and finalise the contract with some external research organization. at the same time, the military would have to have and engage a number experts to formulate and specify the research task as well as to track research execution and acceptance of final research report, while holding predefined standards specific for the military organization. 41 management 2016/80 conslusion the need for interdepartmental and interagency joint endeavour emerges in cases of specific, unordinary, occasional and usually complex tasks that have to be performed. in such cases, resources, knowledge or even authorization of a single department are not enough. hence different organizations have to work together, share resources and knowledge, coordinate plans and actions, and in general behave in a cooperative manner. in order to achieve that, different organizations delegate their members into joint working teams that are defined here as the interdepartmental working groups. in some sense, these are a kind of parallel organizational entities. current security, economic, social, international and other challenges, in parallel with restrictive resources, ditect different organizations, and increasingly so, towards exploiting the benefits of cooperation and joint working as well as towards decreasing mutual animosity and self-sufficiency. when things go smoothly, synergism is main gain, and interdepartmental cooperation appears as force multiplier. however, there are some potential obstacles as well. we have tried to identify the main characteristics of the phenomenon of interdepartmental working groups in defence and security issues. the swot approach combined with the idea of “co-opetition” in case of interdepartmental working groups are a favourable starting point for the future research efforts in more directions, such as: definition and selection of work goals, work procedures specifications, mandate definition, responsibilities, deliveries, team members selection, participating departments selection, selection of group decision making methods, consensus reaching methods, measuring achievements, identifying obstacles, clearing up relations with existing hierarchies, etc. references [1] alliger, g., cerasoli, c., tannenbaum, s., vessey, w. 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(1995). the new network firm: a spherical structure built on a human investment philosophy. organizational dynamic, 23(4), 5-18. 42 2016/80management the paper presents two examples of idwgs in the defence branch. the former is a case of a specific approach towards considering strategic questions of defence reform. the latter is a novel example from the field of strategic intelligence, when some important questions related to the military recruitment had to be resolved in a very short time, with very scarce resources and encompassing a very broad population. probing propensity of population to serve in the active reserve was a novel example from the field of strategic intelligence in the defence sector. it confirmed benefits of interdepartmental cooperation. in short, the research institute was tasked to perform a kind of strategic intelligence on the issues related to the propensity and motivation of a wider population in regard to specific and temporary military service known as the active reserve. in a very short time it needed to inform the public about new recruitment concept, inform and attract the public to participate in questionnaire fulfilment, create appropriate questionnaire, investigate other countries’ experiences on the topic, collect data, prepare and analyse gathered data, and finally to prepare a technical report to the decision makers who actually initiated this strategic intelligence. a successful completion of the task assumes a high level of productive cooperation among: research department, public relation department, informatics section, marketing section, department for human resources and recruitment, as well as other departments interested in the topic. 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(2014, 3-4 december). europe’s armed forces in transition: from conscription to allvolunteer forces 1975-2014. international workshop “10 years after suspending conscription: transition and transformation”. [37] szvircsev, t. (2008). challenges in the recruitment of professional soldiers in europe. strategic impact, 3. 76-86. [38] taylor, j., clerkin, r., ngaruiya, k., and knox velez, a.l. (2015). an exploratory study of public service motivation and the institutional-occupational model of the military. armed forces & society, 41(1), 14262. retrieved from: //dx.doi.org.10.1177/0095327x13489119 [39] zekulin, m. (2009). olympic security: assessing the risk of terrorism at the 2010 vancouver winter games. journal of military and strategic studies, 12(1), 2-25. [40] wiggins, b., evans, s., luchman, j., gibson j. (2014). motivators and barriers to recruiting prior service members in the irr. military psychology, 26(1), 23-32. //dx.doi.org/10.1037/mil0000026 acknowledgement. this work is supported in part by the ministry of education, science and technological development, republic of serbia, under project no.iii-47029. receieved: december 2015. accepted: september 2016. 43 management 2016/80 44 2016/80management nebojsa nikolic strategic research institute, ministry of defence corresponding author: nebojsa2008_g@yahoo.com nebojsa nikolic (1964), phd, is a research associate at the strategic research institute and associate professor at the military academy. prior to academic work he performed numerous duties in military units. his research interest is highly influenced by the needs of the military organization and oriented towards: decision making theory, strategic management, multi-criteria ranking problems, simulation, logistics and other disciplines relevant to the military organizations. svetlana jankovic strategic research institute, ministry of defence svetlana jankovic, ma, is a research assistant at the strategic research institute. she is a lieutenant colonel of the serbian army with a strong professional background acquired on numerous duties in different military units and commands across the country. she earned her master’s degree at the faculty of civil defense in belgrade. her areas of expertise are defence and security, gender and resources protection. dejan vuletic strategic research institute, ministry of defence dejan vuletic (1972), phd, is a lieutenant colonel and a member of the strategic research institute since 2004. he graduated in 1995, defended his master thesis in 2005 at the military academy, and his phd thesis: “cyber crime and the possibility of its detection” in 2009 at the faculty of organizational sciences in belgrade. he is an assistant professor at the military academy, in the informatics area. about the author << /ascii85encodepages 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03_nebojsa janicijevic:tipska.qxd 29 nebojša janićijević university of belgrade, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2017/22(2) udc: contradictory values in the process of organizational change: a case study doi: 10.7595/management.fon.2017.0009 1. introduction human behaviour is, both generally and in organizations, determined by extrinsic and intrinsic factors (aronson, wilson & akert, 2016; robbins & judge, 2016). rewards, systems and structures that govern the organization members’ actions and decisions are prominent extrinsic factors. motives and needs, knowledge and abilities, as well as cognitive components, such as assumptions, values, or norms, are prominent intrinsic factors. among cognitive determinants of human behaviour in organizations, values are prominent as a prescriptive cognitive structure that “prescribes” peoples’ actions, interactions and decisions. values have always been perceived as a guide for action at both individual and organizational levels (stackman, pinder & connor, 2000). people almost always behave according to their values, so their actions, interactions, and decisions most often comply with their values (fiske & taylor, 1991). this is precisely the reason why causes, processes and effects of the value changes are a very important research topic if we tend to understand organizations and their changes. changes of values, both individual and collective, shared by the people in organizations happen slowly and with difficulty, and most often in the face of dramatic changes in the environment or within organizations themselves (tormos, vauclair, & dobewall, 2017; boniface, mitchell & rashmi, 2012; rafferty, jimmieson & armenakis, 2013). the transition process, which serbia has been in for several decades now, is an ideal context for changing the values of abstract: values have always been perceived as a guide for action at both individual and organizational levels. by showcasing an example of one serbian company, the paper aims to present how employees and managers’ collective values can be inconsistent and contradictory, as well as the causes and effects of such a state of company’ system of values. the research was conducted by applying a case study method in a serbian company comprising both qualitative and quantitative research techniques. the company was in the process of intensive organizational changes at the time of the research. the research has shown that it is possible for values of the employees and managers to be contradictory and that this contradiction is caused by radical changes both in the environment and in the organization itself. the research has also shown that this contradiction characterizes the moving phase in the process of organizational change, and that it is likely to disappear when company moves into the refreezing phase in the change process. the conclusions of this paper imply that the structure of collective values in organizations must be taken into account both in research and in practice of change management. generalization of conclusions and implications is limited by the nature of the applied case study research method. keywords: values, organizational culture, transition, organizational change, serbia jel classification: m10, m14 corresponding author: nebojša janićijević,e-mail: jnebojsa@eunet.rs the serbian companies’ employees, with highly significant consequences on structure and functioning of the said companies. however, up until now there has not been much research that dealt with the changes in values of managers and employees in serbian companies under the impact of transition and organizational transformation (janicijevic, 2006). by using one company as an example, the aim of this paper is to investigate the process of changes in values and the state of contradiction between individual values in the course of this process. 2. the theoretical framework value is defined as “a part of common symbolic system, which serves as a criterion or standard for choosing between intrinsically available alternative orientations in given situation” (parsons, 1951, p.39), or as “a conception, explicit or implicit, distinctive of an individual or characteristic of a group, which influences the selection from available modes, means and ends of action” (kluckhohn, 1951, p. 395), or as “global beliefs (about desirable end-states or models of behaviour) that underlie attitudinal processes” (connor, becker, 1994, as cited in stackman, pinder & connor, 2000, p.188), and as “an enduring belief that a specific mode of conduct or end-state of existence is personally or socially preferable” to an opposite one (rokeach, 1973, p. 136). all these definitions advocate that human behaviour is generally, as well as in organizations, guided by values and also that, when the values of an individual or a group are familiar to us, we can predict their behaviour as well. collective values (values shared by organizational members) are the core of organizational culture. besides values, this construct also includes other layers of organizational members’ mental schemes, such as assumptions, norms, attitudes, etc., but values are often underlined as the central element of organizational culture’s content (schein & schein, 2017;janicijevic, 2013; hofstede, neuijen, ohayiv & sanders, 1990). unlike individual values, collective values as organizational culture element synchronously guide the behaviour of many organizational members, thus creating the effect of coordinated collective action, which is the foundation of the very organization. collective values emerge in the process of organization members’ social interactions while solving the organization’s problems (schein & schein, 2017). social interaction process leads to social construction of reality, and thereof emerge the shared values of the members of social community (berger & luckman, 1966). through its influence on the thoughts and behaviour of managers and employees, collective values contained in organizational culture influences different aspects of management and organization. extensive empirical research has documented that organizational culture affects strategy (klein, 2011; yarbrough, morgan, & vorhies, 2011), performance control (deem, barnes, segal, & preziosi 2010), organizational structure (ranson, hinings, & greenwood, 1980), compensation systems (chen, 2010), performance appraisal (henri, 2006), organizational learning and knowledge management (zheng, yang, & mclean, 2010; alavi, kayworth, & leidner, 2005), leadership (giberson et al. 2009; berson, oreg, dvir, 2008), job satisfaction (lund 2003; silverthorne, 2004) and organizational performance (balthazard, cooke & porter, 2006). values, both individual and collective, are difficult to change because they are subconscious categories; it takes a long time to create them and they become part of individual’s identity, so changing them is always unpleasant (schein & schein, 2017; alvesson & sveningsson, 2016, janicijevic, 2013). this does not mean that they are unchangeable and they are not changing at all. organizational changes can also include changing of the organization members’ system of values (tormos, vauclair & dobewall, 2017; cameron & quinn, 2011). these are always deep, radical or second order changes (bartunek, 1984). during such changes, the organization members change not only their way of working and behaving, but also their values, assumptions, norms, and attitudes. most authors (schein & schein, 2017; alvesson & sveningsson, 2016; janicijevic, 2013). agree that the process of changing values, follows lewin’s “unfreezing, moving, refreezing” model (lewin, 1951) and that the process of changing the organization members’ cognitive structures (often described as their personal transition) unfolds so that the existing values weaken while new values (which are independent or even opposite to the existing ones) simultaneously appear in the unfreezing stage. thus, the organization members transit into the moving stage in some kind of a schizophrenic state, that is, they simultaneously appreciate the old and the new values, which are unrelated or even contradictory (hinings & greenwood, 1988). this state is called cognitive dissonance and it is very unpleasant (fiske & taylor, 1991). therefore, people tend to leave that state as soon as possible by changing 30 nebojša janićijević 2017/22(2) their values in order to restate their compatibility. this occurs because the organization members cannot abandon the old values until they have previously built and accepted new ones. if the new values prevail, the organization members experience a personal transition during which they abandon their old values. naturally, the old values may also prevail, and in this case not only that there is no change in the organization members’ values, but there is also no change in their behaviour. it may also happen that the organization members stay in a schizophrenic state longer, that is, with the old and the new mutually inconsistent values. in the refreezing stage, the organization members reaffirm their set of mutually consistent values. changes of the organization members’ values are so deep and hard that it is difficult to imagine how they would unfold without deep and radical changes in the environment and/or the organization itself. the transition process in the eastern europe economies and societies is a par excellence discontinuous change, which may have initiated a change in the values of the employees and managers in these countries’ companies (myant & drahokoupil, 2011; lukášová, franková & surynek, 2006; janicijevic, 2006). abandoning of the centrally planned economy founded on state ownership and building of a market economy founded on private ownership have initiated radical changes in how companies within these economies conduct their business. these changes are most often initialized by privatization of the stateowned companies, building of market economy institutions, and adopting managerial technology characteristic of company management in market economy. such changes in companies’ environment, and within themselves, also provoke changes in the organization members’ individual and collective values. in the course of these changes, according to lewin’s model (1951), the organization members hold contradictory values. 3. methodology of the research the research of changes in values was conducted by method of case study analysis in serbian company sintelon. at the time of the research, the sintelon company was one of the most successful companies for textile and vinyl flooring production in serbia with 2550 employees. the company was founded and functioned for a long time as a state-owned enterprise, as did almost all companies in serbia which was a republic in socialist yugoslavia. however, in the 1990s sintelon experienced transformational changes initiated by its privatization, as well as by the transition of serbia from centrally planned to market economy model. besides privatization between 1998 and 2000, many other changes occurred in the company owing to its leaders who wanted to adopt contemporary company management methods, which were the standard in developed market economies. thus, they developed or improved strategic and business planning systems, human resources management systems (planning, performance appraisal, compensation system) and also sap – integrated information system. these changes had also initiated the changes in the collective values of the sintelon’s employees and managers. the research of values in sintelon was performed through a hybrid approach comprising qualitative and quantitative research methods (janicijevic, 2011) in three phases. first, qualitative data were gathered primarily through interviews and observations. in this phase, 28 employees and managers from different organizational units and of different ages, education levels and sex were interviewed. the purpose of the interviews was to identify the issues important to the organization members, since their shared values had been created around the said issues. by grouping the interconnected issues, we have identified 7 values whose formulation has been devised based on issues through which they have been identified. also, the analysis of cultural symbols and their meanings was performed, including material (facilities, working areas, logo, clothing), semantic (myths, legends, anecdotes) and behavioural symbols (rituals and ceremonies). based on these results, a tailor-made questionnaire was created in the second phase of the research, by devoting one question to each identified issue. it contained 35 questions (with 5 questions dedicated to each of the 7 values) with five-level likert scale responses and was distributed in all sintelon units to 250 employees and manages of all qualification and hierarchical levels and all age-groups according to their percentage in the total number of employees. the questionnaires were filled-in anonymously at the company premises. the strength of each value was determined according to the degree of the respondents’ agreeing with the attitudes towards the issues that reflect the value concerned. correlation was used to determine relations between values. in the final phase, the results of qualitative and quantitative research were synthesized, and conclusions were drawn about the sintelon employees’ shared values and interrelations between them. 31 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) 4. results and discussion the research into sintelon’s corporate culture has shown that it contains seven values as follows: • flexibility. changes are good, so sintelon should be open to changes and also have the ability to adopt and conduct them. • development. development and growth are the primary condition for survival of the company, so sintelon must continuously grow, develop and adopt new technologies, and the employees must gain new skills and knowledge. • world business standards. sintelon should operate according to the rules and methods followed by all successful world companies in developed market economies. • results. results are the only thing that counts, so in sintelon everyone is valued solely based on the results they achieve. • employees’ needs. sintelon is responsible for its employees and must ensure that all their needs are satisfied. • consumers’ needs. consumers’ needs should be the focus of all sintelon’s processes and activities. • privatization. sintelon should be organized and managed like all joint-stock companies in developed market economies. the employees accept the identified values to a different degree which manifests in the average grade on the 1 to 5 scale. the values of development, results and employees’ needs are most accepted, and the value of privatization is the least accepted. figure 1. acceptance of shared values in sintelon source: the author’s research most values shared by sintelon’s employees and managers are the results of two company’s leaders: the company president and the ceo. from the mid 1990s, and especially from the beginning of the company’s privatization process, the two leaders strived to establish new values in sintelon’s culture. they have succeeded because almost all the values are compatible with their vision. their goal was to transform sintelon from a typical socialist state-owned company into a contemporarily managed private company which would operate in a free market. the acceptance degree of the values these leaders imposed is very high, and this proves that they have been successful in creating the company culture as a set of collective values. however, the value of employees’ needs is inherited from the past and it shows that sintelon and its culture are still in the process of change, that is, the moving phase. when analyzing the structure of sintelon’s collective values, we may notice one group of mutually consistent and related values, as well as two or three values that are excluded from the set. values of flexibility, development, results and world standards highly positively correlate with each other. this shows that the employees perceive these 4 values as mutually compatible rules for the company’s organizing and operating. sintelon’s least accepted value of privatization is positively correlated only with the value of development which shows that the employees perceive privatization as a condition and mechanism for the company’s development. the value of consumers’ needs is not positively correlated with any of the five 32 nebojša janićijević 2017/22(2) �� ��� ��� ��� ��� ���� � �� �� �� �� �� �� � �� �� � �� � � �� �� �� �� �� � � � �� � �� �� � % of reffusal % of acceptance % of refusal % of acceptance previously mentioned values. although it might be assumed that this value is established as the result of the company president’s and ceo’s leadership, still it appears that they were not very successful in that domain. the fact that it does not correlate with the values of development or world business standards shows that the sintelon’s employees have not completely accepted the management’s marketing orientation. figure 2: correlation between shared values in sintelon source: the author’s research the most interesting result of the interrelations between shared values of sintelon’s employees and managers relates to the value of employees’ needs and its relation to other values. it is negatively correlated to all other sintelon’s shared values. this negative correlation is the strongest with the values of privatization and development. it seems that the employees believe that privatization will jeopardize the company’s caring for them, which may be expected, but also that this caring would weaken in the course of company’s development, which is much harder to explain. this value negatively correlates even with the consumers’ needs, although it cannot be rationally explained how this value would jeopardize the value of caring for the employees. obviously, the value of caring for the employees is inherited from the previous socialist period, when sintelon was state owned and when its social responsibility for the employees was highly prominent and ideologically supported by the ruling communist party. another very important source of this value is serbian national culture. it is characterized, according to hofstede, by high collectivism and high power distance (hofstede, 2001). collectivism implies the belief that a community (family, company, state) is bound to care for the wellbeing of its members, who in return offer their full loyalty (janicijevic, 2013; hofstede, 2001). the sintelon’s employees just transferred this belief to the company level, as most employees in serbian companies did at the time. power distance implies high authoritarianism and the belief that unequal distribution of power in society or organization is necessary and justified. high power distance combined with collectivism implies that the responsibility for one’s own destiny is shifted from the hands of the community members and put into the hands of the authority that leads the collective (political or business leaders). this creates additional inertia in the community members, because they do not think that they should do something about their own wellbeing, but expect someone else to take care of them while in return they would provide obedience and loyalty. the value of employees’ needs in sintelon contains both of these components. obviously, the value of employees’ needs is in complete opposition to the values of development, world standards, results, and privatization. sintelon leaders could not or would not remove this value, so it stayed in the collective values set. the case study has shown that sintelon leaders strived to not question the said value and to show they believe in it so they would not provoke the employees’ resistance and so all other values they had established would be accepted. the consequence is the contradiction within the company’s shared values set. on the one hand, there is the value of employees’ needs, while on the other hand there are all other values, and especially the 4 core ones. this situation is simply the consequence of the company’s transformation and its comprehensive changes, including the cultural values changes. during the research period, sintelon was in the moving phase, and all its employees had contradictory values. it is highly likely that the employees’ needs value weakened more with sintelon’s further transformation, and then disappeared from the sintelon’s employees’ collective values set. namely, if we assume that the contradiction between values is the result of the moving phase in the transformation process, then we may conclude that the transition of the company into the refreezing phase will cause consolidation of collective values, eliminate contradictions between them and bring consistency into the company’s collective values system. 33 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) employees’ needs development consumers’ needs world standards privatization result flexibility positive correlation negative correlation line thickness – degree of correlation 34 nebojša janićijević 2017/22(2) references [1] alavi, m., kayworth, t.r., & leidner, d.e. 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(2010). linking organizational culture, structure, strategy, and organizational effectiveness: mediating role of knowledge management. journal of business research, 63(7), 763-771. doi: 10.1016/j.jbusres.2009.06.005 (received/accepted) (april 2017 / may 2017) 35 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) 36 nebojša janićijević 2017/22(2) about the author nebojša janićijević university of belgrade, faculty of economics, serbia jnebojsa@eunet.rs nebojša janićijević is a full professor at the faculty of economics, university of belgrade, where he teaches courses in the field of organization, human resource management, and change management to students at undergraduate, graduate and doctoral studies. so far, as an author and co-author he has published several books, and a number of articles in foreign and domestic academic journals. he has been at three study stays at the u.s. universities as a receiver of fulbright program fellowships. nebojša janićijević is a consultant for leading domestic companies in the field of organizational restructuring and human resources management. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 1048576 /lockdistillerparams false /maxsubsetpct 100 /optimize true /opm 1 /parsedsccomments 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice zorica dodevska:tipska.qxd 1 zorica dodevska institute for artificial intelligence research and development of serbia, novi sad, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming *corresponding author: zorica dodevska, e-mail: zorica.dodevska@ivi.ac.rs research question: bibliometric analysis of the literature on emerging markets aims to recognise the relationship between traditional metrics (i.e., citations) and alternative metrics (i.e., altmetrics) in this field. motivation: this study is motivated by existing difficulties in measuring both the quality and societal effects of research papers. there are divided opinions among critics considering whether traditional metrics represent similar measures in comparison with altmetrics, or whether scientific and public attention are principally different categories. the study focuses on a specific field – emerging markets, considering that both opinions of scientists and the crowd are essential for driving appropriate societal changes. understanding both metrics’ nature is crucial for their proper usage to support sustainable development efforts and link research project evaluation and financing in the field. idea: the main idea is to examine the relationship between the number of citations and altmetric indicators and to determine the extent of overlapping individual papers/journals in the sample with the best ranking results in both categories. data: the study uses data about articles on the topic of “emerging markets” exported from the web of science (wos) database and expanded with altmetric indicators (either from providers altmetric.com or plumx, depending on the publisher). there are 3996 valid records collected during november 2019. tools: this paper considers only altmetric indicators common to both providers. analyses on the relationship of the number of citations and altmetric indicators (pearson correlation and percentage of overlapping of top-ranked articles/journals) are performed across the entire sample or only considering selected records. findings: obtained results indicate that there is generally no significant relationship between observed metrics in circulation (except in the case of mendeley). the same conclusion is reached by looking at 100 prominent individual papers in both categories in terms of overlapping, while the top 100 journals indicate a better overlap. the role of altmetrics is not to predict citation. societal and academic impacts are rather different categories, and it is reasonable to consider the purpose of both metrics for initiating/enhancing development in emerging markets. contribution: this expanded bibliometric study provides valuable information and orientation for researchers, journals, and academic institutions interested in emerging market growth, evaluation, and financially supporting related research projects. keywords: articles on emerging markets, citations, altmetrics, web of science (wos), altmetric.com, plumx jel classification: a23, i23 an expanded bibliometric study of articles on emerging markets doi: 10.7595/management.fon.2022.0003 abstract: 1. introduction emerging markets make a lot of the world economy, even 42 percent of the global gdp and 55 percent of the world population (cavusgil, 2021). the following countries initially constitute emerging markets: brazil, russia, india, and china (o’neill, 2001), while the acronym brics also includes south africa (westra, 2017). depending on the source, emerging market economies comprise many other countries (e.g., mexico, turkey, etc.). tending to become developed economies, they are on a ‘seesaw’ where fast growth is on one side and high risks on the other. emerging markets present interdisciplinary research fields (sudhir et al., 2015) and topics of interest of the general public (including, for example, potential investors, governments, companies, media, etc.). bibliometric analysis of articles that deal with emerging-market themes can provide feedback information primarily in terms of channels and frequency of their past usage among scientists and the broader population. therefore, this activity potentially can contribute to cognition regarding whether and to which extent scientific efforts influence driving changes. however, it is questionable whether and how the social value of research can be correctly perceived. some of the open issues are non-standardised methods for measuring social impact (tahamtan & bornmann, 2020), initially unequal exposure of papers (for example, because of the matthew effect – drivas & kremmydas, 2020), the way of interpreting bibliometric data (szomszor et al., 2021). in traditional bibliometrics, researchers are at the point of confrontations of the following activities that have become part of academic life (figure 1a): researchers face pressure to publish their work (the so-called “publish or perish” practice is a reality – grimes et al., 2018); their publications pass academic evaluation through the number of acquired citations; all previously mentioned forces expressed quantification of research results. these imposed activities create constraints for researchers. figure 1b shows the position of a researcher in measuring alternative metrics. as papers are available in the digital form today, their distribution, and therefore usage, go online. this opportunity allows daily tracking of public attention and alternative metrics – known under the umbrella term ‘altmetrics’ (haustein, 2016; tunger et al., 2018). researchers are encouraged to post their results on academic networks (e.g., orcid, publons, researchgate, etc.) to make them more visible. numerous social media platforms enable their users to share papers, comment on them, and discuss them. however, the potential benefits of new metrics (i.e., altmetrics) and their relationship with citations are not clear (barthel et al., 2015; costas et al., 2015). figure 1: position of a researcher: 1a. traditional metrics; 1b. alternative metrics the task of this research is to determine relations between citations and altmetrics in the literature of emerging markets: • can alternative metrics successfully predict article citations? the potential possibility of evaluating research projects based on altmetric indicators is significant for early-stage projects that do not yet have a chance to validate results through the academic community’s citations. • do scientific and public attention converge in terms of overlapping top-ranked articles/journals? the answer provides an insight into the possibilities of scientists and the crowd to jointly initiate changes to achieve sustainable development in emerging economies. after introducing concepts of traditional bibliometrics and altmetrics (section 2), the paper describes the research method conducted to determine if there is a statistically significant correlation between traditional and non-traditional metrics in relevant articles on emerging markets (section 3). according to both metrics, section 4 contains obtained results – correlations and percentages of overlapping top articles/journals. the obtained results are discussed compared to other similar studies (section 5), while the conclusion is in section 6. 2. traditional bibliometrics and altmetrics prior to introducing the research papers’ metrics, we first need to formulate the related terminology and criteria consistently. issues persist when distinguishing the following terms in the literature: outcome, output, impact, and effects of research papers (bornmann & haunschild, 2019). figure 2 defines these terms as well the whole process from the outcome to effects. 2 zorica dodevska forthcoming figure 2: measuring what? outcome, output, impact, and effects of research papers (according to bornmann & haunschild, 2019) as an established measure of academic impact, citations only partially reflect research quality through the impact (martin & irvine, 1983; bornmann & haunschild, 2019) and relevance (aksnes et al., 2019) in the scientific community, while they do not cover research importance and correctness. besides, the connection between societal impact and the quality of research is less clear. therefore, measuring the quality of research papers is an additional problem. 2.1 traditional bibliometrics traditional bibliometrics focuses on citation-based metrics for ranking journals by their 2-years impact factor (if). other bibliometric indicators are also in use, such as 5-year if, immediacy index, article influence score, source normalised impact per paper (snip), and scimago journal rank (sjr) (subochev et al., 2018). further, there is the h-index for ranking scientists/researchers/academics and other author-based metrics (da silva & dobránszki, 2018). ranking academic institutions, such as universities (johnes, 2018), is conventional, for which highly cited researchers are one of the indicators for academic ranking (liu & cheng, 2005). traditional bibliometrics has established usage and recognised advantages. for example, according to karanatsiou et al. (2017), it shows the actual impact and has a strong theoretical background. however, there are also some shortcomings: • citation-based indicators reflect academic impact while funding agencies are interested in more extensive types of effects (for example, patent metrics) – thelwall et al. (2016). • traditional bibliometrics imply long-time citation accumulation and, therefore, several years for evaluation (priem & hemminger, 2010; thelwall et al., 2016). • there are biases in different aspects of selfand team-citation (ioannidis, 2015) and the need for fair ranking schemes for multi-author publications (vavryčuk, 2018). • there are dependencies from citation databases (e.g., wos, google scholar, scopus, microsoft academic) that may provide different coverage via citations (martín-martín et al., 2020) and different results (i.e., number of citations) for the same publication. this paper uses the wos database for measuring citations, as many other studies (for example, fang et al., 2020; hou et al., 2020; heydari et al., 2019; banshal et al., 2018). verily, wos is one of the prime scientific citation searches and platforms with a long tradition (li et al., 2018). • it is questionable whether highly cited papers guarantee remarkable scientific contributions, as we tend to expect. citation behaviour can also be motivated by non-scientific reasons (bornmann & daniel, 2008). moreover, papers can have high citation scores on account of criticism or useful reviews instead of state-of-the-art research (thelwall et al., 2016). • there are systematic biases in the sense of differing citation norms for different fields, so it is advisable to compare only articles from the same area (and preferably the same year) if normalisation is not an option (thelwall et al., 2016). • citations are related to subsequent research project evaluations, and they are not applicable in the project’s early phases. therefore, additional metrics are required. 2.2 altmetrics altmetrics are alternative metrics that, depending on a provider, count the number of mentions (e.g., policy sources, news, blogs), social media activities, captures from reference managers and social bookmarking, etc. altmetric providers can include data about citations (for example, altmetric.com provides ‘dimensions’ which do not contribute to the altmetric attention score, while plumx observes several citation databases and takes the maximum recorded value for the number of citations). each provider has some specifics. altmetric.com has defined weighting coefficients for each type of mention, as well as provides demographic data. plumx does not give a final score but tracks separate metrics by categories (also, it includes the ‘usage’ category). crossref event data (ced) collects events from a specific list of data sources. detailed information about these three providers’ differences by individual sources or separate metrics leads to con3 management: journal of sustainable business and management solutions in emerging economies forthcoming clusions that there is a seriously higher number of articles mentioned on twitter, according to altmetric.com, in comparison with ced and plumx (ortega, 2018). problems of heterogeneous sources, dependencies from a data provider, and the quality of provided altmetric data are notable (haustein, 2016). some authors express concerns about various research metrics without standardised measurement rules (e.g., buttlier & buder, 2017). altmetrics measure research impact per day, not per year (barnes, 2015), since altmetric providers collect data online in real-time and use automated algorithms to process them. instant feedback is an advantage in comparison with citations. altmetrics attract the general population’s attention (banshal et al., 2018) and record public reaction or research exposure (barnes, 2015). according to the present idea of collective intelligence (barnes, 2015), it is reasonable to assume that research people think necessary will draw much more attention. 3. research method the starting point for the research is the wos database. a search of the database on the topic “emerging markets” was carried out with the following filters, aiming at incorporating more relevant scientific literature: document type – articles; web of science index – social sciences citation index, science citation index expanded. obtained wos records exported on 11 november 2019 include articles from 1996 – 2019. during the next couple of weeks, the author eked out the base with additional data. the initial article database is expanded with altmetric data either from altmetric.com or plumx, gathering from detailed pages, using digital object identifier (doi) numbers. from 5192 initial records, the database was reduced to 3996 records (because of the elimination of articles without or with incorrect doi numbers and articles for which a publisher does not provide/display altmetric data on its pages). the number of articles by providers is the following: • altmetric.com – 2042 articles; • plumx – 1954 articles. table 1 shows the top 10 journals (of the total 650) by the number of articles/records in the database. they together make 26.62% of the total number of records. table 1: top 10 journals by the number of articles further analyses use the number of citations and numbers of unified altmetric data for each article. namely, data for each common indicator from both altmetric providers, altmetric.com and plumx, were unified in single columns. therefore, the study observes the following parameters for each article in the sample: • wos number of citations – the number of citations according to the wos database; • mentions – the sum of mentions by all recorded sources (figure 3 shows the sources). since the providers have different categories of mentions, here all individual mentions by all sources are summed up without previous weighting; • twitter – the number of social media interactions from twitter; • facebook – the number of social media interactions from facebook; • mendeley – the number of mendeley captures; • citeulike – the number of citeulike captures. 4 zorica dodevska forthcoming journal name number of articles percentage number of articles emerging markets finance and trade 195 4.88% emerging markets review 144 3.60% journal of international money and finance 138 3.45% journal of banking & finance 108 2.70% physica a-statistical mechanics and its applications 99 2.48% journal of business research 94 2.35% international business review 80 2.00% journal of international business studies 73 1.83% research in international business and finance 70 1.75% applied economics 63 1.58% total 1,064 26.62% 5 management: journal of sustainable business and management solutions in emerging economies forthcoming criterion n relationship between pearson correlation strength all records 3996 wos number of citations mendeley 0.467** moderate mentions 0.176** very weak citeulike 0.152** very weak wos number of citations 50 442 wos number of citations mendeley 0.562** moderate citeulike 0.203** weak figure 3: representation of mentions by sources for all articles the altmetric attention score, introduced by altmetric.com, which weights mention sources and social media sources, is not used in analyses because of the inability to compare with plumx, which does not use weighting. 4. results table 2 shows only statistically significant results for two criteria: all records and, conditionally speaking, only highly cited articles in the sample with the number of citations higher or equal to 501. there are moderate correlations between the wos number of citations and mendeley in both criteria (in the latter criterion, it is more significant than in the former). other captured correlations are very weak (between wos number of citations and mentions/citeulike) for the former criterion and weak (between wos number of citations and citeulike) for the latter criterion. table 2 does not include correlations that are not statistically significant in this research, i.e., between wos number of citations and twitter/facebook for the former criterion, and between wos number of citations and mentions/twitter/facebook for the latter criterion (i.e., selected articles). table 2: correlations between wos number of citations and some altmetric indicators **. correlation is significant at the 0.01 level (2-tailed). other results show a weak correlation between twitter and mendeley for all records (it equals 0.204) and a moderate correlation between twitter and mentions for selected articles (it equals 0.439). the relationship between mendeley and citeulike is very week, and it equals 0.112/0.160 for the former/latter criterion, respectively. 1 wos number of citations ≥ 50 is also used in other fields – e.g., for quantitative analyses in disability-related fields (ahmed et al., 2016). similarly, several hydrology journals have approximately 10% highly cited articles with citations more numerous than 50 for ten years of observation (clark & hanson, 2017). in this paper, the percentage is similar – it equals 11.06% for citations ≥ 50. 6 zorica dodevska forthcoming table 3 shows the top 10 journals’ overlapping by the sum of wos number of citations and the top 10 journals by cumulative altmetric indicator – the sum of mentions, twitter, and facebook, without mendeley and citeulike2. there are three journals (shaded in table 3) that overlap in both categories, while the top 100 journals show 56% of the same overlapping. table 3 : overlapping of top 10 journals * top 10 journal on the basis of the number of articles in the database regarding the overlapping of individual articles, only two articles overlap between the top 100 according to the number of citations and the top 100 according to the cumulative altmetric indicator. shows the dependence of the overlapping of articles on a top selected part of the sample (the overlap for all records equals 100%). figure 4: dependence of overlapping of articles on a top selected part of the sample 2 mendeley and citeulike do not participate in the cumulative altmetric indicator in this paper in the same way as they do not participate in the altmetric attention score. the difference is that the weighting of individual altmetric indicators is not done here as it is done by altmetric.com to encompass the data from plumx, where no weighting is used. top 10 journals by citations top 10 journals by cumulative altmetric indicator journal name wos number of citations journal name (mentions + twitter + facebook) journal of financial economics 7683 emerging markets review* 1029 journal of finance 4977 journal of international financial markets institutions & money 572 journal of international business studies* 4316 research in international business and finance 419 journal of banking & finance* 4029 journal of world business 406 strategic management journal 3821 journal of business research* 397 journal of international economics 3574 international review of financial analysis 386 journal of international money and finance* 3450 journal of international money and finance* 342 review of financial studies 3078 journal of international economics 305 physica a-statistical mechanics and its applications* 2266 bulletin of indonesian economic studies 282 journal of world business 2113 geoforum 233 5. discussion policy sources are the most representative mentions in the research field about emerging markets, followed by news, blogs, wikipedia, and patents. this result suggests that the topic matches the five most weighted sources listed according to altmetric.com (2021). in comparison with the result of less than 0.5% of the wos indexed papers belonging to different wos subject categories mentioned in policy sources (i.e., policy-related documents) at least once (haunschild & bornmann, 2017), this percent is higher in this study. it equals 3.35% in the field of emerging markets. the obtained results do not show statistically significant correlations between the wos number of citations and the altmetric indicators in general. this especially goes for social media sources (facebook and twitter). mentions and citeulike show very weak correlations with the wos number of citations, while only mendeley shows a moderate correlation (0.467). in observing only selected papers (with at least 50 citations), correlation with mendeley is moderate (0.562) while it is weak with citeulike. therefore, it is not advisable to use altmetrics as non-traditional metrics to predict citations. altmetrics are an imperfect tool in the sense of foretelling future citations (barnes, 2015). also, costas et al. (2015) conclude that “altmetrics do not reflect the same concept of impact as citations” (p. 2003). altmetrics rather give evidence about the public interest or attention (tahamtan & bornmann, 2020). the positive result in mendeley’s case is not accidental – mendeley reader counts for journal articles represent their useful early impact indicators (thelwall, 2018). bornmann and haunschild (2018a) point out that “citation-based metrics and readership counts are significantly more related to quality, than tweets” (p. 1/12). tweets do not show a positive result in this study, although there is a claim that those collected in the first three days after article publishing can predict highly cited articles (eysenbach, 2011). the top 100 articles, according to the wos number of citations and the cumulative altmetric indicator, show minimal overlapping of only two articles (2%). similar disjoint results are provided by banshal et al. (2018), who have compared the top 100 altmetric 2016 papers and the top 100 wos citation papers – only 12 articles overlap. it should be remembered that 48% of the top 100 altmetric 2016 papers come from medical literature, while this paper deals with different research field. the percentage of overlapping top-ranked journals according to the wos number of citations and the cumulative altmetric indicator in this paper is higher – it equals 30% (in the top 10) and 56% (in the top 100). 7 management: journal of sustainable business and management solutions in emerging economies forthcoming conclusion the paper presents an original and expanded bibliometrics study conducted in a specific field, i.e., emerging markets. it includes relevant scientific articles and data from three sources: one citation database and two altmetric providers. the general conclusion is that the role of altmetrics is not to predict citations. therefore, altmetrics are not a reliable indicator for the early evaluation of research projects in this field. besides, scientific and public preferences do not converge in the topranked articles on emerging markets, while their interests in observing top journals are better matched. generally, the academic impact is closer to the quality of publications than the societal impact if we represent them through altmetrics, i.e., ”the relationship of altmetrics and quality is not as strong as the relationship between citations and quality” (bornmann & haunschild, 2018b, p.1010). furthermore, altmetric potentials are in linking research literature and actions in the society. still, altmetrics may capture some different aspects of societal impact, the so-called “unknown attention” (bornmann et al., 2019). the positive correlation of citations and academic readers (such as mendeley) is not surprising because researchers who write articles use them. simultaneously, the subject of societal mentions is not restricted to only scientific literature (and not only directly). unofficial contents rather come into sight of the wider population, which is not inclined to reference. altmetrics and citations are rather more complementary than similar measures, so it is correct that altimetric providers show both data on their pages, providing a complete picture of scientific and public attention, which does not overlap. the different natures of these metrics also imply their different usage. in the context of funding research projects, it is not advisable to use altmetrics for their evaluation. altmetrics may have different roles that need to be investigated in the future, for example, in crowdfunding (morell et al., 2020). as one way of alternative funding in emerging markets, this activity is rising (cumming & zhang, 2016). it relies on attracting public attention for research work since funders are interested in a “broader impact” (altmetric youtube channel, 2015). in general, activities that would unite the scientific and ‘non-scientific’ efforts and knowledge are desirable and necessary for the further growth of emerging markets (e.g., in the domain of open innovations – kafouros & forsans, 2012). other situations may include overcoming ongoing crises (e.g., consequences of covid-19 on emerging markets, discussed by arellano et al., 2020; uddin et al., 2020; topcu & gulal, 2020; etc.). references [1] ahmed, a., adam, m., ghafar, n. a., muhammad, m., & ebrahim, n. a. 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(2016). alternative investments in emerging markets: a review and new trends. emerging markets review, 29, 1-23. doi: 10.1016/j.ememar.2016.08.022 8 zorica dodevska forthcoming one limitation of this study is the representation of many zeros in the data, without using any approach to overcome this data flaw. one such technique is, for example, the mantel-haenszel quotient indicator (bornmann & haunschild, 2018b). other limitations include work with altmetric data that can change daily and the existence of ‘unequal’ metrics among used providers. the relationship between studied metrics and preprint publishing is one of the possible research directions for future research. acknowledgment this research study has been supported by the research grants no. 451-03-9/2021-14/200066 of the serbian ministry of education, science and technological development, related to research and development institute lola. [19] da silva, j. a. t., & dobránszki, j. 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(2021). interpreting bibliometric data. frontiers in research metrics and analytics, 5, 30. doi: 10.3389/frma.2020.628703 9 management: journal of sustainable business and management solutions in emerging economies forthcoming 10 zorica dodevska forthcoming [43] tahamtan, i., & bornmann, l. (2020). altmetrics and societal impact measurements: match or mismatch? a literature review. el profesional de la información (epi), 29(1). doi: 10.3145/epi.2020.ene.02 [44] thelwall, m. (2018). early mendeley readers correlate with later citation counts. scientometrics, 115(3), 1231-1240. doi: 10.1007/s11192-018-2715-9 [45] thelwall, m., kousha, k., dinsmore, a., & dolby, k. (2016). alternative metric indicators for funding scheme evaluations. aslib journal of information management. 68(1), 2–18. doi: 0.1108/ajim-09-20150146 [46] topcu, m., & gulal, o. s. 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(2017). from development to brics: the policy magical mystery tour. in r. westra (ed.), the political economy of emerging markets: varieties of brics in the age of global crises and austerity (pp. 3-31). routledge: taylor & francis group. received: 2020-01-27 revision requested: 2020-06-01 revised: 2021-03-08 (3 revisions) accepted: 2021-05-23 zorica dodevska institute for artificial intelligence research and development of serbia, novi sad, serbia zorica.dodevska@ivi.ac.rs zorica dodevska is a research assistant at the institute for artificial intelligence research and development of serbia, novi sad. while working at the research and development institute lola, belgrade, she wrote this paper. she is a doctoral candidate at the faculty of organizational sciences, university of belgrade. zorica’s narrow scientific field is modelling business systems and business decision making. her research interests include fair ranking, multi-criteria decision making, quantitative models, 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 4 27_1 isidora milosevic:tipska.qxd 31 isidora milošević1, ana rakić2, sanela arsić1, anđelka stojanović1, ivica nikolić1, predrag đorđević1 1university of belgrade, technical faculty in bor, serbia 2university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(1) * corresponding author: ana rakić, e-mail: ana.trajkovic@fon.bg.ac.rs research question: the aim of the study is to examine the inclination of engineering students in serbia to adopt mlearning. motivation: mobile technologies provide new solutions in the current concept of learning. students today have a new approach to learning since they live in the era of digital technology. the use of mobile technology in higher education came along with the technological enlightenment of professors and students, eradicating geographical boundaries and enabling cooperative learning. idea: mobile learning (m-learning) is unthinkable without the use of mobile devices and it plays an increasingly important role in the development of teaching methods in higher education. the research refers to the analysis and assessment of m-learning in higher education with the aim to identify problems and weaknesses related to the application of m-learning in order to set alternatives and criteria for the proposed model. data: the survey was conducted through a questionnaire, and 341 correctly filled out questionnaires were collected. the obtained data were processed by the visual promethee software package. tools: the research methodology was based on the multi-criteria decision analysis (mcda) method which was used in the form of promethee ii/gaia technique. in order to rank the student programmes from different study areas, groups of questions were used as criteria, and study programmes were used as alternatives. findings: the acquired results indicated that m-learning was mostly used by the students of engineering management, since they frequently used mobile technology in certain required courses, as well as for obligatory business practice. it was also concluded that the study programme metallurgical engineering had the lowest performance concerning the implementation of m-learning among all other observed study programmes. contribution: the conclusions of this study can add to the awareness-raising of the higher education institutions' interested parties and alert them to improve the quality of m-education by pointing out that there are differences in the adoption of m-learning depending on the type of engineering sciences. keywords: m-learning, ranking, students programs, engineering sciences, mcda jel classification: i23 model for considering the propensity of students to accept m-learning doi: 10.7595/management.fon.2020.0021 abstract: 1. introduction modern technologies and globalization bring rapid changes to all aspects of human life (alioon & delialioglu, 2015). according to the research of bower et al. (2010) in which the possibilities of new technologies through the application of mobile devices were described as "creating a new kind of reality, in which physical and digital environments, media and interactions are woven together throughout our daily lives", the concept of socialization increasingly gained new dimensions in transformation of lifestyle and habits of citizens. a daily creation of new information and a general tempo of development of society continuously require the improvement and endorsement of new knowledge and skills. therefore, there is a constant need for faster, timely information that is readily available at all times (wen-hsiung et al., 2012; milosevic et al., 2015). advances in technology, such as wide availability of wi-fi, bluetooth, wireless lan, and global wireless technologies such as gsm, gprs, 3g, lte, and gps provide opportunities for a new way of learning to users around the world. in addition, the expansion of the use of information technology, computers, tablets, and smartphones has raised educational opportunities and opened the way for a new approach to learning known as m-learning. the high availability of information technologies and the ease and comfort of their use have significantly transformed the everyday life of people around the world and created new social habits and even their approach to learning. this rapid technological revolution provides a different mobile approach to learning for today's students who grow up in the digital age (sarrab, 2015). m-learning can be defined as the ability to use a mobile device to support the process of teaching and learning (masrom et al., 2016) and it is considered a new platform for distance learning. electronic learning by mobile devices is described as learning anytime, anywhere (uhlig et al., 2005), where m-learning is considered to be a natural evolution of e-learning with efficient communication consisting of powerful and personalized mechanisms (moreira et al., 2017). mobile technology can be seen as a paradigm in which the mode of education is generally changing. this is also significantly reflecting on higher education (moreira et al., 2017, bond et al., 2020), in which this concept of learning is widely used today as a learning aid (koruc & alkan, 2011; chang et al., 2016), where students only need a mobile device and a wireless network. the motive for examining mobile learning in different contexts and different target groups is explained in the research of duru, peker, and akcakýn (2010). in this study, the student's positive attitudes towards using computers in learning mathematics were confirmed. accordingly, in their study, shin et al. (2011) investigated the effect of game technology on learning mathematics, where students who played technology-based arithmetic games outperformed students who played paper-based arithmetic games, which showed the positive effects of using information and communication technologies. similarly, the research of briz-ponce, pereira, carvalho, juanes-mendez, and garcia-penalvoa (2017) was based on the model of accepting and using mobile technology among medical science students, with the model pointing to a pattern of behaviour based on experience and ease of perception of the performance through its application. based on the review of the relevant literature sources, the issues regarding implementation of m-learning in technical sciences, which requires extensive experimental work both in laboratories and in the field, have not been adequately researched. the aim of this paper is to examine the application of m-learning among students of four different academic disciplines of engineering sciences and thereby to carry out the ranking of individual study programmes based on the observed criteria. 2. literature review there have been some expected and rapid changes in the concept of learning, especially in higher education institutions, over the past ten years. the use of m-learning is increasingly prevalent (milosevic et al., 2015) and internet and mobile computing devices have increased educational opportunities. this rapid evolution is complemented by generations of students born in the era of digital technology, which leads to a significantly different approach to learning. many authors have recognized the benefits of m-learning, such as o'malley et al. (2005) who stated that this type of learning increased the flexibility of transferring responses, as well as the feeling of freedom of movement among students. through m-learning, the students remained connected with the student environment, although they did not have to be physically present at all times (yi et al., 2009). also, the good side of this type of support to the traditional way of learning could be recognized in the increased motivation of students, better co-ordination of team activities, faster responsiveness in providing answers, as well as in the increased level of communication on relation student student and student professor (katic et al., 2017). the expansion of the use of mobile phones and tablets also has an impact on changes in learning and knowledge management, which can be seen from an increasing number of researcher papers on this topic over the past few years (table 1). little (2013) pointed out that due to the development of mobile technology, there was an increased use of mobile devices for educational purposes (little, 2013). however, ozdamli & cavus (2011) suggested it could be very useful to enrich standard learning methods with additional online activities beyond the classroom (ozdamli & cavus, 2011). ramble and bere (2013) concluded that the use of mobile technologies resulted in increased participation of students in creative pedagogical activities. table 1 presents the literature review of the concept of m-learning in higher education. 32 isidora milošević, ana rakić, sanela arsić, anđelka stojanović, ivica nikolić, predrag đorđević 2022/27(1) table 1: literature review of the concept of m-learning in higher education 33 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) year author(s) brief description 2017 moreira, f., pereira, c. s., durão, n., ferreira, m.j. this paper examined the perception of professors who work in higher education and use m-learning in portugal and spain, analyzing their needs and identifying how they could be used to advance students' engagement inside and outside of the classroom. most professors, who were included in this research, suggested that they could effectively incorporate m-learning into the classroom without additional training. 2017 hamidi, h., chavoshi., a. this study analyzed factors that affected the students' acceptance and use of mobile systems in iran, such as ease of use factor, usefulness factor, trust factor, features, and personal characters of students. the results indicated that the context of application and usefulness had a significant positive effect on the ease of use factor, and trust had a positive and significant effect on the behavioural intention factor as well. 2017 briz-ponce, l., pereira, a., carvalho, l., juanesméndez, j.a., garcíapeñalvoa, f.j this research examined the different factors and drivers that had an influence on students' behaviour into the usage of mobile technologies for learning. findings indicated that the students' ease of perception was the main factor affecting the social influence, and the reliability for recommending this technology for learning was the main factor that affected the behavioural intention. 2016 chang, y-s., chien, y-h., yu, k-c., lin, h-c., chen, m.y-c. this study analyzed how cloud-based m-learning affected students' perceptions of creative performance and innovative environments. the results of the research indicated that there was a positive connection between perceptions of innovative environments and creative performance. moreover, m-learning based on the cloud had significant effect on overall perceptions of innovative environments based on features such as motivation from the head, team support, and enough resources. also, the results of the research indicated that m-learning based on the cloud had positive effects on students' overall creative products, their novelty, and usefulness. 2015 alioon, y., delialioglu, o. the aim of the paper was to find out and highlight the main aspects that had considerable impact on m-learning and to make a frame that could enable scientific researchers to better understand mlearning projects and studies. frequently considered issues in investigating m-learning projects for choosing instructional methods were similar and focused on m-learning in terms of engagement of students. the results indicated that game-based learning and inquiry were commonly used instructional methods in m-learning projects and smartphones were the most frequently used devices. 2015 garcia-cabot, a., demarcos, l., garcia-lopez, e. this paper considered the performance of learning and attitude of graduate students when they used an adaptive mobile system that tailored learning contents to their skills, their device, and current context. results indicated that mobile adaptation had a limited impact on learning performance of practical skills when compared to an e-learning approach. within the same study information about the context of the use of the mobile system was also collected and compared with traditional computer accesses, and it indicated that students learned in a similar context independently of the way that they used to access learning contents. 2016 sabah, n.m. this research analyzed students' awareness and perceptions of mlearning and examined the factors affecting students' behavioural intention to adopt m-learning in palestine. the obtained results showed that perceived usefulness and perceived ease of use were primary factors driving students' intentions to use m-learning. furthermore, m-learning services and social influence had positive effects on the acceptance of m-learning. generally, this study indicated that students had a positive attitude and potential to integrate mobile technology into their educational system. in many studies students are in the focus when analyzing intention to use and implement m-learning for educational purposes (hamidi & chavoshi, 2017; briz-ponce et al., 2017; chang et al., 2016). based on the analysis of the state of the art of m-learning it can be concluded that all analyzed scientific papers mainly focused on testing hypotheses based on sem methodology and analyzed various aspects of using mlearning in the process. the crucial difference between current studies and this research is the application of promethe/gaia multi-criteria decision method (mcdm), which is based on ranking more alternatives according to different criteria at the same time. the scientific contribution of this paper is reflected in the application of mcdm methodology in order to perform the ranking of the study programmes in engineering sciences, in regard to the adaptation and implementation of m-learning. 3. performance criteria and research model numerous efforts and attempts to develop a universal research model in the field of m-learning have not offered an adequate theoretical solution. in this study the proposed theoretical model uses the following criteria for the ranking of the study programmes: performance expectancy, effort expectancy, lecturer’s influence, quality of service, personal innovativeness, and intention of behaviour. 3.1 performance expectancy (c1) m-learning performance expectancy criterion evaluates the usefulness of m-learning as the opportunity for quick access to information, anytime and anywhere, for further knowledge acquisition (milosevic et al., 2015). 3.2 effort expectancy (c2) the expected students' effort to use m-learning refers to the assessment of ease of use, which is reflected in the easy and quick acceptance of the application and does not require much effort (gao et al., 2011; hamidi & chavoshi, 2017). 34 isidora milošević, ana rakić, sanela arsić, anđelka stojanović, ivica nikolić, predrag đorđević 2022/27(1) year author(s) brief description 2015 khan, a.i., al-shihi, h., alkhanjari, z.a., sarrab, m. the aim of this paper was to help the creators of education in developing countries (middle eastern countries) overcome the challenges of m-learning following the practice of developed countries. based on the experience of using m-learning in the educational system of advanced countries, the authors indicated that the full realization of the potentials of mobile devices in the educational process was a complex and multi-dimensional process, consisting of both financial and non-financial investments (that involved educational, economic, social, cultural, and technical aspects, institutional willingness, and teaching ability). 2015 mohammadi, h. the purpose of this paper was to examine the proposed constructs in the context of m-learning in iran based on an integrated model of the technology acceptance model and expectation confirmation theory. the results showed that intention and user satisfaction predicted the actual use of m-learning between the students. moreover, the perceived image and subjective norm were found to be the most important antecedents of user intention towards the use of m-learning. 2015 milosevic, i., zivkovic, d., manasijevic, d., nikolic, i. the aim of this paper was to investigate the use of mobile devices for m-learning among students in serbia using sem methodology. the results indicated that the expected performance and personal innovative capabilities had the most significant influence on the intended behaviour of students during the use of m-learning. 3.3 lecturer’s influence (c3) the use of mobile devices in education, and especially in higher education institutions, depends primarily on the professor's attitude towards new technologies. therefore, the role of the professor in spreading this concept is very important. frequent use of mobile devices does not mean that professors and students are ready for m-learning. according to ozdamli and uzunboy (2015), it was not enough to integrate technology into education without proper use because the technology itself did nothing to improve pedagogy and increase the level of knowledge transfer. however, the influence of professors in the use of technology in teaching influenced students' motivation to apply innovations (koc, 2013), thus encouraging students to adapt more easily to the use of new technologies for the purpose of learning. 3.4 quality of service (c4) the quality of m-learning services is based on the benefits of information technology which are primarily manifested in the use of the internet and multimedia systems, thus facilitating access to resources (hao et al., 2017) and improving information search speed and speed of information acquisition. 3.5 personal innovativeness (c5) personal innovativeness can be used in a technological context for the adoption and use of new devices, where desire, need, and personal perception play an important role in adaptation of technology (milosevic et al., 2015). 3.6 intention of behaviour (c6) the intention of behaviour factor refers to the individual desires of those who make effort in a particular way, which is based on personal characteristics, ease of use, and factors of confidence (hamidi & chavoshi, 2017). however, when it comes to mobile technologies from the students’ point of view there are limitations due to unsuccessful and unsafe internet connection, limited memory and battery capacity, difficult navigation and download from mobile devices, especially smartphones. these constraints can cause negative intent of behaviour thus creating student's resistance to the use of m-learning (sabah, 2016; moreira et al., 2017). by considering the criteria, a universal research model is defined, consisting of three parts: problem identification and data collection, construction of a multicriteria model and, finally, analysis of the results, as shown in figure 1. figure 1: universal research model applied on mlearning 35 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) 4. methodology 4.1 questionnaire the first part of the research refers to the diagnosis and assessment of m-learning in a higher education institution with the aim to identify problems and shortcomings related to the use of m-learning in order to define alternatives and criteria for the proposed model. based on the data collected through the questionnaire (ahmad & love, 2013), a relevant research base was created, which was completed at the technical faculty in bor, university of belgrade, serbia, in 2017. the technical faculty in bor (tfb) is part of the university of belgrade (ub), which is, according to the shanghai list, ranked among the top 500 universities in the world, which implies a high quality of teaching and scientific work (zivkovic et al., 2017). the tfb teaches a group of technology and engineering sciences, and today it has four study programmes: mining engineering, metallurgical engineering, chemical engineering, and engineering management, with a total number of about 1400 students. the research was carried out among students of the four mentioned study programs, which represented the alternatives of the defined model. the survey was conducted through a questionnaire, where 341 correctly filled out questionnaires were collected. the survey was anonymous, and the obtained data were processed by the visual promethee software package. data processing in this software package was based on the application of the multicriteria decision-making tool, that is, the application of the promethee/gaia methodology which enabled adequate ranking of analyzed study programmes based on predefined criteria. the criteria were defined on the basis of the six dimensions from the questionnaire (ahmad & love, 2013) used for the application of m-learning in higher education. these criteria belonged to a group of unidimensional factors which were comprised of the following criteria: performance expectancy, effort expectancy, lecturer’s influence, quality of service, personal innovativeness, and intention of behaviour. all criteria were qualitative and the way of choosing questions represented a structured and logical approach to assessing the importance of preferences through likert five-point scale in order to quantify the subjective opinion of the respondents and establish a link between alternatives and criteria. the method was simple and easy to understand, leading to high research efficiency. 4.2 promethee gaia method promethee and gaia belong to a group of multi-criteria methods for decision making. the preference ranking organization method for enrichment evaluations method includes several unique tools developed in the 1960s by brans (brans, 1982) and since then it has improved in terms of methodology and numerous software packages for its thorough application have been developed (brans et al.,1986; brans & mareschal, 1994). the promethee method is complemented by gaia, which represents a graphical presentation of the obtained ranking (mareschal & brans, 1988). a visual representation of a multi-criteria problem enables a better understanding of the possible choices and necessary compromises in order to obtain the best solution. the promethee and gaia methods have been widely used in scientific research since their occurrence in the fields of business planning, energy, occupational safety, education, information technology, etc. (brans, 2002; chen et al., 2011; milijic et al., 2014; kilic et al., 2015), hence, the precondition for using this methodology in this type of research has been fulfilled. based on the review of the relevant literature, it was found that the promethee/gaia method has not been applied in the field of m-learning so far. this paper proposes the approach to ranking of certain study programmes based on the promethee method which is considered as one of the most important methods for multi-criteria decision-making based on the outranking approach. the first phase in the application of the method is the definition of the structure of preferences where, through generalized functions, the divergence among evaluations is taken into account. then, in the second phase, the outranking relations among compared alternatives are established and these relations represent the dominance of one alternative over the others, where all the criteria are taken into account. the third phase refers to the conclusion of the range of alternatives where promethee ii provides the overall ranking of alternatives (brans & mareschal, 1994). the implementation of the promethee/gaia method used in this study consists of the following steps (zivkovic et al., 2017): step 1: creating the decision table. the issue of ranking by multi-criteria assessment involves a set of criteria (c) and a set of possible alternatives (a) based on which the decision-making table is created. additional information which is necessary for ranking the alternatives is information concerning the relationship among criteria and these represent the weight or relative significance of each criterion (wj). 36 isidora milošević, ana rakić, sanela arsić, anđelka stojanović, ivica nikolić, predrag đorđević 2022/27(1) step 2: assigning the preference function to each criterion. the second group of needed information relates to the preference function pj (a, b). the function of preference represents the difference between the estimated values a and b according to the criterion to which the given function relates to (brans, 2002). the degree of preference represents the growing function of deviation, and if the deviation is small, it represents a low preference of the alternative a in relation to b, while if the deviation is large it represents a strong preference of the observed alternative a in relation to b. there are 6 specific forms of preference functions: usual shape, u-shape function, v-shape function, level function, linear function, and gaussian function (brans & de smet, 2016) which enable an easy information acquisition for further use of the promethee/gaia method. step 3: calculating the preference index π (a, b), based on the weights of the criteria (1) step 4: calculating outranking flows for each alternative. the promethee ii method determines the positive (φ+) and negative (φ-) flows for each alternative. a positive flow of preference expresses the extent of dominance of one particular alternative over the other alternatives, while the negative flow of preference expresses the extent to which a particular alternative is preferred by other alternatives: (2) (3) where n is the number of alternatives. the promethee ii method enables the overall ranking of alternatives by calculating the net flow (φ) which represents the difference between the positive and the negative flow preferences (nikolic et al., 2009). (4) 4.3 data analysis and results the criteria used in this paper by applying the multi-criteria decision method were maximized (table 2) and defined on the basis of the nature of the specific criteria which were thoroughly described in the preceding text. in a previous paper on this topic (milosevic et al., 2015), the authors confirmed the validity of the measurement scale of each selected criterion using exploratory and confirmatory factor analysis. therefore, each criterion in this paper had a value obtained by calculating the mean value of the respondents' answers to all questions that determine the given criterion. the results of those calculations are given in table 2. the preference function of type 1usual was used, which was the most acceptable for qualitative criteria based on the assessments from a survey and possible values were low (mareschal, 2018; podvezko & podviezko, 2010; abdullah et al., 2019). usual preference function did not have thresholds and each difference among alternatives, according to a given criterion, higher than 0 produced absolute preference. table 2: initial data for the promethee mcda technique 37 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) performance expectancy (c1) effort expectancy (c2) lecturer’ influence (c3) quality of service (c4) personal innovativeness (c5) intention of behaviour (c6) weights 16.67 16.67 16.67 16.67 16.67 16.67 max/min max max max max max max preference function usual usual usual usual usual usual engineering management (a1) 3.2985 3.7887 3.5476 3.5482 3.5630 3.8257 mining engineering (a2) 3.3840 3.7884 3.5128 3.4871 3.4871 3.7076 chemical engineering (a3) 3.2666 3.7083 3.4074 3.6250 3.5648 3.4500 metallurgical engineering (a4) 3.2929 3.5681 2.8787 3.3636 3.5151 3.5454 the results of ranking obtained by using promethee ii methodology are shown in table 3 and figure 2. table 3: results of the complete ranking of study programmes by using the promethee ii method figure 2: promethee ii results of the complete ranking the gaia plane shown in figure 3, represents a visual presentation of the performed ranking, which shows the comparison of all alternatives according to each criterion. the criteria presented with squares in the gaia plane (figure 3) indicated that there were no significant conflicts between the criteria since they were not leaning in opposite directions. criteria placed closer to each other suggested that respondents equally valued both. in this case, the criteria with the most similar estimates were effort expectancy (c2) and lecturers’ influence (c3). the axis direction of the decision stick (pi stick), showed which criteria were the most responsible for the ranks obtained by the promethee method. the gaia plane indicated that the alternatives, presented with triangles, were diffused and did not make any clusters. the best-ranked alternative (engineering management) was the closest to the pi stick and its location pointed to the criteria in which alternative was mainly good. the percentage of data collection in the gaia plane, i.e., the reliability of the given graphic interpretation was quite high (δ: 95.57%), which was more than satisfactory according to brans & mareschal (1994) who regarded each value over 60% as acceptable. figure 3: gaia analysis 38 isidora milošević, ana rakić, sanela arsić, anđelka stojanović, ivica nikolić, predrag đorđević 2022/27(1) rank alternative phi+ phiphi 1 engineering management 0.8333 0.1667 0.6667 2 mining engineering 0.5556 0.4444 0.1111 3 chemical engineering 0.4444 0.5555 -0.1111 4 metallurgical engineering 0.1667 0.8333 -0.6667 in this paper, equal weight values were assigned to all criteria when conducting the ranking. however, the additionally analyzed results of the ranking changed due to the variation of the criteria weights, using stability intervals presented in table 4. the results of the sensitivity analysis represented the limits within which the weight of a particular criterion could be changed without changing the order of the ranked alternatives. changing the weight of criteria performance expectancy (c1), quality of service (c4), and personal innovativeness (c5) could change the position of the first-ranked alternative, while the remaining three criteria did not have that power. table 4: stability intervals 5. discussion the position of the alternatives in the gaia plane (figure 3) determines their strength or weakness in relation to the selected criteria. the results showed that the engineering management study programme exhibited the best performances given that this alternative was the closest to the axis of the criterion almost by all criteria, as indicated by the vector pi (the decision bar). the alternative which was the closest to the decisionmaking bar was considered to be the best and in this case it was the engineering management. on the other hand, the worst alternative was the one associated with the lowest scores according to all criteria and that had the opposite direction from the decision bar, which was the position of the alternative metallurgical engineering in this case. based on the observation of the criterion axes, the criteria of lectures influence, quality of services, and intentions of behaviour had higher influence than the remaining three criteria. it should also be pointed out that quality of the model could be deemed as satisfactory, as there were no pronounced conflicts among them. in other words, there were no two criteria that were positioned opposite each other in the gaia plane (figure 3). the obtained results showed that m-learning was mostly used by the students of engineering management, since they encountered mobile technology more frequently in certain required courses, as well as during the compulsory business practice. based on their position shown in the gaia plane (figure 3), criteria which influenced engineering management the most were lecturer’s influence and effort expectancy. the lecturer’s influence represented an important incentive for students to use new technologies for the purpose of learning and for helping them adapt to it more easily. effort expectancy referred to ease of use and self-efficacy in mastering technology, whereby students would be certain that the m-learning system satisfied their needs and values. this result was expected because the use of communication in teaching via mobile phones was the most common for this profile of students. modern business practices, about which students learned and strove for, could not be imagined without appropriate and modern telecommunication technologies. the second-ranked department, according to the results of the analysis, was mining engineering. the criteria which influenced this orientation the most were performance expectancy and intention of behaviour. expected performances in the context of m-learning showed that students of mining engineering could improve their productivity in learning which would be reflected, through intention of behaviour, on active experimentation in their practical work. the criteria personal innovativeness and quality of service, based on their position in the gaia plane (figure 3), had the most influence on the third-ranked study programme, chemical engineering. the way in which the service was provided to users of m-learning could significantly affect the level of acceptance of the new technology, therefore the quality of the service provided could be considered a key factor for initiating innovation among students. it was expected that students of this orientation had a greater degree of innovativeness due to the possibility of creating innovative solutions when the experiments were conducted. based on the obtained results, it was determined that the metallurgical engineering study programme delivered the poorest performance regarding the implementation m-learning among all other analyzed study programmes, since it was ranked as poorest on the basis of all the criteria and its position in the gaia plane was diametrically opposite to the decision-making bar. 39 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) criterion stability interval (c1) performance expectancy 0.062-0.545 (c2) effort expectancy 0.000 (c3) lecturers’ influence 0.000 (c4) quality of service 0.286-0.615 (c5) personal innovativeness 0.250-0.615 (c6) intention of behaviour 0.545 references [1] abdullah, l., chan, w., & afshari, a. (2019). application of promethee method for green supplier selection: a comparative result based on preference functions. journal of industrial engineering international 15, 271–285. doi:10.1007/s40092-018-0289-z [2] ahmad, a., & love, s. (2013). factors influencing students’ acceptance of m-learning: an investigation in higher education. the international review of research in open and distance learning, 14(5), 83–107. doi: 10.19173/irrodl.v14i5.1631 [3] alioon, y., & delialioglu, o. (2015). a frame for the literature on m-learning. 4th world conference on educational technology researches, wcetr-2014, procedia social and behavioral sciences, 182, 127-135. doi: 10.1016/j.sbspro.2015.04.747 40 isidora milošević, ana rakić, sanela arsić, anđelka stojanović, ivica nikolić, predrag đorđević 2022/27(1) informatization of a society is the ongoing process which is showing no indications of slowing down. accordingly, students are those who keep up with technological trends, and m-learning is no longer a choice but a necessity in a modern approach to learning. hence, mobile learning represents an implementation of digital technologies in order to contribute to, adjust, address, and aid learning in different situations, and it has confirmed its usefulness in the crisis period. the phenomenon of the new virus covid 19 which caused a pandemic around the world has affected the traditional education system. the higher education institutions all over the world were forced to respond to the challenge and ensure the desired level of quality of the teaching process in the online environment (rakic et al., 2020). therefore, it was necessary to make a rapid transition from traditional to online learning that further influenced the increased use of tools and devices needed for m-learning (naciri et al., 2020). in this paper, student perceptions were studied in four different study programmes (mining engineering, technology engineering, metallurgical engineering, and engineering management) at the technical faculty in bor, university of belgrade, serbia. on the basis of the applied methodology of multi-criteria decision making, the ranking was conducted using promethee/gaia methodology, based on which the conclusion was drawn that students of engineering management kept pace with the technology more than students from other study programmes because they were more willing to incorporate this modern approach to learning, as well as to experiment with new information technologies. in line with it, the students in portugal and spain inferred that it was fun to use interactive mobile devices in the classroom (moreira et al., 2017). students have been increasingly in favour of adopting m-learning for the advantages it brought them and its ease to use (little, 2013). the perceived understanding of users contributed to successful adoption of a system, such as the mlearning system, where the student would be able to better explore data mining algorithms and to acquire better understanding of the proposed algorithms (delibasic et al., 2013). when it comes to the students of the three remaining programs of study, communication via mobile devices in learning was less present as these students had more practical work in the field and in the laboratory. in addition, in the study carried out by milosevic et al. (2015) it was found that effort expectancy had the least influence on the intended behaviour of students because students considered that they needed to make additional efforts to master the skills of m-learning. these students were prone to hypothetical-deductive thinking and experimentation; they preferred to approach solving technical problems rather than engaging in social and interpersonal ones. although theoretical and practical aspects of teaching differ among these four study programmes, m-learning mechanisms can be used to overcome constraints in the traditional learning approach. m-learning should link formal educational practice (e.g., student activity during lectures, participation in workshops, experimental work) with informal situational learning practices (e.g., support for solving tasks by using mobile devices). this study has certain limitations, which are reflected primarily in the fact that data were collected only at one faculty in the field of engineering sciences. one of its primary goals is to represent a foundation for future research which will focus on a larger number of technical groups of study programmes, which will provide more representative results on both usefulness and application of m-learning. acknowledgments the research presented in this paper was done with the support of the ministry of education, science and technological development of the republic of serbia, within the funding of the scientific research work at the university of belgrade, technical faculty in bor, according to the contract with registration number 451-03-68/2020-14/ 200131. also, responsible for the english language in the paper is sandra vasković, english language teacher. conslusion [4] bond, m., buntins, k., bedenlier, s., zawacki-richter, o., & kerres, m. 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[47] zivkovic, z., nikolic, dj., savic, m., djordjevic, p., & mihajlovic,i., (2017). prioritizing strategic goals in higher education organizations by using a swot–promethee/gaia–gdss model, group decision and negotiation 26, 829–846. doi: 10.1007/s10726-017-9533-y received: 2020-06-15 revisions requested: 2020-07-19 revised: 2020-08-17 (2 revisions) accepted: 2020-09-30 42 isidora milošević, ana rakić, sanela arsić, anđelka stojanović, ivica nikolić, predrag đorđević 2022/27(1) 43 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) about the authors appendix: survey items used in the study (ahmad et al., 2013) performance expectancy (pe) pe1. i find m-learning useful for my studies. pe2. using m-learning would enable me to achieve learning tasks more quickly. pe3. using m-learning in my studying would not increase my learning productivity. pe4. mobile learning could improve my collaboration with classmates. effort expectancy (ee) ee1. i would find an m-learning system flexible and easy to use. ee2. learning to operate an m-learning system does not require much effort. ee3. my interaction with an m-learning system would be clear and understandable lecturers’ influence (li) li1. i would use m-learning if it was recommended to me by my lecturers. li2. i would like to use m-learning if my lecturers supported the use of it. quality of services (qos) qos1. it is important for m-learning services to increase the quality of learning. qos2. i would prefer m-learning services to be accurate and reliable. qos3. it is preferable that m-learning services are easy to navigate and download personal innovativeness (pinn) pinn1. i like to experiment with new information technologies. pinn2. when i hear about a new information technology, i look forward to examining it. behavioural intention (bi) bi1. i plan to use m-learning in my studies. bi2. i predict that i will use m-learning frequently. bi3. i will enjoy using m-learning systems. bi4. i would recommend others to use m-learning systems isidora milošević university of belgrade, technical faculty in bor, serbia imilosevic@tfbor.bg.ac.rs isidora milošević, phd, is an associate professor at the technical faculty in bor. her main research interests include strategic management, new technology and innovation, structural equation modelling, corporate social responsibility and marketing in small and medium-sized entreprises. she co-authored a number of research papers published in international scientific journals and has led several international research projects. ana rakić university of belgrade, faculty of organizational sciences, serbia ana.rakic@fon.bg.ac.rs ana rakić, phd, is an assistant professor at the university of belgrade, faculty of organizational sciences. her main research interests are quality management, standardization, metrology, accreditation, and certification. she is a co-author of many papers in international and national journals and conferences and a member of casco technical committee at the institute for standardization of serbia. sanela arsić university of belgrade, technical faculty in bor, serbia saarsic@tfbor.bg.ac.rs sanela arsić, phd, is an assistant professor at the technical faculty in bor, university of belgrade. she is the author and co-author of a number of papers in international and national journals and conferences on the following scientific areas: operational research, quality of management, corporate social responsibility, structural equation modelling. 44 isidora milošević, ana rakić, sanela arsić, anđelka stojanović, ivica nikolić, predrag đorđević 2022/27(1) anđelka stojanović university of belgrade, technical faculty in bor, serbia anstojanovic@tfbor.bg.ac.rs anđelka stojanović, phd student, is employed at the department of management, technical faculty in bor, university of belgrade as an assistant for subjects: decision making theory, theory reliability, production management. she is the author and coauthor of a numbet of papers in international and national journals and conferences. ivica nikolić university of belgrade, technical faculty in bor, serbia inikolic@tfbor.bg.ac.rs ivica nikolić, phd, is an assistant professor at the university of belgrade, technical faculty in bor, department of engineering management. he is the author and co-author of numerous papers in international and national journals and conferences on the following scientific areas: methods of linear and nonlinear statistical analysis, environmental management, modelling business and technology processes, new technology and innovation. predrag đorđević university of belgrade, technical faculty in bor, serbia pdjordjevic@tfbor.bg.ac.rs predrag đorđević, phd, is employed at the department of management, technical faculty in bor, university of belgrade as an associate professor for subjects: quality of management, advanced information technology. he is the author and co-author of a number of papers in 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice #1 27_1 snezana kirin:tipska.qxd 1 snežana kirin1, ivana vučetić1, nena a. vasojević1*, sandra kirin2 1university of belgrade, innovation center of the faculty of mechanical engineering, serbia 2pompeu fabra university's school of management, barcelona, spain management: journal of sustainable business and management solutions in emerging economies 2022/27(1) * corresponding author: nena vasojević, e-mail: nenavasojevic@hotmail.com research question: this article identifies the most prominent lean wastes in the education process in primary schools in serbia and the most efficient lean tools for their reduction. objective: lean management has been recognized as a valuable strategy suitable for application in various fields. its implementation in the field of education has shown a rather slow progress, and the serbian education system is not an exception. idea: the idea of the research was to investigate the possible outcomes of the lean management implementation in primary schools in serbia, and its possible benefits. data: for this purpose, a specialized questionnaire concerning lean wastes and lean tools was designed intended for class and subject teachers. tools: statistical data analyses were used to determine the relationships between variables, and the weighted scoring method was applied to identify the most represented lean wastes in the education process, as well as the prioritization of lean tools. findings: according to the results, the factor of the lean tools impact in regard to the lean wastes reduction was evaluated as “higher than 3” (on a scale of 1-5), which confirmed the efficiency of the considered lean tools in the lean wastes reduction. also, the significant differences between the public and the private education sectors in terms of the lean application are shown, especially regarding the type of curriculum present (national or international). contribution: the research has shown that lean management could be successfully applied in primary schools, in order to improve school organization and the teaching process flow, which highly contributes to the school's overall competitiveness. the guidelines for the lean management implementation are given as well as the recommendations to the creators of education policies. certain limitations should be taken into account, regarding the restricted number of schools involved and specific sample group. keywords: lean management, primary schools in serbia, lean wastes, lean tools, weighted scoring method jel classification: i21, c14 lean tools for improving the teaching process in serbia empirical research doi: 10.7595/management.fon.2020.0013 abstract: 1. introduction lean is a concept for productivity improvement. this approach deals with elimination or reduction of wastes from the production process, maximizing activities that add value to a product / service, from the user's perspective (dragomir & surugiu, 2012).the term lean means „thin“ or „slim“ (zvorc, 2013). the term wastes refers to the production process activities that do not contribute to the final value of the product (womack, jones, & roos, 1990). it was originally developed as an innovative manufacturing methodology in japan automobile industry in the 1950's (cecevic, 2016). in this manner, high quality products could be delivered on short notice and with minimal costs (danes, manfe & romano, 2018). the resources saved by the waste elimination could be reinvested in higher priority processes (radosevic, baosic & radicevic and etc., 2011). according to various studies, this allowes the level of the lean production increase to go up to 25% (kolberg, knobloch & zuhlke, 2017). adequatly trained employees and properly organized working environment contribute to the effectiveness of lean principle within the following model: human capital – production capital – working environment (kirin, vasojevic & vucetic, 2019). globally, different sectors strive to implement the best lean practices (parkes, 2015). recently, the lean approach has spread from the industry sector to public services, health care and education. these sectors imply systems similar to complex organization of the same scope production process (kadarova & demecko, 2016). education involves a continuous process flow, as well as the resources of time, cost and human capital, and the final value of the product – knowledge. as in a common production process, certain wastes could be snežana kirin, ivana vučetić, nena a. vasojević, sandra kirin 2022/27(1) 2 identified in the field of education as well. the aim of this study is to show that lean management could provide useful tools for creating better teaching and learning conditions. identification of the actions that do not contribute to the learning process quality, considering learning content, time and resources management, teaching methods and students’ motivation, and elimination of non-value-added administration, preparation, and searching issues, would provide students with better functional knowledge, required for students' qualifications (wang, 2011; maksimovic & osmanovic, 2018). this contributes to the main goal of learning which implies knowledge preservation, transmission and creative application (oyeniran et al., 2020). the main objective of lean implementation may be to increase the learning output for the students and teachers more time for learning, more time for teaching, increasing the quality of teaching by removing issues that are not strictly connected to learning (netland, 2015) as well as to create a better work environment (berner, 2014). 2. theoretical context the constantly increasing number of students has made the education system part of the mass production system of knowledge. in order to be sustainable in increasingly competitive markets the education sector needs new ways to attract students (sremcev et al., 2018). the state of affairs in the education sector is determined by numerous factors concerning socio-economic conditions (stamatovic & milosevic, 2017:9). nowadays, besides the increasing competition, educational institutions are facing the lack of public funding as well. the studies showed that the common driver for the lean management implementation in education was budget reduction (dragomir & surugiu, 2012). also, it is shown that in order to make an educational institution prominent and sustainable, it is necessary to introduce innovative schooling methods (santin & sicilia, 2018). improving the quality of education allows students to better their performance and increase the school's prominence. since the lean approach promotes the idea of ongoing research the benefits of the lean educational model are indefinitely sustainable (tilfarlioglu & karagucuk, 2019). this is in consent with the sustainable business model, which ludeke-freund defined as one that “creates competitive advantage through superior customer value and contributes to the sustainable development of the company and society” (small-warner, 2018). this value is cited as the received knowledge that a student can apply in future (sremcev et al., 2018).the lean educational model can create additional value raising the productivity degree on operational, administrative and strategic levels (vukadinovic, macuzic & djapan, 2017). it implies time and cost reductions and training for the employees (tilfarlioglu, 2017). contemporary theoretical studies showed the success of the lean principle implementation in various institutions and industries (radosevic, baosic, radicevic, ikonov & matic, 2011). according to the scopus database search results, lean management in education is a very popular topic worldwide. on the other hand, almost none of the national studies on the education system in serbia deals with this subject. the overall success of the lean implementation highly depends on the extent to what the employees are included in the process and willing to accept change (biazzo & panizzolo, 2000). therefore, teachers should be actively engaged in decision making and planning (longonia, pagellb, johnston & veltrid, 2013). it is very important that the lean adaptation begins with the teacher evaluation of the existing educational model and identification of its shortcomings, in order to identify lean wastes and define adequate lean tools (vasojevic, vucetic & kirin, 2019). based on the assumption that the lean approach elements are represented at different levels in schools in serbia, the following hypotheses were made. general hypotheses are as follows: 1. there is a difference in applying the lean approach depending on the characteristics of the school. 2. types of lean waste can be identified in schools in serbia, as well as the most effective lean tools to eliminate them. specific hypotheses are the following: 1. the type of curriculum (national or international) influences the elements that characterize the implementation of lean approaches. 2. elements of lean access are differently represented in private and public schools 3. research mmethodology and data sources 3.1. research organization the aim of the questionnaire was to identify lean wastes in primary schools in serbia, and the possibilities of the lean educational model introduction. it investigates the intensity of the negative impact of lean wastes on the teaching process flow, together with the success rate of the lean tools implementation in reducing lean �� � � ��������� �� ��� � ������ ����� �� ������� � �� ��� ������� ����������� �� ����� �� � ������ ��� ������� �� �� �� ������� �� �� ������ �� �� ����� ������� � ����� ������ ��� ����� �� ������� ������ ������ ���!"��� �� ������ ! ���� �� �#$� %�&&� %�'(� (�()� (**�%%� � !� %��+� %�(&� %�%+� *�%,� �#-$� �� �� *��+� *,�*'� %��+� %�(�� .%�%'� *�*,� ���!"��� ���� � ������ � �� ������ ! ���� �� �#$� *�'�� %�()� (�*�� (**�%%� � !� %�',� %�((� %�%�� %��*� �#-$� �� �� *�,)� *+�,&� %�',� %�(&� .%�%+� *�%)� �����/���� �"����"�"!� �#$� %�%,� %�+,� (�+*� (**�%%� � "� %�&�� %�(�� %�*�� *�*�� �#-$� �� �� (��*� *,�'%� %�&�� %�(+� %�**� *�(&� ���!"��� !���/�� ����� �#$� *%��,� %�%%� )�++� (**�%%� � � %��(� %�('� %�''� *�'%� �#-$� �� �� (�&(� *+�*,� %��(� %�)�� %�*,� *�&&� � �0�� � �� �� ���/�� � /�" ���/1� / ��/ ����������� �� ������ � � ������ ��� ��! ���� �#$� *�%(� %�)*� (�**� (**�%%� � #� %��+� %�(+� %�%'� *�**� �#-$� �� �� *�,+� *,�*&� %��+� %�)*� .%�%+� *�(*� ��/" ������� ��!!"��� ����� 2������� /�" ���/3� �� ����/� � � � ����/� �#$� %���� %�'&� (�+(� (**�%%� � "� %�+�� %�(,� %�(*� *�)%� �#-$� �� �� (�('� *+�+�� %�+�� %�)'� %�%'� *�'&� ��"/� �/������ 2"�� ����/� ���� �#$� *�%(� %�)*� (�**� (*%�%%� � #� %�&&� %�)(� %�%'� *�(�� �#-$� �� �� (�&%� (%��*� � �� %�&&� %�(&� %�*)� *�(%� � management: journal of sustainable business and management solutions in emerging economies 2022/27(1) 3 wastes and improving the education process. empirical data concerning lean management in the field of industry, where lean strategy was first introduced and adapted, identified several types of lean wastes. six out of seven of them relevant for the education process are set aside. also, with reference to literature, twelve lean tools relevant for the education field are defined (muthu baskaran, 2018: 1108). apart from the questions concerning general socio-demographic data (6 questions), the questionnaire included 53 specialized questions related to the teaching process organization. the research was conducted in schools on the territory of the republic of serbia in 2019/2020. the data were processed using the 'ibm spss19' statistic program. the research started with examining the attitudes of the primary school teachers in serbia (n=213), employed both in public (82,6%) and private sectors (17,4%). in regard to the selection criteria, the sample of respondents included lower grade elementary school teachers (33,3%) and classroom teachers (66,7%), who are engaged in national (92%) and international (8%) education programmes. considering the gender criteria, the sample is rather uneven (33 male and 180 female respondents). in terms of work experience, the most widely represented group is that of 5-15 years (36,2%), followed by the groups of 16-25 years (27,2%), less than 5 years (21,6%), 26-35 years (12,7%) and over 35 years (2,3%) of work. a significantly large number of respondents work in urban areas (81,7% ), compared to those working in suburban (3,3%) and rural areas (15%). 3.2. results using the t-test of independent samples, the results of the application of the observed lean approach elements were compared, depending on whether a national or international program was implemented in the school. table 1: statistically significant differences depending on the plan and programme. method: independent samples t-test eva-equal variances assumed; evna-equal variances not assumed � ��� � ��� � ��� � too much teaching material too much administrative preparation of teaching materials intensive curriculum too much administration lack of indicators of students' level of satisfaction with teaching and their impact insufficient communication between students, teachers and parents unused space of the building international national ���� ���� ���� ���� ���� ���� too much teaching material too much administrative preparation of teaching materials intensive curriculum classroom equipment spatial-program organization of the building textbooks do not follow social needs insufficient communication between students, teachers and parents waiting for the administrative part of the class to finish private state owned snežana kirin, ivana vučetić, nena a. vasojević, sandra kirin 2022/27(1) 4 the obtained results, table 1, show that there is a statistically significant difference in the application of certain elements of the lean approach, depending on whether a national or international programme was implemented. this is primarily related to the degree of administration present, with it being much more extensive in schools implementing the national programme. also, a significant difference in the intensity of communication between students, teachers and parents is noticed, where schools operating under the international programme appear to focus on it more. in schools operating under the national programme, more time is spent on teaching materials preparation; there are more intensive curricua, more extensive learning material and more unused building space. figure 1 shows the nature and magnitude of this difference. based on the obtained results, it can be said that the first specific hypothesis was confirmed. figure 1: statistically significant differences depending on the plan and programme. method: independent samples t-test figure 2: statistically significant differences in publicly and privately owned schools: independent sample t-test �� ��������� �� ��� � ������ ����� �� ������� � �� ��� ������� ����������� �� ����� �� � ������ �� ����� �� ����� �� ������� �� �������� �� ������� ������� � ����� ���������� ����� �� ������� �!��� "##��� $���%&��� ���������� %�������� �'(� )�)*� )��+� ,��)� �**�))� )�))� )�-)� )�*.� )�,�� *�)�� �'/(� �� �� +�)�� �,��.� )�))� )�-)� )�*-� )�,�� *�)�� $���%&��� #��#��������� � ��������� %�������� �'(� )�+.� )�+�� ,�*0� �**�))� )�))� )�+�� )�*0� )�*.� )�.)� �'/(� �� �� ���)� +.�,,� )�)*� )�+�� )�*-� )�*�� )�.,� �����1���� �&����&�&%� �'(� ���*� )�)�� ,��-� �**�))� )�))� )�0+� )�*.� )���� )���� �'/(� �� �� ,���� �.�-,� )�))� )�0+� )�*0� )�,�� )��0� ���11���%� �2&�#%���� �'(� )�)-� )�-�� ��0.� �**�))� )�)*� )��.� )��*� )�*�� *�))� �'/(� �� �� ��0)� �)�0+� )�)*� )��.� )���� )�*,� *�)�� �#����� #�����%%�� ������3������� � ����4&�� ���� �'(� *�-.� )�*.� ��0-� �**�))� )�)*� )��.� )���� )�*�� *�)*� �'/(� �� �� ���*� +��,+� )�)�� )��.� )��,� )�*�� *�)�� $�5�4��61� �� ���� ����!� 1��������� 1� �'(� *�,*� )���� ���.� �**�))� )�)�� )�+.� )��*� )�.�� )�)0� �'/(� �� �� ��*0� +��0�� )�)+� )�+.� )���� )���� )�),� ��1& ������� ��%%&��������� 4��!���� 1�& ���1�� �������1��� � #�����1� �'(� )�--� )�,.� ���.� �**�))� )�)�� )�+�� )��)� )�)0� )�.+� �'/(� �� �� *���� +0�++� )�)�� )�+�� )��,� )�)*� )��*� 7������� ������� � %���1�������� #����� ����� ���11���� ���1�� �'(� )�))� )��-� ��-,� �*)�))� )�)*� )�00� )��+� )�*.� *�*,� �'/(� �� �� ��.*� �+�)-� )�)*� )�00� )��,� )�*�� *�*�� � management: journal of sustainable business and management solutions in emerging economies 2022/27(1) 5 table 2: statistically significant differences in publicly and privately owned schools: independent sample t-test eva-equal variances assumed; evna-equal variances not assumed t-test of independent samples is used too, the test the level of application of the lean approach elements, depending on whether the school is state or privately owned. the obtained results, table 2, show that there is a statistically significant difference in the application of certain elements of the lean approach in state and privately owned schools. in private schools less teaching material, less administrative preparation of teaching materials, less intensive curricula, less classroom equipment, less unused building space and less time spent for the administrative part of the class are present. it was an interesting and a bit unexpected result that state-owned schools appear to possess better classroom equipment, as well as that teaching materials in private schools appear not to follow the social needs as successfully as in those publicly owned. figure 2 shows the nature and magnitude of this difference. based on these results, it can be said that the second specific hypothesis was confirmed. the obtained results show that the application of lean elements is influenced by the characteristics of a school such as its curriculum and the fact that the school is state and privately owned and it can be said that the first general hypothesis was confirmed. ������� � �� � � ����� �� ��� ������� ��� �� ������� ����� ����� ������������ ���� ����� ����� ��� �� ����� �� ����� ������������� �� ������������ ����� ���� ��!�� ����� ��� �� " �������������� � ���� ���#� $���� ��� �� %���� ����� �&� � �'���� � ���� ����� ��(� ��� �� " ��� �'������������� ���� ��#� $��)� ��� �� *+��� � ��,�*� ���� ���(� $� ��� � �������� � �� � ������� ��� ������� � ���� ��� �� ��������������� ������ �� ��������� �� ��� �� � ����� ��� ������ ��������� ������� ������������������� � � !��������������� �� "!�#��$�������� ��% ��� ����������� �&� ���� � ������������ ��'��� �� �� (��$���� ���� ��)��� ��� ������� ��� �������� '��� �� �� �*� ��� �����#��$� "������ ��������������������� ��� ��� ����� ������ �� ������� �������)�������� �+� ����$�� � ���)���� !���������� ������ �������$���������� �� �,� ��� �����#��$������)��� ��� ����� �� � ��� ������� ������������������������'���� ���� ���� '����� ���� ���� �-� !� �� ��������#� . � �������������� � ��"������� �/� �� ����0������ ��������� � ����� ������ ������������ �� ����� ��1� 2�)���� ��� 3��� ����� ������� ����� � ������������ ���� ���� � �� 4������������ � ����������� ����� ���� �� ����0������ ��0����� ������� ���� 4��������)������� ��0����� ���0����� ��������� ��� snežana kirin, ivana vučetić, nena a. vasojević, sandra kirin 2022/27(1) 6 3.3. weighted scoring method the weighted scoring method is a multi-criteria decision-making method used to define the relationship between the criteria and the alternatives. according to this method, the weights of the criteria (here: % of lean wastes) are multiplied with the values of the alternatives (here: lean tools impact rates) and the weighted sum indicates the overall sum of a process (muthu baskaran, 2018: 1110). as a referent model for the research methodology the study in manufacturing industry is used, whose principle was tested in different sectors (muthu baskaran, 2018; wan, sahasrabudhe & rivera, 2014). in order to evaluate the capability of lean tools eliminating lean wastes the multi-criteria decision-making is applied. a selfassessment model was developed using a questionnaire of a five-point scale to rate the efficiency of lean tools. the level of consent to the statement listed was rated using the 5 degree likert scale (1 -strongly disagree; 5 strongly agree). the final results were processed using weighted scoring method ranking model. step 1: 6 types of lean wastes were identified. with reference to lean wastes in industry and manufacturing study and ranked in regard to the extent of the negative impact and representation (%) in the teaching process, which is shown in table 3. the results show that the most represented waste in the teaching process is caused by a wide range of teaching activities (20.6%) followed by the waste caused by too many teaching activities and extracurriculars (17.72%). the unnecessary motion and poor teaching organization participate in the overall lean waste with 16.3%. unutilized resources with 15.07% and 'bottlenecks' with 14.5%. the span between the most and the least represented wastes is around 6%. table 3: the lean wastes and their percentage m-medium. sdstandard deviation. sl.no.serial number step 2: 12 lean tools that contribute to wastes elimination in the teaching process are identified. table 4. table 4: the lean tools and description ������� ��� ��� ��� �� ��� ��� ��� ��� ��� ��� � � � � ��� ���� ���� ���� � � � ��� � � � � �� � ��� � �� � ��� � ��� � ��� � � � � ��� � ��� � �� � ��� � � � � � � ��� � ��� � ��� � �� � ��� � ��� � ��� � ��� � ��� � ��� � �� � ��� � � � ��� � ��� � ��� � ��� � �� � ��� � ��� � ��� � � � �� �� � �� � � � � � ��� � ��� � ��� � ��� � �� � ��� � ��� � ��� � ��� � ��� � ��� � �� �� � � � ��� � ��� � ��� � ��� � �� � ��� � ��� � ��� � � � �� �� � �� � ��� � � � ��� � ��� � ��� � ��� � �� � ��� � ��� � � � � � � �� �� � �� �� �� ���� ����� ����� ����� ����� ����� ����� ����� �� �� ����� ����� � ����� ����� ��� ���� ������� �� ������� �� ��� � ����� ����� ��� ��������������� ����� �������� ����� ���� ��������������� ����� ��� � �������� � !�"��#� ����� �� ��$������������� �������%� ����&�������!� ����� ��� �'��(��������% ���!!������)��������� ����� ���� �����( ������� ����� ����� �*�������� ��+� ,� ����� �-� �.�������� ��+� ,��� ������������/����������� ����� -� �0��1 ��,���������� !� ����� -�� �����22������3�/������ ����� -��� �$��1 ����3�% ���!!� ����� � management: journal of sustainable business and management solutions in emerging economies 2022/27(1) 7 the level of impact of every single lean tool on 6 identified lean wastes altogether is shown in table 5. the impact span rate was given in the interval from 1 to 5. if lean tool is rated 5, it shows a higher level of impact on lean wastes. if it is rated 1, it shows avery low level of lean impact on lean wastes (1 no impact. 5 very significant impact). table 5: the cross tabulation of lean tools and lean wastes ẋ weighted mean step 3: using the results of the previous steps, prioritization of lean tools is performed defined by the ability to improve the teaching process. lean tools are sorted out by the level of efficiency in reducing 6 lean wastes altogether. using the lean wastes – lean tools matrix, the lean tools are ranked by the priority of being lean. the lean tool with the highest value of the weighted score is ranked as no. 1, and the lean tool with the lowest value of the weighted score is ranked no. 12, in regard to the possibility of a lean tool to reduce all 6 wastes. the lean tools prioritization is given in table 6. table 6: the lean tools prioritization this proves the second general hypothesis, that types of lean waste can be identified in schools in serbia, as well as the most effective lean tools to eliminate them. 4. disscussion the study results indicate the presence of administration excess in state-owned national programme schools. a significant difference in the intensity of communication between students, teachers and parents in favour of international programme private schools is shown. in schools operating under the national programme more time is spent on teaching material preparation; a more intensive curriculum is present, as well as more extensive learning materials and more unused building space. in private schools less teaching material is present, less administrative preparation of teaching materials, a less intensive curriculum, less classroom equipment, less space in the building and less time spent for the administrative part of the class. consequently, the first and the second specific hypothesis are proven. the application of lean elements is influenced by school characteristics, which confirms the first general hypothesis. since the most significant problems identified are related to a wide range of teaching activities and too many teaching activities, it is important to analyze the teaching process on a deeper level. the fast pace of the study has shown that, according to teachers’ opinions, the lean management implementation in primary schools can be a successful method for the educational process improvement, which is in consent with the previous study results according to which the lean education is highly estimated by academics (alves, leao, uebe-mansur & kury, 2020). lean wastes should be revised primarily in the state owned schools, as the research results showed significantly more prominent presence of the identified lean wastes. the highest percentage of lean wastes implies a wide range of teaching activities and too many teaching activities and extracurriculars. the successful lean management implementation should be based on, first of all, enhancing computer equipment. developing student oriented education system and establishing a balanced and modern teaching programme. the investment in quality education is essential for a country's development and economic growth (barro & lee, 1996; hanushek & kimko, 2000; hanushek & woessmann, 2012; hanushek & rivkin, 2012; de la fuente, 2011). according to the human capital literature, a country can benefit in terms of competitiveness through educational policy, since the investment in education seems to have a positive impact on economic development, contributing to economic performance in the long run. as a policy implication for the emerging countries, serbia among others, it would be recommended that the share of government expenditure on education should be increased (nistor, mera & pop silaghi, 2018). it should primarily refer to primary education, since it is shown that in emerging economies, those that have invested heavily in education in the last few decades, the gross enrollment ratio for primary education in low-income countries has exceeded 100 percent (tan et al., 2016). having in mind the possible lack of public funding in emerging countries such as serbia, it may be useful to consider the alternative ways of the education system improvement. therefore, it will be beneficial for the current serbian education system to review the education methods and consider the possibility of lean evaluation implementation in primary schools. in order to investigate more deeply into the effects of the lean-methodology application in education, the future research should include other education process stakeholder, and students’ school achievement should also be considered. technology shifts also requires faster changes in the education system and more adequate curricula. according to the research results, the major contribution to the optimal teaching process flow comes from the equipment of classrooms with pc work cells and internet access, student oriented education system, balanced and modern teaching programme, continuous teaching process flow and the establishment of an affirmative student – teacher – parent relations. this implies the understanding of structure, organization, use, curriculum and alignment. in similar studies modern technology was also identified as a useful tool for the learning process improvement (lochner, conrad & graham, 2015) with a positive effect both on students’ benefit and cultural outcomes (joksimovic, robertson, djokic & drazeta, 2019). the research results show that the impact of lean tools on the identified lean wastes reduction is scored as “higher than 3” (on a scale of 1-5), proving the efficiency of the considered lean tools in the lean wastes reduction and their significant contribution to the teaching process improvement, which confirms the second general hypotheses. when interpreting the survey results, it should be noted that the survey sample was limited to schools that took part on a voluntary basis and that only teachers 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[31] tilfarlioĝlu. fy., & karaguck. v. (2019). implementing innovative lean educational method to enhance english language achievement. eurasian journal of educational research. 19(83). 209-230. doi: 10.14689/ejer.2019.83.10 [32] vasojevic. n., vucetic. i., & kirin. s. (2019). primena lin menadžmenta u školama: prikaz studije slučaja. zbornik radova pedagoškog fakulteta u užicu. univerzitet u kragujevcu. 22(21). 77-88. [33] vukadinovic. s., djapan. m., & macuzic. i. (2017). education for lean & lean for education: a literature review. international journal for quality research. 11(1). 35–50. doi: 10.18421/ijqr11.01-03 [34] zvorc. m. (2013). lean manadžment u neproizvodnoj organizaciji. ekonomski vjesnik. 26(2). 695-709. udk 65.012.4 [35] womack. j.p., jones. d.t., & roos. d. (1990). the machine that changed the world: the story of lean production. new york: rawson and associates. [36] wan. h-d., sahasrabudhe.a.m., & rivera. l. (2014). prioritization of lean tools using gap analysis and analytic network process [anp]. revista s&t. 12(28). 9-25. doi: 10.18046/syt.v12i28.1746 [37] wang. q. (2011). application of practice of teaching reform of open educational in environmental science. 2011 international conference on economic. education and management (icem 2011). ii. 83– 85. received: 2020-02-24 revisions requested: 2020-02-06 revised: 2020-05-30 (two revisions) accepted: 2020-06-25 snežana kirin university of belgrade, innovation center of the faculty of mechanical engineering skirin@mas.bg.ac.rs snežana kirin is senior research associate at the innovation centre of the faculty of mechanical engineering in belgrade. she is the author of about 100 scientific papers, 15 of which are on the sci list. she has been involved in several research projects (both national and international). research interests: industrial engineering, risk management, human resources management. ivana vučetić university of belgrade, innovation center of the faculty of mechanical engineering vuceticivana@yahoo.com ivana vučetic (1987) is a research associate at the innovation centre of the faculty of mechanical engineering in belgrade, where she works on a multidisciplinary approach to history and philosophy of science and technology. her areas of interest include: lean management, risk management and human resources. nena a. vasojević. university of belgrade, innovation center of the faculty of mechanical engineering nenavasojevic@hotmail.com nena a. vasojević (1988) is a research associate at the innovation centre of the faculty of mechanical engineering in belgrade, where she works on a multidisciplinary approach to history and philosophy of science and technology. her areas of interest include: sociology of education, human resources, lean management. sandra ž. kirin pompeu fabra university's school of management, barcelona, spain sanndrra95@gmail.com sandra ž. kirin (1995) is a master student at pompeu fabra university's school of management. graduated from the faculty of economics in belgrade. university of belgrade; worked at the republic bureau of statistics. 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 02_vesna milicevic:tipska.qxd 11 vesna milićević1, adam sofronijević2, gordana milosavljević3 1,3 university of belgrade, faculty of organizational sciences, serbia 2 university of belgrade, university library ‘’svetozar marković’’, serbia management 2016/78 contemporary indian management practices in the dynamic emerging market economy udc:005.332:338.121(540) 005.73 005.53:005.591.45 doi:10.7595/management.fon.2016.0005 1. introduction from the managerial perspective it is important to keep in mind that india has had a successful international trade since ancient times. today, at the start of the 21st century, india is a successful emerging market economy. india has a huge population of over 1.2 billion (in 2014) which is growing and hence great cultural pluralism and diversity. key economic indicators show high gross domestic product (gdp) of us$ 1870.7 billion and at the same time a relatively low gdp per capita of just us$ 1504.54 (world economic forum, 2015). although the gdp per capita is currently low compared to advanced economies of the world, it has shown a constant significant improvement trend in the last thirty years. an insight into the general state of contemporary indian economy is given in the global competitiveness index for india provided by the world economic forum (world economic forum, 2015). the indian economy is ranked 55th out of 140 world economies. this overall economic ranking according to the global competitiveness index is a significant improvement as india has climbed 16 places in comparison with its previous ranking. dynamics of many indicators are positive, but for some areas need improving. very positive trends have been recorded in areas of institutions where ranking is improved by 10 places, and infrastructure has gone up 6 places. on the other hand, there is a long tradition in indian culture that should be approached having in mind all its specific aspects. using opportunities linked to modern indian business is possible with a competitive advantage of a rapidly growing large domestic market and world-class talents. specifics of management are reflected through today’s india’s way of doing business. india is becoming more and more attractive for foreign direct investments, as a location for production, especially in the “knowledge” industries, but also in the sphere of higher-value-added services, where india’s emerging advantages are present. from the aspect of demand, the existence of an unsaturated consumer market is significant. the country receives increased attention of multinational companies while acknowlthe paper deals with successful indian management practices in the rapidly growing indian emerging economy. the focus is on the connection between culture, management, business and information and communication technologies (ict). specific aspects and challenges of indian management are analysed in the context of comparative management, in a complex global environment. there is also a focus on the roots of success and business performance of prominent indian companies. the analysis is based on relevant new data. the importance of identifying business opportunities by managers and developing innovative business models is explained from the aspect of the predicted rapid growth and sustainable development of the globally oriented indian economy in the future period. keywords: indian management thoughts; emerging market economy; managerial practices; indian culture; contemporary indian business; economic growth; emerging companies. we have no time to lose, and having no time, we must scramble for our chances. we are too poor to be late. rabindranath tagore (gitanjali, 82) edging the fact that the indian subcontinent was associated with the british east india company as one of the earliest multinationals known in the domain of the east indian spice trade. there are many business challenges and opportunities in the changing indian economy along with new horizons emerging in indian management. planned economic development of the country is oriented towards achieving sustainable and inclusive development. today, india is globally recognized as an economic power. the dramatic rise of india in the global economy has been attributed to many factors, the major one being the focus on economic reforms (mathur et al., 2010). a large pool of human capital, in particular a young talented well-educated work-force, is one of the major drivers of its economic growth. indian managers are now recognized as world class managers by many companies (mathur et al., 2010). they exhibit a global mindset. rapid strides in knowledge-based industries, especially information technology (it), biotechnology, and pharmaceuticals, rejuvenation of the manufacturing sector, changes in the agriculture sector have contributed to making india one of the fastest growing economies in the modern world. mangers are aware of the advantages of an adopted market-oriented approach to development, opening of the economy, realizing economies of scale and scope in indian enterprises, as well as of the importance of modern technologies, especially information and communications technologies. export orientation is evident, along with increasing the share of services. 2. implications of culture for indian management thoughts from the aspect of management, culture can be determined as acquired knowledge that people use to interpret experience and generate social behaviour (luthans & doh, 2009). this knowledge forms values, creates attitudes, and influences behaviour. in order to understand the complex and multidimensional nature of culture, it is necessary to study elements such as: language, religion, preferred behaviour, customs, material products, aesthetic criteria, education and social institutions. special variables of culture determine basic attitudes towards the phenomena of time and materialism, as well as attitudes towards change, individualism and work experience. culture can influence the way in which managers think and behave, but also their attitudes, approaches, decision-making, along with technology transfer and business-government relations. india has a very long history of continuous culture and tradition in an international setting. hindi is the dominant language, but, in fact, india is a multilingual nation. the knowledge of english is relevant from the aspect of business. there are a large number of highly educated people, especially in the sphere of engineering, computer science, management and medicine. from the standpoint of companies wanting to successfully do business in india, knowing and understanding indian culture and local customs is very significant. it is good to keep in mind that indians are very tolerant of outsiders. some researchers examined the dimensions of culture. there was a famous study done by g. hofstede which identified four, i.e., later five dimensions of culture (hofstede, 1991). particularly important from the aspect of the indian culture is the dimension of “power distance”, which refers to the extent to which less powerful members of an organization accept that power is distributed unequally, and india is an example of a society with high power distance. an illustrative example from the results of this research based on the power distance index is that india scores 77 in the power distance which is higher than the world average of 56.5, which indicates the hierarchical indian society (boopathi, 2014). also original is a study of cultural dimensions done by f. trompenaars who introduced, among other things, the time dimension (trompenaars, 1994). it is particularly relevant in the indian culture and management. the globe (global leadership and organizational behaviour effectiveness) is a multicountry study and evaluation of cultural attributes and leadership behaviours among managers from organizations throughout the world, operationalized by a multicultural team of researchers that identified nine cultural dimensions (luthans & doh, 2009). the globe measures both cultural practice and values at the organizational and social levels of analysis (boopathi, 2014). they proposed 10 cultural clusters, and india belongs to the south asia cluster characterized by valuing collective goals, futuristic orientation and rule-based structure (gupta, hanges & dorfman, 2002). the cluster also prefers charismatic, team oriented, and humane leadership. cultural acumen can help foster human and social capital to improve organizational performance (gupta et al., 2002). 12 2016/78management the indian culture can be interpreted in different ways depending on the individual perception. in this context certain analytical frameworks that contribute to a better understanding can be used. a genuine multidimensional approach to the indian culture is presented through an analytical framework where the indian culture is considered from the viewpoint of the “ideal-real” axis and “radical-practical” axis. on the one hand, many writers point to the ideal in the indian culture, and, on the other hand, thinkers point to the reality. when these two views are combined, the outcome is a “grounded praxis” view of the indian culture (sharma, 2005). its diversity should also be pointed out. the hindu belief system embraces rationality and emotionality that play simultaneous roles in the thinking process; it induces individuals to behave both individualistically and “collectivistically” at the same time; it also induces context sensitive patterns of behaviour. intellect is a highly valued attribute in india. all the above mentioned has implications for managerial decisions in contemporary indian business (kumar & kumar, 2012). the origins of the indian software industry are linked to vedic mathematics (kumar & kumar, 2012). relevant is the stress on abstract, logical, and rational thinking in ancient indian text vedas, as well as the numerous mathematical contributions of india, including squares and square roots and the origin of trigonometry. the history of ideas in the world connected to the concept of “zero” is an interesting form of a modern perspective (kaplan, 2000). the indian concept of “zero” and the decimal place–value system as a contribution to the world are integral concepts in software and calculations. buddhism is important from the aspect of business ethics. it concerns the noble eightfold path that should be followed in order to lead an ethical life, which includes: right faith, right resolve, right speech, right action, right living, right effort, right thought, and right concentration. its impact on management stems from this. this means that, according to the buddhist philosophy, the founder of an institution – corporate organization, is responsible not only for the consequences intended or unintended to come out of the activities of the organization, but also for all the intended or unintended later consequences resulting from the activities of the institution (chattopadhyay, 2012). this is close to the strategic approach of contemporary management and orientation towards the future. in a more recent period, from the aspect of management, also evident is the relevance of east asian zen buddhism whose roots are linked to india. according to many authors, also important for buddhist thought is the ancient text avatamsaka sutra, whose central topic is the unity and the interconnectedness of all things and events. this understanding not only is at the heart of the eastern world view (as this mahajana sutra has impacted east asian buddhism), but also represents one of the basic elements of a world view originating from modern physics (capra, 1989). the implications for a holistic approach to management are significant. the indian culture intertwines several philosophical viewpoints and thus represents a collection of human values such as: nishtha (sincerity), samarpana (commitment), kartavya-parayanta (responsibility), jigyasa (curiosity to learn), kauslam (efficiency), vividha (innovation), etc. that are relevant for corporate governance, productivity and corporate social responsibility (chattopadhyay, 2012). acknowledging the holistic approach to modern management, one can also consider the holistic approach of indian wisdom from the aspect of integrating matter and spirit; skills and values; object and subject. also, there is focus on developing the inner mind. the unique contribution of the indian ethos can be expressed through the position that management with a proper combination of values and skills can assure harmony and progress of the organization, as well as of the society (chattopadhyay, 2012). an original approach to the indian culture and management stemming from differentiating three sets of values was proposed by s.sharma (sharma, 2005). he stresses that in the conditions of globalization, profit, competition and self-interest are driving forces that promote the culture of individualism and a transactional view of life; culture related to justice, rights and duties is transformational in nature, and for compassion and devotion transcendental in nature. it is believed that attaining a balance between the transactional, transformational and transcendent views of life lies the essence of the indian culture. its important characteristics are integration and synthesis. besides these, also present is the exchange of ideas in the process of interaction with other cultures. there is an illustrative metaphor “from street market to stock market” which relates to a spectrum of market institutions from the street economy to subaltern economy to corporate economy whose performance is reflected in the stock market (sharma, 2005). 13 management 2016/78 today there is talk about corporate spirituality in india. an illustrative example of a successful company is excel industries ltd., one of india’s first domestic chemical manufacturers, one that stresses the importance of guiding thoughts, corporate philosophy, continuous learning as a way of life with core values of “people, planet, profit” (www.excelind.co.in/aboutus.html). phrases from the indian philosophy, especially from ancient hindu texts such as the bhagwat gita and upanishads are popping up in the management tones and on the sites of consultants (mohan mathur, kumar, shubghang mathur, narayan mathur, 2010). prominent are traits important for business success – concentration, consistency, cooperation and a holistic art of living. r.gupta stressed the need to move beyond american and japanese management models (gupta, 1991). it is useful to consider in parallel the results of research of j.b.p.sinha who attempted to indigenize organizational behaviour research in india (sinha, 1992). he concludes that the results of research of other authors are focused in three directions. the first leads to a psycho-spiritual model of idealized human beings who strive to self-realize by seeking purity and peace of mind. the second accentuates the strategic role of organizations from the aspect of the macro level. the third considers what people in an organization actually do and how they relate to each other. sinha concludes that all three approaches overlap and views them together, which leads him to the concept of integrative indigenization which is open to new ideas. s.sharma compares three management paradigms: american, japanese and indian based on the indian culture, related to new concerns such as environmental issues, sustainability and well-being in the conditions of a knowledge-driven economy (sharma, 2013). in this context, indian management with its philosophical foundations is important from the aspect of the need for corporations to be concerned about ecology and acknowledge a society-centric approach. in this there is a focus on achieving a competitive advantage based on knowledge and talent (sharma, 2013). the idea of “harmonic globalization” is connected to where four forces are in harmony: (1) force of market, (2) force of state, (3) force of people/community, and (4) force of self. they focus on holistic development and management along with a dynamic interaction between them. in this context it is important to consider the perspective of the vedantic ethical vision and its application to managerial and corporate ethical morality. it is necessary to keep in mind what modern managers can learn from great thinkers such as r.tagore and m.gandhi regarding leadership, motivation, inspiration, transformation of the work ethics, indian heritage and productivity (chakraborty, 1995). an original approach enables integration of western managerial and technical skills with a holistic cultural ethos and system of values. in the conditions of accelerated development of information and communication technologies and a knowledge-based economy, many indian companies have been affirmed as world class companies (sharma, 2005). viewed historically, the first phase of indian management was to a large extent based on the transfer of technology and application of managerial methods and techniques from abroad. the starting point for the second phase was the fact that the cultural context is of crucial importance for the successful application of management techniques. it is characteristic of the third phase that specific traits of indian management are prominent, the management that, in the scope of comparative management, focuses on knowledge. s.sharma stresses that there is a pronounced tendency for a new blend of western and eastern ideas on management in order to take into consideration ground realities, which has resulted in a “grounded praxis” approach as a new approach to indian management which incorporates understanding from the previous two phases. the ever more pronounced tendency towards soft skills in business in the world places the practice of indian management on a centre stage. as part of stress management, the influence of the indian culture at the global level through recognizing the effectiveness of yoga is evident. also important is the contribution of indian management in the area of social sensitivity and social concerns, i.e., in the sphere of corporate social responsibility and environmental concerns. the current understanding focuses on the fact that in the area of management in the fourth phase a new body of original knowledge was developed, that leads to a globalization of indian thought and indian ideas in management (sharma, 2015). very illustrative is the empirical research which was conducted in the manufacturing company in india (adhia, nagendra & mahadevan, 2010). the results illustrated the impact of the yoga way of life on the emotional intelligence of managers. in the process of transfer of western managerial practice in india there were certain difficulties. besides, japanese management techniques were also used. as part of the tendency to develop an indian style of management, many supported managerial studies based on ancient indian philosophy (virmani, 2007). it is useful to point to five types of organizations in the indian business practice: the traditional family-type private sector; the public sector; the traditional multinational organizations established during the british rule; the new american-based multinational organizations especially in the it sector; government ministerial under14 2016/78management takings which imply management styles and practice in accordance with the circumstances in india (virmani, 2007). it is important to keep in mind that the indian culture incorporates a strong sense of value attached to tradition and traditional practices, known as parampara. this has impacted the respect of the elderly and the presence of the tradition of the extended family, even in contemporary business organizations. the impact of culture on the concept of time in management is important, and in india the hindu concept of the cyclical nature of time is present. as a philosophy, hinduism views time in a cosmic perspective (kumar & kumar, 2012). indians understand time as an infinite entity. regarding change management, it is important to stress that different elements of the indian culture are not responsive to changes in the circumstances of the modern global environment in the same manner. paternalism is present in business organizations in india, with the traditional identification with the organization, the sense of belonging and the sense of security (virmani, 2007). also important is a strong impact of the personality of the leader. there is a noticeable need for planning in order to realize the long-term business success of a company. changes were also brought by many multinational companies present on the emerging market of india, as well as many joint ventures. modern information and communication technologies facilitate the practice of greater sharing of information in companies, where keeping information confidential was often practiced, above all in order to retain power and control in an environment with considerable red tape. besides the importance of familial and social networks, more and more present are computer and business networks. india is known for its sophisticated software industry and its excellence in the high-tech service sector. viewed as a whole, a new vision of economic development for the information age is being realized. an original approach is the “business sutra” or “3b framework” which links the belief (why), as not measurable (intent); behaviour (how) as measurable (task); and business (what) as measurable (target) (pattanaik, 2013). in this context there is emphasis on nirguna as valuing the intangible and immeasurable, which is close to the contemporary understanding of intangible resources in management and the existence of the high intangible component in the total enterprise value in the indian economy. the indian way of doing business is associated with subjectivity and diversity. viewpoints are often indirectly expressed. abilities of managers to adapt to adverse situations have been expressed and this element of flexibility combined with a sense of purpose is characteristic of the india way. also important is the contribution of the individuals considered in the world as management gurus. s.ghoshal, born in india, was professor of strategic and international management at the and the founding of the in . he is considered to be one of the management “gurus” in the world with his original ideas, especially in the sphere of global management, as well as regarding the relationship between the individual and organization, where he stresses that besides the importance of loyalty and commitment to an organization, also present is the profound sense of autonomy (kennedy, 2002). a management “guru” of indian origin, c.k.prahalad, is known in the world for his contributions in the field of corporate strategies. v.govindrajan is also a management “guru” of indian origin. all of them have contributed to the development of management theory and practices. india is intensively integrating into the global economy. new business systems have evolved as a result of foreign influences and globalization (berger & herstein 2014). practice has shown that indian managers consider that unconditional loyalty to their organization is a highly ethical behaviour, which in this regard is similar to chinese managers. the indian business culture often focuses on friendship, favours and clanship, especially valuing friendship based on multigenerational family friendships, school friendships or personal friendships, and important in managerial practice are network-based business strategies, connections, social networking, and rich interpersonal relationships (berger & herstein 2014). contemporary management in india entails an important role of culture in creating the image of the company. considerable harmonization of the value systems of the company and of the society itself is needed, along with expectations connected to business responsibility, adding to the philanthropic tradition in india and the striving towards a harmonious world. the ancient indian ethos which has stood the test of time can help in creating a more sustainable paradigm for management practice. according to the model presented by a.bhattacharjee, the practice of manage15 management 2016/78 ment starts from managing “self” through moral values and ethical principles, which implies managing desires and senses, and then examples are set for others to follow. this is the essence of leadership. managing “self” dates back to the vedanta periods (bhattacharjee, 2011). important for this concept are relationships with stakeholders – people such as suppliers, distributors, bankers, employees, agents, etc. that constitute “living” stakeholders; the “planet” which constitutes the natural resources and the larger environment, the “non-living” or abiotic component of the stakeholders’ domain. the living and non-living stakeholders are inter-related through the organizational systems and processes. the term “business ecosystem” is used to indicate a web of interrelationships and the level of global management is facilitated by the promotion of free trade both on a trans-national and trans-continental bases. here in focus are creation, exchange and transfer of knowledge at various levels (bhattacharjee, 2011). 3. managerial practices in the contemporary indian emerging economy india’s economy has witnessed a significant economic growth in the recent past, growing by 7.3 percent in fiscal year (fy) 2015 (http://indiainbusiness.nic.in/newdesign/index.php). the “digital india” initiative focuses on three core components: creation of digital infrastructure, delivering services digitally and increasing digital literacy. it is expected that initiatives: “make in india” and “digital india” shall play a vital role in driving the indian economy. owing to an increased investor confidence, net foreign direct investment (fdi) inflows reached us$ 34.9 billion in 2015. the overall strength of the indian market is becoming more prominent. as an emerging economy india is included in cooperation as part of brics (brazil, russia, india, china, and south africa) countries. today these are the largest emerging markets, accounting for about two-thirds of emerging market gdp. a study of over 400 senior indian managers from the public and private sectors found that managers participating in the study viewed their society as being in transition (chatterjee & pearson, 2000). their focus was on how to be successful in a market economy. questions were being raised about increasing employment, relatively low productivity, rural-urban disparities, nepotism, poverty. the risk-diverse nature of indian managers contributes to a high level of uncertainty avoidance. in india, inclusive growth by uplifting the poor and people at the bottom of pyramid is a very current topic. the rapid growth of the information technology sector and deregulation created a new challenge for enterprises in an environment that is changing at an accelerating rate (kumar & kumar, 2012). a number of factors indicate the growing integration of india into the world economy. there has been a significant increase in the flow of foreign direct investment in india. the intense competition on the indian market after the entrance of foreign competitors has led domestic firms to upgrade product quality. while some foreign companies have achieved outstanding results, others floundered. companies like general electric, samsung, lg of korea, piaggio, cadbury, siemens, abb, hyndai and so on were examples of success in india. india has become very attractive for foreign companies seeking to outsource their business operations – general electric, ibm and others. there are several hundred call centres in india. what attracts them is a large, steady, and rapidly expanding market, skilled manpower, science and technology expertise, a liberalized economic environment, with extensive english language media. viewed as a whole, new paradigms, new processes and a new generation of leaders in different fields have been important for the indian economy in recent times. india is rapidly emerging as a preferred destination for foreign investors, young management students and mncs (mathur et al., 2010). on the other hand, many indian companies are becoming truly multinational in nature. they are often establishing themselves as leaders with global perspective. in addition, considered in the context of the south asia region, india is the dominant trading partner for the smallest countries bhutan and nepal. india is very rich in human capital and relevant in the domain of information technologies on a global scale. there are a number of emerging modern indian corporations with a global mindset and benchmarking with the best in the world oriented towards the global market. characteristic of this are newly emerging landscapes of indian business and the emerging new realities in the indian economy of the 21st century. coming to the fore are the knowledge industries, particularly the software and it enabled services industry (mathur et al., 2010). 16 2016/78management today india is one of the most exciting and vibrant emerging markets in the world (davis, chatterjee & huer, 2006). a distinct advantage of india as a future economic power lies in its large pool of skilled managerial and technical manpower capable of competing with the finest in the world and an economic system which is increasingly becoming investment-friendly. demographically, india is an extremely young country, which makes it an attractive market for consumer goods and services. indian banking infrastructure, maturing accounting systems, marketing and management professions, represent factors of distinctive advantage in a global setting. significant progress has been recorded in industries such as computer software and hardware; automobiles and auto-components; agriculture; mining; banking and insurance; media and entertainment, chemical industry, biotechnology. the leading mncs have located their major r&d facilities in india in recent years. it-related companies such as wipro and infosys are known globally. enterprises, particularly within the “knowledge” sector, are characterized by exceptionally high growth rates. indian managers are creating a fusion of traditional values and a global approach. orientation towards a long-term perspective results in a strong focus on relationships that stand the test of time. also short-term orientation can be important for managers in contemporary business. the cultural impact is present in the traditional greeting in india. the word ji is an honorific used after someone’s name in hindi-speaking regions to signify respect (schweitzer, alexander, 2015). as regards the negotiating strategy, indian negotiators are not apt to easily make concessions. generally speaking, their strategy has the characteristics of a contending strategy. in the recent period there have been changes in culture and the value system in india linked to competitiveness at the global level. management is faced with complex tasks in order to achieve sustainable competitive advantage. indian family businesses were for a long time period engaged in multiple activities. with changes in the economic environment, there has been a restructuring of some family business groups to make them competitive on the global market. modern indian corporations that have become internationally competitive stand out (mathur et al., 2010). infosys, wipro, dr reddy’s lab, hero motocorp ltd., larsen and toubro, sundram fasteners, bpl, hindustan unilever ltd., tata sons, reliance, bel are such representative indian companies. business conglomerates such as the tata group, bharti group, adytia birla group successfully expand globally. infosys, with its focus on innovation, and wipro are among india’s best global brands – they represent not just india’s software competencies, but also the country’s ability to adopt good corporate governance practices. also significant are management institutes in india, as well as education in the sphere of management. in the global fortune 500 list of the world’s largest companies in 2015 (http://fortune.com/global500) there are 7 indian companies: the indian oil; reliance industries; tata motors; state bank of india; bharat petroleum; hindustan petroleum; oil & natural gas. the leading indian company on this prestigious list is the indian oil corporation that reached the 119th position with revenues of us$ 74196 million and profits of us$ 803 million. as stated by the company website, the indian oil is the flagship public sector enterprise of india involved with partner communities in which it operates by supporting innumerable initiatives connected with health care, family welfare, education, environment protection, provision of potable water, sanitation, and empowerment of marginalized groups (www.iocl.com/aboutus/profile.aspx). especially important for the success of the indian oil was the managerial strategic approach and successfully realized strategic changes. the next indian company on the global fortune 500 list for 2015 is the reliance industries, the largest private sector corporation in india, ranked 158th, with revenues of us$ 62803 million and profits of us$ 3853 million. the company motto “growth is life” led to diversification with activities in different areas such as hydrocarbon exploration and production, petroleum refining and marketing, petrochemicals, retail and telecommunications with fabulous growth in size and profit (www.ril.com/ourcompany/about.aspx). thanks to its business philosophy exponential growth has been achieved in many business areas and such a relentless growth made the reliance industries nowadays the largest polyester yarn and fibre producer in the world. one important business aspect of the company is the fact thet it is a family company with a clear vision, mission and goals which were set by the top leadership of the company i.e., the ambani family and the perfect managerial pool gathered to work for the company with a mix of traditional indian family values and up-todate managerial approach to business. the company is known for its innovative low-cost management of retailing and distribution (nayak, 2011). 17 management 2016/78 tata motors was ranked 254 in the global fortune 500 list with recorded revenues of us$ 42975 million and profits of us$ 2287 million. the company website (http://www.tatamotors.com/about-us/) states that sustainability and the spirit of “giving back to society” is a core philosophy of tata motors and good corporate citizenship is strongly embedded in the company. the corporate social responsibility (csr), so important for this company, is closely related to the company’s reputation, which is essential for success in motor vehicle and parts production industry. in order to make a proper automobile affordable for indian families ratan tata developed a new business model that allowed for tata’s stunning success (johnson, christensen & kagermann, 2008). inspirational are the great business stories of successful indian business leaders such as ratan tata, m.s.oberoi, aditya birla and rahul bajaj (patel, 2014). similarly important are the successful enterprises of young indian entrepreneurs, especially in the it sector. gagan biyani and neeraj berry co-founded sprig, a mobile app that allows users to find and order healthy meals and have them delivered quickly. a prominent young leader is 22-year-old ritesh agarwal, the founder and ceo of oyo rooms as india‘s largest branded network of hotels (www.oyorooms.com/about?oyocorporate=&country=india). private sector companies imported new technologies and capital goods. today many successful private sector firms are developing their own r&d activities and know-how. thus the company reliance group stresses its innovation-led growth with innovation in its dna, as its innovations touch many facets of life in india – be it transportation, retail, or healthcare (www.ril.com). they have begun pioneering new frontiers of technology at the global level. indian innovation today is sometimes described as “indovation”. innovation in india is not just confined to products, but may also be present in the sphere of services. besides this, india is known in this domain for the concept of juguaad, or creative improvisation, which was often linked to deficiencies in the supply chain systems (kumar & kumar, 2012). indian industry has built a globally competitive generic pharmaceutical business. with its research and development centres india is important from the aspect of global innovative activities. in recent time also prominent is the biotechnology sector of india as highly innovative, with great potential for growth and considered o be an innovative manufacturing hub. it is relevant in the context of globalization of business and from the position of contributing to the growth of the economy (). there are also numerous comparative advantages linked to r&d facilities, knowledge, skills, and cost effectiveness in the biotechnology sector. it is characteristic that innovative indian individuals with a vision for a better world have created cutting-edge products with global significance. illustrative examples are tied to the following innovators and products: mrinmayee bhushan – nanotechnology-based herbal hair removal crème; mansukhbhai prajapati – mitticool refrigerator; nelvin joseph artificial intelligence based power saver; chinmay deodhar dual-purpose laparoscopic surgery instrument; priyanka sharma ultra low-cost immuno-sensor biochip for detecting environmental pollutants; team papyrus efficiencia environment-friendly paper (agrawal, 2015). india has concentrated wealth at the top, which has led to a rise in india’s rich – millionaires and billionaires. mukesh ambani, chairman and managing director of reliance industries ltd, has retained his position as india‘s richest person for close to a decade, with a net worth of $21 billion in 2015 and is in 39th place of the forbes world’s billionaires list (www.forbes.com/billionaires/list/#version:static). the emerging companies survey 2015 presented companies that grew rapidly (http://origin-businesstoday.intoday.in/emerging-companies/2015/). it was shown that the fastest growing emerging companies in india are: eicher motors, the serum institute of india, kwality, avanti feeds, kaveri seeds, pvr, il&fs education, shilpi cables. they have realized successful growth strategies that have resulted in an average growth of 24 percent over a three-year period. important for the indian economy are entrepreneurial and managerial initiatives linked to the development of the it sector successful in an international framework. in the domain of services, particularly prominent are it-enabled services (ites), including back office operations, medical transcriptions, financial services, engineering design services, architectural services, geographical information services, technical support cen18 2016/78management tres (kumar, kumar sethi, 2012). india is the world’s largest sourcing destination for the it industry (http://indiainbusiness.nic.in/newdesign/index.php). the indian it and ites industry is today divided into four major segments – it services, business process management (bpm), software products and engineering services, and hardware. the indian it sector is expected to grow by 11 percent per annum and triple its current annual revenue by fy 2025. in the area of the internet economy, it is relevant to know that india’s internet user base reached over 350 million by june 2015, the third largest in the world, while the number of social media users grew to 143 million by april 2015 and the number of smartphones grew to 160 million. public cloud services revenues in india are also relevant. an increased penetration of the internet (including rural areas) and a rapid emergence of e-commerce are the main drivers of continued growth of data centre colocation and hosting market in india. indian it’s core competencies and strengths have attracted significant investments. it is illustrative that there has been a ten-fold increase in the venture funding that went into internet companies. a research scientist of indian-origin, krishna bharat, was the creator of google news. also prominent is google bangalore, the home of engineers that have worked on core google products like ads, apps, chrome, enterprise, geo, news and search. of particular interest is their colourful work environment with exercise balls, but also celebrating indian traditional festivals, like diwali or karaga shaktyotsava in the office (www.google.com/about/careers/locations/bangalore/). bangalore is known as a city with culture and history that goes back 1000 years, and today it is called the silicon value and garden city of india. it is necessary to consider the business opportunities related to digital start-ups in india and the orientation of young indian tech entrepreneurs (deorah, 2015). an example of this is flipkart.com as india‘s online shopping destination. the company flipkart is today known for innovations in online shopping that have helped make it the first billion dollar company in indian e-commerce as a marketplace with over 30 million products and 10 million daily page visits (www.flipkart.com/about-us). many e-commerce businesses are expanding. alongside this, considering that there is a large number of smartphone users, businesses are shifting strategies to become mobile, and developing mobile businesses as a new business model. the success of indian management became notable with the internationalization of company business. the results of newer empirical research that studied indian cross-border acquisitions are illustrative. it was demonstrated that cross-border transactions have resulted in wealth creation for shareholders of indian acquirers (rani, 2015). also characteristic is the impressive growth of the indian corporate sector (bhattacharjee, 2011). companies like tata, bharat forge limited (bfl), and others, have taken the opportunity for boosting their mergers and acquisitions (m&a) activities, expanding business through buying some firms in europe, us, etc. even during the world financial crisis. also important are acquisitions and joint ventures in the field of the indian pharmaceutical industry, most notably, sun pharma, the world’s fifth largest specialty generic pharmaceutical company with over 30,000 employees worldwide in 48 manufacturing sites and with over 2000 marketed products (). today india has emerged as one of the strongest performers with respect to deals across the world in terms of mergers and acquisitions. the m&a activity increased in 2014 with deals worth us$ 38.1 billion being concluded, compared to us$ 28.2 billion in 2013 and us$ 35.4 billion in 2012. in the m&a field, telecommunications was a dominant sector (http://indiainbusiness.nic.in/newdesign/index.php). cotton was significant for the indian economy as its authentic native crop (cameron, neal, 2003). prominent in international trade were the spices and the role of the indian port of goa. today the port of kochi (www.cochin.org/industry) in kerala, known as the centre of the international pepper exchange, is significant, as well as being an economically important emerging global city with industrial parks and development of high technologies. the government of india has launched an initiative to create 100 smart cities in india as satellite towns of larger cities which will consist of modern infrastructure and will be digitally connected. the program was formally launched in 2015 (http://indiainbusiness.nic.in/newdesign/index.php). phase i for smart city kochi (sck) is important and will generate a total of 6,000 direct jobs in the it sector. from the aspect of modern economy, also important is the tradition associated with the abilities of skilled indian craftsmen and their intricate works of art, statuary, monumental architecture and many goods that contribute to the attractiveness of the indian lifestyle on an international scale (sethi, 2004; bahi, 2012). they play an important role in tourism, and impact new design solutions in many industries. also evident is the echo of indian art on creativity which contributes to economic growth. for the economy of kerala, known 19 management 2016/78 throughout the world for its kathakali classical indian dance-drama, also important today is a responsible tourism, as well as the ayrvedic medical tourism (www.keralatourism.org). the development of creative industries is more and more prominent in contemporary world economies (milićević, ilić, & sofronijević, 2013). this situation is also present in the emerging indian economy, where creative industries have great growth potential. also relevant is aesthetics that combines traditional forms and contemporary designs, which is particularly noticeable in fashion, graphic and interior design. today there is talk of an emerging new wave of indian fashion. development of the indian fashion industry is accompanied by the application of certain experimental techniques for textiles and original design. characteristic is the tendency towards creating global styles without losing sight of tradition (rocca, 2009). the growing indian middle class tends to spend more, especially on purchasing luxury products. in fact, luxury heritage is being redefined and consider the growth potential of the emerging luxury market in india. talented indian designers are expected to create an authentic india influenced luxury-lifestyle brand (boroian, 2010). the media and entertainment industry in recent times have been defined by an increasing digitization and higher internet usage. bollywood films are known for their specific blend of music, drama, comedy, dance, action-adventure with colourful song-and-dance numbers. this form of hindi film is a mighty cultural product, consumed by millions of people in india and throughout the world, and can be considered a global media form in the contemporary entertainment industry. in the indian movie business the production houses have “corporatized” (dwyer, 2014). today other forms of hindi cinema are developing as multiplex/independent films. the forbes india leadership award for the best ceo of a multinational company in 2015 was awarded to uday shankar, ceo of the star india pvt. ltd, an indian media conglomerate, a fully owned subsidiary of 21st century fox (; www.startv.com/aboutus.aspx). cities are the main centres of the creative economy in india. in particular, film, gaming and animation, design, digital advertising, mobile content development, e-content marketing are relevant. the implications of culture on management are evident in creative industries, especially in music production, the film industry, performing arts, design. the advance of technology has become a major factor in the music industry, along with the global impact of traditional indian music (lavezzoli, 2007). indian tv, along with its films, newspapers and magazines, is classed among very dynamic media. besides this, the development of information and communication technologies leads to the arrival of a global cyberculture as a dynamic, innovative network (greenspan, 2004). india is attractive from the aspect of cultural tourism for tourists from around the world. this especially goes its monuments steeped in history and its museums with treasures from the past (gupta & krishna, 2003). this is linked to tourism-related organizations and tourism management development. characteristic of the indian culture is that it sets great store on colours, an illustrative example being the painted blue city of jodhpur, known in indian cultural tourism. branding in contemporary india displays a tendency towards integrating cherished traditions and modern tendencies. the starting point is the fact that in the process of creating a brand, besides economic goals, a higher purpose remains a basic expectation – building a brand means helping to build india in its attempts to create sustainable economic development while maintaining its cultural values (millward brown, 2015). eight most valuable indian brands in 2015 were: hdfc bank; jairtel (telecom provider); state bank of india; icici bank; asian paints; bajaj (automobiles); hero (automobiles); axis bank. furthermore, 25 most valuable indian brands included castrol (lubricants); indian oil (motor fuels); britannia (food and dairy); janisho (jewellery); idea (telecom providers); reliance (telecom providers); horlicks (food and dairy) (millward brown, 2015). significant growth was realized on the indian port market over the last decade (). ports in india have improved their productivity over the years. in the following period there will be important opportunities linked to port development and management, especially for port-related services. also there is perceived future in the development of mega-ports with high potential surroundings where the benefits of economies of scale will be prominent. 20 2016/78management the overall strength of the indian market is important from the economic aspect. the indian retail market is big and fast growing. the huge indian middle class with a large disposable income plays a vital role, as it has become consumer oriented to a large extent. in the recent period many shopping malls have been opened in india, as an expression of the modern consumer lifestyle and the interest of the large youth population. shopping malls represent a destination for not only shopping, but also as a place for social gathering and entertainment (singh, srinivasan, 2012). this has led to the concept of a “mall culture” in indian retail space and the development of mall management. the india way of conducting business is linked to success connected with deep cultural and philosophical roots. entrepreneurial thinking with strategic sense making, managerial adaptability and flexibility combined with a sense of purpose, form the basis of the india way. indian managers view business as part of a wider social vision. the india way is characterized by four principal practices: holistic engagement with employees; improvisation and adaptability of managers; delivering the creative value proposition, creative value delivering to customers; and a sense of a broad mission and purpose (singh et al., 2010). as regards creating competitive advantages, typical of the india way is the ability of business leaders to find a creative advantage and realize strategies that are different from others. 21 management 2016/78 today we can talk about exciting times for the indian emerging market economy. india is one of the most attractive destinations for business and investment opportunities. the indian paradigm in management is also prominent. it is important to stress that india is expected to grow fastest among emerging economies in 2016 and 2017 with a focus on sustainable development. interest in indian business and management increases considering the important fact that india is becoming the world’s fastest growing economy (kleintop, 2015). as regards economic prospects, manufacturing is expected to receive a boost from the government’s flagship “make in india” programme, which aims to induce businesses around the world to invest in manufacturing by providing infrastructure and streamlining regulations (asian development bank, 2015). the needs of advanced economies would provide a boost to tradable services. support for infrastructure is needed to realize the full potential of industry and services to create forward and backward linkages and so achieve inclusive growth. it is important to keep in mind the expansion of managerial education today in india. similarly, there is strong focus on management research, along with the desire for further development of original business models and management methods, which would emphasize the indian culture. on the one hand, new premises and values are accepted, as global companies are becoming more present in india, and, on the other hand, indian companies are more engaged in a global framework. also important are change management and performance management, especially in conditions of changes in the global environment and strong competition. in the recent period there has been a growth in the management consulting industry in india. changes are expected for further development of information and communication technologies and knowledge-related industries. there are evident challenges for the indian management oriented towards realizing business success at a global level in the future, along with a proactive and innovative approach. conclusion references [1] adhia h., nagendra h.r., & mahadevan b. 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(2002). southern asia cluster: where the old meets the new? journal of world business, 37 (1), 16-27. [29] hofstede, g. (1991). cultures and organizations: software of the mind, london: mcgraw-hill u.k. [30] http://indiainbusiness.nic.in/newdesign/index.php [31] https://www.iocl.com/aboutus/profile.aspx [32] johnson, m., w., christensen, c., m., & kagermann, h. (2008). reinventing your business model. harvard business review, 86(12), 57-68. [33] kaplan, r. (2000). the nothing that is: a natural history of zero. oxford university press. [34] kennedy, c. (2002). guide to the management gurus, the most comprehensive and authoritative guide to management thinking. random house, business books. [35] https:/www.keralatourism.org/business [36] khandwalla, p., n. (1995). management styles. new delhi.tata mcgraw hill publishing company. [37] kleintop, j. (2015). india becomes world’s fastest growing economy: what investors need to know. http//www.schwab.com/public/schwab/nn//articles/india--becomes-world-s-fastest-growingeconomy-what--investors-need-to-know 22 2016/78management [38] kumar, r., kumar, a., s. (2012). doing business in india, a guide for western managers. palgrave macmillan. [39] lavezzoli, p. (2007). the dawn of indian music in the west. continuum. new york, london. [40] luthans, f., & doh, j., p. (2009). international management, culture, strategy, and behavior, mcgrawhill, international edition. [41] mathur, m., kumar, k., p., shubhang, m., s., & mathur n., n. (2010). new horizons in indian management. kalpaz publications. delhi. [42] milićević, v., ilić, b., & sofronijević, a. (2013). business aspects of creative industries from a global perspective. management 66, 5-14. [43] millward brown, (2015). brands top 50, most valuable indian brands 2015. [44] nayak, a., k. 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[53] sethi, s., & taschen, a. (2004). indian interiors interieurs de l’inde, taschen, koln, london, los angeles, madrid, paris, tokyo. [54] sharma, s. (2005). indian ethos, indian culture and indian management: towards new frontiers. in: management thinking. indian culture and management. conference proceedings of the icssr and cosmode workshop, held at hyderabad. [55] sharma, s. (2013). three paradigms in management: american, japanese and indian. international journal of organization theory and behavior, 16 (1), 30-41. [56] sharma, s. (2015). globalizing indian thought through indian management knowledge tree. iim kozhikode society & management review, 4(1), 1-14. [57] singh, h., capelli, p., singh, j., & useem m., (2010). the india way: how india's top business leaders are revolutionizing management. harvard business press. [58] singh, h., & srinivasan, s., r. (2012). mall management: operating in indian retail space. tata mcgraw hill education private limited. new delhi. [59] sinha, j., b., p. (1992). towards integrative indigenization: the case of ob research in india. indian journal of industrial relations. 27(4), 337-345. [60] http://www.startv.com/aboutus.aspx [61] http://www.sunpharma.com [62] http://www.tatamotors.com/about-us [63] trompenaars, f. (1994). riding the waves of culture: understanding diversity in global business, irwin, new york. [64] virmani, b., r. (2007). the challenges of indian management. response books, a division of sage publications, new delhi, thousand oaks, london. [65] world economic forum (2015). global competitiveness report, india. http://reports.weforum.org/global-competitiveness-report-2015-2016/economies/#economy=ind receieved: january 2016. accepted: february 2016. 23 management 2016/78 24 2016/78management about the author vesna milićević university of belgrade, faculty of organizational sciences, serbia milicevic.vesna@fon.bg.ac.rs dr. vesna milićević is a full professor at the faculty of organizational sciences of the university of belgrade where she teaches the courses in the area of economics, management and international business. she is the author or co-author of a number of monographs, textbooks and articles in national and international scientific and professional journals. vesna milićević is elected member of the scientific society of economists of serbia. she has participated in strategic scientific & research projects and in projects and management training in companies. adam sofronijević university of belgrade, university library “svetozar marković”, serbia sofronijevic@unilib.bg.ac.rs dr. adam sofronijević is deputy director at the university library ‘’svetozar marković’’ of the university of belgrade. he has written chapters in several scientific monographs and a large number of scientific and professional papers in the fields of librarianship, management and it in domestic and foreign journals. he participates in the activities of the association of european research libraries. adam sofronijević has many years of managerial experience in the area of creative industries and digitization. gordana milosavljević university of belgrade, faculty of organizational sciences, serbia milosavljevic.gordana@fon.bg.ac.rs dr. gordana milosavljević is a full professor at the faculty of organizational sciences of the university of belgrade. her fields of interest are training management, managerial skills, internet and education, e-learning and training and development, modern business. she is an author or coauthor in more than 50 research papers and she published six books in the field of training management. also, she was head of the center for human resources management at the faculty of organizational sciences. 01_gordana jakic:tipska.qxd 1 gordana jakić¹, jelena anđelković² ¹²university of belgrade, faculty of organizational sciences, serbia management 2016/79 how to manage and plan terminology: creating management tdbs udc: 005.912:81’25 005.92:004.63 doi: 10.7595/management.fon.2016.0013 1. introduction terminology is the major constituent element of every language for special purposes (lsp) and a prerequisite for professional communication, accurate exchange of specialized information and the transfer and management of knowledge. subject field information and knowledge cannot be generated, used (e.g., in specialized texts), recorded and processed (e.g., in databases), passed on, transferred, translated or interpreted without the use of the appropriate terminological units, i.e., units of knowledge (guidelines for terminology policies, 2005). in recent decades, terminology has become one of the topical issues of scientific research in many disciplines, such as language policy and planning, applied and computational linguistics, standardization, knowledge management and natural language processing. the main reason behind this lies mainly in two parallel processes: globalization and internationalization of professional terminology for easier and more efficient communication, on the one hand, and localization, i.e., translation or adaptation of the terminology used in local, small languages with the aim of preserving linguistic and cultural identity and diversity, on the scientific and technical terminology represents a very topical issue in economically and technologically dependent countries with small languages such as serbian. the current terminological problems in the serbian language, especially in specialized areas that are experiencing dynamic development, are: anglicization of the language for special purposes, underdeveloped and unstable terminology, and lack of adequate and modern terminological and lexical resources. on the one hand, the terminological problems listed above are of concern to subject-field specialists, since inadequate and non-existent terminology significantly affects the representation, transfer and management of specialized knowledge and information. on the other hand, terminology and language planners point to the growing need for immediate and systematic intervention aimed at terminology harmonization, consolidation and standardization. in spite of the awareness, there is no systematic approach to the solving of terminological problems in serbian. in addition, practical activities regarding the collection and organization of terminology are few and reduced to individual initiatives. under the paradigm of language planning (lp)-oriented terminology management (2), this paper is going to address a practical activity of terminology management: the creation of a serbian management terminology database (tdb) with equivalent terms in english. the paper will discuss the methodology of terminology work, potential obstacles in termbase creation, as well as potential benefits that such a resource would have on all its potential users: management specialists and practitioners, professional translators, and language and terminology planners. a particular focus will be placed on the potential significance that this kind of a database would have for terminology policy and planning in the serbian language, on the one hand, and knowledge transfer and management, on the other hand. keywords: terminology database (tdb), terminology management, management terminology, language planning, terminology knowledge base (tkb) other hand. the english language has undoubtedly become the international lingua franca and the most important terminology provider in almost all scientific and technical areas, and is thus in constant need of new terms to name newly emerging concepts. even though terminological issues are encountered throughout the world, it seems that they are most prominent in economically, technologically and politically dependent countries with small languages (piper, p., 1998) such as serbian. the current terminological problems in the serbian language, especially in subject fields that are experiencing dynamic development, are: the anglicization (or anglo-globalization) of the language for special purposes, underdeveloped and unstandardized terminology, term variation and synonymy, as well as a lack of adequate and up-to-date terminological resources. the main objective of terminology planning in the serbian language should be a conscious and systematic development of specialized terminology with the purpose of making specialized discourse functional and enabling adequate professional communication in the language in question. the terminological problems in serbian listed above are of most direct concern to subject-field specialists and professional translators, since inadequate and non-existent terminology significantly affects the representation, transfer and localization (i.e., translation) of specialized knowledge. however, this issue is of major importance for language planners as well. terminology represents a strategic resource: if a specialized language community lacks adequate scientific and technical terminology, it runs the risk of losing the ability to support professional communication in the given field of expertise (filipović, j., 2002). the specialized language is therefore in urgent need of immediate and systematic intervention by language and terminology planners in order stay functional. in serbia, however, there is neither a systematic approach to the solving of terminological problems in serbian nor enough funds allocated for this purpose. outside serbia, the need to form and harmonize terminology in small languages has initiated a series of practical terminological and terminographical activities that are jointly named terminology management as a part of knowledge management (wright, e.e. & budin, g., 1997). an issue of particular importance in terminology management is the application of information technologies in the development of electronic terminological resources, primarily monolingual and multilingual terminology databases and terminological knowledge bases, which have been carried out through individual and national projects and represent a very significant terminological resource and contribute to terminology and language policy and planning. 1.1. terminology management, planning and standards terminology management (tm) is a relatively new term coined with the purpose of adequately addressing terminology problems in all languages that can be defined as any deliberate manipulation of terminology information (wright, e.e. & budin, g., 1997). it covers a wide range of prescriptive and descriptive tm activities, ranging from the creation of new concepts and corresponding terms, collection of terminology in terminological resources (dictionaries, lexicons, termbases, etc.), provision of terminological services, to harmonization and standardization of terminology. tm also has a wider significance since it contributes to the development of various other disciplines, such as knowledge transfer and technical translation, knowledge and information management, standardization, language policy and planning, etc. for tm activities in general, the following international standards are relevant: iso 704:2009 terminology work principles and methods, iso 860:2007 terminology work harmonization of concepts and terms, iso 10871:2000 terminology work vocabulary part 1: theory and application, iso 10241-1:2011 terminological entries in standards part 1: general requirements and examples of presentation. in this paper, a particular focus will be placed on the creation of terminology databases termbases (tdbs) and their potential significance for terminology policy and planning, on the one hand, and knowledge transfer and management, on the other hand. more precisely, we will discuss the possibility of creating a termbase for the subject-field of management in serbian (with equivalents in english), potential benefits of such a tdb for a wide range of users, and a proposed methodology for terminology work in management terminology database creation. thus presented, the abovementioned terminological activities belong to the paradigm of language planning (lp) oriented terminology management (antia, e.b., 2000). 2 2016/79management 2. overview of tdbs comprehensive and accessible terminology resources have become a growing requirement in today’s rapidly developing specialized subject fields. one of the most frequent terminology resources available online are terminology databases (termbases). terminology database (tdb) is an electronically accessible, practical and up-to-date terminological resource, open for constant upgrade and easy to use. it is a database containing structured concept-oriented terminological data, that is, subject-specific concepts and terms that designate them. the main advantage of an electronically accessible termbase over terminological resources found in paper is that it would be more comprehensive, up-to-date, and open for constant upgrade and expansion. for an example of a typical tdb interface, see figure 1 below. figure 1: an example of a tdb: rikstermbanken despite a relatively large number of existing tdbs, they seem to vary significantly with regard to their size, accessibility, design, structure and methodological approach, and also to depend on particular needs or preferences. tdbs can be created in different software environments and range in complexity and the number of data categories (categories of terminological information) available for each terminological entry. tdbs can be (a) monolingual (with or without equivalents in (an)other language(s), bilingual and multilingual, (b) designed for a particular subject field or encompassing several of them, (c) institutional termbases (generally aimed at in-house translators and not publicly accessible) and national databases (created as a tm activity contributing to the national terminology and language policy and planning). even though the principal users of tdbs are translators, termbases have applications in technical writing and domain learning, as well as information retrieval, machine translation, etc., which makes subject-field specialists and practitioners potential users of tdbs as well. the main weakness of tdbs is that they provide mainly linguistic information about terms. nowadays, a growing number of terminology researchers call for an evolution of tdbs into a new, knowledge-based generation of resources called terminology knowledge bases – tkbs (meyer et. al. (1992). in addition to linguistic information, tkbs also contain conceptual information, regarding not only definitions of terms and context of use, but also graphical representation of concepts in the form of a semantic net (conceptual tree or map) containing hierarchical and non-hierarchical relations between concepts designated by terms. this conceptual approach to terminology work, according to vargas sierra (3) can result in more controlled, consistent, logical and systematic terminology resources. ecolexicon, a tkb for the subject-field of environment (see figure 2), for example, was developed at the university of granada, spain, as a result of several projects. 3 management 2016/79 figure 2: example of a tkb: ecolexicon 2.1. national tdbs the creation of national terminology databases seems to be one of the most significant terminological activities in european countries nowadays. national tdbs are in most cases normative and are used as one of the primary tools for the implementation of a national terminology policy and planning. the practical activity of collecting terminological data and consolidating them in a national tdb is therefore of particular importance for smaller and endangered languages. however, the number of comprehensive national termbases is scarce due to limited financial resources and coordination between institutions dealing with terminological activities. there are two general approaches to the creation of a national termbase: through a national terminological centre or through a series of independent projects focusing on terminology of particular subject-field domains that later become integrated into one multi-domain national termbase. the design, structure, formatting and methodological approaches employed in a national tdb creation differ and depend on the needs of a particular language community. termium plus, one of the largest national termbases in the world that provides access to millions of terms in english, french, spanish and portuguese, is operated and maintained by the translation bureau under the government of canada (). probably the biggest national tdb in europe is rikstermbanken, created by the oldest and the most active terminology centre in europe the swedish national centre for terminology tnc (terminologicentrum). as a result of strong financial support coming from the swedish government, rikstermbanken nowadays contains approximately 627,000 term records with equivalents in more than 20 languages (bsk, catalan, danish, english, estonian, faroese, finnish, french, german, greek, greenlandic, icelandic, japanese, latin, northern sami, norwegian (bokmål), norwegian (nynorsk), polish, russian, spanish, swedish, and turkish). the most significant terminological database in our region is the croatian national terminology database struna (struna.ihjj.hr). struna has been implemented through a series of coordinated projects under the guidance of the institute of croatian language and linguistics. struna is now a publicly accessible termbase, prescriptive in approach, aimed at croatian lsp terminology standardization (brač, i., lončar, m.: 2012), and largely organized according to iso/tc 37 terminological standards. it currently has around 42,000 terminological entries that belong to 20 subject-field domains. 4 2016/79management 2.2. institutional and subject field – specific tdbs practical terminology management activities can be performed in a variety of institutions, public agencies, universities and private companies that can establish their own terminology and internal terminology databases. these termbases are mostly created to facilitate the work of in-house translators and technical writers and to ensure the consistency in the use of terminology. among the largest tdbs created to fulfill the needs of particular institutions are the ones initiated by the united nations (unterm database, consisting of 70,000 term entries in six languages), the nato (; encompassing 35 glossaries, databases, terminology lists and online dictionaries), the world trade organization (), the unesco (), the international monetary fund (), the terminology centre within the university of ghent (), the norwegian association of higher education institutions ( database termbase.uhr.no), the international telecommunications union a termbase for the subject field of telecommunications (), the international electrotechnical commission – for the domain of electronics and electrical engineering (http://www.electropedia.org/), etc. 2.2.1. intra-institutional tdbs of the eu having that consistent, harmonized and easily accessible terminology is extremely important for ensuring true multilingualism in the european union, it is not surprising that the most extensive institutional terminology database is iate (inter-active terminology for europe, ), the european union’ s termbase used in the eu institutions and agencies since the summer 2004 for the collection, dissemination and shared management of eu-specific terminology. it includes more than 9 million terms belonging to more than 20 subject-field domains in the 25 official eu languages. several multilingual tdbs have been created by translators in the languages of the western balkans for the purpose of adequate translation of eu accession documents: evronim (http://prevodjenje.seio.gov.rs/evronim/index.php?jezik=engl) in serbia, bihterm (http://bihterm.anyterm.info/index.php?jezik=engl) in bosnia, monterm (http://www.eiprevod.gov.me/index.php?jezik=engl) in montenegro, evroterm (http://www.evroterm.gov.si/index.php?jezik=angl) in slovenia. 2.3. tdb creation activities in serbia whereas a large number of terminological resources already exist in european countries, the number of electronically accessible terminological resources in serbian, and termbases in particular, is extremely scarce, and the terminological coverage is minimal. in addition, none of the multilingual tdbs listed above offers term equivalents in serbian (apart from evronim). in serbian, only a few projects have been initiated with the purpose of creating electronically accessible subject field specific terminology resources, i.e., thesauri and termbases. namely, several years ago, the faculty of mining and geology (fmg), university of belgrade, initiated the development of several terminological resources with the purpose of simplifying translation in the subject-field in question. one of the resources created by the terminology team at fmg is a publicly accessible bilingual terminological dictionary geolissterm (, in form of a thesaurus of geological terms for the ministry of the environment, mining and spatial planning (blagojević, b., 2011). a dictionary of library and information sciences dli online, in serbian, english and german, was created in 2014 by the scientific research department of the national library of serbia. it is available both online (l) and in print. terminological resources, mainly tdbs, for several other subject-field domains in serbia (mining, electrical energy, spatial planning, geology and e-learning) are in the process of preparation (in the initial phases: corpus design and term extraction) according to the serbian society for language resources and technologies (stanković, r., 2016). 5 management 2016/79 6 2016/79management it goes without saying that there has been no attempt at consolidating the existing (though scarce) domainspecific databases towards a national terminology infrastructure and a national terminology database in serbia, despite the recognized need for a more responsible terminology management and planning. 3. serbian tdb for management the discipline of management has, throughout its relatively short history, undergone a continuous and dynamic growth and development, thus producing a constant need for terms to mark newly emerging concepts. the users of management terminology in the serbian language have shown a tendency to randomly resort to foreign management terms. the newly adopted, but only partly adapted terminology is mostly english, given that the largest part of the latest scientific breakthroughs and technical solutions and the corresponding body of literature come from the developed english-speaking world (anđelković, j., 2013). this has all resulted in a disorderly state of terminology for the subject-field of management, evident terminology variation, lack of systematization, and the problem of outdated terminological resources in the serbian language1 that are adapted to the needs of subject-field practitioners only and of little significance to other users of management terminology. in our opinion, terminological gaps and other issues concerning serbian management terminology presented above call for a systematic approach to managing management terminology. a practical terminological activity of particular importance for the tm process would be the creation of a tdb that would consolidate the existing subject field terminology, point to the issues and concerns, and potentially contribute to the serbian terminology and language policy, planning and standardization. it is important to note that this paper does not attempt to represent the processing of a tdb from the perspective of language engineering and expert systems. it rather attempts to propose a methodology for extracting terminological (linguistic and conceptual) information from subject-specific texts and presenting it in the form of a term entry template. 3.1. management tdb proposed methodology for terminology work the creation of a comprehensive terminology database for any specialized subject field represents a complex collaborative activity performed by a team of people that have at least one of the three main competencies: subjectfield (or conceptual) knowledge (subjectfield specialists), linguistic knowledge (linguists and terminologists) and knowledge of the methodology for terminology work (cabre, m.t., 1998) 3.1.1. preparatory steps for management tdb creation before the actual tdb creation, there are several decisions that need to be made in order to direct our terminology work towards achieving best results. the questions that need to be answered are: (1) what the purpose of our tdb is, (2) what end-users the tdb is aimed at, (3) what terminological data categories it should provide for each term entry, (4) how extensive and detailed the tdb should be, and (5) what software environment we should use for corpus and terminology management. firstly, the purpose of creating a management tdb is to collect and present the available terminology information and thus document the current terminology situation in the subject field of management in the serbian language. such a database would contribute to terminology planning for this field of expertise, and prepare the grounds for the prescriptive terminological activity of standardization. this purpose of a management tdb is in accordance with the guidelines for terminology policies issued by the international terminology organization infoterm and the unesco. 1in the past couple of decades there have been no attempts at collecting management terminology in serbian and presenting it in the form of a glossary, dictionary, lexicon, or a termbase. the last terminographic product regarding the subject-field of management in the serbian language is, to our knowledge, leksikon menadžmenta (author petar jovanović, issued in 2003). secondly, our tdb would be aimed at three groups of users: primarily translators, then subject-field specialists and practitioners when faced with a terminological issue, and, potentially, language and terminology planners, as well. the choice of tdb end-users is directly related to terminological data categories provided for each tdb entry2. namely, the choice of data categories should correspond to the anticipated needs of the potential tdb users. the data categories that can be chosen from drop-down menus on the database interface can be divided according to the level that they belong to: (a) concept level: subject field and subfield, definition (and its source), place of the term in the conceptual structure of the field (i.e., subordinate, superordinate, related or coordinate concept), etc. (b) term level: term, standardization label, synonyms, antonyms, context, equivalent(s) in english, abbreviation (a source of each data category should be stated); (c) language level: grammatical information (part of speech). data categories mandatory for all the terminological entries in our management terminology database should be: preferred term, grammatical information, definition, and equivalent in english. in case a term has synonyms, each one can be marked with one of the following labels: preferred, admitted, deprecated, obsolete, colloquial, proposed. the number of terminological entries that a serbian management tdb may have is difficult to predict, having in mind the complexity and the multidisciplinarity of the subject field in question. in order to delimitate the scope of terminology work, modern, cognitive-based terminology theories suggest sketching a conceptual structure of the subject-field in question (cabre, m.t.: 1998, meyer, i., et al., 1992). a preliminary conceptual structure for the subject field of management would identify the key concepts and their interrelations, and thus help us in identification of subfields and hierarchical (generic and partitive) and non-hierarchical (associative) relations between terms. it would also facilitate the choice of an extraction corpus (see 3.1.2.). based on preliminary conceptual structure, and due to the complexity of work itself, we have decided that the initial phase of management tdb should be limited to around 200 most general and most frequent terms, i.e., terminological entries belonging to the field of management, divided in several proposed subfields, for example: management process, management theory, management team, and management discipline. lastly, for a successful handling of terminological data, an important step is the choice of appropriate terminology application software and terminology management systems (tmss), i.e., tools designed to record, store, process and output terminological data. since the focus of this paper is on linguistic and conceptual information regarding management terminology in the serbian language rather than on technological means of handling this information, this issue will not be considered in greater detail. it is, however, important to note that the software environment chosen for a tdb3 should allow easy updating and improvement, have a user-friendly interface that provides end-users with ease and accuracy of processing terminology entries. the database should also be compatible with iso standards regarding terminology work, especially with termbase exchange (tbx), iso 30042:2008 and tmf (terminological markup framework), iso 16642:2003. ideally, the terminology tool used in the creation of a tdb should integrate corpus and terminology management and enable corpus search, term extraction, database creation and maintenance, such as, for example, spanish terminus 2.0. 3.1.2. corpus design and extraction of terms and term-related information a corpus can be defined as ‘‘a collection of texts assumed to be representative of a (.....) subset of language, to be used for linguistic analysis’’(10). the quality of the terminographic activity depends heavily on the selection of the extraction corpus. therefore, it is necessary for the extraction corpus to be designed according to a set of criteria (cabre, m. t., 1998) with the purpose of providing knowledge-rich contexts for 7 management 2016/79 2 a complete list of data categories with explanations can be found in iso 12620: 1999. for the purpose of our work, only data categories listed above have been chosen. 3 the croatian national tdb struna, for example, was made in sql environment. best results of terminology extraction. an adequately chosen corpus can provide us with both linguistic information on concept and term level (relations among concepts, definitions, synonyms, contexts, etc.), and with extra-linguistic, i.e., encyclopedic knowledge. for the purpose of extracting terms and term-related information, a specialized parallel (serbianenglish) corpus composed of texts belonging to the knowledge domain of management can be made. as to its size, we believe that it needs to have at least 100,000 words to satisfy the corpus adequacy and representativeness principle. a monitor corpus consisting of international standards and their translations into serbian (series iso 9000) should be collected as well with the purpose of verifying the standardization status of the proposed terms. 3.1.2.1. extraction of terms and term-related information once a specialized corpus for the knowledge domain of management was made, term candidates can be extracted manually or automatically, by using a term extraction software such as termostat and autoterm. statistical methods in term extraction should be combined with observing concordances, i.e., collocational and syntactic patterns of terms since the frequency of many terms, especially multi-word ones, is low (pearson, j., 1998). concordances of terms (detected through the use of a concordancer such as, for example antconc) are useful for discovering term variants, especially synonyms, and filtering term candidates to eliminate the ones belonging to general language or other domains, and thus shortlisting term candidates. in addition, concordances can point to hierarchical and non-hierarchical conceptual relations between detected terms. in addition to extraction corpus, additional source of information on terms can be a set of reference documents, i.e., the existing lexicographical and terminographical resources. depending on the corpus selection, the term extraction process may bring about the following list of frequent management terms in serbian with their equivalents in english (table 1): table 1: potential list of corpus-extracted terms 8 2016/79management serbian term(s) english equivalent(s) rukovo enje menadžment upravljanje management kontrola inspection control upravljanje control najviše rukovodstvo top menadžment vrhovni menadžment top anagement menadžer srednjeg nivoa srednji menadžer middle manager strateški menadžment strategijski menadžment strategic management menadžment rizikom upravljanje rizikom menadžment rizika risk management menadžment ljudskih resursa upravljanje ljudskim resursima human resource management menadžment organizacionih promena change management menadžment znanja upravljanje znanjem menadžment znanjem knowledge management menadžment na licu mesta management by walking around menadžment finansija finansijski menadžment upravljanje finansijama financial management marketing menadžment marketing management interesna strana zainteresovana strana stejkholder stakeholder kost benefit analiza cost-benefit analiza analiza troškovi korist costbenefit analysis 3.1.3. terminological records during and after the extraction of management terms from the chosen corpus, terminological information should be recorded in the form of terminological records (cabre, m.t., 1998). a terminological record for each term entry should contain all the relevant information classified into data categories listed in 3.1.1.2 above. table 2: terminological record template for management tdb we have chosen to illustrate the use of the template (table 1 above) in preparation of a tdb with the following example (table 2): table 3: term entry menadžment table 2 draws attention to some management terminology issues and concerns that are going to be addressed in the following section. the problematic data categories are marked with an asterix (*). 9 management 2016/79 1. term / terminological entry (serbian) 1.2. grammatical category 1.3. standardization label 2. subject field(s) 2.1. sub-field (s) 3. definition 3.1. definition source 4. context 4.1. context source 5. synonym / term variant 5.1. synonym source 6. abbreviation 6.1. abbreviation source 7. related terms 7.1. superordinate term 7.2. subordinate term 8. english equivalent(s) 8.1. equivalent source term menadžment noun, standardized subject field menadžment*, organizacija* subfield -*, menadžment* definition koordinirane aktivnosti za utvr ivanje pravca i upravljanje organizacijom source: iso 9000:2005 (quality management systems -fundamentals and vocabulary) context nastanak i razvoj menadžmenta kao nau ne discipline vezuje se za imena frederika tejlora i henrija fajola.. source: jovanovi , p. (2009). savremeni menadžment. viša škola za projektni menadžment: beograd synonym upravljanje preferred, proposed, admitted rukovo enje* obsolete english equivalent management 3.2. management tdb potential problems and obstacles during the process of terminology database creation, several possible issues may arise. we have decided to divide them into (a) general the ones that can be encountered during termbase creation in any subject field in the serbian language, and (b) subject specific the ones typical for the subject -field of management. 3.2.1. general termbase creation issues a) extraction corpus. the serbian language does not have publicly available corpora for specialized purposes. in other words, serbian terminology researchers need to create corpora to serve their own research needs. b) problems with term extraction. due to complicated morphology, the serbian language texts cannot be easily searched for terminology and term-related information, but rather need to be lemmatized and pre-processed before terms are extracted and entered into a database. c) there may be possible disagreements between subject-field specialists and language experts regarding the preferred usage of certain terms. d) if a terminologist does not have a high degree of familiarity with the subject field under consideration, problems may be encountered in any stage of tdb creation. 3.2.2. subject specific termbase creation issues a) delimitation of the subject field: the subject field of management cannot be clearly delimitated from several other disciplines, including organization, since they often share common concepts and terminologies. in other words, terms entered into a management termbase may be found in tdbs for other subject fields. in addition, another problem may arise from the fact that the term menadžment can be observed as a subordinate term to organizacija, on the one hand, but also as its superordinate term, since organization is one of the functions of management (jakić, g., 2014). b) polysemy and synonymy of terms: the key term of the subject field of management the term menadžment itself is polysemous, since it can refer to either a process, a team, or a theoretical approach. each concept designed by this term (process, team, or theory) has synonymous designations: upravljanje, rukovođenje, vođenje, uprava, rukovodstvo, to name a few. then again, management experts would generally fail to agree that menadžment and rukovođenje have exactly the same meaning, but would rather say that rukovođenje is a hyponym of menadžment. on the other hand, they may also claim that the english control is not the equivalent for serbian kontrola but rather for upravljanje (e.g., quality control is the equivalent for upravljanje kvalitetom), whereas serbian kontrola is english inspection. c) limitations of corpus-based extraction of terms: a term extraction corpus, however adequate and representative of the subject field, can rarely provide all the terminological information necessary for filling in terminological records for a termbase. as a result, some of the data categories may be left empty in a terminological entry. this undoubtedly emphasizes the role of subject-field specialists who are indispensable in completing terminological information for a management tdb. 10 2016/79management 11 management 2016/79 references [1] anđelković, j. (2013). main issues of terminology management in organizational sciences. the first international conference “teaching english for specific purposes”, university of niš, isbn 978-86-6 i 25-0804. [2] antia, e., b. (2000). terminology and language planning an alternative framework of practice and discourse, john benjamins publishing company, amsterdam/philadelphia [3] bautista-zambrana, m. r. (2015). methodologies to build ontologies for terminological purposes 32nd international conference of the spanish association of applied linguistics (aesla): language industries and social change, procedia social and behavioral sciences, 264 – 269. [4] blagojević, b. (2011). developing of the geologic terminology for the geologic database of serbia. 17th meeting of the association of european geological societes, belgrade, pp.53 -56). [5] brač, i., lončar, m. (2012). terminology planning for the croatian national terminology database struna, in proceedings of the 10th terminology and knowledge engineering conference (tke 2012), aguado de la cea et al., eds. madrid, 19-22 june 2012, pp. 258 – 269. [6] cabre, m. t. (1998). terminology. theory, methods and applications. amsterdam/ philadelphia: john benjamins publishing co. [7] filipović, j., (2002) uloga menadžmenta terminologije u kreiranju jezičke politike i procesu jezičkog planiranja: kako prihvatiti priključak sa svetom?, primenjena lingvistika br. 3, 73-79, beograd. [8] guidelines for terminology policies (2005). unesco: paris [9] jakić, g. (2014). erminologija u organizacionim naukama, fakultet organizacionih nauka, beograd, isbn: 978-86-7680-292-0 [10] meyer, i., skuce, d., bowker, l., and eck, k. (1992). towards a new generation of terminological resources: an experiment in building a terminological knowledge base. in proceedings of the 14th international conference on computational linguistics (co-ling’92) (pp.956960). nantes, france. [11] pearson, j. (1998). terms in context. amsterdam / philadelphia: john benjamins. [12] piper, p. (1998). o velikim i malim jezicima u svetlu lingvističke ekologije. filološki pregled, 25(1), 67-86. [13] stanković, r. (march 2016). ekstrakcija termina u srpskom jeziku. paper presented at the society for language resources and technologies, faculty of mining and geology, university of belgrade. [14] wright, s. e., budin, g. (1997). handbook of terminology management -volume 1: basic aspects of terminology management. philadelphia, usa: john benjamins publishing company. receieved: may 2016. accepted: june 2016. conclusion and further research the main objective of this paper is to draw attention to the benefits that a terminology database for the subject field of management would have for all its potential end-users: management specialists and students encountering terminological inconsistencies and other issues, professional translators, serbian terminology and language planners, and the general public at large. despite the obvious complexity of this terminological activity and many obstacles and issues that may be encountered on the way, a serbian management tdb with equivalents in english would consolidate the existing terminology data in the management field, point to terminology gaps, term variants, preferred terms (based on term frequency), standardized terms (based on their use in terminology standards), term position in the conceptual structure of management, etc. the creation of a terminology database would potentially be a starting point to terminology planners, since it would document the current state of scientific and technical terminology for the subject field in question and thus identify problematic areas that are in need for systematic intervention. 12 2016/79management about the author gordana jakić university of belgrade, faculty of organizational sciences gordanam@fon.bg.ac.rs gordana jakić, assistant professor at the faculty of organizational sciences, university of belgrade. her current research is based on meaningful and detailed creation and editing of the current state of terminology and its management including synchronic and diachronic language research, terminology harmonization and standardization. jelena anđelković university of belgrade, faculty of organizational sciences plecasj@fon.bg.ac.rs jelena anđelković, teaching assistant at the faculty of organizational sciences, university of belgrade, and phd student at the faculty of philology, university of belgrade. her fields of interest include: language policy and planning, terminology management, the english language for special purposes, sociolinguistics. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage 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/includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 5 27_1 jelena andjelkovic:tipska.qxd 45 jelena anđelković labrović , ivana milinković, nikola petrović, ivana kovačević university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(1) expected competencies from university graduates for employment in serbia doi: 10.7595/management.fon.2021.0006 abstract: 1. introduction the concept of competencies is heterogeneous and includes knowledge, abilities, skills, experiences, and behaviours, which are important for an individual to be able to perform at an expected level (el asame & wakrim, 2018; maaleki, 2018). employers face difficulties recruiting employees for junior positions due to the graduates’ lack of professional competencies (gawrycka, kujawska, & tomczak, 2020: varga et al., 2016). the demand for skills, knowledge, and abilities are constantly changing, so the challenging expectation of universities and educators is to prepare students for careers in the future (pompa, 2015) by adapting curriculum to these demands (ritter et al., 2017). this is where competency-based education (cbe) becomes important since it focuses on understanding the competencies that students need in order to perform their job successfully, practical application of knowledge and skills (johnstone & soares, 2014) and the roles that young people will play in the society (gervais, 2016). in order to suggest what competencies should be developed through the faculty curriculum, this paper will provide insight into the employers` expectations of tertiary education graduates in serbia for entering the labour market. corresponding author: jelena anđelković labrović, e-mail: jelena.andjelkovic.labrovic@fon.bg.ac.rs research question: this paper investigates into which competencies and competency areas are essential for graduates to be employable in serbia. motivation: the research was conducted with the aim to recommend to the faculty of organizational sciences to adjust their curriculum, so that graduates could acquire competencies necessary for employment at junior positions. combining qualitative and quantitative approaches, the paper includes required competencies according to popular reports, analysis of vacancies for junior positions in the field of management and it, focus groups and surveys conducted in companies in serbia. idea: the main idea of the research was to empirically evaluate the need and importance of general competencies for performing a job at junior positions. participants in the research were experts from human resource management departments and domain experts from different fields who participate in the selection process. data: during the research, 52 competencies from world reports, 60 competencies from open job vacancies, and 69 competencies during the focus group were analyzed. the questionnaire was created based on 29 competencies that were results from the qualitative research and filled out by 118 representatives from companies from different business domains. tools: content analysis of reports and vacancy ads, focus group report and statistical analysis of survey data (t test, principal component analysis) were used to draw conclusions about required competencies for junior positions in the serbian market and to categorize them. findings: competencies that are expected from future employees are to be socially skilled leaders capable of solving problems and intrinsically motivated to create and to be productive. above all, they should be able to learn continuously. specifically, when comparing managerial junior positions to junior it professionals, it seems more important to be competitive, have strong presentation skills and to be conscientious. contribution: competencies important for graduates’ employability in serbia are identified and grouped in different competency areas based on what universities’ curricula could be adapted. keywords: competencies, competency categorisation, graduates, labour market, employability jel classification: j24, i23, m53 in the second section of the article, we identify the problem in the context of previous research while providing the theoretical background for the research. this is followed by a description of the methodology used and results gained from both qualitative and quantitative analysis. in the final section, we will problematize our results in the broader context providing ideas for further research and curricula guidelines. 2. theoretical considerations and identifying the problem technological evolution has brought substantial change in the domain of work, workplace and workforce. it is found that technological competencies will increase by 69 percent in the united states and 65 percent in europe by 2030 (bughin et al., 2018). researchers agree that we are witnessing the skills shift. while some jobs will disappear and some others emerge, the key skill imposed on organizations and employees would be their adaptability and flexibility, especially in the domain of upgrading and acquiring knowledge and learning new skills (bedwell, fiore & salas, 2014). researchers identified different skills and personal attributes required from graduates to make them employable. they mentioned analytical, technical, communication, entrepreneurial, decision-making and problem-solving, interpersonal and teamwork skills. among personal attributes, self-motivation, selfawareness, independence, self-confidence, emotional intelligence, flexibility and adaptability are mentioned (esser et al., 2018; hodge & lear, 2011). it seems that students and graduates have to invest more in obtaining skills and developing less trainable self attributes than in the knowledge of particular subjects. finch (2016) differentiates among intellectual, personal resources, as well as meta and job specific skills and integrated dynamic capabilities, developed from the employability perspective. roughly, these competencies might be classified as those concerning “hard” and “soft” skills (pang, 2018). nevertheless, it seems that the most usual framework considers a model similar to khan’s (2018) with delivery related, interpersonal and strategic competencies developing into employable skills. underlining the multidimensionality of the concept, some scholars have tendencies to organize competencies hierarchically, with levels such as behavioural, conscious and unconscious, given by volery (2013), cognitive, functional, social and meta by bharwani and talib (2017), and affective and cognitive by chen (2020). while some authors offer and compare different approaches to analyses and assess a variety of competencies (silva, 2020), others propose frameworks for structuring the domain (area) of employees’ competencies. agnihotri (2018) gave a profound overview of competency classifications delineating generic and specific skills. while digital competencies are crucial in the contemporary context, the competencies that go along with predictability, memory capacity and other technological advances are those that are pitfalls. employers are expecting developed soft skills (hurrell, 2016), solid interpersonal skills (kleckner & marshall, 2014), skills that machines cannot learn (bughin et al., 2018). that creates a growing demand for entrepreneurship skills such as creativity, innovativeness, initiative (bughin et al., 2018), resilience, ability to cope with difficult situations and new environments (perez-lopez, gonzalez-lopez, & rodríguez-ariza, 2016), while the most weight is put on cognitive skills such as complex information processing, decision making, creative problem solving and critical thinking (weaver & kulesza, 2014). silveyra and colleagues (2020), focusing on educational goals, discriminate the categories of entrepreneurship, management and business, human resources (including leadership dimensions) and interpersonal competencies. sangka et al. (2019) define individual, job demands and organizational environment competencies of managers, while emphasizing analytical and goal setting skills, as well as ethical and cultural awareness. these competencies are especially relevant for business and information technologies (it) students, preparing them to respond to the labour market demands (khoo, zegwaard, adam, 2018; suarta et al., 2017; ritter et al., 2017). bughin et al. (2018) give some predictions for 2030, with the demand for basic cognitive, physical and manual skills decreasing, and leadership and human resource skills becoming more important. predictions also say that the demand for social and emotional skills in the market will increase by 26% in america, regardless of the industry, while the demand for cognitive skills (creativity, critical thinking, decision-making and processing of complex information) will increase by 19%. it is obvious that digital literacy, critical thinking, problem solving, initiative, creativity and innovation, teamwork and lifelong learning capacity will become vital as the so-called workplace readiness skills (crespin et al., 2017). focusing on the idea that employability of youth labour force is based on their current (up to date) competencies, education and increasing the competencies of students will become the key factors. crespin et al. (2017) have found that candidates for junior positions have problems with critical thinking and problem-solving skills, positive work ethics, initiative and self-direction, time, task, and resource management. the solution for bridging the competency gaps could be in adjusting the universities’ curricula based on market needs. 46 jelena anđelković labrović , ivana milinković, nikola petrović, ivana kovačević 2022/27(1) 3. an empirical research of required competencies: research methodology research into the demand for competencies of graduates was conducted by a team from the faculty of organizational sciences, university of belgrade (fos), with the aim of identifying general competencies essential for employment in junior positions so that faculty should adjust its curricula. the fos is recognized as the leading educational institution in serbia with accredited study programmes in the field of information technologies and management, at the level of bachelor, master and phd studies, with more than 4000 active students at the moment. the faculty has two undergraduate study programmes: it and management. in the faculty curricula, the first two years are general education and consist of general subjects. from the third year of the studies, students are offered more specialized courses for each specific field. students who graduate from the fos, in addition to acquiring contemporary knowledge in the specific field of study, are also able to work in teams, have good communication skills and are able to quickly adopt change. the research was conducted in two phases (figure 1). figure 1: methodology of the research the aim of the first phase (qualitative part of the research) was to identify a list of competencies needed for employment in junior positions. it lasted during january and february 2019 and included content analysis of necessary competencies for entering the work environment (competences report review and vacancy analysis) and a focus group. based on the results from the first phase, the research team created a questionnaire for the quantitative research. 3.1. qualitative approach 1st step: competencies` reports review identification of relevant competences report was conducted using keywords such as employment competences, graduates’ competencies, general competencies, competencies for the future. only publications including the keywords in the publication title or abstract were selected. inclusion criteria for reports selection was based on the following: presented research was done in several countries and several areas of business, and the research results show demand or the relevance of certain competencies for employment. the most prominent reports met the defined criteria and are discussed in more detail (linkedin, deloitte, wef). coding of articles: to get a systematic overview and analyze the reports, the researchers singled out all the competencies that are mentioned as important for employment and made a unique list of 52 competencies. after that, all selected competencies were classified into categories according to similarity (for example: technical competencies, conceptual, interpersonal) and reports were compared to see whether certain competencies appear in several reports. 47 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) 2nd step: vacancy analysis identification of relevant vacancies was done by listing competencies necessary for entering the work environment in junior positions found in job advertisements open in the period of january and february 2019 on the sites linkedin and infostud (large databases of job advertisements). we chose linkedin as the most famous professional social network, known as the database of online cvs and ads, and infostud because it is the first and most famous portal for advertising and job search in serbia. the research team selected 100 job advertisements. inclusion criterion for the selection of open vacancy was that the position is in the field of management (with the aim of choosing as many different positions: marketing, sales, hr, finance, operations…) or it; that it is an entry position, no previous work experience is required from the candidate; that the candidate must have a university diploma in the field of management or it (fos or other faculty), and it was based on 30 ads (available at that moment) that were further analysed in detail. job vacancies were coded and analysed according to the following items: position, necessary general competencies for employment, required knowledge, specific tasks. the inclusion criterion was met and all 30 ads were analysed. there were specific occupations from different areas of management which are studied more deeply within the subject at the fos (example: marketing assistant, recruitment and selection specialist, production operations manager, quality assurance manager) and information systems and technologies (example: javascript developer, junior test developer, junior php developer) 3rd step: focus group the focus group was conducted according to krueger and casey's recommendations (2001) in february 2019 with seven experts in the field of human resources (hr) with the experience in recruitment and selection process. the discussion was moderated by two hr experts from academia, i.e., co-authors of the article. the focus group was semi-structured and lasted for 1h 50min. the conversation was recorded with the consent of all parties involved and then transcribed, resulting in a text of 12,079 words. we combined an inductive with a deductive coding approach, which means we took into consideration the participants' experience and perspective as well as the results of previous phases of this research. the backbone of the discussion was related to the recognition of the set of competencies of candidates for the first job. the set of necessary competencies for the first job was mapped by discussing the competencies gap of today's employees in junior positions. 3.2. quantitative approach the second phase of the research lasted from mid-march to mid-may 2019. the online scale based questionnaire (cronbach’s α(29)=.94,) was sent to about 400 different sized companies operating in serbia, that employ it and management graduates. respondents from all tenure types (6 months to 30 years) are taken into consideration. the questionnaire was filled out by 118 representatives from companies from different business domains: informatics (45%), trade (23%), financial sector (13%) and others (pharmacy, construction, energy, telecommunications 19%). the respondents were hr experts (41%), directors and managers (22%), recruiters (10%), it experts and other domain experts (27%) involved in the employee selection process. 4. results the results obtained from each step of the research will be presented below the map of the required competencies for it and management graduates to enter the labour market. 4.1 competency areas based on qualitative research from linkedin, deloitte and world economic forum the future of jobs reports, we extracted creativity and innovation as the competencies from the entrepreneurial category exclusively, while inititative is categorised in both entrepreneurial and soft skill categories. critical thinking, cooperation, and adaptability are identified as strictly soft skills, while time management is one of the competencies related with workforce readiness. analytical thinking and programming fall into a category of technical skills. 48 jelena anđelković labrović , ivana milinković, nikola petrović, ivana kovačević 2022/27(1) the total number of competencies highlighted by the analysis of the reports content is 52. table 1 highlights the competencies that appear in two or all three reports, which is a total of 9 competencies that are recorded for more detailed analysis with experts during the focus group. it can be noticed that only creativity appears in all reports as a necessary competency for employment. further, by listing the competencies that appear in current job advertisements, the research team defined additional 60 competencies, so the total number of competencies that represented the entry into the focus group was 69. focus group results the most mentioned competency among the experts was taking responsibilities. according to the respondents, newcomers have developed no sense of what responsibility means and that is noticeable in their behaviour: "a sense of responsibility, which of course comes with age, is something that young people can hardly understand. somehow they are thwarted by something that is ordinary work discipline." the participants addressed conscientiousness as an important issue: "today's people are all somehow less aware that there are some people around them who have some needs." education plays a significant role in developing young people's awareness of themselves and the environment: "during their studies they can realize what role they like, which way they are most effective." analytical thinking was also recognized as a crucial competency especially considering the role of data and information in business. "some awareness and orientation that if we do something, we make a decision, we start a project, it should be based on data, research, and not on an assumption or "we all know it's true" attitude." "it occurs to me in general, very broadly in all areas, that it should be talked more and more about data analytics, about decision-making, or any steps that are based on data, statistics, research. i think that is something that a lot of companies lack." it was emphasized that the human qualities of a new employee were very important, and closely related to that of their attitude towards work. ethics is imposed as a basis for building healthy interpersonal relationships and sustainable business. "to be a good man. that is primary! we are to return back to that." during the analysis, we coded competencies identified from reports and vacancy analysis and added new codes based on transcript analysis. when a competency was mentioned for the first time in the transcript (and had not been recognized before) it became a new code meaning a new competency on the list. eventually, the list of competencies was discussed among the authors of the paper until a mutual decision on 29 competencies classified into 4 categories: readiness for work, interpersonal, entrepreneurial and personal competencies, was reached (table 1). table 1: list of competences from the qualitative research 4.2 competencies based on quantitative research generally, looking into the whole sample, descriptive statistics show that the employees’ most valued competencies are capability of continuous learning (m=4.76, sd=0.62), conscientiousness (m=4.69, sd=0.634), collaboration (teamwork) (m=4.47, sd=0.79), communication skills (active listening, assertiveness and accepting feedback) (m=4.46, sd=0.78) and persistence (m=4.42, sd=0.81) (milinkovic, andjelkovic labrovic & petrovic, 2020). 49 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) ��������� �� ��� ������������� ������������ ��������������� ������������ �������� ������������ ��������� �� ��������� �������� ������������� ���������� ���� ����� �������� ����� ������� � ������ �������� �� � �������� ����������� ��������������� � ���������� ������� ���������� ��������������� ������ ���� �������� ������ !����� ������������� "��� ����� "�������� � #����� �� ����� �� $���� ����������������� ��������� %��� ����������� ���� ������������ &������$�� ��� �� ��� ������� �� �������� '�$� � "������ ������� ������� ����� ������ ���������� � �� ��� ���������� � (�����)��� ��� ���� ���������� "����������� ������ ���������� � ������� ��� ���� �� �� there are no differences between sectors (public and private), due to the discrepancies in the volume of the subsamples (more private sector companies), as well as between the size of the companies. we have, however, found differences between requirements for junior positions in different industries, so we have divided our sample into two categories: it industry (junior it positions) and other industries (junior managerial positions). t test results show that differences detected in competitiveness (t(116)=3,32, p<.001) and presentation skills (t(116)=2.92, p<.001) are seen as more crucial for junior managerial positions in other areas of business rather than the it sector. interestingly, those competencies are categorized in leadership and interpersonal competency areas. it was also found, but with a lower level of significance, that there are differences in conscientiousness (responsibility and reliability) (t(116)=2.4, p<.005) as one of the indicators of readiness for work and problem solving. according to differences based on empirically extracted competency areas (components), the only relevant difference is found for the leadership component (t(116)=2.88, p<.005). as the differences are only seen in three different competencies, and the means representing the importance of each and every competency are higher for other business areas in comparison with the it sector, it is believed that maybe some specific knowledge is more important for it than general competencies connected with readiness for work. further, there is an idea to reframe the categorisation of the competencies not according to the specific aspects of future work but rather meaning them to be more suitable for educational purposes in order to conceive and design teaching methods for specific skills development. we use principal component analysis (varimax rotation with kaiser normalization) to extract four components that explain almost 57% of total variance (table 2). table 2: extracted components, item saturation and percentage of explained variance 50 jelena anđelković labrović , ivana milinković, nikola petrović, ivana kovačević 2022/27(1) �� �� ��������� ������� �� ��� ���� ���� ��� ����� � ��� ��� � � � �� � � � � � �� � � � � � �� ����� � �� �� ���� ����� ����� �� ���� ��� ��� ���� �������������� � � ��� ���� �� ������� ��� ��� ��� ���� ! �� �� ��� ��� ���� ����� ��" ��� ��# ���� $� � �� �� ����� �� �%���� ��# ��� ��" ���� ����� ��� ������� ��� ���� �&� ��& '������ ��� �� ��( ���� ��( ��( )���� * �� ��� � �� ���������� ���� �&( ��� �&� +� �� �� � �� � � � � �� � � � �� � � � � ���������� �� ,�������� ���& ���� �&� ��� ������ � ����� ,������ � � �� � � ��� ��& ��� ��� .�� �� ������� � � �� ��# ���� ��/ �� 0������������� �� ���� ��& ���& ��" 1������% � ��� ��� �� ��������� ���� ���� �&# �&� ������ ��� �� �� ��� �&(" ��" ���� ��� '�������� �� �� ��� ����� ��( ��" ��� ' � �� � � � � �� � � � �� � � � � 0�������� ����� ����� �&� ��� ���� 0������� �� �� �&�# �&" ���� ��( '��� ������ ��/# ���� ��# ��( 2��� �� ����� �� �&&& ���� ��" �&� 3�% �� ���� ��� ��� ���� 0�� �� ����� ����� ���" ��/ ��& ���� 0������� � ��� ������ ��� ���( ���� ���( ��/ !��4 � � �� ��"� ���� �� ��( 3 � �� � � �� � � � � � � �� � � � �� � � � � 5��� ����� �������� ����� ��" ��� ��/ +��� �� �� ��/� ��� ���� ��( '����� �� ���/ ��" ���� ��� ����� �� ���& ��� ���� ��/ ��� �� �� ����� ��� ���� ��� +����������� ����� ��& ��/ ��& +� � �� � ���� ��� ���� ��� 6 �� 7�� ���� ���& ����" ������ ����& based on the contents of the items included in components, four areas of competencies are created. the leadership component is saturated with the competencies describing one as a self-confident, self-sufficient, competitive, influential and efficient leader who knows how to deliver, present information – self-confident competitive leadership competencies. the problem-solving component describes an analytical and focused problem solver who is reliable, dependable and flexible teamwork player – analytical problem-solving competencies. the creativity component emphasizes a collection of traits integrating innovation and creativity, proactivity and initiative with curiosity and intrinsic motivation – intrinsically motivated creation competencies. the sociability component consists of self-controlled and ethical value compliance that helps to adapt to organizational reality and changes based on empathy, social intelligence and learning capacities – competencies needed for social adaptation. competencies that are expected from employees are to be a socially skilled leader capable of solving problems and intrinsically motivated to create and to be productive. 51 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) within this paper, two competency areas relevant for junior positions in an organisation were presented. first, based on combination of theoretical considerations and focus group results, the competencies were categorized into the following: readiness for work, interpersonal, entrepreneurship and personal. the second categorization is derived from the quantitative componential analysis of the respondents’ answers. the scale items formed four sets of competencies: leadership, problem solving, creativity and sociability. our empirically defined dimensions are similar to some other authors` findings. for example, some researchers recognised creativity and problem solving (jerman, et al., 2020; grzybowska & lupicka, 2017; suarta et al., 2017) and macnamara (2018) recognised leadership and sociability. easterly et al. (2017) recognised personal, leadership and communication. their personal characteristics integrate problem solving and creativity, while other dimensions also cover some aspects included in different categories. leadership and sociability might loosely be seen as affective, and problem solving and creativity (referring to mental processes) as a cognitive one in finch`s framework (2016). each component consists of a variety of competencies from different competencies’ domains enabling a person to be capable of dealing with tasks that each domain requires. it is presented that the first component which describes prevalently leadership behaviours is more important for junior managerial positions in different areas of business than it is relevant for it junior positions, as it is the case with interpersonal competencies. additionally, detailed results show that ability and willingness to learn is ranked as the most needed competency for employment, as did the results of pang et al. (2018). we found that this re-categorisation of the competency domains is more suitable for adjusting educational programmes in order to fit the demands of the future employers. bearing in mind the importance of responding to the employers` demands when preparing students to start their future careers, we recommend that curricula should be adjusted in a way that enables the development of these competencies. perceptions of competencies and their categories vary among studies and industries, as well as methodological approaches. it is hard to form one universal yet sufficiently specific categorization that can be implemented for different population and different purposes. this one is valid for the population we considered and has no intention to be imposed as the omnipotent and general model of organizing competencies. yet, we believe it could help scholars to choose a suitable path toward conceptualizing competencies and universities to adjust curricula in order to provide for the development of competencies that this labour market requires. in order to implement competency-based education, a more practical approach such as ‘real-world’ projects (khoo, zegwaard, & adam, 2018) should be implemented, as well as career counselling (lo, 2019) and career management competencies development (jackson & wilton, 2016). it is important, especially for serbian universities, to innovate their courses and teaching methods so competencies that are identified as important should be developed through many different courses in the study programme. this means that the approach should be changed, in that within each subject, regardless of which field of study it belongs to, in addition to domain knowledge, a focus should be placed on adding activities that develop these competencies. the main weakness of this study is in its scope, as it includes only a restricted set of occupational profiles. nevertheless, it is expected to shape the educational programmes to be more viable. also, while these dimensions are rather abstract, the potential implementation is limited. further research and activities should go toward a more precise specification in order to make them applicable and easier to integrate into curricula. it would make it possible to adapt and create concrete examples of training and educational programmes within existing or emerging courses. discussion and conclusion references [1] agnihotri, s., sareen, p., & sivakumar, p. 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(2018, december). the future of jobs report 2018. geneva: world economic forum. received: 2020-11-12 revision requested: 2020-12-17 revised: 2020-12-30 (1 revision) accepted: 2021-01-11 jelena anđelković labrović university of belgrade, faculty of organizational sciences, serbia jelena.andjelkovic.labrovic@fon.bg.ac.rs jelena andjelković labrović is an assistant professor at the university of belgrade, faculty of organizational sciences, department of human resources management. she teaches the following subjects: training and development, e-learning, human resource management and international human resource management. she is the author or co-author of many research papers in the field of human resources, and her particular interest is in e-learning of employees. she has participated in the implementation of several projects in companies in the field of human resource management as a consultant or researcher. about the authors ivana milinković university of belgrade, faculty of organizational sciences, serbia ivana.milinkovic@fon.bg.ac.rs ivana milinković is a teaching assistant at the faculty of organizational sciences, university of belgrade, human resource management department, where she teaches the following courses: business psychology, teamwork, interpersonal relations and group dynamics, leadership and motivation. she is also a ph.d. student interested in the fields of motivation, assessment and development of employee competencies, and leadership. nikola petrović university of belgrade, faculty of organizational sciences, serbia nikola.petrovic@fon.bg.ac.rs nikola petrović is a teaching assistant and phd student at the university of belgrade, faculty of organizational sciences, department of human resources management. he teaches courses in training and development, e-learning and human resource management. his main fields of interest include learning analytics, learning engagement, hr automation, and ethical aspects of learning process automation. ivana kovačević university of belgrade, faculty of organizational sciences, serbia ivana.kovacevic ivana kovačević is an associate professor at the university of belgrade, faculty of organizational sciences, department of human resources management. she obtained her phd degree in psychology at the faculty of philosophy at the university of belgrade. she teaches courses in the field of business psychology, human relations, teamwork and group dynamics, leadership and motivation. she is the author and co-author of papers and active in projects and research covering employee’s motivation, conflicts, digital competencies and psychological aspects of human-computer interaction. 54 jelena anđelković labrović , ivana milinković, nikola petrović, ivana kovačević 2022/27(1) << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03 26_3 vesna bogojevic:tipska.qxd 27 vesna bogojević arsić* university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2021/26(3) challenges of financial risk management: ai applications doi: 10.7595/management.fon.2021.0015 abstract: 1. introduction it is almost impossible today to manage financial risks without artificial intelligence (ai) techniques. there are a number of reasons for this, but undoubtedly one of the most important is the fact that traditional financial risk management approaches, methods and techniques became costly, time-consuming and insufficient. namely, the adequate combination of traditional financial risk management and ai approaches can provide basis for effective business application. this can generate more efficiency, confidence and potential for operation and growth in modern turbulent business environment of each participant regardless the industry. over the past ten years the challenges and issues that need to be solved can be summarized as: market risk modelling (day, 2017), evaluation of the so-called “market impact” (i.e., impact of firm’s own trading on market prices), validation of market risk management models (regan et al., 2017), cost reduction through identification of assets in which it would be desirable to take position (heaton et al., 2017). * corresponding author: vesna bogojević arsić, e-mail: vesna.bogojevic.arsic@fon.bg.ac.rs research question: this paper reviews different artificial intelligence (ai) techniques application in financial risk management. motivation: financial technology has significantly changed the business operations which required transformation of financial industry. the financial risk management needs to be restructured because the methods that have been used in the past became low effective. the artificial intelligence techniques proved their efficiency and contributed to fast, low–cost and improved financial risk management in both financial institutions and companies. idea: the aim of this paper is to present a state of ai techniques application in financial risk management, as well as to point out the direction in which further application and development could be expected. data: the analysis was conducted by reviewing various papers, books and reports on ai applications in financial risk management. tools: the relevant literature systematization was used to provide answers to the question to what extent ai techniques (especially machine learning) could be used in managing financial risk management. findings: artificial intelligence largely improved the market risk and credit risk management through data preparation, modelling risk, stress testing and model validation. artificial intelligence techniques can be useful in data quality assurance, text-mining for data augmentation and fraud detection. the financial technology will continue to affect the financial sector through requiring the adaption to new environment and new business models. because of that, it could be expected that artificial intelligence will become part of the financial risk management framework. contribution: this paper provides a review of artificial intelligence applications in market risk management, credit risk management and operational risk management. the paper identified the key ai techniques that could be used for financial risk management improvement because of financial industry transformation. keywords: artificial intelligence, market risk, credit risk, operational risk, machine learning jel classification: c19, c24, g17, g19. g21, g28, o36 financial technology (fintech) development in the period of the last five years has led to a fast development of artificial intelligence techniques that improved the wayin which financial industry operates. the use of different technologies (blockchain, artificial intelligence and big data analytics) has changed the financial industry and has enabled direct and easier access to financial services. regardless of this, fintech has introduced many risks that may deteriorate the participants' protection (e.g., market risk incompliance, credit rating underestimation etc.). this led to a disruption of finance, and within this, the need for financial risk management transformation and improvement. financial risk management will continue to use new technologies so that it can provide efficiency and a more reliable decision-making. in this regard, the use of ai became inevitable for both financial institutions and corporations. the rest of the paper is structured as follows: in the section two, the relationship between ai and financial risk management is presented. section three is about the use of ai in market risk management. section four considers the possibilities of ai use in credit risk management. the use of ai in operational risk management is presented in section five. the challenge of ai in financial risk management is analysed in section six. finally, concluding remarks and the directions for further research are given in section seven. 2. ai in financial risk management financial risk management today is in the process of transforming because of the influence of fintech that led to financial sector disruption. financial risk management is a practice of optimizing the way financial institutions or corporations can take on financial risk. in broader terms, ai is part of fintech and it has already changed the mode in which the financial risk is managed. besides, ai has helped financial risk management by increasing the decision-making efficiency. as it is already mentioned, ai is broad-field oriented towards the use of different techniques based on humanlike intelligence. these techniques use past experience (e.g., different data sets) in an efficient and intelligent way (mimic to human behaviour). the key ai technique is machine learning that enables data preparation and predictions which can be valuable for financial risk decision-making. machine learning types are supervised learning and unsupervised learning. supervised learning is based on collected data and tries to predict the outcome by using partial least squares, principal component analysis, least absolute shrinkage and selection operator, least angle regression, ridge, decision tress, support vector machine, artificial neural networks and deep learning techniques (van liebergen, 2017). all the mentioned techniques can be used in financial risk management. hence, some techniques are used more often in credit risk management. for example, principal component analysis is commonly used for credit repayment risk determination, credit assessment along with artificial neural networks (hamdy and hussein, 2016) but also as an input for neural networks for asset price and stock indices predictions (wang and wang, 2015) and equity portfolio management. in addition, support vector machine learning has been used for default risk predictions (nazemi et al., 2018), credit scoring (harris, 2015), credit default prediction (abedin et al., 2018), credit risk evaluation (lean, 2014), estimation of value-at-risk (radovic and stankovic, 2015) etc. a combination of support vector machine with some other machine learning techniques (e.g., neural networks) showed advantages in comparison with traditional ones. the unsupervised techniques are used for better classification among the data and for the creation of cluster groups enabling to get signals that might be included in decision-making. finally, deep learning and neural networks should be viewed as a part of both supervised and unsupervised machine learning because they can be applied to outcome prediction (e.g., level of market or credit risk) as well as to learning from data and providing more reliable indicators for financial risk management. artificial neural networks are widely used for credit risk prediction (pacelli and azzollini, 2011), credit risk evaluation and asset price predictions. deep learning combines artificial neural networks with techniques that enable an automatical discovering of the representative data for variable detection and/or to make classification from data. in other words, deep learning uses a hierarchical level of artificial neural networks that enables processing the data using a nonlinear approach. this technique represents a new technique which adds so-called hidden layers (variables) to input data and allows for modelling the influences among them. that way deep learning helps 28 vesna bogojević arsić 2021/26(3) solving the problem known as a „black box”. this is of great importance for financial risk management because the “black box” is immanent in financial risk decision-making. deep learning can be used for estimation of asset pricing models for individual stock returns through combining different deep learning techniques (chen et al., 2019). besides, deep learning can be applied in market risk management, trading book risk management of banks, trading risk prediction etc. (kim et al., 2019). 3. use of ai in market risk management market risk refers to changes in financial instruments' or contracts' values due to unpredicted fluctuations in asset prices, i.e., commodity prices, interest rates, foreign exchange rates and other market indices. in other words, market risk is the risk of portfolio's value fluctuations due to changes in price level or market price volatility (bogojevic arsic, 2009, p. 333). this suggests that every participant in financial market is exposed to market risk, directly or indirectly. depending of the financial strength and the position size exposed to this risk, participants need to manage this risk. in this regard, financial institutions strive to manage this risk actively choosing the type of market risk to which they want to be exposed based on their knowledge about market prices’ volatility. in contrast, nonfinancial companies seek for mitigating or, if possible, removing this risk together with other risk types (to mitigate market risk or to eliminate it along with other risk types). ai techniques can be helpful and their implementation in market risk management may lead to significant improvements. machine learning as core ai technique can contribute to better market risk management the most. the financial stability board (2017) points out that market risk management has benefited from ai use in every stage of the process, i.e., from data preparation, to modelling, stress testing and model validation. the major contribution in data preparation gave machine learning techniques which proved their ability to deal with raw data taken from financial market and institutions or companies. machine learning techniques (such as decision trees, neural networks and deep leaning) showed that they can be used for cleaning the data, but also that they are able to, to some extent, overcome the missing or inaccurate data problem which is presented in papers of garcýa-laencina et al. (2007), garcia-laencina et al. (2008), twala (2009), ding and simonoff (2010), ghrobani and zou (2018) and wang et al. (2019). different machine learning techniques are also applied in classification which enabled more accurate data to be then used as inputs for model creation. this model includes also risk of using inadequate or incomplete or incorrect or, in some instances, risk of using the model that is no longer valid. in this regard, ai techniques (e.g., different machine learning techniques) can be used for market model stress testing for unintentional risk determination. in addition, model stress testing can be used in identification of risk which influences the trading behaviour and which can provide the benchmark or feedback mechanism for market risk decisions improvement or modification. a number of financial institutions have tried to use machine learning for value-at-risk estimation and expected shortfall (wilkens, 2019), but also to trading books because this has become a significant source of risk during the financial crisis in 2009 (such as pnp paribas). depending on model risk, source of risk and measurement of risk, the possible implementation of ai differs (klein et al., 2015). abramov et al. (2017) gave an overview on how to run market risk model validation and how machine learning techniques should be used so that the market risk managers could make better decisions regarding market risk reduction and quantification of acceptable market risk level. in one word, ai applications are inevitable because of their potential to lower the operating costs and provide more reliable data for financial risk management decision-making, which in turn enables financial institutions and companies, not only to survive, but to compete and grow. 4. use of ai in credit risk management credit risk is the risk of economic loss due to counterparty's inability to meet its contractual obligations. accordingly, credit risk represents a risk of incurring loss because of borrower default or because of his credit quality reduction (bogojevic arsic, 2009, p. 439). the credit risk management represents a process of risk factors identification and analysis, measuring the risk level and selecting the appropriate measures of credit activities management in order to lower and/or to eliminate the credit risks. over the past few 29 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) decades a range of different statistical techniques have been used in credit risk management. but with the emergence of fintech, those methods became insufficient and frequently not efficient enough in dealing with credit risk. due to incompleteness of traditional techniques use in credit risk modelling, financial institutions started to use ai techniques for credit risk management enhancement. ai techniques have shown better performance in credit risk modelling in comparison with traditional statistical techniques, but only their combination can improve accuracy (altman et al., 1994). the most complex task is the credit risk assessment with ai techniques (such as machine learning). ai can help in credit event determination and cost of default estimation in the situations where credit risk occurs (bogojevic arsic, 2020). machine learning is used for enhanced lending decisions, both consumer and small and mediumsized enterprises lending. decision trees and support vector machine application can provide significant cost savings (khandani et al., 2010) and better credit risk modelling (yao et al., 2015). the use of multivariate outlier detection machine learning techniques improved credit risk estimation in small and medium-sized enterprises lending (figini et al., 2017). besides, deep reinforcement learning method as a novel method for feature selection can be used for credit risk analysis improvement (ha and nguyen, 2016). in addition, machine learning techniques helped lending-based crowdfunding development through improvement of credit scoring and credit rating profiles creation which helped the borrowers (especially, the startups and small companies) to get loans and lenders to have trust in the data presented and to be willing to extend the loans (byanjankar et al., 2015) (ha et al. 2019). finally, deep learning has proven its advantages in comparison with traditional techniques in credit default prediction and credit risk prediction both in traditional and alternative lending through lending platforms and credit (son et al., 2016; thang et al., 2019; van-sang et al., 2019; hou, 2020). 5. use of ai in operational risk management operational risk is the risk of incurring loss due to physical decay, technical incompetence and human error in business operations of enterprises and institutions, including the fraud, unsuccessful management and process errors (bogojevic arsic, 2009, p. 530). however, this type of risk for each enterprise or institution has a different meaning because of their specifics (e.g., business portfolio structure, risk preferences etc.) that affect operating risk exposures. in this regards, ai can help enterprises and institutions in every stage of operational risk process (sanford and moosa, 2015). a study conducted by the orx association, the largest operational risk association in the financial sector, showed that risk managers concluded that ai should be more included in operational risk management and that investing in ai tools application could provide running business in a more competitive, predictive, low costing, less risky and a more efficient way (carrivick and westphal, 2019). ai can be useful in creating an adequate strategy of operational risk mitigation as well as in deciding whether to shift or to trade this risk and how to do this. the application of ai in operational risk management has to start from data preparation and classification and analysis of large data and the performances to prevent external losses). the ai, and especially the machine learning, can contribute operational risk management through (carrivick and westphal, 2019): reduction or elimination of time-consuming and repetitive tasks and process (e.g., some financial institutions managed to reduce the number of processes that needed to be reviewed), deeper insight into data (to get valuable data), easier decision-making process based on providing both wider and more concise information, development of skilled employees and managers that communicate with regulators and customers, and economy of scale through speed and accuracy throughout the organization. the main areas where machine learning techniques can support operational risk management are: data quality assurance, text-mining for data augmentation and fraud detection (carrivick and westphal, 2019). machine learning can be helpful in collecting quality data by identifying duplicated data entries and extreme data values more accurately (e.g., to unsystematic or less probable risk identification). application of 30 vesna bogojević arsić 2021/26(3) machine learning may help to analyze the large amounts of data needed for risk management (e.g., internal and external loss data, internal risk indicators, macroeconomic data etc.) and to store and maintain data. in this way, different machine learning techniques can make a categorization of individual entries and augment the data. finally, the most common use of machine learning is to detect the fraud and money laundering. the fraud is not easy to detect and is commonly done by financial transaction classification into suspicious and harmless. machine learning can help by appropriate classification of these transactions as well as by reduction of false alarms where fraudulent transactions are overlooked. the common machine learning implementation is useful in preventing credit card fraud detection, but it can be also used for securities fraud detection (stock fraud, foreign exchange fraud, commodity pool fraud etc.). 6. challenge of ai in financial risk management evolution of ai in financial risk management is multidimensional and depends on many variables (nature of business, specific business lines, organizational structure, geography, regulations etc.). chartis research (2019, p.45) indicates that ai techniques have been mostly applied in retail banking, commercial banking and capital market financial risk management. in retail banking ai has used for modelling improvements and stress testing through supervised machine learning techniques and classification methods (such as support vector machine and decision trees). the further development of ai implementation will be toward behavioural models, scenario generation and behavioural and segmentation integration in asset pricing and portfolio optimization. commercial banks represent a great challenge to ai application because of their relatively poor data management with big and complex documentation, not well structured data of benchmarks and credit curves. some activities, such as passive strategies, need to be automated to some extent to ensure profitable operating. besides, ai applications could be expected in scenario creation and testing, credit risk analytics and credit portfolio management. lastly, in capital markets ai (i.e., different machine learning techniques) has been applied for database creation, yield curve and volatility surface anomaly detection and portfolio construction. in the near future more sophisticated and advanced ai applications can be expected in scenario creation, model validation, portfolio optimization and credit and equity risk modelling. 31 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) conclusion the further development of fintech will continue to influence significantly the financial risk management. this influence will require further financial risk management transformation and change. in this regard, it could be expected that ai will become part of financial risk management framework of financial institutions and other participants in the financial market. this means that ai would provide automation and simplification in data management, improved stress testing and scenario generation and new methodology for dealing with complex, multivariable problems and non-linear optimization (chartis research, 2019, p.48). in addition, wider application could be expected in equity-based and lendingbased crowdfundig through facilitation and acceleration of raising capital by equity issuance or loan approval to potential borrowers. besides, ai can contribute to improving credit scoring of potential borrowers and creation of their credit rating which is essential for platforms’ functioning as an intermediary in the crowdfunding process. based on the above, it follows that there are no barriers to ai techniques application in financial risk management. the application of these techniques will deliver accurate real-time information on financial risk types to which institutions and companies are exposed and which need to be managed in an advanced manner. namely, efficient and improved financial risk management will combine traditional statistical techniques with 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(2019). applying a nonparametric random forest algorithm to assess the credit risk of the energy industry in china. technological forecasting & social change. 144, 563-572. doi: 10.1016/j.techfore.2018.03.007 [34] twala, b. (2009). an empirical comparison of techniques for handling incomplete data using decision trees. applied artificial intelligence, 23(5), 373-405. doi: 10.1080/08839510902872223 [35] van liebergen, b. (2017). machine learning: a revolution in risk management and compliance? journal of financial transformation, 45, 60–67. retrieved from: https://capco.com/capco-institute/journal-45transformation/machine-learning-a-revolution-in-risk-management-and-compliance [36] van-sang, h., dang, n.l., gyoo, s.c., ha, n.n. & yoon, b. (2019). improving credit risk prediction in online peer-to-peer (p2p) lending using feature selection with deep learning, 21st international conference on advanced communication technology (icact). doi: 10.23919/icact.2019.8701943 [37] wang, j. & wang, j. (2015). forecasting stock market indexes using principle component analysis and stochastic time effective neural networks, neurocomputing. 156, 68-78. doi: 10.1016/j.neucom.2014.12.084 [38] wang s., li b., yang m. & yan z. (2019). missing data imputation for machine learning. in: li b., yang m., yuan h. & yan z. (eds) iot as a service. springer. [39] wilkens, s. (2019). machine learning in risk measurement: gaussian process regression for value-atrisk and expected shortfall. journal of risk management in financial institutions. 12, 374-383. doi: 10.2139/ssrn.3246131 retrieved from: ssrn: https://ssrn.com/abstract=3246131 [40] yao, x., crook, j. & andreeva, g. (2015). support vector regression for loss given default modelling. european journal of operational research. 240, 528-538. doi:10.1016/j.ejor.2014.06.043. received: 2020-12-06 revisions requested: 2021-01-11 revised: 2021-02-18 accepted: 2021-03-16 vesna bogojević arsić university of belgrade, faculty of organizational sciences, serbia vesna.bogojevic.arsic@fon.bg.ac.rs vesna bogojević arsić, phd, is a full professor of financial markets, corporate finance and financial risk management at the department of financial management and accounting, faculty of organizational sciences, university of belgrade. her research interests and fields are related to corporate finance and restructuring, financial markets, financial risk management, portfolio management and financial engineering. the author has published 7 books and over 100 scientific papers in journals and conference proceedings in international and national journals and conferences. 33 management: journal of sustainable business and 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice stanojevic:tipska.qxd 1 kristina stanojević1, dragana makajić-nikolić1, goran radovanović2 1university of belgrade, faculty of organizational sciences, serbia 2ministry of defence, university of defence belgrade, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming optimization of the financing of the raw material inventories: case study doi: 10.7595/management.fon.2021.0005 abstract: 1. introduction financial and operative decisions within the companies are mutually dependent because the appropriate amounts of monetary assets enable good operative decisions which further affect the assets and financial balance of the company (babich & sobel, 2004; caniato, henke, & zsidisin, 2019). the same applies to the case of inventory management which represents an important segment of the company’s production business and its performance (song & song, 2009). market and demand unpredictability, together with the unnecessary cost of keeping a high level of inventories require special attention. this characteristic of both the market and demand can be reduced by proper analysis and prediction since the management of inventories directly depends on demand prediction (atanasov, rakicevic, lecic-cvetkovic & omerbegovicbijelovic, 2014). the aspirations of the company should be aimed at the determination of optimal quantities of inventories, more precisely, minimally required for adequate functioning of the company (lai, debo & sycara, 2009). from the financial point of view, keeping a too high or a too low level of inventories has a negative influence on a business (abbasi, wang, & abbasi, 2017). in the former case, there are substantial costs of the capital blocked in inventories, which implies large interests or opportunity costs, storage and security costs, etc. in the latter case, a shortage of inventories leads to business losses due to production halt and loss of position in the chain of supply (basu & wright, 2010). also, financing opportunities can influence decisions about inventory levels (chod, 2016; marak & pillai, 2019). * corresponding author: kristina stanojević, e-mail: kristina.stanojevic992@gmail.com research question: optimal financing of the raw material inventories in the copper processing industry is perceived as a problem of choosing the financing sources and determining the purchase dynamics. motivation: the company can realize the financing of raw material inventories from multiple sources under various conditions. the company efforts should be aimed at reducing the total costs that can occur in the process of purchase. each company should simultaneously strive to satisfy the demand, but also to avoid keeping the excess of cash assets in inventories. idea: the core idea of this paper is to evaluate the optimal financing of raw material inventories by the usage of the mathematical model that refers to the determination of financing sources, from which the required assets should be borrowed. data: for the purpose of the case study example, the data used in the paper are approximations of information from the company and metal stock exchange. tools: excel was used to predict demand, while glpk programme (gnu linear programming kit) was used for the optimization of the defined model. findings: the paper defines an optimization problem for determination of the financial sources, optimal periods, and the number of assets that will be used from these sources to secure continuity of the production process with minimum purchase costs. the paper also formulates a mathematical model of this problem and then illustrates it on the example of the real-life company for copper processing. contribution: the results of this study show that such analysis gives the decision-makers a better insight into the possible scenarios while the final decision depends on their assessment, flexibility, attitude towards risk, need for security, etc. keywords: inventories management, short-term financing, linear programming, raw material, industry of copper processing. jel classification: c61, d25 the existing literature offers a large number of studies related to the correlation of financial and operative decisions and the inclusion of financial elements in inventory management (jing & seidmann, 2014; zhi, wang, & xu, 2020). often, a typical eoq model is extended by financial elements such as loan period and discount (sana & chaudhuri, 2008) or by the inclusion of various types of loan policies (dye, 2012). chen, kok and tong (2013) investigate how options of financing affect the decisions on inventory levels. a problem of inventory financing is less observed in the literature and the related publications are mostly of recent date. gong, chao and simchi-levi (2014) observe the problem of short-term inventory financing and solve it using dynamic programming; dada and hu (2008) extend the model of newsvendor problem by costs of borrowing cash assets for financing the optimal quantity purchase; buzacott and zhang (2004) implement financial constraint within the model for decision-making on production and inventories; chen and teng (2015) carry out the analysis of cash flow within the decision-making on inventory loan; yang and birge (2013) developed a model for determination of optimal portfolio for inventory financing, which consists of several sources: cash, commercial loans and short-term loans; moussawi-haidar and jaber (2013) developed a mathematical model which simultaneously determines the amount of money that the company should possess, the amount that should be invested in financial security and the amount that should be borrowed to finance the inventories; chen, zhao and su (2017) introduced an inventory model for raw materials with price fluctuations with the goal to minimize total costs; katehakis, melamed and shi (2016) consider operative and financial policy of the company, which should determine the amount of cash assets that should be borrowed for financing the inventories, while kouvelis and zhao (2012) developed a model for determination whether purchase financing is more profitable by supplier or by bank loans. the subject of this paper is the optimal financing of raw material inventories. the approach that will be presented in the paper can contribute to better inventory management in the metal processing industry in which the entire production depends on the availability of the main raw material. given that this industry is characterized by large-scale production, which requires a large amount of raw materials, companies are often faced with the problem of liquidity. consequently, inventory management is largely related to the problem of liquidity resolution. in our approach, needs for inventories are expressed in money and the problem which is modelled and solved refers to the determination of financing sources, from which the required assets should be borrowed. the original mathematical model for optimization of raw material purchasing in copper processing industry is formulated based on the model of short-term financing optimization (cornuejols, pena, & tutuncu, 2018; sana, ferro-correa, quintero, & amaya, 2018). by including fixed purchasing and transportation costs into the model, the optimal solution refers not only to the choice of sources and dynamics of financing, but also to the amount and dynamics of procurement of raw materials, i.e., to inventory management. 2. mathematical model formulation the specificity of this problem is that copper is primarily a stock exchange good, therefore the price of this raw material changes daily and is highly dependent on different macroeconomic impacts (willing, 2020). companies within this branch of industry need to keep the inventories of this raw material on the optimal level. management of inventories in this paper will be observed through short-term purchase financing of this raw material. they can ensure the financing of raw materials' purchasing from various sources. it is important to provide the liquidity of the company because the lack of it represents one of the significant risks which can cause production delay (njegomir & demko-rihter, 2015). it is important to determine where from, how much, and when to ensure cash assets, with minimum costs of interests and orders. for the defined problem, an original mathematical model of optimal financing of the inventories has been formulated. in each of the observed periods, it is necessary to determine the quantities of copper needed, the amount of cash assets for financing this purchase, as well as the sources which will finance this purchase. considering that the company deals with copper processing only, and not with its trading, it should aim to predict and plan the necessary amounts of this raw material and then to determine the necessary cash assets for its purchase. for each period, the amount of raw materials necessary to satisfy buyers` demands can be predicted, and it can be obtained either from the purchase or from the inventories. the purchased amount of raw materials will be smaller than needed, if there is already a certain amount in stock from the previous period, or larger, when an excess of raw materials should remain in stock for the next period. possible excess of raw materials is limited since the maximum level of inventories is defined. based on quantities of raw materials needed and their purchase cost, the cash flow for the observed period is determined (huff & rogers, 2015). in this paper, we assume that cooper prices can be satisfactory predicted (buncic & moretto, 2015). every source of financing has different conditions for financing and 2 kristina stanojević, dragana makajić-nikolić, goran radovanović forthcoming different interest rates, which in this case represents one of the costs of the purchase (pal, sana & chaudhuri, 2014). besides these costs, the specificity of copper as stock exchange goods is also characterised by the costs of the stock market agent per tonne of copper and the premium costs, as well as fixed customary purchase costs. for the observed problem, the mathematical model is formulated which determines the dynamics of raw material purchase, optimal combinations of short-term financial sources of purchase, and the amount of cash assets that provide minimum costs. the following notation was used: • set of the period; • set of financing assets; • the subset of the period starting from the second. • additional unit purchase cost (fixed cost of purchase per tonne of copper/price of copper per tonne; • the maximum level of inventories; • correction quotient; • need for cash assets in -th period, ; • the maximum amount of assets in -th period from -th financing source, ; • interest for -th financing source, ; • the fixed expense of transport for every purchase of raw material. • amount of financing in -th period from -th financing source, ; • amount of inventories in -th period, ; . the mathematical model of the described problem has the following form: (1) s.t. (2) (3) (4) (5) (6) (7) 3 management: journal of sustainable business and management solutions in emerging economies forthcoming the objective function (1) represents total additional costs that occur with the ordering of the raw materials in all observed periods, including: costs that occur with each order and depend on the ordered amount, interest costs which depend on chosen financing source and fixed ordering costs. the first constraint (2) refers to the first period and ensures that the total sum of assets from all financing sources, reduced for interest costs, costs which occur in order, fixed costs of ordering, and excess that remains on inventories, equals the necessary amount of assets in the first period. the second constraint (3) is related to remaining periods and in contrast to the first period comprises also the amount which remained in inventories in the previous period and is available in the observed period. the third constraint (4) represents the maximum amount of assets that can be ensured in each of the periods, depending on the financing source. the ffourth constraint (5) refers to the maximum amount of inventories, whereas the fifth constraint (6) connects the variable that represents a decision on purchase and the variable that represents the amount of acquired cash assets. 3. results the proposed approach will be illustrated on the example of the company in the republic of serbia as a case study. in this industry, the most common method of obtaining financial resources is short-term financing methods which are further analysed in the following scenarios. before the formulation of the mathematical model, the prediction of necessary quantities of copper has been carried out, for the intended period within which the optimization is performed. out of the total range of products, ten selected products were included in the analysis. the observed period was 31 days, within which the necessary amount of raw material was determined for each day, hence the cash flow, i.e., the amount of necessary cash assets from the available financial sources. for the prediction of demand, three forecasting methods were used, as follows: moving average, exponential smoothing, and linear trend (stevenson, 2005). the only purchase observed is the purchase of copper for selected products. the demands for selected products, realised in the previous two months, more precisely within 61 days, were observed. the three mentioned forecasting methods were evaluated by mean square error. since the best method in 70% of the products was the method of a linear trend and the differences in errors with other products were insignificant, the chosen method for prediction of all ten products was the method of a linear trend. based on the obtained predicted quantities, the total amount of raw materials that are necessary to purchase from the supplier every day was determined. based on the average price of copper, the amount of money needed for financing of raw materials was calculated. the part of the obtained values is shown in table 1. table 1: predicted required quantities of raw materials and cash assets as a source of financing for its raw materials the company has factoring and advance payment. factoring represents a financial service by which the companies sell their invoices. a factor is a person, most often banks or agencies, specialised for this kind of business, that buys out the invoice. thus a client sells the invoice to the factor before its due date and the factor pays the invoice at the time of taking over the debt with a certain commission (lekkakos & serrano, 2016). the advance payment refers to the payment process where the delivery of the goods is carried out after the executed payment. it is most often applied to products (services) that imply certain specifications from the buyer`s side (zhang, dong, luo, & segerstedt, 2014). the additional condition in the observed period was that, if there is an advance payment, it can make, on 4 kristina stanojević, dragana makajić-nikolić, goran radovanović forthcoming ������� ������ �� �� � � � � � �������� � �� ��� � ��� � ��������� �� ���� � ��������� �� �� � � ������ �� ��� ���� � ������ �� �� ���� � ��������� ��� ���� � ��� ����� ��� ���� � ��� ��� ��� ���� ��� ���� ���� �� ��� ����� ��� ���� �� ������ �� ��� ���� �� ������� � �� ���� �� ������� � �� � �� � ���� ��� ��� ���� �� � ��� ��� �� ���� � average, 40% at the most, out of total necessary assets. besides, there were ten days when the advance payment was not possible. in the actual example, cash assets can be secured from the mentioned sources under the following conditions: 1. the maximum amount of assets secured by factoring, which can be paid in one period is 300,000$, with 3% interest; 2. the maximum amount of assets that can be realised by advance payments in available periods is 66,000$. the costs that are incurred in ordering the raw materials and that depend on the ordered amount are 120$/t. these costs comprise payment of the stock exchange agent per tonne of copper and commission payment per tonne of copper. besides, there are fixed ordering costs that are $3,000 per order. in the case of a surplus of cash assets in a certain period, the excess is considered as a balance of raw materials on inventories. the maximum amount that can be found on inventories is 50t, consequently, the maximum value of raw materials on inventories is $250,000. a formulated mathematical model was solved using glpk programme (gnu linear programming kit, 2012). based on optimization results of the initial state, the total minimum costs of the purchase of raw materials are $356,331.24. the optimal solution represents quantities of assets that need to be funded by factoring and advance payment. table 2 shows the amount of assets per source of financing in each of the periods. the maximum amount of assets that can be obtained from the source of factoring was taken 12 times, whereas, for the remaining six periods, the assets taken were smaller than the maximum allowed. the advance payment occurred 14 times in the observed time and each of the periods the maximum available amount of cash assets was used. the total amount of assets obtained by factoring and advance payment are $5,188,060 and $924,000, respectively. the inventories at the end of the observed period equal zero, whereas during a time, the amount of inventories changes (table 3). scenario 1 to achieve an even greater security regarding the financing of the raw materials, the company can also use commercial papers, which could also make purchase financing possible. in this case, the same assumptions are valid as in the initial state, except that, in addition to sources 1. and 2., there is one more extra source of financing: 3. the maximum amount of money that can be gained with the help of commercial papers is $250,000, with a 10% interest rate. in this scenario, the minimum total costs are $350,456.5928. it is necessary to ensure the maximum available amount of assets for 11 periods by factoring, whereas for the remaining three periods the ensured assets are smaller than the maximum allowed. the advance payment is used completely in a total of 16 periods. the assets from commercial papers are obtained for four periods. the total amount of assets that have to be obtained by factoring, advance payment, and commercial papers are $4,916,043, $1,056,000, and $69,728, respectively. in the observed period, the raw materials should be ordered 17 times. it is necessary to form inventories during time so that they are not ordered in each period, but they should best be spent in the last observed period. table 2 shows the amount of assets per each source of financing, whereas table 3 shows raw material inventories levels. scenario 2 to provide larger flexibility regarding inventories that are at the company`s disposal, the company holds $200,000 worth of inventories/40t, that are placed at production disposal at the beginning of each month. in order to secure itself for the following month, the company must control these inventories to ensure the same amount of inventories at the end of each month that can be used in the following month. sources that the company now has at its disposal, by which these needs can be satisfied with sources 1. and 2. as well as: 4. inventories of the company itself were observed as a source of financing $200,000 worth/40t, for the whole observed period. by using its own inventories as the source, the company has no interest costs, but it has an obligation at the end of the month to provide the same or larger amount of inventories than those that existed at the beginning of the month. 5 management: journal of sustainable business and management solutions in emerging economies forthcoming the introduction of its own inventories requires a change in constraints of the mathematical model. this change appears at constraint (2) which refers to the first period, to which company`s own inventories are added on the left side of constraint and a new constraint is added (8) which refers to the amounts of inventories which have to be larger or equal to the quantities of company`s own inventories which were at disposal at the beginning of the observed period. (2’) (8) in this scenario, the minimal additional costs are $357,409.452. financing sources and the amount of cash assets per period are shown in table 2. it is necessary to order raw materials 19 times. all available assets from factoring should be used within 11 periods and within seven periods only a part of available assets. for 15 periods it is necessary to obtain all available assets by advance payment. using factoring, it is necessary to obtain $5,123,138, whereas by advance payment the amount is $990,000. the amount of raw materials in inventories are changeable during a time, but eventually, they come down to the minimum. at the end of the observed period, the inventories are precisely 40t ($200,000), although they are permitted to be larger (table 3). table 2: amount of assets obtained depending on the source of financing, in dollars table 3: inventory level, in dollars 6 kristina stanojević, dragana makajić-nikolić, goran radovanović forthcoming ������� ���� ������� ��� ������� ��� ������� ������� �� ���� ��� ������� �� ���� ��� ��������� �������� ������� �� ���� ��� �� �������� ������� �� �� � ������� � �� � ������� �� �������� ������� �������� � � ������� ������� �� � � � � � � � �� �������� ������� �������� ������� ������� �������� ������� �� � � � � � � � �� �� � ��� ������� �������� ������� � �� � ��� ������� �� �������� ������� � � � �������� ������� ���� ���� ���� ���� ���� ���� ���� ���� ��� �������� � �������� ������� � � � ��� � � � � � �������� ������� � � �������� ������� �������� ������� � � � �!� � � � � � �������� ������� �"� �������� ������� �������� ������� � � � ��� � � � � � �� �� �� ������� ������� ���� ������� ��� ������� ��� ������� �� �������� �������� ������ � ������� ������ ������� �� ���� �� �� � ���� �� �� ���� ��� ������� ���� ��� � � ������� � �� � ����� �� �� �� � ����� � ������ � ������ ���� ���� ���� ���� �� �������� �������� �� � � � ����� � ����� ������� �� ���� � � ���� � � � ����� �� ���� � ���� � ��� �� ��� � �� � � � �� � � ���� � ��� � � ������� 4. discussion progress of the inventories level can be compared for three observed scenarios (figure 1). figure 1: representation of inventories levels total costs for each of the presented cases are shown in table 4. table 4: optimal solutions gained, in dollars additional source of financing, such as commercial papers, provides lower costs, besides offering the company certain flexibility regarding the options for managing available assets and greater insurance from the delay and shortage of inventories. if the company decides to have its own inventories, the costs will be higher than in two other cases. the company with its own inventories has certain flexibility in decisionmaking and yet does not create a larger increase in costs in comparison with the initial state where there are no preliminary inventories. the total cash assets necessary for each of the financing sources are shown in table 5. table 5: the total necessary cash assets, depending on financing source, in dollars the company obtained the largest amount of necessary cash assets by factoring, in all three cases. the major amount of cash assets by factoring will be used in the initial state, whereas the option of the advance payment will be used less than in the two other scenarios. the largest amount of total resources borrowed appears in scenario 2 and the smallest in scenario 1. 7 management: journal of sustainable business and management solutions in emerging economies forthcoming ������� ������ ����� ������� � ������� � ��������� � � � ��������� � ��� �� ���� � ������� �� ������� ������ ����� ������� � ������� � ������� � � ��� ���� � ��� ���� � ��� ���� ���� �������� �� ��� ���� � ��� ���� ��� ���� ������������������ � �� !��� � "����� � ��� ���� � ��� !!�� � ��� ���� � the total number of purchases in the initial state, scenario 1 and scenario 2 is 18, 17, and 19, respectively. in scenario 1, the number of orders is the smallest, which is positive, since each order has its own fixed cost. besides, scenario 1 mostly uses the option of the advance payment, which is also positive, because this option of financing does not require paying the interest. scenario 1 requires the smallest amount of total necessary assets and generates the lowest additional costs, which is a consequence of financing from the additional source in comparison with two other scenarios, which enables greater flexibility. the suitability of using the proposed model in examining different scenarios is obvious. however, its biggest contribution is that it combines the costs of borrowing finance to maintain liquidity and the cost of purchasing raw materials. as can be seen from the results of the scenario, there are days when companies should not borrow money, i.e., they should not purchase raw materials. in this way, financial decision making and decision making related to inventory management were combined, which was the goal given the interdependence of these decisions. 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(2015). inventory and credit decisions for time-varying deteriorating items with up-stream and down-stream trade credit financing by discounted cash flow analysis. european journal of operational research, 243(2), 566-575. doi: 10.1016/j.ejor.2014.12.007 [11] chod, j. (2016). inventory, risk shifting, and trade credit. management science, 63(10), 3207-3225. doi:10.1287/mnsc.2016.2515 8 kristina stanojević, dragana makajić-nikolić, goran radovanović forthcoming the subject of this paper is the optimal financing of raw material inventories in the industry of copper processing. the problem of determination of financing assets necessary to the company, sources from which these assets should be obtained and the periods within which the necessary raw materials should be acquired has been observed. the company has various sources of financing at its disposal to obtain the assets for raw material purchasing. as well as to provide raw materials, it is also necessary to reduce total additional purchase costs to a minimum. the mathematical model of this problem has been formulated in this paper as well and it has been applied to a real-life example. the company should tend to secure such inventories which will meet the demand, bearing in mind at the same time not to create an excess of inventories so that it does not needlessly block its cash assets and therefore create the expenses in the form of interest for using these cash assets. in the given case study, the company should use multiple sources of financing, because together with the adequate optimal combination of financing the orders, this turned out to be the best solution from the total costs perspective, as well as regarding flexibility in the management of inventories. additionally, decision makers have better insight into possible scenarios when making decisions, which combined with their own personal preferences results in final decisions. conclusion [12] cornuejols, g., pena, j., & tutuncu, r. 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(2020, december 10). copper price forecast 2020 and beyond: will the market recover from covid-19 disruptions? capital.com. retrieved from https://capital.com/copper-price-forecast-2020 [32] yang, s. a., & birge, j. r. (2013). how inventory is (should be) financed: trade credit in supply chains with demand uncertainty and costs of financial distress. doi: 10.2139/ssrn.1734682 [33] zhang, q., dong, m., luo, j., & segerstedt, a. (2014). supply chain coordination with trade credit and quantity discount incorporating default risk. international journal of production economics, 153, 352360. doi: 10.1016/j.ijpe.2014.03.019 [34] zhi, b., wang, x., & xu, f. (2020). impawn rate optimisation in inventory financing: a canonical vine copula-based approach. international journal of production economics, 227, 107659. doi: 10.1016/j.ijpe.2020.107659 received: 2020-09-02 revision requested: 2020-11-02 revised: 2021-01-28 (2 revisions) accepted: 2021-01-29 9 management: journal of sustainable business and management solutions in emerging economies forthcoming 10 kristina stanojević, dragana makajić-nikolić, goran radovanović forthcoming about the authors kristina stanojević university of belgrade, faculty of organizational sciences, serbia kristina.stanojevic992@gmail.com kristina stanojević is currently a phd candidate at the university of belgrade, in operation research. she received a bachelor's degree in operations management, masters' degrees in business analytics, and environmental management and sustainable development from the faculty of organizational sciences. dragana makajić-nikolić university of belgrade, faculty of organizational sciences, serbia dragana.makajic-nikolic@fon.bg.ac.rs dr dragana makajić-nikolić is an associate professor at the university of belgrade, faculty of organizational sciences, serbia, where she acquired her ph.d. (2012) degree in operation research. the areas of her research include: mathematical modelling, optimization methods, reliability and risk analysis. goran radovanović ministry of defence, university of defence belgrade, serbia goran.radovanovic@vs.rs goran radovanović, ph.d., earned his m.sc. and ph.d. degrees (military management) from the military academy, university of defence in belgrade, in 2007 and 2016, respectively. currently, he is rector of the university of defence, belgrade, the republic of serbia. he has published more than 40 research papers at national, international conferences and in national and international journals. his research activity and interest are focused on military management, military developments, terrorism and its security implications, international relations and world politics, as well as methodology of control in different fields. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice maric:tipska.qxd 1 miha marič1, ivan todorović2, jasmina žnidaršič1 1university of maribor, faculty of organizational sciences, slovenia 2university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming relations between work-life conflict, job satisfaction and life satisfaction among higher education lecturers doi: 10.7595/management.fon.2021.0008 abstract: 1. introduction the present time is characterized by high competitiveness on the market and the rise of modern information technology, as well as by the demands for constant readiness of employees and long working hours. various research indicates that as the trend towards families in which both parents work is also increasing, individuals often face the problem of how to balance all work and family commitments. the lack of time or capacity and energy of the individual leads to the so-called conflict between work and family, which has many negative consequences, including lower satisfaction at work and in life in general (tasdelen-karckay & bakalým, 2017). work organizations can make a significant contribution to reducing work-life conflicts. a healthy working environment in which individuals feel well and respected, as employees as well as persons with a private life, contribute to higher job and life satisfaction (lee, grace, sirgy, singhapakdi & lucianetti, 2018). also, * corresponding author: jasmina žnidaršič, e-mail: jasmina.znidarsic@um.si research question: the central research objective of this study was the empirical examination of the relationships between the construct of work-life conflict in terms of life satisfaction and job satisfaction. motivation: modern business environment is highly competitive and frequently demands constant participation of employees in the business tasks despite their official working hours or formal job descriptions. this practice did not spare the employees in education (devonport, biscomb & lane, 2008; salami, 2011), although they are generally satisfied with their jobs (jordan, miglic, todorovic, & maric, 2017). a healthy work environment is that in which the individual feels comfortable and respected, both as an employee and as a person with a private life that is important for individual satisfaction. as lecturers and researchers employed in higher education institutions, we wanted to examine the work-life balance among our colleagues. idea: our main idea was to empirically test a structural model that connects three constructs: work-life conflict, life satisfaction and job satisfaction among the higher education lecturers from different european countries and to determine the relationships by measuring the variables related to respondents from our target group through known and validated questionnaires. data: the quantitative data for our analysis were collected through a survey of 148 online participants. the participants in this study were higher education lecturers from austria, croatia, the czech republic, germany, serbia and slovenia. tools: work-life conflict was measured by using the work-life conflict survey (bohen & viveros-long, 1981), life satisfaction by using the satisfaction with life scale (diener, emmons, larsen & griffin, 1985), and job satisfaction by using the job satisfaction survey (spector, 1997). findings: the results show that work-life conflict is negatively and statistically significantly related to job satisfaction and work-life conflict is negatively and statistically significantly related to life satisfaction. affirmative and positive experiences lead towards lower work-life conflict, which consecutively imply a work and life satisfaction among the higher education lecturers. contribution: the results of our study can be used both for further research in this area and in human resource management (hrm) practice. keywords: work-life conflict, life, job, satisfaction, organizational behaviour, hr, management jel classification: d23, e71, i23, j28, m5 numerous studies confirm the important influence of work-conflict on the job and life satisfaction. companies want satisfied employees because they are more committed to and engaged in the organization (kumara & fasana, 2018) and more productive (soomro, breitenecker & shah, 2018). as educational institutions and lecturers have a major contribution of nurturing, educating and developing new generations, their working life and job environment represent strategic issues in reaching teachers' exellence (singh & singh, 2015). perceived work-life balance satisfaction is correlated negatively with intention to leave the organisation among academics (noor, 2011). the central research objective of the study was the empirical examination of the relationships between the construct of work-life conflict in terms of life satisfaction and job satisfaction among higher education lecturers by empirically testing a structural model that connects these three constructs and determines the relationships. the results of the study are discussed. 2. theoretical review 2.1 work-life conflict conflicts between work and family have recently become the subject of much discussion within organizational behaviour (netemeyer, boles & mcmurrian, 1996). different research show that conflicts between work and family arise when work and family matters are incompatible (cooklin, dinh, strazdins, westrupp, leach & nicholson, 2016; netemeyer, boles & mcmurrian, 1996). a work-family conflict is roughly divided into time, strain and behavioural conflicts (greenhaus & beutell, 1985). the time conflict between work and family exists when the time devoted to the demands of one role makes it difficult to meet the demands of another role, the strain conflict exists when the demands of one role make it difficult to meet the demands of another role, and the behavioural one appears when behaviours required of one role make it difficult to meet the demands of another role. in addition to the conflict of time and strain, we also find in theory two conflicts between the two spheres, namely the conflict between work and family and the conflict between family and work. the conflict between work and family is a form of role conflict in which the general demands of work and the time devoted to work influence and disturb the fulfilment of family duties. however, the conflict between family and work is a form of role conflict in which the general demands of the family and the time devoted to work influence and disrupt work performance (netemeyer, boles & mcmurrian, 1996). in other words, this means that either work can interfere with family matters and thus affect the normal and necessary functioning of the individual, or conversely, family matters can affect the functioning of the individual at work (sav, harris, sebar, 2013). according to the analysis of the literature in the field of conflict between work and family (michel, kotrba, mitchelson, clark & balte, 2011), the main antecedents of work-family conflict are related to the role of employee, participation in work, social support at work, work characteristics and the personality of the employee. similarly, ryan, ma, hsiao and ku (2015) found that the most important antecedents of workfamily conflict were working hours (especially weekend work), conflicts between different roles, and ambiguity or confusion of roles. the work-family conflict has many consequences. the most important of these are job satisfaction and life satisfaction, which we will also investigate into in our research. as previous research reports show, the conflict between work and family has a negative impact on the work satisfaction of the individual (devi and rani, 2016; turliuc & buliga, 2014; wan rashid, sahari nordin, omar & ismail, 2012). people who work in a familyfriendly work environment that supports the reduction of conflicts between work and family will be more satisfied with their work and vice versa (zhao, qu & ghiselli, 2011). in addition, research findings (goh, ilies & wilson, 2015; turliuc & buliga, 2014) also suggest that conflicts between work and family have a significant impact on the life satisfaction of individuals. work-family conflict is of growing importance in the society due to its significant consequences for work, non-work, and personal outcomes (kossek & lee, 2017). 2.2 life satisfaction life satisfaction is understood to be a universal feeling and attitude towards life at a particular point, ranging from negative to positive (kashyap, joseph & deshmukh, 2016). it includes satisfaction with the past, with the future, and with important other views about the life of the individual (diener, 1984). life satisfaction is a cognitive component of subjective well-being, i.e., the individual's assessment of his or her well-being, health, friendship and partnership and satisfaction with himself or herself (dimec, mahnic, marinsek, masten & tusak, 2008). 2 miha marič, ivan todorović, jasmina žnidaršič forthcoming diener (1984) names three main determinants of life satisfaction. the first determinant is that satisfaction is subjective, which means that the experience of satisfaction is the perception of an individual. another determinant is that subjective satisfaction has positive criteria. and the third determinant is that subjective satisfaction involves a complete evaluation of all parameters of an individual's life. although life satisfaction is relatively stable at all times, various stressful life events (e.g., loss of or change of job, divorce or marriage, etc.) can have a profound impact on the long-term level of subjective well-being (lucas, clark, georgellis and diener, 2004). research papers also report, for example, on the long-term effects of parenthood on an individual's life satisfaction (mikucka, 2016), and point to the correlation with work-life conflict (cazan, truta & pavalache-ilie, 2019). 2.3 job satisfaction job satisfaction is a well-researched concept, so there are many definitions. tang, siu, and cheung (2014) say that employee satisfaction is roughly influenced by three relationships, namely employee-organization relations, employee-manager relations, and employee-employee relationships. employee satisfaction is also influenced by the personality of the individual (judge, heller & mount, 2002). thus, for example, those individuals who are emotionally more stable or more prone to trust, altruism, and conformity are generally more satisfied with work than those who are less stable (roethmann & coetzer, 2002). the same is true of other predictor variables, such as congenital optimism and the like, which have been proven to influence increased job satisfaction (mincu, 2015). increased job satisfaction is undoubtedly influenced by the work environment. individuals who work in an environment where they feel well, are respected and valued will also be more satisfied with the work (dimec, mahnic, marinsek, masten & tusak, 2008). also, selfemployed are more satisfied with their job in comparison with the employees (janicijevic & paunovic, 2019). a good working environment for employees is greatly influenced by the leader in the organization, who needs to be understanding, friendly, show interest in and listen to employees (robbins, 1993). besides, the leader also influences the nature of work, fair pay, complexity, and meaningfulness of work tasks, as well as relationships among colleagues and other important factors that affect job satisfaction (lumley, coetzee, tladinyane & ferreira, 2011). however, job satisfaction is also influenced by work-life balance policies and practices (kamran, zafar & ali, 2014). it can be influenced either generally or through indicators of family demands such as the number of young children, partner employment, and similar (saltzstein, ting & hall, 2001). grandey, cordeiro, and michael (2007) found that organization and leadership support in work-life balance is strongly associated with job satisfaction and the level of work-family conflict. an individual needs to perceive the organization as family-friendly, as this has a significant impact on job satisfaction and also on reducing work-family conflict (lapierre, spector, allen, poelmans, cooper, o'driscoll, sanchez et al., 2008). the survey (jiang, 2012) has also showed that when leaders respected their employees as individuals with unique traits and needs, including family, and treated them differently but fairly, employees perceived a high level of trust, dedication, satisfaction, and reciprocity. good knowledge of job satisfaction is not only important for the employee but also for leaders of organizations and the organization itself, as more satisfied employees are also more productive employees (keles, 2015), which is the goal of all organizations. employee’s job satisfaction is an important indicator of organizational effectiveness (roethmann & coetzer, 2002). satisfaction is reflected in greater stability, discipline, accountability and a greater workforce (hajdukova, klementova & klementova, 2015), and the chances of employees being employed will be reduced (morrison, 2008). satisfied employees are also productive employees, therefore managers need to recognize the needs and desires of employees, including in terms of family life obligations, to increase employee satisfaction (saari & judge, 2014). 3. research sample and methodology 3.1 research setting and participants the participants in this study were higher education lecturers from austria, croatia, the czech republic, germany, serbia and slovenia. the full set of questionnaires was completed by a total of 148 participants, which represent our sample, of whom 60 (40.5%) were men and 84 (56.8%) were women and 4 (2.7) did not answer this question. according to the marital status of respondents: 90 (60.8%) were married, 3 (2.0%) 3 management: journal of sustainable business and management solutions in emerging economies forthcoming were engaged to be married, 8 (5.4%) were divorced, 29 (19.6%) were in a committed relationship, 14 (9.5%) were single and 4 (2.7) did not answer this question. we have also asked about the number of children (under the age of 18), where 65 (43.9%) had none, 40 (27.0%) had one child, 32 (21.6%) had two children, 7 (4.7%) had three children and four did not respond. according to the educational level of respondents: 3 (2.0%) had a b.sc. or b.a., 27 (18.2%) had a m.sc. or mba, and 113 (76.4%) had a ph.d. (five did not respond). according to their academic ranks 21 (14.2%) were teaching assistants, 14 (9.5%) were research assistants, 52 (35.1%) were assistant professors, 31 (20.9%) were associate professors, 25 (16.9%) were full professors and five did not respond. according to work status, 125 (84.5%) had a full time job, 9 (6.1%) were in part time employment, 8 (5.4%) worked per contract, one was self-employed and five did not answer. the average age of respondents was 38.23 years for the 144 who replied to this question. the average years of work experience in higher education was 15.35 and the average years of work experience overall was 19.13. 3.2 instruments work-life conflict was measured by using the work-life conflict survey, a 16-item scale developed by bohen and viveros-long (1981). the response scale was a five-point likert scale ranging from 1 (completely disagree) to 5 (completely agree). the coefficient of reliability (cronbach’s alpha) was 0.752, respectively. life satisfaction was measured by using the satisfaction with life scale – swls, a five item scale developed by diener, emmons, larsen in griffin (1985). the response scale was a five-point likert scale ranging from 1 (completely disagree) to 5 (completely agree). the coefficient of reliability (cronbach’s alpha) was 0.868, respectively. job satisfaction was measured by using jss (job satisfaction survey), a thirty-six-item scale developed by spector (1997). the response scale was a five-point likert scale ranging from 1 (completely disagree) to 5 (completely agree). the coefficient of reliability (cronbach’s alpha) was 0.633, respectively. empirical research on work-life conflict, life satisfaction and job satisfaction was performed by a survey method. to obtain data, we designed an online questionnaire, which was sent via e-mail in spring 2019. after conducting online research, primary data were controlled and edited. for processing and analysing data, we used the ibm spss statistics 24. descriptive statistics are presented in table 1. table 1: means and standard deviations of construct elements 4. results and discussion the empirical part of our research is based on quantitative research, for which the data were collected through our survey. in continuation, we present a method to test the model by applying structural equation modelling (sem), which is used for testing structural relations between constructs. that operation was conducted by building a model in lisrel 8.80 software package, which is an analytical statistics program, which allows the testing of multiple structural relations at once (prajogo & mcdermott, 2005). it combines factor and regression analyses by which it tests the proposed model so we can assess the significance of hypothesized cause-and-effect relations among the variables (diamantopoulos & siguaw, 2000). the standardized solutions and t-values for the hypotheses tested in the model are presented in figure 1. 4 miha marič, ivan todorović, jasmina žnidaršič forthcoming ������� �� � � � ������� ��� ����� ������ ������ ��������� ����� � ������ ������ �� ������ ����� � ������ ������ figure 1: standardized solutions (and t-test) for the hypothesis standardised solution weights and t-test values between the work-life conflict and life satisfaction and between work-life conflict and job satisfaction are presented in the model in figure 1. we can therefore, with the use of structural equation modelling, confirm negative relations between the researched constructs. the work-life conflict is negatively and statistically significantly related to job satisfaction, and the work-life conflict is negatively and statistically significantly related to life satisfaction, as we hypothesised based on the literature review. the fit indices of the structural model are as presented in table 2. we wanted to test the relations between the constructs in this model, both of which are statistically significant according to the t-test values. the whole model shows statistical significance of p-value=0.00000. table 2: model fit indices the value of parameters directs that the model ought to have better indices. one explanation can be its simple structure, as we kept only two major variables, despite the results of previous research that identifies various other factors that could be included (amish & singh, 2019). on the other hand, we intended to focus only on higher education lecturers and main components of work-life conflict that are recognized in the literature, which is why we decided to use the presented construct, and not a more comprehensive one. our decision to accept the model despite these values of fit indices was motivated by previous research where models with similar results were used as suitable. although generally acceptable value of rmsea for good model is below 0.5 (byrne, 2010; schumacker & lomax, 2004), brown and cudeck (1993) suggest that values higher than 0.05 can indicate a fair fit, while maccallum, browne and sugawara (1996) consider values in the range of 0.08 to 0.10 to indicate a mediocre fit. having that in mind, we chose not to reject the model in spite of the fact that fit indices are not as expected. some future research related to this topic should include either a larger sample or more variables in the construct, in order to improve model fit indices. this article provides general conclusions based on the analysis of the whole sample, without the differentiation between certain demographic aspects, due to the sample size. nevertheless, further research should definitely include such clustering, as previous research shows the influence of various demographic 5 management: journal of sustainable business and management solutions in emerging economies forthcoming � � � ��������� � �� � ������� ���� � ����� ��� �� �� ��� � ��� ���� ����� ����� ��� � ���� ����� ���� ��� � ���� � � variables on work-life conflict. for example, gilmaghani and tabvuma (2019) point that women in management and education are found to have a lower work-life balance satisfaction than their male counterparts. when it comes to age, kumar and deo (2011) point out that junior college teachers experienced significantly more stress on most of the dimensions of stress in comparison with senior teachers. marital status and parenthood can also impact work-life conflict among lecturers (atteh, martin, oduro, mensah, & gyamfi, 2020; karkoulian & halawi, 2007; kim & kim, 2017). this is particularly important in case the employees perceive family responsibility discrimination by their supervisor, as they experience increased emotional exhaustion and work–life conflict in such cases (trzebiatowski & del carmen triana, 2020). aligning work and private life is a significant challenge for young academics because of demanding working conditions, and it is particularly strong in case of young female academics due to growing family responsibilities (dorenkamp & suß, 2017). considering the data we collected, we can also test the influence of the position in the academic hierarchy and title on the results generated by our model. finally, another direction for further research can also be a cross cultural analysis. in this paper, the main limitation for such study was the size of our sample, despite having respondents from six countries. although we did not see significant differences among participants from different countries, the sample was too small to provide valid conclusion in that area, so this topic should definitely be additionally investigated into, as some previous research already points to potential dissimilarities (bayraktaroglu, atay, ilhan & mustafayeva, 2019). 6 miha marič, ivan todorović, jasmina žnidaršič forthcoming with the proposed hypothesis, based on previous research and in-depth studies of the relevant literature, empirical evidence was collected on the relationships between work-life conflict, job satisfaction and life satisfaction, which were lacking in the study and are highlighted in this study. the results are interpreted as follows: with decreasing work-life conflict, job satisfaction and life satisfaction increase. positive experiences therefore lead to a lower work-life conflict, which in turn leads to a work and life satisfaction of the higher education lecturers. the study was focused mostly on how higher education lecturers’ work-life conflict relates to their job satisfaction and life satisfaction, whereas other determinants were not considered, and there are also other factors involved in achieving job satisfaction and life satisfaction. in the future, it would also make sense to identify the precursors of conflict between work and family, especially at the level of organization and demographic characteristics of the individual, and the consequences of job and life satisfaction concerning the organization, such as employee commitment, engagement, absenteeism and the like. the theoretical contribution of this study is in the existing research into work-life conflict in relation to job satisfactions as well as into life satisfaction in the aspect of advancing previous research by empirically examining the relations between them. the practical contribution is in the presented results that the relations are also present in the case of higher education lecturers, which can be useful for decision makers and human resource managers in higher education institutions when developing human resource policies. in the future we suggest that employees in economic organizations should be included as well, in order to gain a broader insight into studying the connection between work-life conflict and individual satisfaction. the broad scientific and professional interest in the constructs relating to work-life conflict, job satisfaction and life satisfaction is growing as global competition increases rapidly and management expresses the need for such research; and our research can complement these studies. the work-life conflict plays a remarkable role in the sustainability of organizations through their employees. undoubtedly, a reduced conflict between work and family is an important factor for both individuals and the organization. work-life balance practices create the so called "win-win" situation for both employees and the organization, as satisfied employees are also more productive employees, and at the same time enhance the quality of life of the individual. a key question for organizations, therefore, should be how to promote the improvement of employee performance in individual roles and prevent the conflict between work and other life roles. acknowledgements this research was supported by the ministry of education and science of the republic of serbia through the project no. 179081: researching contemporary tendencies of strategic management using specialized management disciplines in the function of competitiveness of serbian economy. conclusion references [1] amish, v. k. g., & singh, a. p. 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(2012). work/family conflict: the link between self-esteem and satisfaction outcomes. procedia social and behavioral sciences, 65(3), 564-569. doi: 10.1016/j.sbspro.2014.04.485 [60] zhao, x., qu, h., & ghiselli, r. (2011). examining the relationship of work–family conflict to job and life satisfaction: a case of hotel sales managers. international journal of hospitality management, 30(1), 4654. doi: 10.1016/j.ijhm.2010.04.010 received: 2020-11-12 revisions requested: 2020-12-04 revised: 2020-12-24 accepted: 2021-12-26 miha marič university of maribor, faculty of organizational sciences, slovenia miha.maric@um.si miha marič, ph.d., is a researcher in the field of leadership, management and organizational sciences. he holds a phd from the faculty of economics, university of ljubljana. he is currently employed as an assistant professor at the university of maribor, faculty of organizational sciences. his research interests are power, leadership, organizational behaviour, human resource management, organization and management. he is the author of numerous genuine scientific articles, professional articles, papers at scientific conferences, scientific monographs, and was an editor and reviewer. he also participates in research projects and consulting work. ivan todorović university of belgrade, faculty of organizational sciences, serbia ivan.todorovic@fon.bg.ac.rs ivan todorović works at the university of belgrade, faculty of organizational sciences. his field of expertise includes organizational design, restructuring, business process management, business model development and entrepreneurship. he has participated in more than 20 consulting projects in the largest companies in serbia such as hbis group serbia iron & steel, pc eps, elixir group, ems jsc, serbia and montenegro air traffic services (smatsa), milšped group, puc gsp belgrade, puc parking service belgrade, lukowa, victoria group, nis gazprom neft, pc transnafta etc. and in numerous research projects financed by the republic of serbia or international institutions such as ebrd, unido and usaid. he is a co-author of 3 books and more than 70 articles in international monographs, journals and conference proceedings and he is also hired as a reviewer for several international scientific journals and conferences. from 2011 to 2013 he was a visiting lecturer at the university of maribor, faculty of organizational sciences, in slovenia. he was a member of the team that won hult global case challenge 2012 in london, and he won the balkan case challenge 2010 in vienna. as a mentor he has supported several start-up companies and has coached student teams for international case study competitions. jasmina žnidaršič university of maribor, faculty of organizational sciences, slovenia jasmina.znidarsic@um.si jasmina žnidaršič, m.sc. (1981) is a researcher in the area of human resource management, and organizational sciences. she is currently employed as an assistant at the university of maribor, faculty of organizational sciences. her research interests are human research management, work-life balance, organizational psychology, organizational behaviour. she is the author of numerous genuine scientific articles, professional articles and papers at scientific conferences. 10 miha marič, ivan todorović, jasmina žnidaršič forthcoming << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07 26_2 dobrota:tipska.qxd 77 marina dobrota*, nikola zornić, aleksandar marković university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2021/26(2) fdi time series forecasts: evidence from emerging markets doi: 10.7595/management.fon.2021.0010 abstract: 1. introduction over the past few decades, opportunities and challenges of globalization for all economies have increased rapidly. information and communication technologies (ict) have connected the world to such an extent that, for example, an economic problem in one country can now have a harmful effect on financial sectors in faraway countries as well. foreign direct investment (fdi) is one of globalization’s key aspects (baldwin, 2016; lacal-arantegui, 2019; maiga, hu, mekongcho, & coulibaly, 2018). there are many reasons for a company to be really careful when looking for a fdi destination. garsous, kozluk, and dlugosch (2020) investigated the influence of production energy prices on outward fdi and found that only firms that were faced with increased energy prices did increase their fdi activity and that this effect was relatively small. lee, hong, and makino (2020) mention some other reasons for outbound fdi, such as means to counter trade barriers, to achieve a financial hedge, or to obtain tax breaks. other reasons in* corresponding author: marina dobrota, e-mail: marina.dobrota@fon.bg.ac.rs research question: this paper investigates the trend and flow of foreign direct investments (fdi) in emerging markets, with the focus on fdi in serbia in comparison with akin countries from the region. motivation: fdi is an important factor of growth and prosperity in developing countries. it largely influences trade, productivity, and economic development of a receiving country. based on unctad’s world investment report of 2019, the share of global fdi in developing countries was 54 per cent, which was a record. recently, serbia has been recognized as one of the most popular destinations for fdi in southeastern europe. this motivated us to analyze the chances and possibilities of enlargement of fdi in serbia, as well in other balkan countries. idea: the main idea of the paper is to analyze and estimate time series of fdi net inflows for serbia. we strive to investigate whether fdi demonstrates the durable growth in the future period of time. furthermore, we compare the state of serbian fdi with the former yugoslav countries, in search for disparities or similarities. data: we observed the fdi net inflows that are measured in current us dollars, while the data were retrieved from the world bank database. the earliest available time point is 1992, while the latest available year of observation is 2018. tools: we estimated the fdi net flow time series using a list of suitable arima models, and we have chosen the best model fit among them using aic and bic criteria. findings: we have found that serbia and north macedonia show a mild growth in future investments. a significant percentage of the cumulative fdi inflows from eu companies have been invested precisely in serbia, while in north macedonia, fostering fdi has been promoted as one of the main instruments for employment and economic development. oher yugoslav countries tend to stagnate in the future period, which is in literature called a negative ‘western balkans’ effect on fdi. contribution: findings of the mild growth in fdi inflows in serbia and north macedonia contribute to the policy of attracting the fdi inflows in the countries of southeastern europe. keywords: fdi, emerging markets, time series, arima, aic, bic, balkan countries jel classification f21, f30, f47 clude market, resource and efficiency seeking, low-cost workforce, or higher skills workforce on the other side (jones, serwicka, & wren, 2020). piperopoulos, wu, and wang (2018) focused on emerging market enterprises (emes) and their outward fdi location choices. it turns out that those emes that were focused on innovation used to primarily choose developed countries, because of opportunities they provide. these opportunities include access to cluster-specific environments for innovation, a possibility to foster network ties with knowledge-intensive firms, competitors, and universities, as well as access to ‘early warning indicators’ of global market trends and the pressure to meet high standards. by contrast, emes that are focused on adapting their existing technologies and products to local market needs will choose developing countries. the aim of this research is to examine the trends of fdi in the emerging market of serbia, as one of the attractive fdi destination countries. we additionally strive to compare the allurement of serbia with countries from the region, more precisely, the countries from the former sfr yugoslavia, as they are most similar to serbia in the cultural and social sense (dobrota, zornić, & marković, 2019). the research methodology used to examine fdi trends involve time series models. we expect that the findings of the research will have significant practical implications for policy makers in emerging countries, when it comes to attracting and relocating fdi. section 2 of this paper offers a detailed literature review on the topic of modelling the fdi, while section 3 presents the empirical data used in the time series analysis. introduction to methodology follows in section 4. results are presented and analyzed in the fifth section. finally, discussion, conclusion, and future research directions are given. 2. literature review fdi largely influence trade, productivity, and economic development of a receiving country. effects that fdi will have on productivity depend on human capital and countries’ institutions (li & tanna, 2019). developing countries usually introduce policies that should attract fdi, but that might not be enough. among most important ones for attracting fdi is institutional quality, especially political stability, control of corruption, and rule of law (bailey, 2018; peres, ameer, & xu, 2018; sabir, rafique, & abbas, 2019; uddin, chowdhury, zafar, shafique, & liu, 2019). based on the unctad’s (united nations conference on trade and development) world investment report (united nations, 2019), the share of global fdi in developing countries is 54 per cent, which is a record. unfortunately, it is not enough only to have a high level of fdi to achieve economic growth. sadni-jallab, gbakou, and sandretto (2008) have found that macroeconomic stability is essential to translate the impact of fdi on economic growth. another interesting information presented in the unctad’s report regards countries’ investment policy. namely, in 2018, 55 economies introduced at least 112 measures affecting foreign investment. a high portion of these (more than one third) are restrictions reflecting national security concerns about foreign ownership of critical infrastructure, core technologies, and other sensitive business assets. ufimtseva (2020) explores this phenomenon and points out that investment recipient countries are more likely to protect a domestic business where foreign ownership threatens domestic industry. she proposes a ‘fdi acceptability threshold’ for countries to clarify conditions for acceptable fdi and prevent negative effects of rejecting specific fdi on attracting the future ones. analyzing international data reveals that a significant part of fdi is directed through financial centers. two main types of these centers are tax havens and investment hubs. the largest investment hubs include ireland, luxemburg, mauritius, the netherlands, and singapore. they accommodate around one-third of global fdi (hers, witteman, rougoor, & van buiren, 2018). some authors analyzed the influence of fdi on the economy, general wellbeing, income inequality, and poverty. bruno, campos, and estrin (2018) combined the country and enterprise-level evidence together in a meta-regression analysis to evaluate the evidence about fdi spillovers in emerging economies. teixeira and loureiro (2019) examine to what extent inward fdi contribute to income inequality and poverty in the long run. they show that an increase in fdi leads to a decrease in both income inequality and poverty rates. there is an ample body of research investigating the influence of fdi on the environment (hanif, faraz raza, gago-de-santos, & abbas, 2019; liu, wang, zhang, zhan, & li, 2018; salahuddin, alam, ozturk, & sohag, 2018; shahbaz, nasir, & roubaud, 2018). wang and luo (2020) used panel data from 30 provinces in china from 2006 to 2016, using fdi quantity and fdi quality as threshold variables. they found a complex nonlinear relationship between technological innovation capability and environmental pollution when taking fdi quantity and quality as dual thresholds. namely, with the low level of fdi the capacity for scientific and technological innovation worsens environmental pollution levels; when fdi crosses a higher threshold, the capacity for scientific and technological innovation improves environmental quality, but with a further 78 marina dobrota, nikola zornić, aleksandar marković 2021/26(2) increase of the level of fdi, the positive effect decreases to some extent. other authors showed on the example of china that fdi has insignificant influence on environmental quality in the long run, but in the short term, pollution variables cause significant variances on the amount of fdi inflows (ayamba, haibo, abdulrahaman, serwaa, & osei-agyemang, 2020). baek (2016) examines the fdi-income-energy-environment nexus and uses panel data of 5 asean (association of southeast asian nations) countries. he shows that fdi deteriorates the environment, so not everything about fdi is positive. there is a number of papers dealing with the prediction of fdi using a time series analysis (shi, zhang, su, & chen, 2012; vega-nieva et al., 2019). jere and his co-authors explored simple exponential smoothing (ses), holt-winters exponential smoothing (hwes), and autoregressive integrated moving average (arima) and used the best fit model to forecast zambia’s annual net fdi (jere, kasense, & chilyabanyama, 2017), while the similar has been done by fadhil and almsafir (2015) for malaysia’s fdi inflows. in central and eastern europe, the choice of fdi location is highly affected by market-seeking (gdp, labor cost, and open economy index), while not so much by the country risk for example (gunther & kristalova, 2016; jirasavetakul & rahman, 2018). when it comes to the balkan countries, it is peculiar to note that the relationship between fdi and poverty reduction has a positive effect in the western balkan region, whereas this is not the case in the central european region (ganic, 2019; shimbov, alguacil, & suárez, 2019). after world war ii, the balkans expansion was the result of the profound industrialization, and the fact that the industry dominated the trade and services (estrin & uvalic, 2016). at that time fdi were attracted to the balkan countries by the development of the industry. later on, the balkans started to develop the service sector, causing the change in the distribution of fdi, where, for example, the croatian economic growth depends on tourism (kurtovic, maxhuni, halili, & talovic, 2020). in later days, the leaders in attracting fdi among the western balkan countries are serbia and croatia, making up 60% of the total amount of fdi inflows (kurtovic et al., 2020). in serbia, when it comes to manufacturing, fdi were attracted by the production of food, rubber and plastic products, motor vehicles, and metals, and when it comes to services, by wholesaling and retailing, the financial sector, and telecommunications. croatia had a much higher average of fdi inflows share in the service sector, attracted by the wholesaling and retailing, real estate, and tourism. 3. methodology as highlighted in the literature review, given the importance of international investments for markets and economies, in this research we observe the status and trends of the main variable fdi. fdi refers to direct investment equity flows (sum of equity capital, reinvestment of earnings, and other capital) in the reporting economy (imf, 2020; world bank, 2020). it represents an investment made by a stakeholder resident in one economy into business activities that is resident in another economy (brooks & hill, 2004; brouthers, werner, & wilkinson, 1996; neuhaus, 2006; patterson, montanjees, motala, & cardillo, 2004; rivoli & salorio, 1996). we observed the fdi net inflows that are measured in current us dollars (imf, 2020), while the data were retrieved from the world bank database (world bank, 2020). our main focus was to examine and inspect the trends of fdi in the balkan emerging economies, with the focus on serbia and the countries from the former sfr yugoslavia, as they are most similar in the cultural and social sense, to make the appropriate comparisons. in order to do so, we spotlighted serbia, croatia, montenegro, bosnia and herzegovina, north macedonia, and slovenia. table 1 shows the descriptive statistics for the abovementioned economies. table 1: observed countries’ fdi descriptive statistics (values in billions of dollars) source: world bank, foreign direct investments the data presented in table 1 are collected for all the publicly available time points. while for most of the countries in the world bank database, data are given from 1970, the earliest available time point for the observed economies is 1992. the latest available year of observation is 2018. yet, not all the economies from the list in table 1 have the same number of time data points. for some countries, the records of fdi started 79 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) country mean sd minimum maximum count period serbia 1,678.72 1,596.86 0.001 4,929.90 27 1992-2018 croatia 1,574.82 1,369.79 13.00 5,187.84 27 1992-2018 montenegro 565.88 374.15 49.43 1,549.31 17 2002-2018 bosnia and herzegovina 489.78 401.05 66.74 1,841.97 21 1998-2018 north macedonia 287.69 216.08 9.49 733.47 25 1994-2018 slovenia 648.94 626.58 -346.27 1,884.93 27 1992-2018 to be kept later in comparison with the larger countries. for example, the data for montenegro are available from 2002. it is interesting to note that this is the year when montenegro adopts euro as its currency (european central bank, 2019), and that the eu mediated accord was signed to set up the new state to be called serbia and montenegro (bbc news, 2019). north macedonia has its data available from 1994, and it is interesting to note that in 1993 it gained the un membership (wood, 1997). the lack of data for a longer period of time is the main limitation of this study. since the time period is not the same for all the countries, the minimal values vary in what seems to be an unexpected way. for example, serbia has the smallest fdi value in 1996 (what can be noted from figure 1), and slovenia has an even negative value in 2009 (figure 3c). however, this matter will not affect the time series modeling results since each time series is observed separately. in order to estimate and forecast the trends of fdi, we exploited various time series models. we run palisade risk plug-in software for microsoft office excel, that is used as a risk analysis tool, based on a monte carlo simulation (hastings, 1970). palisade automatically estimates the best fit time series model, based on model selection criteria, the akaike information criterion (aic) (akaike, 1974) and bayesian information criterion (bic) (schwarz, 1978), used to resolve which of the numerous models is seemingly the best model fit for a given dataset. the criteria estimate the quality of each model, relative to other observed models. the software estimates the best model from the list of the following: ar(p), ma(q), arma(p,q), arch, garch, bmmr, bmmrjd, gbm, gbmjd (bollerslev, 1986; engle, 1982; ross, 2014; whittle, 1951). if the observed time series is non-stationary, or the seasonality is detected, it can be estimated with the specific order of integration or some deseasonalizing mechanism. so, for example, integrated arma(p,q) of the dth integration order represents arima(p,d,q) model (box & jenkins, 1970). 4. results each time series is estimated with the list of models as specified in section 3. they were compared and ranked according to aic and bic, that represents the amount of information the model loses; the quality of the model is higher if it loses less information (akaike, 1974; schwarz, 1978). the best five models for each time series, as presented in tables 2, 3, and 4, are ar(1), ar(2), ma(1), ma(2), and arma(1,1). in most of the cases, rank orders are the same for both aic and bic information criteria. the models where these values are not equally ordered are sorted by aic criterion, nevertheless, the differences are minor. yearly time points of the data were collected, thus there was no need for deseasonalizing the data. the model fit for each time series did not perform any data transformation, nor detrended the time series, unless specified otherwise. table 2 shows the results of the model fit for the specified fdi time series for serbia. table 2: time series model fit results and ranks for serbi non-stationarity was detected for serbia and thus the data were detrended using the first order level of integration to achieve stationarity. the data were also transformed using the square root transformation function. the best fit model for serbia was shown to be integrated ma(1) model that can also be presented as arima(0,1,1) model. according to aic and bic (see table 2), it was followed by arima(0,1,2), arima(1,1,0), arima(2,1,0), and arima(1,1,1) respectively. figure 1 presents the time series model arima(0,1,1) for serbia. the time series was detrended using first-order difference to achieve stationarity. 80 marina dobrota, nikola zornić, aleksandar marković 2021/26(2) model rank #1 #2 #3 #4 #5 serbia ma1 ma2 ar1 ar2 arma data transform function square root square root square root square root square root detrend first order first order first order first order first order aic 562.52 565.86 570.03 572.14 572.75 bic 562.52 568.99 572.71 575.27 575.87 mu (billions) 20,337,549 20,337,549 20,337,549 20,337,549 155,893,161 sigma (billions) 120,091,820 112,628,474 12,270,653 122,143,742 119,809,133 α1 (ar) / β1 (ma) -0.412 -0.776 -0.441 -0.483 0.111 (α1) α2 (ar) / β2 (ma) -0.489 -0.957 -0.556 (β1) figure 1: serbia fdi time series model forecast table 3 shows the results of the model fit for the specified fdi time series for north macedonia. similarly to serbia, this time series is non-stationary, but there was no need to transform the dataset. the data were detrended using the first order level of integration. table 3: time series model fit results and ranks for north macedonia the best fit model for north macedonia was shown to be integrated ma(1) model, thus arima(0,1,1) model. according to aic and bic (see table 3), it was followed by arima(0,1,2), arima(1,1,1), arima(2,1,0), and arima(1,1,0) respectively. the best fitting model arima(0,1,1) is similar to the simple exponential smoothing model, but with some additional flexibility: the estimated ma(1) coefficient is negative (β1), a constant mu term can be included, the trajectory of the long-term forecasts is typically a sloping line (whose slope is equal to mu) rather than a horizontal line, etc. figure 2 presents the time series model for north macedonia. 81 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) model rank #1 #2 #3 #4 #5 north macedonia ma1 ma2 arma ar2 ar1 detrend first order first order first order first order first order aic 980.07 985.17 989.53 989.80 992.20 bic 980.07 987.77 992.14 992.40 994.53 mu (billions) 260,305,177 260,305,177 231,353,595 260,305,177 260,305,177 sigma (billions) 182,842,920 163,944,684 177,271,721 179,664,662 2,013,179 α1 (ar) / β1 (ma) -0.834 -0.640 0.109 (α1) -0.382 -0.263 α2 (ar) / β2 (ma) -0.424 -0.760 (β1) -0.451 figure 2: north macedonia fdi time series model forecast table 4 shows the results of the model fit for the specified fdi time series for other former sfr yugoslav countries. table 4: time series model fit results and ranks 82 marina dobrota, nikola zornić, aleksandar marković 2021/26(2) model rank #1 #2 #3 #4 #5 bosnia and herzegovina ma1 ma2 arma ar1 ar2 aic 879.36 884.68 889.80 892.14 893.72 bic 879.36 886.36 891.47 893.86 895.39 mu (billions) 489,781,899 489,781,899 425,435,633 489,781,899 489,781,899 sigma (billions) 291,904,935 270,433,714 285,699,434 343,802,080 335,428,109 α1 (ar) / β1 (ma) 0.767 0.793 0.212 (α1) 0.515 0.628 α2 (ar) / β2 (ma) -0.294 0.735 (β1) -0.219 montenegro ma1 ar1 arma ma2 ar2 aic 712.55 719.31 719.92 721.73 721.88 bic 712.55 719.96 719.92 721.73 721.88 mu (billions) 565,879,435 565,879,435 611,458,021 565,879,435 565,879,435 sigma (billions) 307,972,594 300,660,738 268,808,099 278,977,539 300,589,182 α1 (ar) / β1 (ma) 0.431 0.595 0.664 (α1) 0.246 0.582 α2 (ar) / β2 (ma) -0.207 (β1) 0.288 0.218 slovenia ma1 ma2 arma ar1 ar2 aic 1,161.20 1,164.42 1,170.93 1,171.45 1,173.52 bic 1,161.20 1,167.79 1,174.30 1,174.29 1,176.88 mu (billions) 648,935,559 648,935,559 633,502,961 648,935,559 648,935,559 sigma (billions) 51,420,749 504,351,991 522,797,224 570,498,011 566,495,314 α1 (ar) / β1 (ma) 0.699 0.793 -0.574 (α1) 0.414 0.462 α2 (ar) / β2 (ma) -0.338 0.694 (β1) -0.118 croatia ma1 ar1 arma ar2 ma2 aic 1,204.38 1,208.46 1,208.51 1,209.52 1,209.99 bic 1,204.38 1,211.30 1,211.88 1,212.88 1,213.36 mu (billions) 157,481,674 157,481,674 180,278,910 157,481,674 157,481,674 sigma (billions) 118,938,574 111,829,416 105,249,210 110,152,307 112,268,010 α1 (ar) / β1 (ma) 0.455 0.577 0.664 (α1) 0.478 0.318 α2 (ar) / β2 (ma) -0.219 (β1) 0.173 0.477 the non-stationarity was not detected with these time series and thus there was no need for detrending the data. the best fit model for all the listed fdi time series was ma(1) model (see table 4). the model was not integrated, thus it can be presented as arima(0,0,1) for all of the above-mentioned economies. these models show both, the unpredictable random motion features of the wiener process and also the mean reversion features, which suggests that the values tend to move to the historical average over time. the order of the models fit differ among time series of different countries (see table 4). figure 3 presents time series best fit models for (a) bosnia and herzegovina, (b) montenegro, (c) slovenia, and (d) croatia. figure 3: (a) bosnia and herzegovina, (b) montenegro, (c) slovenia, and (d) croatia fdi time series model forecast figures 1, 2, and 3 show the forecast period up to 2025, with the mean value of the forecast, 50% confidence interval and 90% confidence interval. the red lines in figures for all the time series represent the sample paths of the forecast. 5. discussion based on the presented results, we drew some general conclusions regarding the observed countries. serbia and north macedonia are the countries that have shown the mild growth in fdi for the observed future period. this is in accordance with the literature because, for example, the analysis of fdi by municipalities and cities in serbia indicated a growing movement in the period (stojanovic, ilic, & mihajlovic, 2017). serbia has been recognized as one of very popular destinations for fdi in southeastern europe. eu companies have invested almost three-quarters of the cumulative fdi inflows to serbia over the past 8 years, amounting to over eur 11 billion in total (dudic, dudic, smolen, & mirkovic, 2018). the european countries that have invested most in the republic of serbia are austria, norway, netherlands, russia, switzerland; and among non-european there are united arab emirates, china, and the usa (dudic et al., 2018). the growth of fdi in serbia coincided in 2006, which happened throughout the entire region, primarily as a re83 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) sult of the privatization of the mobile network operator mobtel, which was bought by telenor from norway for 1,513 million euros (radenkovic, 2016). according to radenkovic (2016), this was an exceptional year since the share of fdi in serbian gdp went up to 14.10%. however, it should be stressed that greenfield investments such as ball packaging, vip mobile, and microsoft’s development center were practically the only bigger greenfield investments made in serbia over the period from 2000-2011 (radenkovic, 2016). in north macedonia, fostering fdi has been promoted by the government as one of the main instruments for generating employment and providing further economic development (nikoloski, 2017). furthermore, it was found in north macedonia that foreign ownership helped restructure and enhance the productivity of domestic firms, that fdi had a positive influence in reinforcing the creation of new firms, and that fdi was likely to influence the job seeker to get employed rather than start their own business (apostolov, 2017). according to the results, bosnia and herzegovina, montenegro, slovenia, and croatia tend to stagnate in the future period. from figure 3c, it can be noted that for slovenia fdi even seem to decrease, but in a longer run they flatten around the constant level. a number of years ago, the question arose by estrin and uvalic (2014) whether the balkans are different in view of fdi; they have come to the conclusion that they are found to be so because even when the size of their economies, distance from the source economies, institutional quality, and prospects of eu membership are taken into account, the western balkans countries receive less fdi than other transition countries (estrin & uvalic, 2014), calling it a negative ‘western balkans’ effect on fdi. this can to some extent be noted as the reason that the fdi gravitates around the mean value. to further discuss the findings, we have compared the results of the examined southeastern european economies with fdi net inflows of germany, one of the strongest economies in europe. figure 4: germany fdi time series model forecast the forecast of fdi time series for germany is given in figure 4. fdi time series in germany are best fitted with arima(0,1,1), showing the trend of growth for the future period. more than 2,000 foreign companies have been reported to have opened up businesses in germany in 2018. this seems to be a new record, and is much due to the fact that some british companies are investing in germany in response to the threat of brexit (gtai, 2019b). around 60% of all fdi in germany originate from within the eu and 9% from european non-eu countries, while investments from outside the eu continue to grow (19% north america, 11% asia). for example, germany is the world’s largest recipient of new chinese fdi projects (gtai, 2019a). regarding the investment sectors, in 2017, the major among them were manufacturing (27.7%), wholesale and retail (10.7%), financial and insurance activities (9.6%), ict (6.6%), etc. (unctad, 2019). in serbia there were 160, while germany boasted with 691 greenfield investments (unctad, 2019). however, german fdi net inflows show the similar trend of flow such as serbian and north macedonian. the main 84 marina dobrota, nikola zornić, aleksandar marković 2021/26(2) strengths of serbia, regarding attracting fdi, are: positive, liberal business environment (e.g., lowest corporate tax rate in europe of 10%); public sector reforms (e.g., various agreements reached with the imf and the eu); young, low-cost workforce, that is well trained and multilingual (nearly half of the population are fluent in english); comfortable level of foreign currency reserves (unctad, 2019). the main strengths of germany are: strategic location in the centre of europe; political stability; large population; developed infrastructure; strong manufacturing basis (almost a third of the gdp); strong exports (high range products and diversified clients); advanced technology and expertise; highly qualified work force (unctad, 2019). although quite different strengths of serbia and germany in attracting the fdi, they undoubtably lead towards the same direction. references [1] akaike, h. 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(2019). world investment report 2019. geneva. [62] vega-nieva, d. j., nava-miranda, m. g., calleros-flores, e., lópez-serrano, p. m., briseño-reyes, j., lópez-sánchez, c., … ruiz-gonzález, a. d. (2019). temporal patterns of active fire density and its relationship with a satellite fuel greenness index by vegetation type and region in mexico during 2003– 2014. fire ecology, 15(1), 28. doi:10.1186/s42408-019-0042-z [63] wang, x., & luo, y. (2020). has technological innovation capability addressed environmental pollution from the dual perspective of fdi quantity and quality? evidence from china. journal of cleaner production, 258. doi:10.1016/j.jclepro.2020.120941 [64] whittle, p. (1951). hypothesis testing in times series analysis. uppsala: almqvist & wiksells boktryckeri ab. 87 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) 88 marina dobrota, nikola zornić, aleksandar marković 2021/26(2) [65] wood, m. c. (1997). participation of former yugoslav states in the united nations and in multilateral treaties. max planck yearbook of united nations law, 1, 231–257. retrieved from https://www.mpil.de/files/pdf1/mpunyb_wood_1.pdf [66] world bank. (2020). foreign direct investment, net inflows. retrieved april 28, 2020, from https://data.worldbank.org/indicator/bx.klt.dinv.cd.wd received: 2020-05-15 revisions requested: 2020-08-20 revised: 2020-09-15 accepted: 2021-02-09 marina dobrota university of belgrade, faculty of organizational sciences, serbia marina.dobrota@fon.bg.ac.rs marina dobrota is an associate professor at the faculty of organizational sciences, university of belgrade, where she completed her phd thesis in the field of operational research and computational statistics. she has published more than 70 research papers in scientific journals, conference proceedings, or monographs, both international and national. her research focus is in composite indicators, econometric modelling, and data science. her research interests include statistical inference, data analysis, data mining, and time series analysis. nikola zornić university of belgrade, faculty of organizational sciences, serbia nikola.zornic@fon.bg.ac.rs nikola zornić is a teaching assistant and phd student at the faculty of organizational sciences, university of belgrade, serbia. nikola’s research interests include business decision making, simulation methods, including, but not limited to agent-based modelling and simulation, monte carlo simulation, and business analytics. he is actively using simulation and data analysis software such as netlogo, vensim, r. aleksandar marković university of belgrade, faculty of organizational sciences, serbia aleksandar.markovic@fon.bg.ac.rs aleksandar marković is a full professor at the faculty of organizational sciences, university of belgrade, serbia, where he got his msc and phd degrees in the field of computer simulation. the areas of his research include: e-business management, computer simulation, business simulation, business dynamics. since october 2016, he has been the vice-dean for organization and finance at the faculty of organizational sciences. about the authors << /ascii85encodepages 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice tipska 13 sava čavoški1, aleksandar marković2 1 mds informatički inženjering 2university of belgrade, faculty of organisational sciences, serbia management 2015/77 analysis of customer behaviour and online retailers strategies using the agent-based simulation udc: 005.346:004.738.1 004.738.5:339 doi: 10.7595/management.fon.2015.0031 1. introduction electronic commerce has been expanding rapidly in the last decade or so and is now present in almost all industry branches and in a majority of developed countries’ markets. in order that e-commerce business be successful, it is necessary that quality strategies of entrance on the market should be developed and implemented and that additional services should be offered that grant the customers better purchasing conditions, a possibility of service adapting and additional value for customers (hyung, 2010) . the approach used in this paper is to consider the possibility of applying agent-based simulation models as a basis in b2c business models evaluation for the purpose of improving the existing e-commerce strategies and obtain data that can be used in business decision analysis. modelling and simulation based on autonomous agents and interactions among them are some of the more recent approaches in complex system simulation modelling (miller and page, 2007; prokopenko et al., 2009). in the applications of models based on agents in the social processes people are modelled as agents, while their social interactions and social processes are modelled as interactions among these agents (gilbert and troitzsch, 2005). 2. consumer behaviour model the study of the consumer population, their habits and behaviour serves as basis for the b2c electronic commerce analysis. this analysis is of vital importance for b2c shareholders and managers, marketers, sales people, but also for the consumers themselves. the consumer analysis is meant to analyse the consumers’ needs – what, why and how they purchase. consumer behaviour can be described as a set of activities prospective customers undertake in searching, selecting, valuing, assessing, supplying and using of prodthis paper discusses the application of abms – agent-based modelling and simulation in the analysis of customer behaviour on b2c e-commerce websites as well as in the analysis of various business decisions upon the effects of on-line sales. by linking the areas of modelling based on agents and electronic commerce, this paper addresses the new opportunities for a quality assessment of consumer behaviour and reasons explaining this behaviour in e-commerce. the interactions of agents that make up this model are sublimated in the utility function that provides the basis for decision-making in the model. the rules of behaviour and interactions, included in the model through the utility function, denote the complexity of the decision-making process which occurs in evaluation and purchase of products in the part of b2c e-commerce. the simulation model implemented in the software netlogo enables the monitoring of all interactions between the consumers (consumeragents), seller-internet sites (selleragents) and advertisement agents (banneragents) by generating the indicators of b2c site business performance. keywords: abms, b2c, e-commerce, website, customer behavior, online retailers ucts and services in order to satisfy their needs and desires. these also include decision-making processes that both precede and follow the above-mentioned activities (belch 1998; schiffman et al., 2009; solomon, et. al 2009). in making their decisions to purchase a product, online shopping consumers go through different phases. the phases are similar to those present in traditional shopping, however, the manner in which they are carried out differs. generally speaking, in their decision-making process, consumers go through the following stages (engel j et.al, 1994): problem awareness, information search, evaluation of alternatives, decision on purchase and post-purchase evaluation. the following text will further describe the impact factors in purchasing decision-making and the links among individual consumer characteristics, website characteristics, the online seller business strategies and the purchasing decision-making process. according to changa et al., 2005, the factors that affect the consumer’s decision can be classified as follows: 1. perception of characteristics of the internet as a sales channel 2. characteristics of the internet site or product 3. consumer characteristics the following figure presents the key impact factors in the purchase decision-making process, with their most important attributes. figure 1. factors of impact upon consumer behaviour in online purchasing upon defining the factors affecting consumer behaviour in online purchasing, our next step in building the model is to link consumers, on the one hand, and the sellers (internet sales sites), on the other, and to determine the manner in which they communicate. hence in this model we observe consumers with their social and cultural characteristics, on the one hand, and the market, namely online shops and intermediaries in sales with their e-business and e-marketing strategies, on the other. the model also takes into account the impacts of the on-line community and social networks on forming consumer decisions in online purchasing, whose influence increases daily. the model treats the consumer’s decision on purchasing as the outcome variable. when building a model, attention was paid that it should be really applicable and also that it should include as many impact factors as possible. the model is by nature dynamic and models a complex purchasing process in an online environment. it is characterised by a flexible structure that can be adjusted to individual needs and to specific phenomena. 14 2015/77management figure 2. consumer decision-making model in b2c electronic commerce the model shown in figure 2 focuses on three segments: the seller segment, the consumer segment and the communication channel segment. the seller is the internet site dealing in b2c sales of products and/or services. the most important site characteristics contained in the model are the technical characteristics: infrastructure, software support, website design and the quality of information on the products offered via the website. the consumer segment observes online consumers. the model monitors the impact factors concerning their attitudes, goals and beliefs (figure 1). the communication channels are the online (internet) and traditional channels of communication. the model under consideration is confined only to the effects of online communication channels application. in addition to the three described segments, the model includes business strategies created by the seller, whose aim is to increase sales and build consumer trust. the model allows for varying the input variables that simulate the effects of implementation of different business strategies, primarily those referring to price changes and product quality attributes. the model also helps track the effects of internet marketing as a business strategy segment. 3. simulation model development in the previous section we identified the key entities of the model and elaborated on the fundamental theoretical concepts related to consumer behaviour, their attributes that play a key role in online purchase and the decision-making processes taken into consideration in defining the logical model of b2c online purchase system. in order to build an agent-based simulation model, it is necessary that key entities of the logical model should be presented as agents and their interactions be transformed into rules of behaviour. in this process, it is also necessary that a high level of compliance with a real system that is modelled should be ensured, which can be checked by the system validation and verification processes (radenkovic et al., 2001). in the observed simulation model, the prospective consumers go through all the stages of online purchase. they first find the b2c online shops of interest, then they search for information on the products, form their own opinion of the product and/or service (utility function) and finally make a decision to buy (regardless of whether these are consumers that buy only once or consumers that remain loyal after their first purchase). 15 management 2015/77 figure 3. graph of online purchase flow process in the simulation model figure 3 shows the basic steps in the simulation model, blue boxes represent the basic simulation flow. in the first step the simulation model forms a virtual market by generating agents: consumers (consumeragents), sellers-internet sites (selleragents), suppliers (suppliersagents) and advertisement agents (banneragents), on the basis of input variables. the consumer agent models an individual consumer and his/her purchasing habits. the model can observe the behaviour of each individual consumer or a group of consumers. it is of key importance that we identify consumers with similar behaviours and needs and segment them for the purpose of targeted marketing campaigns (klever, 2009). agents that represent consumers in the model are generated by categories (on the basis of classification in (moe 2003; moe, fader, 2002), and depending on their intention when visiting an online sales site: 1. direct consumers: they visit the website with the intention to purchase a particular product; they rarely leave the website without having purchased. 2. consumers who search/reason: they generally intend to buy a product from a certain category; it is possible that they make their purchase after several visits and comparisons with other websites and shops. 3. hedonic browsers: initially, they do not intend to purchase a product; if made, a potential purchase is exclusively the result of stimuli from the site. 4. information gathering visitors: visit website to gather information without any intention of buying. the consumeragents are assigned colours so that their behaviour in the model should be tracked separately. in generating consumeragents, each agent is assigned characteristics shown in table 1. 16 2015/77management table 1: consumeragents input parameters the internet sellers (b2c e-commerce websites) are modelled as selleragents. the model presumes that each sales website sells one brand, and the seller is assigned a particular colour for the purpose of identification and visual tracking in the model during the experiment. when generating at the beginning of the simulation, agents are randomly assigned attributes shown in table 2. table 2: selleragents input parameters in addition to consumers and sellers, the model includes supplieragents, which are also generated at the beginning of the simulation, under the assumption that they have an unlimited storage of products. one supplier is generated for every brand and is assigned the same colour as the respective selleragent. the fourth type of agents are banneragents. they serve to model the effect of internet advertisements (banners) on purchase decision-making. when they are generated, they are assigned the colour on the basis of which they are tracked in the simulation experiment. upon generating agents and forming a virtual market, consumeragents start searching for and evaluating products. the search is carried out via agents’ random surfing through virtual market where they interact with other consumeragents, selleragents and banneragents. with the proposed model it is possible to observe the effects of different strategies of selleragents on the effects of internet sales. by expanding the model, it is possible to observe the effects of business strategies related to internet advertising (purple boxes in figure 3) and/or related to product prices (green boxes on figure 3). purple boxes in figure 3 together with the basic model (blue boxes in figure 4) show the model that takes into consideration different business strategies of internet advertising. the development of social networks and google services resulted in b2c e-commerce companies predominantly using these channels to market their products today. customers with previous experience with online purchases display a tendency to share both positive and negative experiences about the purchase they made (ewom effect) (godes, mayzlin, 2004). the model employs the following marketing tools: 17 management 2015/77 label definition value distribution gi i-th consumeragent gender input variable random 50% ai i-th consumeragent age input variable (18 + random 60) ii i-th consumeragent income input variable (5 + random 10) rsi i-th consumeragent sensitivity to website rating input variable random (0-1) ki i-th consumeragent sensitivity to product price input variable depends on ii – wealthier consumers are less sensitive to price wij i-th consumeragent sensitivity to a particular product attribute input variable random (0-1) adsi i-th consumeragent sensitivity to advertisements input variable random (0-1) fti i-th consumeragent sensitivity to other agents – consumers’ decisions input variable random (0-1) label definition value distribution brand_seller type of brand sold by selleragent random cbrandprice initial product price input variable random(0-100) salesvolume number of sales output variable ri site rating site rating by consumers +1 = positive, -1 = negative find me initial search weight input variable random(0-100) • ewom (interaction with other agents). • search weight (weights on the basis of which agents search the websites); • advertisements with banners (banneragents); during their surf through virtual market, consumeragents “look for“ banneragents in a certain radius surrounding them (input variable with the semantics of number of banners the consumeragent sees during his search), thus simulating the impact of different marketing strategies upon consumers’ attitudes when choosing a product on the internet. bearing in mind that not every consumer reacts to banners in the same manner, one input parameter of each consumeragent is sensitivity to marketing campaigns. thus the consumer’s inner sensitivity (perception) to the offered product is modelled. each consumeragent “memorises“ a number of reviewed banneragents, that is, brands they represent. surfing on, the consumeragent randomly finds internet websites (selleragents). finding different sellers may be entirely random or affected by search weight on certain selleragents to which the consumeragent reacts. the number of websites browsed in this manner makes the input variable set at the beginning of the simulation experiment. the model also allows for simulating a better “visibility“ of the website on the internet by generating a larger number of consumeragents of a particular colour. the larger a number of consumeragents of a particular colour, the higher likelihood of finding a website selling a particular type of product. apart from finding selleragents and banneragents, consumeragents can conduct interactions among themselves in a given radius while surfing through a virtual market. as mentioned above, it is in this manner that consumers’ tendency to imitate (follow) the behaviours of other consumers and their recommendations (ewom effect) is modelled. consumeragents’ interactions can be classed into two types: direct communication of consumeragents and consumeragents’ recommendations on websites. consumeragents’ recommendations (positive or negative) as regards some selleragents and/or brands are conveyed at the end of the purchasing process. the basic model presented in figure 3 (blue boxes) can be expanded for the purpose of observing a business strategy related to promotional price reduction of product prices (green boxes in figure 3). promotional prices are among the most important attributes affecting a consumer’s decision to purchase online. promotional campaigns increase sales significantly and, as a rule, result in an increased profit of the company. the business strategy of reducing prices in turn results in an increase in online sales by attracting a larger body of consumers. price reduction is a key attribute affecting the consumer decision to purchase and it significantly increases the volume of online sales (liu et al, 2013). 2.1. components of utility function the consumer’s utility function is created on the basis of the information the consumeragent collects on a product and in interactions with other consumers. at the beginning of a simulation it is possible to define the lowest utility function value below which the consumeragent never makes a pro-purchase decision. suppose that n brands were present at a virtual market. if we view incentives as independent variables, and character traits as coefficients of these independent variables, we can define the function in the following manner: (1) where: function of consumeragent as regards product i (i = 1 to n). consumeragent rating of the i-th product price and quality. effect of the i-th product marketing campaign on consumeragent. in product rating consumers usually trafe off between what they get by purchasing the product and how much money they give in return. the model observes price as one product attribute and product quality as the other, integrating all the aspects of product quality. 18 2015/77management (2) where: consumeragent’s rating of the i-th product price and quality. – consumeragent’s sensitivity to the i-th product (brand) price. – consumeragent’s sensitivity to the i-th product (brand) quality. the value of coefficient shows the effect of product price on the consumeragent’s attitude towards purchasing the given product. as a rule, higher prices tend to have a negative effect on consumers’ motivation to buy a certain product. the distributed model of sensitivity to price (kim et.al 1995) suggests that a lower price of a product generates a lower sensitivity to product price in a consumeragent. sensitivity to price can be expressed as follows (zhang t, zhang d, 2007): (3) where: � consumer’s rating (� > 1) versus the real price of the observed product; price of the i-th product; constant for consumeragent which depends on socio-economic attributes (better-off consumers are less price-sensitive); – expected price of the i-th product; this parameter is difficult to define so it will be replaced by a mean value of all the products in the observed category (4) so that after the replacement we obtain: (5) the next key attribute the consumer-agent rates is the product quality. the coefficient qij denotes the coefficient of i-th consumer-agent sensitivity to j-th product price. sensitivity to quality is a multidimensional variable since the brand, that is, the product may have a number of quality aspects. assuming that product i has m quality aspects, and on the basis of the model shown in (jager, 2008), consumeragent’s rating of the ith brand can be calculated as follows: (6) where: j-th quality aspect for brand i; weight of the i-th quality aspect for brand j (value ranging between 0 and 1). the next element of utility function regards the consumer-agent sensitivity to ewom effect as well as sensitivity to marketing campaigns. analytically, it can be expressed as: (7) where: – effect of the i-th product marketing campaign on consumeragent. – consumeragent’s sensitivity to ewom effect for product i; – effect of other consumeragents on decision to purchase the i-th product. – consumeragent’s sensitivity to brand i marketing (value ranging between 0 and 1); – number of banners for brand i consumeragent sees during his internet surf. the effect of ewom on consumeragent can be calculated in the following way (aggarwal et.al. 2012): 19 management 2015/77 (8) where: – number of positive rates of interaction. – number of negative rates of interaction. consumeragents rate their interaction with seller-agents following each purchase made. the percentage of negative comments is an input parameter into a simulation model and is a subject of calibration in the simulation experiment. the model also observes the interaction between consumeragents and banneragents that represent banners on the internet. consumeragent’s sensitivity to marketing campaigns (banners) can be determined as follows: (9) where: number of banneragents of brand i in the banneragent’s surroundings. total number of banneragents in the consumeragent’s surroundings. the simulation model uses the utility function as basis for the purchase decision making. all the incentives in the model are viewed as variables that can be changed with every other experiment. the process of evaluation of all impact parameters and their ranking for the purpose of purchase decision making is modelled by the utility function. in the simulation experiment it is possible to consider or exclude each of the four members of the utility function. in this way it is possible to test all influential factors separately or in any mutual interaction 4. simulation experiment the observed simulation model is implemented in the netlogo software. it was subjected to a number of experiments and data are collected for an analysis of the behaviour of b2c online sales system. the basic indicators of b2c sales site business that were observed are market share and the number of visits on the website (surf share). at the beginning of simulation consumeragents, consumeragents and banneragents are generated, as described earlier in the paper. the simulation ensures that impact factors from the utility function that affect the consumers’ behaviour are observed separately. in the initial simulation experiment all types of products are assigned the same price in the amount of 100 monetary units, as well as the same quality level. thus all the internet sites have the same initial conditions for business. for every purchase the consumeragents contact four websites (selleragents) in their surroundings. this number is an input parameter and can be changed depending of the scenario we wish to test. after an initial oscillation, the selleragents’ market share stabilizes and both visits and sales are almost evenly distributed across selleragents. this is an obviously expected result given equal initial business conditions set in the model and, in a certain way, may be used in model verification. in the next stage of the simulation experiment we observed the effect of ewom on the output variables of the model. the graph in figure 4-a shows that the sales of, in that time, best-sold products (yellow and green) increased most rapidly. the price of the products remains the same and so does the quality, however, consumers most often “comment“ the best selling products, which further improves their sales. the intensity of the ewom effect, depending on the selected scenario, can be adjusted through the “choiceneighbours-buyers“ input parameter that determines the radius in which consumeragents follow other consumeragents who have already purchased the observed product. the broader the radius, the more powerful the ewom effect on the utility function. in case of ewom effect on the increase in surf share, it can be concluded that this effect is of minimum importance, as shown in the graph in figure 4-b. 20 2015/77management in the following stage of the simulation experiment we include the effects of product marketing through banneragent generation. in this iteration, 20 banners were generated for pink and red products, and the clickthrough-rate (ctr) was set at 10%. the 10% coefficient for ctr is unrealistically high (in practice, this coefficient normally amounts to 4%), however, we did this to illustrate the sensitivity of the model to an abrupt rise of this coefficient (figures 5-a and 5-b). now we notice that the surf share on websites that sell the “pink“ and the “red“ products has increased significantly in comparison with the competition (figure 5-b). however, even though the sales of the “red“ product increased slightly, this type of advertizing had no effect on the increase in the “pink“ product sales. this can be explained by the fact that the “pink“ product has so far had the smallest market share (figure 5-a), hence the ewom effect on it was modest, and the applied level of marketing has not been powerful enough to alter the situation to a more significant extent. in this way it is possible to test different business policies related to the effects of internet marketing by way of banners. upon discontinuing the simulation, the experiment continues to test the effect of increasing the “visibility“ of the website through increasing the ratings on the browsers. we will increase the “visibility“ of selleragents by assigning weights for their search. at the same time we define the number of websites randomly searched with these weights. we will now assume that a majority of consumers browsing the internet will check a certain number of top-ranked sites from the list of offered sites (in this experiment we will choose three), while in further browsing they choose the remaining sites randomly. the number of websites browsed on the basis of search weights and of those browsed randomly are input variables into the simulation model. figures 6-a and 6-b show that in this case, again, the number of visits to sites increases, as well as their sales after a certain time. we can draw a conclusion that investment into a better visibility of a site on the internet increases the number of visits and sales to a larger extent in comparison with marketing via banners, which should be taken into consideration when planning the site promotion costs. 21 management 2015/77 figure 5-a. graph: banneragent effect on market share figure 5-b. graph: banneragent effect on surf share figure 4-a. graph: ewom effect on market share figure 4-b. graph: ewom effect on surf share in the final stage of the observed simulation experiment we test the effect of the product price and quality change on the online sales. the prices of the best-selling “pink“ and the second best, “yellow“ products increased by 5% and 3%, respectively, whereas the price of the worst-selling, “grey“ brand decreased by 5%. simultaneously, the quality of the “blue“ product improved by 5%, and that of the “red“ product improved by 3%. effects of these changes can be seen in the graphs in figures 16-a and 16-b. we can see from the graphs in figures 7-a and 7-b that these relatively small changes in prices and quality do not have an immediate effect on the sales of the product, however, sales still improve over time. the increase in sales of the “red“ product on the basis of improved quality is somewhat slower, though. this may be a result of relatively slack marketing activities of the observed internet seller, but also of the time required that the improvement of the product quality on the market should have a beneficial effect on sales. the analysis of the obtained results proves that the model is capable of simulating various business policies and market effects on online b2c sales. we began the first simulation experiment with equal conditions of sale for all online shops, whereby we achieved a market balance with similar numbers of visits and sales for all selleragents. we continued the experiment to test the business policies of on-line promotion, product price variations, product quality variations and variations in the quality of the internet site 22 2015/77management figure 6-a. graph: selleragent search weights effect on market-share figure 6-b. graph: selleragent search weights effects on surf-share figure 7-a. graph: effect of price and quality change on market share figure 7-b. graph: effect of price and quality change effect on surf-share literature [1] aggarwal r, gopal r, gupta a, singh h, putting money where the mouths are: the relation between venture financing and electronic word-of-mouth, journal information systems research archive 2012, 23:976-992 [2] belch e, belch a, advertising and promotion: an integrated marketing communications perspective, irwin mcgraw-hill (4 ed.) 1998. [3] changa m,cheungb w, laib v, literature derived reference models for the adoption of online shopping, information & management 2005, 42: 543–559. [4] engel j, blackwell r, miniard p, consumer behavior, the dryden press (8th ed.) 1994. [5] gilbert n, troitzsch g, simulation for the social scientist, open university press mcgraw-hill education 2005. [6] godes d, mayzlin d, using online conversations to study word of mouth communication, journal marketing science archive 2004, 23:545-560 [7] hyung a, evaluating customer aid functions of online stores with agent-based models of customer behavior and evolution strategy, information sciences 2010, 180:1555–1570. [8] jager w, simulating consumer behaviour: a perspective, paper prepared for the netherlands environmental assessment agency project “environmental policy and modelling in evolutionary economics” 2008, [9] kim b, blattberg r, rossi p, modeling the distribution of price sensitivity and implications for optimal retail pricing, journal of business & economic statistics 1995, 13:291-303 [10] klever a, behavioural targeting: an online analysis for efficient media planning?, diplomica verlag 2009. [11] liu x, tang z, yu j, lu n, an agent based model for simulation of price war in b2c online retailers, advances in information sciences and service sciences 2013, 5: 1193-1202 [12] miller j, page s, complex adaptive systems: an introduction to computational models of social life, princeton university press 2007. [13] moe w, buying, searching, or browsing: differentiating between online shoppers using in-store navigational clickstream, journal of consumer psychology 2003, 13:29-39. 23 management 2015/77 conslusion the research proves that the methodology of agent-based simulation and modelling can be successfully implemented in modelling and simulation of processes on online markets. it also shows that the results obtained can be successfully used to analyse the behaviour of such markets and monitor the effects of different business strategies of online sellers on generated sales, site visits and other success indicators in doing business in the e-commerce domain. for the needs of this research a simulation model was developed in the netlogo software that enables us to monitor the key interactions of the core players on the online market. the generated agents who present the dynamic entities of the model are assigned attributes based on empirical and theoretical data retrieved from the b2c online market. thus the online market managers are provided with the tool to investigate into the impacts and effects of implementing their own business strategies to the market flows. the rules of behaviour and interactions included into the model stress the complexity of the decision-making process in product evaluation and purchase in the b2c e-commerce segment. the observed simulation model includes a broad range of impact variables whose aim is to model all the relevant aspects of consumer behaviour and explain their method of decision making when purchasing on-line. we can conclude that the designed e-commerce simulation model is a tool that ensures a better insight into the issue of consumer behaviour on the internet, and the companies engaged in e-commerce in the b2c segment now have a tool that can help them better understand their consumers, improve market segmentation, improve the business profitability and test their business strategies. as shown in the above discussions, consumer decision making on the internet is the subject of continual study, therefore, new insights and approaches are certainly out there, waiting to be explored, which opens a broad area for further study. 24 2015/77management [14] moe w, fader s, fast-track: article using advance purchase orders to forecast new product sales, marketing science 2002, 21:347-364. [15] prokopenko m, boschetti f, ryan a, an information-theoretic primer on complexity, self-organisation and emergence, complexity 2009, 15:11–28. [16] radenkovic b, stanojevic m, markovic a, racunarska simulacija, faculty of organisational sciences, belgrade 2001. [17] schiffman l, kanuk l, et al., consumer behavior, new jersey: prentice hall (10th ed) 2009. [18] solomon m, bamossy g, askegaard s, consumer behaviour: a european perspective, prentice hall 2009. [19] zhang t, zhang d, agent-based simulation of consumer purchase decision-making and the decoy effect, journal of business research 2007, 60:912–922. receieved: october 2015. accepted: december 2015. sava čavoški mds informaticki inzenjering scavoski@mds.rs sava cavoski has an extensive experience as a software architect. the following projects are worth mentioning: the development of kostmod 4.0 software project (it included the cooperation between forskningsinstitutt (ffi) within the ministry of defence of the kingdom of norway, the ministry of defence of serbia and the faculty of organisational sciences, university of belgrade; the billing software for cisco ip telephony and the laboratory information system (lis) for the biggest laboratory chain in the republic of serbia. he published extensively in the field of simulation and simulation modelling in domestic and international journals. his main areas of interest are the simulation models in finance, agent-based simulation models and cloud computing. aleksandar markovic university of belgrade, faculty of organizational sciences,serbia aleksandar.markovic@fon.bg.ac.rs aleksandar markovic is a full professor at the faculty of organizational sciences, university of belgrade, serbia, where he acquired his msc and phd degrees in the field of computer simulation. he is currently the vice-dean for finance and organisation. areas of his research include: computer simulation, simulation for business decision making, business dyinamics and e-business management. since 2009 he has been the editorin-chief of the international journal “management”. about the author # andric gusavac:tipska.qxd 1 bisera andrić gušavac, gordana savić university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming operations research problems and data envelopment analysis in agricultural land processing – a review doi: 10.7595/management.fon.2020.0016 abstract: 1. introduction the growth of human population and industrial production consequently leads to increased pollution, land degradation, habitat fragmentation and unsustainable consumption, and due to extensive use, arable land is of poorer quality, getting more and more polluted, and consequently the availability is reduced. effective agriculture management is necessary to maximize land productivity at this moment and in the future (andric gusavac & savic, 2019). * corresponding author: bisera andrić gušavac, e-mail: bisera.andric.gusavac@fon.bg.ac.rs research question: this paper aims at specifying the contribution of operations research (or) methods and techniques to agricultural land processing. motivation: agricultural production is performed on an agricultural land, which has to be exploited in the best possible way, given the increasing human population and the limited availability of the land. considering the importance of this issue, a large number of research studies dealing with problems in agriculture can be found in the literature, and many of these problems are solved by or methods and techniques. however, to our knowledge, there are no review papers that deal with this specific area, so the main motivation is to provide a detailed review of selected or methods application in the agricultural land processing area. idea: the core idea behind this research is to perceive a real impact of or methods and techniques implementation in the agricultural land processing. the research is based on detailed literature review for the period 2014-2019 and performed statistics involving publication by year, publication by journal and statistics involving keywords in articles. data: the review was conducted using online repositories of the papers published in sci and scie journals with impact factors in the period from 2014-2019. tools: analyzed papers are divided into three groups according to the or method applied: linear optimization problems, dea method and other or methods (non linear, multicriteria, mixed integer programming, dynamic programming). papers within the groups are analyzed according to the type of problems solved. statistical analyses of all collected data were used to get a good insight into the applications of operations research problems and data envelopment analysis in agricultural land processing. findings: the number of published papers in this specific area has a growing trend over the observed years (with some minor decrease in 2016 and 2019 in comparison with the previous year). all of the articles are related to specific application of the given methods to solving problems in the agricultural land processing, and this is the reason for many different keywords appearing in the articles. some very important keywords such as “operations research” or “or” does not appear in any article as a keyword. inclusion of such common keywords may result in a faster search in repositories of all articles. contribution: the primary contribution of this paper is a detailed review of application of linear optimization, data envelopment analysis and other or methods in agricultural land processing in the period 2014-2019. keywords: agriculture, processing of agricultural land, data envelopment analysis (dea), operations research, or methods jel classification: q15, c44, c67 agricultural problems can be solved by various operations research methods and these methods have helped over the past decades to understand the complex functioning of agricultural systems, as well as to manage these systems in an efficient way (weintraub & romero, 2006). problems related to the agricultural land processing are very common in the literature. problems related to the: crop diversification, crop planning and crop rotation are solved. decisions are made regarding the type of crops to be grown in the planning horizon (plant different crop in each or every couple of periods). problems of this kind are often modelled by linear programming and mixed linear programming (boboev, djanibekov, bekchanov, lamers & toderich, 2019; albornoz, nanco & saez, 2019; aljanabi, mays & fox, 2018). problems in choosing farmland / tillage strategies at farm level to avoid soil degradation are also modelled by linear (boboev et al., 2019). and mixed linear programming (bavorova, imamverdiyev & ponkina, 2018). for all these types of problems, the area where the land is located arid or not, the availability of irrigation water, the availability of energy and all other resources, etc., is taken as the decision factor. regarding the problems of efficiency and technical efficiency of agriculture, the dea method is applied (muhtarom, haryanto & istifadah, 2019; li, jiang, mu & yu, 2018). a review of the literature in the last five years reveals that the most common problems in the field of agriculture, which are solved by operations research methods and techniques, are related to the processing of agricultural land. papers published in sci and scie journals according to kobson (kobson, 2019) are presented in this paper. the number of papers dealing with the implementation of operational research in the field of agriculture in the last five years is more than 80, and they are modelled by linear, nonlinear, mixed integer programming, dynamic programming, multi-criteria models and data envelopment analysis (dea). a very large number of problems is successfully modelled by linear programming (lp), and these papers are presented in the third chapter of this paper. the dea method is widely used for efficiency assessment in the agricultural chapter, and 21 papers regarding agricultural land related problems solved by dea method are presented in chapter 4. agricultural land processing problems solved by other operations research (or) methods and techniques are presented in chapter 5 of this paper. the next section provides a series of selected statistics involving the articles and journals within our literature review. 2. publication statistics 2.1. statistics involving publications by year fig. 1 shows the distribution of or articles in agricultural land processing published by year. figure 1: distribution of agricultural land processing articles by year note that the number of papers is growing over the years, with some minor decrease in 2016 and 2019. 2 bisera andrić gušavac, gordana savić forthcoming � �� �� �� �� �� � � �� �� �� �� �� ���� ���� ��� ���� ��� ���� 2.2. statistics involving publications by journal table 1 lists 13 journals that have published the largest number of or and agriculture related papers in the past 5 years. journals such as computers and electronics in agriculture, land use policy, sustainability (switzerland) and agricultural systems are the most utilized journals. the scope of these journals falls within the fields of operations research and management science combined with agriculture, so these results are expected. table 1: journals that have published the greatest number of agricultural land processing articles 2.3. statistics involving keywords used in articles regarding the papers of linear optimization problems in agricultural land processing, a total of 165 keywords are detected (average of 5.89 keywords per article). most commonly utilized keywords in this area are listed in table 2. only keywords that appear 3 or more times are listed. table 2: keywords commonly used in lp/agricultural land processing articles although all of these articles are contributions of or methods and techniques in specific area (agricultural land production), the keyword "operations research in agriculture" appears only in one article. most commonly used keywords in dea applications in agricultural land processing are listed in table 3. a total of 122 keywords are detected in this area (average of 4.88 keywords per article). only the keywords that appear 3 or more times are listed. table 3: keywords commonly used in lp/agricultural land processing articles 3 management: journal of sustainable business and management solutions in emerging economies forthcoming ���� ���� �� ��� ������ �������� ����� �������� �� ����� ��� ����� � ����������������� �� � ��� ������ �� � ����� �������� �� ����� �� �� �� !��� ��" #� $ �� ��%� �� ����� &� ������� �� �� �� ��� '� '�((� '� ������� �� ������������"�$ �)�* ��!���%� &� &���� �� +���� ���,��� � �������� ���� &� &���� �� +���� ���,���-����� � ��. � � � � � �� ��'�� (� +���� ���,�/���� ���� ���0� �� � ������ ����� �� ��'�� 1� �� ���� �� ���'� ��� ��-����� � 2�0 ���� � � ��� �� �� !��� �� �� ���'� ��� ��-����� � �� �� �� � �������� ����* � ��)� �� ���'� ��� � 3�� ��+���� ���,�������� �� �� �� �� �� �� ���'� ��� 4 ) ��5���� ���"���5���� ��%� ��"��%� ���(�"&���'%� 6� �� ('� ���� � ���� ���� �� ������� � ������ �� ������ ������ � �� �� ��������� �� �� ������� � ��� ���� ���������� ������������� � �� �� ��� �� �� ������������� �� �� �� � ���� �� ������� � �� �� !�"� �� �� �� #� �������� �� $� %����� � �� &� '� ����� �� � �� �� "�� ���� ����� �� ���� �� � ���� ���� �� ������� � ������ �� ������� � �� ������� ����� ��� �� ������ ����� �� �� �������� ������������ �� �� ��������������� �� �� �������!� ���� �� "� ���������������������� �� when we list the keywords used in or methods (beside lp and dea), we can notice (table 4) that here we have more matching keywords than in lp and dea applications. like in previous cases, only the keywords that appear 3 or more times are listed. most commonly used keywords are “agriculture”, “multi criteria analysis” and “optimisation”. a total of 236 keywords are detected in this area (average of 6.74 keywords per article). table 4: keywords commonly used in dea/agricultural land processing articles 3. overview of linear optimization problems in agricultural land processing operations research methods and techniques are extensively applied to solve problems in the field of agriculture. modelling, as a basic tool in the science of agricultural systems, has been developed by scientists working in various fields over the past six decades (jones et al., 2017). table 5 shows the papers dealing with problems related to agricultural land processing, which are solved by linear programming. a brief description of the problem and a formulated model for solving the problem is given for each paper. table 5: overview of linear optimization problems in agricultural land processing (adapted from andric gusavac & savic, 2019) many of the agricultural problems modelled as linear programming problem are solved by exact methods (cid-garcia & ibarra-rojas, 2019; ahodo et al., 2019; boboev et al., 2019; kiryluk-dryjska & beba, 2018; smith et al., 2018; bavorova et al., 2018; zhang et al., 2017; singh, 2017; capitanescu et al., 2017; pieralli, 2017; nidumolu et al., 2016; rocco & morabito, 2016; galan-martin et al., 2015; naudin et al., 2015; das et al., 2015; singh, 2015). problems related to the processing of agricultural land are very common in the literature: division of arable land, crop planning, and crop rotation are solved. crop rotation and crop planning are type of problems that are solved by linear programming in 13 analysed articles (48,15%). problems of division of arable land and resource planning include 22.22% (11.11% of articles each), and two articles (7.41%) deal with harvesting problems; the same number of articles is for conversion of land or conversion of agriculture production (fig. 2). figure 2: distribution of agricultural problem types solved by lp 4 bisera andrić gušavac, gordana savić forthcoming ���� ���� �� ������� � ������ �� ������� � �� ������� ����� ��� �� ������ ����� �� �� �������� ������������ �� �� ��������������� �� �� �������!� ���� �� "� ���������������������� �� � ���� ���� �� ������� � ������ �� ������� � �� ������� ����� ��� �� ������ ����� �� �� �������� ������������ �� �� ��������������� �� �� �������!� ���� �� "� ���������������������� �� � ������ ������ ������ ������ ����� ����� �� ��������� �� ������� ���� � ������ �������� �� � ���� ���� ���� � ����� � ������� �������� �� ������� � ������ ���� ���� �� �� � ���� � ��� ���� 4. overview of dea problems in agricultural land processing the most commonly used technique for the problems of evaluation and comparative analysis of efficiency in agriculture is the mathematical programming technique data envelopment analysis (dea) (charnes, cooper & rhodes, 1978). papers dealing with the problems of evaluation and comparative analysis of agricultural efficiency are shown in table 6. for each reference a brief description of the problem is given. 5 management: journal of sustainable business and management solutions in emerging economies forthcoming ���������� � ��� � � ���� �������� ��� ����������� ���� ������� ��������������������� ��� ����� ���������� � ����������� �������� !��"#�� � ���# ���� ��� ��$� �%�&����'��% (���� )���(���*�+�(���� ��� ������������������������������( 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����������������� ������ ��� 4����� ���� �,,��� ���#.�� �3� � 0�������������� � ���� ����� ������� ��� ���������������,�#������� 0� �������������� ���� -��������9��� -�#� �����-:� ��� );� ��� ���*�)� ���� ��<���� �=� ��� ����� ������� ��� ���������##������� ���� ������������#��� � ���� 5���%��������� )���(� �*� + � ����� ����� �=� (�#��������� ��������� �#��������� ����� ���������0���������� ��#��(�������� ������,���� #������������ ���&��( �� ������� ����� ����������� #� >��������#� �����?��#����� @�# �� �*�) �����##��� �=� (�#����������������#����#� ����� ������������ ���4����� ,������������� @#��������a��(���*� )����#���� �=� ��� ��� �������� ���������,�#��������� �������#����#�� ������������� � ��� ����� ������� ��� ���� )�&�� #�*�+����� �=� ���#���������� � � ����� �(����� ���#�������������#�� �������� ����� ���� � ������ �,�� ��������������� ��� ���� ��������*�>������ �=� ��� ��� �������� �� ������#� ����� ����������# ������������� ����� ���� ������*�)�����(�&��� �b� (�#������������ � ����� �������������������� � ����� ���#������������� � ������#����#�� ����� ���� -�����&����1 �� ���� )��&�*��� �#�� �b� ��� �����������,# ���� ����������������������# ( #�"�� ��������������� ���������� ������������� ����#��� ������������� �$� ���� a�0�&��5�% &�*� ������&��� �b� � ���� � �������� �� ������#� ����� �������������#��� ������ � ����� ���4������������ �� ���� 5�����(��� �b� � ���� � �������� �� #���( �� ������#� ����� �������������#��� ������ � ����� ���4����� ���� +�����*�-�� ��� �b� ��� ��� �������� � �������� ����� �������������#��� � ���� �������a�%����� ����*� ������� �b� (�#����������� ������#� ����� �������0� ��������� ���� � table 6: overview of dea problems in agricultural land processing (adapted from andric gusavac & savic, 2019) it is interesting to distinguish different types of efficiency determined by the dea method in the agricultural land processing area. this distribution is presented in fig. 3. figure 3: distribution of efficiency type solved by dea method nine papers presented in table 6 examine the technical efficiency (9 out of 24) and seven papers examine the eco-efficiency (7 out of 24). these two types of efficiency measures are the most common efficiency measures that are solved in published papers in the agricultural land processing area. other types of efficiency measures (energy, cross-efficiency, economic, production and some combinations) are represented in 33.33% (8 papers out of 24). 5. overview of other or methods used in agricultural land processing agricultural problems are often very complex and could only be modelled by non linear programming. they also include more than one criterion, so the multi objective optimization is used for these problems. table 7: overview of other or methods in agricultural land processing 6 bisera andrić gušavac, gordana savić forthcoming ����� ��� �� ���� ���� �� �� �� �� �� �� � �������� ����� ��� ��� ����� ��� � ���� ����� ��� ������ ����� ��� �������� ����� ��� ����������� ����� ��� ������������ � ��� ����� ��� ���������� � ��� � � ���� ������� ����� ��� �������� � �������� ���� ���� �������� �� ������� ������ ������ ��� ��������� ����������� !���� ���� ���� �������� ������� �� ������������ ������������� ������"����� #������� $������ � ���������� ���� ������������ ������� �������� �����% ������� ���������� ����� &�%������� '����% � (���� ���� ���������� � ������� ����� �������� ����� �� ���� ���)��� ������ �%����� ����������� ����� *���+��� ����,�+�� � -������+��� ���� ������������ ���� ��������� ����� �+������ ��.�� ������� ������������ ����������� ����� -��+�,��� ������ � -����� ���� ���� ��������/ ��������� ��� �������� �������� �� ��������� �����% ����� ������ ������������ ���������� ������"����� #���� �� ��0� ���1 �������� ������������ ���)�� �% ������ ������� ��� ��������� � ������� ������������ ���������� �������,����+� ������"����� 2������ �� ��0� ���1 ���� ��� ���������� �� ����� �� ��������"� ����������� �����+������� �������,����+� ������"����� �,����� �� ��0 ���1 ���� �������� ��� ���������� � )���� )���� ��.��3������� ��������� ����������� 4��� �� ��0� ���1 ������ ������� � ���� ��������������� ��� ���������� � ��� ����������% � ��� ���� �� ���� �������� ������������� �+�������� � ���� ����������% it is interesting to see agricultural problem types that are solved by or methods other than lp and compare these types with problem types solved by lp (presented in figure 2). problems related to the processing of agricultural land solved presented in table 7 can be grouped into seven categories: crop planning, crop rotation, other problems, sustainability and sustainable development in agriculture area, resource (energy, water, biomass) planning, harvesting problems, allocation of agricultural land, routing problem in agriculture. distribution of these groups can be seen in figure 4. 7 management: journal of sustainable business and management solutions in emerging economies forthcoming � ���������� � ��� � � ���� 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����� � � � � �� ��� ��� figure 4 distribution of agricultural problem types solved by other or methods most of the analysed articles are dealing with crop planning and crop rotation problems (41.18%). this is a very similar percentage as in lp solved problems shown in figure 2. harvesting problems and resource problems are also solved by lp (harvesting 7.41%, resource 11.11%) and other or methods (harvesting 5.88%, resource 8.82%). references [1] abbas a., iqbal t., ahmad m., yousaf k., elahi e., & yang m. 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(2018). effect of land use change for bioenergy production on feedstock cost and water quality. applied energy 210, 580-590. doi:10.1016/j.apenergy.2017.09.070 received: 2020-03-20 revision requested: 2020-06-19 revised: 2020-07-01 accepted: 2020-07-06 12 bisera andrić gušavac, gordana savić forthcoming bisera andrić gušavac university of belgrade, faculty of organizational sciences, laboratory of operational research “jovan petrić“, serbia bisera.andric.gusavac@fon.bg.ac.rs bisera andrić gušavac is a phd candidate working at the of operational research “jovan petrić“ at the university of belgrade, faculty of organizational sciences. she has a degree in specialized master of industrial engineering organized by the prestigious french faculty école centrale paris, as a scholarship holder of the french government. her research interests include mathematical modelling, optimization, industrial engineering and performance analytics. bisera andrić gušavac is an author or coauthor of more than 40 scientific and research papers. she was a member of the project teams in four national and international research projects and has been active in organizing scientific conferences (balcor; sym-op-is and symorg). gordana savić university of belgrade, faculty of organizational sciences, laboratory of operational research “jovan petrić“, centre for efficiency analysis, serbia gordana.savic@fon.bg.ac.rs gordana savić is an associate professor in the operational research, performance and business analytics at the university of belgrade, faculty of organizational sciences and faculty of agriculture. she received a phd degree in operations research from the university of belgrade, faculty of organizational sciences in 2012. she is head of laboratory for operational research and centre for efficiency analysis. her research interests include mathematical modelling, optimization, business and performance analytics. gordana is an author or co-author of more than 100 scientific and research papers. out of them, more than 25 are monograph chapters and papers in leading scientific journals including european journal of operational research, expert systems with application, higher education and scientometrics. she is a member of the project teams in more than ten national and international projects and participant in several research projects. she also was a participant, coordinator, or leader of a wide range of practical projects in the fields of ict consulting, performance analytics, mathematical modelling and optimization. gordana serves as a reviewer, editor and guest editor in several leading international and national journals. furthermore, she has been active in organizing scientific conferences as chair of organizing and member of scientific and organizing committees (balcor; sym-op-is and symorg). 13 management: journal of sustainable business and management solutions in emerging economies forthcoming about the authors << /ascii85encodepages false 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can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /converttocmyk /destinationprofilename () /destinationprofileselector /documentcmyk /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure false /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles false /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /documentcmyk /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /usedocumentprofile /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [612.000 792.000] >> setpagedevice simic:tipska.qxd 1 ivana simić1, vinko lepojević university of niš, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming the relationship between national and entrepreneurial culture: the role of national wealth doi: 10.7595/management.fon.2021.0022 abstract: 1. introduction although the last decades of the 20th century were characterized, among other things, by an intensive transition from „managerial“ to the so-called „entrepreneurial“ economy (audretsch & thurik, 2001), today, at the beginning of the third decade of the 21st century, the achieved levels of entrepreneurship, measured by various indicators, differ from country to country (zhao et al., 2012; suddle et al., 2007, p. 5). differences in levels of entrepreneurial activity between countries can be explained by whole sets of economic, technological, demographic, cultural and institutional factors (hofstede et al., 2004, p. 7; wennekers, 2006, p. 68). although predominant among the research conducted so far are those focused on economic factors and their relationship with entrepreneurship (thurik & wennekers, 2001; carree & thurik, 2010; lugo & espina, 2014; gbadeyan et al., 2017), there are also some studies in which the attention is paid to cultural factors, especially to national culture and its impact on entrepreneurship. according to james c. hayton and * corresponding author: ivana simić, e-mail: ivana.simic@ekonomski.rs research question: the paper examines the impact of specific hofstede’s dimensions of national culture on entrepreneurial culture, depending on the wealth of the national economy. motivation: based on the results of some previous research focused on the relationship between national culture and various indicators associated with entrepreneurship (hayton, george & zahra, 2002; pinillos & reyes, 2011; zhao, li & rauch, 2012; hayton & cacciotti, 2013), the paper analyses the impact of national culture on entrepreneurial culture, as a category closely related to entrepreneurship. the identification of the national culture's dimensions contributing to the affirmation of entrepreneurial culture, provides an insight into the entrepreneurial potential of a particular national economy. idea: the main idea of the paper is to examine whether selected hofstede’s dimensions of national culture (power distance pd, uncertainty avoidance – ua, individualism – idv) affect entrepreneurial culture (ec) in a manner identical to that affecting the other indicators of entrepreneurship. the mentioned relationship is not examined as unmediated, but in the context of the effect that national wealth (measured as gross national income per capita gni) has on it. data: the survey covered a total of 108 countries for which the data on the values of three selected dimensions of national culture, the index of entrepreneurial culture and the gross national income per capita are available. tools: in order to examine the effect of three selected hofstede’s dimensions of national culture on entrepreneurial culture, correlation and standard multiple regression analyses were conducted. for data processing, statistical software spss (version 22.0) was used. findings: the obtained results of the research show that in national economies with higher levels of idv and lower levels of ua, higher scores of the ec index are manifested, regardless of the national wealth. on the other hand, the impact of pd on ec is determined by the level of a particular economy's wealth. in high-income economies (hie), the index of ec is higher if pd is lower. in lowand middle-income economies (lie), higher values of ec index are manifested if pd is higher. contribution: the paper expands the knowledge and research base on entrepreneurial culture and the influence that national culture has on it. keywords: national culture, entrepreneurial culture, national wealth, entrepreneurship jel classification: l260, l290, z190 gabriella cacciotti, ”how and to what extent a national culture influences entrepreneurial action, the rate of new firm formation and ultimately economic development“ is ”one of the oldest research questions in the field of entrepreneurship“ (hayton & cacciotti, 2013). despite the fact that the idea of the relationship between national and entrepreneurial culture is almost a century old (noseleit, 2009, p. 43), the character of that link has not been explained uniquely in the literature. this can be partly attributed to heterogeneous indicators of entrepreneurship that were used in various studies in which the mentioned relation is analyzed (scott, 1992; scott, 1993; sun, 2009; rinne, steel & fairweather, 2012; baum et al., 1993; acs et al., 1994; hofstede et al., 2004; wennekers et al., 2007; pinillos & reyes, 2011; hayton & cacciotti, 2013). due to the importance of entrepreneurship during the last decades, the idea of the relationship between national and entrepreneurial culture has been gaining in importance (hayton et al., 2002; dogan, 2016; osowska, 2016; valliere, 2019; urban & ratsimanetrimanana, 2015; pinillos & reyes, 2011; zhao et al., 2012). using entrepreneurial culture as an indicator of entrepreneurship, the paper analyzes the influence of national on entrepreneurial culture in highand low/middle-income economies. 2. theoretical background and hypotheses 2.1 entrepreneurial culture in theory, entrepreneurial culture is defined in different ways. among other things, this is due to the fact that it is possible to analyze it from different aspects and at various levels. for example, studying entrepreneurial culture in more detail, matthew a. wong identifies two basic levels of its analysis: the level of organization and the national level (wong, 2014, p. 1). the paper focuses its attention on the national level of entrepreneurial culture. from the national perspective, entrepreneurial culture reflects the level of national or social orientation towards entrepreneurship (wong, 2014, p. 1). according to global competitiveness report 2018, entrepreneurial culture is defined as ”a country’s willingness to take risks and embrace disruptive ideas“ (world economic forum, 2018, p. 10). duane ireland and his colleagues treat entrepreneurial culture as „a national system of shared values in a particular society that embrace and supports entrepreneurship“ (ireland et al., 2008). starting from hofstede’s definition of national culture, michael stuetzer and his colleagues define entrepreneurial culture as ”a collective programming of the mind toward entrepreneurial values and norms such as proactiveness, risk taking, accepting failure, openness to new ideas, individualism, independence and achievement“ (stuetzer et al., 2018). alison morrison defines entrepreneurial culture as ”one where a positive social attitude towards personal enterprise is prevalent, enabling and supporting entrepreneurial activity“ (morrison, 2000), while ebru dogan views it as ”a combination of personal values, management skills, experiences and behaviour describing the entrepreneur in terms of entrepreneurial spirit, risk tendency, innovation capacity and managing the relations of company with the circle“ (dogan, 2016). as such, entrepreneurial culture is considered as an important factor of innovation, growth and economic success (beugelsdijk, 2007) and a significant predictor of newborn entrepreneurship (suddle et al., 2007). apart from precise determination, a serious problem closely related to entrepreneurial culture is the fact that in theory there are no sole criteria or unique indicators for monitoring and evaluating entrepreneurial culture. thus, for example, in one of their research works, kashita suddle and his colleagues point out the following indicators of entrepreneurial culture: qualities that children can be encouraged to learn at home; aspects of a job people say are important; some political views; measures for the loci of control (suddle et al., 2007, p. 7). in this context, a significant contribution was made by nadim ahmad and anders hofmann, who state that indicators relevant for evaluating the entrepreneurial culture are: cultural and social norms; entrepreneurial motivation; self-employment preference; the wish to own one’s own business; desirability of becoming self-employed; proclivity to take risk (ahmad & hofmann, 2007, p. 32). different indicators are highlighted by mariem khadhraoui and her colleagues. according to them, the most important indicators are: managerial skills; taking responsibility; fear for managing business; entrepreneurial traits; looking for opportunities; entrepreneurial motivation (khadhraoui et al., 2016). the last two global competitiveness reports (2018; 2019) also contain entrepreneurial culture as one out of many sets of indicators relevant for assessing the competitive position of the state, i.e., for the global ranking of national economies. it is a set of indicators positioned within the pillar 11 – business dynamism, which contains a total of eight indicators, four of which relate to entrepreneurial culture (world economic forum, 2018, pp. 9-10). these are the following: attitudes towards entrepreneurial risk (to what extent people have an appetite for entrepreneurial 2 ivana simić, vinko lepojević forthcoming risk), willingness to delegate authority (to what extent does senior management delegate authority to subordinates), growth of innovative companies (to what extent new companies with innovative ideas grow rapidly), companies embracing disruptive ideas (to what extent companies embrace risky or disruptive business ideas) (world economic forum, 2018, p. 57; world economic forum, 2019, p. 51, 623-624). 2.2 national culture although often ”exploited“ in the literature, national culture is a category that is not yet defined by a single definition. one of the often cited definitions is the one offered by geert hofstede. according to hofstede, national culture is ”a collective programming of the mind which distinguishes the members of one human group of people from another…“ (hofstede et al., 2004, p. 171). slightly different is the definition of national culture given by helen deresky who claims that national culture represents ”shared values, understandings, assumptions, and goals, that are learned from earlier generations, imposed by present members of a society and passed on to succeeding generations“ (deresky, 2013, p. 83). only somewhat similar to deresky's is the definion of national culture given by robert house and his colleagues who see national culture as ”shared motives, values, beliefs, identities and interpretations or meaning of significant events that result from common experiences of members of a collective and are transmitted across age generations“ (house et al., 2002). apart from the fact that national culture is defined in different ways, the literature also interprets its dimension differently, according to which it is possible to compare national cutures (schwartz, 2014; mccrae et al., 2008; trompenaars & hampden-turner, 1997, p. 8-10). a significant number of categorizations of national culture's dimensions present in the literature rely to some extent on the categorization offered by geert hofstede (hofstede, 1980). his categorization initially included 4 basic dimensions of national culture: power distance (pd) (from small to large), individualism (idv) versus collectivism (col), feminity (fem) versus masculinity (mas), uncertainty avoidance (ua) (from weak to strong) (hofstede et al., 2010, p. 31, 38, 45). the power distance reflects the degree to which an unequal distribution of power is tolerated within society. in societies with a lower power distance, the degree of tolerance for unequal distribution of power is lower. the situation is reversed in societies with a higher power distance. uncertainty avoidance shows the extent to which members of the nation feel threatened in situations that are uncertain and ambiguous. nations that exhibit lower levels of uncertainty avoidance are characterized by higher levels of acceptance of risky and uncertain situations. in societies with a higher level of uncertainty avoidance, the level of acceptance of risky and uncertain events is lower. in societies that are predominantly individualistic, people care only about themselves and, eventually, about their immediate family members. the ties among other members of an individualistic society are quite weak. collectivist societies are dominated by strong, cohesive groups that protect their members and expect loyalty in return. society’s orientation towards masculine or feminine values reflects the extent to which members of one nation are predominantly prone to achievement, heroism, assertiveness, material rewards and competition (emphasized masculine values) or cooperation, care for the weak, quality of life, consensus (emphasized feminine values) (hofstede et al., 2010). later, the list of basic dimensions of national culture was expanded with two new dimensions: long-term versus short-term orientation and indulgence versus restraint (hofstede et al., 2010). 2.3 literature review there is a consensus among theorists that national culture does influence entrepreneurship. studying the relationship between national culture and entrepreneurship in more detail, renata osowska, for example, concludes that ”the cultural context is important in understanding how and why entrepreneurship happens and who becomes involved“ (osowska, 2016). on the other hand, ebru dogan believes that the ”cultural environment of a country plays an effective role in shaping and development of entrepreneurial identity and behavioral patterns“ (dogan, 2016), i.e., that ”culture shapes cognitive schemas which attribute value and meaning to motivational variables and guide the choices, commitments and behavioral standards“ (dogan, 2016), as well as that ”different entrepreneurial activity levels of countries with similar income levels originate from their cultural differences“ (stel et al., 2005). also, without questioning the obvious impact that economic factors make on entrepreneurship, hofstede and his colleagues point out that differences in levels of entrepreneurship between countries should also be explained in the context of the effects that national culture does have on entrepreneurship (hofstede et al., 2004). regardless of the theorists’ agreement that national culture does influence entrepreneurship, practical research on those effects is not intensive enough (hayton et al., 2002). besides, the obtained results are not uniform and unambiguous (hofstede et al., 2004, p. 17; dogan, 2016). while in a significant number of con3 management: journal of sustainable business and management solutions in emerging economies forthcoming ducted research national culture was observed in the context of hofstede’s dimensions (valliere, 2019; zhao et al., 2012), entrepreneurship was evaluated from the aspect of various indicators closely related to it. among other things, this created a confusion in the obtained results. for example, in 1992 shane scott, in one of his papers, explained the relationship between individualism and power distance, on the one hand, and the number of invention patents, on the other, and pointed out that ”countries with small power distance and high individualism are more inventive than others“ (scott, 1992). in 1993, the same author published another paper in which he explained the relationship between individualism, power distance, uncertainty avoidance and masculinity in national rates of innovation in 33 countries in 1975 and 1980, respectively. he discovered that: uncertainty avoidance was negatively associated with innovation in both time periods; individualism was found to be positively associated with innovation in 1975, but not in 1980; power distance was found to be negatively associated with innovation in 1975 but not in 1980; masculinity had no significant association with innovation at the national level (scott, 1993; hayton et al., 2002). based on the results of the research conducted by shane scott, tiffany rinne and her colleagues examined the impact of certain dimensions of national culture (individualism, uncertainty avoidance and power distance) on innovation rates identified by the global innovation index (gii). their analysis showed “a strong negative relationship between power distance and gii innovation scores, as well as a strong positive relationship between individualism and gii innovation scores. no relationship was found between gii inovation scores and uncertainty avoidance” (rinne et al., 2012). by choosing different indicators of entrepreneurship different results were obtained. for example, analyzing the impact of national culture on self-employment, zoltan j. acs and his colleagues conclude that higher levels of uncertainty avoidance and lower levels of individualism lead to higher levels of self-employment (acs et al., 1994). a higher level of uncertainty avoidance as a category that favours the growth of business ownership rates across countries, was also identified by sander wennekers and his colleagues (wennekers et al., 2007) who analyzed that relationship across 21 oecd countries. however, they found that this relationship was not stable over time (hayton & cacciotti, 2013). the unstable relationship between hofstede’s dimensions of national culture and entrepreneurship is also pointed out by mariá-josé pinillos and luisa reyes (2011) who examined how the orientation towards individualism or collectivism was related to total entrepreneurial activity. using data from the global entrepreneurship monitor including 52 countries, they found that the impact of individualism on entrepreneurial activity depended on the economic development of the country. in low or middle developed countries higher levels of individualism are negatively related to the rate of entrepreneurial activity, while in countries with a higher level of economic development this relationship is positive (pinillos & reyes, 2011). based on various studies james c. hayton and his colleagues created a general hypothesis that explains the unmediated relationship between national culture and entrepreneurship: “entrepreneurship is facilitated by cultures that are high in individualism, low in uncertainty avoidance, low in power distance, and high in masculinity“ (hayton et al., 2002). however, according to ebru dogan, the validity of the research on the basis of which this hypothesis was created is ”still disputable“ (dogan, 2016). xiangyang zhao and his colleagues also pointed out that the hypothesized link between national culture and entrepreneurship is not well-established (zhao et al., 2012). they believe that one of the main reasons is the fact that a number of studies assumed a direct relationship between national culture and entrepreneurship (zhao et al., 2012), and indicate that some other variables need to be included in this analysis. therefore, their analysis of the relationship between national culture and entrepreneurial activity includes gdp per capita, (a proxy for national wealth) which ”plays a moderating role between national culture and entrepreneurial activity“ (zhao et al., 2012). zhao and his colleagues based the assessment of national cultures on the dimensions identified within the globe project (javidan et al., 2006). some of these dimensions are almost identical to certain hofstede's dimensions (for example: power distance, uncertainty avoidance, collectivism ii), while others are very different (hofstede, 2011). the results they obtained showed that the relationship between national culture and entrepreneurship depends on the level of gdp. among other things, zhao and his colleagues have proved that: 1) the relationship between power distance and the quantity of entrepreneurship is posititve in countries with low or medium gdp, and that such a relationship does not exist in countries with high gdp; 2) the relationship between collectivism ii and entrepreneurship is positive in countries with a low or medium level of gdp and that it is not the case in countries with high gdp. at the same time, although they started the research with the hypothesis that uncertainty avoidance, generally observed, is positively correlated with high quality entrepreneurship and that this relationship is more pronounced in coutries with high gdp, compared to countries with low or medium gdp, this hypothesis has not been confirmed in their research (zhao et al., 2012). 4 ivana simić, vinko lepojević forthcoming based on the above-mentioned theoretical explanations and results of previously presented research, the following hypotheses were created: h1: power distance (pd) is negatively related to entrepreneurial culture (ec) in high-income economies (hie) h2: power distance (pd) is positively related to entrepreneurial culture (ec) in lowand middle-income economies (lie) h3: individualism (idv) is positively related to entrepreneurial culture (ec) in high-income economies (hie) h4: individualism (idv) is negatively related to entrepreneurial culture (ec) in lowand middle-income economies (lie) h5: uncertainty avoidance (ua) is positively related to entrepreneurial culture (ec) in high-income economies (hie) h6: uncertainty avoidance (ua) is negatively related to entrepreneurial culture (ec) in lowand middleincome economies (lie) 3. sample and variables the survey covered a total of 108 countries for which the data on the values of three selected hofstede’s dimensions of national culture (pd, ua, idv), the index of entrepreneurial culture (ec) and the gross national income per capita (gni) are available. national culture. in this paper, the assessment of national culture is based on three, in previous research the most frequently used hofstede's dimensions (pd, ua, idv). the values of these dimensions were initially identified by geert hofstede and his colleagues (hofstede et al., 2010). their systematic overview is also availabe at https://www.hofstede-insights.com/product/compare-countries. even though these data are from 2010, the fact that national culture is a slowly changing category (beugelsdijk et al., 2015) provides to some extent a possibility for comparing it with the data on entrepreneurial culture and gni per capita from 2018 (zhao et al., 2012). entrepreneurial culture (ec). for the assessment of entrepreneurial culture, the index of entrepreneurial culture was used. it is a composite index and its scores in 2018 (the second year of its calculation) (world economic forum, 2019) range from 0 to 100. higher scores reflect higher values of entrepreneurial culture. gross national income (gni) per capita. the gross national income (gni) per capita in us $ was used as an indicator for grouping economies according to their wealth. like gross domestic product (gdp), gni is also intensively used by the world bank. for analytical purposes, every year in july, the world bank categorizes world economies into four main income groups: low-income, lower-middle-income, upper-middleincome, and high-income (world bank, 2018). this paper uses available data for 2018 for 108 selected countries (world bank, 2018). from the aspect of gni per capita, out of 108 countries included in the analysis, 46 were classified in the group of high-income economies – hie, while 62 countries belong to one of the remaining categories: upper-middle-income, lower-middle-income, low-income economies – lie. for data processing, statistical software spss (version 22.0) was used. 4. results to examine the relationship between ec, as dependent variable, and pdv, ua and idv, as selected independent ones, within identified hie and lie national economies, correlation analysis and standard multiple regression analysis were used. if all countries included in the analysis are taken into account, the data (table 1) indicate a strong and significant inverse correlation between ec, on one hand, and pd and ua, on the other. at the same time, a significant direct correlation was identified between ec and idv. according to cohen, a strong correlation exists if the value of pearson’s correlation coeficient is higher than 0.30 (cohen, 1988, p. 79-81). when it comes to countries within the hie group, statistically significant inverse correlation was found between ec and the independent variables pd and ua, while the correlation between ec and idv was significant and direct. within the lie group, the correlation between ec and all independent variables (pd, idv, ua) was not strong. 5 management: journal of sustainable business and management solutions in emerging economies forthcoming table 1: pearson correlation *. correlation is significant at the 0.05 level (2-tailed). **. correlation is significant at the 0.01 level (2-tailed). based on standard multiple regression analysis (table 2), three regression models were formulated. the first one examines the relationship between ec and three selected dimensions of national culture (pd, ua, idv) within a group of 108 countries included in the analyses. the second model assesses the mentioned relationship within the hie group, while the third model refers to the same relation within the lie group. table 2: regression analysis estimation results of model (1) (3)a, b adependent variable: entrepreneurship culture bstandardized coefficients beta are in the brackets * significant at 0.05 level. ** significant at 0.10 level model 1 explains 36.1% of the total ec variability (adjusted r²= .342). according to this model, an increase in pd and ua results in a decrease in ec. at the same time, the increase in idv improves the values of ec. these trends confirm the results presented in table 1. the strongest influence on the change of ec values is realized by idv, while the impact of pd is the weakest. the higher percentage (42.6%) of the total ec variability (adjusted r²= .385) is explained by model 2. regression coefficients in this model show that, in countries within the hie group, an enhancement in pd and ua values lessens the values of ec. on the other hand, any improvement in the value of idv raises the value of ec. these results are consistent with the pearson correlation values shown in table 1. only 10.1% of the total ec variability is explained by model 3. this means that, within the lie group, the ec is, to a greater extent, influenced by some other factors than by the selected dimensions of national culture. according to this model, any increse in pd raises the values of ec. the statistical significance of this regression coefficient has not been proven. a similar relationship has been identified between idv and ec; as the first variable increases, so does the second. this regression coefficient is not statistically significant ei6 ivana simić, vinko lepojević forthcoming � � ��� ��� ���� � ����� � ����� ��� ������ �� ���� � ����� �� ����� ��� � ������ �������� �� ���� ���� � � ������ ������� ��� � � � ������ ���� ��� ������ �� � ��� � ����� �� ��� ��� � ������ ���� ��� ��� �� ���� � � ������ ������ ��� � � � ������ ���� ��� ������ ��� � ��� � ������� ��� � ������ ���� � ������ ���� � � ������ �� ��� ��� � � � ������ � �������� �������� � �� �� ������ � ������ ������ � ������ �� �� �� ��������� ��������� ��������� � � !����� �!������ !������ �!������ ��"�� ����"�� � #� ���"��� ������� ����� ������� ����� ����$�� %�� !������� �!������ !������� �!������ !������ �!���$�� &�� ��$��� ����� ����� �'() ��'�&�� �$��� �$��� ����� *� ���� ��� ��� ther. when it comes to the third regression coefficient (related to ua from model 3) the results show that enhancement in ua cuts back the values of ec. this coefficient is statistically significant. within this model, the strongest influence on ec exerts ua, while the impact of idv is the weakest. 5. discussion the results obtained in model 1 reflect the character of the unmediated relationship between the selected dimensions of national culture (pd, ua, idv) and ec. they show that there is a direct negative correlation between pd and ua, on the one hand, and ec, on the other. at the same time, there is a direct positive correlation between idv and ec. these results are compatibile with those on the basis of which hayton and his colleagues (hayton et al., 2002) formulated a general hypothesis about the unmediated relationship between certain hofstede’s dimensions of national culture and entrepreneurship. as such, they represent a reliable confirmation that entrepreneurial culture can be considered a valid indicator of entrepreneurship. the results presented in model 2 and model 3 reflect the character of the mediated relationship between the selected dimensions of national culture and ec. they confirm or dispute the hypotheses set up in this paper. accordingly, the results showed that the impact of pd on ec was determined by the level of national wealth. in high-income economies (hie), the relationship between pd and ec is negative. this result supported hypothesis 1. on the other hand, the results showed that in lowand middle-income economies (lie), pd was positively related to ec. this result supported hypothesis 2. both of these results are consistent with those obtained by zhao and his colleagues (zhao et al., 2012). when it comes to the relationship between idv and ec, the obtained results did not confirm that the character of this relationship was determined by the level of national wealth. namely, the results showed that in high-income economies (hie) idv is positively related to ec, which unequivocally confirmed hypothesis 3. this is also consistent with the results obtained by mariá-josé pinillos and luisa reyes (pinillos & reyes, 2011), as well as zhao and his colleagues (zhao et al., 2012). contrary to expectations and the content of hypothesis 4, the negative relationship between idv and ec in lowand middle-income economies (lie) is not confirmed in this paper. in general, the relationship between idv and entrepreneurship, in countries with different levels of economic development, is not a simple one. the specific character of this relationship is also indicated by zhao and his colleagues who start from a rather controversial premise that in lowand medium-gdp countries the collectivist culture is more conductive to entrepreneuship. they explain this by assuming that in these categories of states, due to limited “alternative resources”, collectivism, as a dimension of national culture which fosters social support, commitment and provides a protective environment that minimizes uncertainty (zhao et al., 2012), represents a more significant support for the development of entrepreneurship (compared to individualism). however, the fact is that in our research, the lie group, analyzed from the aspect of gni per capita, includes a rather heterogeneous group of 62 countries, among which 19 belong to the category of the so-called upper-middle-income economies in which, due to available alternative resources, individualism, not collectivism, obviously has a more significant role in the affirmation of entrepreneurship and ec. also, one of the reasons for the positive relationship between idv and ec within lie group, in our research, may be the fact that, over the last few decades, entrepreneurship and entrepreneurial culture have been strongly affirmed all around the world. as a result, in our research, some countries within the lie group, which from the aspect of gni per capita belong to the category of the so-called low-income economies, manifest even higher scores of ec (e.g., malawi, nepal) compared to certain countries belonging to the so-called upper-middleincome economies (e.g., north macedonia, ecuador). according to the research results, the level of national wealth does not affect the relationship between ua and ec. namely, in all economies (hie and lie) ua is negatively related to ec. this relationship is statistically significant in countries within the hie group, but not in countries belonging to the lie group. due to these results, hypothesis 5 was not confirmed, while hypothesis 6 was. the negative relationship between ua and entrepreneurship, regardless of the level of national wealth, is also highlighted in the general hypothesis formulated by james c. hayton and his colleagues (hayton et al., 2002). on the other hand, the positive relationship between ua and ec in countries belonging to the hie group (which was discussed in hypothesis 5), was also not proven in the research conducted by zhao and his colleagues (zhao et al., 2012). the fact is that ua is a conceptual cornerstone in the theory of entrepreneurship (zhao et al., 2012) and one of its key values. the strong affirmation of entrepreneurship led to all of its key values being strongly manifested and implemented in a large number of national economies, regardless of the level of their national wealth. the study has some limitations that suggest further research. first, the survey covered a total of 108 countries for which the basic data are currently available. future research should be more comprehensive and 7 management: journal of sustainable business and management solutions in emerging economies forthcoming include a wider range of world’s economies. a key prerequisite for this is to provide the data relevant for such analysis. in that sense, upcoming studies should be focused on the identification of the values of hofstede’s dimensions of national culture for all global economies.second, in this paper, the scores of selected 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(2018). gross national income per capita 2018, atlas method and ppp. retrieved from https://databank.worldbank.org/data/download/gnipc.pdf [44] world bank. world development indicators. retrieved from http://datatopics.worldbank.org/world-development-indicators/themes/economy.html [45] world economic forum. (2018). global competitiveness report 2018. retrieved from https://www.weforum.org/reports/the-global-competitveness-report-2018 [46] world economic forum. (2019). global competitiveness report 2019. retrieved from http://www3.weforum.org/docs/wef_theglobalcompetitivenessreport2019.pdf [47] zhao, x., li. h & rauch, a. (2012). cross-country differences in entrepreneurial activity: the role of cultural practice and national wealth. frontiers of business research in china, 6(4), 447-474. doi: 10.3868/s070-001-012-0021-0 received: 2021-01-28 revisions requested: 2021-03-20 revised: 2021-04-14 (2 revisions) accepted: 2021-04-15 ivana simić university of niš, faculty of economics, serbia ivana.simic@ekonomski.rs ivana simić is a full professor at the faculty of economics, university of niš, department of business management. her research interests include management, organization, organizational behaviour, organizational changes, entrepreneurship, digital transformation. she is the author or co-author of seven books and over 160 scientific and research papers published in international and national scientific journals or conference proceedings. she has taken part in numerous research projects. vinko lepojević university of niš, faculty of economics, serbia vinko.lepojevic@ekonomski.rs vinko lepojević is a full professor of statistics at the faculty of economics, university of nis. he holds a ms degree in statistics from faculty of economics, belgrade university, and phd from faculty of economics, university of nis. his research interests include application of mathematical and statistical methods in economic research and the application of statistical methods in market research. 10 ivana simić, vinko lepojević forthcoming about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 06_tanja parezanovic:tipska.qxd 53 tanja parezanović1, nataša bojković2, marijana petrović3, snežana pejčić tarle4 1,2,3,4 university of belgrade, faculty of transport and traffic engineering, serbia management 2016/78 evaluation of sustainable mobility measures using fuzzy copras method udc:005.311.11 005.22 doi:10.7595/management.fon.2016.0006 1. introduction today, almost every city in the world is faced with growing transportation related problems. therefore, the ongoing challenge is to find a way to improve urban mobility (the ability for movement of people and goods) and at the same time to reduce congestion and pollution. this brings the concept of sustainable urban mobility to the forefront. sustainable mobility is defined as providing mobility, i.e., access to goods, services and locations with minimal negative effects (wbcsd, 2001). sustainable mobility is an important instrument of transport policy whose aim is to facilitate mobility and also to simultaneously reduce negative economic, environmental and social impacts of transport. a sustainable mobility concept includes a set of different strategies and measures which are reflecting on the usage of private cars, creating a favorable environment for public and non-motorized traffic in order to improve efficiency and sustainable development of transport systems. a general classification of mobility management measures is based on the so-called “soft measures“ (e.g., campaigns) and “hard measures” related to the physical improvements of infrastructure, but also increased costs of car use, for example congestion charging or control of road space (gärling and schuitema, 2007). implementation of a single mobility management measure is unlikely to achieve sustainable mobility so a whole set of measures is needed (basarić, 2015). in order to promote and support sustainable mobility concept, the european commission launched a number of initiatives with the aim to provide eu cities with specific sources of knowledge and experience (e.g. civitas, epomm, konsult, etc). the key topic in these initiatives/projects is the evaluation of sustainable mobility measures, i.e., quantification of their contribution to sustainability objectives. particularly important the process of decision making in a complex system such as transport is often conducted in the presence of a large number of criteria that are often conflicting and whose values are expressed in different units. this paper presents a multi-criteria decision making (mcdm) approach for evaluating sustainable mobility measures based on qualitative information. the usage of both types of criteria (or only qualitative) in the process of evaluation of sustainable mobility measures is possible thanks to the fuzzy expansion of the multi-criteria decision making methods. the proposed procedure for the evaluation of sustainable mobility measures encompasses selection of measures, criteria and ranking selected measures using the fuzzy copras method. the aim of the proposed method is ranking sustainable mobility measures on the basis of previous experiences. the method enables cities that have not yet implemented these measures to gain an insight into what to expect and establish priorities. the paper demonstrates the potentials and suitability of fuzzy copras in making decisions on mobility measures. accordingly, twenty six measures are evaluated and the most promising ones have been obtained. keywords: evaluation, fuzzy copras, measure, rank, sustainable mobility is the civitas wiki1 a framework for evaluating measures defined within the civitas ii initiative, as well as projects maestro2 and civitas modern3, which are focused on a detailed evaluation of already implemented measures in the so-called experimental cities. a comprehensive overview of measures and the quantification of their effects can be found in the jrc4 study quantifying the effects of sustainable urban mobility plans5. there is a number of studies dealing with the concept of sustainable urban mobility from different perspectives devising conceptual frameworks (e.g., marx et al., 2015; da silva et al., 2008; gakenheimer, 1999), determining sustainable mobility indicators and indexes (e.g., shiau, 2012; shiau et al., 2015; awasthi and chauhan, 2011), analyzing the influence of specific factors or policy instruments (e.g., mrkajic and anguelovski, 2016; hysing, frandberg and vilhelmson, 2015; de andrade et al, 2015) or conducting market segmentation survey (e.g., hinkeldein et al., 2015). there is a special line of research papers dealing with the evaluation of measures of sustainable urban mobility. their principal aim is to depict measures with highest contribution in achieving sustainable urban mobility goals. one of the main challenges in these studies is to come up with appropriate analytical tool to deal with a variety of measures often in conflict by nature and expressed in accordance with both qualitative and quantitative criteria. one recent study was done by curiel-esparza et al. (2016) who integrated the delphi technique with the analytic hierarchy process (ahp) and the vikor method to select the optimal alternative in terms of sustainable mobility. they arrived with a conclusion that the best solution according to their hybrid model is the enhancement of the cycle network. macário and marques (2008) studied 200 urban mobility measures in 19 european cities and investigated the preconditions for transferability of these measures. schmale, schneidemesser and dörrie (2015) relied on multi-criteria approach to evaluate the contribution of 75 measures clustered in six categories (public relations, motorized private transport, public transport, walking, biking, miscellaneous) and ended with establishing four groups of measures based on their priority. however, the majority of these studies focus on quantitative reflection of urban mobility measures and thus neglect certain measures that must be evaluated qualitatively as public acceptance or decision maker preferences. our study fills this gap by using fuzzy copras (hereinafter: copras-f) method which takes into account a great number of possible measures, involve multiple stakeholders, qualitatively data as well as a suitable weight of criteria depending on the strategy of the city. the aim of the proposed method is ranking sustainable mobility measures through the evaluation of measures, good practices, results and methods included in the eu sustainable transport projects. there have been only a few attempts to apply copras method in the field of transport (e.g., zavadskas et al., 2007; barysienë, 2012). a recent study by barysienë (2012) uses the copras-g method to evaluate technologies used in container terminals. the paper is organized as follows. the following section is about copras and copras-f methods. section tree contains the copras-f based procedure for the evaluation of sustainable urban mobility measures. the proposed evaluation procedure is comprised of three basic steps: selection of measures; selection of evaluation criteria and ranking measures according to the copras-f results. the empirical example is presented in section 4. the paper ends with concluding remarks and future research directions. 2. copras method within the decision making theory there are numerous multi-criteria decision making methods that support solving various problems. each mcdm method is characterised by specific mathematical tool, but basically the problem is formally presented by choosing one out of m options alternatives, (ai, i=1,2,...,m), which are estimated and mutually compared based on n criteria (xj, j=1,2,…,n) whose values are known. the 54 2016/78management 1 http://www.civitas.eu/sites/default/files/civitas_wiki_d4_10_evaluation_framework.pdf 2 http://www.transport-research.info/web/projects 3 http://www.civitas.eu/sites/default/files/d12.3_-_modern_final_evaluation_report_revised.pdf 4 https://ec.europa.eu/jrc/ 5 https://ec.europa.eu/jrc/sites/default/files/effects_of_sustainable_urban_mobility_plans.pdf alternatives are presented by vectors xij, where xij is a value of i th alternative according to jth criterion. considering that the criteria influence alternatives’ final estimates to the different extent, a weighting coefficient wj, j=1,2,…, n (where ∑ n j=1wj = 1) is allocated to each criterion and reflects its relative importance in alternative evaluation. one of the recent methods being increasingly used in the literature is the copras (compressed proportional assessment) method developed in 1996 by lithuanian authors (zavadskas and kaklauskas, 1996). the copras method is to a certain extent characterised by a more complex procedure for criterion function value aggregation and a simplified procedure for data normalization (criterion character – min or max is not considered). this method is used by numerous authors (kaklauskas, zavadskas and raslanas, 2005; kaklauskas et al., 2006; vilutiene and zavadskas, 2002; zavadskas, kaklauskas and kvederyte, 2001; zavadskas, kaklauskas, banaitis and kvederyte, 2004; zavadskas, kaklauskas, turskis and tamosaitiene, 2008) for solving various problems. unlike other multi-criteria decision making methods, this method is characterised by numerous advantages and fouladgar et al. (2012) emphasize in their paper only those that are most important: (1) a possibility to rank numerous alternatives; (2) a shorter time for getting results (by software) than in ahp and anp methods; (3) a simplified result presentation; (4) a possibility to interpret results graphically. 2.1. fuzzy copras method conventional multi-criteria decision making methods are applied when solving various problems in case where the data within them are known and numerically expressed (quantitative). the conventional copras method is applied when specific data are available, while in case numerical data are not available, the fuzzy extensions of the copras method are used (copras-f). the copras-f method can be applied when ranking of criteria and alternatives is being solved by linguistic expressions using fuzzy numbers (commonly triangular). the steps in the copras-f method application can vary depending on the way in which the weights are estimated, as well as on the defuzzification mode of fuzzy numbers, but basically the steps in this method application are the following (fouladgar et al., 2012): step 1: the decision making process starts with step 1 which refers to the generation of feasible alternatives (m) and to the adoption of criteria for defined alternative (n) evaluation; step 2: the choice of linguistic estimates for evaluating criteria and alternatives – in case where criteria and alternative weights are considered to be linguistic variables. it is very common that the choice of linguistic estimates for criteria and alternatives is made by applying fuzzified likert scale (camparo, 2013) shown in table 1: table 1: linguistic terms for alternative evaluation step 3: determining weight coefficient of the criteria (denoted by wj) by applying one of the multi-criteria decision making methods (most commonly by ahp, anp, fuzzy ahp, fuzzy anp method etc.). step 4: computation of aggregated fuzzy decision making matrix based on initial decision making matrix (x). aggregated values are shown in matrix d: 55 management 2016/78 linguistic value fuzzy numbers very high (vh) (4.5,5,5) high (h) (3.5,4,4.5) medium (m) (2.5,3,3.5) low (l) (1.5,2,2.5) very low (vl) (1,1,1) the elements of aggregated matrix ( ) are obtained using the equation (3): where is a value/estimate of alternative ai according to criterion cj, given by k th expert. step 4: defuzzification of aggregated fuzzy decision making matrix, obtained in the previous step, and obtaining numerical values of the alternatives according to each criterion. defuzzificated values are obtained using the equation (4): step 5: obtaining normalized decision making matrix (denoted by fij). the aim of criteria value normalization is to transform different criterion values (benefit or cost) into the values allowing mutual comparison. step 6: obtaining weighted normalized decision making matrix (denoted by ). the values of weighted decision making matrix are obtained by multiplying the elements of normalized decision making matrix by weighted coefficients (wj): step 7: summing up the weighted valued of the matrix by columns. the values are summed up depending on the group to which the criteria belong (min or max). the values of max criteria (higher value of a criterion is preferred) are obtained by equation (6), while the values of min criterion type (lower value of a criterion is preferred) are obtained by equation (7): step 8: determining relative weights (importance) of each alternative. using equation (8) the importance of each considered alternative from the set of the alternatives being compared is determined: 56 2016/78management 1 2 1 11 12 1 2 21 22 2 1 2 ... ... ... ... ... ... ... ... n n n m m m mn c c c a x x x a x x x x a x x x = (1) 1 2 11 12 11 21 22 22 1 2 ... ... ... ... ... ... ... ... n n n m m m mn c c c x x xa a x x x d a x x x = (2) ),,(~ 321 ijijijij xxxx = { }11 min ijkij xx = , = = k k ijkij xk x 1 22 1 { }33 max ijkij xx = (3) ( ) ( )[ ] ij ijijijij ij lx lxmxlxux x + −+− = 3 (4) jijij wfx *ˆ = (5) = = k j iji xp 1 ˆ (6) += = m kj iji xr 1 ˆ (7) = = = = +=+= n i i i n i i in i i i n i i ii r r r p r r r rr pq 1 1 1 min 1 min 1 (8) step 9: ranking of alternatives based on the value of a criterion function ni which is allocated to each of the considered alternatives. the higher the value of a criterion function is, the better the alternative is. final values of criterion functions are obtained using the equation (9): where qmax is the maximum relative importance value. 3. evaluation procedure the evaluation procedure of sustainable mobility measures consists of the following phases: (1) selection of measures to be evaluated; (2) selection of evaluation criteria and; (3) evaluation and ranking selected measures using the copras-f method. these are further elaborated below. 3.1. selection of measures based on extensive literature on the subject, 26 measures are chosen and classified into 8 categories (table 2) (lopez-ruiz et al., 2013). the first category belongs to public transport services that are an important part of sustainable planning. the measures relate to the improvement of public transport supply mainly for public transit. cycling and information system are also included. the second category consists of measures that improve city logistics and freight distribution which is one of the major problems accross large cities. a large number of activities within freight distribution leads to the issue of optimization of the associated activities. the major problems relate to low vehicle occupancy, empty rides, limited time delivery, as well as losses in time due to load manipulation operations. table 2: sustainable mobility measures 57 management 2016/78 %100* maxq q n ii = (9) category of measure measures id public transport service investment in promotion of performance and efficiency of public transit a1 network and frequency of service improvement a2 public transport information systems a3 integrated (interoperable) system of fares a4 alternative taxi service a5 investment in infrastructure and cycling systems a6 city logistics and freight distribution improving the efficiency of city logistics using ict a7 freight distribution centers and points of delivery a8 improvement of energy efficiency and environmental performance of vehicles a9 mobility management company school and personal mobility plans a10 carsharing i carpooling schemes a11 telecommuting a12 integration of transport modes multimodal connection platforms a13 information on multimodal travel choices a14 park and ride areas a15 road transport reserved bus and hov lanes a16 parking charging and management a17 dynamic traffic routing a18 low speed zones a19 marketing and education information and marketing campaigns a20 promotion of eco-driving a21 acess restriction cordon based charging in cities a22 congestion charging zones a23 low emission zones a24 clean technologies and alternative fuel investment in alternative fuel supply infrastructure a25 introduction of alternative fuel vehicles a26 the third category of measures includes measures of mobility management, which are considered as a key element in the development of sustainable forms of transport in the implementation of transport activities. mobility management measures focus on behaviour change of passengers in order to achieve sustainable practices in everyday transportation activities. very often these measures are implemented in combination with other measures. the fourth category of measures relates to the integration of transport modes while the fifth category includes the promotion of road transport operations and regulations. the next group of measures includes measures targeted at behavioral change, followed by restriction measures and pricing mechanisms. 3.2. criteria selection the selection of relevant criteria has been performed on the basis of eu sustainable practices within sustainable transport projects as well as data existence (lopez-ruiz et al., 2013). the final five criteria are listed in table 3. all criteria are aimed at maximizing value, which means the higher value of the criterion, the better sustainable mobility performance. table 3: criteria for sustainable mobility measures evaluation 3.3. the evaluation and ranking of measures based on copras-f method as the values of selected measures against the following criteria may not be expressed quantitatively the phasy expansion of the chosen method is applied. accordingly, the third step of the proposed approach involves the distribution of linguistic score for each of the measures/alternatives upon each criterion. for the evaluation of the measures, decision makers, i.e., experts use linguistic expressions that are translated into triangular fuzzy numbers. thereafter the aggregation of scores for criteria and alternatives is performed. 4. empirical example the selected alternatives (table 2) and criteria (table 3) are used as the procedure input. for simplicity reasons the criteria are equally weighted, while the evaluation of the measures has been carried out by a single expert. table 4 presents the linguistic score for twenty-six measures (alternative) for sustainable mobility. the evaluation of alternatives according to the criteria was done on the basis of empirical knowledge of decision-makers, using a fuzzyficated likert scale (table 1). after the formation of the initial decision making matrix (table 4) the aggregation of its elements is carried out. the elements of the aggregate matrix (equation 2) are obtained by applying the equation (3). subsequent defuzzification of the aggregated decision matrix has to be carried out (equation 4), thereafter the normalization. by multiplying the elements of the normalized matrix with the criteria weights, the weighted normalized matrix is obtained (equation 5). in the final step the aggregation of values is conducted for all alternatives (equations 6-9) according to a set of criteria (minimum or maximum). 58 2016/78management criteria id target value potential reduce in co2 (in kilotonnes) c1 max possibility/rationality of short term applications c2 max availability for users c3 max change in modal split-sustainable mobility c4 max public acceptability c5 max table 4: evaluation of sustainable mobility measures table 5 summarises the alternative values by criteria, the significance (impact) of each of the studied alternatives (qi), the final criteria functions (ni), and ranks of the alternatives. according to the final criteria functions alternative measures for sustainable mobility are ranked. 59 management 2016/78 alternatives linguistic assessments for the alternatives c1 c2 c3 c4 c5 a1 m m h h m a2 h h h h h a3 m m m h h a4 l h m l m a5 m l l m m a6 h l l m m a7 h h m m m a8 m m m l l a9 m l m m m a10 m l h h m a11 l m h h h a12 vh m h h m a13 l vl m h m a14 h m h m h a15 m l h h m a16 vh h m h l a17 h m m m l a18 l m l l m a19 l m m m vl a20 m h vh h h a21 vl h h m h a22 h h m h vl a23 vh h m h vl a24 h l l m vl a25 m l l vl m a26 m l l vl m table 5: results of copras-f method the first-ranked is an alternative which has a maximum value of criterion function, which in this case is the aternative a20: information and marketing campaigns. the second is the measure a16: reserved bus and hov lanes, while the third is the measure a7: improving the efficiency of city logistics using information and communication technologies. references [1] awasthi, a., & chauhan, s. s. 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[28] zavadskas, e.k., kaklauskas, a., turskis, z., tamosaitiene, j. (2008). selection of the effective dwelling house walls applying attributes determined in intervals. journal of civil engineering and management, 14(2), 85–93. acknowledgements this paper is part of the project “critical infrastructure management for sustainable development in postal, communication and railway sector of the republic of serbia”, funded by the ministry of education and science of the republic of serbia, project number: tr36022. receieved: november 2015. accepted: march 2016 tanja parezanović university of belgrade, faculty of transport and traffic engineering, serbia t.parezanovic@sf.bg.ac.rs tanja parezanović is a research and teaching assistant and a phd student at the faculty of transport and traffic engineering, the university of belgrade, serbia. she is the author or co-author of a number of scientific papers. her research area is sustainable transportation systems and measures for achieving them. nataša bojković university of belgrade, faculty of transport and traffic engineering, serbia n.bojkovic@sf.bg.ac.rs dr nataša bojković is an assistant professor at the faculty of transport and traffic engineering, the university of belgrade, serbia. she is the author or co-author of a number of papers in peer-reviewed international and national journals, including invited papers as well as conference proceedings. her research area is decision making models in transport and communications, especially in the field of economics and policy. marijana petrović university of belgrade, faculty of transport and traffic engineering, serbia marijanap@sf.bg.ac.rs dr marijana petrović is an assistant professor at the faculty of transport and traffic engineering, the university of belgrade, serbia. she is the author or co-author of a number of scientific papers. her research area is engineering management and policy in transport and communications, with special interest in policy modelling with the application of mathematical models and software solutions. snežana pejčić tarle university of belgrade, faculty of transport and traffic engineering, serbia dr snežana pejčić tarle is an associate professor at the faculty of transport and traffic engineering, the university of belgrade, serbia. she is the author or co-author of a number of scientific papers and books in the field of engineering management, policy analysis and sustainable development. she is especially interested in designing innovative tools and methods for policy monitoring and evaluation. about the author # dodic_g petkovic a dokic v vasic:tipska.qxd 1 goran petković, aleksa dokić*, vladimir vasić university of belgrade, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming how does organisational ict implementation affect e-commerce potential? empirical evidence from serbia doi: 10.7595/management.fon.2021.0037 abstract: 1. introduction as the market paradigm shifts towards industry 4.0 (ibarra et al., 2018), digitalisation of activities and processes behind online customer touchpoints is set to become a vital predisposition in achieving organisational efficiency and efficacy (iyanda & ojo, 2008). businesses are constantly being challenged to create seamless customer experience, driven by modern market demands (picot-coupey et al., 2016). these market shifts are especially difficult to cope with for companies operating in transition economies (nowinski and rialp, 2013). as more and more businesses are developing digital sales channels, market success is being determined by the level of synergy between physical and digital resources (kabadayi, 2008). covid-19 pandemic has only accelerated the already present trend of moving customers away from contact with the seller, to a safer, digital shopping channel (li et al., 2020). nowadays, businesses have ample digital resources at their disposal for facilitating market demand for online purchasing. these include some common ones, such as pc, internet, intranet and mobile phones (ongori & migiro, 2010); more developed ones, such as various software, as well as complex internet * corresponding author: aleksa dokić, e-mail: aleksa.dokic@ekof.bg.ac.rs research question: this study investigates both direct and indirect effects of employee ict skills on business e-commerce potential, evaluated through e-commerce website functionality. motivation: the study aims at expanding the existing knowledge regarding organisational ict implementation by investigating the relation with e-commerce potential. idea: the main idea of the paper is to understand how e-commerce potential can be improved by developing the digital skills of employees, mainly in the context of the implementation of cloud computing, portable technologies and e-commerce outsourcing. data: a sample of 238 businesses from serbia was considered. responses were gathered by the statistical office of the republic of serbia, using eurostat-based questionnaire. tools: confirmatory factor analysis and covariancebased structural equation modelling were employed for data analysis. baron-kenny approach was used for assessing the mediation effects in the model. findings: employee ict skills showed no direct influence, but were found to have an indirect effect on e-commerce website functionality, which is manifested through organisational implementation of cloud computing and portable technologies. findings to a certain extent suggest that certain differences between companies from transition and developing economies exist, especially regarding cloud technology adoption. outsourcing of certain e-commerce activities showed no link with employee ict skills, but was identified as the most influential factor in website e-commerce facilitation. contribution: this study contributes to ict use and e-commerce development literature, as it is the first one to investigate the direct and indirect relation between organisational ict implementation and website e-commerce potential. keywords: e-commerce potential, organisational ict implementation, e-commerce website functionality jel classification: l22, m15, m54 applications, like websites and e-shops (mwantimwa, 2019). consequently, information communications technologies (icts) are constantly gaining in organisational importance, especially when complemented by “big data” (ibarra, et al., 2018). organisational capacity is very important in this context, since resource limitations usually dictate the potential of various ict applications (kabongo & okpara, 2014). effective and efficient conduct of digital activities implies not just the availability of icts, but also the intensity of their usage (dittes et al., 2019). the majority of contemporary literature which analyses ict-related factors influencing website features and functionality does so from either a technology-oriented or a customer-oriented standpoint (chen et al., 2017). the organisational aspect is oftentimes neglected in this context, even though it is essential for implementing digital technologies in modern businesses (giotopoulos et al., 2017). implementation of icts represents a modern development driver in transition economies (nowinski & rialp, 2013), which is why digitalisation of commercial activities is especially important for businesses coming from transition markets. market reality has led to corporate website becoming an unavoidable part of every digital marketing mix, evolving from a promotional instrument to a significant online revenue driver (chiou et al., 2010). websites and e-shops are oftentimes the main facilitators of b2c and b2b e-commerce transactions (nilashi et al., 2016; chen et al., 2017). for a vast number of companies operating in transitioning markets, e-commerce represents a go-to digital business model, in which functionality of e-commerce websites has been identified as the key market success predictor (ramayah et al., 2016). website e-commerce potential is denoted by the presence of certain features, such as personalisation, customisation, order processing and tracking capacity at an organisational level (cullen & taylor, 2009). research on e-commerce activities and related ict implementation is present in literature (saffu, walker and hinson, 2008), although lacking in terms of e-commerce potential, more specifically e-commerce website functionality. this gap is especially emphasized for papers oriented towards transition markets. this paper addresses the identified research gap, and investigates the effect of organisational ict implementation, observed through both the human and technological perspective, on business e-commerce potential. the aim of the study was to examine the relation between organisational ict implementation, including both ict presence and the intensity of usage, and the capacity of b2b and b2c websites to facilitate e-commerce activities. employee digital skills were identified as the key human aspect of organisational ict implementation (yunis et al., 2012; colombo et al., 2019) affecting the corporate e-commerce website functionality. in order to incorporate the organisational perspective into the analysis, the levels of usage of various modern icts, such as cloud computing, portable technologies and e-commerce outsourcing were introduced into the conceptual model and observed as potential mediators. analysis was performed on hard data provided by the statistical office of the republic of serbia (sors), bearing in mind that serbia is recognized as a characteristic example of a market in transition (kapoulas & ratkovic, 2015). the contribution of this paper is twofold, having both theoretical and practical implications. first, the existing knowledge is extended, as this research, to the best of our knowledge, represents the only paper empirically investigating the effect of organisational ict implementation on website e-commerce potential. the paper also provides a significant theoretical contribution in the sense that it covers both direct and indirect effects of employee digital skills on developing business e-commerce potential, as well as organisational roles of various icts within this process. second, derived results also possess practical value as they provide a useful insight for managers into which ict implementation directions yield highest benefits in terms of facilitating website e-commerce activities, depending on the company size. additionally, the paper also opens certain discussion points regarding the differences between businesses from transition economies and developed markets in terms of ict implementation approach and corresponding effect on e-commerce website functionality. the paper is structured as follows. first, an insight into the contemporary literature is provided, followed by the research design. the next section covers the derived results, which are then later discussed. the final section of the paper contains concluding remarks, as well as research limitations. 2. literature review businesses located in transition economies are striving to switch from mono to multiple-channel business models by integrating digital channels into existing physical store networks in order to cope with the competitors from developed economies and their superior levels of e-commerce performance (salciuviene et al., 2 goran petković, aleksa dokić, vladimir vasić forthcoming 2011). in this sense, brick-and-click and pure-click companies from transition markets are under pressure to fully utilise their ict potential when developing respective e-commerce business models. icts can be defined as a compilation of data gathering, analysis and dissemination technologies (ongori & migiro, 2010; hanclova et al., 2014). for businesses to fully reap the potential benefits of ict use, they must go beyond attaining the newest icts, equally focusing on their organisational adoption (mwantimwa, 2019). this however should not be taken lightly, since ict implementation in an existing organisational structure poses a significant challenge, due to many internal barriers and obstructions (kabongo & okpara, 2014), especially for businesses operating in transition markets (nowinski and rialp, 2013). 2.1. approaches to organisational ict implementation contemporary literature on ict implementation is plentiful and highly diversified. in their research on ict adoption, shiels et al. (2003) analysed technical (ict tools) and operational (ict introduction) aspects. polder et al. (2018), on the other hand, observed the relation between ict intensity (ict capital) and productivity. similarly, lefophane and kalaba (2021) also investigated the effect of ict intensity on productivity, employment in south africa. other authors approached the topic by analysing the human aspect of ict adoption and use (giotopoulos et al., 2017). an important step in a comprehensive analysis of relevant ict implementation aspects was taken by cuevas-vargas et al. (2016) by making a clear distinction between organisational, human and relationship aspects when observing ict use. similarly, ongori and migiro (2010) distinguished between human component and infrastructure as two most important aspects in ict adoption by smes. although not as numerous, papers on ict adoption in developing countries also approach the topic from different angles, such as motivation for ict implementation in botswana (iyanda & ojo, 2008) or ict possession in congolese smes (kabongo & okpara, 2014). the present literature heterogeneity regarding organisational ict implementation is summed up by findings by cuevas-vargas et al. (2016) and ongori and migiro (2010), who show us that it is important to differentiate between the human and infrastructural (technological) aspects of an overall organisational ict implementation. it is generally accepted that ict implementation in organisations improves information exchange with other stakeholders (ongori & migiro, 2010), especially during marketing, promotion and sales of products and services (mwantimwa, 2019). in this sense, from the human perspective of ict implementation, employee ict skills are seen as the ability and potential of employees to use available ict tools for data exchange and communication (colombo et al., 2019). although certain authors, such as colombo et al. (2019) and giotopoulos et al. (2017), use the term ict skills, the term employee digital skills can also be found in the literature. hence, we will use both terms as synonyms. this is important, as a significant portion of contemporary literature observes organisational ict implementation through certain digital skills. colombo et al. (2019) investigated different types of employees’ digital skills (information brokerage, basic, applied/management and technical ict skills) and their influence on digital automation of business processes. similarly, organisational ict use was also found to be denoted by digital skills and competences of employees in the context of national ict use (yunis et al., 2012). in this sense, relevant indicators can be related to the number of staff trained for handling icts (cuevas-vargas et al., 2016), the percentage of personnel with ict skills (giotopoulos et al., 2017) or work-related use of icts after hours (lee et al., 2021). on the other hand, one of the fundamental characteristics of overall organisational ict implementation is the level of usage of different digital technologies in business conduct (karimikia, singh and joseph, 2020). cloud computing, as one of the most complex icts (becker et al., 2018), represents a web-based solution for depositing and disseminating data (vasiljeva et al., 2017) provided by an external service provider, often on a pay-per-use basis (raut et al., 2018). the main business use of this technology is internal information organisation and management (ho et al., 2017). reliance on cloud technology to supplement internally managed non value-crating business activities and processes (chen & tseng, 2013) is oftentimes closely linked to the concept of organisational agility (liu et al., 2018). introduction of cloud computing into an organisation can be achieved through three operational modes: software as a service, platform as a service and infrastructure as a service (grilo & jardim-goncalves, 2011). in recent years, cloud computing has attracted considerable research interest, which varies significantly from an empirical standpoint, but consensually recognises the relation between overall organisational ict implementation and cloud computing adoption (raut et al., 2018). 3 management: journal of sustainable business and management solutions in emerging economies forthcoming competitive, high-paced business environment also requires a business to provide their employees with instant remote access to relevant software (mwantimwa, 2019), emails, files and documents (dittes et al., 2019). devices that allow this kind of remote access are categorised as portable technologies (wangemann et al., 2003). nowadays, many businesses are integrating smartphones and similar devices into their business processes and activities (dittes et al., 2019). many authors investigated the ways in which remote access to certain icts via smartphones improves organisational business performance (mwantimwa, 2019). such is the case with iyanda & ojo (2008), who observed portable technologies, such as pdas and laptops, alongside organisational use of software, emails and database servers, in the context of applicability and productivity. covering the intensity of different ict components, becker et al. (2018) focused on portable devices that provided a mobile connection to internet and allowed access to corporate email, relevant business software and databases. finally, increased organisational ict implementation opens up businesses towards more extensive use of available outsourcing options (kotabe et al., 2008), especially regarding it assets (agrawal et al., 2006). through outsourcing, companies can attain necessary ict resources and capabilities required for running a successful e-commerce business (gunasekaran et al., 2002). the summary of the analysed literature, in the context of the two observed dimensions of organisational ict implementation is shown in table 1. table 1: analysed ict implementation literature 4 goran petković, aleksa dokić, vladimir vasić forthcoming references organisational ict implemetation observed ict implementation relation human ict implementation aspect technological ict implemenation aspect agrawal et al., 2006 outsourcoing of e-business projects, relating to their intent, swiftness and complexity effect of e-business outsourcing on abnormal positive organizational returns becker et al., 2018 significance of connection to internet as subcriterion of ict usage significance of e-commerce, e-business and website and social media usage as subcriteria of ict usage evaluation and ranking of national ict usage in central european countires chen and tseng, 2013 implementation of cloud technology in leisure restaurants exploring potential effects of cloud technology on creating competitive advantage colombo et al., 2019 analysis of different kinds of ict skills evaluating the probability of job automation, depending on the employee skillset cuevasvargas et al., 2016 use of ict in different business processes effect of ict use on improving business performance giotopoulos et al., 2017 personnel with ict skills as a factor of human capital avaliable ict resources, such as information resource management system, information systems manager, computer room and security back up plan for information systems significance of human capital in determining the organizational level of e-sales, interent integration, ict infrastructure and ict intentions iyanda and ojo, 2008 ict use through different portable technologies and computer software observing the relation between ict facilities and ict adoption kabongo and okpara, 2014 used and implemented types of icts the level of ict adoption by smes on the basis of presented literature, we focus on exploring how organizational ict implementation affects e-commerce potential of businesses, from both the human and technological perspectives. 2.2. reaching e-commerce potential through ict use businesses with the capacity to undertake organisational adaptations are more likely to yield higher benefits from ict implementation and invest more in ict infrastructure. an important part of evaluating the effects of ict implementation is establishing measurable and controllable links between specific ict aspects and analysed phenomena (cuevas-vargas et al., 2016). 5 management: journal of sustainable business and management solutions in emerging economies forthcoming references organisational ict implemetation observed ict implementation relation human ict implementation aspect technological ict implemenation aspect karimikia et al., 2020 overal and specific ict use within an organization the effect of ict use on jobrelated stress, moderated via job autonomy kotabe et al., 2008 approaches to e-commerce outsourcing positive and negative effects of e-commerce outsourcing in terms of business performance and competitiveness lefophane and kalaba, 2021 differentiating between high and low ict intensity industries based on ict intensity index effect of ict intensity on employee productivity, and organizational output lee et al., 2021 specific focus on work-related use of icts after hours investigating the causal relationship with employee fatigue liu et al., 2018 cloud infrastructure capability observed through flexibility and integration effect on organizational agility, moderated by cloud computing spending mwantimwa, 2019 availability of certain types of ict to employees ict ownership and frequency of use ict use in different business processes ongori and migiro, 2010 differentiating between available ict tools analysis of ict tools in the context of ict adoption, along with barriers, strategies and outcomes polder et al., 2018 analysis of ict usage intensity through market share, efficiency and performance distribution relation between ict intenisty, industry-related productivity and firm dynamism raut et al., 2018 usage of technology as a factor of influence on cloud technology adoption analysis of cloud computing adoption and its effect on business performance shiels et al., 2003 exploring ict adoption through different business integration processes analyzing the effects of ict adoption on smes from a multidimensional integration perspective yunis et al., 2012 identifying ict usage within the ict maturity indicator exploring the direct and indirect effects of ict maturity on global competitiveness organisational implementation intensity of various icts influences to a certain extent the internet integration potential, as well as efficiency and effectiveness of corresponding e-commerce activities (giotopoulos et al., 2017). such a deduction is based on the fact that e-commerce, in its essence, represents market-oriented application of different icts (yasin et al., 2014). also, the use of ict, the internet technology in particular, strongly influences corporate e-commerce efforts (rahayu & day, 2017). however, contemporary literature is lacking in terms of investigating the effects of ict implementation on e-commerce potential, especially in the context of transition economies. one of the main prerequisites of a successful e-commerce business is a well-developed and functional corporate website (yavuz & welch, 2014), regardless of whether the e-transactions are b2b or b2c in nature (ongori & migiro, 2010). corporate website functions and characteristics are especially interesting in this context, since they are identified as one of the most important e-commerce success factors (cullen & taylor, 2009). therefore, an important aspect of e-commerce potential of a b2b or b2c business lies in its capacity to facilitate e-commerce activities through its website. to bridge the gap between ict implementation and e-commerce potential, the focus of the paper is on examining the relation between organisational ict implementation and e-commerce website functionality. special attention is given to businesses operating in transition markets, as digital prowess successfully translated into e-commerce potential provides a basis for evening the ground in terms of competing with businesses from developed markets. zaidan (2017), identified the lack of it skilled employees and infrastructural readiness as being key barriers to organisational internet adoption. achieving and maintaining a critical mass of “up-to-date” employees in terms of ict skills and resources has become the pivotal point for many businesses. it is almost impossible to run and maintain a well-functioning e-commerce website without a proper human and infrastructural support. to that end, ramayah et al. (2016) show that employee internet skills and knowledge are relevant organisational proxies for testing the influence on website continuance intentions. becker et al. (2018) analysed the number of employees using computers with www. access and portable devices as relevant organisational characteristics, in parallel with the number of enterprises having a website, corporate e-sales and e-procurement activities. businesses from developing and transitioning countries with ict skilled employees are most likely to implement ict for business purposes in their respective markets (mwantimwa, 2019). unfortunately, only few papers specifically analysed businesses from transition economies, although without an empirical angle. in their analysis of strategic value of e-commerce for smes from transition markets, saffu et al. (2008) observed organisational readiness in the context of e-commerce adoption, theoretically implying the link between ict implementation and e-commerce potential. in the context of ict use in companies from transition economies, gerguri-rashiti et al. (2017) investigated the relation between specific ict implementation moments, such as internet connectivity, b2b digital communication and ict investments, and firm performance, more specifically labour productivity and innovation activities. the literature review shows that organisational ict implementation is a success predisposition of a business with e-commerce pretensions. many b2b and b2c e-businesses rely strongly on well-functioning websites facilitating e-commerce activities. as we have shown that organisational ict implementation has both human and technological perspective, the proposed conceptual model must take this distinction into account when defining the relations between e-commerce website functionality and ict implementation. how we approached the model development is shown in the following section. 3. conceptual model and hypotheses development we have seen that contemporary literature examines the relations between certain employee ict intensity indicators and specific b2b and b2c website aspects. however, the existing research has not investigated e-commerce website functionality in the wider context of organisational ict implementation. the main contribution of this paper is the examining of the effect of ict implementation on businesses’ e-commerce potential, from both the human and technological (infrastructural) perspectives. on the basis that the lack of employees with digital skills proved to be a key obstacle to internet adoption within a company (zaidan, 2017), we formulate our first research hypothesis. h1: businesses benefit from higher levels of employee ict skills in terms of developing e-commerce website functionality. 6 goran petković, aleksa dokić, vladimir vasić forthcoming recent research also showed that companies with well-equipped employees skilled in ict use were more likely to organisationally adopt and integrate newest icts (kabongo & okpara, 2014). these predominantly include complex technologies for data capturing, storage, processing, communication, display, integration and collaboration (ibem & laryea, 2014). organisational implementation of different icts has a varying influence on corporate e-commerce development (yasin et al., 2014) and web technology integration (giotopoulos et al., 2017). therefore, in the context of analysing the e-commerce potential of businesses, it is also important to account for potential indirect effects of employee digital intensity on website e-commerce functionality. theoretical foundations derived from contemporary literature combine into a conceptual model in which two main dimensions of organisational ict implementation, employee ict skills and technological aspect of ict implementation, are coupled with corporate e-commerce website functionality. one of the fundamental characteristics of overall organisational ict implementation is the level of usage of different icts in business conduct, sometimes referred to as organisational ict maturity (yunis et al., 2012). for this reason, modern icts were observed in more detail, as potential mediators. in this light, the implementation of latest icts, such as cloud computing, portable technologies and digital outsourcing, outlines the overall digital capacity and potential of today’s businesses (yavuz & welch, 2014). cloud technology can to a certain extent be used to facilitate e-commerce solutions (grilo & jardimgoncalves, 2011), especially in conjunction with other technologies (chen and tseng, 2013). as an emerging ict innovation (liu et al., 2018), cloud technology provides it infrastructure, such as networks, servers, storage, applications and services, which represent essential supporting elements in creating a modern, well-functioning website (charif & awad, 2016). therefore, the effect of cloud technology implementation on website e-commerce functionality potential was further investigated in our paper. h2: organisational cloud technology usage level influences e-commerce website functionality level. in the wake of shifting market paradigm, companies are pressured into making certain organisational adaptations in order to address the requirements of today’s digital markets, in which the lack of e-commerce resources represents a significant market obstacle (yasin et al., 2014). the lack of technical resources, such as the availability of portable technologies (yasin et al., 2014), represents a significant internal barrier to organisational e-commerce adoption (kabongo & okpara, 2014). contemporary research suggests that the efficiency and efficacy of certain e-commerce website features, such as integrated product tracking system, remote accessibility, security and instant availability of relevant information can be improved by organisational implementation of portable technologies (ilbahar & cebi, 2017). existing studies also propose similar expectations for portable technology implementation in the domain of data and software management (dittes et al., 2019; mwantimwa, 2019). however, research dedicated to empirically investigating the link between organisational portable technology usage and business e-commerce potential is lacking. building on the existing knowledge, the paper addresses the identified gap by comprehensively investigating the implementation of portable technologies in a wider organisational context, as the mediating factor between labour ict intensity and corporate website e-commerce potential. based on this, the following hypothesis is proposed. h3: organisational portable technology usage level influences e-commerce website functionality level. as more and more companies transition from single to multiple-channel business models, the need for outsourcing certain e-commerce functions becomes more apparent, especially those like website hosting and design, content development and order processing (pentina & hasty, 2009). outsourcing of various e-commerce activities is receiving research attention, as an important organisational ict component which allows businesses to focus on their core competences, whilst maintaining necessary digital market presence (lee et al., 2003). this implies that the overall level of e-commerce activity externalised by organisations can influence certain internal ict assets, such as website features, which are closely related to business e-commerce potential (cullen & taylor, 2009). based on this, the final research hypothesis can be formulated. h4: organisational e-commerce outsourcing level influences e-commerce website functionality level. 7 management: journal of sustainable business and management solutions in emerging economies forthcoming 4. research design and methodology 4.1. sample data the analysis conducted in this paper is based on the secondary data on the ict usage in serbia in 2018, which was kindly provided by the statistical office of the republic of serbia. the sample is representative in terms of the company size and the level of economic activity for the entire republic of serbia. the total sample size was 1,781 companies (response rate was 63.6%). the surveying was conducted in 2018, during april, via telephone interview. the surveying process, which has been organised annually since 2007, is conducted according to the methodology and instruments (questionnaire) defined by eurostat. the analysis was conducted on the survey micro-data, provided by sors. for the purposes of conducted research, only companies that implemented some form of cloud and portable technologies were analysed. the observed stratum within the total sample numbered 238 companies in total. the structure of the analysed sample is shown in table 2. table 2: research sample structure findings from papers on similar or related topics are based on similarly-sized samples. liu et al. (2018) observed 183 companies in total, whereas ramayah et al. (2016) conducted their research on 108 businesses. the minimum sample size depends on the type and complexity of the developed statistical model. in this paper, a structural equation model with 5 constructs was used. item extraction communalities are expected to be .6 or higher. derived data modelling results provided the minimum value of extraction communalities of .655. for structural equation models with that statistical trait, the minimum sample size of 100 is characteristic (hair et al., 2018). thus, the analysed sample of 238 companies is both theoretically and thematically acceptable. 4.2. measurement of variables drawing upon previously analysed literature, employee ict (digital) skills were chosen as the main explanatory variable in the research model. it was conceptualised as a formative latent variable comprised of items depicting the share of employees using computers for business purposes, share of employees using portable devices that allow internet connection via mobile network for business purposes (becker et al., 2018) and share of employees using internet for business purposes (shiels et al., 2003). confirmatory factor analysis (cfa) was used to create the latent variable (brown, 2015). assumptions, such as multivariate normality and the absence of multivariate extreme values, were verified prior to the application of cfa (harrington, 2008). reliability was tested using cronbach’s α, with the threshold value being .7 8 goran petković, aleksa dokić, vladimir vasić forthcoming �������� �� ��� ������� ������ �� � �������� ����� ��� � ��� ������� ������� ���� �� ���� ������ ��� ������ ������������ �!��"� ��������#����� $�� ��� ��� ��������#������ ������� ��� ���������#��%��� ������������ %����������� ��� ������ &'��"#�!� ��'���(#���'��� ���� ��� ��� ) �(#��(�#!*���"*�"#�����'������(�'��#��'�'��"� !+�,�#���"� !*� "�,������ ��� � ���� -�'"#��(#��'�� ����������� ./� �"� ���'����#�� � ������ ���� 0��'" ��#�#��'��'��"#������� ��� � ���� 1((������#��'��'�������"��2�(���(#�2�#��"�� �%��������� &'�����#��'��'��(����'�(�#��'�� ������������ 3�� ��"#�#�+� ����""��'� *�"(��'#���(��'��#�(/'�(� ��(#�2�#��"� ����$� ���� 1���'�"#��#�2���'��"� ��#�"��2�(���(#�2�#��"+��� �������(�� �#��"� ���� ������ (kim et al., 2015). convergent validity was evaluated using construct reliability (cr) and average variance extracted (ave), with acceptable values being higher than .7 and .5, respectively. since all indicator values were higher than accepted thresholds and all item loadings being higher than .6 (loukis et al., 2013), a strong internal consistency was concluded (fornell and larcker, 1981). measurement validation statistics for employee digital skills construct are shown in table 3. table 3: measurement validation statistics for employee ict skills construct since the main predisposition of a successful e-commerce business is a well-designed and functional website (hernandez et al., 2009), the potential of corporate websites to facilitate e-commerce activities was chosen as the dependent variable in the proposed model. following this line of reasoning, e-commerce website functionality level was used as a proxy variable and was estimated by the number of present websites features essential for successful e-commerce conduct. informational capacity, personalisation, customisation, online order processing, tracking capabilities, and linkage with corporate social media profiles were observed as relevant website e-commerce functions (table 4). table 4: properties of e-commerce website functionality aggregate construct contemporary literature also suggests the existence of certain indirect effects of employee digital skills on corporate e-commerce website functionality. these effects are underlined by the fact that organisational willingness to adopt new icts increases with more ict adept employees (giotopoulos et al., 2017). these indirect effects were evaluated through mediators representing the usage level of cloud computing, portable technologies and e-commerce outsourcing. recent years have seen ample research on the topic of different uses of cloud and portable technologies. consequently, these two mediating variables were introduced into the model as the number of different types of cloud computing (table 5) and portable technologies (table 6) employed by an organisation. 9 management: journal of sustainable business and management solutions in emerging economies forthcoming � ������ �� � ��� �� �� � ����� �� ������ ����� ������� ��� ���� �������� � ����� ���������������� ���������������������� �������� ����� ����� ����� ����� �������� � ����� ������������ �� �!������ ���� ����������������������� !������� ��������"�������������� ��������� �������� ����� �������� � ����� ������������������� ������������������ �������� ����� � ������ �� � ������ ���� �� ����� �������� ��� ��� � ���� ���������� ��� ������ � ��������� ��� ��������������������� ��������� ������!�� ������ ������"��#��� �$�! �������%��&!������� ���'����� �(!�� ������)��� ���� ���������*��+����� ���� �&� ��,�����-��(���� � ���������-��.�!�� ���������/� 0������ 1�������� �������� �� ���� �������������� ����!�� ������������"��#��� �$�! �������%��&!������� ��$���� � ���������*��'����� �(!��������+����� ���� �&� ��,�����-�� (����� ���������-��.�!�� ���������/� 0������ ��� !� � ������� �! �,� � ������ ��� � ��������� ��� ����������������!�� ������������.�!�� ���������/� 0������ 1� ��� �������� ����!�� ������������'����� �(!������� 0������ ��� ����� � ������� 2�� � ����� �� � ��������� ��� ��������������������� ��������� ������!�� ������ ������$����� ���������*��)��� ���� ���������*��+����� ���� � &� ��,�����-� 0������ '��� � ��������� �� ������,� ���������� � ����!�� ������������"��#��� �$�! �������%��&!������� ��$���� � ���������*� 0������ table 5: properties of cloud technology usage level aggregate construct table 6: properties of portable technology usage level aggregate construct outsourcing digital activities and processes represents a common market occurrence and an increasingly viable option for many businesses trying to develop and optimise their e-commerce activities (agrawal et al., 2006). this is especially true for companies with employees skilled in ict use, which tend to see outsourcing as an opportunity to acquire important digital resources, otherwise unattainable using internal means (kotabe et al., 2008). in the narrow research context, the overall level of e-commerce externalisation depends on the scope and share of e-commerce activities being outsourced (kedia & mukherjee, 2009). on this basis, the effect of e-commerce outsourcing level was modelled using a 4-point nominal scale (table 7). table 7: organisational e-commerce outsourcing level items from the survey questionnaire, which constituted the observed model variables, do not represent the preferences or perceptions of the respondents, but mostly binary answers to specific technical questions. this reduces the potential for the occurrence of common method bias. however, as the single response per company provided answers to both independent and dependent items, the occurrence of common method bias in this context is possible. therefore, we employed harman’s single factor test to examine the possibility of common method bias occurrence (tehseen et al., 2017). the conducted analysis showed that the highest covariance explained from a single component was 15.2%, which is less than half of the variance, indicating that common method bias is not present in this research (jakobsen & jensen, 2015). 10 goran petković, aleksa dokić, vladimir vasić forthcoming ������� �� � ������ ���� ������� ������� ��� �� ����� ��� ������������ ���� �� ��������������� �� ��� � �����!"�������#$��� ������%� �������&$� ����� ��� ������������ ���� �� '�� ���� �� � ��� � �����!"�������#$��� ������%� �������&$�(�)� ����������*$� ����� ��� ������������ ���� �� + �� ��� �"� � ��� � �����!"�������#$��� ������%� �������&$�(�)� ����������*$� ����� ��� ������������ ���� �� '��������,����)������ �� �"� � ��� � �����!"�������#$��� ������%� �������&$�(�)� ����������*$� ����� ��� ������������ ���� �� �-.��� �"� � ��� � �����!"�������#$��� ������%� �������&$�(�)� ����������*$� ����� ��� ������������ ���� �� ���/)�����/�" � (�)� ����������*$� ����� ��� ������������ ���� �� ������� �� � ������ ���� ������� ��������� ��� ���� ������� ���� ������������ �� � ������������� ��� ��� �������� ���� ��� ����� �������� �� �� ��� �� � ����� ������� ���� ������������ �� � ������������� ��� ��� �������� ������� !������������" ��� �#$��� ���%���������&���� �� � ������������� ��� ��� ������ � ����� ��� �� ����� �� ��� �� ����� ���� � ���� ��� ���� ��� �� ��������� ������ �� ����� �� ��� ��� � � ���� ��� ��� � ��� �� �� ��������������������� � �� ����� �� ��� ��� � � � ��� ��� � �� � ��� �� � � ��� ��������� ������������ �� ��������� � �� ����� �� ��� ��� � � � ��� ��� � �� � ��� �� � � ��� ����� �������� �� � ���������� ��������� � 5. results the research model analysed certain mediation effects, which is why model estimation was performed using covariance-based structural equation modelling (sem) (hair et al., 2014). all calculations were made using amos 23 software. the maximum likelihood method was used to estimate unknown parameters, since preconditions for using this method, such as multivariate normality and the absence of multivariate extremal values, were met (byrne, 2013). in sem, evaluating the validity of the proposed model includes testing several types of indices. the initial mandatory step in basic goodness-of-fit reporting implies calculating the chi-square statistic, along with associated degrees of freedom and p-value. no clear scientific consensus exists on which indices should be analysed when reporting model fit in sem. the main body of literature distinguishes between absolute fit indices and relative fit indices, sometimes also referred to as incremental fit indices (hooper et al., 2008). reporting absolute fit indices usually includes goodness of fit index (gfi), adjusted goodness of fit index (agfi), root mean square error of approximation (rmsea) and standardized root mean residual (srmr) (bollen & long, 1993). relative fit indices encompass comparative fit index (cfi), tucker lewis index (tli), normed fit index (nfi) and incremental fit index (ifi) (hair et al., 2014). in terms of relative model fit, nfi, tli, cfi and ifi indicator values are all higher than .95, indicating acceptable fit to the data (schreiber et al., 2006). for absolute model fit values, both gfi and agfi are higher than .95, srmr is lower than 0.08 and rmsea is lower than 0.03, indicating excellent model fit (hooper et al., 2008). calculated model fit measurements are shown in table 8. table 8: model fit measurements for the proposed research model since general model fit parameters have been satisfied, subsequent model calculations were performed. the modelling approach used is similar to those implemented by andreu et al. (2010) and yunis et al. (2012). summarised model findings are shown in figure 1. figure 1. statistical model with standardised regression weights, significant at *.1, **.05 and ***.01 levels (haas et al., 2004) findings show that employee digital skills have no direct effect on e-commerce website functionality level of businesses. this led to the rejection of h1. in terms of indirect effect of employee ict skills, the analysis confirmed that cloud and portable technologies represent important ict components for translating employee ict intensity into website e-commerce potential. this confirmed h2 and h3. in terms of e-commerce outsourcing, its direct effect on e-commerce website functionality has been identified both as the strongest and most significant one. however, the relation between employee ict skills and e-commerce outsourcing level has not been confirmed, which ultimately led to the rejection of h4. 11 management: journal of sustainable business and management solutions in emerging economies forthcoming chi-square df p-value nfi ifi tli cfi gfi agfi srmr rmsea 12.995 11 .294 .981 .997 .994 .997 .984 .960 .043 .028 as an additional proofing step, the analysis of hypothesised mediatory effects of observed ict components was performed using the approach proposed by baron and kenny (1986) with bootstrapping technique (shrout & bolger, 2002). for this calculation 5000 bootstrap samples with bias-corrected confidence intervals were used. the results confirmed the aforementioned conclusions entirely (table 9). table 9: results of indirect effect testing using baron-kenny approach note: significant at *.1, **.05 and ***.01 levels (haas et al., 2004) the standardised indirect (mediated) effect of labour ict intensity, via cloud technology usage level, on ecommerce website functionality level is .023 and is significantly different from zero at **.05 level (p-value of .022). this implies that when employee ict skills increase by a standard deviation, the e-commerce website functionality level consequently increases by .023 standard deviations. additionally, a mediated effect of employee digital skills, via portable technology usage level, on e-commerce website functionality level is .025 and is significantly different from zero at **.05 level (p-value of .048). this effect causes an increase in e-commerce website functionality level by .025 standard deviations upon a positive change of a single unit of standard deviation in employee ict skills. these two combined effects amount to the total standardised indirect model effect of **.062. as the large portion of contemporary literature focuses specifically on examining smes in the context of ict implementation (shiels et al., 2003; ongori & migiro, 2010; kabongo & okpara, 2014; ramayah et al., 2016; giotopoulos et al., 2017; vasiljeva et al., 2017), the analysis was consequently expanded so as to include business size differentiation. for this, the critical ratio analyses regarding differences between path coefficients of small, medium and large enterprises were performed (ho, 2014). the results are shown in table 10. table 10: pairwise comparison of critical ratios for differences between analysed path coefficients, in terms of company size the comparison value of -2.075 represents the difference between the estimate of path coefficient of cloud technology usage level and website functionality level (for large enterprises) and the same estimate of path coefficient for medium enterprises, divided by an estimate of standard error of the difference. we can con12 goran petković, aleksa dokić, vladimir vasić forthcoming ������� ��� ������ ������ ������� �������� � ���� ������ ������ ���� �������� � ���� ��� ����� �� � ������ ������ �� ����� �� � ���� �������� �� ���� � ����� ���������� � ��� ����� � �� �������� ��� ��� ���������� ������������� ����� �� ! "���#$ � % "�& &$ � &!'' "� &&$ �������� �� ���� � (������� ���������� � ��� ����� � �� �������� ��� ��� ������������� ����� �� ! "���#$ � #) "�&& $ � &*'' "� +%$ �������� �� ���� � ���������� ��� ������� ����� � ���������� ��� ��� ������������� ����� �� ! "���#$ � #, "��)&$ � &# "�!% $ ����� ��� �� ���� �� ��� ������ ��� ������ ������� ��� �� ������� ����� ���� ������������������ ������ ����� ����� ��������� �������������������� �������!� ���� ������������ "���#� ��������� ����"� ������� ��� �� �������$�������� ���� ������������������ "�%��� ����� "��#�� $������������ �������������������� �������!� ���� ������������ "����� ����� ������� &���''�������������� ���������� �������!� ���� ������������ �"(�� �"��("� �"�%��� � clude that this parameter is statistically significant at the **.05 level (<±1. 96, p < .05). correct modelling approach implies, under suitable assumptions, that this critical ratio or z-statistic has a standard normal distribution. the analysis also indicated that one of the pairwise comparisons between path coefficients of portable technology usage level is significant (<±1. 645, p < .1). the value of 1.812 represent the difference between the estimate of path coefficient of large enterprises and the same estimate of path coefficient for small businesses, divided by an estimate of the standard error of the difference. the presented findings were further confirmed via path coefficient difference test at the *.1 level. 6. discussion in the discussion part, we elaborate on theoretical and managerial implications of the derived results. as the empirical findings were based on a sample from the serbian market, certain comments regarding transition economies will be provided, as a starting point for future research and discussions. the conducted research shows that no significant direct relationship between employee ict skills and ecommerce website functionality level exists. similar findings were reported by ramayah et al. (2016), where employee is knowledge showed no influence on website continuance intentions in malesyia, and nurmilaakso (2009), who identified no link between website and labour productivity in european businesses. an additional comment based on the analysed sample could be that businesses operating in transition markets follow the similar pattern regarding organisational ict implementation as their counterparts from developed markets, in the context of developing e-commerce potential. for companies operating in transition economies, equipping and training employees for ict use is vital in keeping up with the digital pace of modern markets. this does not have direct repercussions on corporate website capacity to facilitate e-commerce, but it does provide a basis for utilising organisational ict components to develop e-commerce potential. the findings suggest that businesses with good ict infrastructure access and adequate employee ict knowledge are more likely to utilise the potential of cloud computing for optimising activities, such as networking, data storing and software usage (charif & awad, 2016). this positively influences organisational implementation of website features aimed at enabling e-commerce, such as online ordering, tracking, personalisation and customisation , especially in the early stages of e-business development (cullen & taylor, 2009). this conclusion is in contrast with that of raut et al. (2018), who found a negative relation between the usage of technology and cloud computing adoption in india. this can be attributed to the fact that small transition economies provide more potential for implementing relatively standardised cloud-based solutions, rather than developing specific, internal solutions, which are more adapted to local requirements of large developing economies, such as india. the presented results also show that the organisational implementation of portable technologies helps develop e-commerce website functionality, especially when coupled with a high level of employee ict skills. this implies that intensive use of portable devices in everyday business activities enables employees to increase the overall responsiveness related to providing actual, real time data on the corporate website, which is essential for efficient functioning of services, such as online ordering, shipment tracking and communication with website visitors (ilbahar & cebi, 2017). the strongest link identified in the developed model was between the e-commerce outsourcing level and the e-commerce website functionality level. with the externalisation of certain e-commerce activities, the e-commerce website functionality level consequently increases, due to improvements of existing website services and the acquisition of the new ones (gunasekaran et al., 2002). on the contrary, the e-commerce outsourcing level does not appear to be a significant mediator in the proposed model, as the data show no link with the employee ict skills. in terms of organising e-commerce activities, no single best solution exists. companies focused on physical sales can benefit from externalising e-sales, but the same can be true for certain ict-intensive businesses with other core competences aside from sales, such as product innovativeness or technological prowess. businesses from transition economies can reap significant benefits when utilising well-established digital solutions through outsourcing. the presented findings also possess certain managerial implications. as shown previously, employee ict skills are more important in the indirect context, rather than the direct one, especially in terms of defining website e-commerce potential. this implies that it is not so important to possess icts as to possess the right kind 13 management: journal of sustainable business and management solutions in emerging economies forthcoming of ict, and being able to implement it in the right way. research findings indicated two interesting differences in organisational ict implementation, depending on the size of the company. cloud technology has proven to be very important for medium-sized enterprises when it comes to developing e-commerce website functionality, especially in comparison with large enterprises. this implies that medium-sized businesses benefit from focusing their human resources on developing core competences, while implementing internet-based solutions, primarily for non-value adding activities. on the contrary, large companies possess the resource pool, which enables them to tackle the majority of business activities internally, thus increasing controllability and adjustability. in terms of investing in portable technologies, large companies have been shown to benefit the most from enabling their employees instant and customised access to relevant data, coupled with increasing process controllability. in comparison, small businesses lack resources and economy of scale to reap significant benefits in terms of e-commerce website functionality development, and should thus focus their employee engagement on attaining available digital pre-made online solutions. 14 goran petković, aleksa dokić, vladimir vasić forthcoming the capacity of employees to use different icts, referred to in this paper as employee ict (digital) skills, represents a precondition in achieving competitiveness in the eyes of digitally advanced customers. e-commerce, although still a developing process, is already considered a must-have marketing channel, even for businesses operating in transition markets (saffu et al., 2008). as such, it is highly dependent on the quality of always-improving websites and their e-commerce capabilities (berman & thelen, 2018). in order to contribute to the existing literature, both direct and indirect effects of employee ict skills on website capacity to facilitate e-commerce activities were examined. the assumption that employee ict proficiency is a standalone factor influencing the capacity of website to support ecommerce activities is not supported by presented findings. results show that businesses need an integrated, synergetic approach which utilises other digital resources, besides ict seeking work environment, to develop a well-functioning website with e-commerce capabilities. the paper theoretically expands contemporary literature as cloud computing has been confirmed as a significant ict mediating the effect of employee digital skills on website e-commerce potential. this contrasts findings by raut et al. (2018), who identified a negative relation between the usage of technology and the cloud computing adoption. this finding can represent an interesting starting point for future research, as it implies that certain differences between companies from transition markets and those from developing countries exist in terms of cloud computing usage. additionally, the use of portable technologies was also identified as a significant mediator. high levels of employee ict skills showed to be a key precondition for successful organisational adoption of portable technologies and their implementation in advancing ecommerce capabilities of corporate websites. relevant managerial implications are closely related to differentiating organisational ict implementation regarding the size of the business. medium-sized businesses have been identified as most proficient in utilising cloud computing in the context of e-commerce potential creation, especially in comparison with their larger counterparts. on the other hand, large enterprises draw most of the website e-commerce potential from investing in portable technologies, especially when compared to small businesses with limited resources. these findings provide a unique insight into which icts are the most important, depending on the phase of business development. e-business managers should focus limited organizational resources upon adopting and implementing icts with the highest yield in terms of e-commerce returns. this study has certain limitations that are worth mentioning. the research model was based on the stratum of observed companies from serbia, which is recognized as a representative transition economy (kapoulas & ratkovic, 2015). although presented findings are unambiguous and internationally applicable, national specificities should still be mentioned. the potential for conclusions generalisation is mainly limited to countries undergoing transition. finally, the number of modelled factors was limited to a couple of specific icts. further research into other organisational ict components is needed, especially regarding e-commerce outsourcing approaches. acknowledgments the authors would like to thank the statistical office of the republic of serbia for providing the dataset used in this research. conclusion and limitations references [1] agrawal, m., kishore, r., & rao, h. r. 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(2017). analysis of ict usage patterns, benefits and barriers in tourism smes in the middle eastern countries: the case of dubai in uae. journal of vacation marketing, 23(3), 248–263. doi:10.1177/1356766716654515 [80] zhu, y., basil, d. z., & hunter, m. g. (2009). the extended website stage model: a study of canadian winery websites. canadian journal of administrative sciences / revue canadienne des sciences de l’administration, 26(4), 286–300. doi:10.1002/cjas.118 received: 2021-06-03 revisions requested: 2021-07-27 revised: 2021-08-23 accepted: 2021-10-17 goran petković university of belgrade, faculty of economics, department for business economics and management, serbia goran.petkovic@ekof.bg.ac.rs goran petković teaches marketing channels, trade management and marketing on bachelor, master and phd levels. he is engaged on the faculty of economics, university of belgrade since 1987, being promoted to full time professor in 2005. he is a fulbright alumni from 2002, when he implemented research on zarb school, hofstra university, ny. as a member of supervisory board in metalac a.d., gornji milanovac, he was reengaged since 2013. in the period from 2007-2013 served as the state secretary in government of the republic of serbia, in charge of tourism. goran petković is the author of two books (positioning of trade companies and models for decision making in trade), co-author of sections in 6 relevant books and author of many chapters in other books and proceedings. also, he is the author or co-author of more than fifty articles in domestic and international scientific journals. 18 goran petković, aleksa dokić, vladimir vasić forthcoming about the authors 19 management: journal of sustainable business and management solutions in emerging economies forthcoming aleksa dokić university of belgrade, faculty of economics, department for business economics and management, serbia aleksa.dokic@ekof.bg.ac.rs aleksa dokić is a teaching assistant at the faculty of economics, university of belgrade. he completed his bachelor studies in 2015, after which he continued his education at the technical university in munich (tum), where in 2017 he earned the m.sc. degree in sustainable resource management. he obtained his second m.sc. degree in trade – sales and supply chain management in 2019, graduating at the faculty of economics, university of belgrade. in 2018 he enrolled in a phd programme of business management at the faculty of economics, university of belgrade. at the bachelor studies level, he currently teaches the courses in marketing channels, trade management, trade marketing and sales management, e-commerce and customer relationship management. he also teaches the subjects: principles of marketing, strategy and core management concepts at london school of economics bachelor programme in business and management. his fields of scientific research are eprocurement, e-commerce, omni-channel retail and sustainable resource management. he participated in many projects in the fields of marketing, corporate management, marketing channels, as well as projects for the government. vladimir vasić university of belgrade, faculty of economics, department for statistics and mathematics, serbia vladimir.vasic@ekof.bg.ac.rs vladimir vasić was born in belgrade in 1969. he graduated from the faculty of economics in 1994, completed a master course in statistical analysis in 1999 and acquired a phd title in statistics at the faculty of economics in 2003. he is employed as assistant professor at the university of belgrade – faculty of economics (department of statistics and mathematics) at the courses: multivariate analysis, nonparametric statistical methods. he deals with the implementation of data mining and data science in business economics. he is involved in many commercial projects in the region. he is the author of over 20 papers in journals on the sci and ssci lists. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # ognjen andjelic:tipska.qxd 1 zoran rakićević1, ognjen anđelić1*, goran popović2, bojana branković3 1university of belgrade, faculty of organizational sciences, serbia 2koncern bambi a.d. požarevac, serbia 3beorol d.o.o., belgrade, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: ognjen anđelić, e-mail: ognjen.andjelic@fon.bg.ac.rs research question: this paper investigates the impact of the covid-19 pandemic on production operations planning. motivation: due to the prevalence of the coronavirus pandemic, a disturbance has occurred in the global production and supply chain systems. by disturbing transportation and distribution mechanisms, the covid-19 pandemic has directly influenced value chain participants, which makes the planning process more difficult. the current crisis caused by the virus has revealed the fragility, vulnerability and low resilience of systems that were previously considered to be best practices in global value chains. idea: the paper provides new ideas to researchers and practitioners in the field of operations management, that can improve business practices in the current business environment caused by the covid19 pandemic. data: in order to identify problems and expose potential solutions, we conduct a contemporary literature review combined with interviews with experts from supply chain operations. findings: experts from supply chain practice, as well as scholars and researchers identified mostly the same issues in planning business operations, that occur as a result of the covid-19 pandemic disruption. contribution: this paper outlines the main issues and challenges that arise as a result of the pandemic. the paper also provides guidance to improvements in operations planning with the purpose to increase sustainability and resilience in future emergencies. keywords: production operations planning, covid-19, supply chain, survey interview, literature review jel classification: h12, m11, d20 the influence of covid-19 on production operations planning doi: 10.75995/management.fon.2022.0008 abstract: 1. introduction in recent decades, successful manufacturing companies in the most developed countries have focused on manufacturing products according to customer design, producing small volumes and high-value products. as a result, the production of large-scale standardized products with low sales margins has been relocated to countries with less developed economies and cheap production and labour costs. in this business model, long and complex value chains have been formed. in addition, the trend of globalization and outsourcing of business processes and activities has made value chains and their production and service operations more complex, and also more difficult to manage and monitor. uninterrupted processes and operations in supply chain systems are essential for firms to be successful in these highly competitive conditions (shahed et al., 2021). however, these complex systems have become more susceptible to disturbances due to their increasingly difficult controllability. the application of just-intime production strategies and lean methodology in complex value chains have led to significant cost reductions (mclvor, 2001; kannan & tan, 2005). in addition, from the point of view of the global supply chain, manufacturing companies import most of the raw materials from china and other asian countries. large global supply chains, including those in manufacturing (e.g., automotive, electronics, pharmaceuticals, etc.) and service sectors (e.g., airlines, retail suppliers, transportation, etc.), have been significantly affected by their heavy dependence on china as a global partner in the supply chain in the last two decades (belhadi et al., 2021). however, such value chains and their production strategies have shown weak resilience and high vulnerability to global disturbances arising in the circumstances of the pandemic (govindan, mina & alavi, 2020; spieske & birkel, 2021). the disturbance has occurred in the global production and supply chain system due to the corona virus. the covid-19 pandemic has severed most transportation links and distribution mechanisms between suppliers, manufacturing facilities and customers. zoran rakićević, ognjen anđelić, goran popović, bojana branković forthcoming 2 the current crisis caused by the covid-19 virus has revealed the fragility, vulnerability, and low resilience of global supply chains. this unprecedented event has caused a problem that affects both supply and demand, making it difficult for companies to respond successfully to challenges that exist (fonseca & azevedo, 2020). this, however, is not the first time value chains have experienced problems. despite the specifics of the covid-19 pandemic, global value chains have experienced disturbances in the past. according to ivanov, sokolov & dolgui (2014), 85% of companies operating in the global value chain experience at least one disruption per year. the severity and impact of disruptions on the supply chain were more serious if the said disruptions were caused as a result of natural disasters. some recent historical examples of natural disasters’ impact on the global supply chain and operations of multinational companies have been (ivanov, sokolov & dolgui, 2014): earthquakes and tsunami in japan in 2011 caused toyota to lose its leading position as the world's largest car manufacturer; the floods and earthquakes in thailand in 2011 affected intel's loss of $1 billion in missed sales of microchips for computers; the fires at the philips plant in new mexico affected ericsson's $ 400 million operating loss as its main customer; hurricane mitch affected the increase in the world price of coffee by 22%. the paper aims to identify the main problems and challenges production and service organizations are facing, which arose in the circumstances of the covid-19 pandemic. also, appropriate strategies and activities regarding the planning process are considered, with the purpose of improving sustainability and resilience of the production system and the supply chain, thus making them more comprehensive. the paper provides an overview of important conclusions and recommendations for the topic of relevant literature, as well as a review of survey interviews conducted among managers of successful production and service organizations in the republic of serbia. finally, potential research frameworks for addressing post-pandemic situations should also be provided. the paper is organized as follows: after the introductory part, the second part of the paper presents a review of relevant literature about issues of planning production operations during the covid-19 pandemic. the third section presents the survey on the impact of the pandemic on business and the challenges of planning production operations of several successful companies from different industries in the republic of serbia. based on the presented research results, the last section brings the conclusion with the most important recommendations on operations planning in the circumstances of the covid-19 pandemic. the conclusion also states future research ideas and intentions. 2. the influence of covid-19 on planning operations the covid-19 disease first appeared in the city of wuhan in china and was caused by severe acute respiratory syndrome coronavirus 2 (sars-cov-2). as a result of the rapid spread of the virus to other countries, in march 2020, the world health organization (who) declared covid-19 a pandemic that caused a global health crisis. most prominent economies around the world introduced a complete blockade and closure of economic and cultural life and the focus has since shifted to a jump in demand for basic products and services (kumar et al., 2020). as a result of the spread of the virus, health and safety measures have been adopted worldwide that have affected all aspects of business and life in general (kumar et al., 2020; qin et al., 2021): partial closure of factories, closure of borders, reduction and suspension of international and domestic air traffic, closure of shops, cafes and restaurants, suspension of tourist activities, transition to emergency remote teaching in schools and universities, reduction of a number of employees in the workplace, introduction of working from home, restrictions on the movement of the population, problems with provision of essential goods, but also lockdown and isolation. factory lockdowns in some industries have caused problems in other industries and service sectors. borders were closed and transport was reduced to a minimum, with simultaneous restrictions on the movement of the population and further restrictions of economic activities. the fact that since the world health organization (who) declared the covid-19 virus a pandemic in march 2020, retailers across the united states have been forced to close their businesses for weeks or even months, addresses volumes about this problem. the retail sector revenue in the first quarter fell 57.7% compared to 2019 (sulaiman et al., 2020). according to wto data (2020), world trade has fallen by an average of 13 to 32% for various products. decisions that led to the cessation of production activities had an impact on the global supply chain, reduced revenues and termination of cooperation, but also a partial blockade of production and supply of products (grida, mohamed, & zaied, 2020). for certain categories of products, the demand increased drastically, and the supply could not cope with that situation, hence the question of specific markets survival was raised. on the other hand, the demand for many other product categories has dropped dramatically at the same time. to avoid this situation, management: journal of sustainable business and management solutions in emerging economies forthcoming 3 manufacturing companies are taking steps to ensure business continuity. measures include cross-functional controls and coordination at the global and regional levels, increased security stocks, improved customer support programmes, recovery measures to improve demand, and rapid responses to changing sources of demand to secure sources of revenue (ivanov & dolgui, 2020). most organizations in the supply chain are struggling to predict the negative consequences caused by the covid-19 pandemic. in general, the global supply chain and production network have found themselves in a very unstable and uncertain environment (kumar et al., 2020; alkahtani et al., 2021) with managers experiencing classic risks of supply, demand, and control in the supply chain at the same time (remko, 2020). recent events suggest that in the event of emergencies, supply chain resilience should be assessed taking into account its survival and sustainability to avoid collapses in both supply chains and markets, and to ensure the supply of goods and services (ivanov & dolgui, 2020). the covid-19 virus is affecting production systems and trade nationally and even globally. the availability and production of many essential items, such as food, groceries, and pharmaceuticals, has been drastically reduced, and a large mismatch between supply and demand has been observed (kumar et al., 2020). despite all the above, some manufacturers have tried to find sustainable solutions to continue the economic activities of value creation, and contribute to maintaining the balance between supply and demand: teleworking, adapting workplaces to ensure the safety of employees, digitalization of business processes, e-service development for a relationship with customers and suppliers etc. covid-19 pandemic has caused value chain vulnerabilities in various industries and has negatively affected manufacturing and service operations around the world (sahoo & ashwani, 2020; ardolino, bacchetti & ivanov, 2022). supply chain managers have difficulty in operationalising the concepts of risk management and resilience, which highlights the need for empirical research in the field of managers' attitudes towards the challenges caused by the pandemic (el baz & ruel, 2021). measures taken by various countries have led to a shortage of stocks and capacity, caused shutdowns of production facilities across the planet and suspended product delivery and sales. global supply chains have failed to deliver the necessary goods, bringing their fragility and lack of operational agility to the fore. the fortune 2020 magazine reported that over 94% of the companies on the list of the 1000 largest companies faced supply chain disruptions as a result of the covid-19 pandemic (sherman, 2020; chowdhury et al., 2021). the network of value chains has shown weak resistance to a pandemic (kumar et al., 2020). also, shokrani et al. (2020) state that almost 35% of manufacturers reported disruptions due to the global covid-19 pandemic. according to a survey by auditing firm ernst & young global limited (2020) only 6% of companies are confident in their system and capabilities for e2e visibility in their value chain. in the context of the global disturbance caused by the pandemic, many operations managers sought management patterns that would adapt to the current situation in order to meet the needs and demands of end consumers. due to the current situation, globalization and efficiency based on lean principles are increasingly considered in a negative light, and currently, at least in the short term, there is a certain animosity, mistrust and doubt directed at these principles (singh et al., 2021). in the united states and most european countries, major consequences have been observed in terms of the economic downturn that has led to serious losses of jobs, soon after the closure of various business facilities or the limitation of their working hours (singh et al., 2021). at the same time, sustainability strategies and practices come to the fore, e.g., by encouraging more sustainable actions such as buying local products and building trust in local communities (sarkis, 2020). the covid-19 pandemic also significantly affected operations through its impact on the workforce. many employees are affected by low wages or loss of income. sectors such as travel and tourism, food services, retail, manufacturing, and business and administrative activities are most at risk of unemployment and underemployment (verma & gustafsson, 2020). the covid-19 pandemic increases the vulnerability of workers to find themselves in exploitative conditions and modern slavery as the most extreme form of labour exploitation (trautrims et al., 2020). although covid-19 has caused serious job losses in global economies, the pandemic has also simultaneously led to labour shortages in industrial sectors with increased demand. the closure of borders has significantly affected the availability of migrant workers (trautrims et al., 2020). for example, agriculture, as one of the most susceptible sectors, relies heavily on seasonal migrant workers, which calls into question what will happen if farmers cannot hire such workers. this means that some supply chains have consciously become much less transparent and that monitoring risky supplier behaviour, such as unauthorized subcontracting, has become more difficult due to resource constraints and mobility constraints caused by the aforementioned difficulties (trautrims et al., 2020). another problem caused by the current pandemic is the problem of the bullwhip effect. one of the driving factors of the bullwhip effect is ordering oversized and unnecessary quantities due to the assumption of limited supply, sometimes referred to as shortage gaming (seifert & markoff, 2020). in this regard, and for these products such as respirators, the ideal method of allocating products with limited stocks should be unemployment and underemployment in industries that have suspended their operations (hobbs, 2020; verma & gustafsson, 2020; belhadi et al., 2021; farooq et al., 2021); quarantine restrictions on movement caused by the spread of the pandemic (sulaiman et al., 2020; sharma et al., 2020; trautrims et al., 2020; nagurney, 2021); lack of labour in industries where there has been an increase in demand (xu et al., 2020; hobbs, 2020; sharma et al., 2020; singh et al., 2021, del rio-chanona et al., 2020; nagurney, 2021); reduced supply of migrant labour due to border closures (trautrims et al., 2020); some activities cannot function through teleworking. development of digital competencies of employees (sulaiman et al., 2020; van hoek, gibson & johnson, 2020; farooq et al., 2021); digitization of work procedures; teleworking; virtual collaboration between employees (ms teams, zoom, google meet); employees health and safety as a primary goal. maximum dedication of workers to one production line; changing working methods to limit contact between workers; issuing instructions online and avoiding personal contact; establishing physical barriers between workstation on the production line; shift handover meetings conducted remotely using technology. lack of raw materials and supplies (xu et al., 2020; fonseca & azevedo, 2020; kumar et al., 2020; paul & chowdhury, 2020; belhadi et al., 2021); disturbances in the raw materials market due to restrictions in transport and trade (belhadi et al., 2021); uncertainty in supply; lack of stocks of finished goods (ketchen and craighead, 2020). alternative supply strategies (xu et al., 2020; fonseca & azevedo, 2020; remko, 2020, ivanov & dolgui, 2020; steingberg, 2021); development of local alternative suppliers (fonseca & azevedo, 2020; sarkis, 2020; paul & chowdhury, 2020; steingberg, 2021); maintaining a higher security level of stocks of raw materials and necessary components (ketchen and craighead, 2020; hobbs, 2020); diversification of supplier base; development of alternative components (development of digital twin technology) (sarkis, 2020; ivanov & dolgui, 2020; kumar et al., 2020). suspension of production activities (xu et al., 2020; ivanov & dolgui, 2020; paul & chowdhury, 2020; el baz & ruel, 2021; farooq et al., 2021); changes in standard operating procedures at the workplace (paul & chowdhury, 2020; farooq et al., 2021); adaptation of production facilities, barriers to maintaining social distance; reducing the productivity of the production process (worker safety as the primary goal); longer production cycles; vulnerability of just-in-time production and delivery system (sarkis et al., 2020; hobbs, 2020; fonseca & azevedo, 2020). transformation of the production process for social needs (fonseca & azevedo, 2020); development of flexible and resilient production systems for rapid product changes (ivanov & dolgui, 2020; paul & chowdhury, 2020; fonseca & azevedo, 2020; sharma, adhikari & borah, 2020); digitization and robotization of production processes (fonseca & azevedo, 2020; kumar et al., 2020; ivanov & das, 2020); redesign of the premises and restructuring so that the workers could be at the appropriate distance from each other (such a decision required a smaller number of workers, longer production time, longer delivery time); reconsideration of the prevailing system of globally dislocated production; complete value chain transformation from rigid and linear to networked ecosystems. work force materials and components production process factors disruptions changes based on relative demand rather than actual demand quantities. hospitals across the country are expected to order more stock based on perceived supply chain problems and imputed future demand. this type of order is precisely the mechanism behind the bullwhip effect and leads to delays and inefficiencies of producers, as well as limited access in areas with the greatest need (patrinley et al., 2020). the covid-19 pandemic has had an enormous effect on all aspects and parts of the value chain, as well as its management worldwide, from the procurement of raw materials to the delivery of finished products. based on the literature research, table 1 presents a current overview of the impact of the covid-19 pandemic on disruptions and changes in the value creation process and its influencing factors. table 1: influence of the covid-19 pandemic on different operations planning factors 4 zoran rakićević, ognjen anđelić, goran popović, bojana branković forthcoming suspension of numerous services; tourism affected by travel restrictions (xu et al., 2020); demand for air transport industry services is minimal (xu et al., 2020; fonseca & azevedo, 2020; del rio-chanona et al., 2020); endangered hospitality and entertainment industry (sulaiman et al., 2020; del riochanona et al., 2020). changes in service delivery (hobbs, 2020; paul & chowdhury, 2020), safety and health in focus; digitization of the public services sector (hobbs, 2020) and services in general (farooq et al., 2021). services transport restrictions (both on the import and export side) due to border closures (ivanov & dolgui, 2020; hobbs, 2020; sharma et al., 2020; belhadi et al., 2021); reduction of logistics and distribution operations (hobbs, 2020; singh et al., 2021); disorders in the delivery of products due to the lack of finished products and raw materials as well as the appearance of bottlenecks. new modes of transport in the world (i.e., drones) (kumar et al., 2020); safety monitoring in the flow of goods; diversification of 3pl/4pl service providers (sarkis, 2020).transport the reduction of supply due to factories lockdown and production with reduced capacity (patrinley et al., 2020; sharma et al., 2020); redistribution of capacity to meet increased demand of essential and deficit products (sharma et al., 2020; paul & chowdhury, 2020). occurrence of shortage in groceries. offering new innovative products; home delivery; intensive internet offers and sales. supply intensive retail activities, increased demand for ppe equipment (masks, gloves, face shields, overalls and suits) and medicines, supplements, essential food categories, disinfectants, bicycles (xu et al., 2020; hobbs, 2020; ivanov & dolgui, 2020; trautrims et al., 2020; ketchen and craighead, 2020; del riochanona et al., 2020; singh et al., 2021; farooq et al., 2021; nagurney, 2021); inability to meet demand by companies due to shortages of raw materials and fragile value chains (patrinley et al., 2020); falling demand for services, cars, clothing and fashion products, textiles, public transport services, entertainment services, sports and recreation, hospitality, etc. (hobbs, 2020; ivanov & dolgui, 2020; sharma, adhikari & borah, 2020; farooq et al., 2021). internet sales, increasing demand for digital products and services (sarkis, 2020). demand problems in current models (patrinley et al., 2020): just-in-time (ketchen and craighead, 2020; hobbs, 2020; fonseca & azevedo, 2020; sarkis et al., 2020; steingberg, 2021), zero inventory (ketchen and craighead, 2020). application of advanced analysis (sharma et al., 2020), fast data processing, fast scenario analysis, optimization (sharma, adhikari & borah, 2020); use of ai-based techniques (sharma, adhikari & borah, 2020; sarkis et al., 2020); development of advanced decision support systems; mitigation strategies: delivery delay, definition of strategic stocks (paul & chowdhury, 2020; steingberg, 2021), flexible supplier base, flexible transport, dynamic assortment planning; industry 4.0 (iot, ai, 3d, robots; rfid, blockchain) (xu et al., 2020; sarkis, 2020; sarkis et al., 2020); implementation of the control tower which monitors e2e visibility in the supply chain and performs disturbance prevention. people health and safety, social distancing (sulaiman et al., 2020; sarkis, 2020; farooq et al., 2021), desocialization, lockdown (sulaiman et al., 2020), restriction of movement (trautrims et al., 2020). reducing global co2 emissions, improving sustainability. planning and management environment factors disruptions changes management: journal of sustainable business and management solutions in emerging economies forthcoming 5 3. the survey of the covid-19 pandemic impact on business and planning production operations in addition to the previous review, the paper also presents a study of the impact of covid-19 on business and planning of production operations in several successful companies in the republic of serbia. the research was conducted in the period from 2020 to 2021 through a series of interviews, which were organized by the serbian supply chain professionals’ association (https://www.supplychain.rs/). the survey subjects were managers and professionals from the domain field who are employed in various positions in domestic and international production and service companies operating in the republic of serbia. the total number of interviewed professionals from diverse companies was 13. interviewed supply chain professionals have various positions (logistics director, commercial director, executive director of operations, supply chain manager, logistics manager, procurement manager, transport director, planning manager, procurement expert) and the companies they come from operate in the following industries: fmcg, construction and building materials, pharmaceutical, beverages and soft drinks, processing, distribution and retail, transport, etc. the topics of the interview were trends and experiences in managing various processes in the integrated supply chain. interviewees referred to the current situation caused by the covid-19 pandemic and the process of planning production and service activities in conditions of uncertainty. in the mentioned interviews, content analysis was applied to obtain significant information upon the impact of the covid-19 pandemic on the companies' business operations, the problems and challenges faced by the companies and further improvement and development to achieve expected resilience. the results of the interviews are shown in table 2. based on the presented table 2 and the opinions of experts from practice, it is possible to group the answers and thus identify those problems that are considered the most significant, as follows: • general problems of global and local supply chains based on responses related to disturbances in the global value chain, transformation of the classical supply chain, vulnerabilities of the global supply chain etc. • the problem of inequality of supply and demand. • problems related to the lack of adequate business management systems among other, based on the answer that traditional erp systems are not flexible enough and that there is no integrated business process planning system. • problems related to digitalization based on the experts’ answers about the difficulties of digitalization and dislocation of production operations, and the digitalization difficulties of logistics and other processes. • the problem of supply of raw materials due to unreliable suppliers and transport problems based on answers about increased raw material costs, the unpredictability of delivery time, a limited market of serbia for procurement of certain raw materials, collapses of air and ship transportation of goods, etc. • problems related to agility and flexibility based on the experts’ answers about the lack of flexibility and adaptability and reactive approach to changes. • other problems slowing economic growth, problems in planning, defining strategy, labour turnover etc. based on the previous review of scientific papers and analysis of the experts’ answers, it can be seen that the problems which are in focus in the literature match with the perceived problems in practice at all levels of business. by the same principle, it is possible to identify the perceived challenges that arise as a result of the pandemic in the following domains: • digitalization and implementation of new technologies. • risk monitoring, assessment and forecasting. • adequate and fast reaction to new changes. • continuous improvement of business. • agility and adaptability of business processes. • planning in the conditions of uncertainty. • others (defining alternative suppliers, developing s&op processes, environmental analysis, visibility and transparency, etc.) probably the most interesting are the observations of experts from practice related to the future development of supply chains and value chains, in order to overcome current problems, which can be grouped as follows: • suppliers and the entire supply process, i.e., procurement based on experts’ responses about the development of alternative suppliers, the improvement of services for suppliers, the development of local suppliers, the development of new ways of supply, etc. • human resources investing in the development of human resources and their competencies, improving the education system, fostering new knowledge and educating of employees. 6 zoran rakićević, ognjen anđelić, goran popović, bojana branković forthcoming • digitalization and technology introduction of new technologies, system automation, real-time process monitoring, focus on blockchain, ai and big data, focus on planning and decision support systems, and digitalization of supply chain processes. • overcoming challenges through innovation development of innovations in the value chain, investing in the development of new products and services, as well as expanding the portfolio. • sustainable development – transfer to local sustainable value chains. • risk management risk analysis of alternative scenarios with development of mechanisms for mitigating negative effects; risk management in sc as an emerging discipline. • other factors related to future development planning strategy, agility and creativity, new modes of transport, new types of distribution, cost optimization, environmental impact reduction, process automation, proactivity, mechanisms to mitigate negative effects. considering the problems, challenges and potential solutions recognized by supply chain practitioners, it can be concluded that there is an acute awareness of potential actions that need to be taken in this crisis period, especially if we look at the offered solutions in scientific research. thus, for example, sharma, adhikari & borah (2020) state that companies are considering adopting more technologies that can ensure visibility throughout the value chain, as well as increase efficiency. additionally, survey data from the interviews show that companies are looking for solutions that will provide visibility throughout the value chain. so, visibility in the supply chain has been recognized by experts as one of the main problems, and the application of new technology is often mentioned as a potential solution. automation of processes and operations is mentioned as a future direction of development, and it is sarkis (2020) who states that production technology is going towards automation and data exchange systems in industry 4.0, as well as that manufacturers use industry 4.0 technologies, cyber-physical systems, internet of things (iot), cloud computing, and cognitive computing, which can complement human decisions with technologies designed support and decentralize decision-making. table 2: recognized problems, challenges, improvements, and future growth opportunities during the covid-19 pandemic by experts from supply chain practice in different industries 7 management: journal of sustainable business and management solutions in emerging economies forthcoming industry position problems during challenges improvements future growth the pandemic slowing economic growth; impact on all segments of the supply chain; endangering the procurement and distribution process; disorders of the global value chain are transferred to the local value chain; impossibility of digitalization and dislocation of some production operations. digitalization of all processes; rethinking traditional structures and building newer, more resilient chains based on risk assessments, creating potential scenarios, and responding to them; defining alternative suppliers and selection strategies; adapting longterm planning to current new circumstances. the timely networking of information and value flows; a higher degree of digitalization has enabled teleworking in business processes, to protect the health of employees; agile processes and a proactive approach. development of alternative suppliers, new types of distribution; proactivity; risk analysis of alternative scenarios, mechanisms for mitigating negative effects; investing in the development of human resources and their competencies; the procurement function is becoming a strategic function for every business distribution and scm retail the problem of developing a reliable, flexible, and fast it infrastructure and services and the timeliness of information flow; the global epidemiological situation has further raised the level of importance of it infrastructure, it services, information, data at the global level. challenges in the rapid reorganization of business processes and adaptation to the current situation; preservation of the smooth/ uninterrupted flow of data, information, value of goods and materials; flexibility and a willingness to change and progress have become a necessity; development of alternative scenarios due to radical transformations. the it infrastructure has enabled business processes and functions to run smoothly and the contribution to the protection of employees’ health. further customers and suppliers service improvements. it engineering coo 8 zoran rakićević, ognjen anđelić, goran popović, bojana branković forthcoming industry position problems during challenges improvements future growth the pandemic at the beginning of the pandemic traditional information systems (erp) were not flexible and fast enough to adapt to huge changes in supply and demand. efficient planning system; development of s&op processes and best practice of making planning decisions; development of solutions that can quickly identify supply-side constraints and bottlenecks and run a multitude of simulations and what if scenarios. understanding the process and how it generates the result. professions in the field of supply chain management have once again gained importance. introduction of new technologies (ai) in the processes of planning and simulation, going towards transparency of the entire supply chain.confectionery industry scm imbalance of supply and demand; transformation of the classical supply chain. flexibility and supply chain adjustment; digitalization that changes the habits and needs of consumers in retail; introduction and acceptance of new technologies. digitalization; integrating individual supply chain components to digital platforms. human resource development and adoption of high-tech knowledge for designing and managing complex automated systems. distribution and retail cd digitalization of logistics processes and other business processes. paperless business; networking as an informal form of integration within the value chain. logistics and supply chain management have gained the importance in the circumstances of the covid-19 pandemic. sustainable development in focus; new technology opens the possibility of integration planning, cost optimization, real-time monitoring, reducing environmental impact: blockchain, ai, big data. construction materials lm rising prices of raw materials and imported materials, limited serbian market for the supply of specific materials; long lead times for certain raw materials. the importance of digitalization; digitalization of business processes and documents: e-invoices, econtracts, cloud platforms for negotiations, supplier database and selection, risk reduction of supplier selection. lessons on the "black swan"; agile approach. electronic invoicing; teleworking; increased importance of risk management. strategic orientation of procurement (prices, quality, delivery time) given the impact on the entire supply chain; development of supply chain innovations.oil industry mn problems in the global supply chain; global supply chain vulnerability. continuous analysis of the business environment, risk assessment, business risk management and readiness for change management; improving visibility and transparency. digital transformation. support for the process of optimization and automation, introduction of planning and decision support systems: erp, wms, iot, blockchain, machine learning and ai. pharmaceutical industry pm lack of integration of business process planning systems; lack of flexibility and adaptability to an unstable environment. the planning process and synchronization of its factors is essential for an efficient supply chain; the development of organizational culture towards continuous improvements. integrated business process planning. improving the education system by connecting science and industry.manufacturing of plastic ld products sarkis (2020) also mentions companies that are turning to the concept of fourth-party logistics (4pl) in order to find more available logistics options, as opposed to using a single logistics provider with a single source, which can potentially stop production and delay deliveries. one of the main focuses of experts from practice was the improvement of the supply and procurement process, and the previously mentioned author provides a potential solution, the application of which simultaneously builds agility and resilience of the supply chain. this way of thinking is supported by both ketchen and craighead (2020), who say that many entrepreneurial companies rely on a single distribution channel, but that those who had different channels and those who managed to change channels during the covid-19 pandemic had an advantage over others who could not. they also state that the importance of supply chain agility was at the centre of attention during the covid-19 pandemic and that stock shortages and inert replenishment caused by the pandemic revealed how many companies must work on agility. the importance of the existence of multiple sources of raw materials is also mentioned by authors fonseca & azevedo (2020), who mention it along with increasing 9 management: journal of sustainable business and management solutions in emerging economies forthcoming reactive approach to improvement (only with the appearance of problems in a crisis); increased costs and longer lead time for raw materials from asia. changing the way of thinking, encouraging desires and inspiration for constant improvement (preventive approach); agile and e2e approach in management of business operations in sc. focus on increasing efficiency and optimization in sc. working in a digital business environment; communication in the digital environment. digitalization of processes in the supply chain. investing in employees and development of their competencies; improving the sustainability of business; risk management in sc as emerging discipline. development of local suppliers; development of alternative sources of supply, as well as alternative raw materials. confectionery industry coo disruptions in global supply and transport (air and sea transport). agility and adaptability of business processes. digitalization in the supply chain; investments in the domain of information systems and technologies (problem of the best solution selection). increase in internet sales and delivery. investing in people, in the development of their knowledge and competencies; investment in the development of new services, portfolio and capacity expansion. transport td problems in pharmaceutical market planning due to unknown approaches in treatment; frequent changes in strategy and human resources lead to negative consequences and poor results. challenges of market planning, distribution of the right products at the right time. using advanced tools such as the sap pp module for production planning. planning strategy and employee education as two key prerequisites for efficient operations management.pharmaceutical industry mp supply problems, disruption of strategic plans due to the epidemic crisis; demand imbalance and delivery unreliability. actions and activities aimed at maintaining business activity due to the pandemic. procurement risk and cost management; timeliness and agility; development and analysis of different scenarios in conditions of uncertainty and risk; protecting employees’ health. development of local supplier industries; development of new relationships with suppliers; product and service innovation. managing procurement risks and costs is a priority for adapting to the new economic reality. agility and creativity of the organizational system. non-alcoholic beverage pm industry transport (shipping). predictability of delivery time and transport prices. digitalization of business processes; adapting to new market conditions; employee training for digital solutions. development of internal problem-solving initiatives; exchange of experiences in the organization of operations in the integrated sc. new modalities of transport, new ways of supply, market changes. production of oils and scm lubricants industry position problems during challenges improvements future growth the pandemic scm – supply chain manager coo – chief operations officer cd – commercial director lm – logistics manager pm – procurement manager ld – logistics director td – transport director mp – planning manager stocks and reducing the physical distance between companies and their suppliers in the context of enhancing the resistance of supply chains and value chains. technology and its application have been a frequently mentioned topic by interviewed experts from practice. kumar et al. (2020) agrees with this, stating that the application of advanced technologies such as ai, 3d printing, data analytics, robots, and cyber-physical systems can help develop a decentralized production system. additionally, sarkis (2020), states that having the necessary systems based on data such as the big data concept can help organizations respond quickly to crises, especially environmental and social crises, as can technologies such as blockchain, enabling transparent, reasonably fast, accurate and wide exchange of information. integrating listed systems with the internet of things (iot) and artificial intelligence (ai) can change the way supply chain managers make decisions and do business in the future. digital production would help maintain social distance during the production process while at the same time controlling the workforce flow. similarly, food and essential items delivered in cities can be regulated using technologies such as drones, resulting in the prevention of direct contact in product delivery (kumar et al., 2020). human resources development with its proper management process, are the focus of the supply chain experts’ answers. the pandemic is viewed from this angle by van hoek, gibson & johnson (2020), who in this crisis period emphasize the role of line managers and human resources managers in aligning the required workforce with the needs of the company. they state that the focus is on managers with higher emotional intelligence, where it is considered that such managers are better equipped to build positive working conditions, retain employees, and achieve more positive results in relation to the needs of external clients. it can be assumed that in a pandemic environment, but also after it, emotional intelligence will gain importance. it is also assumed that the ability of managers to support employees through stressful and challenging periods can increase the resilience of supply chains, which is something that is imposed as an imperative in times of crisis (van hoek, gibson & johnson, 2020). 10 zoran rakićević, ognjen anđelić, goran popović, bojana branković forthcoming conclusion the outbreak of the covid-19 pandemic and its effects on the global supply chain are much greater than the previously perceived risk, and according to pujawan & bah (2022) the pandemic is likely to have negative effects in the forthcoming period. as a consequence of failure to assess risk and the effects of an adverse event, the pandemic as a risk category has changed priority in risk assessment. one of the lessons that can already be learned from this crisis is the urgent need to create and design more robust, resilient, and smarter supply chains (hobbs, 2020). decentralization of capacities, procurement of raw materials from several sources and small series of production, as well as digitalization are some of the concepts that could be important in the future creation of supply chains. currently, the priority should be to build more resilient supply chains. the just-in-time supply chain model is effective under normal circumstances. however, the consequences of the current pandemic suggest that this model is sensitive to short-term disruptions caused by supply and demand shocks. robust and reliable supply chain relationships are essential to increasing supply chain resilience. buyer-seller collaborative relationships build trust among supply chain partners and flexibility in responding to unexpected changes in demand or unexpected supply disruptions (hobbs, 2020). in this context, some companies might consider moving from a just-in-time methodology to a just-in-case methodology and have enough inventory in place to reduce uncertainties due to fluctuations in supply and demand and to shift the focus from pure efficiency to efficiency balanced with flexibility, resilience, and reliability. this would require that safety stocks are given priority over modern concepts of timely inventory replenishment, but it is also necessary to reach a compromise between the high cost of safety stock and the risk of revenue loss due to supply disruptions. this paradigm change, however, would require a greater quantity of products in stock, which represents additional costs and is not in line with the lean approach. this new approach would represent a compromise between efficiency and resilience (fonseca & azevedo, 2020). traditional supply chain structures are cost-optimized and are not eligible to deal effectively with multiple unplanned outages and disruptions. recommendations for a strategy to reduce the impact of covid-19 on value chains could be (sharma et al., 2020; driessen, 2020; kumar et al., 2020; shih, 2020): • the sustainability of the supply chain should be evaluated from the aspect of health and safety of employees. communication with employees to raise safety and health awareness should be increased. • redesign of the supply chain in order to increase flexibility and resiliency through procurement of alternative raw materials and suppliers of those materials, change of production location, development of more resistant transport and distribution systems; cooperation and collaboration in the value chain and exchange of accurate and reliable 11 management: journal of sustainable business and management solutions in emerging economies forthcoming references [1] alkahtani, m., omair, m., khalid, q. s., hussain, g., ahmad, i., & pruncu, c. 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(2020). covid-19: outcomes for global supply chains. management & marketing. challenges for the knowledge society, vol. 15, no. special issues, 424-438. doi: 10.2478/mmcks-2020-0025 information with chain partners; implementation of blockchain technology; moving away from rigid and linear chains and towards adaptive network ecosystems; transformation into digital supply networks (dsns); development of alternative business models. • make the value chain visible from end to end. conduct an e2e risk assessment to test the whole supply chain and identify critical scenarios and define potential responses. regular performing of "what-if analysis", and scenario risk assessment, implementation of stress tests and ability development. risk assessment of new products and identification of changes in supply and demand. • capacity development: investing in key business capabilities; development of own production capabilities; identification of potential bottlenecks in the value chain. • application of advanced technologies in production process: digital production (industry 4.0 based production, digital twins, 3d printing), continuous monitoring, reporting and early warning by the use of artificial intelligence, fast real-time data processing of production and consumption patterns, internet of things, machine learning etc. • "pandemic planning" agile planning that should be adjusted to current market conditions. establishing an integrated planning process, coordinating it with partners in the supply chain. additionally, the introduction of the plans for post-covid periods is advisable. pandemic planning should include adjusted forecasts, integrated plans with strategic and operational horizons as well as external sources of information from suppliers and customers. “there’s never been a better time in society’s history to finally get that visibility so we can make better business decisions,” steinberg (2021) said. if the recommendations are not sufficiently well followed, companies in supply chains with long delivery times and lacking end-to-end visibility are in the "danger zone". besides, most companies upstream in the value chain will be affected by the bullwhip effect. during the crisis caused by the covid-19 pandemic, agile and network enterprise ecosystems are the key to maintaining the flexibility of a successful business. this paper is also aimed at future researchers to identify key success factors, inhibitors, and drivers for tackling the pandemic situation and to propose policy frameworks to improve the resilience of production and operational processes. it is, therefore, necessary to discuss a sustainable pattern of planning production operations in the post-pandemic covid-19. 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(2020). developing a framework for enhancing survivability of sustainable supply chains during and post-covid-19 pandemic. international journal of logistics research and applications, 1-21. doi: 10.1080/13675567.2020.1810213 12 zoran rakićević, ognjen anđelić, goran popović, bojana branković forthcoming [33] sherman e. (2020). 94% of the fortune 1000 are seeing coronavirus supply chain disruptions: report. fortune 1000. link: https://fortune.com/2020/02/21/fortune%20-1000-coronavirus-china-supply-chainimpact/ [34] shih, w. c. (2020). global supply chains in a post-pandemic world. harvard business review, 98(5), 8289. [35] shokrani, a., loukaides, e. g., elias, e., & lunt, a. j. (2020). exploration of alternative supply chains and distributed manufacturing in response to covid-19; a case study of medical face shields. materials & design, 192, 108749. doi: 10.1016/j.matdes.2020.108749 [36] singh, s., kumar, r., panchal, r., & tiwari, m. k. 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(2020). survival at the expense of the weakest? managing modern slavery risks in supply chains during covid-19. journal of risk research, 23(7-8), 1067-1072. doi: 10.1080/13669877.2020.1772347 [41] van hoek, r., gibson, b., & johnson, m. (2020). talent management for a post covid 19 supply chain—the critical role for managers. journal of business logistics, 41(4), 334-336. doi: 10.1111/jbl.12266 [42] verma, s., & gustafsson, a. (2020). investigating the emerging covid-19 research trends in the field of business and management: a bibliometric analysis approach. journal of business research, 118, 253-261. doi: 10.1016/j.jbusres.2020.06.057 [43] world trade organization (wto), 2020. trade set to plunge as covid-19 pandemic upends global economy. link: https://www.wto.org/english/news_e/pres20_e/ pr855_e.htm [44] xu, z., elomri, a., kerbache, l., & el omri, a. (2020). impacts of covid-19 on global supply chains: facts and perspectives. ieee engineering management review, 48(3), 153-166. doi: 10.1109/emr.2020.3018420 received: 2022-23-03 revision requested: 2022-05-05 revised: 2022-05-18 (1 revision) accepted: 2022-05-27 zoran rakićević university of belgrade, faculty of organizational sciences, serbia zoran.rakicevic@fon.bg.ac.rs zoran rakićević is an assistant professor at the faculty of organizational sciences, university of belgrade, department for production and services management. he got his phd degree in information systems and quantitative management at the same university. zoran published more than 10 scientific papers in international journals and 30 papers in proceedings of international conferences. he is an active member of the serbian supply chain professionals’ association. his research interests are operations management, production planning and management of smes. 13 management: journal of sustainable business and management solutions in emerging economies forthcoming about the authors ognjen anđelić university of belgrade, faculty of organizational sciences, serbia ognjen.andjelic@fon.bg.ac.rs ognjen anđelić is a teaching associate at the faculty of organizational sciences, university of belgrade, department for production and services management. he got his master’s degree in business analytics at the same university. his research interests are in the fields of production and services planning, with a focus on quantitative approach, as well as entrepreneurship and management of smes. goran popović koncern bambi a.d. požarevac, serbia gpopovic@bambi.rs goran popović is a graduate engineer at the faculty of mechanical engineering, university of belgrade. after 25 years of dynamic and intensive work experience in different industries he is inspired by and passionate about the continuous implementation of global innovations, standards and sustainable business and operational models in serbia and the region. goran is an experienced leader with a demonstrated history of working in the packaging, fmcg, agriculture and automotive industry. he also possesses strong professional skills in change management, people and talent development, business planning, supply chain set up and optimization, operations management, s&op, negotiation. bojana branković beorol d.o.o., belgrade, serbia brankovic.b@beorol.rs bojana branković is a logistic director at beorol llc, where she handles production and distribution of painting tools. she previously worked as a supply chain manager in food production at neoplanta, and as a supply planning and purchasing manager in a distribution company at nelt. she is skilled in inventory management, material requirements planning (mrp), production planning, process optimization, forecasting, as well as continuous process improvement. bojana is also a certified lean six sigma black belt holder. 14 zoran rakićević, ognjen anđelić, goran popović, bojana branković forthcoming 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03 85_2 slijepcevic:tipska.qxd 29 milica slijepčević1*, jelena krstić2 1 metropolitan university, belgrade, serbia 2 economics institute, serbia management: journal of sustainable business and management solutions in emerging economies 2020/25(2) organizational culture and perceived effectiveness: a case study of an insurance company doi: 10.7595/management.fon.2019.0019 abstract: 1. introduction during the last three decades, scholars and practitioners have often explored the organizational culture and effectiveness. according to janicijevic (2013), organizational culture is the most powerful tool for understanding people's behaviour in companies. the internal characteristics of an organization are critical for the success of the organization (barney, 1991; barney, 2001). author bharadwaj (2014) states that where human cooperation is the basis of productivity, organizational communication assumes paramount importance because effective cooperation primarily hinges on communication as a vehicle for binding the employees together for a common objective. a large number of studies start from the assumption that culture is a measurable characteristic of an organization (o'reilly & chatman, 1996). yan (2016) noted that organizational culture includes long-time beliefs and values in an organization, beliefs of the staff and foreseen value * corresponding author: milica slijepčević, e-mail: milica.slijepcevic@metropolitan.ac.rs research question: this paper studies the relationship between organizational culture and perceived organizational effectiveness of an insurance company in a developing country with an emerging economy. motivation: the main objective of the research is to determine whether there is a correlation between organizational culture and climate as a narrower concept, on the one hand, and perceived organizational effectiveness, on the other hand. some authors noted a correlation between these organizational aspects. for example, yan (2016) empirically confirmed that organizational culture positively and significantly correlates with organizational effectiveness. the relationship between organizational culture and organizational effectiveness was also examined by cox and trotter (2016), chen (2017) and deem, de lotell and kelly (2015). idea: starting from the findings of other authors that organizational culture indeed affects effectiveness, the authors of this paper wanted to examine whether this relation existed in a state-owned insurance company in an emerging economy and, if so, how to use this to improve employees’ performance and overall business results. data: the research was conducted in june 2017 on the sample of employees of the dunav insurance company on the obtained six hundred and sixty -six valid questionnaires. tools: the questionnaires consisted of five general questions about demographic variables and twenty-nine closed-ended questions related to the topic. the researchers assessed the correlation between variables by spearman rho coefficient and chi-square significance. findings: the results showed the relationship between a number of aspects of organizational culture and climate, on the one hand, and perceived organizational effectiveness, on the other hand. research results have shown that the evaluation of effective utilization of working hours and professional capabilities is largely connected with the aspects of organizational climate that reflect poor working conditions and unethical attitude of employees. however, the evaluation of effective utilization of professional capabilities also relates to the perception of predominant aspects of an organizational climate that inspire positive internal relations. contribution: the results presented in the paper can be used as the basis for organizational and managerial decision-making to improve work processes in the observed organization. keywords: organizational culture, organizational climate, effectiveness, insurance company, developing country jel classification:m14, g22 of their work that affect their attitudes and behaviour. organizational culture directly links to the attitudes and behaviours of employees (o'driscoll et al., 1998), but there is (little) data available on any intervening variables that might affect this relationship (williams & attaway, 1996). some authors note that the strategic sensitivity to under-source fluidity significantly enhance the propensity to business model innovation. (hock, clauss, & schulz, 2016). organizational culture is considered to be a source of sustainable competitive advantage (barney, 1991) and empirical research showed that it is a key factor of organizational effectiveness (denison, 1990; gordon & ditomaso, 1992). compared to research of other authors, this paper summarizes an endeavour to determine whether organizational culture and climate, as a narrower concept, affect the organizational effectiveness in a state-owned company after the overall privatization process in a developing country. 2. literature review any research on culture as a factor of organizational effectiveness is somewhat limited by a level of agree ment between the researchers whether and how organizations can measure effectiveness. schneider (1995) emphasized that culture allows researchers to determine an in-house effectiveness by assessing the performance as effective or ineffective and/or what the concept of effectiveness means for a particular organization. yan (2016) empirically showed that there was a significant positive link between the organizational culture and organizational effectiveness. the relationship between organizational culture and organizational effectiveness was also explored by gregory, harris, armenakis, and shook (2009), kim, kim and kim (2011), cox and trotter (2016), chen (2017) and deem, delotell and kelly (2015). as shown above, the organizational culture might be a significant factor of effectiveness of a public company in an emerging economy (grindle, 1997). however, the companies reluctantly disclose to random researchers the information on their business aspects and/or potential sources of their competitive edge, such as organizational culture or a leadership style (rodic, jasko, & cudanov, 2017). analysing data from a large number of organizations, the authors showed that four cultural dimensions (mission, consistency, adaptability and involvement) could be associated with different criteria of organizational effectiveness (denison & mishra, 1995; denison, haaland, & goelzer, 2004; fey & denison, 2003). aspects of organizational culture that trigger confrontation, competitiveness, passive, aggressive and defensive behaviour and/or negative tendencies are associated with personal effectiveness of employees (kwants & boglarsky, 2007). ilyas and abdullah (2016) produced evidence that organizational culture directly affected job satisfaction. ibrahim, boerhannoeddin, and kazeem kayode (2017) and matko and takacs (2017) noted that organizational culture affected employees’ performance, while jablonowski (2017) emphasized the influence of organizational culture on better overall work conditions and employees wellbeing. on the other hand, some scholars note that organizational culture does not affect organizational effectiveness directly, but manifests in shaping the behaviour of members of the organization (e.g., waterman, 1992). a recent research confirmed that the impact of culture on the organizational effectiveness is not direct, with knowledge management as an intervening variable that influences the way in which organizational culture enhances the organizational effectiveness (zheng, yang, & mclean, 2010). the research results obtained from various organizations confirmed this finding within a relatively stable environment, where a strong organizational culture allowed for a steady performance with minor fluctuations. in support of this conclusion, there was a research showing that companies with strong culture demonstrate better performance than those with weak culture (kotter & heskett, 1992; gordon & ditomaso, 1992; burt, gabbay, holt, & moran, 1994). strong organizational culture should increase consistency of organizational behaviour (gordon & ditomaso, 1992) and improve performance of the organization. the research showed that increased strength of organizational culture, measured by one standard deviation, caused an almost 30% reduction in variability of return on invested capital (sorensen, 2002). the unstable environments, however, did not reveal such a strong cultural inclination. the authors noticed that managers would discover a powerful tool for improving organizational effectiveness if they devoted more attention to the ideals, norms and values of their employees (silverzweig & allen, 1976; peters, 1978; ouchi & price, 1978). gochhayat, giri, and suar (2017) investigated the influence of organizational culture on leadership effectiveness and noted its mediating role, as leaders who promote organizational culture can achieve higher leadership effectiveness. whereas organizational culture is a concept more focused on the past and the future, the organizational climate is analytically oriented and focused on the present of an organization (schneider, 1995). climate also implies characteristics that distinguish one organization from another. organizational climate is a polysemic 30 milica slijepčević, jelena krstić 2020/25(2) term and an organization can have numerous sub-climates, specific to each level of hierarchy, department or working group. through such sub-climates, members of an organization interact to develop and maintain the organizational identity, thus building a collective climate. an ideal organizational climate reflects characteristics such as trust, confidence, openness, security, satisfaction, expectations and strong involvement of employees. the creation of positive climate spurs the flow of information, knowledge and ideas among employees. the organizational climate is also under the influence of wider environment where an organization transacts business (e.g., the country with its laws and taxes, business and economic trends). madan and jain (2017) examined the relationship between managerial effectiveness and organizational culture and climate and highlighted the importance of managerial effectiveness and its dependency on variables such as organizational climate and culture. 3. methodology to study the relationship between the organizational culture and organizational effectiveness, the researchers studied a sample of employees of the dunav insurance company, in june 2017. the employees were asked to fill in the questionnaire anonymously. the dunav insurance is the largest insurance company in the insurance market of serbia, a developing country with an emerging economy, and it transacts all lines of insurance business. the company is state-owned and has 2614 employees of different qualifications, 65% younger than fifty years of age. it is also the oldest insurance company in serbia and a leader on domestic insurance market. the dunav insurance transacts business through twentynine main branches and about six hundred points of sale, throughout serbia. the company comprises seven subsidiaries. the subject of the survey were employees’ attitudes and beliefs on the elements of organizational culture and climate in a state-owned insurance company in a developing country. based on the research findings, the study aimed to determine the organizational culture and climate in the observed company and identify their significant traits that influence the notion of organizational effectiveness. accordingly, the authors developed one general and two special hypotheses. the general hypothesis reads as follows: h0: the organizational culture significantly influences employees’ perception of organizational effectiveness. special hypotheses state that: h1: various aspects of organizational culture and climate have different impacts on the perceived organizational effectiveness. h2: organizational effectiveness is more strongly affected by factors of organizational culture and climate of a negative context than by those of a positive context the above hypotheses were defined upon going through a part of the available scientific literature on the subject matter of this paper. to achieve the set individual goals, a particular employee has a clearly defined framework in which to perform particular activities using the resources provided by the company. time is a non-renewable resource available to everybody. for this reason, this paper deals with the time as a resource. the aim is to provide a wider insight for prospective researchers, regardless of the country of research. perceived effectiveness is deemed the employee’s awareness, understanding and acceptance of the level up to which the resources are utilized. the perceived effectiveness is subjective experience of an employee. the more employees perceive the organization as effective, the more favourable the organizational climate will be. the above measurement is limited primarily by the elements of subjective understanding of the level up to which the working time is well utilized. sometimes the employees will give socially acceptable answers because of the desire to show themselves in the best light or out of fear of possible sanctions. moreover, the reason may be the lack of trust in the purpose of research i.e., doubt that the research findings will be used to improve the working conditions and position of an individual and/or bring about any changes. the organizational culture of the company does not comply with the adopted documents and rules. it is not implemented according to a plan, but randomly. this means that the organizational culture directly relates to the attitudes and reactions of the top management and is spontaneously managed, applying the “top to bottom” rule. the employees, especially the ones with many years of service in the company, strongly believe that the organizational culture depends on the managerial profile. this creates a climate that affects the subconsciousness of the employees to adapt unknowingly to the new requirements and conditions of new management and adds a degree of uncertainty that adversely affects the perceived and actual effectiveness. special hypothesis h2 states that the organizational effectiveness is more strongly influenced by factors of organizational culture and climate of a negative context than by those of a positive context. the change of 31 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) government brings about a shift in the management of a state-owned company, regardless of how successful the previous management was and whether they achieved the market and business goals. this shift is especially stressful for all interested parties, primarily the employees who feel extremely uncertain, because the parameters of expertise and well-done job and/or fulfilment of work tasks are not crucial to keep them on the current positions. this is especially true for the elderly employees who make a majority of the observed company. their negative experience is dominant and strongly affects the organizational culture and climate. to collect data from the observed organization, the authors composed a questionnaire on aspects of the organizational culture, climate and effectiveness. the questionnaire comprised five general questions about demographic variables and twenty-nine closed-ended questions about organizational climate. the research was conducted in the dunav insurance, a state-owned, well-regulated and the largest insurance company in serbia. the management and employment processes are centralized. all the employees sign a collective agreement and an internal act on the rules of conduct and responsibility. the sanctions for violation of the adopted rules are transparent. the researchers endeavoured to ensure that the structure of the respondents was identical to that of the company's employees. after the preparations, kindly assisted by the middle management, i.e., the directors of the main branches, the survey itself was conducted. finally, we obtained six hundred and sixty-six valid questionnaires. within the observed sample, fifty-seven percent of respondents were female and forty-three male. around two thirds of the respondents were between thirty-five and fifty-five years of age, with the average employment period of twenty-two years. the topdown leadership significantly facilitated the research and contributed to a large number of respondents. on the other hand, precisely this leadership model entailed the risk of the respondents not giving the honest answers but rather the expected ones, according to the desires of the superior, as mentioned above. 4. results of the research 4.1 organizational effectiveness, culture and climate employees evaluated how effectively they utilized the working hours and professional capabilities. these variables were designed to assess indirectly the effectiveness of the organization. table 2 shows that the majority of employees think their working hours and professional capabilities are effectively utilized during work. the correlation between these two assessments is positive (spearman rho coefficient 456) and very significant (1% significance level). table 1: assessment of effective utilization of working hours and professional capabilities of employees in organization employees expressed their perception of interpersonal relations and internal atmosphere, assessing the degree of presence of particular elements. the respondents assessed each aspect as “predominant” or “not predominant” among employees. based on frequency analysis, the table below shows that the most predominant elements are: personal problems, conscientious work attitude, good mood and perception of personal traits. 32 milica slijepčević, jelena krstić 2020/25(2) ����������� �� ���� ����������� �� �� ������� ���������� ���� ����� ������������� ����� �������� ��������� ��� � � ��� ���� ��������� ������� ���� ���������������������� ��� ���� ���� ��� ����� �������� � ��� ���� ���������� ���� ����� ���������������������������������� ��� � ���� ������ ����� �������� �������� � �� � �� ��������� � � �� �� �� ��������� � �� �� �� �� ���������� � �� �� �� �� ������������� � �� �� �� �� ����������� ��� � �� �� � table 2: assessment of relationships and general atmosphere in the working environment when asked to assess the care and concern of the organization for its employees and their families, only 12.5% of the respondents were satisfied, indicating that the employees do not perceive their organization as caring enough. table 3: employees’ assessment of care and concern of the organization for its employees and their families among the proposed elements, the employees were asked to choose the most valued ones in their organization. we can observe that there was a considerable discrepancy between the own values of employees and what they think their colleagues’ value in the organization. for example, while emphasizing the values such as expertise at work, readiness for cooperation and assistance and/or efficiency in the execution of tasks, on the one hand, the employees, on the other hand, think that their colleagues most value loyalty to superiors, obedience and educational background. this discrepancy makes it more difficult to identify prevalent values in the company, posing dilemma whether to analyse the most valued elements according to each interviewed employee or what he thinks his colleagues value most. christensen and wright suggest that for public service motivation, person-job fit may play a more important role than the person-organization fit (christensen and wright, 2011). research results of moynihan and pandey suggest that employees who experience a strong person-organization fit in terms of value compliance are more likely to make a long-term commitment (moynihan & pandey, 2008). study found that psm 33 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) �������� � ��� �� �� �� ����� � �� ������ �� � ����� ����� ����� ������ ��������� � � ��� �� ��� �� �������� � �� ��������������������� ����� ����� �� ����� � �� ���� ������� ����� ��� ���� � ����� ������ ��������������� �� ��� ����� �� �� !� �"��� #� �� �� ��� ����� $� �� �%����� ������ � ���� ����� �&��� '��� � ����������� ��� ������� ��(��� � ����� �)��� * � %����� ����� #�+��� ����� ������� ���� &���� ,�����!�����%��������� &���� ����������!� �������� �����!� &���� '�� ����� ������� �����%���� &)��� $��� ��� ���������%������ ������!���� &)��� $��� � ���� ���� )���� #��� -� � �%� )���� .� � +��� ������ )���� /�+!��� ���� ��� )���� 0�� �!��� � � ���������� )���� 0%%���� ����� � ��� ��� ����� * ���� �� �%� ����� 1 � � +������� �2��� 3�%� %����� ����� * ����� �%���� ��� ���� � ���������� ��� ��� ���� ������� ��� �� �� ����� ������������� � �������������� ����� ��� ������ ����� ���� �������� �� ��� � ��� ��� � �� ��� ����� ������� ������������ � �� ����������������� �������� � �� ������ ����� ����� ���� ��� ��������� ���� ����������� ����� ���� ���� ������ �� ����� �� ����� ! ��� ������� �� ��� ������������������ � ���� ���"� #����� ��$� %��&��'��(� ��"� ) ������ ��(��� ��� � had no significant direct impact on the performance of public employees, person-organization fit taken into account (, 2007). table 4: personal values and guess of what is valued by co-workers in the company table 5 shows that the majority of respondents feel trust and safety in their company and we can conclude that the sense of belonging to the organization is highly developed. baker, rapp, meyer and mullins find that providing brand-specific information directly to frontline employees increases their identification with the brand (as evidenced in perceptions of firm authenticity) and enhances their internalization of brand values (baker, rapp, meyer & mullins, 2014). table 5: sense of loyalty to the company table 6 shows that the oportunity to apply their knowledge and skills is the greatest motivation for respondents. however, other factors also encourage employees to work effectively. on the other hand, demotivators for more than a third of respondents are factors such as unfair reward system (highlighted as the most significant demotivating factor) followed by bad interpersonal relations and unsatisfactory entrance salary. kultalahti and liisa viitala argue that an interesting, varying and flexible job and/or good relations with colleagues and supervisor are the most important elements that influence the motivation of employees (kultalaht & , 2014). another study discovered that employees’ motivation in organizations depends on granting incentives, benefits, concrete rewards and recognition (zeb, ur rehman, saeed & ullah, 2014). 34 milica slijepčević, jelena krstić 2020/25(2) ������� �� ��� �� ����� �� ���� �� �� �� �� ����� ��� ����� ��������� ��� �� ������� �� ��� �� ��� �� ������ ������� � �� � �� ���� ���� ���������� �� ������� � � �� � ���� ���� ������� � � � ������ � ��� � � ����� �� ���� ������ � �� � ���� ���� ������� �! ��"�#���� ���� ��� $ �� �� ���"��� ���� �%�� ������� ��" &���#� ��� �'�� '��� �� ������"�� ���� ���� (��#�) � ��*��� �� �)� � ����� �'�' ���� +�"�,��������*� ��� ������*��� ''�' ��' ( ��"�� � ����#�� ��� ���� -&������� ��� ���� �� � � �&�"��� �� � �� �%�� ���� . ��"����� ��� � ���������*��� ���� ���� -�)�� ��� ��� ��������� �� �� �� ��� ��� ��� ���� �������� ��������� ��� �� ������� ��� ���������������� ������������ ���������������� ����� ��� � �������������� ��� ������������������ ��� �������� ���� ����������� ������ ����� �������������� �� ����������� ������� ��� ������ ������������� ��������������������� ��!��� ���������� "�#� $� ��� ���� %�� ������ ���� �&� � table 6: motivators and demotivators of employees’ performance table 7 shows that half of the respondents think that no special incentives are applied. the respondents highlighted the importance of verbal recognition and financial compensation for fulfilled tasks and well-done activities. table 7: evaluation of employee incentive system table 8 shows that the respondents are mostly satisfied with general attitude towards their private and professional life. in view of the satisfaction grading (0 for extreme dissatisfaction to 6 for complete satisfaction), it can be concluded that the employees are partially satisfied with different organizational aspects and least satisfied with the possibility of promotion within the organizational hierarchy. table 8: self-assessed satisfaction with different aspects of personal life and work 4.2 relationships between observed variables in order to further analyse the relations between observed variables, crosstab analysis was carried out to study the respondents’ attitudes on interpersonal relationships and general atmosphere in the working environment (aspects of organizational culture and climate), as well as the respondents’ answers on the assessment of effective utilization of working hours and professional capabilities. 35 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) ������� ���� � ������ ���������� ������������ �������� � ������� ����� ����� ����� ����� ����� ��� ������������ ���� ��������� ��� ����� ���� ����� �������� � ������������ ��� ���!��"������ ����� #���� ����� $� � "� ������"��� � ���� ��� � #���� ����� % �������� ����� ����������"������� ����� #���� � ��� &�����"���� �� � � ��� # ��� '���� ����� (�� ����������������������� �"�� ����� #���� '���� )����������� ��� �� ���� ����� '���� '���� *� �������� ��� �'�'� ����� #�� � ������ �'��� '��� '��� � �������� �� � ��� ������ ���� ���� ������� � � ������������ ���� � ����� �������� ������������ � � ���������������������� ����� �� �� �� ����������������� ��!�"��#� �� ������ �� $��%� ������������ ���� � $%��� &� � ���������������� ��%� &�������� %��� ����������������� '��� &��� ������� �� ������� ����� (���� � ��������������� ���� ��� ��� �� � ���� ����� � ���������� � �� ������� ��� �� ����� ������ ����� ��� �� ����� ������ ���� �������� �� �� ��������� �������� �� ���� ��� !� �� � ��"��#� ��� ��#���#� $��% #��������� �� $��% � �#� �� ��& ���! '���� �������� ������ ���� (����������� �� ������ $����� �� �� ���)������ ���� ���&�& ���� *� ��" ��!&�� ���� +������������ ��� ����������� ������� ��� ��� �)����� �� %��$ �� � ��� �%� � ����&� ���� +������������ �� ���� �� ��� #����� ����� !�&�� ���� table 9: effective utilization of working hours in relation to the aspects of organizational climate as regards the climate in the observed company, this research showed that the aggression and tension invaded a daily routine and much affected the respondents in fulfilling their job tasks. this means that each of the respondents faced a form of aggression and tension in his daily work. the long-time promotion of personal issues as part of the corporate culture and the atmosphere of revanchism have certainly affected the company climate. in the years of frequent political changes, the political impact on leadership and on the staff selection often had a revenge-seeking trait. table 1 rather reflects the perception of employees of effectively spent working hours. table 9 refers to the climate in the company during the working hours, regardless of the hours spent in effective work. the respondents feel pressure, aggression, tension and revanchism outside the working hours, as well. statistically, the study revealed significant differences in the way the respondents perceive effective utilization of professional capabilities depending on the following aspects of organizational climate: negligence, conscientious attitude toward work, envy and malice, aggression and tension, favouritism and connections, harmony among people, diligence, people are preoccupied with personal problems and vindictiveness. table 10: effective utilization of professional capabilities depending on aspects of organizational climate the authors also analysed the discrepancy between respondents’ own appreciation of work aspects and their guess as to how their co-workers, other employees, appreciate the same aspects. in the cross tabulation and crosstab analysis of respondents’ answers to each of the fourteen aspects, a statistically significant difference was found (.05) in five cases. 36 milica slijepčević, jelena krstić 2020/25(2) � ��������� ��� ���� ������� �������� ��������� ���������� ���� ������ �� �������� � �� � ������ � � � � � � �� �� � �� � � � � � � � �� � � � � � � ���������� �� ������������� �������� ������ ���� ��� ���� ��� ������ �� ���������� ��� ������� ��� ���������� ��� ����������� ��� !������ ����� "��"�� ��# $�������� ��% &��"�� ��� "������"��� ���' "������� "��(���� ��) *������������� �%� � ��������� ��� ���� ������� ����������� ���������� � ��� ���������� ���� ������ �� �������� � �� � ������ � � � � � � �� �� � �� � � � � � � �� � � � � � � ������ ��� � ��� ����������� � �� ���������������� � �� ��� �������� ���������������������� � � ���������������� � � !��������� � � "##�� ����������� ���� � � ��������� ���������������� � � �� $�����������#�������� � %� "��� �&�����''������� � �� (���#����� � � )���� ����������� ������ � ������*��������� � � ��� +�� �����'������ � �,� )������ ������������ ��#� � � %� -������������������������� ���� ��������.��� � � � � /����������� � � � �����0'�����#� � �� table 11: significant discrepancy between personal perception of prevailing values in the organization and the guess of what co-workers value the authors analysed the relationship between different factors and the factors that the company employees most appreciate to identify the connection between the motivators/demotivators and the appreciated aspects. in the crosstab procedure between each pair of motivating and demotivating factors, on the one hand, and evaluated aspect, on the other, a significant correlation was found in 16 out of 140 pairs of factors and aspects. these results lead to the conclusion that, in the majority of cases, factors that motivate or demotivate employees are not connected with the aspects that the employees value in the company. regarding the overall job satisfaction, the authors performed a descriptive analysis with the arithmetic mean of 24 points (in the theoretical range of 0 to 42 points) indicating a medium satisfaction level. if one compares the overall job satisfaction to general variables, he can note a significant difference depending on the respondents’ hierarchical position; job satisfaction of respondents at managerial positions is on the average by 3 points higher than that of other employees. a positive, low (.274) and significant correlation (at .01) was observed between the overall job satisfaction of the respondents and their perception of the fact that they are employees of a particular organization. 5. discussion the presented data show a set of findings relevant for the observed organization. the average employee’s mindset focuses on personal expertise at work, so the greatest motivator for most of the employees is the possibility to apply their knowledge and skills. findings indicate that, although the employees were not satisfied with the level of care and concern of their organization for them, they still had a highly developed sense of belonging to the organization. perception of the effectiveness can and should relate to other factors. for example, de marco and lister elaborate on the ratio between the “body time” and “brain time”, that is between the time when people are barely present, have low focus and linger through the tasks and the time when they are fully focused and solve problems effectively, in a “flow” (mihaly csikszentmihalyi) (measured by employees’ perception of utilization of working hours and professional capabilities). the authors showed that the ratio is influenced by a huge number of organizational culture and climate factors, mostly the ones with a negative context. the findings were in line with the hypothesis h1, stating that various aspects of organizational culture and climate have different impacts on the perceived organizational effectiveness. evaluation of effective utilization of working hours relates significantly to the aspects of organizational climate that reflects the inhumane and unethical attitude of employees (negligence, envy and malice, aggression and tension, favouritism and connections, preoccupation with personal problems and vindictiveness), with only a few aspects relating to a well-done work (conscientious attitude to work, harmony among people and diligence), which coincides with some previous research (kwantes & boglarsky, 2007). this confirms the hypothesis h2, indicating that organizational effectiveness is more strongly affected by factors of organizational culture and climate of a negative context than by those of a positive context. the evaluation of utilization of professional capabilities is noticeably connected with the same aspects of organizational climate that reflect inhumane and unethical attitude of the employees (envy and malice, aggression and tension, favouritism and connections, apathy, indifference, preoccupation with personal problems, vindictiveness and fault-finding). the researchers found this in agreement with previous research conducted by waterman (1992). however, the evaluation of effective utilization of professional capabilities also relates to the perception of predominant aspects of organizational climate that reflect relations with colleagues and with the job itself (friendship, solidarity, initiative at work, good mood, realistic wishes and expectations, faith in the future, readiness to accept changes). since the research confirmed both special hypotheses (h1 and h2), we can conclude that the general hypothesis was confirmed as well. 37 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) � ��������� ��� ���� ������� ����������� ���������� � ��� ��� ������� ��� ���� ������� �� �������� � �� � ������ � � � �� �� �� �� � � � � �� �� �� �� �� �� ���� ��� �������� ��������������� ����� �������� ������� ����� ��� ���������� �������� ����� �������������������� ������������ ��� � !� ��� ��"#� � references [1] baker, t. l., rapp, a., meyer, t., & mullins r. 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(2016). relationship between organizational culture and organizational effectiveness a study of nurses in taiwan. studies in health technology and informatics. 225, 957-968. doi: 10.3233/978-161499-658-3-957 [42] zeb, a., ur rehman, s., saeed, g., & ullah, h. (2014). a study of the relationship between reward and recognition and employees job satisfaction: a literature review, journal of social sciences. 7 (2), 278-291. 39 management: journal of sustainable business and management solutions in emerging economies 2020/25(2) 40 milica slijepčević, jelena krstić 2020/25(2) [43] zheng, w., yang, b.y., & mclean, g.n. (2010). linking organizational culture, structure, strategy, and organizational effectiveness: mediating role of knowledge management. journal of business research, 63 (7), 763-771. doi: 10.1016/j.jbusres.2009.06.005 received: 2018-12-19 revisions requested: 2019-03-20 revised: 2019-09-09 (3 times) accepted: 2019-09-16 milica slijepčević metropolitan university belgrade, serbia milica.slijepcevic@metropolitan.ac.rs milica.slijepcevic@dunav.com dunav insurance company, belgrade, serbia metropolitan university, belgrade, serbia milica slijepcevic, ph.d, has worked for the last 12 years with "dunav osiguranje" insurance company, where she does a series of responsible jobs from project manager, pr manager to other management positions. she gained more than 20 years of valuable managerial experience in marketing, communications, public relations and management in both profit and non-profit sectors, and has achieved remarkable results. she is the founder and president of the ngo center for communication flou, ngo dedicated to improving communication in all segments, from strategic to operational levels of business. milica slijepčević, phd, is an assistant professor in the department for business and marketing at the faculty of management, the metropolitan university of belgrade, and in the department for fashion design at the faculty of digital arts, the metropolitan university of belgrade. jelena krstić economics institute, belgrade, serbia jelena.cvijovic@ecinst.org.rs jelena krstic holds a ph.d. in organizational sciences and works as a research associate and the member of scientific board at the economics institute in belgrade, serbia. her research interests are related to scientific fields of marketing communications, public relations and consumer behaviour. she has participated in various research projects in different economic fields. she has so far published one monograph and more than 40 papers in international and national journals and conference proceedings. 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice zeljko spasenic:tipska.qxd 1 željko spasenić*, dejan petrović, slađana benković university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming *corresponding author: zeljko spasenic, e-mail: zeljko.spasenic@fon.bg.ac.rs research question: the study researches the key success factors of a shopping mall project (sm) from the perspective of creditors in serbia. motivation: in serbia, the retail landscape has seen a continuous increase in the number of sms over the recent years. to support further development, project finance (pf) plays a significant role as an adequate financing structure for such projects. idea: existing knowledge highlights the importance of different factors for the sustainability of sm operation in the long run, describes their impact on project success, or offers potential solutions to a specific business problem. on the other hand, a question may be raised regarding the creditor’s ability to assess the quality of different investor decisions when deciding to finance a concrete project. data: research is based on the review of papers published in relevant international journals, while the presented case study is a real-life example from banks’ business practice. relative significance of different factors from the creditors’ perspective was established and confirmed by means of a survey among bank professionals. tools: research findings are derived from a case study and simple empirical research conducted among bank professionals in serbia. findings: results show that the most important elements of the project strategy which creditors consider relevant for project success in the long run are location and tenant mix. contribution: research results contribute to a better understanding between investors and creditors and may shorten the time needed for the credit approval process. key words: project strategy, project finance, shopping mall attributes, shopping mall location, tenant mix jel classification: g21, g32 key success factors of a shopping mall project: creditors perspective in serbia doi: 10.7595/management.fon.2022.0006 abstract: 1. introduction shopping malls (sm) attract increasing public attention because they are not only a shopping venue, but also an important aspect of the lifestyle of a city’s residents. apart from a purely consumer aspect, shopping in malls has a social component since a sm is considered an important and convenient venue for different forms of social interaction (kunc et al., 2022).to ensure return visits of customers, sms should meet their needs and expectations (anselmsson, 2016). serbian retail market is characterized by an increasing number of sms of various formats. this positive trend is expected to continue as the investors are attracted by a high occupancy rates and opportunity to position themselves in the market with positive outlook (cw-cbs, 2020). real estate development requires huge capital and sms are no exception. to support further development of sms, project finance (pf) plays a significant role as an adequate financing structure for real estate projects (gatti, 2013). pf is a funding method in which the lender looks primarily to the revenues generated by a single project as the source of repayment and as loan collateral (bis, 2020). pf is non-recourse financing that is entirely dependent on project performances. the main characteristics of pf in serbia, such as lender exposure to single project, special purpose vehicle structure, importance of investor reputation, and lender aversion to speculative projects are outlined in spasenic et al. (2019). extensive literature deals with factors influencing the attractiveness of sms and consequently the number of buyers attracted (gomes & paula, 2016). existing studies provide certain guidelines for investors on how to create sustainable business in the long run. according to our best knowledge, there is no research on key success factors from the perspective of creditors financing sm development. also, existing studies do not investigate if the creditors evaluate all or some of the elaborated success factors. in this context, the main contribution of the present study is the expansion of the existing literature on the topic from the new perspective. the study intends to shed light on key success factors of sm projects from the perspective of creditors in serbia. the following research question will be answered to bridge the identified research gap: what key success factors of sm projects are analysed by creditors during the credit approval process? this study represents a pioneering research on this topic. the starting point of our study is the existing literature with the focus on the factors influencing sm ability to attract as many visitors as possible to be profitable. those factors are examined from the perspective of the sm investor or the sm management. having in mind that those factors influence sm attractiveness and financial performance in a positive manner, we assume that the same factors are of utmost importance for creditors. finally, research findings are derived from a case study and simple empirical research conducted among banks in serbia. following the introduction, the second part provides a theoretical background and literature review. the third part of the paper outlines a case study, while the fourth part presents the research design and research results. the final, fifth part of the paper includes the concluding considerations and recommendations for further research. 2. theoretical background and literature review in this section we will elaborate on the most relevant sm success factors in existing literature. literature review by gomes & paula (2016) shows that architecture, mall internal orientation, parking, quality of products and services and tenant mix are the most important attributes of successful sms. according to pantano & dennis (2017), the main drivers of sm success are merchandise, store atmosphere, service quality, accessibility, and layout store format. some more recent research confirms those findings (idoko et al., 2019). initial research focused on the choice of location for sm development (for example, reilly, 1931). levy & weitz (2007) argue that retailers may be able to develop a sustainable competitive advantage through location strategy. when choosing the location, a large number of factors need to be analysed and considered, including, but not limited to the type of the sm, accessibility, physical barriers, competition, customer purchasing power and commuting time (wu et al., 2019). however, gahinet & cliquet (2018) state that the choice of location is important for frequentation, but it is not sufficient to generate customer loyalty. nebati & ekmekçi (2020) found that tenant mix is the most important factor for sm performances. calvoporral & lévy-mangín (2018) and dias (2020) also confirm the importance of adequate tenant mix for attracting customers. according to paul (2017) consumers prefer to shop in large malls because of the availability of the latest, well-known brands and discounted prices, which implies that service quality is not a primary factor. in addition, hamzah (2015), zhang et al. (2020) and xu et al. (2022) state that an optimal tenant mix positively contributes to gross rental income and retail sales income. lv & wang (2020) proposed a nonlinear optimization model for tenant mix layout but stated that their model is not intended to replace the decisions of the sm management. contrary to traditional portfolio theories, ambrose et al. (2018) found that the likelihood of mortgage default increased as tenant diversification increased. hence, creditors should favour real estate projects with a less diversified tenant portfolio. the quality of sm service is an additional important element. according to sit et al. (2003), sm services comprise personal and communal services. personal services refer to knowledge, hospitality and dedication of the staff working in the sm (teller & elms, 2010; singh & sahay, 2012), while communal services refer to the availability of different infrastructure amenities such as elevators, escalators, disability ramps, toilets and adequate signs facilitating visitor orientation (teller & elms, 2010). both types of services represent an “augmented product“ that supports merchandising (core product) and also add value to the total shopping experience (sit et al, 2003). 2 željko spasenić, dejan petrović, slađana benković forthcoming entertainment offered by sms is increasingly gaining in importance. as argued by sit et al. (2003), entertainment can be defined as a set of amenities offered by malls comprising three attributes essential to the sm image: specialty entertainment, special event entertainment, and food. the specialty entertainment is permanently available (e.g., movie theatres or children’s playrooms), while the special event entertainment is offered occasionally (fashion shows, concerts, promotions, etc.). against the background of universal digitalisation which inevitably affects purchasing habits of the population, researchers’ attention is increasingly focused on online purchase and its impact on different, conventional forms of shopping in physical facilities (hagberg et al., 2017; pantano & priporas, 2016). by combining all the above-mentioned elements, the investor should ensure sm attractiveness despite the negative influence of digitalisation on this form of purchase. 3. case study the purpose of this case study is to identify and quantify the influence of success factors on sm financial performance. based on the project description given in table 1, we have prepared pro-forma financials and discussed some of the possible implications. table 1: project description 3 management: journal of sustainable business and management solutions in emerging economies forthcoming item description investor the investor and founder of the project company is an eu company which is a professional real estate developer. at initiation project company assets consist exclusively of a land lot used for object construction. location and existing competition the sm is in central serbia. the city has a population of approximately 100,000 inhabitants including the urban core of 60,000 and suburban municipalities of 40,000 inhabitants. the existing offer includes a single sm in the central city street, which cannot be considered a modern facility due to its size and assortment of shops limited to local sellers, without globally recognised brands. lack of modern sms in the area indicates a good market position. compared to the malls in big cities, the estimated market potential spreads over a larger geographical area (up to 30 km), due to the lower population density and lower competition in secondary towns. project metrics the sm is of a simple, symmetrical square shape, with the total gross construction area of 5,500 m2 and net leasable area of 4,895 m2. all tenants are to be located at the same level, on the ground floor, with 108 exterior parking lots available to consumers. projected annual operating expenses are 95,000 eur. the sm building is the main immovable collateral for the creditor. tenant mix the tenant mix comprises maxi (anchor tenant), dm drogerie (pharmacy), deichmann, takko fashion, lc waikiki, koton (fashion retailers), planeta sport, intersport (sportswear retailers) and two cafés. the investor preleased 90% of the net leasable area. credit request the investor applies to the bank seeking pf for construction of the sm. the projected budget is 5,050,000 eur. the equity finance is 1,000,000 eur invested up front into the acquisition of the land plot while the sm construction is to be financed from a long-term investment loan. the loan amount is 4,050,000 eur split between the balloon portion of 2,250,000 eur and amortizing portion of 1,800,000 eur. the fixed interest rate is 4% annually while the loan tenure is 10 years. for balloon portion only interest is payable during the loan tenure. consequently, after 10 years the investment loan outstanding will be equal to the balloon of 2,250,000 eur. loan repayment plan is prepared using ms excel. rental and service charge income the weighted average monthly rent and service charge are 8.30 eur/m2 and 1.50 eur/m2 respectively. the expected occupancy rate is 90%. consequently, the annualized rental income is 438,788 eur (i.e., and the annualized service charge income is 79,299 eur (i.e., . the rental income and service charge income remain flat during the forecasted period. other quantitative inputs the sm is depreciated linearly with annual depreciation rate of 2.5% resulting in 101,250 eur annual depreciation cost (i.e., . the collateral market value (cmv) under assumption as if completed is 6,000,000 eur and remains unchanged during the forecasted period. zero inventories, trade receivables, trade payables, and dividend payments. the project is naturally hedged against foreign currency risk – both rental income and bank loan are indexed in eur and payments are monthly. ratios loan to value ratio (ltv) = outstanding loan amount / collateral value debt service coverage ratio (dscr) = (net profit + interest expenses + depreciation) / (interest expenses + principal repayment). the project profitability and liquidity are forecasted in table 2, while the pro forma balance sheet is presented in table 3. financial forecasts are the basis for creditor assessment of project liquidity by comparing nominal amounts in each project year to identify liquidity gaps and liquidity buffers. table 2: project profitability and liquidity forecast table 3: pro forma balance sheet according to project description and its projected performances, it is possible to analyse the project dependency on key success factors. the main conclusions are: 1. the project location strongly influences the future demand and sm size. apart from the size of the population driving the demand, the location determines customers’ purchasing power which depends on the average income per capita and the structure of consumption. this is confirmed in serbia since the biggest sms are in belgrade as a prime location with above average purchasing power (statistical office of the republic of serbia, 2021). the sm size directly determines the project cost that may impact the loan amount depending on equity contribution. 2. the location strongly influences the tenant mix. sms located in areas where inhabitants have belowaverage income should have a mix of tenants whose average prices match the purchasing power of the local population. for instance, inditex as one of the most attractive clothing brands in the world is present in only two cities in serbia, while deichmann and lc waikiki as more price affordable retailers are present in 23 and 17 cities, respectively (cw-cbs, 2020). 3. the location and tenant mix strongly influence the rent (hamzah 2015.; zhang et al., 2020; xu et al. 2022). an average rent in prime sms in serbia is significantly above the average rent in small sms and retail parks. in 2020 average rent in prime sms was 20-28 eur/m2 compared to 9-12 eur/m2 average rent in retail parks (data investment, 2020; cw-cbs, 2020). 4. the location influences project costs and operating expenses. the acquisition cost of land plot needed for sm construction, cost of construction permit, communal fees and taxes and other costs associated with project development may vary among different municipalities. also, there are some operating expenses that are location dependent. for example, labour costs or property tax may significantly vary between municipalities (republic geodetic authority, 2021). 4 željko spasenić, dejan petrović, slađana benković forthcoming in eur no. description year 1 year 2 year 3 year 4 year 5 1 rental income 438,788 438,788 438,788 438,788 438,788 2 service charge income 79,299 79,299 79,299 9,299 79,299 3 operating expenses (95,000) (95,000) (95,000) (95,000) (95,000) 4 depreciation (101,250) (101,250) (101,250) (101,250) (101,250) 5 earnings before interest and taxes (1+2-3-4) 321,837 321,837 321,837 321,837 321,837 6 interest expenses (159,281) (153,193) (146,858) (140,265) (133,403) 7 earnings before taxes (5-6) 162,556 168,643 174,979 181,572 188,434 8 tax (7·15%) (24,383) (25,297) (26,247) (27,236) (28,265) 9 net profit (7-8) 138,173 143,347 148,732 154,336 160,169 10 net profit margin [9/(1+2)] 27% 28% 29% 30% 31% 11 cash available for principal repayment (9+4) 239,423 244,597 249,982 255,586 261,419 12 principal repayment (149,409) (155,496) (161,831) (168,424) (175,286) 13 net cash flow (11-12) 90,014 89,101 88,151 87,162 86,132 14 dscr [(9+6+4)/(12+6)] 1.29x 1.29x 1.29x 1.28x 1.28x 15 ltv (loan outstanding / cmv) 0.65 0.62 0.60 0.57 0.54 assets year 1 year 2 year 3 year 4 year 5 land 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 sm 4,050,000 4,050,000 4,050,000 4,050,000 4,050,000 accumulated depreciation (101,250) (202,500) (303,750) (405,000) (506,250) cash 90,014 179,115 267,265 354,427 440,559 total 5,038,764 5,026,615 5,013,515 4,999,427 4,984,309 equity and liabilities year 1 year 2 year 3 year 4 year 5 equity 1,138,173 1,281,520 1,430,251 1,584,587 1,744,756 bank loan 3,900,591 3,745,095 3,583,264 3,414,839 3,239,553 total 5,038,764 5,026,615 5,013,515 4,999,427 4,984,309 5. the location influences the market value and the marketability of collateral. a collateral can increase the security of repayment and reduce the need to monitor the borrower and the associated costs (imf, 2020). a high quality collateral (i) has stable value, (ii) is liquid, and (iii) can be easily enforced. the first and the second characteristics are location dependent (republic geodetic authority, 2021) while the third depends on collateral legal aspects (schuijling et al., 2019). 6. pro forma financials indicate that creditors are unable to quantify the impact of various success factors that contribute to sm attractiveness. for instance, the quality of sm service, entertainment offered, quality of labour and some other factors from section 2 remain out of the detailed analysis. 7. the sm performances are not strongly dependent on working capital management. this is particularly the case if rent agreements with tenants are covered by bank guarantees. 8. the dscr above 1.20x confirms satisfactory liquidity of the project (naumenkova et al., 2020) providing >20% nominal liquidity buffer for loan repayment in each year. 9. ltv is commonly used as indicator of financial leverage and credit risk of the transaction (bian & lin, 2018; lin 2014). in the case of default, a higher ltv means that collateral is less likely to cover the outstanding loan balance at a foreclosure sale. decreasing ltv shows improving collateral position, but ltv is strongly dependent on the assumption that cmv remains flat during the forecasted period. the discussion presented above may be incomplete and biased since it displays only a quantitative output of credit risk analysis while a credit application and a credit risk assessment may contain additional qualitative judgments. with the aim to empirically investigate the importance of the identified success factors for creditors when making the final credit decision, we conducted a research presented in the following section. 4. creditors’ attitudes towards critical success factors of shopping mall projects in serbia 4.1 survey design the survey is conducted using an online questionnaire in a tabular form sent to bank employees. the listed factors are based on literature review and conclusions from the presented case study. banks and respondents were selected as follows: 1. based on an internet search of web pages of top ten banks by their size we eliminated the banks which do not offer pf as a separate banking product, 2. based on an analysis of balance sheets and notes to financial statements of sms of various formats we identified banks which financed this type of projects. the instructions for filling in the questionnaire were as follows: analyse the smpf application. assign each of the given factors a grade 0 to 5. these grades indicate the extent to which the given factors are analysed in the loan application process for smpf or in refinancing of the existing loan. the scale for assessment of individual factors was the following: 0 – not analysed at all, i.e., the factor is not considered relevant in the loan approval process and pf decision-making. 5 – analysed in detail, i.e., the factor is considered highly relevant in the loan approval process and pf decision-making. a total of 25 responses were received from five different banks. as presented in table 4, these banks account for more than 50% of the market share. the survey included 10 relationship managers, 11 credit risk managers and 4 credit restructuring managers. the received responses reflect the professional opinions of participants and do not necessarily reflect the bank’s credit policy in pf. table 4: list of five banks whose employees participated in the survey 5 management: journal of sustainable business and management solutions in emerging economies forthcoming bank total balance sheet assets, net (in 000 rsd) % market share banca intesa a.d. beograd 761,325,471.00 15.43% otp banka srbija a.d. novi sad 640,035,884.00 12.97% unicredit bank srbija a.d. beograd 530,289,664.00 10.75% komercijalna banka a.d. beograd 484,044,572.00 9.81% erste bank a.d. novi sad 309,639,239.00 6.27% others 2,209,864,368.00 44.77% total 4,935,199,198.00 100% 4.2 results based on the received responses, we calculated the average grade for each of the analysed factors and ranked them accordingly. in addition, median, minimum, and maximum grades are calculated. the results are presented in table 5. table 5: relative significance of factors for the assessment of credit potential of pf of sm construction. based on the results obtained, we may derive the following conclusions: 1. from the creditors’ viewpoint, the most important factors which determine sm success and which are analysed in detail in the loan approval process are the location of the sm and characteristics of the largest tenant. 2. following are the factors directly associated with the (i) choice of location – catchment area, competition, purchasing power of potential visitors and (ii) tenant mix – level of agreed rent, preleasing contracts, and tenants’ financial status. 3. factors with more tangible influence on sm financial performances (e.g., rent level, occupancy rate, purchasing power of prospective customers, etc.) are perceived to be more important than soft factors (e.g., customers’ preferences or quality of future services). 4. moving from the top ranked factors to the lower ranked ones, dispersion of obtained answers increases. this might indicate that creditors have different tools and methodologies to analyse the impact of certain factors on sm performances. 6 željko spasenić, dejan petrović, slađana benković forthcoming no factors potentially determining sm success average grade mode median min max 1 sm location 4.92 5 5 4 5 2 anchor tenant 4.80 5 5 4 5 3 pre-agreed rent in preleasing 4.76 5 5 4 5 4 preleasing contract (firm/soft contract; security for rent payment, penalties in case of contract termination and notice period) 4.72 5 5 4 5 5 catchment area 4.68 5 5 4 5 6 competition 4.64 5 5 3 5 7 investor’s reputation and experience 4.56 5 5 4 5 8 tenants and their financial status 4.48 5 5 3 5 9 size (construction measures) of the sm and whether it matches potential demand 4.44 5 5 3 5 10 tenant mix (brands, price range) and whether it matches potential demand 4.40 5 5 2 5 11 purchasing power of potential visitors of the sm 3.96 4 4 2 5 12 availability of entertainment amenities (playrooms, movie theatres, etc.) 3.28 3 3 0 5 13 availability of food and beverages (restaurants, cafeterias etc.) 3.16 2 3 0 5 14 sm security for visitors 3.12 4 4 0 5 15 sm interior (layout, lighting, ease of moving inside the sm, escalators, elevators) 3.08 2 3 0 5 16 preferences of potential consumers (tastes, habits, expectations) 3.04 3 3 0 5 17 exterior (architecture) of the sm 2.72 2 3 1 5 18 shopping trends (development of online sale and its impact on traditional sale channels) 2.68 3 3 0 4 19 sm accessibility for persons with disabilities 2.04 3 2 0 5 20 quality of the future service (hospitality and expertise of the sale staff, availability of information etc.) 1.48 0 2 0 3 5. some respondents confirm that certain factors are not analysed at all. the reason might be that the contribution of those factors to sm performance is very complicated to quantify for creditors (e.g., sm security for visitors, sm interior, preferences of potential customers, etc.). also, a detailed analysis of those factors might be time-consuming and requires additional resources (e.g., market analysis reports or technical reports prepared by third parties) making the credit approval process more complicated and imposing additional costs for both the creditor and the borrower. the importance of the location and catchment area is confirmed by wu et al. (2019). further, gould et al. (2002) show that a greater presence of anchors in a mall directly increases sales, and consequently the rents of non-anchor stores in a mall. the tenant mix and anchor tenant as contributing factors to retail rents are confirmed by more recent research such as xu et al. (2022) and calvo-porral & lévy-mangín (2018). the research results are in line with other studies reviewed in the second section of this paper. due to a lack of literature covering this topic from the creditors’ perspective, some of the research results should be challenged in future research. references [1] anselmsson, j. (2006). sources of customer satisfaction with shopping malls: a comparative study of different customer segments. international review of retail, distribution and consumer research, 16(1), 115-138. [2] ambrose b., shafer m., & yildirim y. (2018). the impact of tenant diversification on spreads and default rates for mortgages on retail properties, the journal of real estate finance and economics, 56(1), 132 [3] bian, x., lin, z., & liu, y. (2018). house price, loan-to-value ratio and credit risk. journal of banking & finance, 92, 1-12. [4] bis., (2020). calculation of rwa for credit risk. retrieved from: https://www.bis.org/basel_framework/chapter/cre/20.htm?tldate=20220101&inforce=20230101&publis hed=20201126 7 management: journal of sustainable business and management solutions in emerging economies forthcoming the research findings of this study show that the most important elements of an sm project typically analysed by creditors are the choice of location, tenant mix and rent level. other elements, which undoubtedly impact sm performance remain outside a detailed creditor’s analysis. this study confirms that investors and creditors are interested in similar factors, but the creditors do not consider them as equally important. therefore, this study expands the existing literature related to the pull factors of sms that are examined from a new perspective. research results contribute to a better understanding between investors and creditors and may shorten the time needed for the credit approval process. when requesting project financing, investors should provide detailed information about project characteristics that are of greatest importance for creditors. this study reveals that creditors omit certain factors that may significantly influence sm financial performances. for instance, the development of online sale and its impact on traditional sale channels does not attract much attention during the credit approval process. we believe that this factor deserves more attention in the era of the 4th industrial revolution, especially since the financing of sm development requires a long-term financial commitment by creditors. this study is not without limitations. it is based on the experience of banks operating in the serbian market and responses of only 25 professionals. therefore, the conclusions are cautionary. this limitation is partially mitigated by the fact that local banks operate in compliance with the group-wide credit policy, especially in case of more complex financial structures such as pf. however, it remains an open question to what extent the group’s credit policy is relativized to adjust to the local markets. these limitations leave room for future research which should focus on comparing pf practices of banks operating in the neighbouring countries. additional efforts should be invested in exploring creditors’ familiarity with different trends that gain importance against the background of the 4th industrial revolution. conventional approaches to pf become unsustainable in the long run, which calls for the development of a new methodology for pf credit risk assessment in the era of digitalisation, e-business and online sale. acknowledgments: the authors are very grateful to two anonymous reviewers of this paper for their valuable comments and insights. conclusion [5] calvo-porral, c. & lévy-mangín, j. p. 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[34] xu, y., yiu, c. y., & cheung, k. s. (2022). retail tenant mix effect on shopping mall’s performance. marketing intelligence & planning. [35] zhang, s., van duijn, m., & van der vlist, a. j. (2020). tenant mix and retail rents in high street shopping districts. the journal of real estate finance and economics, 1-36. received: 2021-11-22 revision requested: 2022-01-06 revised: 2022-04-01 (2 revisions) accepted: 2022-04-08 željko spasenić university of belgrade, faculty of organizational sciences, serbia zeljko.spasenic@fon.bg.ac.rs zeljko spasenic is a phd candidate and teaching assistant at the faculty of organizational sciences, university of belgrade. his research interests are related to corporate finance, business analytics, project finance, and credit risk management. prior to his engagement at the faculty of organizational sciences, he worked as a risk manager in erste bank, unicredit bank, and societe generale bank. he has experience as a credit risk manager overseeing structure finance deals, project finance deals, and the financing of renewable energy sources. after the banking industry he gained experience as erp application consultant and digital transformation consultant in various industries. dejan petrović university of belgrade, faculty of organizational sciences, serbia dejan.petrovic@fon.bg.ac.rs dejan petrović is a full professor and head of department of management and project management at the faculty of organizational sciences, university of belgrade. he is also a visiting professor at several universities in the country and abroad. his research interests include management, project management, strategic management, project appraisal and change management. he has been a consultant for a wide variety of public and private organizations, and he has published books and articles in refereed journals. slađana benković university of belgrade, faculty of organizational sciences, serbia sladjana.benkovic@fon.bg.ac.rs slađana benković, phd. is a professor at the faculty of organizational sciences at the university of belgrade, and head of the financial management and accounting department. she published over 100 articles and papers in 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05 26_2 oualid abidi:tipska.qxd 55 oualid abidi1, vladimir dzenopoljac2*, aleksandra dzenopoljac3 1school of business, australian college of kuwait 2college of business and economics, united arab emirates university 3independent researcher, kuwait management: journal of sustainable business and management solutions in emerging economies 2021/26(2) discussing the role of entrepreneurial universities in covid-19 era in the middle east doi:10.7595/management.fon.2021.0014 abstract: 1. introduction the evolving context of higher education encourages universities to adopt an entrepreneurial mindset, and this depends on the quality of the entrepreneurial capabilities of the personnel (felgueira & rodrigues, 2020). the rising interest in entrepreneurial doctrine among universities originated from the changes in academic culture and environment which stresses upon the importance of creating value at all levels of activity (urbano & guerrero, 2013). the creation of spin-offs helps universities commercializing their research outcomes and stimulate economic activity accordingly (fini, fu, mathisen, rasmussen, & wright, 2017). * corresponding author: vladimir dzenopoljac, e-mail: vladimir.dzenopoljac@aum.edu.kw research question: this conceptual research explores the role that academic entrepreneurship can play in middle eastern countries in addressing the effects of covid-19 pandemic in the region. motivation: entrepreneurial universities are pivotal in contemporary economic systems due to their significant contributions in innovation efforts. part of their mission is seen in the commercialization of their scientific knowledge through the creation of spin-offs (cvijic et al., 2019; o'shea et al., 2005; rodrigues et al., 2019). the challenges and constraints imposed by the covid-19 pandemic have demonstrated the importance of coordinating the efforts of all parties including those of entrepreneurial universities in order to develop vaccines and generate healthcare solutions which could be patented and commercialized afterwards. hence, this paper identifies the factors which can reinforce the entrepreneurial insertion of universities and increase their capacity in supporting collective efforts aiming at combatting the covid-19 aftermath. idea: based on a review of recent literature, the purpose of this conceptual study is twofold: identify the predictors and the success factors of academic entrepreneurship; and argue for research propositions that could guide future empirical research. in addition, this paper provides insights into the current evolution of the entrepreneurial experiences of middle eastern universities. data: this explorative research was based on an extensive literature review of the core aspects relevant to academic entrepreneurship. recent references published in peer-reviewed scholarly journals with the primary focus on the middle east or other developing economies were targeted in order to build up the conceptual model revolving around nine research propositions. tools: selected references were reviewed and categorized around the mainstream themes identified by the authors, i.e., impact of entrepreneurial universities, antecedents of academic entrepreneurship, and its success factors. for each block, several research propositions were derived and presented. findings: the literature review findings argue for the potential role that specific factors can play in promoting the entrepreneurial engagement of middle eastern universities, namely the national institutional framework, an easy access to funding sources, the existence of interrelations with local organizations and the quality of the university’s organizational infrastructure. the conceptual framework assumes also that the performance of entrepreneurial universities would depend on the number and quality of relationships with the industry, the support of venture capitalists and the intensity of their entrepreneurial and market orientations. contribution: this research contributes essentially in underlining the growing importance of academic entrepreneurship and how it can be a rewarding choice for middle eastern policy makers. keywords: entrepreneurial university, academic entrepreneurship, spin-offs, covid-19, middle east, venture capitalists jel classification: i23, l26 the adoption of the bayh-dole act in the united states in 1980 allowed universities to use their intellectual property rights to conduct entrepreneurial activities and link them with economic development (guerrero & urbano, 2016). despite the considerable attention that universities are devoting to academic entrepreneurship (bezanilla, garcía-olalla, paños-castro, & arruti, 2020), they still face obstacles, i.e., knowledge filters, which restrain the effective dissemination of their knowledge into the economy (audretsch, 2014; hayter, 2013). such spillovers are necessary to stimulate innovation and economic growth. as a result, universities started to adopt more entrepreneurial mindsets so they should facilitate the commercialization of their knowledge for a wider use in the society (audretsch, 2014). the concepts of academic entrepreneurship, or entrepreneurial university, refer mainly to the creation of university spin-offs and academic start-ups with the knowledge and the intellectual property developed by academics (cvijic, tatarski, katic, vekic, & borocki, 2019; o'shea, allen, chevalier, & roche, 2005; rodrigues, ferreira, & felgueira, 2019). for instance, american universities are commercializing their knowledge and generating spin-offs of technology-intensive companies notably through the business ventures created by faculty. those universities keep increasing their entrepreneurial commitment as they cumulate successful experience in managing their spin-offs. also, public and private funding in science and engineering – especially life science, chemistry and computer science disciplines, greatly supports those university spinoffs (o'shea et al., 2005). as a matter of fact, entrepreneurial universities display higher mobilization for research and cooperate more vigorously with the industry. they usually opt for unconventional approaches while effectively abiding by university policies (cvijic et al., 2019). academics from higher educational institutions are classified into five categories based on their entrepreneurial behaviours: downers, achievers, followers, defenders, and rebels. although their percentage is the smallest, achievers are the most agile entrepreneurial type of academics. they are particularly committed to industry collaboration and research mobilization, which allows the extrapolation of knowledge creation and innovation to a larger scale. achievers exceed other clusters also in regard to unconventionality and compliance with university policies (rodrigues et al., 2019). this type of academics is the main driver of these spin offs and possess the highest importance in resolving the covid-19 pandemic. some of the main referenced research studies are mentioned in table 1, with relation to the explored perspectives. table 1. overview of related work 56 oualid abidi, vladimir dzenopoljac, aleksandra dzenopoljac 2021/26(2) �������� ����� ����� ���� ��� �� �� �� ����� ����������� � ����� �� ���������������� ����� ���������� � ����� ������� ������ �� !���"�#$ � �� !������ � %�&�� ����'�� (� �� )����� � ���� � *������ ������� (���� (�� +�������� ,�� ������ � -��.�� ����/�� +������� 0�� �� #+���� � ,�&� ����/� 1�� �� ��� � � �������������� ����2����� &3 ���2�������� ������� �������� 3 � ��� �4������� � � ���5#��5��. �������� ��� � �� ����2� ������ � �. ������� � ��3 �5���6 ��2��� ���� ���� �� ��� ��������� �� ������� �� � ����� �� �������������� ������� �� ��6.6� . 2��� ��� ���� ��� ��2 2� ��� 7��� ��� �������3� ������� ������.�� ��� �.������� �� ���� ���6 0����� � � ���2�����3 ����# ��� ��������� ����8�� 02����� 1�����5�� 9����� )�5��� � � � �5� ������� (���� (�� +�������� ,�� ������ � -��.�� ����/�� !������ � %�&�� ����'�� $:����� � ��� 0��2� ���� � , ��� ����;�� , ���.���� (�������� � (� .����� ������ ����� �� ���������������� ��5�� � ��� ��� �.� ��������. ��� � ����� ����� � � �������� ��� ��6 1�� �������������� ��.�.� ��� � ���2�������� �� ���� ����� 3 �� &3 ����� �� ����� � &���6 research has also demonstrated that the proactiveness of business schools’ management is positively correlated with the entrepreneurial orientation of education institutions (ball, 2019). therefore, the aim of this conceptual research is to develop hypothetical propositions which could advise policy makers in the middle east and other developing regions on how to enhance the entrepreneurial engagement of local universities as part of a large-scale response to covid-19 repercussions. the emergency created by the pandemic has indeed caused a surge in the number of inventions in different nations including developing countries (harris, bhatti, buckley, & sharma, 2020; mathew & mathew, 2020). universities – as other research institutes and pharmaceutical companies – were an integrative part of those initiatives. numerous scientists were called upon by government officials to lead research groups on vaccines and remedies to stop the progression of the virus and heal the infected people. in addition, university scientists were keenly working on developing other sorts of solutions to support the forefront personnel who is directly combatting the virus, e.g., ventilators, masks, sterilization tools, rapid testers, etc. the contributions of this research can be sensed in different aspects. firstly, this manuscript is an attempt to highlight the significant impact that universities can have in regard to innovation efforts and national economic growth which are necessary during pandemic times. according to cvijic et al. (2019), universities in developing countries need to abandon traditional research-based paradigms and embrace more entrepreneurial business models closely intertwined with the economic reality and likely to derive entrepreneurial activities initiated by academics (cvijic et al., 2019). additionally, our study provides important insights into the origins, the predictors, and the success factors of academic entrepreneurship. those insights are recapitulated as research propositions which could serve as guidelines for effective management of entrepreneurial universities in the middle east. the development of research propositions could serve as a basis for local policymakers to grasp their existing potential and promote consequently the culture of entrepreneurship beyond the mere education and training programmes delivered through universities and other institutions. 2. the entrepreneurial university as a driver of economic growth and competitiveness entrepreneurial universities are at the centre of the concept of the quintuple helix which refers to the intensive cooperation between different actors in pursuit of highly impactful innovations. those interrelations take place between universities, companies, governments, societies, and environments (kawamorita, salamzadeh, demiryurek, & ghajarzadeh, 2020). as a matter of fact, entrepreneurial universities significantly contribute to regional socioeconomic development (urbano & guerrero, 2013; miranda, chamorro-mera, & rubio, 2017). entrepreneurial universities act as a channel of knowledge dissemination and support economic growth and job creation (hayter, 2013). the emergence of entrepreneurial universities mirrors the development of the role of the university which has evolved to align with the evolution of the economic system. the latter progressed indeed from an economy-based on the exploitation of physical resources to a knowledge-based economy, then into an entrepreneurial society. in this regard, entrepreneurial universities 57 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) perspective explored studies main insights contribution of academic entrepreneurship into social and economic development aaboen, laage-hellman, lind, öberg, & shih (2016); kawamorita, salamzadeh, demiryurek, & ghajarzadeh (2020); hayter (2013); miranda, chamorro-mera, & rubio (2017); urbano & guerrero (2013) academic entrepreneurship is likely to stimulate the economic activity mainly through technological spillovers and knowledge dissemination. collaborations with local actors are portrayed as a key characteristic of entrepreneurial universities. success factors of academic entrepreneurship franco-leal, camelo-ordaz, fernandez-alles, & sousa-ginel (2019); fuster, padilla-meléndez, lockett, & del-águila-obra (2019); hayter (2013) deep-seated networks with entrepreneurs and industrials are likely to support the success of university spinoffs. also, faculty previous entrepreneurial and professional experience is argued as a determinant success factor. finally, the role of venture capitalists is suggested to warrant the future growth of academic entrepreneurial ventures. contribute to economic growth at two levels: creating new knowledge (‘‘knowledge for its own sake’’) and generating spillovers through knowledge transfer and commercialization (audretsch, 2014). the universities nowadays play a significant role in achieving long-term sustainability goals, by being a crucial element in the quintuple helix innovation model (de la vega hernández & barcellos de paula, 2019). more specifically, the role of entrepreneurial universities is visualized as transformative or as a “responsible facilitator” in the process of attaining these said goals (gur, 2020). the economic impact of entrepreneurial universities manifests through three core activities, i.e., teaching, research, and entrepreneurship activities. while the outcomes of teaching are assessed through the employment rate, research output is measured by research collaborations, research contracts, consultancy, and income generated from facilities and intellectual property agreements. spin-offs’ ownership represents the main outcome from the entrepreneurial activity of universities. four categories of ownership could be considered: active spin-offs owned by the university, active spin-offs not owned by the university, spin-offs owned by the staff, and spin-offs owned by graduates/alumni. in this sense, the entrepreneurship activities conducted by entrepreneurial universities have bigger economic impact than their teaching or research endeavours. universities are considered to create three types of capital that positively affect gross domestic product of any country (figure 1). figure 1. impact of entrepreneurial universities on economy (guerrero, cunningham, & urbano, 2015) these are human capital (created by universities’ teaching activities), knowledge capital (accumulated through research activities of universities), and entrepreneurship capital (derived from entrepreneurial activities of universities) (guerrero, cunningham, & urbano, 2015). the effects of intellectual capital and knowledge on business performance and performance of the developing countries in the middle east have been widely discussed and analyzed (e.g., dzenopoljac, alasadi, zaim, & bontis, 2018; dzenopoljac, yaacoub, elkanj, & bontis, 2017). aaboen, laage-hellman, lind, öberg, & shih (2016) attributed three different resource-interaction roles to university spin-offs within business networks, i.e., resource mediator, resource re-combiner and resource renewer. those roles emphasize how university spin-offs pool their resources with those of their partners. resource mediator implies that the spin-off entity acts as a ‘bridge’ connecting the different parties who could be research units, customers, suppliers, etc. business partners do not adapt their processes and facilities accordingly while university spin-offs do. in the case of resource re-combiners, the university spinoffs supply their partners with more radical innovations which require substantive mutual adaptations based on resource re-combinations. finally, when university spin-offs act as a resource renewer, this means that they develop disruptive solutions which challenge existing resource configurations and require, accordingly, the replacement of existing resources (renewal). finally, guerrero, urbano & fayolle (2016) proved the existence of a positive influence of the university’s environmental factors on students’ entrepreneurial activity and regional competitiveness. a university environment is composed of two factors, i.e., informal (such as attitudes, skills, actions, and role models) and formal (i.e., supportive infrastructure and specialized entrepreneurship programmes). the informal environmental factors have a bigger effect on entrepreneurial activity than the formal ones. in addition, the university’s entrepreneurial activity exerts a positive effect on regional competitiveness – mainly with regards to the social aspects of competitiveness (guerrero et al., 2016). thus, the first research proposition is as follows: research proposition 1: the emergence and development of entrepreneurial universities can contribute to economic growth, national competitiveness, and innovative activity. 58 oualid abidi, vladimir dzenopoljac, aleksandra dzenopoljac 2021/26(2) 3. origins and predictors of academic entrepreneurship shah, shahjehan, & afsar (2019) suggest that the emergence of an entrepreneurially oriented culture in a university depends on different internal factors, such as the risk tolerance, the attitude towards failure, trust and proactiveness in addressing market opportunities. nonetheless, structural changes are necessary to allow such a culture to emerge, e.g., reducing bureaucracy and promoting delegation of power. undertaking changes at the strategic level can also contribute to reinforcing entrepreneurial culture at universities (shah et al., 2019). in fact, research shows the existence of a correlation between the factors underlying entrepreneurial universities, such as the ‘legal and administrative context’ (when government and public administration are involved in and facilitate entrepreneurship); ‘business and organizational context’ (interacting with nearby organizations belonging to the same sector); ‘resource factors’ (funding for entrepreneurship and training in entrepreneurship for faculty); mission, strategy and policies; organizational design; training and research in entrepreneurship and extra-curricular training; inclusion of professionals from businesses and organizations in the development and delivery of the curriculum; and support from the management team (bezanilla et al., 2020). building on the theory of planned behavior, feola, vesci, botti, & parente (2019) investigated the determinants of academic entrepreneurial intentions among italian university researchers and found that they are positively influenced by psychological variables (attitude towards subjective norms and perceived behavioural control). the same study also revealed the influence of contextual factors on academic entrepreneurial intentions, namely the government support (negative effect), and the industrial and financial support (positive effect). the attitude is positively determined by both government support and university support. the authors attributed the surprising negative effect of government support on academic entrepreneurial intentions to the ‘bureaucracy and inefficiencies’ of the of the italian public administration (feola et al., 2019). building also on the theory of planned behaviour, miranda et al. (2017) have demonstrated that the attitude towards entrepreneurship is the sole direct predictor of academic entrepreneurial intentions among spanish university academics. this predictor is in turn influenced by the perceived utility, business experience and creativity. subjective norms and perceived control have no effect on entrepreneurial intentions of spanish academics. the authors believe that their findings stress upon the prominent role of personality traits in the establishment of academic spin-offs (miranda et al., 2017). fini et al. (2017) applied the institutional theory to explore the power of institutional changes in generating university spin-offs. they found that adapting the legislation at the national and the university levels were conducive to higher rates of academic spin-offs. more specifically, the number of spin-off creations is positively affected by the legislative changes aiming at enhancing intellectual property protection (national level) and the establishment of technology transfer offices at the university level. however, the increase of institutional changes is likely to install a climate of uncertainty which is likely to dissuade venture capitalists from supporting academic spin-offs. thus, institutional changes lead to lower quality of university spin-offs (fini et al., 2017). in their explorative theoretical essay, guerrero & urbano (2016) constructed a model in which they argued in favour of the role of country-level factors and organizational factors in supporting the outcomes of university activities including teaching, research, and entrepreneurship. they consider the institutional context as the main country-level factor and this comprises the political, legal, and cultural characteristics of a nation. country-level factors are expected to shape the organization-level dimensions, such as university’s structure, incentives, education approach, role models, community attitudes towards the institution, workforce, reputation, partnerships, and facilities. as the conclusion of given predictors of academic entrepreneurship, we derive additional four research propositions: research proposition 2: the evolution of the national institutional framework with respect to the protection of intellectual property rights will encourage the emergence and development of entrepreneurial universities in the middle east. research proposition 3: the ease of access to funding sources at the national level (governmental agencies, venture capitalists, banks, etc.) will encourage the emergence and development of entrepreneurial universities in the middle east. research proposition 4: the interrelations with local organizations will encourage the emergence and development of entrepreneurial universities in the middle east. 59 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) research proposition 5: the existence of appropriate university environmental factors (education approach, role models, funding for entrepreneurship and training in entrepreneurship for faculty, establishment of technology transfer offices, etc.) will encourage the emergence and development of entrepreneurial universities in the middle east. 4. success factors of academic entrepreneurship as much as the entrepreneurial ecosystem is strengthened by the proliferation of academic entrepreneurship, it plays a positive role in the performance of university spin-offs in return. in particular, the institutional and social aspects of this entrepreneurial ecosystem are highly impactful. while the institutional context affects to a bigger extent the university spin-off during the stage of creation and initial development, the influence of the social context – referring mainly to the networks with entrepreneurs and industrials – is stronger in the stage of consolidation (franco-leal, camelo-ordaz, fernandez-alles, & sousa-ginel, 2019). hayter (2013) outlined three ranges of factors which determine the spin-off success in technology commercialization. those factors are related either to the entrepreneur (mainly faculty members), the university, or the firm. first, faculty members who are engaged in consulting services with the industry are more likely to commercialize their spin-off knowledge. however, facultys’ previous experience in spin-off creation does not affect their future entrepreneurial success. also, faculties that conduct industrial research and development achieve negative results in terms of technology commercialization. university-related factors have limited effect on spin-off success. more specifically, university equity investments and technology licensing offices do not affect spin-off success. the commercialization success is less likely to happen when the spin-offs rely on the university entrepreneurship services. finally, firm-specific success factors comprise several aspects such as the appointment of non-faculty ceo, the financial resources provided by venture capitalists, the participation in joint ventures, and the acquisition of external intellectual property rights, i.e., open innovation (hayter, 2013). furthermore, university-focused venture capitalists seem to play a focal role in the ecosystem of the entrepreneurial universities as they help in reinforcing the relationships of those institutions with the spin-offs, contributing therefore to their long-term success (fuster, padilla-meléndez, lockett, & del-águila-obra, 2019). these are referred to as financial intermediaries which “are located close to universities, have a strong focus on research exploitation and are continually looking for new potential technology in which to invest” (fuster et al., 2019, p.3). here, urbano & guerrero (2013) contend that entrepreneurial universities need to contribute to building a stronger entrepreneurial ecosystem, inside and outside the university realms, within existing firms. internally, the performance of university spin-offs depends on the adoption of stronger entrepreneurial and market orientations, which refers respectively to entrepreneurial posture and sensitivity towards the market (migliori, pittino, consorti, & lucianetti, 2019). the last four research propositions are formulated as follows: research proposition 6: the performance of the spin-offs created by entrepreneurial universities can be supported by the number and quality of relationships with the industry at multiple levels (non-faculty ceo, joint ventures created with companies, faculty experience in consulting, etc.). research proposition 7: the performance of the spin-offs created by entrepreneurial universities can be supported by the role played by venture capitalists. research proposition 8: the performance of the spin-offs created by entrepreneurial universities can be supported by the intensity of their entrepreneurial orientation. research proposition 9: the performance of the spin-offs created by entrepreneurial universities can be supported by the intensity of their market orientation. 5. the reality of academic entrepreneurship in covid-19 era in emerging countries and the middle east in particular the global covid-19 pandemic was declared in march 2020 by the world health organization (who). this occurrence has affected the world both economically and socially. in terms of entrepreneurial action in general, one question that appeared was whether quality planning processes could have prevented the economic damage to a certain extent (giones, brem, pollack, michaelis, klyver, & brinckmann, 2020). 60 oualid abidi, vladimir dzenopoljac, aleksandra dzenopoljac 2021/26(2) additionally, the mentioned research study assessed entrepreneurial action in a crisis context using the highlights from planning, frugality, and emotional support research, and tried to determine how entrepreneurs adapted to new circumstances. the entire research shed light on entrepreneurs’ reaction to crisis by applying disaster management framework introduced by lettieri, masella, & radaelli (2009). in terms of covid-19 pandemic, entrepreneurs are facing dual challenge: how to survive and how to innovate. entrepreneurial universities are even more significant in this regard because they bridge the gap between the fundamental research, which is one of the key tools for fighting the unprecedented pandemic and applied research and development. according to kirby, guerrero, & urbano (2011), an entrepreneurial university is a natural incubator that attempts to simultaneously fulfil its missions in terms of teaching, research, and entrepreneurial activities, while providing suitable atmosphere in which the university community (academics, students, and staff) can identify, explore, and exploit innovative and creative ideas that could be transformed into new ventures. on the other hand, the global covid-19 pandemic placed major obstacles on the entrepreneurial universities and disabled an important side of this form of education, which is learning through practical and real-life examples (ratten, 2020). the covid-19 pandemic has triggered several scientific innovations all over the world including developing countries (harris et al., 2020; mathew & mathew, 2020). these innovations helped in designing artificial breathing devices, healthcare patient diagnosis and monitoring tools, protective equipment for medical staff and other information technology tools used for education and tracking purposes (mathew & mathew, 2020). some of these innovations were called “frugal innovations” as they mean doing more with less under the pressure and urgency exerted by the pandemic (harris et al., 2020). despite the shortage in healthcare infrastructure in their country, ghanaian scientists were among the earliest to sequence the covid-19 genome. the university of ghana noguchi memorial institute for medical research was able to put forward a novel ‘pool testing technique’ which allowed the country to significantly increase the number of tests. also, collaboration between kwame nkrumah university of science and technology with the kumasi centre for collaborative research and incas diagnostics led to the development of rapid diagnostic test kits and ventilators (sibiri, zankawah, & prah, 2020). with respect to the situation in the middle east, a qualitative study was conducted by kawamorita et al. (2020) to identify the main challenges affecting entrepreneurial universities during the covid-19 crisis in that region. the findings of the study reveal that the major challenges concern the decreasing public and private funding, the reduced opportunities for face-to-face networking, the management of technology transfer offices as well as the startup accelerators and incubators (kawamorita et al., 2020). universities in general represent institutions that support economies and promote social well-being (ratten, 2017). the covid-19 pandemic created restrictions on everyday life never before witnessed. the freedom of movement has decreased due to lockdowns and imposed curfews, schools and universities shut their doors and moved to online classes delivery. according to martin and turner (2010), during the times of crises, more universities need to act in entrepreneurial manner. this includes being alert and more adaptive to external challenges. the current crisis has posed certain financial and funding limitations on universities, but it also creates opportunities for entrepreneurial universities. the universities have adapted quickly to online class delivery and are constantly innovating the ways in which they can increase in-class engagement. furthermore, wenzel, stanske, & lieberman (2020) argue that there are four ways organizations respond to a crisis: retrenchment, persevering, innovating and exit. the only available solution for universities is innovating. in this regard, universities showed responsiveness to the covid-19 crisis and created the opportunity for those universities that are teaching entrepreneurship to “walk the talk” and to engage in fighting the crisis through student and faculty innovation and entrepreneurial ventures. in the middle east, universities reacted to covid-19 pandemic in a mild way. for example, in the middle east college oman, the reaction was a simple and straightforward move towards emergency remote teaching, using various software tools (mohammed, khidhir, & nazeer, 2020). a majority of the universities in the middle east have reacted similarly to the middle east college oman, which aligns well with persevering crisis reaction as stated by wenzel et al. (2020). the response to this crisis was expected to be more proactive, as there are examples of truly entrepreneurially oriented universities in this region, analyzed by guerrero, urbano, & salamzadeh (2014). the university of tehran and sharif university of technology were found as the ones qualifying to be entrepreneurial according to the following criteria: (1) universities are located in regions characterized by higher levels of entrepreneurship measured by the number of new enterprises; (2) universities that promote entrepreneurial culture in their strategic actions that allow adaptation to environmental changes; (3) universities that show their self-instituting efforts to change their general character, by developing entrepreneurial initiatives with outcomes such as patents, licenses, spin-offs and research agreements; and (4) universities in the first-position rankings such as webometrics (guerrero et al., 2014). 61 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) apart from the mentioned research studies, there is a paucity of scholarship work about middle eastern academic entrepreneurship experience, especially during covid-19 pandemic. as proposed earlier by kawamorita et al. (2020), the major challenges in this regard are the decreasing public and private funding, the reduced opportunities for face-to-face networking, the management of technology transfer offices as well as the startup accelerators and incubators. additionally, universities in the middle eastern region have shorter academic and research history, in comparison with the united states, or europe. due to shorter history, these academic institutions in the region have not been able to properly develop their entrepreneurial focus yet. as regards the ongoing covid-19 pandemic, similarly to entrepreneurs, entrepreneurial universities face similar choices: they can innovate or persevere. 62 oualid abidi, vladimir dzenopoljac, aleksandra dzenopoljac 2021/26(2) the presented conceptual research has the sole purpose of addressing the apparent gap in the literature in the area of academic entrepreneurship in the middle east region. the literature review into the matter revealed that the emergence and development of entrepreneurial universities could contribute to economic growth, national competitiveness, and innovative activity. one such empirical evidence can be found in the work of guerrero et al. (2015). since the absence of academic entrepreneurship in the middle east is evident, this research proposal points to the important possible framework that could positively affect the development of entrepreneurial universities. as shown by fini et al. (2017) who applied the institutional theory to explore the power of institutional changes in generating university spin-offs, the number of spin-off creations is positively affected by the legislative changes aiming at enhancing intellectual property protection (national level) and the establishment of technology transfer offices at the university level. this research proposition is also valid for the context of universities in the middle east. guerrero & urbano (2016) used a model in which it was determined that country-level factors and organizational factors are important in supporting the outcomes of university activities including teaching, research, and entrepreneurship. they consider the institutional context as the main country-level factor and this comprises the political, legal, and cultural characteristics of a nation. country-level factors are expected to shape the organizational-level variables which include two dimensions, i.e., university environmental factors (structure, incentives, education approach, role models, and community attitudes towards the institution) and internal factors (workforce, reputation, partnerships, and facilities). also, in the existing framework within the middle eastern countries, the ease of access to funding sources at the national level (governmental agencies, venture capitalists, banks, etc.) can encourage the emergence and development of entrepreneurial universities. as stated by hayter (2013), many factors affect the success of university spin-offs. those factors are related either to the entrepreneur (mainly university scientists), the university, or the firm. also, university-focused venture capitalists play an important role in development of entrepreneurship ecosystem within universities (fuster et al., 2019). in this regard, the performance of the spin-offs created by entrepreneurial universities may be supported by the number and quality of relationships with the industry at multiple levels (non-faculty ceo, joint ventures created with companies, faculty experience in consulting, etc.), as well as by the role played by venture capitalists. finally, in order to develop the climate for thriving of the entrepreneurial activities in the middle east, universities need to adapt entrepreneurial and market orientation, which are instilled by the management of universities as well as the university’s exposure to industry collaboration and consultancy. in view of the avenues of future research, it is vital to note that many universities in the middle east are considering themselves as self-sufficient entities, which gives space for improvements in research. one of the possibilities is to develop quality interrelations with local organizations, which may encourage the emergence and development of entrepreneurial universities and research opportunities in this area. in relation with this, higher education framework in the middle east lacks more quality education approach, role models, funding for entrepreneurship and training in entrepreneurship for faculty. all of these areas can be significantly enhanced with quality research that would address teaching entrepreneurship in higher education, focusing on case study approach considering success startup stories in the region, and ultimately developing high quality entrepreneurial universities that would foster the development of this engaging academic field and economy as a whole. conclusion references [1] aaboen, l., laage-hellman, j., lind, f., öberg, c., & shih, t. 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(2020). coronavirus (covid-19) and the entrepreneurship education community. journal of enterprising communities: people and places in the global economy, 14(5), 753-764. doi: 10.1108/jec-06-2020-0121 [33] rodrigues, r.g., ferreira, j.j.m., & felgueira, t. (2019). entrepreneurial academics: a taxonomy with latent profile analysis. management decision, 57(12), 3346-3363. doi: 10.1108/md-10-2018-1157 [34] sibiri, h., zankawah, s. m., & prah, d. (2020). coronavirus diseases 2019 (covid-19) response: highlights of ghana's scientific and technological innovativeness and breakthroughs. ethics, medicine and public health, 14, 100537. doi: 10.1016/j.jemep.2020.100537 [35] shah, s.i., shahjehan, a., & afsar, b. (2019). determinants of entrepreneurial university culture under unfavorable conditions: findings from a developing country. higher education policy, 32(2), 249-271. doi: 10.1057/s41307-018-0083-y [36] urbano, d., & guerrero, m. (2013). entrepreneurial universities: socioeconomic impacts of academic entrepreneurship in a european region. economic development quarterly, 27(1), 40-55. doi: 10.1177/0891242412471973 [37] wenzel, m., stanske, s., & lieberman, m. (2020). strategic responses to crisis. strategic management journal, 41, v7-v18. received: 2020-12-01 revisions requested: 2021-01-30 revised: 2021-02-01 accepted: 2021-02-24 64 oualid abidi, vladimir dzenopoljac, aleksandra dzenopoljac 2021/26(2) 65 management: journal of sustainable business and management solutions in emerging economies 2021/26(2) oualid abidi school of business, australian college of kuwait o.abidi@ack.edu.kw dr. oualid abidi has a ph.d. in administrative sciences from université laval (canada, october 2011). he also holds a master’s degree in project management from université du québec à trois-rivières (canada, 2005), and a bachelor degree in finance completed in 2002 at institut supérieur de gestion de tunis in tunisia. dr. oualid abidi is serving currently as associate professor of management at the australian college of kuwait since february 2021. prior to that appointment, he held several teaching and administrative positions at higher academic institutions in kuwait and canada. vladimir dzenopoljac college of business and economics, united arab emirates university vladimir.dzenopoljac@gmail.com vladimir dzenopoljac is an associate professor of strategic management at the college of business and economics, na united arab emirates university, uae. before this, he was associate professor at college of business administration within american university of the middle east in kuwait. he received his phd degree from the university of kragujevac, serbia, in the field of impact of intellectual capital on value creation incontemporary enterprises. alongside his academic career, vladimir providedconsultancy services in the fields of strategy development and execution,business planning, and financial planning and analysis. he has published a significantnumber of research papers in his field of professional expertise and has beeninvolved in implementation of several projects for small, medium, and big companies.his areas of professional interest are strategic financial managementand intellectual capital management. aleksandra dzenopoljac independent researcher aleksandra.dzenopoljac@gmail.com aleksandra dzenopoljac is an independent researcher and industry practitioner with extensive corporate experience in areas such as marketing, human resource management, strategic and business planning, as well as in the field of supply chain management. aleksandra received her bachelor and master’s degrees from the university of kragujevac, serbia, in the field of marketing. in the last 15 years, she has occupied junior and senior managerial positions in companies in logistics, manufacturing, and entertainment industries. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice nikolina vrcelj:tipska.qxd 1 nikolina vrcelj1*, vuk bevanda2, nevena bevanda1 1association of economists and managers of the balkans, belgrade, serbia 2faculty of social sciences, belgrade, university business academy in novi sad, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming *corresponding author: nikolina vrcelj, e-mail: nvrcelj@udekom.org.rs research question: the research objective of this study was to use empirical research to investigate the impact of servant leadership on job satisfaction and organizational commitment. motivation: despite the growing scholarly interest in servant leadership (adiguzel, ozcinar, & karadal, 2020; karatepe, ozturk, & terry kim, 2019; kozak, 2020), the area still lacks coherence and clarity. although most improvements have been published in top-tier management journals, servant leadership research has also been published in other fields such as nursing, tourism, and education (eva, robin, sendjaya, van dierendonck, & liden, 2019). these studies, however, are mainly focused on developed market economies whereas research in transition economies is limited. it is for this reason that we wanted to examine servant leadership and its relationship with job satisfaction and organizational commitment in the republic of serbia. idea: our main goal was to put the theory to the empirical test through known and validated questionnaires about whether servant leadership has a positive statistically significant impact on organizational commitment and whether servant leadership has a positive statistically significant effect on job satisfaction. data: the quantitative data for the analysis were collected from february 5, 2020, until february 15, 2020, based on the results of a survey of 102 online participants. the basic sampling criterion was that the respondents were employed. tools: primary data were collected through a questionnaire. servant leadership was measured by questionnaires compiled by fields & winston (2010) and van dierendonck & nuijten (2011), job satisfaction was measured by an adjusted questionnaire developed by spector (1994), and organizational commitment by a questionnaire developed by mowday, steers & porter (1979). descriptive statistics, correlation, and simple regression analysis were used in the data analysis. findings: the results show the statistically significant positive impact of servant leadership on job satisfaction and organizational commitment. moreover, servant leadership has a stronger impact on job satisfaction than on organizational commitment. the obtained research results are in the accordance with the results pointed out by hamideh and mahmood zare (2012); west and bocarnea (2008); mohammad, hussein and mohammad (2011); ebener and o'connell (2010); hu and liden (2011) and liden, wayne, zhao and henderson (2008). contribution: the results of the study may serve as guidance that organizations can use as inputs in the process of making future decisions and strategies in the human resource management (hrm) practice. keywords: servant leadership, job satisfaction, organizational commitment, organizational behaviour, hr management. jel classification: j28, m12, d23, m54, o15 servant leadership: influence of job satisfaction and organizational commitment doi: 10.7595/management.fon.2022.0009 abstract: 1. introduction northouse (2001) defines „leadership as a process whereby an individual influences a group of individuals to achieve a common goal“. janicijevic (2011) further explains that the words "influence", "vision" and "followers" are most often associated with leadership. the capability of a leader to create or explain a vision and convince followers to work toward that vision's realization is the core of leadership. simultaneously, the important notion for comprehending a leader is his power, or influence over followers (qiu, dooley, & xie, 2020; saleem, zhang, gopinath, & adeel, 2020; tuan, 2020; yang, gu, & liu, 2019; ye, lyu, & he, 2019; ying, faraz, ahmed, & raza, 2020). the necessity of leaders being in service to their followers, receptive to all types of suggestions, and prepared to help, support, and promote greater efforts and dedication is highlighted by modern organizational situations (mahlagha & levent, 2022; stojanovic aleksic, 2016; bao, li, & zhao, 2018; farrington & lillah, 2019; gui, zhang, zou, & ouyang, 2021; hoch, bommer, dulebohn, & wu, 2018; karatepe, aboramadan, & dahleez, 2020; lapointe & vandenberghe, 2018; luu, 2020). as a result, one of the most dominant features of leadership success is the ability to lead oneself, as well as the success and contentment of followers. conducted research in the field of servant leadership (frederick cotezer, bussin, & geldenhuys, 2017; ruizpalomino, gutierrez-broncano, jimenez-estevez, & hernandez-perlines, 2021; karatepe, ozturk, & terry kim, 2019; adiguzel, ozcinar, & karadal, 2020; weilin, bei, hui, & yanzi, 2020; norizah mohd & usama, 2020; elche, ruiz-palomino, & linuesa-langreo, 2020) reveals that servant leadership has a favourable influence on innovation, organizational commitment, trust, job satisfaction, self-efficiency, and the balance between work and personal life. the findings on the positive impact of servant leadership on job satisfaction were validated by hamideh and mahmood zare (2012), west and bocarnea (2008), mohammad, hussein, and mohammad (2011), and aboramadan, dahleez, and hamad (2021). as regards organizational commitment and the impact that servant leadership has on it, studies by hu and liden (2011), ebener and o'connell (2010), and liden, wayne, zhao, and henderson (2008) have shown a positive correlation. 2. theoretical review in modern business conditions, the leader is of paramount significance for the survival and development of the company, since he/she determines the vision, motivates, and guides employees. effective leadership can result in increased efficiency and cohesiveness, personal development, and greater employee satisfaction (van wart, 2003). recently some special approaches to leadership have emerged that bring new dimensions to research including team leadership, exchange theory, transformational leadership, entrepreneurial leadership, women's leadership, and guru leadership, (simic, slavkovic, & stojanovic aleksic, 2020; vrcelj, vrcelj, & jagodic rusic, 2015; northouse, 2007). among modern theories of leadership, the concept of transformational, transactional, charismatic, and servant leadership stands out. 2.1 servant leadership the idea of servant leadership, which defines a leader as someone who is primarily concerned with the interests and needs of others, including followers, members of one group, and the larger community, comes from robert greenleaf who believed that leadership is not a privilege, but something that obliges and something that should be earned. servant leadership is “a way of looking at leadership that is entirely focused on followers, in which the leader's position is viewed as supportive rather than directive, and the leader's major goal is to serve his followers rather than to dominate” (greenleaf, 1998). servant leadership is a multifaceted ideology that begins with a desire to serve (greenleaf, 1998), and with the purpose of leading and developing others (spears, 2010) to ultimately achieve a higher goal that brings benefits to individuals, organizations, and societies (van dierendonck, 2011). traditional leaders favour directives and instructions, but servant leaders stress assistance, facilitation, and advice, which enable followers to better comprehend their surroundings and the demands placed on them (greenleaf, 1998). spears (1995) emphasizes the following characteristics of servant leaders: willingness to listen, compassion, willingness to comfort, self-awareness, persuasiveness, conceptualization, predictability, willingness to serve, community building, and commitment to others' development. authenticity, humility, compassion, responsibility, courage, altruism, integrity, and willingness to listen were identified as eight characteristics of servant leaders by frederick cotezer et al. (2017) after a servant leadership survey that included a sample of 24 literature reviews, 21 different countries, 5 qualitative studies, 55 quantitative studies, and 3 combined studies. focht & ponton (2015), as a result of their research, cite the following primary characteristics of servant leaders: empathy, humility, helpfulness, spirituality, and the ability to lead. servant leaders encourage their followers to participate in activities outside of their current professions in order that they should foster a sense of community, as well as to encourage personal and professional development and lifelong learning (kreitner & kinicki, 2012). according to russel & stone (2002), vision, integrity, honesty, trust, helpfulness, respect for others, and empowerment are all qualities that servant leadership promotes. servant leaders have the skill to meet followers' subtle, emotional, and spiritual needs, allowing their personal growth and transformation. servant leaders highlight the best in their followers, pro2 nikolina vrcelj, vuk bevanda, nevena bevanda forthcoming viding new energy for greater efforts and accomplishments and instilling a sense of perfection and irreplaceability. everything they do, they do primarily having in mind the well-being of their associates, where one of the most important criteria for the success of leaders is the degree to which those who are "served" are satisfied, happy, and able to lead themselves (stojanovic aleksic, 2007). servant leaders not only help their teams to be mentally and emotionally healthy, but they also strengthen cohesiveness, cooperation, and connection with followers through understanding their needs and emotions (ravinder jit, sharma, & kawatra, 2017). research shows (ebener & o'connell, 2010; ehrhart, 2004; hu & liden, 2011; walumbwa, hartnell, & oke, 2010) that in organizations where servant leadership is used, connectedness and collaboration between leaders and followers inspire followers to be pro-social and altruistic, resulting in enhanced organizational performance. guillaume, honeycutt, and cleveland (2012) point out that when used correctly, the servant leadership paradigm provides enormous benefits to both individuals and the organization as a whole. parris and peachey (2013) highlight that more than 20 percent of the top 100 companies according to fortune magazine sought guidance and assistance from the “greenleaf center for servant leadership” including companies such as starbucks, southwest airlines, and vanguard investment group. 2.2 servant leadership and job satisfaction nowadays, many businesses perform research to measure their employees' levels of job satisfaction. “job satisfaction is described as a favourable emotional state experienced by an individual when evaluating their job and the experience gained from doing it” (locke, 1976). thus, the term "employee satisfaction" refers to what percentage of employees are satisfied with their jobs lai wan (2007) claims that a company's top priority should be to keep its employees happy. when employee satisfaction increases, the performance of the organization improves. on the other hand, employee dissatisfaction has the opposite effect on the effectiveness and efficiency of the organization (javed, balouch, & hassan, 2014). therefore, it is necessary that every organization that strives for a better market position, take into should consider the degree and scope of satisfaction of its employees, in a way that continuously measures their degree and scope of satisfaction. the analysis of the obtained results in the organization should determine which individual factors (managerial competencies of managers) or organizational factors (working conditions, working atmosphere, interpersonal relations, possibility of advancement, internal communication, etc.), which elements have a high positive impact on job satisfaction, and which factors have a weak (negative) impact on job satisfaction. in that context, the top management of the organization undertakes certain organizational measures and activities to eliminate negative factors and further develop positive influences (strukan, djordjevic, & sefic, 2014). job satisfaction is viewed as a “general attitude towards work”, or satisfaction with five specific dimensions of work: 1) financial compensation, 2) work as such, 3) opportunity for promotion, 4) superiors and 5) associates (susnjar & zimanji, 2005). job satisfaction is structured, according to most authors in this field, by several variables that can be reduced to five formalized aspects of job satisfaction: 1) satisfaction derived from completing specific tasks, 2) satisfaction derived from belonging to a working group, 3) satisfaction derived from belonging to an organization, 4) satisfaction derived from the financial situation, and 5) satisfaction derived from job status. exciting and creative work, good relations with co-workers and supervisors, excessive personal freedom in the working place and the potential for development, along with job stability and the capability to manage personal and professional life, are the most significant facets of job satisfaction in the context of leadership (strukan, djordjevic, & sefic, 2014; maric, todorovic, & znidarsic, 2021). stringer (2006) in his study observed a significant link between leadership behaviour and job satisfaction as a result of a combination of internal and external factors. the nature of the person's work, the duties that make up the job, professional development, a sense of responsibility, and job achievement are all internal influences. working conditions, such as salary, associates, and managers, are all external influences (jankovic, et al., 2011). numerous researchers analysed servant leadership and its impact on job satisfaction (hamideh & mahmood zare, 2012; west & bocarnea, 2008; mohammad, hussein, & mohammad, 2011; lisbijanto & budiyanto, 2014; mccann, graves, & cox, 2014). the outcomes of the research conducted by the given authors show the important connection between servant leadership and job satisfaction. thus, we hypothesize the following: h1: “servant leadership has a positive statistically significant effect on job satisfaction”. 3 management: journal of sustainable business and management solutions in emerging economies forthcoming 2.3 servant leadership and organizational commitment porter, steers, mowday, and boulian (1974) define “organizational commitment as acceptance of the organization's goals and principles; readiness to go above and beyond for the organization's benefit; and a desire to stay in it”. also popular is the definition of organizational attachment characterized by a multidimensional approach formulated by yiing and ahmad (2009): organizational attachment implies: affective attachment emotional attachment and identification with the organization; temporal attachment an attachment that is linked to the expense of leaving a company; and normative attachment refers to a feeling of obligation to stay with a company. in the past few decades, organizational commitment has become the subject of numerous studies. the reasons for the increasing interest of academics the topic lie in the results of research that confirmed the negative correlation between organizational attachment and absenteeism and leaving organizations (steers, 1975). further, organizational commitment is positively correlated with job satisfaction (porter, steers, mowday, & boulian, 1974). in his research, whitener (2001) has shown that a high degree of commitment to an organization results in a higher effectiveness of the organization as a whole. according to goh and low (2014), the success of the organization's long-term goals is related to organizational commitment. employees that are committed to the firm they work with are eager to make a major personal contribution, go above and beyond their obligations, and have a genuine desire to remain working under the company's auspices. in other words, attachment to an organization is described as an emotional link that connects an employee to an organization that reduces the likelihood that an employee will leave the organization in which he or she is employed. when compared to other types of commitment, affective organizational commitment, which refers to employees' emotional attachment to the company, identification with it, and involvement in it, is the most important element in employee retention. employees, who are emotionally committed, identify with the objectives of the organization, and want to remain part of it, will not leave the organization (ahmad & omar, 2010). similar research results were published by addae, praveen parboteeah and velinor (2008), ali and baloch (2009), chan yin-fan, yeoh sok, chee-leong and syuhaily (2010), and kozak (2020). according to theoretical studies, there is a positive correlation between servant leadership and organizational commitment. this is confirmed by qualitative research by ebener and o'connell (2010), but also by empirical research conducted by hu and liden (2011); liden, wayne, zhao and henderson (2008), and sokoll (2014). hence, we propose the following hypothesis: h2: “servant leadership has a positive statistically significant impact on organizational commitment”. 3. research methodology 3.1 research setting and participants empirical research was undertaken to utilize survey methodologies to investigate servant leadership's impact on employee satisfaction and organizational commitment. the questionnaire was distributed online using the google forms platform. the total number of e-mail addresses to which the questionnaire link was distributed was 250. the number of responses received in the period from february 5, 2020 until february 15, 2020, was 102, which represents a response rate of 40%. the basic sampling criterion was that the respondents are employed in an organization in the republic of serbia. more female respondents (53%) than men (47%) were included in the sample. when it comes to the age structure, 39% of respondents were under 30 years old, 33% of respondents were between 31 and 40 years old, 20% of respondents belong to the age group between 51 and 60, 8% were respondents who are between 51 and 60 years old. only persons over 60 years of age did not participate in the given sample. the respondents are primarily divided into two age groups: those under 30 years of age and those between 31 and 40 years old, in about equal numbers. if we look at the level of education of respondents, the largest number of respondents (39%) have a bachelor's degree, a slightly smaller percentage of respondents have secondary education (29%), while 26% of respondents have a master's degree. the smallest groups of respondents have an undergraduate (first) degree (3%) and the title of doctor of science (4%). 4 nikolina vrcelj, vuk bevanda, nevena bevanda forthcoming when it comes to the respondents' years of work experience in a given organization, the largest percentage of respondents are employed in the organization for less than 5 years (43%), while the smallest number of respondents (9%) are employed longer than 21 years. a quarter of respondents (26%) spent between 6 and 10 years in the company, while the same percentage of respondents (11%) were employed in the company between 11 and 15 years and 16 and 20 years, respectively. the number of respondents is approximate regarding the size of the organizations in which they work. the largest number of respondents work in an organization employing 50 to 249 employees, while the smallest percentage is of those (23%) who work in organizations that have between two and 9 employees. 3.2 instruments the instrument used to measure servant leadership is a combination of constructs taken and adjusted based on questionnaires compiled by fields and winston (2010) and van dierendonck and nuijten (2011), job satisfaction was measured by an adjusted questionnaire developed by spector (1994), and organizational commitment by a questionnaire developed by mowday, steers and porter (1979). descriptive statistics, correlation, and simple regression analysis were used in the data analysis. using descriptive statistical analysis, the arithmetic mean and standard deviation for each construct were calculated (table 1). the findings of the investigation at the aggregate sample level show that the grades of the surveyed respondents range from 2.88 to 4.25, with a standard deviation from 0.895 to 1.435. respondents gave the highest marks to the findings that they get along well with their colleagues and that they like to work with them where the arithmetic mean was 4.25; and that they are ready to make additional efforts in order for the organizations in which they work to be successful (4.01), while they rated the findings related to the chances for promotion at work (2.88), and the fairness of rewarding their efforts (2,90) with the lowest marks. for all constructs, the values of the standard deviation range from 0.895 to 1.423. there is a similar degree of heterogeneity in the assessments of all 25 constructs. the reliability and internal consistency of the constructs grouped around each variable were measured via the cronbach’s alpha coefficient (table 1). the cronbach's alpha coefficient values vary from 0 to 1, with values greater than 0.7 indicating adequate reliability and consistency (nunnally, 1978). the values of the cronbach’s alpha coefficient in the research range from 0.881 (job satisfaction) to 0.954 (servant leadership). the cronbach’s alpha for the entire model is 0.899. the obtained values indicate adequate reliability and internal consistency of the variables. table 1: descriptive statistics results of constructs and cronbach`s alpha of variables 5 management: journal of sustainable business and management solutions in emerging economies forthcoming �������� �� ����� � �� �������� ����� 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���������$ ���" � " � ��(( ����� � ���� �� �� ����� ���� #��� �������� �� �� ��$� ���� ���� �� �� source: authors’ calculation based on the survey 4. research results further in the analysis of collected data, correlation and simple regression were used. the correlation analysis was implemented to identify the degree of interdependence of the given variables, followed by simple regression analysis. the statistical tool spss 23v was used to analyse the data. the results of the correlation analysis are shown in table 2. according to the value of the pearson coefficient, the degree of dependence between the variables was determined. the obtained results show a high degree of correlation between the given variables. interestingly, the highest degree of correlation was identified between job satisfaction and organizational commitment (0.801). in addition, a higher degree of dependence was found between servant leadership and job satisfaction (0.777) than between servant leadership and organizational commitment (0.682). the given results of the correlation matrix show that all correlations are statistically significant. table 2: correlation matrix source: authors’ calculation based on the survey two simple regression analyses were performed later. the first regression analysis was implemented in order to determine the impact of servant leadership on job satisfaction. the results of the analysis, shown in table 3, confirm the statistically significant influence of servant leadership on job satisfaction (ß = 0.714, t = 12.346), which implies that the first given hypothesis was confirmed. in addition, it is important to note that the independent variable describes a total of 77.7% of job satisfaction variability (r2 = 0.777). table 3: simple regression analysis (dependent variable: job satisfaction) source: authors’ calculation based on the survey in the second step, we observed how servant leadership affects organizational commitment. the results of simple regression (table 4) confirm the statistically significant influence of servant leadership on organizational commitment (ß = 0.702, t = 9.332), which confirmed the second hypothesis of the paper. in doing so, the independent variable describes a total of 69.2% of the variability of organizational commitment (r2 = 0.692) table 4: simple regression analysis (dependent variable: organizational commitment) source: authors’ calculation based on the survey 6 nikolina vrcelj, vuk bevanda, nevena bevanda forthcoming �������� �� ����� � �� �������� ����� �������������� ���������� �� ����� ��� ��� ���� �� � ��� � ��� ���� ������� �� � ������ �� ��� ���� ����� ������ ������ �������� � ����������� ���������� �� ���� �� �������� ����� ������ ���������� ����������� ������� ��� ��� �� ���� ���!� ������ ����� �����������������"� ������ ��������������� ��� �� ����� �� ��� ����� �������� ����� ������ �� ��� ��� ������ �� ���� ��� ����� ���� �� ���� ��� ���� � ��� �� ������� ��� ���� ����� ������ �#��$� ��������� ����� �� �� � ��� �� ����$� ����� ���� ������� �� ����������������������� ���� ��%�� ��!�&� '� � ��� ���� ��� ��� �� ��� ��� ���������� $�������������� ���(������������������ ����� ���&� ������ servant leadership job satisfaction organizational commitment servant leadership 1 job satisfaction 0.777** 1 organizational commitment 0.682** 0.801** 1 �������� � � ���� � ����� ���������� ��� � � �� �� � ��� ����� �������� � � ���� � ����� ���������� �� � ��� � � ��� �� � references [1] aboramadan, m., dahleez, k., & hamad, m. (2021). servant leadership and academics outcomes in higher education: the role of job satisfaction. international journal of organizational analysis, 29(3), 562584. doi: 10.1108/ijoa-11-2019-1923 [2] addae, h., praveen parboteeah, k., & velinor, n. (2008). role stressors and organizational commitment: public sector employment in st lucia. international journal of manpower, 29(6), 567-582. doi: 10.1108/01437720810904220 [3] adiguzel, z., ozcinar, m., & karadal, h. (2020). does servant leadership moderate the link between strategic human resource management on rule breaking and job satisfaction? european research on management and business economics, 26, 103–110. doi: 10.1016/j.iedeen.2020.04.002 7 management: journal of sustainable business and management solutions in emerging economies forthcoming the servant leadership theory emphasizes that a leader serves the people he leads. servant leaders are committed to the necessities of the members of the organization, developing employees so that they are the best at what they are, supporting them to show their talents and realize their full potential, and encouraging their personal and professional development. the advantages of applying this model of leadership are multiple, and they are reflected in increased innovation, job satisfaction, organizational commitment, trust, self-efficiency, and a balance between business and private life. to learn more about the influence of servant leadership on job satisfaction and organizational commitment, a survey of 102 respondents was undertaken in this research. survey participants gave moderately high marks to the findings contained in the questionnaire which relate to their attitude and experience of the work they do, cooperation and relationship with leaders, as well as the degree of commitment and identification with the organization in which they work. the highest marks were given to the findings related to the relationships they have with colleagues, the additional efforts they are willing to make for the benefit of the organization, and their general interest in the success and destiny of their organization. on the other hand, the respondents rated the claims related to the chances for promotion, honesty of leaders, and fairness of rewarding their efforts with the lowest marks, which unequivocally points to the conclusion that these are the areas that represent space for improvement of job satisfaction. in that sense, leaders should be more honest with their followers, more aware of their engagement to support, praise, and reward the efforts made most fairly, and based on them provide space and opportunities for their progress and further development. the results of the research using a simple regression analysis confirmed a statistically significant influence of servant leadership on job satisfaction, which confirmed the first hypothesis of the paper. the coefficient of determination (r2) of 0.77 shows that job satisfaction in 77% of cases depends on the leadership style, i.e. servant leadership. the implemented second simple regression suggests that there is a statistically significant impact of servant leadership on organizational commitment. therefore, the conducted research confirmed the second research hypothesis of the paper. a coefficient of determination (r2) of 0.69 shows that commitment to an organization in 69% of cases depends on servant leadership. in doing so, servant leadership has a stronger impact on job satisfaction than on organizational commitment. in this regard, this result can be partly explained by the fact that almost half of the respondents (43%) are engaged in an organization that has been the subject of analysis for less than 5 years. namely, organizational commitment is a much more stable measure in relation to job satisfaction because it develops slowly, over time, so in that sense employees need more time to identify themselves with the organization in which they work, to dedicate themselves to it, and feel proud they are part of it. the obtained research results and confirmation of both hypotheses are in the accordance with the results pointed out by hamideh and mahmood zare (2012); west and bocarnea (2008); mohammad, hussein and mohammad (2011); ebener and o'connell (2010); hu and liden (2011) and liden, wayne, zhao, and henderson (2008). the contribution of the research is reflected in the provision of information and guidance that organizations can use as inputs in the process of making future decisions and strategies. the conclusions reached by the study can be applied in organizations, by implementing a model of servant leadership that results in satisfied and committed employees, which ultimately leads to an improvement in the overall performance of the organization. in further research, it is desirable to include more constructs in the questionnaire and to increase the number of respondents, i.e. the sample size. also, job satisfaction and organizational commitment are very complex areas of research on organizational behaviour and leadership, which show certain specifics depending on the size of the organization itself and the duration of the employment in the organization. namely, future researchers can analyse the relationship of these variables in small, medium, and large organizations, and depending on the period of employee's work experience in the organization in order to provide relevant and more detailed scientific implications. conslusion [4] ahmad, a., & omar, z. 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(2020). how does servant leadership foster employees’ voluntary green behavior? a sequential mediation model. international journal of environmental research and public health, 17(5), 1792. doi: 10.3390/ijerph17051792 received: 2021-10-30 revision requested: 2022-04-25 revised: 2022-05-20 (1 revision) accepted: 2022-06-11 nikolina vrcelj association of economists and managers of the balkans, belgrade, serbia nvrcelj@udekom.org.rs nikolina vrcelj is the executive director of the association of economists and managers of the balkans headquartered in belgrade, serbia, and a managing editor of the balkans journal of emerging trends in social sciences. during the years she has been a scholar/researcher of the ministry of education, science and technological development of the republic of serbia and engaged in scientific projects financed by the ministry. nikolina has more than eight years of work experience at the university in different positions (teaching and administrative). since the beginning of her scientific research career, in collaboration with colleagues and independently, she has published more than 50 scientific, professional, and review papers. vuk bevanda faculty of social sciences, belgrade, university business academy in novi sad, serbia vbev77@gmail.com vuk bevanda, phd, is an associate professor at the faculty of social sciences, belgrade, university business academy in novi sad. he is the author and co-author of a large number of scientific papers of various categories published in domestic and foreign journals, proceedings and thematic monographs, textbooks, etc. also, he is a reviewer of a large number of scientific papers. vuk is a member of program and editorial boards of a number of international scientific conferences, and editor-in-chief of an international thematic monograph "modern management tools and economy of the tourism sector in present era" indexed in web of science, as well as of a scientific journal balkans journal of emerging trends in social sciences, and several proceedings of international scientific conferences. nevena bevanda association of economists and managers of the balkans, belgrade, serbia nbevanda@itema-conference.com nevena bevanda, msc, graduated from the faculty of organisational sciences, university of belgrade. she has published several scientific papers and participated in domestic and international scientific conferences. she is an event manager and one of the founders of the association of economists and managers of the balkans. nevena speaks english and chinese. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05 26_3 biljana chroneos:tipska.qxd 47 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) some aspects of corporate social responsibility and company reputation: evidence from serbian business environment doi: 10.7595/management.fon.2021.0024 abstract: 1. introduction among the challenges that companies face in the contemporary business world is the pressing need that the corporate sector should pay more attention to the key social, institutional, ecological and other issues in their surroundings, and then suffer consequences if such activities happen to have negative effects upon the said surroundings. since companies can no longer take care only of themselves, striving towards greater economic prosperity isolated from other actors they directly or indirectly affect, the economic responsibility, although remaining their primary responsibility, is no longer the sole one (borojevic et al., 2017). * corresponding author: ema karamata, e-mail: ema.karamata@gmail.com research question: this paper examines some aspects of corporate social responsibility (csr) and company reputation (cr) in the serbian business environment during the covid-19 pandemic. motivation: the survival, growth and development of companies in the current business environment are conditioned by their capability to reach socially responsible decisions and carry out activities that meet the expectations of different stakeholders. the main motive for this research has stemmed from the current global corona virus pandemic and the way this state of affairs has affected socially responsible behaviour of companies. the research of activities serbian companies carried out in the time of crisis prompted us to explore the possible relationship between corporate social responsibility and its effects on corporate reputation, and consequently business results. research idea: an empirical research has been conducted with the view to investigate the position of the public on the importance and impact of csr on corporate reputation, and also to determine the key factors that guide the decisions of people living in the republic of serbia to shop, bearing in mind the socially responsible behaviour of companies. data: the sample included 173 respondents, the number that allowed valid conclusions. the questionnaire was anonymous; all the respondents were residents of serbia with access to the internet and willing to fill in the questionnaire, either by following the link advertised on social media or replying to the e-mail. tools: the gathered data were processed and analysed using descriptive and explorative statistics. research hypotheses were tested by: frequency tables, crosstable procedures, paired samples t-test, spearman`s coefficient of correlation, chi-square test, and phi coefficient of correlation, resulting in conclusions and corresponding suggestions. findings: respondents perceive companies as social actors driven not only by profit, but by the interest of the community and their business environment. they believe companies can assume their responsibilities through different aspects of doing business, especially by contributing to the improvement of their consumer’s lifestyle. the majority of respondents tend to buy from companies they perceive as socially responsible from the point of view of further development of the society and their ethical behaviour towards the community. contribution: the findings can encourage the company’s management to direct their financial and organizational resources into the better management of the csr, especially during the crisis, because solidarity and care for the most vulnerable part of the population lead to an improvement in the reputation and business results of a company. keywords: corporate social responsibility, corporate reputation, customer shopping behaviour, consumers’ decisions, ethical responsibility, covid-19 pandemic jel classification: m21, m31 biljana chroneos-krasavac, ema karamata*, jasna soldić-aleksić, katica radosavljević university of belgrade, faculty of economics, serbia the survival, growth and development of companies in the current business environment are conditioned by their capability of reaching socially responsible decisions and carry out activities that meet the expectations of different stakeholders. discovering the ways of skillfully communicating positive effects of the corporate social responsibility to the public through marketing activities that directly affect the improvement of a company’s business reputation is gaining in importance, because it is associated, among other things, with the consumers’ decision to buy the products or use the services of socially responsible companies (gielissen, 2011). research reveals that corporate social responsibility is also important for a company’s public relations strategy – on the one hand, it defines the company and is a powerful tool for attracting consumers; on the other hand, it is a tool that buyers use to identify renowned companies and develop a relationship with them (jones and bartlett, 2009). when the public forms an opinion about a specific company, aspects of its business practices are evaluated based on views regarding how the company should behave relating to specific issues, i.e., based on the degree to which this expectation is met. companies which possess the skill of transforming a good corporate social responsibility strategy into a successful corporate reputation increase their potential buyer base as a result, which in turn leads to increased sales and profitability (milisavljevic, 2012). the review of literature reveals that a company’s image, reputation, and the factor of satisfying consumers’ needs, are affected by all dimensions of social responsibility (jintao et al., 2020). the public support the companies considered to act responsibly and in a fair manner towards their employees, the environment, and the society as a whole, whereas the perceived financial performance of a company sometimes has far less of an impact on the overall assessment of a company’s reputation (vlastelica, 2016). it has also been noticed that the element of competitiveness, i.e., financial capacity, is affected by environmental and economic social responsibility factors; whereas productivity and work efficiency are mostly related to social, shareholder and philanthropic aspects (jintao et al., 2020). consumers think that companies are motivated to act in a socially responsible manner for one of the following reasons: 1. they want to help the society; 2. and/or they want to improve their own business and make financial gains (mohr et al., 2001). the perception of the motives of a company engaged in socially responsible activities depends on the degree of alignment between the area of social responsibility and the company’s principal business activity, as well as on the information regarding how long the company has been active in this domain. a positive perception of the motives results in a positive outcome regarding the intention to buy (ellen et al., 2006). with all of the above-mentioned in mind, as well as the results of a relatively small number of studies on the connections between corporate social responsibility and corporate reputation, a study was conducted which looked into the public opinions on the importance of corporate social responsibility and the level of socially responsible business practices in the republic of serbia. the study aimed at identifying the expectations which participants have from such companies, as well as the degree of influence of socially responsible business practices on the companies’ corporate reputation and the concomitant effects on the consumers’ decisions to buy. in order to fulfil the purpose of the paper, i.e., to improve the understanding of corporate social responsibility and corporate reputation correlation, the main research questions are as follows: is there a correlation between corporate social responsibility and corporate reputation? does the attitude of respondents regarding the impact of corporate social responsibility on corporate reputation influence their buying decisions? is there a significant difference between the levels of corporate social responsibility towards customers, employees, local community and the environment? in that regard, the authors used descriptive, explorative and inferential statistics to provide answers to the research questions. the paper is organized as follows: the introduction is followed by section 2, which presents the theoretical background of the paper. section 3 presents the data and the methodology applied, while section 4 discusses the main empirical results. the final section 5 summarizes the main findings of the research, presenting the limitations of the study and offering directions for future research. 2. theoretical background the theoretical background of the present paper is based upon linkages between the definitions of corporate social responsibility and corporate reputation, and findings of the contemporary studies indicating the existence of causal links between these two phenomena. defining corporate social responsibility is challenging as it can be seen from a number of standpoints, and as it changes in step with the context, time period, and business culture. the best-known scientific definition of this concept is the one provided by carroll: corporate social responsibility encompasses the economic, 48 biljana chroneos krasavac, ema karamata, jasna soldić aleksić, katica radosavljević 2021/26(3) legal, ethical, and discretionary (philanthropic) expectations that society has from an organization at a given time (carroll, 1979). based on this definition, carroll developed a diagram of corporate social responsibility in the form of a four-tier pyramid (carroll, 1991), with economic responsibility at its base, as only a profitable company can contribute to the development of its community and the society at large. the next is legal responsibility, which is based on obeying the law, i.e., a company should conduct its business in accordance with the expectations of the state and its legislation. what follows is ethical responsibility, according to which a company’s activities should be just and fair, and its business operations in line with the ethical principles and norms of the society and the community. the final responsibility that a company has towards the society and the community in which it conducts its business is philanthropic responsibility. it is the discretionary right of a company to be charitable and donate its resources, thus improving the quality of life in the society, i.e., being a good citizen in line with the society’s expectations. in order for philanthropic responsibility to be sustainable in the long term, it is necessary at the same time to create value for the users and improve the business operations of the company. socially responsible is only that company which meets all four dimensions of carroll’s pyramid (figure 1). figure 1: the pyramid of corporate social responsibility source: carroll, 1991 although there is no clearly defined and generally accepted set of specific criteria which fully cover the scope of the corporate social responsibility concept, the current meaning of csr refers to voluntary initiatives that a firm undertakes to champion social and environmental causes and communicate to stakeholders in order to garner their support through transparent, ethical processes (taghian et al., 2015). what all the definitions of corporate social responsibility have in common is that companies have a moral obligation to the society in which they conduct their business to act ethically, and adhere to all the legal requirements and industry standards, striving to meet the society’s expectations. unlike corporate social responsibility, reputation is a subjective term, as it is based on other people’s perceptions. essentially, it is a collection of accumulated experiences, attitudes, emotions, and opinions of target public regarding an organization (vlastelica, 2016). it was only after it was established that non-financial, i.e., non-material factors have a significant impact on a company’s market success that the concept of corporate reputation management started to become more prevalent in theory and practice (sabate, 2003). reputation can be defined in a number of ways: • a set of attributes ascribed to a company, resulting from past activities (weigelt and camerer, 1988); • a stakeholder's overall evaluation of a company over time. this evaluation is based on the stakeholder's direct experiences with the company, any other form of communication and symbolism 49 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) �������� ��� � � � ������� ������� ���� ������ ������������� �� �� ����������� ��������������� ����� ���� �������� �������� � � � ������� ��� ����������� ������������� ���������������� ���� �������� � ������������� ������ � � � ������� �� � ����������� !�������������������������� ������������������� ����� ��� ����� ����������������� ��������� ��� �� � ���� � � � ������� ��� �������������� �������������� ����� ���������������� ��� ������� that provides information about the firm's actions and/or a comparison with the actions of other leading rivals (gotsi and wilson, 2001); • stakeholders’ perceptions about an organization’s ability to create value relative to competitors (rindova et al., 2005). despite the lack of a consensus about the definition of reputation, its basic contributing factors, the methods of systematic reputation management, and even the reputation measurement models, the positive effects of reputation on a company are not disputed (helm, 2007). the companies whose reputation is good, i.e., those that conduct their business in a socially responsible way, are often less susceptible to the control of state and local authorities, their influence on making specific political decisions is greater, and the negative consequences arising from crisis situations can be eliminated at least partially (kotler and lee, 2005). the analysis of the existing studies (ozdora et al, 2016) in the area of corporate social responsibility revealed very little insight into the connection between corporate social responsibility and corporate reputation. however, some contemporary articles investigate theoretical linkages between corporate social responsibility and corporate reputation, resulting in positive, direct and significant relationship between csr and cr (hasan and yun, 2017). this finding can be supported by a claim of sanchez, moran-alvarez and perez-lppez (2020) that those companies with the acceptable level of csr (workplace, governance, citizenship) also have the acceptable level of cr (reputation institute, 2015). also, studies done by aguilera-caracuel and guerrero-villegas (2018), rothenhoefer (2019) and melo and garrido-morgado (2012) show that csr actions are the most effective in influencing and increasing cr. additionally, various conceptual investigations conducted so far have mostly been concerned with the conceptual closeness between corporate social responsibility and corporate reputation, with the majority of researchers in agreement that, although these two concepts are different, they are interconnected and mutually enhancing (hillenbrand and money, 2007). even the earliest empirical research in this area demonstrates that the greater the contribution of a company to social well-being, the better its reputation (fombrun and shanley, 1990). more recent research has revealed that improving corporate reputation can act as an external motivator for companies to engage in socially responsible business practices, which is why a positive reputation can be considered a relevant result of socially responsible business practices (garberg and fombrun, 2006). findings also reveal that cr mediates the relationship between csr strategy and economic business value of multinational companies (mncs) operating in emerging economies, meaning that good corporate reputation significantly influences mncs strategy in corporate responsibility and economic business value. thus, management of mncs can enhance their corporate business objectives through sustainability practices (abugre and anlesinya, 2019). furthermore, empirical results demonstrate that csr activities have significantly positive influences not only on reputation, but also on customer loyalty and a brand image (chen-ying et al., 2017). corporate abilities play a significant role in strengthening the association between corporate social responsibility initiatives and customer loyalty because high corporate abilities with well-executed corporate social responsibility initiatives lead to high loyalty and high reputation (islam et al., 2021). in that respect, the significance of csr actions is mandatory for organizational success and guides the policymakers, managers, and scholars (islam et al., 2021). pointing out the strategic importance of the policy of corporate social responsibility, rettab et al. (2009) look into the potential effect that socially responsible practice has on business results, and discover that corporate social responsibility is positively correlated with corporate reputation, even in emerging economies, where the researchers expected that socially responsible activities would not be efficiently communicated to external actors due to the lack of adequate communication channels and skills. the research considers the connection between corporate social responsibility and corporate reputation from the standpoint of the consumer; it has been found that perceived corporate social responsibility has a significant impact on the perception of corporate reputation, which improves company legitimacy in the eyes of consumers (vlastelica et al., 2012). maden et al. (2012) examined the effect that corporate social responsibility has on corporate reputation, as well as how corporate reputation affects the behaviour of various groups of stakeholders. the results of the research indicate that a socially responsible behaviour of companies has a positive effect on reputation, which in turn has positive effects on the behaviour of buyers, employees, and investors. consumers are more sensitive to negative information on socially responsible business practices, i.e., irresponsible behaviour of companies towards the society and the environment, relative to their response to positive information on socially responsible business practices. in assessing the reputation of a company and making 50 biljana chroneos krasavac, ema karamata, jasna soldić aleksić, katica radosavljević 2021/26(3) decisions on buying, consumers attach great value to information on companies’ socially responsible practices. consumers’ expectations tend towards pro-social company practices and increase over time, although they are mostly determined by a specific society’s degree of development (aguilera, 2007). csr behaviours are of growing importance which shows the importance of sustainability to younger investors (jeffrey et al., 2019). there has been much speculation on the future of csr – it may cease to be regarded as a separate “add-on” to business operations and become fully integrated into all aspects of a company’s activities (jiang, 2020). according to 2030 sustainable development goals, all corporations have a moral obligation to work towards these goals by means of csr projects and actions. the crucial year for a practical development of the concept of corporate social responsibility in the republic of serbia is 2008, when a company’s social responsibility appeared in the national strategy of sustainable development (sluzbeni glasnik/official gazette of/ rs, 2008), and smart kolektiv founded the business leader forum with the support of the institute for sustainable communities (isc) and usaid. the business leader forum is the first organization in serbia to gather domestic and international companies, aiming to promote and incentivize the development of socially responsible business practices and the establishment of a long-term stable practice of corporate social responsibility in the business sector (smart kolektiv, 2008). in 2010, the government of serbia adopted the strategy of developing and promoting socially responsible business in the republic of serbia in 2010–2015. although the strategy does not contain a unique definition of socially responsible business, it is defined at the following three levels: relating to adhering to the legal requirements and standards adopted by the industry; continued mitigation or removal of negative effects of business practices on the society and the environment, as well as risk management; and increasing the positive effects of business practices and creating values geared towards social development and environment preservation (sluzbeni glasnik/official gazette of/ rs, 2010). the serbian chamber of commerce included in its corporate governance code several principles of corporate social responsibility which should be adopted by all companies and implemented in their business operations. these principles pertain to identifying stakeholders and establishing cooperation with them, understanding their expectations, and establishing a corporate culture which promotes ethical conduct, environmental protection, and transparent business practices and reporting (radovic & djulic, 2014). most companies operating in the republic of serbia base their socially responsible activities on ad hoc donations, and humanitarian and philanthropic activities, which means that they implement them without clearly delineated procedures. only a small number of companies engage in planned socially responsible business practices, drawing up and publishing annual reports on corporate social responsibility (ivanovicdjukic, 2010). as stated in the introduction above, for the purpose of this paper, the research conducted has been based on two main hypotheses. research hypothesis no. 1 reads: ho: there is no significant positive relationship between corporate social responsibility and corporate reputation. h1: there is a significant positive relationship between corporate social responsibility and corporate reputation. research hypothesis no. 2 reads: ho: the attitude of respondents regarding the impact of corporate social responsibility on corporate reputation does not influence their buying decisions. h1: the attitude of respondents regarding the impact of corporate social responsibility on corporate reputation influences their buying decisions. the additional hypothesis regarding the corporate social responsibility has to provide answers to the following questions: to whom companies are responsible – customers, employees, local community or the environment? is there a difference between the level of responsibilities towards those parties? in which of those cases do we find the highest level of responsibility? research hypothesis no. 3 reads: ho: there is no significant difference between the levels of corporate social responsibility towards customers, employees, local community and the environment. h1: there is a significant difference between the levels of corporate social responsibility towards customers, employees, local community and the environment. 51 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) the aim of the above proposed hypotheses is to learn the attitude of the public on the importance of corporate social responsibility and the level of socially responsible business practices in the republic of serbia. 3. methodology the research was conducted during the coronavirus (covid-19) pandemic, between march and april 2020. the companies’ responses to this crisis reveal, on the one hand, how consistent they are in their promises, and, on the other hand, how the population responds to such company activities, i.e., what the opinions regarding a company are and whether they affect the future intentions of consumers to buy. the methodological framework of the research is based on the assessment of companies’ social responsibility at the individual level, namely, what is investigated is the corporate social responsibility as perceived by the consumers. in addition to the communicated general views on company social responsibility and how it affects their buying-related behaviour, the participants also communicated their views on the socially responsible activities of five companies selected from the list of “100 top businesses as regards business success” from the 2018 report on 100 top businesses, published annually by the serbian business registers agency. the following five companies were selected from the food and beverage industry within the process manufacturing sector, which participated in the fight against the pandemic. the selected companies, which have long histories of socially responsible engagement, include coca-cola, imlek, sunoko (mk grupa), im matijevic, marbo product (pepsico zapadni balkan), and are shown in table 1. table 1: social responsibility of the selected companies source: web-sites of the mentioned companies in designing the questionnaire, the authors opted for a qualitative approach. after reviewing the relevant literature, they used the process expert panel – delphi method, to produce the satisfactory content of the questionnaire. three independent experts from different fields of expertise (research, professional associations, and employers) were consulted in the process of questions design. the questions were modified in several iterations, and the final version of the questionnaire, comprising 25 questions divided into three sets, was made available online and used as a research instrument. the first set of questions referred to socio-demographic data of the respondents. the second set of questions was concerned with the level of the participants’ understanding of the corporate social responsibility concept and the attitudes of the consumers in general to the concept. the last set of questions related to the specific five companies and their socially responsible practices, especially the activities carried out in march and april 2020 that had to do with the current epidemiological situation in the country caused by the coronavirus pandemic. 173 anonymous responses were received; all respondents were residents of the republic of serbia, who had access to the internet and were willing to answer the questions either by following the link advertised on 52 biljana chroneos krasavac, ema karamata, jasna soldić aleksić, katica radosavljević 2021/26(3) ������� ���� � �������� ������� ����������� ������� ��������� ������� � ���� ���������� ��� � ������������ �� ������ ������������� ��������� ������ ���������� ����������� ��������� ����� �� ���� ������������ ������ � �� �� �� �� �� �� �������������� � �������� ���� ����� ������� � ����� ���� �� �� ������������ �� �� �� �������������������� ��� ������ � � ���� ��� � ������ � �� � �� ��� ���� ���� ������������ ����� ��� ������ ������� � ���������� !������ �������� � � "#� ���� ����������$��� �� � ����� ��� ���� �� ���� ��� � ������ � �� �� ��������� ������� � ����������� �� ��������������� � � �� �� ����������� � � � �� � �� ���� � � ������������ ����������������� ����� ��� ��� �������� !��� �� "������ ������� � ��������������� ����� �� ���� ������������ ������ � �� �� �� "������� � �� ���� ������ � ���� ����������������$� ��� ��� �������������%������������������������ � ��� ��������� ���� ������ �� ����� ������� ����� ������� � �� ���� ������� �������� �������� � social media or received by e-mail. the sample of 173 respondents was sufficient to draw valid conclusions. the data gathered were processed and analysed using descriptive, explorative and inferential statistics. statistical techniques used for testing the relationship between variables were: frequency tables, crosstable procedures, friedman test for related samples, spearman`s correlation coefficient, chi-square test and phi coefficient of correlation. 4. results and discussion the analysis of the socio-demographic data reveal that the majority of the participants who took part in this research are female 72.1%. a large share of the participants is in their twenties (62.2%) and/or thirties (29.1%), with only a small number of people in other age groups (2.9% of the participants are between 41 and 50, 3.5% of them between 51 and 60, while only 1.7% of them were 60+). when it comes to the educational structure of the research participants, the majority have higher education qualifications – 74.4% graduated from a university (hold either bachelor or master degrees), 4.7% hold a phd, with the same proportion of them who completed a college of vocational studies. the second part of the questionnaire was focused on discovering how well the participants were familiar with the term “corporate social responsibility”. the results reveal that 34.9% are informed of the basics of the corporate social responsibility concept, with 39% of them having a solid knowledge of the concept, and as much as 8.7% being well versed in the area of socially responsible business operation. here is another important indicator: 75% of the participants have participated personally in the activities aimed at environmental protection or the improvement of social well-being. the greatest proportion of participants perceive a company as socially responsible if: it is concerned with the environmental protection (89.5%); it takes care of its employees (78.5%); it is involved in the organization of humanitarian campaigns, donates or participates in other philanthropic activities (69%); and it invests in the local community (64%). only 28.5% of the participants find a company socially responsible if it produces environmentally-friendly and high-quality products. although almost 90% of the research participants believe that companies do have some sort of responsibility towards the society, which they should assume through different aspects of their business activities, less than 2% of them think that the majority of companies in serbia are socially responsible. having in mind the fact that the concept of corporate social responsibility has been present in the republic of serbia only in the last 20 years, it comes as no surprise that 78.5% of the participants perceive serbian companies as socially irresponsible. as the most important reasons for a company to assume socially responsible business practice, the participants list the environmental protection and helping the society (52.3%), followed by the improvement of the company’s reputation (32.6%). another finding of the research is that a large number of participants are ready to support companies with some social goal, those that contribute to the community or have the environmental protection on their agenda, by opting for their products or services. exceptionally large proportion of participants are ready to give priority to the products or services of socially responsible companies, even if it means paying more (93.6%) or to go to a longer distance (88%) in order to do the shopping. the encouraging finding is that some consumers are ready to pay even twice the amount for a product or service if it comes from a socially responsible company (6.4%), or to go to a more distant shop to buy such product or service, regardless of how far away it is (13%). the analysis of data on a company’s reputation suggests that only 3.5% of the participants think that a socially responsible business operation does not affect the reputation of a company, while 95.3% of the participants agree that socially responsible business operation has positive impact on a company’s reputation. this result is in line with the already pronounced opinion of almost the third of the participants – that companies opt for socially responsible actions so as to enhance their public image. when it comes to the reputation from the point of view of consumers, the research findings indicate that the reputation of a company does affect a consumer’s decision to buy a product or service: 19.2% of the participants feel the maximum impact, while 5.6% find the impact less prevailing but still existent. accordingly, as many as 93.6% of the participants would desist from buying from a socially irresponsible company if proper substitutes are available. to conclude, people strongly react to negative information on companies, as a large number of conducted research show (sen and bhattacharya, 2001). the largest number of the participants (43.6%) rather choose to buy from companies they perceive as socially responsible, based on the company’s commercials and social campaigns. a somewhat smaller proportion of the participants do not pay much attention to the social responsibility of companies but still, if 53 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) they have a choice, rather turn to the products or services of socially responsible companies. the number of participants at the either end of extreme is almost the same – almost identical number of consumers either do not pay attention at all to the social responsibility of a company when shopping, or do find it extremely important that the companies they buy from be socially responsible. the last part of the research was concerned with the analysis of the consumers’ attitudes towards the social responsibility of the five selected companies and their recent activities caused by coronavirus pandemic in our country. the first two companies from the list themed “100 top businesses as regards business success”, published by the serbian business registers agency in the previous year, namely coca-cola and imlek, are mostly perceived as socially responsible. when it comes to the social responsibility of sunoko (mk grupa) and marbo products, opinions differ, especially about the latter, while a slightly larger number of consumers is yet of the opinion that sunoko is not a socially responsible company. im matijevic has the poorest reputation, since the majority of participants see it as socially irresponsible. such a result is interesting, since this company does tend to protect the environment from the negative impacts of the industrial production, takes care of the safety and health of its employees, and frequently donates money to charity (see table 1). this raises the question of reasons behind such findings and why a company carrying out socially responsible activities does not manage to establish a better reputation (figure 2). figure 2: perceived social responsibilities of companies all the five companies answered the call of the serbian chamber of commerce and found the way to join in the fight against the current coronavirus, either by procuring the necessary medical equipment or donating their products or goods. although those activities were in the news across the media and internet portals more than once and for several days, a relatively small number of the participants (14% at the most, and when it comes to imlek) are aware of such activities. the information that certain companies donated money, ventilators, personal protective equipment and medical safety supplies, goods or other products necessary for the fight against coronavirus (covid-19) positively affected 92.5% of the participants. as much as 79.1% of consumers declare that they will take into account the fact that some companies acted socially responsibly during the coronavirus pandemic the next time they consider buying their products. such findings directly point to the benefits the companies have when doing business in a socially responsible way, which indirectly strengthens their corporate image and reputation, and consequently generate sales. by analysing the relationship between the impact of a company’s reputation on a consumer’s decision to buy its products and the extent to which a consumer pays attention to csr, the authors tried to determine the importance of csr:cr relation to a customer when deciding which product to buy. in order to examine the previous relationship, correlation analysis, i.e., spearman`s correlation coefficient, was applied. the results have showed that there is a statistically significant but relatively low positive correlation between the mentioned variables (rs=0.391, n=173, p=0.000). therefore, the research hypothesis no. 1 was accepted. if the correlation is examined separately for men and women, it can be concluded that in the male population this correlation bears no statistical significance (rs=0.219, n=48, p=0.135), unlike the female population (rs=0.454, n=125, p=0.000). the same correlation examined in the context of the age of respondents points to the statistical significance of this correlation in the population under 30 years of age (rs=0.313, n=108, 54 biljana chroneos krasavac, ema karamata, jasna soldić aleksić, katica radosavljević 2021/26(3) 64% 67% 46% 14% 51% 36% 33% 54% 86% 49% �� ��� ��� ��� ��� �� �� ��� ��� �� ���� socially responsible socially irresponsible 55 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) �������� ���� �� ���� �������� ���� ���� ��� ��� ����� ��������� ������� ������� ������ ������� �������� ���� ���� ��� ��� ����� ��������� ��������� ����� ������ �� ���� �������� ���� ���� ��� ��� ����� ��������� ������ �� � � ��� ���� ������ ������� �������� ���� ���� ��� ��� ����� ��������� ���������� � !�� �� �� ��"#�� �� ���� � p=0.001), and even more pronounced significance in the population over 30, i.e., the analysis produced a statistically significant positive correlation coefficient of 0.5 (rs=0.5, n=65, p=0.000). in order to prove the research hypothesis no. 2, the relationship between the attitude of respondents towards socially responsible business operations on the reputation of a company and the respondents’ decision to buy that company’s products, was examined. by applying chi-square test, it has been concluded that between the above variables, there is a statistically significant correlation (chi-square=14.362, df=2, sig=0.001; phi correlation coefficient 0.288, p=0.001), i.e., that the attitude of the respondents towards socially responsible business operations and the reputation of a company affects their decision to buy that company’s products. this confirms research hypothesis no. 2. the research hypothesis no. 3 was aimed at providing the answer to the following questions: to whom companies are responsible – customers, employees, local community or the environment? is there a difference between the level of responsibilities towards those parties? in which of those cases do we find the highest level of responsibility? mean values and standard deviations of responses to the extent to which the companies in serbia are responsible towards consumers, employees, local community and the environment (on the scale of 1 to 5) are presented in table 2. table 2: mean values and standard deviations of variables (on the scale of 1 to 5) the results of the friedman test show statistically significant differences between the average attitude towards customers, employees, local community and the environment (n=173, chi-square=112.210, df=3, p=0.000). this confirms our research hypothesis no. 3. conclusion the intention of this paper is to improve the understanding of the relationship between corporate social responsibility and corporate reputation. to this day, there has not been a comprehensive definition of corporate social responsibility, since the concept keeps changing depending on the context, the point of view, the era and the business culture. what is common to all the definitions is that corporate social responsibility includes the moral obligation of companies towards the society around them to do business in the ethical way, fully abiding by the laws and maintaining the industry standards, and to contribute to the reduction and the elimination of negative and/or the increase of positive effects of their operation on the society and the environment. the research findings indicate that the participants perceive the companies as social actors which should not care for profit only, but also for the interest of the community and their business environment. they believe that companies should prove their responsibility in different aspects of their business operation and that it would positively affect people’s quality of life. the participants’ views of the responsibility of companies operating in the serbian market to consumers, local community, employees and the environment, are distinctly negative – as much as 78.5% of them hold that the majority of companies do not do business in the socially responsible way. this can be partly explained by the fact that until 20 years ago the companies in this market were not seriously involved in socially responsible activities, and partly by the fact that the majority of companies in serbia are micro-businesses – even 87% of the total number, which mostly have not adopted a socially responsible practice. all three hypotheses presented in this article are confirmed by the conducted research, meaning that practicing social responsibility builds positive views of the participants on a company, i.e., positively affects its reputation. in assessing a references [1] abugre, j. b., & anlesinya, a. 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(2015). a stakeholder approach to corporate social responsibility, reputation and business performance. social responsibility journal, 11(2), 340–363. doi: 10.1108/srj-06-2012-0068 [41] vlastelica, t. (2016). korporativna reputacija i drustvena odgovornost. beograd: zaduzbina andrejevic [42] vlastelica, t., krstovic, j. and cicvaric kostic, s. (2012). poslovna opravdanost drustveno odgovornog poslovanja. marketing, 43(3), 191–198. doi: 10.5937/markt1203191v [43] weigelt, k. and camerer, c. (1988). reputation and corporate strategy: a review of recent theory and applications. strategic management journal, 9(5), 443–454. doi: 10.1002/smj.4250090505 received: 2020-09-21 revisions requested: 2020-10-26 revised: 2021-06-06 (3 times) accepted: 2021-06-11 biljana chroneos krasavac university of belgrade, faculty of economics, serbia biljanak@ekof.bg.ac.rs chroneos krasavac biljana, a phd in business administration, was born in 1964 in novi sad. ms. chroneos krasavac worked in numerous projects funded by the us government, and/or the usaid. in august 2006, she was appointed by the government of the republic of serbia as serbia's representative with the world bank in washington. in addition to the experience gained at the world bank, she has also gained several years long experience by working for the government in the capacity of special advisor to the minister of finance and advisor to the director of the flood affected areas assistance and rehabilitation office. currently, she is holding the position of the director of the world bank project “inclusion and early childhood development“ 58 biljana chroneos krasavac, ema karamata, jasna soldić aleksić, katica radosavljević 2021/26(3) about the authors ema karamata university of belgrade, faculty of economics, serbia ema.karamata@gmail.com karamata ema had graduated from the university of belgrade, faculty of economics, where she has also gained her master's degree, and where she is currently enrolled as a phd student at the business management department. the main areas of ema's interests and expertise are: business management, information technologies, digital marketing, data analysis. she has participated in a number of projects in a domain of business management, and conducted several surveys. jasna soldić-aleksić university of belgrade, faculty of economics, serbia jasna.soldic@ekof.bg.ac.rs soldić-aleksić jasna holds a position of full professor at the department of mathematics and statistics, faculty of economics, university of belgrade. her main subjects of research are: applied data analysis, business data management and applications. she has gained research experience at the london school of economics and political science, central european university in budapest, limburg business school, belgium; faculty of management science and information systems, state university of new york. she is a member of the following professional bodies: international association of statistical computing, serbian association of economists, serbian marketing association sema. she has published a a number books on the subject of the applied data analysis and over 100 articles in the relevant scientific and professional journals. katica radosavljević university of belgrade, faculty of economics, serbia katica.radosavljevic@ekof.bg.ac.rs katica radosavljević was born on 16 july, 1975 in gothenburg, sweden. since 2000, katica radosavljević has been employed at the faculty of economics university of belgrade, as a research associate. she defended her phd dissertation on the following subject “the strategy of marketing channel development in agribusiness of the republic of serbia”. she was a manager of two projects related to the valuation of corporate capital. she also assisted on numerous projects. 59 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice tipska 61 biljana stankov1, jasmina markov2, ivana milošević3 1 higher school of professional business studies in novi sad, serbia 2 faculty of economics in subotica, serbia 3 faculty of economics and engineering management in novi sad, serbia management 2015/77 fdi by economic activities and investment incentives in bulgaria and serbia udc: 339.727.22(497.11) 330.341.2 doi: 10.7595/management.fon.2015.0026 1. introduction a long time ago, the united nations took the view that fdi are such investments that involve agreement of partners, providing long term interests and implementation of control by the company from one country over the company which is a resident of another country. in this way, the company that invests acquires ownership control over the company into which it invests its capital, and which is located in another country outside of its homeland. especially in recent decades, fdis have become a very attractive form of investing funds, since they provide multiple benefits for both investors and host countries. the experiences of a large number of transition countries, such as bulgaria and serbia, have shown that fdis are a more favourable form of inflow of necessary accumulation, compared to conventional loans in the international financial market. the direct inflow of foreign capital improves their economic situation, encourages economic activities, increases employment and productivity, increases exports and stimulates economic recovery. fdi should accelerate the process of economic and political transformation and, as kragulj (2003) emphasizes, should be a promoter of economic growth and development in countries in transition. however, the real facts cannot be ignored because they show that fdi often cause uncontrolled exploitation of domestic, especially non-renewable resources, influence the growth of unemployment and the creation of technological dependence on foreign companies and sometimes form a model of consumption that generally does not correspond to the level of development of the host country. countries in transition have occasionally expressed serious dissatisfaction with the economic, social and political impacts of fdi (vojinović jaćimović, 2002). it is important to properly assess whether a certain investment will have more beneficial rather than harmful effects, and to make the final decision on that ground. even so, the above mentioned is a privilege that is available to developed countries, because poorly developed countries in transition, in pursuit of intense economic growth, often accept all foreign investors without taking into account the coming consequences. the predominantly low level of domestic accumulation of capital and the pursuit of dynamic economic growth and development of the economy cause the need for intensification of fdi inflows. alfaro, chanda, kalemli-ozcan & sayek (2004) noticed that the past decade was marked by the increasing role of fdi in total capital flows. in 1998, fdi accounted for more than half of all private capital flows to developing countries. after initial skepticism, as grandov, mitić & since 2007, when bulgaria became a full member of the eu and 2012, when serbia was granted the status of candidate for eu membership, these countries have become very attractive investment destinations. the object of this research is the movements of fdi in the mentioned countries in 2013 and their structure by economic activities. the scientific problem is related to the positive effects of fdi on the host country, making an attractive investment environment, creating incentives for foreign investors and comparing the structure of fdi in bulgaria and serbia with simultaneous comparison with the european average. it may be noted that this is a current theoretical and empirical research that deals with modern state of the subject. the necessary quantitative data have been collected using the desk method and using the secondary data source and the method of description as well as the comparative method were used in the ensuing analysis. the aim of the study is to, by applying the above methods, determine the most attractive investment areas, analyze the current investment incentives and provide recommendations on adjustments to be made to improve the actual investment strategies and create attractive investment locations in bulgaria and serbia keywords: fdi, economic activities, investors, investment destination, investment incentives, investment location vojvodić (2011) found that in the mid-nineties, transient european countries began to compete mutually by creating a more desirable investment ambience in order to attract greater amounts of fdi. according to cheng & kwan (2000) many countries see attracting fdi as an important element in their strategy for economic development because fdi is widely regarded as an amalgamation of capital, technology, marketing and management. they emphasized that an important question for policy makers was what the factors that attract fdi are. in order to attract foreign investors bulgaria and serbia must establish political stability, implement fair processes of privatization, and minimize commercial risk. some of the incentives which they apply in attracting foreign investors are friendly laws on fdi, reduction of corporate profit tax, elimination of trade barriers and investment prohibitions, financial incentives, low rates of vat and income tax, low costs of hiring and firing employees and many others. more intensive investments in the balkan countries started in 2000 and fdi inflows have been growing continuously since, but has in recent years been under a threat due to economic and financial instability in the world. the above said has been confirmed by penev & marušić (2011) who found that, after the period of intensive growth of the inflow of fdi, in 2008, all countries of the region experienced a decrease in direct investments, primarily due to the impact of global economic crisis. already in 2009, the inputs of fdi in bulgaria dropped by more than us$ 6000 million, and in serbia by nearly us$ 1000 million, compared to the trends in the preceding year. in 2012, these countries were referred to as very interesting investment destinations, leading among the see countries by attracting production-oriented fdi and job creating. according to ernst & young’s (eys) attractiveness survey (2013), by the realization of 78 investment projects along with securing 10302 new jobs in 2012, serbia placed itself among the top ten european investment destinations by job creation. in the same year, in bulgaria, foreign investors encouraged hiring of 4379 new workers, mainly in manufacturing.the following year, even 12179 new jobs were secured in serbia as a result of the fdi inflows, which accounted for 7% of all new jobs created in the european countries. in bulgaria, this number increased slightly to 5505 new jobs. in 2014, in serbia, there was a significant reduction in this number since 5104 jobs were opened, and participation decreased to 3%, while bulgaria maintained a constancy of above 3% share (5688 jobs) in the total number of new working places opened thanks to fdi inflows into european countries. like many authors, jensen (2003) concluded that fdi is an important element of the global economy and a central component of economic development strategies of both developed and developing countries. supporting the previous, noorbakhsh, paloni & youssef (2001) added that fdis are not only a source of finance and employment but, for developing country governments, they can also be a medium for acquiring skills, technology, organizational and managerial practices and access to markets. 2. literature review in this research, the opinions of many respected scientists dealing with various issues related to fdi are accepted and relevant literature is used. the research also highlights the similarities in the definition of fdis, current trends in their development as well as the impact of globalization on fdi inflows. different views on the impact of fdis on the host country are mentioned, as well as the factors that affect the investment decision making by foreign investors and decisions on the choice of investment location. many definitions of fdi can be found in literature, but they are generally based on conventional elements which read: fdi is a form of international inter-firm cooperation that involves a significant equity stake in or effective management control of host country enterprises. a large number of authors dealing with various issues related to fdi emphasize the increase in their importance, especially in the era of global economy. this is confirmed by hallward-driemeier (2003) who says that fdis have surged dramatically over the last two decades and more developing countries are competing to host these multinationals. as stein & daude (2001) found, one of the most notorious features of the trend toward globalization in recent times has been an increased importance of fdi around the world. the impact of globalization is also mentioned by zeković (2002) who in his work dealt with globalization and a more recent tendency in the development of economic activities as factors that actuated a strategic allocation of capital and different models of fdi. fdi will go to countries that pay a higher return on capital, but as asiedu (2002) points out, finding an appropriate measure for the return on investment is problematic, especially for developing countries. this is because most developing countries do not have well-functioning capital markets and therefore it is difficult to measure the return on capital. markusen & venables (1999) are just some of the authors who have concluded that, over the past two decades, direct investments by multinational firms have grown significantly 62 2015/77management faster than trade flows. fdis by mncs have recently grown without precedent and kugler (2006) noticed that they especially penetrated middle-income countries such as bulgaria and serbia. he also mentioned that during the 1990s the growth of fdi flows trebled the growth in international trade. the impact of fdi on the host economy is a very common topic of many scientific studies and gligorova (2007) says, in relation to this impact, that it can be recognized in any one of three ways: (1) by stimulating development in the country through gdp growth, export capacity growth and capital stock growth; (2) by improving technical and know-how transfer in the host country; (3) by developing infrastructure that is consistent with environmental standards. the positive impact of fdi is noted by aitken, hanson & harrison (1997) who found that multinationals which export their goods to foreign markets may induce domestic firms to follow suit, thus acting as “catalysts” for domestic exporters. taking into account that the analyzed countries are currently struggling with the consequences of the global crisis, it is important to emphasize that fdi is the most desirable form of capital inflows to emerging and developing countries, and, as busse & hefeker (2007) say, it is because those countries are less susceptible to crises. fdi brings the potential for the development of new inputs, or the increase in the quality of the existing ones, which may be possible due to the demand created by the foreign investment, but as rodriguezclare (19996) noticed, it may become available for domestic firms as well. the extraction and distribution of raw materials produced in the host country may be facilitated by improving the network of transport and communication and bengoa & sanchez-robles (2003) showed that this is possible thanks to fdi inflows. fdi could also add up to economic growth simply by augmenting capital accumulation in the host country. this would require, as borensztein, de gregorio & lee (1998) highlighted, that fdi should not ‘crowd out’ equal amounts of investment from domestic sources by competing in product markets or �nancial markets (for example, under conditions of �nancial repression). in addition, fdis could increase economic growth if they were more productive, or efficient, than domestic investments. new growth theories suggest that international transfers of technology and knowledge through fdi may affect the performance of host economies (barrell & pain, 1999). host country policies can influence fdi flows and as gastanaga, nugent and pashamova (1998) found, this is possible primarily through their influence on the advantages of location in the host country. fdis are seeking quality domestic institutions. according to yin-li tun, azman-saini & siong-hook law (2012), this is because a good institution is able to create better environments for investors especially in terms of lower cost of doing business, lower uncertainty and higher productivity prospect. asiedu (2002) found that good infrastructure increases the productivity of investments and therefore stimulates fdi flows. good infrastructure is a necessary condition for foreign investors to operate successfully, regardless of the type of fdi. investment decisions in emerging markets are also influenced by economic and political risks, confirmed campos and kinoshita (2003). successful implementation of economic reform by the host government is a good signal to investors, as a stable macroeconomic environment implies less investment risk. countries that want to attract foreign investors, as stein and daude (2001) suggested, must strive to improve the quality of their institutions, because that is a strategy which, in addition, should generate other positive externalities. some authors, such as kaufmann, kraay and zoido-lobaton (1999), talk about institutional variables as variables that influence the investment decision making and in that group they count regulatory burden, voice and accountability, government effectiveness, political instability, graft and rule of law. as far as attracting fdi is concerned, benassy-quere, fontagne & lahreche-revil (2001) emphasize that both the level and the volatility of the exchange rate have to be taken into account, since they affect fdi. there are many authors who deal with the impact of corruption on fdi inflows including busse & hefeker (2007), who argue that lower corruption and nationalization risk levels as well as better contract enforcement are associated with higher fdi inflows. exploring several factors that influence fdi inflows, globerman & shapiro (2002) conclude that, in addition to governance infrastructure as infrastructure that can contribute to economic well-being and create a favorable climate for fdi, physical infrastructure and the environment are also very important. 3. methodology the quantitative data, necessary for the research, have been collected using the desk method secondary data source „the investment map database”. this database collects yearly fdi statistics for about 200 countries and a detailed fdi sectoral and country breakdown for about 115 countries. in analyzing the data, we have applied the method of description to describe the essential facts related to fdis, their distribution by economic activities as well as investment incentives offered by analyzed countries. in the further course of the research we have used the comparative method and performed the comparison of the same elements, 63 management 2015/77 similarities and differences in the trends and structure of fdi in bulgaria and serbia, with simultaneous comparison with the european average. the results of this research may be useful to scientific workers whose object of interest is also fdi, to students as a supplement to the existing knowledge in the field of international economics as well as to government agencies that work to improve the investment attractiveness of the studied countries, attracting foreign investors and directing fdi to certain economic sectors. 4. results and discussion since the year 2000 bulgaria has become one of the most attractive investment locations in the balkans, which has expressly been pointed out after 2007, when it joined the eu. buch & piazolo (2001) find that a cumulative result of (1) projected gdp growth rates, (2) the lack of exposure to the direct impact of the defaulting market instruments, as well as (3) the eu experience that a new member’s accession is often followed on by a period of strong economic growth. bulgaria has attracted investors by macroeconomic and financial stability, strategic geographical position, educated and specialized workforce, infrastructural subsidies for large investors and various support programs by the government for priority investment projects as well as by peaceful political situation. many scientists note that the distribution of fdi depends on both economic and political determinants. schneier & frey (1985) have long ago concluded that a country in which there was political unrest or in which there was a threat of having the investment nationalized was more of a risk and therefore ceterus paribus less attractive to invest in than a country offering political stability and a guarantee of property rights. the competitive rate of corporate tax of only 10% in bulgaria has a stimulating effect on the investors and encourages them to go beyond the existing investments and to commence new investment ventures. in 2013, as presented in figure 1, the majority of investment projects, 76%, were realized in the area of manufacturing, electricity, gas and steam supply, mining and quarrying, transport, storage and communication. the bulgarian economy has so far mostly experienced investments from germany (aurubis, liebherr, schneider electric and siemens), greece (hellenic petroleum, ote and viohalco), austria (evn and palfinger), belgium (melexis and solvay), spain (roca and keros), the usa (hewlett packard and johnson controls), switzerland (nestle), the united kingdom (shell), sweden (skf) and italy (unicredito). in comparison witho other countries of the region, it may be concluded that bulgaria has fewer restrictions on foreign ownership. for example, as a member of the eu, it is constantly harmonizing its legislation with the eu legislation, which results in the entry of foreign ownership in many sectors of the economy, so that there are currently no restrictions on foreign ownership in 31,33% of economic sectors, as measured by the investing across sectors indicators. figure 1: fdi by economic activities in bulgaria in 2013 serbia has long been a completely unattractive investment destination, avoided by the western investors, es64 2015/77management pecially in the period of frequent political turmoil. according to carstensen & toubal (2004), besides the quality of the business environment, the overall political climate is also likely to influence fdi. more significant investments in the serbian economy began only after 2000 when the political situation stabilized, the democratic system of government got promoted, the privatization of the state sector commenced, and the conditions for rapid economic recovery were created. democratic political systems attract higher levels of fdi inflows both across countries and within countries over time and democratic countries are predicted to attract as much as 70 percent more fdi than their authoritarian counterparts (jensen, 2003). researching the same, li & resnick (2003) concluded that if democratic governance hurts a country’s attractiveness to foreign investors, the developing country faces a trade-off between competing for limited fdi and democratization. in the period between 2005 and 2012, the majority of foreign investments in serbia arrived from austria, followed by norway, germany, luxembourg, greece, the netherlands, italy, the russian federation, slovenia and hungary. the companies that have so far invested the most funds in the serbian economy are telenor, fiat automobili serbia, stada-hemofarm, philip morris din, eurobank efg, salford investment fund, cee/big shopping centers, national bank of greece, us steel, fondiaria sai, pepsi co marbo and british american tobacco south east europe. it can be seen in figure 2 that, in 2013, foreign investors mostly invested in manufacturing, then wholesale and retail trade, financial intermediation and construction. as much as 71% of fdi projects were realized in these economic sectors. figure 2: fdi by economic activities in serbia in 2013 in order to encourage foreign investors to hire additional workers and their recruitment from the local population, serbia has been applying an income tax rate of only 10%, which is the lowest among neighboring countries. according to slović (2012), taking into account tax incentives for investments, as well as any other tax benefits, serbia should, at this moment, from the aspect of tax treatment of foreign investments, represent one of the most attractive investment locations in the region. however, tax incentives as a factor of attraction of fdi come into play only after a favorable investment climate has been created, as observed from the standpoint of other (non-tax) factors. the fact that in 2012 serbia became a candidate for membership in the eu has stimulated and encouraged many foreign investors to decisively and more confidently approach to investing their funds. eu announcements about potential accession have significant independent effects on fdi flows to countries in transition by increasing fdi to countries whose likelihood of accession is enhanced (bevan & estrin, 2004). 65 management 2015/77 66 2015/77management in recent years, the interests of foreign investors in bulgaria and serbia as investment destinations have been growing, primarily due to the creation of an attractive investment environment and getting closer to the eu. carstensen & toubal (2004) conclude that the last decade has seen a remarkable growth of european but also us outward direct investments in transition countries in europe. this growth is often regarded as being driven by the process of integration of these countries into the eu and the associated elimination of the barriers to fdi and acceleration of the transition process of those economies. among other things, bulgaria has encouraged fdi inflow by applying low rates of corporate income tax, while serbia does so through the rate of income tax which is the lowest in the region. in order to set up a business company in bulgaria, foreign investors must devote at least 20 days and undertake about 5 different procedures. in serbia, it is necessary to devote 14 days while undertaking 8 procedures, which is faster than the european average. in recent years, the largest investors in both countries have been european companies, reaching as much as 90% in serbia. it is necessary to mention that fdi have also forced an increasing number of domestic manufacturers to compete globally (chen & zhang, 1995). in 2012 as well as in 2013, it was manufacturing that was the most attractive area of investment into the analyzed countries. according to the data of ey’s attractiveness survey, a similar trend was recorded in other european countries where, in 2012, 973 fdi projects were implemented in manufacturing and 101535 new jobs were provided, which amounts to nearly 60% of all jobs emerging as a result of fdi. it is believed that manufacturing is one of the most attractive economic sectors to foreign investors which is going to attract the most investors in europe in the coming years (according to some research, 32% of all investment projects will be carried out in this area). wholesale and retail trades are a very interesting sector for foreign investors in serbia with the share in total fdi projects of 11% in 2012 which increased to 21% in 2013. according to the european average in the area of trade, in 2012, 1945 fdi projects were implemented, which is significantly more than in the area of manufacturing, but at the same time far fewer jobs were provided (19403 – 11% of the total number of new jobs). taking into account all of the industries invested in, it may be noted that in 2013 in bulgaria foreign investors have provided 5505, and in serbia even 12179 new jobs, which places serbia among the top ten most successful european countries. it is important to emphasize that fdi can raise the quality of domestic human capital and improve the know-how and managerial skills of local firms (bengoa & sanchez-robles, 2003). when talking about human capital, branstetter (2006) found that fdi is an alternate, potentially equally important channel for the mediation of knowledge spillovers. by analyzing factors that disrupt business activities in bulgaria and serbia, which hinder foreign investors in making investment decisions, it is asserted that one of the leading factors is corruption. according to habib & zurawicki (2002) foreign investors generally avoid corruption because it is considered wrong and it can create operational inefficiencies. eys attractiveness survey (2015) says that the biggest threats to attractiveness, among the ten analyzed of all european countries as destinations for foreign investments are too much bureaucracy, low economic growth and lack of political governance at the eu level. these factors account for half of all threats. even 46% of nearly a thousand foreign investors who were surveyed said that they want stability and transparency of political, legal and regulatory framework and 48% of them proposed to implement business-friendly reforms in host countries especially within the areas of competition, tax and labor market. in order to attract larger amounts of fdi in the future, bulgaria and serbia must implement attractive incentives, constantly improve the investment ambience and create attractive investment locations while providing a multitude of benefits for foreign investors. therefore, rapid registration of business entities and minimal administrative activities at the opening and construction of buildings certainly leave a positive impression on the foreign investor and encourage them to continue with the initiated and engage in new projects. campos and kinoshita (2003) find that the host country institutions also influence investment decisions, because they directly affect business operating conditions. the cost of investment consists of not only the economic costs of investment, but also the non-economic costs, such as bribery and time lost in dealing with local authorities. according to smarzynska javoricik (2004) governments all over the world compete to attract fdi hoping that multinational corporations will bring new technologies, management skills and marketing know-how. in order to create an investment friendly environment, it is important to understand the factors that influence fdi inflows as well as the determinants of the composition of such flows. it is very welcome that, in addition to the said incentives, financial support for foreign investors is also provided, i.e., financial grants within various government programs are awarded. conslusion references [1] aitken, b., hanson, g., & harrison, a. 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(2004). the composition of foreign direct investment and protection of intellectual property rights: evidence from transition economies. european economic review, 48(1), 39-62. [36] stein, e., & and daude, c. (2001). institutions, integration and the location of foreign direct investment. washington dc, inter-american development bank [37] the international trade center. (2014). the investment map database. retrieved march 12, 2014, from http://www.investmentmap.org [38] vojinović jaćimović, d. (2002). the direct investment decision process. management: journal for theory and practice management, 26(7), 48-53 [39] yin-li tun, w.n.w. azman-saini & siong-hook law. (2012). international evidence on the link between foreign direct investment and institutional quality. inzinerine ekonomika-engineering economics, 23(4), 379-386 [40] zeković, s. (2002). foreign investments and environmental protection in fry. management: journal for theory and practice management, 27(7), 25-29 receieved: october 2014. accepted: november 2015. biljana stankov higher school of professional business studies in novi sad, serbia biljana stankov is an msc holder in economics employed as teaching assistant at higher school of professional business studies in novi sad. during many years of working in higher education, first as an associate and then a teaching assistant, she dealt with various subjects in the field of economics. she completed undergraduate academic studies and masters studies in the field of marketing management and european economy. currently she is a final year student of doctoral studies at the faculty of economics and engineering management in novi sad, university business academy at the business economics study program. she participated in many international scientific conferences and has published several papers in scientific journals. the key fields of her interest and future development are foreign direct investments, competitiveness, international and european economy. 68 2015/77management about the author jasmina markov faculty of economics in subotica, serbia jasmina markov completed undergraduate studies at the faculty of economics in subotica, department of novi sad, where she completed her masters studies as well. her fields of interest during these studies were marketing and trade. in the year of 2010 she started her doctoral studies at the same faculty, in the management and business study program, marketing module. from 2008 to 2013 she worked at the higher school of professional business studies in novi sad, as an assistant master in the specialized field of business economics and management. in addition, she spent a year volunteering in the government of the autonomous province of vojvodina in the province secretariat for education and culture. she has also published several papers in scientific journals and has participated in numerous international conferences. ivana milošević faculty of economics and engineering management in novi sad, serbia ivana milošević graduated in 2009, at the faculty of economics in novi sad, gpa 8.80, and completed her masters studies in 2013, gpa 9.67, at the faculty of agriculture in novi sad. she commenced her phd studies in 2013, at the faculty of economics and engineering management in novi sad university business academy in novi sad (program of study: business economics). she is engaged at the same faculty as an assistant in the following subjects: macroeconomics, national economy and public finance and has also participated in the process of accreditation and selfevaluation of the faculty. she is engaged in the program of continuous professional development of teachers, educators, experts and directors for 2014/2015 and 2015/2016 school years under the auspices of zuov (ministry of education, science and technological development). 69 management 2015/77 07 26_3 dimitrije gasic:tipska.qxd 73 dimitrije gašić*, nemanja berber university of novi sad, faculty of economics in subotica, serbia management: journal of sustainable business and management solutions in emerging economies 2021/26(3) the influence of flexible work arrangement on employee behavior during the covid-19 pandemic in the republic of serbia doi: 10.7595/management.fon.2021.0026 abstract: 1. introduction the labor market has significantly changed in the last decade due to different changes and challenges. the processes of globalization, digitalization, competitiveness, dynamism, and the presence of new generations (y and z generation) in the companies, lack of skilled workers in many countries of the world are "new normal" in the business world. companies that want to attract and retain talents, as well as to increase their knowledge, skills, and abilities (ksa), need to become increasingly flexible and innovative in terms of the organization of work, work-life balance, training, compensation systems, and development programs, career management, etc. (berber & slavic, 2019). at the end of 2019, a new form of corona virus, which is responsible for the severe respiratory disease covid-19, broke out, which quickly turned into a public health crisis and changed the direction of the global * corresponding author: dimitrije gašić, e-mail: dimitrijegasic33@gmail.com research question: the authors investigate the impact of flexible work arrangements (fwas) on employee behavior during the covid-19 pandemic in the republic of serbia. the main question is whether fwa and in which manner influences employees’ behavior, especially turnover intentions and employees’ engagement. motivation: based on the study results of azar et al. (2018), masuda et al. (2011), and laurel et al. (2009), the author planned to identify the relations between fwa and the behavior of employees in terms of engagement and turnover intention in the covid 19 pandemic era. idea: the research is created by considering the changes in the way of operating in almost all business activities caused by this pandemic. having in mind the pandemic, and spreading of the virus after that, there is a gradual shift of work from the company's office to fwas, especially "work from home" and teleworking. data: the research was conducted during 2020/21, on a sample of 219 employees on whom this pandemic had a great impact and brought changes in the way of working, which became quite different from that before. data collection is performed via an electronic survey google-forms, where respondents were able to answer the questions asked in the questionnaire via their electronic devices at any time. tools: to analyze the data collected by completing the questionnaire, the author used smart pls 3 software to make the data analysis relevant. during the analysis of data in smart pls, an independent variable was formed that refers to "flexible work arrangements", while the dependent variables are "engagement" and "turnover intentions". findings: based on the conducted research, we conclude that "fwas" have a positive impact on the engagements of employees in the republic of serbia and a negative impact on turnover intentions. all hypotheses are confirmed. contribution: the paper contributes to the literature by empirically testing how certain factors affect the behavior of employees in the republic of serbia during the covid 19 pandemic. keywords: covid-19 pandemic, flexible working arrangements, engagement, turnover intentions, serbia jel classification: m10, m50 dimitrije gašić, nemanja berber 2021/26(3) 74 economy into the deepest recession as during the great depression (ocde, 2020, p. 24). on march 11, 2020, the world health organization (who) qualified public health as an emergency situation caused by covid-19 disease as an international pandemic. (world health organization, 2020). millions of employees around the world are going through a difficult time of redefined work. since the outbreak of the covid-19 pandemic, there has been a change in the working environment overnight and all employees have had to adapt quickly to the new situation. it seems that the challenges of managing family affairs, business duties as well as personal security are not simple, and, on the contrary, day by day, workers are facing new challenges and problems in various fields. the covid-19 pandemic has significantly transformed the work environment as well as the work responsibilities of many individuals who started working from home or remote working. in addition to distance work, a new problem has arisen: many families have faced a situation in which they had to assist their children who were also “imprisoned” at home and attended distance learning classes during that period (thulin, wilhelmson, & johansson, 2019). the way they cope with these challenges caused by the covid-19 pandemic will have profound consequences on employee productivity as well as on the success of any company (vasic, 2020). as a result of their intention to become more flexible, but also as a response to the covid19 pandemic, many organizations switch from office work to different ways of fwas, mostly home-based work and teleworking. fwas offer the ability to employees to make changes on where, when and the total time they would spend or engage in work-related tasks, and they are usually used as part of the human resource strategy to attract, motivate and retain key talents (richman, et al., 2008). (richman et al., 2008; choo et al. 2016; azar et al., 2018). many of fwas were found to have positive relations to employees and firm productivity (richardson, & mckenna, 2014), and employees’ behavior in terms of engagement (ugargol & patrick, 2018), commitment (choo et al., 2016), innovative behavior, satisfaction (wheatley, 2017), etc. in contrast, fwas are found to have negative relations to employees' turnover and absenteeism (berber & slavic, 2019). based on the above-mentioned, the authors developed a research aim. this research aims to investigate the relations between the usage of fwas and employees' engagement and turnover intentions. many managers must be familiar with fwas that formalize where, when and how employees do their job (chen & fulmer, 2018). it has been established that working from home and flexible work scheduling bring benefits to employee health (anderson, kaplan & vega, 2015). international human resource management (ihrm) has a unique vision concerning fwas, where for example employees working in global teams are accustomed to work from home and outside normal working hours. the survey, launched in march 2020, with 800 global human resource managers, revealed that 88% of employees in the organization were either encouraged or required to work from home during the covid-19 pandemic crisis. for employees who were mobile globally and are now away from home during the covid19 pandemic, the change is particularly significant and the boundaries between family and work may require renegotiation and reorganization (caligiuri, de cieri, minbaeva, verbeke & zimmermann, 2020). the covid19 pandemic and the accompanied measures have the potential to affect a series of workand career-related variables: working conditions, work motivations and behavior, job and career attitudes, career development, and personal health and well-being (spurk & straub, 2020). one very important fact that is confirmed to be true at the time of the covid -19 pandemic is that people must be aware of the weight this pandemic brings to both people's private lives and the business world. that is why it is very important for employees to be aware of all the problems that this pandemic can cause; it is important that the work is well organized so that the consequences are as small as possible (prasetyo et al., 2020). the research in this paper was conducted during 2020/21, on a sample of 219 employees on whom this pandemic had a substantial impact and brought changes in the way of working, which was quite different than before. data collection is performed via an electronic survey google-forms, where respondents were able to answer the questions asked in the questionnaire via their electronic devices at any time. tools: to analyze the data collected by completing the questionnaire, the author used smart pls 3 software to make the data analysis relevant. the paper is structured as follows: the first part contains an overview of the relevant structure related to flexible working arrangements, types of flexible work arrangements, relations between flexible work arrangements and employee engagement, relations between flexible work arrangements, and turnover intentions. the second part refers to the research methodology where it is described how the research was conducted (which questionnaires were used, what are the many parts the questionnaire consists of, how many people filled in the questionnaire, how to answer the questions from the questionnaire, etc.). the third part of the paper refers to the results of the research and the discussion of the obtained results. finally, the final part of the paper refers to the concluding observations and gives recommendations for future research. as a result of the lack of literature and understanding of telework at the time of the covid-19 pandemic, the weekend work employees can extend working hours during the weekend or can work in two shifts during saturday and sunday with free time during the rest of the week. work in shifts employees are replaced in job positions so that the company can work longer than the working hours of individual employees. overtime employees work additional hours during the day, weekly, or over a year provided for in their employment contracts. hourly contracts employees perform a predetermined number of working hours per year, with the division of hours being based either on an agreement between the employed workers and the employer or the basis of the last need for market demands. part-time work employed workers regularly work less than a whole week. division of labor division of labor two part-time employees share one fulltime job. flexible working hours employees work full time by being able to choose the start and end of working hours within the limits set by the company's management. temporary employment employment is offered temporarily fixed-term contracts employees work under short-term or long-term employment contracts with a fixed duration. work from home employees work from home. teleworking employees work separately from the office throughout the work week, while maintaining an electronic presence in the office. management: journal of sustainable business and management solutions in emerging economies 2021/26(3) 75 paper seeks to clarify in more detail the impact of the pandemic on employee behavior. in that sense, this study aims to characterize the remote work that was conducted in the republic of serbia in the context of the covid-19 pandemic. 2. theoretical background 2.1. flexible work arrangements and teleworking fwa are practices such as working from home, working outside regular working hours, reduced as well as extended contract hours (den dulk, groeneveld, ollier-malaterre, & valcour, 2013, stirpe & zárraga-oberty, 2017). firms offer fwa to support employees to balance their work and private lives but also to improve firm performance (richardson, & mckenna, 2014). also, fwas are an adequate response of companies in relation to dual-earner couples, women, and single-parent families, as well as those who have geriatric care responsibilities, in the workplace (choo et al., 2016, p. 24). fwas are “working patterns involving modifications to the regular working hours such as work at nights and at weekends, home-based working, teleworking, part-time jobs, flexitime, compressed work weeks, etc. (stavrou, 2005; berber & slavic, 2019). table 1: types of fwa according to cranet international research methodology source: (stavrou, parry & anderson, 2015.; berber & slavic, 2019, p. 35). with the adoption of advanced electronic media and the internet, working from home and working remotely is becoming increasingly popular among companies around the world. it is estimated that about 10% of companies in spain and about 50% of companies in the us, germany and the uk use telecommuting as a work arrangement. in japan, 13% of companies have signed a law that allows employees to work from home; the bill is known as the republic act no. 11165 or the telecommuting act (ramos & prasetyo, 2020). dimitrije gašić, nemanja berber 2021/26(3) 76 over the past years, there has been a significant increase in the number of workers who have come to apply for flexible working arrangements (at least 17% in europe and 16% in the us in the last year). as the most flexible type of work arrangement, online platform mediated contracting has more flexibility compared to regular work arrangements. gig work is a type of temporary contract work that connects self-employed workers directly with clients via a digital platform (spurk & straub, 2020). flexible work arrangements have a positive effect on attracting and retaining employees, which contributes to the better work performance of the company (sharafizad, paull & omari, 2011). based on different legal regulations and theoretical approaches, fwas can have multiple meanings in different countries around the world. according to cranet international research methodology, the measures of fwa are as follows: it was found that fwas have a positive impact on employee engagement, increased productivity, the financial performance of companies, customer satisfaction, increase in quality, employee satisfaction, commitment, etc. (richardson, & mckenna, 2014; ugargol & patrick, 2018; berber & slavic, 2019; weideman & hofmeyr, 2020). as one of the very interesting fwas, that is increasingly offered, teleworking is defined as "flexible work arrangements" which means that employees work at a location that is far from the company's headquarters or production facility; it also refers to the fact that the worker has no personal contact with associates there but there is an opportunity to communicate using the modern technologies such as mobile phones, laptops, etc. (wang, liu, qian, & parker, 2020). teleworking is not a new thing and many companies around the world have embraced this way of working, but not to a large extent. this way of working is mainly used in education and health, information and communication as well as in large companies (pigini & staffolani, 2019). teleworking implies that the employee is available anywhere and at any time and thus meets the requirements of the organization (baruch, 2000). teleworking is already an established work practice in most countries and is thought to become more prevalent in the next few years. today, in the era of computers and interns, teleworking has become something that most companies will be able to afford (heleta, 2010). however, this type of fwa (teleworking) was not widely used in practice before the outbreak of the pandemic (kossek & lautsch, 2018). besides teleworking, working from home, or home-based work became a "new norm" for many employees during the covid-19 pandemic. millions of people took refuge in their place by staying at home and working remotely connecting with colleagues via email, mobile phones, and video conferencing via the internet. but what will happen after the end of the crisis? will we return to the "old normal" ways of working or will employers recognize working from home as a benefit to both them and employees? (tavares, santos, diogo, & ratten, 2020). 2.2. relations between flexible work arrangements and employee engagement employee engagement has gained global interest from practitioners and researchers, as organizations recognize the positive impact and competitive advantage that engaged employees (kahn & heaphy, 2014). employee engagement results in the enhancement of various performance outcomes for organizations. these include productivity, financial considerations, customer satisfaction, a decrease in employee absenteeism, and an increase in overall product/service quality (bakker & demerouti, 2007). the benefits associated with employee engagement seem evident in literature and have become an important topic in the business world (hammer, neal, newsom, brockwood & colton, 2005). due to rapid changes in workforce diversity and changes in the way work is delegated and performed, there is a growing need for a proactive response by the company to work to ensure employee engagement that is a key tool for increasing productivity (parkes & langford, 2008). companies are currently increasingly facing various challenges in managing a diverse workforce by working on support policies as well as employee programs that have a positive impact on employee engagement (myers & dreachslin, 2007). the impact of fwas on employee engagement has a positive effect on employees, as shown in the author's work (ugargol & patrick, 2018) where the study showed that the application of flexible options to employees has potential benefits and that this type of arrangement ensures work-life balance of the employees. workers are more engaged using these options that the company offers them. similarly, in the work of the author (weideman & hofmeyr, 2020), it has been found found that flexible working arrangements (flextime, flexplace, and compressed work week) have a positive impact on employee engagement and thus lead to increased productivity, financial performance, customer satisfaction, increase in quality. in the work of the authors (richman, civian, shannon, hill & brennan, 2008) results indicate that perceived flexibility and supportive work-life policies have significant independent effects in predicting employee engagement and expected retention even after controlling for several personal, family, and job characteristics. h1: flexible work arrangements are positively related to employee engagement. 1. fwas help me to balance life obligations. (fwa1) 2. i can't afford the loss of earnings associated with most flexible work options. (r) (fwa2r) 3. fwas do not suit me because they make me feel disconnected from the workplace. (r) (fwa3r) 4. shorter working hours would negatively affect my career progress in the company where i work. (r) (fwa4r) 5. working with more flexible working hours is essential for me to fulfill family obligations. (fwa5) 6. fwas are essential to me when participating in family and social events. (fwa6) 7. fwas allow me to focus more on work than when i am at work. (fwa7) 8. people in my workplace react negatively to people who use fwas. (r) (fwa8r) 9. people who use fwas are usually less committed to their work role. (r) (fwa9r) 10. people who use fwas often miss important work events or communications such as meetings, training, important announcements, etc. (r) (fwa10r) 11. i would not be able to do a paid job at all if i could not use fwas. (fwa11) management: journal of sustainable business and management solutions in emerging economies 2021/26(3) 77 2.3. relations between flexible work arrangements and turnover intentions previous studies involving anglo samples have shown that fwas availability is negatively related to turnover intentions (allen, 2001; batt & valcour, 2003; mcnall et al., 2010). specifically, allen (2001) found that flexible benefits were positively related to job satisfaction and negatively related to turnover intentions; batt and valcour (2003) showed that flextime availability was negatively related to turnover intentions, and mcnall et al. (2010) found that flextime and compressed work week availability were negatively related to lower turnover intentions. in the work of the authors (masuda, poelmans, allen, spector lapierre, cooper, abarca, brough, ferreiro & fraile, 2011, p. 18) it has been found that fwa negatively affects the turnover intentions of workers to leave companies when using fwa in business. also, in the sample of 9 cee countries, berber & slavic (2019) found that fwa bundle that consists of home-based work and teleworking had a negative relation to employees' turnover which means that a higher usage of this kind of fwa reduces employees’ decision to leave the company. anderson & kelliher (2009) came up with the conclusion that fwas increased the feelings and loyalty of the employees because they can meet their requirements, especially their personal needs, and this automatically affects the increase of their satisfaction and greater commitment at work. companies are beginning to acknowledge that fwas can retain talented employees and reduce their turnover intention. research by grover & crooker (1995) also succeeded in proving that employees of organizations that provide flexible working hours had much lower turnover intentions. in contrast, studies by fathi et al. (2020) found that fwas were not significantly related to turnover intentions. this may be true in countries with collective cultures. research by timms et al. (2015) found that flexible work arrangements are highly dependent on cultural norms in the workplace. a study by masuda et al. (2011) found that flexible work arrangements were not particularly respected or valued in collective countries (lutfiani, singh, rashid & arumugam, 2020). h2: flexible working arrangements are negatively related to turnover intentions. 3. methodology 3.1. the questionnaire during the process of research and analysis of the impact of the covid-19 pandemic on employee behavior when using fwa, primarily work from home, a combination of questionnaires was used. the first part of the questionnaire refers to control questions such as gender, age structure, level of education, position in the company, sector to which your company belongs by activities, size of organization and affiliation to public or private sector, market that your company serves. the second part of the questionnaire deals with questions related to the independent variable "flexible work arrangements" and it consists of 11 questions: table 2: questionnaire about flexible work arrangements source: albion, 2004. the third part of the questionnaire refers to the dependent variables and questions related to them. the first dependent refers to "engagement" and it consists of 9 questions: 1. i feel bursting with energy at work. (eng1) 2. i feel strong and lively at work. (eng2) 3. i am enthusiastic about my job. (eng3) 4. my job inspires me. (eng4) 5. when i get up in the morning, i feel like going to work. (eng5) 6. i am happy when i work intensively. (eng6) 7. i am proud of the job i do. (eng7) 8. i am completely focused on my job. (eng8) 9. i get carried away when i work. (eng9) 1. i often think about leaving my current job. (ti1) 2. maybe next year i will leave my current company and start working for someone else. (ti2) 3. i plan to stay in this company for a longer time to develop my career. (r) (ti3r ) 4. i probably won't have a bright future if i stay in this company. (ti4) dimitrije gašić, nemanja berber 2021/26(3) 78 table 3: questionnaire about engagement source: schaufeli, bakker & salanova, 2006. the second dependent relates to “turnover intentions” and this part consists of 4 questions: table 4: questionnaire about turnover intentions source: chen & francesco, 2000. the assessment was conducted as follows: the respondents responded to the questions asked by marking the offered fields below each of the questions asked in the questionnaire. in response to the difficulty of measuring character and personal traits, likert developed a procedure for measuring attitudes through a scale (boone & boone, 2012). respondents answered the questions in the questionnaire based on the likert scale in the range of 1 5. (1 = strongly disagree, 5 = strongly agree). 3.2. the sample the research was conducted through the electronic questionnaire "google forms". the questionnaire is intended primarily for people who are employed and whose business and private life was affected by this pandemic. the link to the electronic questionnaire was primarily distributed to people the authors know personally, who move in the business world and who belong to different sectors, those in which this type of flexible work arrangement "work from home" is most present, such as education, finance, and employment. insurance, professional, scientific, innovation and technical activities, trade sector, etc. the questionnaire was filled out by 219 employees throughout the republic of serbia, and data collection was performed from december 2020 to february 2021. the main part of the sample consists of female respondents (57.99%), while the rest of the respondents belong to the male population (42.01%). regarding the age structure of the respondents, the largest number of them belong to the ages between 25-34 (36.99%), while the smallest number of them belong to the population over 55 years of age (7.76%). based on the completed questionnaires, the largest number of respondents have completed master studies (36.07%), and this percentage is close to the number of respondents who have completed a bachelor degree (35.16%). it should be emphasized that out of a total of 219 respondents, as many as 25 of them have completed ph.d. studies (11.42%), while the smallest number of respondents have completed three years of vocational studies (2.74%). as for the position in the company where the employees work, the largest number of respondents belong to professional workers (53.42%), while the smallest number of them are manual workers (4.11%). the largest percentage of respondents belongs to sector k. financial and insurance activities (15.07%), while the smallest number of them belong to sector r. arts, entertainment and recreation (0.46%). based on the completed questionnaires, we conclude that the largest number of respondents belong to the medium size of the organization (38.81%) while the smallest number of them belong to the large size of the organization (26.03%). the main part of the sample belongs to the private sector (65.3%) while the rest of the respondents belong to the public sector (34.7%). most of the respondents answered that their company serves the national market (27.85%), while the smallest number of them serve the global market (12.79%). most of the respondents have answered that the headquarters of their company is in the republic of serbia (78.54%), whereas the smallest number of them answered that the company's � ������� � ���� �� ��� �� ������ ��� � �� ����� ����� � ���� ���� �� ����� ��� � ��� �� ������ ���� �� ��� ���� ���� ���� �� ������������� �� �� ��� �� ������ � ��� �� ��� �� ����� � �� �� ��� �� ������ � � �� ��� �� ������������� ��� � ��� ������ ��� 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�����������%���#$����������"����#� ��� �� ��� ��� �������8 �9����1#����� �� �� management: journal of sustainable business and management solutions in emerging economies 2021/26(3) 79 headquarters are in a country that is not a member of the eu (2.28%). the largest number of respondents indicate that the company in which they work is national (67.58%), while the smallest number of them indicate that they work in a subsidiary of a national company (5.02%). table 5: sample characteristics ������� � ���� �� ��� �� ������ ��� � �� ����� ����� � ���� ���� ��� ������� ������ ������� ������������������������������������ ��������� � ��� �� ��� ��� �������� ������� ������������ ������� ���������������� � �� � �� ��� �������! ���"���������� ����������������� ��������� ��#� ������ ������#� ��� $ %�� ��� �������� �&��������� $�� � �'� ��� �������( �)�����������������*������� � $ ��� ��� �������+ ���� ������������������������������� �� � $,� ��� �������� �-���� �� �� � �� ��� ����������������� ������� ����� �� ������#�� � �� �� ��� �������. ���������� �����/�����������������0���1����� �����"���� � �� �� ��� �������* �!����� ���������������� � ��� % $'� ����� ����������� ��� ��� ��� ���� ���� �� ������ ��� �% �,� �� ������ '%� �' '�� �� 2��0�� %�� �, ��� ������ �������������� ��� �� ���������� � ���� ���� �� ��"���� ������ �,� �$ �� �� �������� ������ �$�� ,% �� ������ ������������ ����������� ���� ���� ���� �� 2����� �,� �, $$� �� +�0������ $�� �' �,� �� ��������� ,�� �� '%� �� 3������������� %$� �$ ,,� �� 4��"��� �'� �� � � �� ��������� �����!"�� �� �!� �#� ���� ���� �� +���"����������"��� ���� �' %$� �� &.� � � �� �$� �� �����5&.�������#� %� � �'� �� .��� �� � �� �� !����� ,� � �$� �� �� ��� ��� ��� �#� ���� ���� �� ���������������#� �$'� ,� %'� �� �� �" �����#���������������������#� ��� % ��� �� �����������������������#� �,� �� '�� �� �� �" �����#���������������������������#� �$� �% %�� � dimitrije gašić, nemanja berber 2021/26(3) 80 source: authors’ calculations n min max mean std. deviation flexible work arrangements 219 1.91 4.82 3.64 0.69 engagement 219 2.22 5 4.21 0.68 turnover intentions 219 1 5 1.98 1.00 valid n (listwise) 219 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) 81 4. results the analysis was divided into two parts. first, the author investigated the measurement model. second, the investigation of the proposed hypotheses was performed. table 6: descriptive statistics for each indicator in study source: authors’ own research for the purpose of the first step, the authors analyzed reflective indicator loadings, internal consistency reliability, convergent validity, and discriminant validity. this type of measurement is proposed for reflective constructions in the model (hair, risher, sarstedt & ringle, 2019; grubor, berber, aleksic, bjekic, 2020). in addition to the above methods, the bias of the usual method (cmb) was performed. the lowest eligibility limit for factor loading is 0.708 (berber, n., slavic, a., & aleksic, 2020). factors with a load between 0.4 and 0.7 should be maintained if their elimination does not have a positive impact on ave and composite reliability (hair, sarstedt, hopkins & kuppelwieser, 2014). however, certain questions were removed from the analysis because their loads were very low or even with a minus sign. based on the above, the authors kept items with a load above the threshold of 0.708 (see figure 1). figure 1: path coefficient estimates source: authors’ own research cronbach's alpha rho_a composite reliability average variance extracted (ave) engagement 0.917 0.924 0.932 0.633 fwa 0.732 0.768 0.842 0.639 turnover intentions 0.851 0.858 0.898 0.689 engagement fwa turnover intentions eng1 0.744 0.27 -0.396 eng2 0.809 0.333 -0.409 eng3 0.87 0.351 -0.505 eng4 0.845 0.386 -0.546 eng5 0.835 0.362 -0.496 eng6 0.753 0.317 -0.356 eng7 0.77 0.275 -0.586 eng8 0.728 0.278 -0.378 fwa10r 0.285 0.796 -0.289 fwa8r 0.415 0.818 -0.432 fwa9r 0.231 0.783 -0.266 ti1 -0.515 -0.318 0.879 ti2 -0.406 -0.275 0.837 ti3r -0.554 -0.398 0.771 ti4 -0.421 -0.399 0.83 engagement fwa turnover intentions engagement 0.796 fwa 0.409 0.799 turnover intentions -0.578 -0.431 0.83 dimitrije gašić, nemanja berber 2021/26(3) 82 table 7: indicator reliability and construct reliability and validity source: authors’ calculation the reliability test was performed by calculating cronbach's alpha, composite reliability, and average variance extracted (ave) (bjekic et al., 2020). table 7 above, which is above the text, presents the results of this sample and shows that the values of cronbach's alpha ranged from 0.732 flexible work arrangements, 0.851 turnover intentions, and cronbach’s alpha maximum value of 0.917 engagement. some of the authors recommend that the lowest acceptability limit of cronbach’s alpha be 0.6 (dakduk, gonzález & portalanza, 2019). the value of composite reliability of constructs (cr) ranges from 0.842 flexible work arrangements, 0.898 turnover intentions and the highest value (cr) of 0.932 belons to engagement. the lowest acceptability limit for composite reliability of constructs (cr) is 0.7 (hair et al., 2014. page 7); based on this value we conclude that the results shown in table 5 indicate that the criterion (cr) is met. composite reliability can be used as an alternative because the value of cr is slightly higher than cronbach's alpha, and this difference is relatively insignificant (peterson & kim, 2013 according to bjekic et al., 2020, p. 7). convergent validity was assessed by testing the ave variance (average variance extracted). in the presented model, ave values range from the lowest value of 0.633 engagement, 0.639 flexible work arrangements to the highest value of ave which is 0.689 turnover intentions. the accepted lower limit of acceptability is 0.5 (fornell & lacker, 1981). based on this lower limit, we conclude that convergent validity is satisfied in all three constructs. discriminant validity can be assessed using cross-loadings indicators, fornell & larcker criteria, and heterotrait-monotrait (htmt) correlation rations (ab hamid, sami & sidek, 2017). table 8: discriminant validity (cross-loadings) source: authors’ calculation the measurement model has adequate discriminant validity when the load of the indicator is higher for its constructive structure than any construction (chin, 1998). the results presented in table 8 indicate that the load of each block is heavier than that of any other block in the same rows as the columns, clearly separating each latent variable. the cross-loading output confirms the discriminant validity of the measurement model. table 9: discriminant validity – (fornell-larcker criterion) source: authors’ calculation based on the fornell-larcker criterion, the root of the ave latent variable must have a higher value than all correlations with the latent variable. (fornell & larcker, 1981. page 39). in table 8 the discriminant validity is satisfied because the value of the ave root on the diagonal is higher than all the values below for each variable shown. engagement fwa turnover intentions engagement fwa 0.464 turnover intentions 0.645 0.501 vif engagement (eng1) 3.166 engagement (eng2) 3.789 engagement (eng3) 3.268 engagement (eng4) 3.013 engagement (eng5) 2.708 engagement (eng6) 2.17 engagement (eng7) 2.245 engagement (eng8) 2.096 flexible work arrangements (fwa10r) 1.831 flexible work arrangements (fwa8r) 1.219 flexible work arrangements (fwa9r) 1.84 turnover intentions (ti1) 3.528 turnover intentions (ti2) 3.068 turnover intentions (ti3r) 1.451 turnover intentions (ti4) 1.804 original sample (o) sample mean (m) standard deviation t statistics p values results h1 fwa -> engagement 0.409 0.418 0.051 7.981 0 accepted h2 fwa -> turnover intentions -0.431 -0.44 0.047 9.161 0 accepted management: journal of sustainable business and management solutions in emerging economies 2021/26(3) 83 table 10. discriminant validity – heterotrait-monotrait htmt source: authors’ calculation the value of htmt raids below 0.9 indicates that the defined components differ from each other to a sufficient extent, which means that they describe different phenomena (hair et al. 2019, p. 15). the results presented in table 9 show that all values are below 0.9, so we can conclude that the criterion of discriminant validity is met. the common method (cmb) bias is detected using a complete collinearity assessment approach (kock, 2015). the threshold for vif factor values is 3 or lower than 3 (becker, ringle, sarstedt & völckner, 2015). hair et al. (2019) also agree with the aforementioned statement that vif values should be 3 or lower. however, some authors accept vif data that are below 5 or even 10 and state that values above 10 indicate harmful collinearity (o’brien, 2007). table 11: collinearity statistics source: authors’ calculation multicollinearity analysis shows that the values of vif indicators are generally lower than 3, but that several vif values are slightly above 3, however, they are also accepted, based on indicators of several authors who accept vif values that are lower than 5 or even 10. the final step of the analysis is to investigate the relationship between the independent variable (fwa) and the two dependent variables engagement and turnover intentions. the data in table 9 and scheme 2 show the pls-sem ratio coefficients as well as the level of their significance. r2 as a coefficient of deviation in the observed variation of the dependent variable “engagement” 16.7%, “turnover intentions” r2 has a value of 18.6% and this is explained by the independent variable “fwa” in the model. table 12: mean, standard deviation, t-statistics, p-values source: authors’ calculation the results in table 9 demonstrate that all coefficients that represent the relationship between the independent reflective constructs (flexible work arrangements – fwas) and the dependent reflective construct (engagement) are positive and statistically significant (β = 0.409; t = 7.981; p = 0.000). relationship between the independent reflective construct (flexible work arrangements fwas) and dependent reflective construct (turnover intentions) is a negative and statistically significant relationship (β = -0.431; t = 9.161; p = 0.000). 84 dimitrije gašić, nemanja berber 2021/26(3) figure 2: the path model with bootstrapping results source: authors’ calculation based on the abovementioned results, both hypotheses stated in this research are confirmed. discussion and conclusion the subject of the research refers to the impact of fwas on the behavior of employees during the covid-19 pandemic in the republic of serbia. the purpose of the research is to determine the impact of the covid-19 pandemic and the change in the traditional way of doing business on a new type by applying fwas to engagement and turnover intentions. based on the results obtained using smart pls 3 software, the research showed that all hypotheses were confirmed and that fwas positively affected employee engagement. as for the intention to leave, flexible work arrangements have shown that they negatively affect this dependent variable, which is a valuable indicator because, during the transition from business to work from home, there were many fears about how employees will manage their business, whether they will manage to do everything, tasks assigned to them, whether they will lose motivation if they work from home but research has shown that employees are suited to this way of doing business and plan to stay longer in the company to advance their careers. cronbach’s alpha ranges between 0.732 (fwa) and 0.917 (engagement). hair et al. (2019) recommended that cronbach’s alpha values of 0.6 – 0.7 be considered the lower limit of acceptability. values of 0.7 mean that the objects are homogeneous and only the same constant (masrom, 2007). cronbach's alpha reliability over 0.8 is considered very good (nunnalli, 1978). the value of the composite reliability of constructs (cr) ranges from 0.842 (fwa) to 0.932 (engagement). the lowest acceptability limit for composite reliability of constructs (cr) is 0.7 and based on this value we conclude that the results shown in table 7 indicate that the criterion (cr) is met. ave (average variance extracted) ranges between 0.633 (engagement) and 0.689 (turnover intentions). the accepted lower limit of acceptability is 0.5 (fornell & lacker, 1981) on 85 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) the ram of this lower limit, we conclude that convergent validity satisfied in all three constructions. the discriminant validity is satisfied in table because the value of the ave root on the diagonal is higher than all values below for each variable shown. the value of htmt ratios below 0.9 indicates that the defined components differ sufficiently from each other which means that they describe different phenomena. the results presented in table 10 show that all values are below 0.9, so we can conclude that the criterion of discriminant validity is met. based on the results obtained from table 11 we conclude that the values are collinearity statistics as prescribed and that most are below three while a few are above. all connections between independent variables and dependent ones are positive and statistically significant except for the relationship between fwa and employee intention, but the fact that it is a negative relationship does not mean that it is a bad indicator; on the contrary, it is a great result! the research showed that it was successful and that the employees managed to quickly harmonize their business and private obligations by applying modern ways of working. it is expected that in the future, this way of working will be unharmed and that it will result in the best possible business success of companies around the world. based on research by various authors such as ugargol & patrick (2018); weideman & hofmeyr (2020); richman, civian, shannon, hill & brennan (2008), found that fwas positively related to employee engagement, which was confirmed in this study. in the research of the author ugargol & patrick (2018), the study showed that the application of flexible options to employees had potential benefits and that this type of arrangement provides work-life balance for employees. in the work of the author weideman & hofmeyr (2020) it was found that the application of flexible work arrangements had a positive impact on employee engagement and lead to increased productivity, increased employee satisfaction, improved financial performance, etc. based on research by richman, civian, shannon, hill & brennan (2008), the results indicate that perceived flexibility and supportive work-life policies have significant independent effects in predicting employee engagement and expected retention even after controlling for several personal, family, and job characteristics. in the presented research on the topic "the influence of flexible work arrangement on employee behavior during the covid-19 pandemic in the republic of serbia", it was determined that fwas had a positive impact on employee engagement, and these results were obtained using smart pls-3 software. workers are more engaged if they have the fwas offered by the company. based on the conducted research, it was determined that fwas negatively affect the turnover intention, as shown in this research. the results of the study coincide with other studies by authors who investigated the impact of fwa on turnover intentions, so studies involving anglo samples showed that fwa availability was negatively associated with turnover intentions (allen, 2001; batt & valcour, 2003; mcnall et al., 2010; berkery et al., 2020). in the work of the author allen (2001), it was found that flexible benefits were positively related to job satisfaction and negatively related to turnover intentions. based on the research of the author batt & valcour (2003), it was determined that flextime availability is in negative relation with turnover intentions. mcnall et al. (2010) found that flextime and compressed workweek availability were negatively related to the intention to leave. based on research by berber & slavic (2019) in “flexible working arrangements and employee turnover in central and eastern europe” they found that the fwa bundle that consists of home-based work and teleworking had a negative attitude towards employees’ turnover which means that a more extensive usage of this kind of fwas reduced employees decision to leave a company. also, berkery et al. (2020) found that flexible working time is negatively related to turnover intentions in 1,064 private sector organizations from france, germany, hungary, ireland, italy, sweden, and the united kingdom. based on the research of ramos and prasetyo (2020), the results showed that "work from home" increases the "productivity" of the employee and reduces the "job performance". as for "stress at work", it indirectly reduces "productivity" and directly increases the "job performance". in the research of the authors halkos and bousinakis (2010) it has been proven that stress leads to a decrease in productivity while increasing employee satisfaction at work contributes to increasing employee productivity. if the job starts with activities which collide with the personal life of the worker, it leads to a negative effect on productivity. quality work is more related to savings and personal satisfaction than to workload. energy employed workers have a positive impact on productivity. empirical implications. the application of flexible working arrangements in the republic of serbia would have great benefits, as shown by research conducted based on completed questionnaires on the application of flexible working arrangements in companies during the covid-19 pandemic. workers need to be aware of the benefits of this type of business so that they can use them in the best possible way and make their business easier and thus contribute to the success of the company in which they work. after the theoretical acquaintance of workers with the possibilities of using fwas and their advantages, we move on to the practical application of this type of business. companies need to carefully plan and implement fwas because hiring relationships are positive which tends to raise the level of engagement but also negative relationships with turnover intentions, which means employees are less willing to leave the company they work with. limitation of the research is related to a relatively small sample, but therefore the analysis performed by smart pls confirmed the validity of the database and results. some of the suggestions for future research are to increase the number of respondents who use flexible work arrangements in their business and to pay more attention to teleworking and homebased work to make the company's business success greater and thus employee satisfaction higher because the essence of any business is to have workers who enjoy the work they do and feel relieved and creatively contribute to the success of the company in which they work, creating a balance between their private and business life. the essence is that each side is satisfied and that the work is done in the best possible way to remain competitive and ahead of the others. references [1] ab hamid, m. r., sami, w., & sidek, m. m. 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(2017). employee satisfaction and use of flexible working arrangements. work, employment and society, 31(4), 567-585. doi: 10.1177%2f0950017016631447 [64] world health organization (2020), “coronavirus disease (covid-19) pandemic”, retrieved from (date of access 01.03.2021) https://www.who.int/ received: 2021-02-22 revision requested: 2021-04-08 revised: 2021-05-27 (2 revisions) accepted: 2021-05-31 dimitrije gašić university of novi sad faculty of economics in subotica, serbia dimitrijegasic33@gmail.com dimitrije gašić is a ph.d. student at the faculty of economics in subotica, university of novi sad, the republic of serbia. department „business economy and management“ module entrepreneurial management. nemanja berber university of novi sad, faculty of economics in subotica, serbia nemanja.berber@ef.uns.ac.rs nemanja berber is an assistant professor at the faculty of economics in subotica, the university of novi sad, the republic of serbia. he is engaged in the areas of human resource management, organisational behaviour, urban management, and environmental management. his research interests include human resource management practice in serbia and central and eastern european regions, especially employees’ compensation, benefits, and training. he participates in cranet (the cranfield network on international human resource management) and ceeirt (the central and eastern european international research team) projects on hrm and ihrm. dimitrije gašić, nemanja berber 2021/26(3) 88 about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05_zeljko jovic:tipska.qxd 41 željko jović1, jelena cvijović2 1medi group, milutina milankovića 3, belgrade, serbia 2university of belgrade, faculty of organizational sciences, serbia private healthcare institutions and insurance companies: from cooperators to market competitors udc: 005.56:[61:368 334.722 doi: 10.7595/management.fon.2015.0020 1. introduction globally observed, great emphasis is being put to the provision of health care, therefore, many countries tend to implement modern, efficient and well-formulated health policies (echebiri, 2014).the implementation of such policies is influenced by macroeconomic, political and social factors (savedoff, 2004; gotsadze et al., 2005). the provision of adequate health care services to all members of the population at affordable prices is crucial for the health equity achievement and raising the quality of life (carrin& james, 2005; yasar&ugurluoglu, 2011; griffin et al., 2014). the functioning of the health care sector is evaluated by the way it manages to achieve those goals, as well as by its responsiveness to consumers’ needs and provision of financial risk protection (collins, 2006). as governments around the world are often not able to provide sufficient funds to finance health services (scandinavian care, 2006), funding from both public and private sources is necessary to improve a general health situation (song & smith, 2007). therefore, the main sources of health services financing are: taxes, budget revenues for prevention programs, social insurance and private contributions (including co-payments for public health services, fees for additional services and private insurance premiums) (schaapveld& rhodes, 2004). for such reasons, private health care institutions and insurance companies pay more attention, especially in developing countries (sekhri&savedoff, 2005). besides funding reasons, there are other benefits of private health sector development. well organized and developed private health markets protect consumers’ rights and promote “the equity, affordability and access to health services” (jost, 2001).therefore, the privatization of health care institutions and the expansion of private insurance coverage need to be encouraged in order to enable an easier access to sufficient health care to the whole population and reduce social inequities. the necessity of formulation of partnerships between healthcare institutions and insurance companies is obvious in order to strengthen the competence of healthcare sector and share responsibility by this inter-sectorial cooperation (raminashvili, 2014). this trend is especially evident in developed countries, although more and more developing countries are starting to follow, despite the economic and political restrictions (kutzin, 2001). this appears to be also evident in serbia, where partnerships of that type are emerging in the market. management 2015/76 the provision of adequate healthcare nowadays has a global character, so the implementation of efficient and well-formulated health reforms has become of serious importance. among many contemporary trends in this area, there is a tendency of privatization of health care institutions and growth in private insurance premiums. this raises the necessity of developing a cooperation between private healthcare institutions and insurance companies in order to provide services of an improved quality. this paper emphasizes the extremes of their cooperation, moving from fully integrated systems towards competition over the market.the findings indicate that, due to the insufficient development of serbian healthcare sector, their cooperation is so far not at a high level, which brings many issues into question and that should be legally better defined. keywords: private healthcare institutions, insurance companies, relationship, cooperation, competition 2. current trends in healthcare there are several very prominent trends that affect healthcare systems on national and global levels. the first one is reorganization of health care system, in a way which provides reducing of resources for its administration, encouraging the provision of high quality services at the least possible cost, expansion of the quantity of provided services and collection and distribution of funds (murray &frenk, 2001; johnston, 2004). in case of nationalized health systems, the government takes care of these issues, while in modernized systems, these tasks are delegated to healthcare institutions and insurance funds that operate at lower administrative costs and negotiate prices in a way consumers demand (kotzian, 2008). so, reorganization of healthcare systems includes five imperatives:better performance through mergers, acquisitions and new partnerships; maintenance of cost competitiveness based on ability to provide value; demonstrated quality as part of the value challenge, an exceptional service as a key aspect of competitive advantage; real integration of all the subjects or parts of a system, not just their cooperation, etc. (zuckerman, 2014). the second trend is the expansion of private healthcare institutions, which is notable on a global level, as well as in serbia. in serbia, there is currently 1,553 registered private health institutions (not including pharmacies and dental offices), out of which 15 are general hospitals, 52 sare pecialized hospitals, 14 are health centers and 123 are polyclinics. private health care institutions in serbia are well-equipped; they have 35 scanners, 11 magnets, one device for radiotherapy, 700-800 ultrasounds, 30 mammography devices and 50 x-rays. they employ about 3,400 doctors of various specialties (institute of public health of serbia “dr milan jovanović batut“,2013). the number of reported visits to private health care institutions in belgrade was 479 583 in 2012. patients and corporate clients of private healthcare institutions paid approximately 95 million rsd during the same year, which amounts to nearly 200 euros per capita that serbian citizens paid for health services in the private sector (institute of public health of serbia “dr milan jovanović batut“, 2012). the next important trend is a movement toward an integrated, patient-focused health approach. since consumers pay much attention to a qualitative dimension of healthcare services, they decide to either use public provider services, which are tax financed but which maintain a fixed quality, or a range of different private provider services of high quality. their decisions depend not solely on variables such as sociodemographic characteristics, income and health situation, but also on the quality of treatments that the public sector provides. some research results point out that there is a positive correlation between a lower public service quality (longer waiting times, above all) and a higher likability of turning to services of the private sector (jofre-bonet, 2000). this is especially the case in serbia, where waiting lists for certain health treatments are extremely long. for example, around 10,000 patients are waiting for diagnostic methods, about 14,000 patients for orthopedic surgery, while the number of cardiac patients who require surgery is around 8,000 (serbian republic health insurance, 2013). by considering these data, as well as the tendency of continuous growth in the number of patients, the significance of private health care institutions is more than evident for the whole state, in addition to the importance of profit they bring to their owners. changes also occur in insurance companies and insurance services they offer. globally observed, it is noted that the expansion of new insurance schemes will help reducing the health expenditures of individuals and households and enlarging the number of insured, as the lack of health insurance is directly associated with a limited access to medical services and worse health conditions (smith, 2008; borghi et al., 2008; cannoodt, 2012). ten insurance companies currently operate on the territory of the republic of serbia (among them some are owned by the insurance companies based abroad). table 1 provides an overview of the market share of insurance companies by type of voluntary health insurance in 2013. although serbia has a long history of insurance business, the first private health insurance appeared in the 90s of the last century. the reason for this is primarily in the socio-political system that functioned in the former yugoslavia, as well as in the organization of health sector during that period. since then, voluntary health insurance sector in serbia records a steady growth every year and the current situation can be seen in table 2. it is estimated that, in the years to come, voluntary health insurance in serbia will grow by 5% annually (about 30,000 premiums) (delta generali, 2012). bearing in mind that the european average is 24% of new users of voluntary health insurance every year (delta generali, 2012), it can be concluded that many years will pass until serbia reaches the european level. 42 2015/76management table 1: market share of insurance companies in serbia(nbs, 2013). table 2: overview of insurance according to the types of voluntary health insurance in 2013 (nbs, 2013) on the basis of presented data, it can be concluded that only 6% of the serbian population uses some form of voluntary health insurance, while a great portion of it goes to travel health insurance, which is mandatory for citizens when traveling abroad.the main reasons why health insurance has not grown in the past 20 years are: • the low level of life standard; • lack of sufficient tax incentives for voluntary health insurance premiums; • lack of education of the population on the functioning of voluntary health insurance and insufficient promotion of their services; • a small number of voluntary health insurance packages; • lack of correlation between mandatory and voluntary forms of health insurance and public and private health institutions; • unfair competition of private health care institutions and other institutions. given the importance of achieving a larger insurance coverage as a part of health improvement reform, it is necessary to monitor expenditures on medical care services and the impact of voluntary insurance on consumers’ protection (barber & yao, 2011). while public health insurance should cover medically necessary health services, other types of insurance coverage are meant to be offered by private companies (ward & johnson, 2013). however, lower income of citizens and the lack of education in this area may prevent them from purchasing voluntary insurance premiums. in order to promote private insurance coverage, many states defined certain obligatory insurance types, “such as employment-connected health insurance, which obligate employers to insure their employees” (battistella& burchfield, 2000; monheit&vistnes, 2008; guy et al., 2012; karuppan, 2014). despite the fact that private and public insurance are often observed as extremes, they, in fact, overlap as a result of government intervention in the insurance market. so far, private insurance is dominant in developed countries with organized regulatory schemes. besides the incentive for 43 management 2015/76 insurance companies total premium (in 000 rsd) market share ams 28068 2.59% as 750 0.07% axa 389 0.04% ddor 164033 15.14% delta generali 562949 51.97% dunav 122314 11.29% globos 946 0.09% takovo 2355 0.22% uniqa 158336 14.62% wiener 43050 3.97% total 1083190 100 type of voluntary health insurance number of companies number of the insured total premium (in 000 rsd) parallel health insurance 1250 3151 10209 supplemental health insurance 4189 621676 625136 private health insurance 189 3289 82404 all other voluntary health insurance (combinations of travel insurance during staying abroad) types 13681 25116 365441 total 19309 653232 1083190 growth of private insurance market, such regulations and public intervention are necessary due to a number of factors, including the need to regulate the operation of financial institutions in general, prevent market failures, preserve the health of citizens and timely address various health risks, etc. (roberts, 2004). 3. relationship between insurance companies and private healthcare institutions there is a wide range of relationships between insurance companies and private healthcare institutions. the so-called hybrid health management organizations, the vertically integrated framework of full cooperation, represent one extreme. these models of cooperation are operated through integration of private health care and health insurance organizations (vargas et al., 2010). in such systems, consumer and physician data are commonly collected in order to perform better and detect and eliminate certain problems (miller &luft, 2002; mohammed et al., 2014). the appearance of such cooperatives is a result of more sophisticated consumers’ requirements, consumers who are willing to change healthcare institutions or insurance companies if dissatisfied with services they receive. this possibility of losing customers makes health organizations respond to consumers’ needs and preferences for better quality at reasonable costs (thomson & dixon, 2004; dicenzo&fronstin, 2008). modern consumers are seeking information about various health insurance types and health care providers (deloitte, 2008) in order to compare different options and make affiliation decisions (becker &zweifel, 2008). in such cases, consumers choose certain organizations based on their evaluation of various attributes of the offer, such as: package of services, high quality of medical services, efficiency of service provision and a waiting period to receive healthcare services, politeness of medical and non-medical staff, family coverage, access to specialists, right to choose a doctor, etc. (amaya et al., 2014). based on the critical assessment of information about the quality, price and patient satisfaction, most consumers would, most probably, change the medical or insurance organization if not completely satisfied (de jong et al.,2008; lako et al., 2011). fully integrated systems of healthcare institutions and insurance companies can prevent losing of consumers, as services provided this way are synergized, highly efficient and professional. insurance companies can sell insurance packages that cover medical services of a certain private medical provider, which make them take care of consumers and develop longterm relationships, based on their complete satisfaction with the performances of a hybrid system. but, such full cooperation is rare in practice, especially in developing countries. insufficient development of the healthcare sector in serbia has resulted in a weaker mutual cooperation of private health care institutions and insurance companies, no matter those insurance companies are participating in the total income of medical institutions by up to 35% per year (medigroup,2013). as a matter of fact, in their cooperation, insurance companies play a dominant role because they are able to, by their sole discretion, determine which health care institutions they want in their cooperation network. this dominant role allows them to dictate the terms of cooperation, from financial (in addition to regular discounts they are allowed by healthcare institutions, they often request permanent special prices, which is legally impermissible), to the contractual clauses on the priority right when scheduling their policy holders, which is contrary to medical ethics. despite these conditions, medical institutions agree to sign cooperation agreements, as they gain financial benefits from them, given a significant revenue they receive from the insured patients. in fact, cooperation with insurance companies is recognized as necessary especially in the initial period of establishing health institutions, because, without a necessary budget to invest in marketing activities, brand strength of insurance companies is the one that provides clients. later, with the development of healthcare institutions and their positioning in the market, this interdependence can move in favour of health care institutions, so that the quality of packages of insurance companies will depend on whether a particular medical institution is in their joint network. bearing in mind the tendency of grouping of health institutions in serbia (the first private health platform “medigroup” was formed during 2012 and 2013), it is expected that the position of private healthcare institutions will further improve, so the insurance companies must respect their demands more. in fact, some private institutions are already recognized for their quality (recognized experts, good equipment and excellent accommodation facilities), which is why insurance clients simply insist on medical services of a particular institution when purchasing insurance premiums. in addition, strengthening of the role of private health care institutions within an interdependent relationship with insurance companies is also reflected in the fact that health care institutions are beginning to deal with the provision of various services that are on the verge of services that are normally offered by insurance companies. by preparing for this situation and observing the practices of the eastern european countries, which has resulted in several court proceedings between insurance companies and private health 44 2015/76management 45 management 2015/76 institutions, insurance companies in serbia put pressure on the national bank of serbia to ban the sale of services that resemble insurance for all other institutions, except insurance companies. so far, they partly succeeded in doing that, since the insurance act introduced in january 2015 made acting of all legal entities and their representatives punishable (in financial sense or imprisonment) in case they are proved to be engaged in selling services that resemble insurance. this especially concerns private medical institutions, as they have already begun to offer this kind of service packages to customers, so reactions of insurance companies and legal authorities are now expected. in a way, healthcare organizations and insurance companies may turn into competitors for consumers, as they sell the same service packages. although some consider that this competition may encourage good performance of both sides (maarse et al., 2005; chalkley&khalil, 2005), the fact is that opportunistic behaviour by any side will increase the consummation of financial resources without improving the health of the population. the necessity to introduce some sort of control mechanisms in this area and monitor their expected effects on health care has been discussed in literature (scott & farrar, 2003; marinoso&jelovac, 2003). in order to avoid the situation of growing competition between private healthcare organizations and insurance companies in serbia, it is important to address the key policy questions that should regulate the relationship between those subjects. those key questions are the following: • first, areas of acting of private healthcare institutions and insurance companies should be precisely determined and divided, so it would become clear which organization should be allowed to sell certain service packages. by making a clear, legally imposed framework of business activities, there would be no overlapping in courses of action, and, consequently, no need for competitive relations. • it is important to notice to what extent private insurances are being encouraged, as a way of providing greater choice to consumers, to cooperate with a number of various private healthcare institutions that are expected to compete with discounts they allow to insurers. this represents an important issue in the serbian market that should be regulated in order to enable fairer market relations. • state institutions are obligated to define how much competition is good to be encouraged and how much cooperation should be encouraged among insurers and healthcare institutions. • it is important to clearly determine how broadly private insurance coverage should be extended and how important consumers’ choice and service customization are in order to meet the needs of different socio-economic groups. • finally, a highly sensitive and important issue is setting the medical and insurance service prices, as well as stipulate the ways in which business subjects within the network should share financial and other business risks (sekhri&savedoff, 2006). providing legal answers to these key policy questions would significantly improve practice in the serbian market and provide solid basis for further development of cooperative relationships between private healthcare institutions and insurance companies. conslusion it is evident that, on a global level, great emphasis is being given to the provision of a sufficient quality of health care and implementation of a more efficient and better-formulated health reforms. one of the trends that occurs as a response to current market changes in developing countries is the expansion of private healthcare institutions. in order to meet sophisticated consumers’ needs, healthcare institutions develop a wide range of relationships with insurance companies. this represents the tendency to move toward an integrated, patient-focused health approach and attract consumers who pay great attention to a qualitative dimension of healthcare services. although the cooperation between these subjects in the private sector is more than desirable, in practice, there are many unsolved issues that prevent their full integration; moreover, make them more like competitors for market segments. this paper provides a theoretical basis for further, more detailed analyses of this field, which should be conducted in order to define adequate strategies for regulating the relations among business subjects in the health service market. also, a comparative analysis of practices in this field in other countries would be of great importance, so some positive models could be used for the purpose of improvement of the current situation in the serbian market. references [1] amaya, j.l., ruiz, f., trujillo, a.j., &buttorff, c.(2014). identifying barriers to move to better health coverage: preferences for health insurance benefits among the rural poor population in la guajira, colombia. international journal of health planning and management, doi: 10.1002/hpm. 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(2007). financial preconditions for successful community initiatives for the uninsured.journal of healthcare management, 52(6), 411-424. [45] thomson, s., & dixon, a. (2004). choices in health care: the european experience. euro observer, 6(4), 1-5. [46] vargas, i., vazquez, m. l., mogollon-perez, a. s., &unger, j-p. (2010). barriers of access to care in a managed competition model: lessons from colombia. bmc health services research,10, 297. [47] ward, a., &johnson,p. j. (2013). necessary health care and basic needs: health insurance plans and essential benefits. health care anal,21, 355-371. [48] zuckerman, a. m. (2014). successful strategic planning for a reformed delivery system. journal of healthcare management, 58, 168 – 172. receieved: may 2015. accepted: august 2015. 47 management 2015/76 48 2015/76management about the author željko jović medi group, milutina milankovića 3, belgrade, serbia z.jovic@medigroup.rs željkojović was born in 1973 in valjevo, serbia. he graduated from the military academy in belgrade in 1996 and received his master’s degree at the faculty of security, belgrade in in 2013. he currently holds the position of sales director at „medi group”, the first private healthcare platform in serbia. he is the author of several articles in the field of marketing in healthcare published in journals and conference proceedings in this field. jelena cvijović university of belgrade, faculty of organizational sciences, serbia jelencvijovic85@gmail.com jelena cvijović is a doctoral student at the faculty of organizational sciences, university of belgrade. the areas of her scientific interest are: marketing communications, indirect advertising, social marketing and consumer behaviour. she has so far published more than twenty research papers in international and national journals and conference proceedings. 04_zorica mitrovic:tipska.qxd 39 zorica mitrović1, mirko vujošević2, gordana savić3 1,2,3 univetsity of belgrade, faculty of organizational sciences management 2016/75 data envelopment analysis for evaluating serbia’s health care system udc: 005.336.1:614.2(497.11) doi: 10.7595/management.fon.2015.0012 1. introduction a key policy challenge in both developing and developed countries is to improve outcomes of the health care system while containing cost pressures. in serbia the current economic and financial crisis weights heavily on fiscal positions, with gross government debt projected to exceed 69.7% of gdp in serbia by 2016 (goverment of the republic of serbia, 2013), and has reinforced the need to improve public spending efficiency. the burden on the health care sector efficiency is even heavier due to the fact that public spending on health care is one of the largest government spending items, representing on average 10.4% of gdp (world health organisation, 2014). furthermore, health care costs are rising rapidly, driven by population ageing and rising relative prices. to improve public health care spending projections and meet a rapidly growing health care demand, without putting even more the public finances on an unsustainable path where they already are, efficiency gains in health care will be crucial. therefore, this paper the use data envelopment analysis, which is one of the most important techniques currently available to model and measure the efficiency of national health care systems across the world . the application of the dea to derive cross-country comparisons of health care system efficiency at a system level is challenging.the analysis and measurement of efficiency is complicated due to conceptual challenges, multiple objectives and a great scope for measurement error (jacobs et al., 2009). besides, in the health care field, the data envelopment analysis has been used largely for micro-level service efficiency, particularly hospitals, and it could be complex for undertaking at a system level. this paper is an attempt to measure and evaluate the efficiency of the health care system of serbia in comparison with countries in the european region using the data envelopment analysis (dea), one of the most important methods to model and measure the efficiency of health care systems. the research included the sample of 42 countries representing decision-making units (dmu), divided into two groups of countries with similar levels of development. to assess the performance of those dmus we used three outputs representing mortality rates and three inputs representing health care expenditure and health care human resources. in the presence of undesirable outputs, the proposed model was bad output model with simple modifications. the analysis showed that 19 out of 42 countries are relatively efficient in providing health services and a close examination of these efficient countries shows that most countries are countries with low input values. on the other hand, serbia’s health system is ranked the 15th out of 21 analyzed systems within its group, with a gap of 37% in comparison with the first ones ranked. the usual explanation is that the health system in serbia has been affected, during time, by the lack of reforms, by poor funding as well as by the lack of interest of the authorities in establishing a long-term strategy; further analysis, however, are needed to show the reasons for this state and what steps should be done to improve the current state. we find that this paper could be useful to both public health practitioners and researchers especially because due to its complexity in undertaking, the measuring efficiency at the system level has recently been applied only in few studies and this research will be a significant contribution. keywords: data envelopment analysis, health system efficiency, serbian health care system, health policy, european region health care systems 2. efficiency measurements and data envelopment analysis data envelopment analysis (dea) is a popular method for ranking various kinds of decision-making units (dmus) by their relative efficiencies. this popularity comes from non-parametric approach that enables dea efficiency scores to be free of restrictive parametric assumptions. efficiency scores are generated by comparing all dmus to a best practice frontier, observations with the highest levels of outputs for the lowest levels of inputs. all dmus with less efficient combinations of outputs and inputs lie within the frontier. analysts can then identify these less efficient dmus and determine what combinations of inputs might move each toward the best practice frontier, thus increasing their efficiency. the dea methodology is considered to have several advantages over other methods : • it handles multiple inputs and outputs; • it does not require prior weights (as in index numbers); • it does not require any specific assumptions about the functional form between inputs and outputs; • it emphasises individual observations rather than statistical estimates (as in regression analysis); • it is a dynamic analytical decision-making tool that indicates possibilities for improving relative efficiency; • it uses the benchmarking approach to measure dmu efficiency relative to others in their group; • it can assist in identifying best-practice or efficient dmus and inefficient dmus within the group. since charneset al. (1978) introduced dea as a mathematical programming based approach for measuring relative efficiency it has been extended and widely employed to assess performance of organisations in a vast number of fields including the health care as one of the earliest application domains. it has been used largely for analysing and measuring a micro-level service efficiency, particularly hospitals and some of the recent studies were: measuring efficiency of nursing homes in italy (garavaglia, lettieri, agasisti, & lopez, 2011) and usa , measuring productivity of hospitals in holland (blank &valdmanis, 2010), local health departments in us (mukherjee, santerre, & zhang, 2010), assessment of hospital efficiency in turkey and greece , assessment of efficiency of primary health care centres operating in the san joaquin valley, california , evaluating health centre groups in portugal , performance analysis of brazilian hospitals , technical efficiency and scale of efficiency of district hospitals in tamil nadu, a state in india . this short list from several past years suggests that the application of dea is all over the map for measuring efficiency on the microlevel. on the other hand, due to its complexity in undertaking, the measuring efficiency at the system level has recently been applied only in few studies and those were for the eu 27 , the who region , the oecd countries , cyprus, greece, iceland, ireland, malta, romania, slovak republic, slovenia and turkey and india . to implement a model for assessing a health sector efficiency and comparison of the serbian health care system with those of the countries in the european region, we will consider the listed analysis. 3. model and data the starting point of model definition is the choice of the decision-making units (dmus) . it is obviously necessary to assess the efficiency of a country’s health system relative to those of countries with similar levels of development . in this paper we choose to divide the available sample of 42 countries into two groups of countries with similar levels of development, measured by gpd in ppp($) per capita and life expectancy. group one consisted of countries with gdp ppp($) per capita of more than $25,000 per annum and life expectancy longer than 78 years: portugal, greece, czech republic, slovenia, malta, israel, spain, italy, france, united kingdom, iceland, finland, belgium, germany, ireland, denmark, austria, the netherlands, switzerland, norway and luxembourg. the other group consisted of countries with gdp ppp($) per capita of less than $25,000 per annum and less than 78 years of life expectancy: kyrgyzstan, the republic of moldova, georgia, ukraine, albania, bosnia and herzegovina, tfyr macedonia, serbia, kazakhstan, montenegro, belarus, bulgaria, romania, latvia, croatia, poland, lithuania, hungary, russian federation, estonia and slovakia. the next step is the choice of outputs and inputs to be used to characterize the performance of those dmus . many factors combine with health expenditures to produce health within a population and although higher levels of health expenditure may be associated with more health, economists 40 2016/75management 41 are uncertain as to the importance of health expenditure in the production of health, relative to other significant factors such as education, nutrition, and social inclusion . furthermore, studies undertaken on the system level, as shown in table 1 differ in using the internal and external factors as inputs and outputs or as explanatory variables. table 1: overview of inputs and outputs used in evaluation of health system efficiency no inputs outputs authors region 1 (popescu et al., 2014) eu 27 region • non immunized rate • health expenditures • adult survival rate • tuberculosis rate. 2 (k.r., 2012) who region health status: • per capita total expenditure on health (ppp int. $) • number of nursing and midwifery personnel • number of physicians health service coverage: • per capita total expenditure on health (ppp int. $) • number of nursing and midwifery personnel • number of physicians health status: • adult mortality rate (probability of dying between 15 to 60 years per 1,000 population) • infant mortality rate (probability of dying between birth and age 1 per 1,000 live births) • neonatal mortality rate (per 1,000 live births) • under-five mortality rate (probability of dying by age 5 per 1,000 live births) health service coverage: • diphtheria tetanus toxoid and pertussis (dtp3) immunization coverage (per cent) • measles (mcv) immunization coverage among one-year-olds (per cent) 3 (afonso & st. aubyn, 2011) oecd countries • number of practicing physicians • number of nurses • number of acute care beds per thousand habitants • magnetic resonance imagers (mri) • life expectancy • infant survival rate • potential years of life not lost 4 (alexander et al., 2003) developing countries: bangladesh, bhutan lao (pdr), madagascar, tanzania, china, indonesia, jamaica, sri lanka • health expenditure per capita ppp • gdp per capita ppp • male disability adjusted life expectancy • female disability adjusted life expectancy • infant mortality rate subtracted from 1,000. 5 (pelone et al., 2013) europe: cyprus, greece, iceland, ireland, malta, romania, the slovak republic, slovenia and turkey • governance (12 indicators) • economic dimensions (11 indicators) • workforce development (16 indicators) • access to pc services (12 indicators) • comprehensiveness of pc (10 indicators) • continuity of care (9 indicators) • coordination of care (7 indicators) 6 (varabyova & schreyögg, 2013) oecd region • beds • employment • physicians • nurses • discharges • mortality 7 (retzlaff-roberts, chang, & rubin, 2004) oecd region health inputs: • beds (per 1,000 population) • mri (units per million population) • physicians (per 1,000 population) • expenditure (percentage of gdp) social environment inputs: • school expectancy (years of education expected) 20.0 • gini (gini coefficient of income distribution) 30.5 • tobacco (maximum percentage of male or female smokers) • infant mortality (deaths per 1000 live births) • life expectancy (years from birth) 8 (shetty & pakkala, 2010) india states • per capita health expenditure (pche) • health centre per million populations (hcpmp) • percentage of population below poverty line (bpl) • literacy rate (lr) • infant mortality rate (imr) • average life expectancy at birth of men and women (leb) the other concern is an appropriate number of dmus, given the number of inputs and outputs chosen. suggests that large numbers of inputs and outputs compared to the number of dmus may diminish the discriminatory power of dea and that the number of dmus should be at least twice the number of inputs and outputs combined. taking all above in consideration together with the data available, selected inputs were physicians per 100,000,nurses and midwives (pp) per 100,000 and total health expenditure, ppp($) per capita, who estimates. on the other hand, the outputs were infant deaths per 1,000 live births, neonatal deaths per 1,000 live births, sdr all causes, 0-64, per 100,000. data on the chosen inputs and outputs were obtained from the world health statistics (world health organization, 2014). the dea usually assumes that producing more outputs relative to less input resources is a criterion of efficiency. in the presence of undesirable outputs, as it is in our case, systems with less bad (undesirable) outputs relative to less input resources should be recognized as efficient. in the dea literature, several authors have proposed methods for this purpose. our model is modified so as to account for undesirable outputs: badoutput model. in badoutput model output matrix is decomposed into ) where and denote good (desirable) and bad (undesirable) output matrices, respectively. for a dmu , the decomposition is denoted as . the production possibility set is defined by (1) where λ is the intensity vector, and l and u are the lower and upper bounds of the intensity vector, respectively. the efficiency status was defined in this framework as follows: definition of efficient dmu: a dmu is efficient in the presence of bad outputs, if there is no vector such that with at least one strict inequality. in accordance with this definition, the slacks-based measure of efficiency was modified as follows: (2) subject to: the vectors and correspond to excesses in inputs and bad outputs, while expresses shortages in good outputs. s denotes the number of elements. the optimal solution of the above is ( ). then the dmu is efficient in the presence of undesirable outputs if and only if , i.e., if the dmu is inefficient. 42 2016/75management the described model was used on the available dataset to generate information on how efficient is a relative health care system. hence, this information is obtained by analyzing a relative efficiency of health care systems, singling out the most efficient one and ones that happen to perform below average and comparing efficiency of health care systems within the group generating rankings of health care systems. the individual dea output efficiency measures distinguish those countries that are doing best in their groups, given the level of per capita health expenditures number of nurses and midwives and number of physicians. the results are presented in following chapter. 4. results table 2 shows the descriptive statistics for both groups. it is interesting to notice that even though groups are determined by the level of development, measured by gpd in ppp($) per capita and life expectancy, they show a partial overlapping when the inputs are concerned. the number of physicians ranges from 249.5 (slovenia) to 614.47 (greece) in group one, and from 114.54 (albania) to 431.04 (russia) in group two. the standard deviation within the groups is almost the same but the groups’ average differs just in 15%. similarly, the number of nurses and midwives varies from 377.19 (greece) to 1767.73 (switzerland) within group one and from 342.66 (georgia) to 1114.2 (belarus) within group two but in this case average number significantly differs between groups, as it is case with other variables. the third input, total health expenditure significantly differs between groups, what is easy to explain with gdp difference between groups, only slovakia (2087.9) from group two and the czech republic (1922.86) from group one are outliers that blur an otherwise clear line between groups. the situation with outputs is completely different. the difference between groups is obvious, for example, the average value of every variable for group two is at least twice higher in comparison with those in group one (table 2). the partial overlapping in inputs such as physicians and nurses and a significant difference in total health expenditure and outputs between groups signals the need for additional analysis that could explain this phenomenon. table 2: statistics on input/output data table 3 shows the results of the dea with two additional explanatory variables, previously used to divide the countries in two groups of countries with similar development level. rank 1 has those countries that were found to be efficient by the dea in each group (table 3). to understand the nature of efficiency in each group it would be useful to compare information on difference in health outcomes and expenditures for most efficient and selected countries within groups as shown in table 4. 43 management 2016/75 physicians per 100,000 nurses and midwives (pp) per 100,000 total health expenditure, ppp($) per capita infant deaths per 1000 live births neonatal deaths per 1,000 live births sdr all causes, 0-64, per 100,000 group 1 max 614.47 1767.73 6876.1 6.3 5.6 228.45 min 249.5 377.19 1922.86 1.79 0.99 130.89 average 353.52 1033.11 3756.18 3.36 2.48 166.43 sd 80.68 392.02 1276.84 0.88 0.89 24.70 group 2 max 431.04 1114.22 2087.9 22.3 16.01 587.64 min 114.54 342.66 160.7 2.38 1.5 221.3 average 297.19 658.18 1026.68 7.86 5.16 372.23 sd 82.48 161.84 468.57 4.39 3.03 108.29 table 3: countries with most efficient health sectors table 4: health outcomes and expenditures of selected countries 44 2016/75management group 1 group 2 explanatory variables explanatory variables r a n k country score gdp, ppp($) per capita le at birth r a n k country score gdp, ppp($) per capita le at birth 1 spain 1 32086.5 82.45 1 tfyr macedonia 1 11560.8 75.10 1 slovenia 1 26943.0 79.96 1 albania 1 8866.2 76.24 1 luxembourg 1 88796.9 81.65 1 belarus 1 14938.0 70.62 1 czech republic 1 26332.3 78.06 1 bosnia and herzegovina 1 9076.4 76.65 1 iceland 1 36483.0 81.93 1 republic of moldova 1 3369.1 71.13 1 ireland 1 40868.1 80.80 1 croatia 1 19486.7 77.26 1 israel 1 28809.3 82.24 1 estonia 1 21996.5 76.63 1 italy 1 32672.4 82.50 1 georgia 1 5465.1 74.69 1 greece 1 25857.8 80.91 1 latvia 1 18950.8 73.70 10 netherlands 0.999 42779.3 81.15 1 kyrgyzstan 1 2401.9 69.51 11 finland 0.903 37455.4 80.76 11 poland 0.999 21085.1 76.96 12 portugal 0.839 25564.3 80.90 12 montenegro 0.872 13431.9 75.63 13 united kingdom 0.785 35598.4 80.78 13 lithuania 0.698 21479.9 73.57 14 norway 0.745 60392.1 81.53 14 hungary 0.696 21661.1 75.15 15 malta 0.719 27503.5 81.04 15 serbia 0.626 11886.8 74.64 16 france 0.681 35247.1 81.76 16 slovakia 0.611 24094.7 75.66 17 switzerland 0.602 51227.1 82.83 17 bulgaria 0.604 15082.7 74.27 18 germany 0.602 39456.4 80.64 18 ukraine 0.601 7208.1 71.12 19 belgium 0.601 38722.8 80.29 19 romania 0.590 15983.3 73.83 20 austria 0.598 42172.5 81.30 20 kazakhstan 0.521 13099.3 68.59 21 denmark 0.565 40933.0 80.09 21 russian federation 0.377 21920.9 69.03 countries group rank score total health expenditure, ppp($) per capita sdr all causes, 0-64, per 100,000 slovenia 1 1 1 2,518.88 198.79 switzerland 1 17 0.602 5,564.26 134.27 macedonia 2 1 1 789.4 264.39 serbia 2 15 0.626 1,195.22 307.35 russia 2 21 0.377 1,316.32 587.64 disscusion and conclusion first, the analysis showed that 9 out of 21 countries are relatively efficient in providing health care services in group one and 10 out of 21 in group two. a close examination of these efficient countries shows that most countries are countries with low input values (e.g., expenditure on health, density of doctors and nurses per 100,000 population). furthermore, the result shows that most of poor countries from group two are working with increasing returns to scale (irs). this shows that, for these countries, the output changes more than in proportion by which input changes. the case with developed countries from the first group is opposite. second, it is important to note that the health care sector in countries from group two is mainly under the control of government, thereby most of the governments give free primary health care to their citizens. the third important point is that the remaining countries are not utilizing their resources effectively, i.e., waste of resources references [1] alexander, c., busch, g., & stringer, k. (2003). implementing and interpreting a data envelopment analysis model to assess the efficiency of health systems in developing countries, 14, 49–63. [2] androutsou, l., geitona, m., & yfantopoulos, j. (2011). measuring efficiency and productivity across hospitals in the regional health authority of thessaly, in greece. journal of health management, 13(2), 121–140. doi:10.1177/097206341101300201 [3] cook, w. d., tone, k., & zhu, j. (2014). data envelopment analysis: prior to choosing a model. omega, 44, 1–4. doi:10.1016/j.omega.2013.09.004 [4] dash, u., vaishnavi, s. d., & muraleedharan, v. r. (2010). technical efficiency and scale efficiency of district hospitals: a case study. journal of health management, 12(3), 231–248. doi:10.1177/097206341001200302 [5] ferreira, c., marques, r. c., & nicola, p. (2013). on evaluating health centers groups in lisbon and tagus valley: efficiency, equity and quality. bmc health services research, 13(1), 529. doi:10.1186/1472-6963-13-529 [6] goverment of the republic of serbia. fiscal stretgy for 2014th and projections for 2015-2016. strategy, belgarde: goverment of the republic of serbia, 2013. [7] guerra, m., de souza, a. a., & moreira, d. r. (2012). performance analysis: a study using data envelopment analysis in 26 brazilian hospitals. journal of health care finance, 38(4), 19–35. retrieved from http://www.ncbi.nlm.nih.gov/pubmed/22894019 [8] k.r., s. (2012). evaluation of the efficiency of national health systems of the members of world health organization. leadership in health services, 25(2), 139–150. doi:10.1108/17511871211221055 [9] pelone, f., kringos, d. s., spreeuwenberg, p., de belvis, a. g., & groenewegen, p. p. (2013). how to achieve optimal organization of primary care service delivery at system level: lessons from europe. international journal for quality in health care : journal of the international society for quality in health care / isqua, 25(4), 381–93. doi:10.1093/intqhc/mzt020 [10] popescu, c., asandului, l., & fatulescu, p. (2014). a data envelopment analysis for evaluating romania’s health system. procedia social and behavioral sciences, 109(1994), 1185–1189. doi:10.1016/j.sbspro.2013.12.609 [11] rahman, m. a., & capitman, j. a. (2012). care health practitioners increase from california ’ s san joaquin valley, 38(3), 78–92. [12] retzlaff-roberts, d., chang, c. f., & rubin, r. m. (2004). technical efficiency in the use of health care resources: a comparison of oecd countries. health policy, 69(1), 55–72. doi:10.1016/j.healthpol.2003.12.002 [13] sahin, i., ozcan, y. a., & ozgen, h. (2009). assessment of hospital efficiency under health transformation program in turkey. central european journal of operations research, 19(1), 19–37. doi:10.1007/s10100-009-0121-3 [14] shetty, u., & pakkala, t. p. m. (2010). technical efficiencies of healthcare system in major states of india: an application of np-rdm of dea formulation. journal of health management, 12(4), 501–518. doi:10.1177/097206341001200406 45 management 2016/75 is considerably large. policy makers should consider this a serious issue. some countries have been found to be operating at decreasing returns to scale, as their outputs do not seem to be proportional to their inputs. these countries should undertake a thorough examination of the use of the resources and improve their efficiency. finally, as shown in the analysis, serbia’s health care system ranks the 15th out of 21 analyzed systems, with a gap of 37% compared to the first ones ranked. the health care system in serbia has been affected, during time, by the lack of reforms, the poor funding and by the lack of interest of the authorities in establishing a long-term strategy. as a result, after 1990 the population health status has been continuously deteriorating. further analysis will show the reasons for this state and what steps should be taken to improve the current state. acknowledgement this paper is a result of a strategic project founded by the ministry of education and science of the republic of serbia: exploring modern trends of strategic management of the application of specialized management disciplines in the function of the competitiveness of serbian economy, no 179081. 46 2016/75management about the author [15] shimshak, d. g., lenard, m. l., & klimberg, r. k. (2009). incorporating quality into data envelopment analysis of nursing home performance: a case study. omega, 37(3), 672–685. doi:10.1016/j.omega.2008.05.004 [16] varabyova, y., & schreyögg, j. (2013). international comparisons of the technical efficiency of the hospital sector: panel data analysis of oecd countries using parametric and non-parametric approaches. health policy (amsterdam, netherlands), 112(1-2), 70–9. doi:10.1016/j.healthpol.2013.03.003 [17] world health organisation. global health observatory data repository. february 15, 2014. http://apps.who.int/gho/data/node.main.75 (accessed february 15, 2014). receieved: october 2014. accepted: may 2015. zorica mitrović university of belgrade, faculty of organizational sciences zorica.mitrovic@fon.bg.ac.rs zorica mitrović is a teaching assistant at the university of belgrade, faculty of organizational sciences. she is a member of the serbian project managers association. her primary research areas are performance management, strategic management and project management. she has published over 30 papers in peer-reviewed conferences and journals and taken part in several national and international research projects. mirko vujošević university of belgrade, faculty of organizational sciences vujosevic.mirko@fon.bg.ac.rs mirko vujošević graduated in electrical engineering at the belgrade university where he completed his postgraduate studies and earned his doctorate. from 1976 to 1995 he was with mihailo pupin institute, belgrade, and now he is full professor at the faculty of organizational sciences, belgrade university. he published more than 180 professional papers on different topics of operational research, reliability, maintenance, inventory control and applied mathematics. he is the author and co-author of two monographs, six textbooks, and several chapters in various monographs. gordana savić univetsity of belgrade, faculty of organizational sciences, goca@fon.bg.ac.rs gordana savić is an assistant professor at the faculty of organizational sciences. she took her phd in may 2012 in the field of operational research. she has published more than 50 research and conference papers. the areas of her research interest include mathematical modelling, real-life problem optimization and efficiency evaluation by data envelopment analysis. 07_danilo dororvic:tipska.qxd 67 danilo dorović tedex doo, the consultancy enterprise management 2016/75 the hierarchy of segment reports udc:005.912 005.551 doi: 10.7595/management.fon.2015.0013 1. introduction management accounting follows the organizational structure of the company through the concept of responsibility accounting. “a responsibility center is an organizational unit for which a manager is made responsible.” (atkinson et al., 2007, p. 581) it is simply natural to create reports on achieved results of a manager’s organizational unit. the organizational hierarchy, departments and units have the task to successfully implement a defined strategy of the company. it is quite usual that an individual manager, wherever his organizational unit is in the organizational hierarchy, is responsible for the fulfillment of the strategy to a certain extent. the manager is, in simple words, responsible for a certain part of the business. segment reports are usually created for different areas of responsibility for each manager – for an individual product or groups of products, for an individual customer or groups of customers, for an individual distribution channel or types of distribution channels, for brands or umbrella brands, for individual market segments or national markets, or, finally, for strategic business units. the aim of the paper is to propose how these reports for different areas of responsibility of different managers can be structured following the logic of enterprise’s strategy hierarchy. in this manner, instead of having separated loosely connected reports the management reports can be structured properly and logically! if the segment reports created for individual parts of the business could be properly hierarchically connected, it would be possible to track how the result on individual reporting segment influences the results of other segments bellow/above it and of the company in general. segment reports should be logically interconnected if this goal is to be achieved. it is also important to emphasize that for some business segments there is no directly responsible management! for example, the marketing function can be shaped per products, customers, brands, channels, markets, market segments, etc. in some cases, the matrix organization will be implemented for product and customer, brand and channels, etc. (kotler et al., 2009, pp. 773-778) however, usually just two elements can be included in the matrix organization. for example, if customers and brands are included, channels or markets, even market segments are not monitored in the business segment reports. it is reasonable to claim that even if business segments do not have directly responsible managers, they should be somehow monitored. since results per some segments are not regularly monitored, some developments can surprise the management. ultimately, responsibility for these business segments that are not under direct supervision of the article presents an attempt to find the connection between reports created for managers responsible for different business segments. with this purpose, the hierarchy of the business reporting segments is proposed. this can lead to better understanding of the expenses under common responsibility of more than one manager since these expenses should be in more than one report. the structure of cost defined per business segment hierarchy with the aim of new, unusual but relevant cost structure for management can be established. both could potentially bring new information benefits for management in the context of profit reporting. keywords: business segments, hierarchy, activity based costing the lower level manager will be the responsibility of the top level management. they will need reports that show the achieved results in these “omitted” segments since their responsibility is general. the danger that some segments can be omitted is partly due to fact that there is no proper hierarchy of segments that is logically connected into the management and management accounting theory. if the hierarchy were known, it would be easy to understand which segments are omitted. 2. the previous attempt for creation of hierarchy of segments in management reporting originally, the issue was implicitly introduced by kotler in one of his books named marketing management. he identified 90 types of demand measurements per several relevant dimensions. the first is the product level with its sublevels: product itself, class of products, product line, products of the company and products of the industry. the second is the territory with following sublevels: individual customer, territory, region, the usa and the world. the third is the time: short-term, middle-term and long-term. by multiplying the 6 sublevels for the product with 5 sublevels for customers and 3 for time, the author came to a conclusion that there are 90 types of demand measurements. (kotler, 1972, p. 193) the implicit question is how the reports for all the product levels and all the customer levels are interconnected? the managers should receive the reports per each sublevel, so that they can understand and improve their results per each demand type. but the product results are interconnected with sale per territory, region, national state or individual customers. the vice versa can be also claimed, the results of individual product, product line, etc. are connected with sales per customer, territory, region, national state… so, they are interdependent but how precisely? barrett also identified the problem from the point of data generation and defined the following elements: area, customer type, product, level of service. he showed sales area as the bases, followed by cutomer type, product and level of service. however, he did not try to establish a firm hierarchy between these reporting elements. he just showed that there is interdependency that should be solved during the report shaping. (barrett, 1980, p. 143) r. wilson emphasized the previous attempts from other authors to establish the level of segments, but mostly used barrett`s work as an illustration attempt for the issue itself in two of his works. (wilson, 1999, pp. 41-42; wilson and gilligan, 2005, pp. 79-80) wilson did not try to propose a hierarchy as a potential solution. k. ward, as one of the most important establishers of strategic management accounting, showed a type of potential reporting matrix as report of profitability analyses for products and customers. but then he claimed that this report cannot be created! it would show the profitability of customers as dependent on products or profitability of products dependent on customers, but costs cannot be totally separated in a manner which makes it possible for them to be separated per individual customer and product simultaneously. for example, the delivery terms expense is influenced by customer and not by product. or, expense of production preparation is not possible to be properly allocated by the following cause-effect relation to the customers. (ward, 1993, pp. 68-69) in this manner, he also introduced the issue of abc cost hierarchy as one of the reasons for the low possibility of interconnecting the different reporting segments. per all previous authors products, customers, geographical areas are specific segments of the business for which the reports should be created. however, it can be easily argued that reporting segments should also include the distributors, brands, market segments, national markets as well as previously mentioned different groups of customers (per territory, age, sex, education, purchasing habits…) and strategic business units the result for which is influenced by all the previous elements. it seems that a valid proposal for the issue of segment reports hierarchy demands that more reporting elements should be explicitly included. in approaches that can be found in literature, the level of service, different types of customers or customers in a specific area are showed as segments. still, there is no cohesive idea how the segments should be hierarchically connected, just that they are connected. 68 2016/75management 3. levels of strategy and revenue generation as core ideas for defining the hierarchy of segments there are two ideas how the business segment hierarchy for reporting can be established. the first is that hierarchy inside the strategy can be used to determine the hierarchy of segments. if this can be determined, it will be possible to understand how the fulfillment of the strategy in one segment influences the results of other segments and the overall result of the company. there are three levels of the strategy: the corporate strategy, the competitive strategy and the functional strategies. (grant, 1992, pp. 10, 20-21) the corporate strategy defines the business areas or industries, the competitive strategy defines the competitive advantage, while functional strategies have individual roles in creating a competitive advantage. in modern times the marketing function, due to effect known as “lack of customers,“ has assumed an integrative role in the business. due to this, most segments will be determined in their areas of expertise or will be connected with marketing in some manner. marketing works with products, goods or services, customers, customer types, market segments, markets, brands, distribution channels. for the purpose of this article, all the above mentioned will be defined as elements of the marketing strategy. the marketing strategy, as a functional level strategy, usually covers the stated areas as ones under its exclusive or partial responsibility. a marketing plan is usually defined per one or more of these elements that the marketing strategy is closely connected with. that is, targets and activities in the marketing plan are closely connected with products, markets, customers, brands, channels. it could be reasonable to assume that the marketing and financial results per each element should be monitored and management accounting reports presented per these elements. there is usually a marketing manager responsible for some of these elements. the value chain (porter, 1990, p. 41) defines the activities that create the value for the final customer. the activities will create the benefits relevant for customers on the target markets. at the same time, these benefits should be acceptable for customers when compared with competitors. only if this is the case, can the expenses for used resources be lower than the price charged for the final product. if the hierarchy of segments is determined, these activities can be properly allocated to each business segment and the value chain will have its activity expenses broken per segments of business. when having in mind that each activity creates some value, the values generated per reporting segments could be also tracked. besides the strategy as a tool for creating the hierarchy, the manner in which the revenues are logically generated can be used as the second principle for defining the hierarchy. for example, products are sold to customers. due to this, the product cannot be higher than the customer in hierarchy. products are sold to customers not the opposite, leading to a conclusion that the product is a more basic business segment. the creation of a product or a service demands the expenses. selling the product to the customer will also mean new expenses connected with customers such as exposure in the shop or promotional effort. these are customer specific and not product specific expenses. since the product is sold to the customers, it leads to a conclusion that the product is a more basic element in the hierarchy. considering the introduced principles of way the revenues are generated and three levels of the strategy, the proposal of the segment hierarchy can be introduced. 4. the hierarchy of segments in business at the top of the segment pyramid should be the company itself. its overall result is based on the results of business areas or industries that the company has chosen to operate. in the following figure, the proposed hierarchy of business segments is presented. 69 management 2016/75 figure 1: the proposed hierarchy of the business segments for large companies, it is usual that a division or a strategic business unit operates at a corporate strategy level. the corporate strategy determines the industries in which a sbu of the company will operate. however, further explanation will be continued from the bottom side of the pyramid as more explanatory. the results achieved on these lower segments are creating the result of the strategic business unit or division. the product is at the core of the competitive advantage of the company. it is the holder of the essential benefits for the consumer. it is the object of costs for creation of these benefits. the production activities that generate product benefits for customers are created on this business segment. still, the creation of the benefits will not end here. the company will further have to create the benefits for the customer. benefits connected with the customer level are delivery to the customer, education as to how to use the product or warranty, etc. all are connected with the activities on the customer level. in marketing, customers are organized into customer groups. the products are sold to customers that belong to a customer group. in a way, the product transfers its profit to the customer and the customer group level. this is why the product is at the bottom of the pyramid. the marketing department will search for different customer characteristics for which specific customer value can be provided. it will search for a customer whose behavior is more profitable for the company. this is still not the market segment level. the customer groups are parts inside the marketing segment. for example, the company targets the people that like to go to hypermarkets for their monthly purchases. this is the targeted market segment. however, the buyers can be grouped in males or females. another grouping could be per age or geographic region. having separate profit contribution report for each of these groups can be beneficial for managers. market segments are at the heart of marketing strategy. defining which market segments are more or less profitable would mean knowing whether the marketing strategy is properly defined and/or whether its implementation is proper. since the customers organized in the marketing segments are the basic marketing strategy choice, knowing the results of the work on the marketing segment – financial as well as nonfinancial – is at the core of the business segment reporting for marketing. the contribution to profit originally created by the production activities is further decreased in higher level segments that are connected with customers by introducing higher level segments’ expenses. additional benefits provided by activities in the company`s value chain will be provided on these levels. these activities will generate the expenses that will further influence the profit achieved in the lower reporting segments. 70 2016/75management the market is usually defined as customers having the same need. however, it has customers that can be grouped in different ways as marketing segments. the company can target more than one segment. this is the reason why market is on higher hierarchical level than market segments. the overall financial and marketing result achieved on all targeted marketing segments will create the result for the market as a whole. some additional benefits can be provided on this level, such as health checking of foods (for food producers) that provide general safety for customers in all marketing segments. other products may demand fulfilling some other standards required by the law. special offers can be activities that are generated on this level. this leads to the next level – national markets. tariffs, special charges, changes of product label, etc. are examples of the needed changes that influence the profit contribution achieved on an individual national market. in modern times, it is important for the management of multinational companies to control the plan vs. actual results on individual national markets on which the company operates. reports that measure different performances, financial as well as non-financial, will show whether the strategy is implemented properly or not at individual national markets. brands and distribution channels as segments can be on different levels, from customer groups up to the company level. brands can be shaped for the company itself, but can also be targeted for customer groups, market segments, markets or national markets. depending on the customer level on which the brand is defined, the total brand will be positioned as reporting segment and as sa pecific level inside the pyramid. that is, psychological differentiation can start on the customer group level and be carried out up to the top level of the business segment, that is, for the company as whole. it is the same with distribution channels as with brands. they can be positioned inside the hierarchy of the segments between different segment levels. the distribution can be organized separately for products, customer groups, market segments, markets, national market, strategic business unit or the company itself. distribution activities will be the ones that create location benefit for customers and generate the expenses during this process. finally, how is this connected with the previously mentioned principles? firstly, functional strategies of the strategy are covered. products are mostly the responsibility of the production. marketing has a responsibility from products up to the national markets. financial function is represented with calculation of profit and assets used in each business segment. the sbu or divisions are the responsibilities of the corporate strategy since they mostly correspond to the industries chosen in the corporate strategy. activities and benefits which activities generate will present the competitive level of the strategy in each segment level since they generate benefits that are part of the competitive advantage. secondly, revenues are generated by sales of products and a fterwards, by selling them to the customers that the products were created for. on a higher level of the hierarchy, these customers are grouped generating the results for markets, national markets that a sbu operates in and the company as a whole. the point is that the revenues and costs can be calculated for each segment. due to this, contribution to profit for each segment and its responsible manager can be calculated leading to its impact to the profit of the company itself. segment levels will show how these individual results are interconnected. 5. activity based cost hierarchies in segment pyramid “to discuss management and at the same time neglect accounting as a basic source of information is really not possible.“ (kneževic at al., 2012, p. 68) this leads to the issue of activity based costing, as a source of distributing the expenses to the proper reporting segment. the abc has integrated procedures for compiling the list of activities for each cost object. (kaličanin&knežević, 2013, p. 107) having in mind that segment reports are nothing but groups of cost objects of the same type, it is clear that activity based costing is the main methodology behind the different segment reports. more precisely, the activity based costing has cost hierarchy for each cost object proposed in the hierarchy. it is well known that there is a product hierarchy of costs in the activity based costing, as management accounting tool. it was created by cooper in 1990. (bromwich, 1997, p. 44) cost hierarchies are presented for customers and distributors as well as for brands. (foster and gupta, 1994, pp. 86, 88) the more updated cost hierarchies for the product separate the support level as the third level of costs and split it into support 71 management 2016/75 of customers, channels as separate levels. also, the overall support is broken into two levels as business support and other support. (atkinson at all, 2007, pp. 56-62) the segment reports are also a possible way of making a kind of unified cost hierarchy inside the activity based costing. this is due to fact that product hierarchy can be implemented on the product level, customer hierarchy on the levels from customers to national market. also, it can be implemented on the distribution level since there is no real principal difference between distributors and buyers. however, these hierarchies are overlapping. some activities will exist in more than one hierarchy. first, it is obvious that one activity cannot be connected with just one segment level. if the activity is connected with customers but can be allocated by cost driver to product too, it is possible that it be present on both business segment levels. for example, if transport is performed for a couple of products to one customer, the cost of this activity can be easily allocated to that customer. using ton/kilometre as cost driver will make possible for this expense to be also allocated to the specific product on support level of the product hierarchy considering the weight of product. if the reports are made for a product manager or a customer manager, cost like transport should be included in individual reports for both managers. in this manner, both can see how the transport expenses influence their areas of responsibility. this will potentially make them realize the benefits of mutual cooperation in order to reduce the transport costs. for example, the production manager can search for the ways of reducing the product weight such as lighter packaging to reduce transport costs while the marketing manager will search for a lighter package that can be acceptable for the market. it is well known that marketing and production managers will confront in the area of product variability. marketing asks for more variation in products. if preparation of the product is included on batch level of costs, for the managers on the first segment level and later transferred to the market segment manager and his report, both managers will have their motives to make these expenses minimal. this will improve the inter-functional cooperation. it will be easier to find ways to achieve optimal organization of work between different functions on the functional level of the strategy. secondly, the need for some expenses to be shown on more than one level should not be confused with their natural belonging to a specific segment! if the activity is allocated to just its naturally belonging segment, the structure of cost per business segments can be determined. the allocation of the activity expense to its “natural” business segment is easy if it is known which cost object they were naturally created for. expenses of transport activities are naturally connected with distribution. expenses of servicing the customers are naturally connected with the customer, customer group or market segment. tariffs are connected with the national market, etc. similarly, the expenses of general administration or location of the factory etc. should be allocated on the division/strategic business unit level or to the company. these will probably be supporting activities in the value chain. due to this, all these expenses should be allocated to one of these segments originally. when needed, they will be shown in more than one of the segment reports for managers responsible. having this in mind, the structure of cost per business segment can be created. it will be possible to know how much expenses each type of cost objects grouped into the business segments creates. it will be possible to track the expenses per each segment level and its share in the total expense value of the company as a newly defined cost structure. to say once again, it is possible to know how much expenses cost objects grouped at each segment level caused. 72 2016/75management references [1] atkinson, a. a., kaplan, r., matsumura, e. m., young, s. m. (2007). management accounting, pearson prentice hall, upper saddle river, new jersey [2] barret, t. f. (1980). modular database system. international journal of physical distribution and material management, 12, pp. 135-146 [3] bromwich, m. (1997). accounting for overheads critique and reforms, cima, uppsala stockholm [4] foster, g., gupta, m. marketing, (1994). cost management and management accounting. journal of management accounting, fall 1994, 43-77 in wilson, r. (2001). marketing controllership, dartmouth publishing company, aldershot, p. 88 [5] grant, r. (1992). contemporary strategy analysis concepts, techniques, applications, blackwell business, cambridge massachusetts [6] kaličanin, dj., knežević, v. (2013). activity-based costing as an information basis for an efficient strategic management processs, economics annals, april – june, pp. 95-119 [7] knežević, s., stanković, a., tepavac, r. (2012). accounting information system as a platform for business and financial decision-making in the company, management journal of theory and practice management, no. 65, pp. 63-69 [8] kotler, p. (1972). marketing management, pearson prentice hall inc, englewood, new york [9] kotler, p., keller, l. k., brady, m., goodman, m., hansen, t., (2009). marketing management, pearson prentice hall, harlow, england [10] porter, m. (1990). the competitive advantage of nations, the macmillan press ltd., london [11] ward, k., (1993). strategic management accounting, butterworth-heinemann ltd, cima, oxford [12] wilson, m. s. r., gilligan, c. (2005). strategic marketing management, elsevier, amsterdam [13] wilson, r. (1999). accounting for marketing, international thomson business press, london receieved: december 2014. accepted: june 2015. danilo dorović tedex doo the author has written a number of articles considering the construction of management reports. he has a wide experience in business models, controlling, management and financial consulting, management reporting for different clients. 73 management 2016/75 having all above in mind, it can be claimed that segment reports can now be logically structured. due to this, the segment reports will be interconnected logically. the managers responsible for each segment will now see where the revenues and expenses are overlapping and can work together to optimize their value. also, it can be seen how the result of one business segment influences the results of the expenses above and the result of the entire company. ae different from usual structure of expenses can be defined leading to the new potential management insights. there are potential benefits in forensic accounting and responsibility accounting as well. with a better understanding of the connection between different reports, the potential issues concerning fraud and responsibilities can be more easily identified. interdependences can be established between different areas of management responsibilities as well as strict responsibilities of each manager. due to this, the issues indentified within forensic accounting can also be directly connected with a responsible manager. conclusion about the author 06_dragoljub raduski:tipska.qxd 59 dragoljub raduški1 1educons university, faculty of project and innovation management, belgrade management 2016/81 in the last fifty years management has become a significant factor in the development of sectors that have no profit characteristics. the culture and arts organisations are aware of the need for management. however, various specific aspects of the artistic practice are the key issue regarding the implementation of management in culture and arts. the main problem in obtaining positive outcomes is the correct adjustment of management and art functions having in mind the relationship between the two. the management functions need to be implemented and applied in such a manner that art activities should not be compromised. due to project orientation, lack of funding and environment changes, entrepreneurship has assumed a significant role in achieving the goals of culture and arts organisations. in less developed countries, the functions of management are not implemented in arts and culture to their full potential. one reason is the importance a given society assigns to arts and culture. still, implementation of management is the fundamental assumption of faster development of artistic, organisational and technical modernization and financial stabilisation of culture and arts organisations. keywords: culture and arts organisations, management functions, development. udc: 005.7:008 basic management functions in culture and arts organisations doi: 10.7595/management.fon.2016.0024 1. introduction in the late nineteenth century, during the industrial revolution, manual labour was replaced by the serial production. when productivity and efficiency of production became an ultimate goal, a new discipline, scientific management, emerged (drucker, 1974; adizes, 2002; jovanovic, 2005; weihrich and koontz, 2004). in manufacturing industry, management was applied as a scientific discipline. in time, management has became a vital development factor for a number of domains of social life, including areas that are not directly connected to production or profitability, for examole, to culture and arts. even so, arts and culture are important for the society, so it is vital that arts and culture organisations should be appropriately developed. economic development has influence on the development of arts and cultural sectors. also, specific activities of arts and culture themselves affect the development of this sector. organizations in culture are mostly labour intensive, so the most important source for achieving a positive outcome is human resources (varbanova, 2013). however, knowledge should not be neglected, since it is a growing source of competitive advantage in the information age, and arts are especially considered to be knowledge intensive (schnabl & zenker, 2013). the majority of organisations in this area are project oriented. to be successful, organisations apply management function and entrepreneurship. however, in some countries, the functions of management are not implemented in cultural practice to a sufficient extent, which in turn results in an uneconomical use of available resources and in relatively modest outcomes of artistic creativity in comparison with what could be achieved otherwise. the purpose of this paper is to survey the implementation of basic management functions in culture and arts organisations as well as to analyse the possibility of their implementation towards the development of these 1 faculty of project and innovation management, educons university, belgrade organisations. the main aim of this paper is to present the position and problems of arts and culture organisations and show how positive changes can be stimulated. the paper is structured as follows: after the introduction section, section 2 gives the overview of management in culture and arts organisations. section 3 presents the implementation of management functions in culture and arts organisations. the last section presents conclusion remarks. 2. management in arts and culture organisations the first reason for the absence of organisational components in arts can be found in its usual hostility towards economic categories, because art itself traditionally resists the impact of economic laws on its creations. another reason is a relatively late social recognition of arts as an economic capacity. it is then that economic exploitation of arts began and is still under way (austin & devin, 2010; rhisiart, 2013). this irreversible flow transformed the realm of creativity into artistic production and aesthetic experience into consumption. due to that fact, arts are subsidized by the state (crepaz et al., 2015). the functions, methods and techniques of management have become quite welcome in this area. the key issue regarding implementation of management in culture concerns the basic principles that have to be preserved in order not to compromise the very nature and essence of the creative process. generally, management in arts should establish a balance among at least three concepts: a) the concept of aesthetics providing the conditions for the smooth operation of creative artists, support and promotion of evaluating core values of artistic creativity; b) the concept of public interest the market valuation of the immeasurable contributions of art, the socalled positive externalities; and c) the concept of rationality conditions for rational and responsible behaviour of all participants, especially as regards the use of material and financial resources (nikodijevic, 2008). there is an obvious need for a discipline which will model art organizationally but still reflect the essence and creative character of this activity (nikodijevic, 2006). in this context, cultural management involves the creation of conditions for artistic creativity and production of cultural goods (ideas and values) as well as for their design in the works/objects that are accessible to the public and for their reception in the cultural community (dragicevic-sesic & stojkovic, 2000). in the 21st century, there is an enormous need worldwide for a basic knowledge of management in the cultural sector. there are many studies about how to successfully manage commercial businesses, but the literature on managing cultural organisations is comparatively scarce (hagoort, 2004). the past thirty years have seen a steady increase of publications in arts management. in addition to that, a major scientific conference was organised in 1991 (international conference on arts and cultural management). moreover, approximately 400 training programmes in cultural management are offered to institutions around the world. all of these point to the existence of significant research activity and the development of a keen interest in management practices in the arts and cultural sectors (evrard & colbert, 2000). management is not independent of the civilisational and cultural context in which it originated and evolved. firstly, it puts emphasis on the economy, efficiency and productivity, and later to the administrative organisation and a strict division of management. there are two types of management philosophy – european and american. the european management philosophy is oriented towards both the past and the present, and that is characterised by wisdom, stability, respect for conventions, quality and variety. the american management is focused on the future and characterised by vitality, mobility, informality, quantity and good organisation (evrard & colbert, 2000). the observed cultural organisations in europe only partly depend on changes in the environment. the management of arts has the responsibility not only to respond to that kind of challenge but also to make these changes the agents and promoters of desirable trends. during the transition period eastern europe countries have started introducing the principles and methods of cultural management and establishing and developing art market. the goal of such an action is oriented to neutralising the negative aspects and consequences of the transition process in the culture. opportunities that arts management provides in the development of new initiatives in culture and arts institutions are still not sufficiently taken advantage of (dragicevic-sesis & dragojevic, 2005). for example, russian theatres have evolved within a system in which the state has a fundamental role. the changes in the russian political situation have not affected the objectives of russian artists or the traditional methods of managing a theatre. the model of publicly funded permanent troupes remains intact (levshina & orlov, 2000). 60 2016/81management arts organisations are built on multiple tensions between artistic and managerial values. the ability to establish the balance between these two value systems is of key importance to ensuring the viability and longterm survival of the organisation. an arts organisation’s strategic plan represents the adjustments of management and art functions having in mind the relationship between the two (daigle & rouleau, 2006). according to hagoort (2007), for a company whose main driving force is earning profits to qualify as a cultural enterprise, the financial aims must be subordinate to the artistic objectives. however, this does not mean that such a company can be run at a loss (hagoort, 2013). besides, management has to balance the entrepreneurial targets with the cultural ones (hagoort, 2007). further, the artistic and non-profit character of some cultural institutions is not automatically a precondition and a guarantee of a high artistic quality nor is the orientation to profit doomed to mandatory modest artistic results (raduski, 2013). for example, the famous musical “cats” lived on the scene of the commercial “new london theatre” for over 20 years and had the financial result of over € 2 billion (nikodijevic, 2008). arts organisations are subject to a variety of both internal and external forces that exert pressure on them and drive them to undertake major transformations to ensure their survival. аll the performing arts share the same core issues: producing or presenting artistically satisfying works in accord with their missions, finding and keeping an audience, providing for the financial and creative well-being of an organisation or production, and maintaining good personnel and public relations (conte & langley, 2007). managerial personnel in arts operations, although dealing with the fine arts, concerned with creativity, audience appreciation and good art, can benefit from models contributed by management science. managers, production coordinators and department chairmen in arts organisations perform numerous tasks similar to those of managers in government bodies and industry (bhansing et al., 2012; reid, 2014). as a result of the constantly changing environments, the key to being a good manager in any field is much more than simply knowing “what to do”. it needs to know “why to do what to do” the theoretical foundations and fundamental principles that drive managerial actions. when “what to do” stops working, those basic concepts will help understand “why to do”. it is these concepts that will characterise the manager’s efforts to address the new conditions (byrnes, 2009). production in arts organisations differs from that in manufacturing companies. arts production, as opposed to industrial production, is characterised by a very high share of the costs of direct human labour, and the economic benefit is limited by way of placement. industry has control over the inventory of raw materials and final goods, which is hardly possible in the domain of arts. opposite to commercial activities, in most of the arts, there is no mass production, which is an essential characteristic of the economy (nikodijević 2008). “in standard manufacturing, management focuses on creating such a form of activity that leads to the production of larger effects, while in the domain of culture and arts, management’s main task is to create conditions that will allow consistent and uninterrupted creative work on the design and realization of some piece of art” (muzdeka-mandzuka, 2000). entrepreneurship is one of the factors of development in each industry. there are various definitions of entrepreneurship in cultural and creative industries. hagoort (2007) uses the term “cultural entrepreneurship”. cultural entrepreneurship is the process of integrating two freedoms: artistic freedom as an immaterial content-oriented value, and entrepreneurial freedom as the material value, supportive to immaterial (cultural) values. in essence, a cultural entrepreneur can be described as someone who creates a cultural product or service and who uses entrepreneurial principles to organise and manage a creative activity in a commercial manner (hagoort, 2004). therefore, the implementation of academic and practical knowledge of management functions, methods and techniques is one of the fundamental assumptions of faster artistic and economic development of all cultural institutions. however, all specific features, multidisciplinarity and unpredictability of scenic production should be recognised, and commercialization should not violate the basic principles of artistic creation. “since the twentieth century, the act of creation of an art work has no longer been an individual act but has become more and more inseparable from money and politics” (molar, 2000). contrary to this, “the purpose of nonprofit arts institution is to enable the artists to create and convey their creations to the entire society, by their artistic awareness and conscience” (adizes, 2002). further, the arts manager’s purpose is to help an organisation and its artists to realise the organisational vision and fulfill their mission (byrnes, 2009). 61 management 2016/81 3. management functions in culture and arts organisations according to management theory, there are five basic management functions: planning, organising, staffing, leading and controlling (jovanovic, 2005). drucker (1974), through an approach based on business objectives, singled out four basic functions of management: goal setting; organisation; motivation and communication; and finally measurement and assessment of results. cole (2003) sees only four management subprocesses: planning, organising, motivating and controlling. similarly, byrnes (2009) handles the content order by organising the cultural management process into four traditional management functions: planning, organising (including staffing), leading (or directing), and controlling. the quality of planning is the precondition for the execution of other functions of management and management in general (jovanovic, 2005). planning requires the presence of purpose, objectives, strategies and policies (weihrich & koontz, 2004). “planning is essentially a decision-making process that focuses on the future of the organisation and how it will get where it wants to go” (stewart black & porter, 2000). planning in culture is a process of predicting activities necessary for the production of the art performances of as high artistic quality as possible, whether these are long-term, global plans (strategic planning of goals to be achieved) or short-term, operational plans (how these goals are to be achieved). namely, a long-term plan is a basis upon which annual and monthly plans are designed thereby making the execution of art projects considerably more operational (lukic, 2011). the annual plan includes four separate constituent parts: financial, program, investment and personnel plans that are executed in just the above-quoted order. planning in culture has to be dynamic and flexible. it may be made additionally complicated and hindered by the unpredictability of the art production itself, by numerous improvisations in work that are characteristic of artistic industry, as well as by the impact of the human factor. on the other hand, planning in culture serves to anticipate the future tasks and activities classified into phases and procedures, to determine the necessary personnel, material and technical and financial resources. all this is accomplished without entering the artistic domain, except in the sense of flexible planning of the period in which certain artistic activities will be performed (lukic, 2011). planning should begin with the preparations for the project plan creation, with the strategic plan, and then proceed to create a concrete production plan as a synthesis of all organisational, technical and technological, personnel, economic and other activities required for its execution. here it may be efficient to divide the production plan into smaller-scope plans, such as partial production plans, procurement plan, placement plan, promotion plan, etc. in the planning (and, later, monitoring) process, the manager has various techniques at his/her disposal; most frequently used are gantograms that visually present the time plan for the realisation of concrete activities. finally, planning in culture and arts is not a simple job, partly due to a significant impact of subjective factors about the creators themselves and the nature of artistic production, and partly due to a changing nature of the audience as consumers. planning is necessary at all the levels of activities and in all organisational sectors. it is a task of all the managers in the cultural organisation, which requires from them a certain extent of knowledge and competence. this, however, is not a regular practice in serbia. in defining plans, arts managers frequently avoid the usual procedure; they do not set long-term objectives, they fail to analyse realistic opportunities, potentials and obstacles, they fail to analyse the environment and external effects, to explore alternatives. especially lacking are detailed analyses of necessary and available resources, primarily financial. organizing is a set of activities applied to establish functional relations among components of the process in order to obtain the set goals (jasko et al., 2013). this includes job delegation, grouping, linking and precisely defining individual tasks, methods of work, authority and responsibility to which organisation and planning are directly related, although the once established organisation is not taken to last forever (jovanovic, 2005). thus all the resources are put to work and relations between activities and people are determined so that they should operate as one whole (weihrich & koontz, 2004). cultural and arts organisations in serbia are required by the law to adopt statutes defining the internal organisation structure, the division into sectors according to their respective activities and grouping of jobs into functional units, whereas a rulebook on job classification specifies the individual division of labour. in practice, a divisional organisational structure prevails. for example, the existing organisational model in the theatres in this country usually includes three basic sectors – the arts sector, the technical sector and the sector of general affairs, and is established on a traditional, functional organisational structure (raduski, 2012). 62 2016/81management this institutional model does have certain advantages, e.g., direct management and control of the incumbents’ work. however, it also has numerous flaws: overlapping of resources, dysfunctional horizontal communication (delic, 2003) and, most importantly, too high production maintenance costs (sailovic, 2004). modern european experience is a far better solution in case of the art industry. it is a project organisation that has a matrix organisational structure that enables networking of all functional units and team work in the execution of art projects (mandzuka-muzdeka 2000). organisations with the matrix structure last as long as the project itself lasts, whereas functional units are dislocated to the project level with one part of their resources and they return to their respective institutional positions upon the completion of the project. the divisional organisational structure is neither flexible nor rational, whereas modern arts organisations need a concept that is characterised by the capability of prompt changes, managerial team work, openness to new ideas and an interactive relationship with clients (zdravkovic, 2006). that is why the transition from the institutional to the project logic is one of the initial steps in the reform of the cultural industry model in the eastern europe countries. one type of organising focuses on setting an efficient system and interaction of its components, where the project manager, following the principles of project management and matrix organisational structure, assigns jobs to organisational sectors (vertical structure) and concrete incumbents (horizontal structure) (lukic, 2011). organisation of production in the culture and arts organisations is best illustrated by a definition that describes the capability of organising as a “skill of making common people achieve uncommon results“ (ridderstrale & nordstrom, 2002). the staffing (or recruitment) function allows for the first two functions of management to come into life and be executed in practice since there is no management without people. this is a function of attracting, selecting, training, allocating, replacement, assessment and rewarding of personnel (jovanovic, 2005). there are some specific features of human resource management in arts organisations because human resources have to be appropriately planned and managed. some of the specific features of human resources are a diversity of characters of teams, high specialisation of the art sector; the particular requirement is that art organisation should be flexible and project oriented, etc. (varbanova, 2013). to summarise, the area of culture is especially sensitive when it comes to the human resource policy level. a proper assignment of artistic tasks is crucial for the success of any arts product. cultural organisations in serbia, however, do not pay due attention to the human resource policy, except in the domain of assignment of artistic roles and tasks (sailovic, 2004). so, the work of human resource departments is often confined to keeping records on the personnel and tracking the data in the area of labour relations. in case recruitment is conducted in an unplanned and inexpert manner, which is a rather common practice in this country, it has a negative effect both on the artistic performance as measured by the attitudes of the audience and critics, and on the earnings and the overall business results (raduski, 2013). further, the first step in the upcoming reform of the cultural system in serbia has to be related to the human resource policy itself. this is for the purpose that in the future, at least in the case of artists, labour contracts will be signed for a fixed period of time or by closing separate authors’, performers’ or other contracts for a particular project. this would result in significant reduction of budgetary funds for the gross earnings of the employees, thereby a larger amount of the founder’s funds remains to be allocated to art production. the law on culture (2010) sets the preconditions for the rationalisation of the number of employees in arts organisations by fixed-term employment contracts, per project, up to three years, with the possibility of renewal. the article 50 of the law was subsequently contested by the cultural profession itself (raduski, 2012). such a rationalisation of the number of employees does not mean that the arts organisations will lose permanent ensembles. even without a permanent employment contract, the artists can be engaged for certain seasons, on one or several projects, a contract that may be renewed depending on their artistic reputation and the organisation’s needs (raduski, 2013a). the fourth function of management is leading where managers make an efficient use of human resources, guide and coordinate personnel in their accomplishment of their respective assigned tasks, which includes a two-way communication between the manager and the employees, the employee motivation, with a continual monitoring and assessment of work outcomes, employee training and development, and a continual decision making in any phases and aspects of guidance (jovanovic, 2005). the quality of the decisions can be measured through their functionality (whether they produce the desired result), and efficient implementation of the efforts made to achieve the goal (invested time and money and human labour). only a good decision and its efficient implementation can lead to positive outcomes. according to adizes (2002) “what 63 management 2016/81 64 2016/81management is necessary to make a quality decision are not perfect individuals, but the complementary team. to carry out a decision, there must be a unity of interest between people, a formal authority, power and influence based on professional competence” (nikodijevic, 2006). managers in culture and arts organisations base their strategic and operating decisions upon fulfilment of the mission statement and these organisational values and the strategic orientation affect firm performance (giraud-voss & voss, 2000). management requires that the manager should collaborate with all the people included in the art projects, having in mind the structure and the complexity of every performance. due to various specific features of artistic practice and specific traits of artists themselves, success depends on the leadership skills of the management staff – primarily of the producer, top manager, division manager. further, an essential role in obtaining success is performed by the functional units that direct and coordinate the accomplishment of concrete tasks, that assign jobs, define the method of their execution, monitor the performance and undertake appropriate measures when necessary. byrnes (2009) said: “our responsibilities as arts managers within the not-for-profit sector are daunting. internally, we are charged with providing an atmosphere for artists to develop and realise their visions with resources that would otherwise be unavailable — or, at least, greatly diminished — if left to the pressures of the traditional free-market system.” the last function of management is controlling, a complex and lasting process that involves a large number of activities oriented towards analysing and checking whether the execution proceeds as planned, identifying possible deviations and eliminating them along the way (jovanovic, 2005). all the subsidised cultural institutions throughout the world, some of those privately owned, are supervised. this is a result of a need to control the spending of financial assets during the programme and other activities, for the purpose of protection of interests of the founder, the social community and the employees (whose representatives are members of the boards of directors) (lukic, 2011). in serbian arts practice, the major type of control is the annual report that organisations submit to their founder, listing the programs delivered and explaining the use of the allocated funds. here is also included a statutory activity of a supervisory board in the areas of finance and legality, whereas there are no regulated standards by which the top management will be in a position to control the success and the quality of work at the lower organisational levels. for example, the control function in serbian theatres is present almost exclusively on the project level, primarily on the artistic plan (sailovic, 2004). conslusion given the attitudes of the competent representatives of the cultural and professional economic public, it can be concluded that the development of culture and arts organisations depends on economic development and the society’s will for developing those organisations. accordingly, problems in cultural industry are related to funding, management and organisation of work, as well as to the lack of a long-term plan for development. however, if the society decides that art is important for it, the state can enhance the culture and arts development through funding it (crepaz et al., 2015). strategic planning of arts and culture organisations is a process of adjustment of management and art functions having in mind the relationship between the two. in the majority of cases, these organisations are project oriented. due to lack of funding, entrepreneurship becomes increasingly important for arts and culture organisations. neglecting modern management in culture and arts organisations results in non-profitable business, an uneconomical use of available resources and relatively modest artistic outcomes in comparison with what can be achieved with the present personnel, material and financial resources. contrary to this, implementation of the management functions can enable a more efficient and effective business, the economic and financial stability of the arts organisations, a fast organisational and technical modernisation, staff and artistic development and higher creative achievements in the cultural and art production. references [1] adizes, i. 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(2013). exploring the future for arts and culture organisations through scenarios and vignettes. futures, 50, 15-24. 65 management 2016/81 66 2016/81management [33] sailovic, s. (2004). novi oblici organizovanja i finansiranja institucionalnog pozorišta u skladu sa principima projektnog menadzmenta na primeru pozorišnog sistema beograda, magistarski rad, fdu, beograd. [34] schnabl, e. and zenker, a. (2013). statistical classification of knowledge-intensive business services (kibs) with nace rev. 2. fraunhofer isi. [35] stewart black, j. and porter, l.w. (2000). management: meeting new challenges, prentice hall, new jersey. [36] varbanova, l. (2013). strategic mangement in the arts. rouledge. [37] weihrich, h. and koont, h. (2004). management, а global perspective, mc grawhill, new york. [38] zdravkovic, m. (2006). savremeni menadzment u pozoristu, zbornik radova fdu,10, 15-22. receieved: september 2016. accepted: december 2016. dragoljub raduški faculty of project and innovation management, belgrade doc. dr dragoljub raduški is an assistant professor at the faculty of project and innovation management in belgrade (educons university), where he teaches project management. his main research interests lie in the field of cultural management, where he focuses on project management in the theatre. he graduated at the faculty of economics (university in belgrade), holds an ma degree at the faculty of dramatic arts (university of arts in belgrade) and a phd at the faculty of culture and media (megatrend university in belgrade). until now, he has published one book and a number of sientific and research papers in his field of profesional expertise. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01 26_3 carlos agusto:tipska.qxd 1 carlos augusto candêo fontanini*, dewev wollmann pontifical catholic university of parana, brazil management: journal of sustainable business and management solutions in emerging economies 2021/26(3) * corresponding author: carlos augusto candeo fontanini, e-mail: c.fontanini@pucpr.br research question: the objective of this article is to present the model for simulating the financial viability of a just-in-time maintenance program in an agribusiness company. motivation: maintenance management in agro-industrial environments lacks effective systems to optimize the production process. the existing maintenance program have proven to be ineffective, from the point of view that unscheduled production downtime continues to occur. it is important to highlight that the types of maintenance used today, considering that their characteristics are not able to reduce or minimize the errors caused by human limited capacity, which has contributed to the increase of unscheduled production stoppages, causing equipment unavailability, low quality of final products and, mainly, failing to deliver products as agreed with customers. idea: the maintenance program called just-in-time maintenance program maintenance just in time – consists of an integrated system for monitoring physical phenomena, with sensors installed in the equipment, connected to a central diagnosis able to predict failures in real time. with this program, it is possible to know in advance what may happen, taking the necessary measures regarding the acquisition of parts, repairs, and personnel allocation, among others, making these stops compatible or readjusting them with the production plan to minimize the undesirable stops. data: the choice of the company participating in the research is made due to its continuous production process. the present study used a non-probabilistic sample for convenience with that provided by the observed company. the information collected in the agribusiness regarding the selling price, cost of raw material, cost of electricity, and total expenditure on maintenance, refer to the year 2020. tools: a mathematical model was developed that estimates variations in the company's productivity and the consequent financial impacts. the results, operational and financial, of the model allow assessing the feasibility of implementing each of these programs. findings: the results obtained indicate losses with the current maintenance program and show the potential for implementing the just-in-time maintenance program. this research concludes that it is possible to reduce unscheduled stoppages that cause production interruptions, increasing profit, with the implementation of the just-in-time maintenance program. contribution: this article contributes to the literature as it presents an equipment maintenance model based on operational conditions, in contrast to other existing maintenance programs. keywords: just-in-time maintenance program, unexpected downtime, continuous production process, maintenance management. jel classification: l2, l23 model for simulating the financial viability of a just-in-time maintenance program in an agribusiness company doi:10.7595/management.fon.2021.0009 abstract: 1. introduction the manufacturing industry has experienced an unprecedented degree of change in the past three decades involving drastic changes in management, products, process technologies, customer expectations and supplier attitudes, as well as competition among the players involved in the value chain (ahuja & khamba, 2008). competition is in every corner of the world, and markets are quickly becoming more price sensitive. achieving manufacturing excellence is seen as essential for the survival and economic growth for the whole country in this era of globalization (singh & khanduja, 2010; kaur, singh & ahuja, 2013). maintenance is not just to ensure the equipment condition in a facility, it also plays a crucial role in achieving the organization's goals and objectives, with the reduction of maintenance costs and the availability of equipment so that the production is able to produce what was planned (velmurugan & dhingra, 2015; teixeira, lopes & braga, 2020; ruschel, santos & loures, 2017). the observed company has a continuous production process, and any unexpected stoppage will result in production interruptions. the types of maintenance first presented will be as follows: scheduled, preventive, predictive, and productive, along with their characteristics, all based on equipment usage time, i.e., mtb maintenance time based. an analysis is also carried out, identifying the potential economic advantage for the company, from the implementation of just-in-time maintenance, leading to an increase in quality and productivity, a reduction in unforeseen downtime, avoiding delays in the delivery of products and consequently the increase in operating profit. the aim of the paper is to present the model for simulating the financial viability of a just-in-time maintenance program in an agribusiness company. the article is divided into six sections. the first section is the introduction. in the second section, the literature review is presented, providing information about the existing maintenance programs. the third section presents the methodological path. in the fourth section, the simulation of the implementation of just-in-time maintenance program in a company in the agribusiness sector is demonstrated. in the fifth section there is a presentation of the results and, finally, the final considerations are offered in the sixth section. 2. literature review 2.1 scheduled maintenance scheduled maintenance is a type of maintenance that has shown, not at low frequency, failures in the downtime forecast due to the estimates of equipment lifetime and its components being carried out through probabilities. the philosophy behind scheduled maintenance is to fix it before it fails, thus maintenance is carried out before the equipment enters a failure state (jimenez, bouhmala & gausdal, 2020). the probabilities most of the time do not coincide with reality, and downtime may happen before the scheduled deadlines, as well as afterwards. in this way, maintenance stops occur at the most likely times, without knowing the moment when the failure will occur. scheduled maintenance acts more like a safety measure seeking to reduce losses. that is why it is not enough to make up for equipment failures. the increase in the cost of purchasing components, the need for repairs out of season, the disruption of normal routine activities and the stoppage of production, generate a drop in revenue, which will be converted into losses, attributed as a cause of maintenance based on probabilities or equipment lifetime. with the occurrence of stops, the cost of production rises. productivity decreases according to the rate of equipment usage, so it is necessary to develop a maintenance type capable of avoiding such occurrences. the difficulty found in companies as regards solving their problems with equipment maintenance has been crucial. in absolute terms, maintenance costs force many companies to re-analyze the role of maintenance in the impact of profitability, efficiency, and competitiveness (de marco & mangano, 2011). the lack of criteria when choosing maintenance programs, the use of records that would allow a historical survey of all maintenance equipment and components, problems with the replacement of parts, and the lack of parts in stock may cause even more damage to the system adopted, the scheduled maintenance. maintenance of industrial equipment has been a topic of growing discussion in the business environment. the purchase of new equipment is increasingly unfeasible, mainly due to the high cost of new technologies; proper care of the equipment has become very important (bartz, siluk & bartz, 2014). all scheduled maintenance is based on time, i.e., maintenance based on the lifetime of parts. in order to avoid or minimize problems with unscheduled production downtime, industries seek to follow manufacturers' specifications regarding parts replacement. two situations should be considered in time-based maintenance: the first is in relation to the replacement of the part, even without the need; the part is in good condition, however, on the manufacturer's recommendation, it must be replaced. second, this part could be used even longer, but as a precaution, it will be replaced. just-in-time maintenance program is a system based on the equipment's operating conditions. using sensors attached to the equipment, the diagnosis center receives information in real time, assessing whether or not the parts replacement is necessary. the just-in-time maintenance program's advantage is to have the part replaced at the right time, neither before nor after, which is similar to what happens in the scheduled maintenance. 2 carlos augusto candêo fontanini, dewev wollmann 2021/26(3) 2.2 preventive maintenance repairing the equipment after it fails may not always be the best maintenance policy (fontanini & oishi, 2000), as it becomes very expensive, it interrupts the operation of the equipment, and consequently the entire production process. in addition to the cost of maintaining the equipment, there is a high cost in delaying the delivery of orders for materials in the process, operators and machines will be in downtime and production will be lower. preventive maintenance is an effective way to reduce industrial assets' operation costs (yang, ye, lee, yang & peng, 2019). preventive maintenance aims to eliminate or reduce the chances of maintenance failures (cavalcante, lopes & scarf, 2018). such maintenance by inspection of the production machine is an important means of controlling the quality of products manufactured (nourelfath, nohas & ben-daya, 2016). preventive maintenance activities, including inspections, repairs, replacements, and routine services are of great importance for a majority of industrial systems as they can mitigate the risk of unexpected failures that may cause tremendous economic losses (yang et al., 2018). this maintenance is planned to avoid emergency interruptions. the benefits resulting from a preventive maintenance program, well planned and implemented, are several. however, for a program partially implemented, there are few benefits and they result in a bad investment. 2.3 predictive maintenance predictive maintenance is the assessment or control of physical changes to facilities, preventing and anticipating failures and taking appropriate remedial measures (takahashi & osada, 1990; jain, bhatti & singh, 2014). "predictive maintenance is the periodic measurement and trend of the process or parameters of the machines in order to predict the failures before they occur" (robinson & ginder, 1995, p.28). predictive maintenance of the equipment must include a periodic inspection to detect and adopt appropriate measures against harmful conditions, which may result in abrupt failures or deterioration in the functioning and quality of the product (he, gu, chen, & han, 2017). it is extremely important that the sources of problems be eliminated, adjustments be made or recovery measures be taken while the problems are still at an early stage. therefore, the objective of predictive maintenance is based on economic measures against equipment deterioration. there are three types of measures to prevent equipment from deteriorating. the first is through daily maintenance, the second is the use of predictive techniques and the third through repairs and adjustments (takahashi & osada, 1990). the scope of predictive maintenance planning covers all the aspects of predictive maintenance that are to be integrated with planning in order to aid decision-making, in the cases of actions to be taken and the performance of the system to be monitored and improved (basri, razak, ab-samat, & kamaruddin, 2017). by detecting the physical phenomena presented, it will be possible to diagnose the situation in which equipment is found, i.e., it anticipates the expected life of important parts and components with inspections, aiming at the maximum use of these elements for the longest possible time. among these physical phenomena are analysis of vibration, temperature, pressures, tensions, wear and tear, deterioration, alignment, and corrosion. by investigating all equipment's functions and structures, the best period for maintenance is determined, reducing the impact on production. 2.4 total productive maintenance "it is a full maintenance system, which has as its fundamental objective the maximization of the operational performance of the machines, generating products with the right quality at the right time" (nakajima, 1989, p.23). total productive maintenance (tpm) consists of activities with total involvement of employees with the company and is among the most effective methods to transform a factory into an operation with equipmentoriented management. it aims to maximize the use of equipment in the production line (chan, lau, chan & kong, 2005; ahmed, hassan & taha, 2005; chakravorty, 2011; suzuki, 1992; sharma & bhardwaj, 2012; morales mendez & rodriguez, 2017; filscha, meilily & hendy, 2019; hooi & leong, 2017). total productive maintenance has had a major impact on financial results, promoting a significant improvement in capacity, reducing not only maintenance costs, but also global operating costs (aspinwall & elgharib, 2013). wakjira & singh (2012) conclude that the implementation of tpm in any organization increases equipment's overall efficiency, increasing availability of equipment, reducing rework, rejections, and the overall improvement in the productivity of a company. total productive maintenance originally comes from japan and focuses on solving maintenance problems using the quality circle method. some of the advantages of implementing tpm in an organization are a better understanding of equipment performance, improved teamwork, a less contradictory approach 3 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) between production and maintenance (garg & deshmukh, 2006). the first requirement for this transformation of the company is that all people, including senior management, supervisors and operators, direct their attention to all components of the factory molds, installations, tools, industrial instruments, sensors, recognizing the importance and value of equipment-oriented administration (takahashi & osada, 1990). the main objective of tpm is to increase maximum efficiency through total employee involvement, which includes the use of autonomous maintenance by operators, small groups of activities to improve equipment safety, sustainability, and productivity (chen, 1994; suzuki, 1992). there are eight main pillars to tpm including autonomous maintenance, planned maintenance, quality maintenance, focused improvement, equipment management, training and education, environmental health and safety, and administration (agustiady & cudney, 2018). training practice for operators and maintenance personnel is the basis of tpm. according to shirose (1992), the purpose of autonomous maintenance is to teach operators how to keep their equipment in perfect condition, through daily checks, lubrication, replacement of parts, repairs, accurate check ups and other tasks. in tpm, human participation is the basis for its development and effective search for results, which aims to reduce equipment failures. 2.5 the limited perception of human beings in the detection of failures any production system depends on the reliability of the equipment, which is accompanied by the human being. this reliability only happens when the human being is motivated to find out everything that happens in his equipment. motivation is related to human behaviour (kanfer, frese, & johnson, 2017). keeping the human being motivated to perform his/her role is extremely difficult, considering that behaviors aim to achieve goals and are oriented according to the needs that people face, i.e., the work performance of each one depends not only on the ability, but also on the willingness to perform a certain task. it is necessary to understand the motivators of the human being within the organization in order to obtain the quality of the service performed. the automation of the system, i.e., the implementation of the just-in-time maintenance program, makes it possible for the faults to be detected in advance, repairs to be performed at the best moment, while the limited human capacity to detect faults might increase the number of errors. despite the limitations of human beings, they can develop or perform various tasks, but with the just-in-time maintenance program's implementation, these limitations will be overcome. human errors contribute to more than three quarters of failures during the life of the equipment. people with the necessary competence and motivation are the backbone of reliable maintenance systems (narayan, 2012; juran, 1988; jordan, 1996). 2.6 just-in-time maintenance program the demand for equipment control technologies aimed at production stability and product improvement is intensifying with technological advances, as well as with the development of continuous processes and automation in several areas in the production process (fontanini & oishi, 2000). under this perspective, the just-in-time maintenance program keeps maintenance costs to a minimum. the just-in-time maintenance program consists of an integrated system for monitoring physical phenomena through sensors in the equipment and diagnosis center, which receives signals from these sensors, predicting failures that can happen in real time (fontanini & oishi, 2000). this system enables the operator to know in advance what may happen, anticipating the necessary measures regarding the acquisition of parts, repairs, and personnel allocation, among others. the necessary downtime will be compatible or re-adapted to the production plan so that the delivery deadlines of products should be met. at the same time, the cost of maintenance will be drastically reduced so as to minimize undesirable downtime. in order to implement the just-in-time maintenance program there is a necessity for a structured system with sensors in each of the monitored equipment, together with a diagnostic system, to operate in real time. characteristics of the just-in-time maintenance program (fontanini & oishi, 2000): 1. implementation of the structured system covering the management system (production control, maintenance control). 2. implementation of the equipment control system in real time, interconnected to a large network. 3. implementation of the equipment control system interconnected with the real-time diagnosis system. 4. advance (innovation) of tbm time based maintenance for moc maintenance based on operating conditions. 5. implementation of the proper service to different and real needs, covering from isolated sensors to a total structured system. 4 carlos augusto candêo fontanini, dewev wollmann 2021/26(3) the implementation of the just-in-time maintenance program is justified for the companies with a continuous production process. in case of companies that work with an intermittent production system, the equipment maintenance can be carried out when the equipment is not in production. the production system was the main reason for choosing this agribusiness for the study, as it is a continuous production system. there is no daily downtime for maintenance to be performed. this agribusiness's general maintenance is carried out once a year, usually at the beginning of january. table 1: diagnosis methods applied to equipment and their contents: fontanini & oishi, (2000). 3. methodology the hypothesis that guided this study is that the existing maintenance systems are not effective, from the point of view that unscheduled downtimes continue to occur mainly due to the participation of human beings in the processes. all operational processes involve some degree of human participation. however, human performance is subject to several errors due to inadvertence, lack of techniques and trends. "most of the time, we forget that people cannot concentrate too much, or for a long time on complex tasks. therefore, it is important to understand that people are prone to accidents and tend to make mistakes" (osada, 1992, p.9). maintenance has been shown, in most cases, to be inefficient, causing problems due to the replacement of parts being carried out through the estimate of equipment lifetime, i.e., time-based maintenance (fontanini & oishi, 2000; oishi & fontanini, 1997). as the exchange of parts is carried out considering its lifetime, a part can be replaced without defects, generating replacement cost, in addition to the inconvenience of equipment shutdown, causing production problems. the failures are not self-announcing but should be identified by inspections; a cost is introduced for system inactivity (de jonge, teunter & tinga, 2017). this research does not focus on showing the inefficiency of scheduled maintenance, as it is a time-based maintenance. the objective is to show that the just-in-time maintenance program can bring superior results for industries that operate with continuous production systems. the choice of the company participating in the research was chosen because of its continuous production process. the researched company has a continuous production process, and the just-in-time maintenance program can bring substantial economic and technical advantage, through the increase of revenue with the reduction of downtime and the reduction of the number of people involved in the maintenance. any unscheduled 5 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) ��������� � � �������� ��� ������������� ������� � �� ���� ���� ���������������� �� ������� ������ ���������������������������� � � ����������� �� ������� � ������� ���� ������ ��������� � �!�� � ��� ��� �"�� ���������� ������������#� ��� ���� ���� ����������������#� ������� ������ �!�� � ����� ��!� � � ��� $�� �� � ����� %������&���� ���� '��������������� (������� ���)���������� � �!�� � ������������#� �� ����� ������� �!�� � ������� ������� *�'������ ���� &���� ���� ���������������� ��������� � ���"������ � � ���)���������� � ������ �"�� ���������� ����� !��� � �����#� ����������� � ��� +��,� �� ��� &���� ���� ����������� ����� ,�� ��������� � ��� ������� ����������������-���������� .��,��� � �� &���� ���� ��������������������!�� %�!� � � ������#������� ������� /��' �"���&���� ���� 0 ����� ������� �� ������ 1��� ���� �#���������� 2��&���� ���� �� ���� ����%����� �� ���������3����� � � �� ����������% �!� �� ��� �� &�� ����� �� � ������ ������ � ��� ����� � ��������� ���������� 4����������� &���� ���� ����������������5������ ��������������� � �� �"������ � ������������#�����!��!����������� � downtime will result in production interruptions. this is a japanese multinational company that operates in the food segment and, in the early 1990s, was one of the first industries in brazil to implement total productive maintenance. a non-probabilistic sample was used in this research for convenience, for the reason that the company has released access to internal data. the information collected from the company regarding selling price, raw material cost, electricity cost, and total maintenance expenses are from the year 2020. a mathematical model was created to estimate variations in the company's productivity and the consequent financial impacts. this research is designed as a case study, as it is carried out within a single organization. 4. simulation of the implementation of just-in-time maintenance program in a company in the agribusiness sector a simulation was made using the data of the researched company whose products are destined for both the domestic and foreign markets. after the implementation of the just-in-time maintenance program in the researched company a 40% reduction in accidental stops, in personnel involved in maintenance and in the cost of maintenance was estimated. in contrast, in japan, with the use of a very similar system, this index is 50%. in brazil, it is possible to reach higher rates than the one used for the simulation of just-in-time maintenance program implementation. this is the result of the scheduled maintenance being at a stage well below to the maintenance performed in japan (where a similar system has already been implemented). 4.1 mathematical model a mathematical model is a simplified representation of a reality's behaviour, expressed in the form of mathematical equations to simulate that reality. in order to be able to evaluate the results of the implementation of a program that will reduce downtime, in continuous production processes, a mathematical model was developed that estimates variations in the company's productivity and the consequent financial impacts. the results, operational and financial, of the model allow for the assessment of the feasibility of implementing each of these programs. figure 1 represents the company's monthly productions, in the time interval h, for two situations: (i) q1, before the implementation of just-in-time maintenance program; (ii) q2, after the implementation of just-intime maintenance program. figure 1: monthly production q1 and q2 of the company. in the first timeline of figure 1, the company's production per unit of time represented in equation 1 is determined before implementing the just-in-time maintenance program. q1 = q x ( h – t ) (1) where: q1 is the monthly production produced before the just-in-time maintenance program, q is the production per unit of time, h is the company's nominal monthly production time, t is the production line downtime before the just-in-time maintenance program is implemented. after the implementation of the just-in-time maintenance program, it is estimated that there will be a gain in t * r production time, which can be seen in the second timeline of figure 1. this time gain provides an increase in total production, whose new value is determined by equation 2. 6 carlos augusto candêo fontanini, dewev wollmann 2021/26(3) q2 = q x [ h – t x ( 1 – r ) ] (2) where: q2 is the monthly quantity produced after the just-in-time maintenance program, q is the production per unit of time, h is the company's nominal monthly production time, t is the production line downtime before the just-in-time maintenance program is implemented, r is the percentage of downtime reduction. the productivity index of the production lines, resulting from the implementation of the just-in-time maintenance program, is determined by equation 3. (3) where: ip is the productivity index, h is the industry's nominal monthly production time, t is the production line downtime before the just-in-time maintenance program and r is the factor for reducing downtime after the just-in-time maintenance program. as a result of the productivity index, the company will increase production, as shown in equation 4. q2 = ip x q1 (4) where: q2 is the monthly production after the just-in-time maintenance program, q1 is the monthly quantity produced before the just-in-time maintenance program and ip is the productivity index. the monthly revenue is determined by multiplying the monthly quantity produced by the selling price. the variation of the monthly revenue is given by the difference between the monthly revenue before and after implementing the just-in-time maintenance program, which is represented by equation 5. vf = ( ip – 1 ) x q1 x p (5) where: vf is the variation in monthly revenue after the just-in-time maintenance program, ip is the productivity index, q1 is the monthly quantity produced before the just-in-time maintenance program and p is the selling price. the monthly variable cost is determined by multiplying the unit cost by the monthly quantity produced. the variation in the monthly variable cost is given by the difference between the monthly variable costs before and after the implementation of the just-in-time maintenance program, represented by equation 6. vcv = ( 1 – ip ) x q1 x c (6) where: vcv is the variation of the monthly variable cost after the just-in-time maintenance program, ip is the productivity index, q1 is the monthly quantity produced before the just-in-time maintenance program and c is the unit cost. the maintenance cost consists of two installments: (i) fixed cost; (ii) variable maintenance cost. for each type of production processes, it is possible to define a relationship between these costs. from these concepts, the following equations are defined: cm = cfm + cvm (7) where: cm is the monthly maintenance cost, cfm is the fixed cost of maintenance and cvm is the variable cost of maintenance cvm = cum x ( h – t ) (8) where: cvm is the variable cost of maintenance, cum is the unit cost of maintenance, h is the industry's nominal monthly production time and t is the production line downtime. vcm = cum x r x t x fa (9) where: vcm is the change in the monthly maintenance cost after the just-in-time maintenance program, cum is the unit cost of maintenance, r is the factor for reducing downtime after the just-in-time maintenance ip = �� � ������ � �� 7 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) program, t is the production line downtime and fa is the percentage of increase in maintenance in relation to unforeseen events. the gross monthly profit is determined by the difference between monthly revenue and monthly production costs: variable and fixed. the variation of the monthly gross profit is given by the difference between the monthly gross profits before and after the implementation of the just-in-time maintenance program, represented by equation 10. vl = ( ip – 1 ) x q1 x ( p – c ) + vcm (10) where: vl is the variation of the gross monthly profit after the program, ip is the productivity index, q1 is the monthly quantity produced before the program, p is the selling price, c is the unit cost and vcm is the change in the total monthly maintenance cost after the program. one aspect that also emerges from the mathematical model is the variation in the contribution margin. when observing equation 10, it is possible to define the contribution margin variation as shown in equation 11. cmv = ( ip – 1 ) x ( p – c ) (11) where: cmv is the change in the contribution margin after the just-in-time maintenance program, ip is the productivity index, p is the selling price and c is the unit cost. another important aspect is the rate of return on the investment required (inv) for the implementation of the just-in-time maintenance program. in order to do that, the determination of i must be considered in equation 12. this value must be higher than the minimum attractiveness rate established for the company's investments. (12) where: inv is the investment for the implementation of the just-in-time maintenance program, vl is the change in monthly gross profit after the just-in-time maintenance program, cinv is the monthly cost for maintaining the just-in-time maintenance program and n is the number of months corresponding to the lifetime of the just-in-time maintenance program. i is the internal monthly rate of return on investment. 4.2 implementation of the just-in-time maintenance program in a company in the agricultural sector in order to analyze the impact of implementing a program to reduce downtime in companies with continuous production, the following assumptions were considered: − agro-industrial company, with total production time equal to 720 hours / month, corresponding to 30 days of operation 24 hours a day. − on average, this company's monthly downtime is 20 hours. its average monthly production is 1850 t. − the maintenance program considered is the just-in-time maintenance program. this program has achieved excellent results in japan. the percentage of downtime reduction in japanese companies is 50%. for this study, due to the characteristics of the company's organizational culture in question, the reduction percentage considered was 40%. other relevant data obtained in the studied company are the following: − the selling price of the product is us $ 6,000 per ton. − the cost of raw material per ton of finished product is us $ 3,250. − the cost of electricity per ton of finished product is us $ 950.00. − the total monthly expenditure on maintenance is us $ 370,000, 23% of which is fixed (us $ 85,000). the remaining 77% (us $ 285,000) varies, depending on the production downtime. − the percentage of increase in the unit cost of maintenance due to unforeseen factors is 30%. the use of the mathematical model in the company, whose operational and financial characteristics are described in the previous paragraphs, results in the values that are embodied in table 1. inv = � ������ �� � � �� 8 carlos augusto candêo fontanini, dewev wollmann 2021/26(3) table 2: result of using the mathematical model in the company. source: authors calculations looking at table 1, it is possible to conclude that the implementation of the just-in-time maintenance program allows for an increase in productivity of 1.14%, which is reflected in the following operational and financial parameters of the company: − increase of 17.14 tons in monthly production; − increase of us $ 102,857 in monthly invoicing; − variable cost increase of us $ 31,200; − reduction in total maintenance cost is us $ 185.00 per month, which provides an increase in monthly profit of us $ 71.472; − increase in the monthly contribution margin of us $ 47,77. adding these values and considering that the investment required for the implementation of the just-in-time maintenance program is in the order of u $ 700,000, the estimated monthly rate of return, for a period of 12 months (1 year), is 1.7%. the estimated payback for the project is 9.8 months. 5. results and discussion in an attempt to solve the flaws detected in the company regarding equipment maintenance, it was shown how the just-in-time maintenance program could solve such deficiencies, showing the great utility and performance of the implementation of this maintenance program. the benefit was estimated that could be obtained with the adoption of the just-in-time maintenance program, with data provided by the observed company based on three indicators unscheduled downtime, man-hours spent on maintenance and maintenance costs, knowing that, with the implementation of the just-in-time maintenance program in japanese companies has resulted in a 50% reduction in these indexes. this would allow for the hypothesis that there is a potential for reduction of at least 40% an index used for testing in brazilian companies, especially in agri industries. although japanese companies achieved an improved level of scheduled maintenance, there was a 50% drop in the rates of unscheduled downtime, staffing and maintenance costs with the introduction of a similar maintenance program in japan. in brazil, where scheduled maintenance was shown to be at a precarious stage, in comparison with what was observed in japan, the introduction of the just-in-time maintenance program in the researched company would bring an even greater drop of 40%. in order to estimate the variation in profit with the introduction of the just-in-time maintenance program, it was necessary to calculate the variation in revenue, production cost and maintenance cost, reaching the result sought, not considering the reduction in the cost of spare parts and components. the raw material, electric energy and the labour employed in the production were considered variable costs and other costs as constant, as well as the cost per man-hour. with the reduction in the cost of parts or components for replacement, if considered, the variation in profit would be even greater. as a result of the simulation of the implementation of the just-in-time maintenance program in the researched company, the monthly production which was 1,500 tons/month and, with the reduction of unscheduled downtime by 40%, increased in 8 hours/month in the productive time, increasing the monthly production to 1.517 tons/month. this resulted in an increase in revenue of approximately us $ 102,857. 9 management: journal of sustainable business and management solutions in emerging economies 2021/26(3) variable mathematical model variation before just-in-time maintenance program after just-in-time maintenance program productivity index equation 3 0.01143 1.00000 1.01143 monthly production (t) equation 4 17.14 1,500 1,517.14 monthly billing (us$) equation 5 102,857 9,000,000 9,102,857 monthly cost (us$) equation 6 31,200 2,730,000 2,761,200 maintenance cost (us$) equation 7 185 80,000 79,814 monthly profit (us$) equation 10 71,472 6,190,000 6,261,472 contribution margin (us$) equation 11 47 4,180 4,227 the increase in the cost of raw materials and electricity due to the increase in production time corresponded to approximately us $ 30,940. the reduction in the cost of labour involved in maintenance, due to the decrease in downtime by 40%, was approximately us $ 13.914. this is due to the following considerations: – a portion of the cost of labour applied to maintenance corresponding to unscheduled downtime would be reduced by a proportion of 40%. – a portion of the remainder of the maintenance labour cost would fall in proportion to the rate of reduction in unexpected downtime. another part would be semi-variable and yet another, invariable. thus, the increase in the estimated profit with the total maintenance cost reduction is us $ 71.472 / month. references [1] agustiady, t. k., & cudney, e. a. (2018). total productive maintenance. total quality management & business excellence, 1-8. doi:10.1080/14783363.2018.1438843. [2] ahuja, i.p.s.; khamba, j. s., (2008). total productive maintenance: literature review and directions. international journal of quality & reliability management, 25(7), 709 756. doi: 10.1108/02656710810890890 [3] ahmed, s., hassan, m. h., & taha, z. (2005). tpm can go beyond maintenance: excerpt from a case implementation. journal of quality in maintenance engineering, 11(1), 19-42. doi: 10.1108/13552510510589352 [4] aspinwall, e., & elgharib, m. (2013). tpm implementation in large and medium size organizations. journal of manufacturing technology management. 24(5), 688-710. doi: 10.1108/17410381311327972 10 carlos augusto candêo fontanini, dewev wollmann 2021/26(3) a research was presented in this article identifying the potential for the implementation of the just-in-time maintenance program with great technical and economic benefit in a company in the agricultural sector in the state of paraná. simulating the use of this system and proving that in addition to meeting the needs regarding the problems generated in the use of scheduled maintenance, it is possible through the just-in-time maintenance program to know the best time to replace parts, thus reducing maintenance costs, as evidenced in the presentation of the results, and in addition to increased production. in the researched company, with a significant number of unscheduled downtime, the implementation of this program results in the reduction of unscheduled downtime, increase in the system's availability for production, proving the existence of a great potential for the implementation of this system in these industries. it is important to highlight that the types of maintenance that exist, due to their characteristics, are unable to reduce or minimize errors caused by the limited capacity of the human being, which with the just-in-time maintenance program becomes possible. the just-in-time maintenance program also brings the possibility of knowing the best time to replace parts, reducing maintenance costs, as evidenced in the presentation of the results. the implementation of the just-in-time maintenance program results in a consistent increase in productivity and quality due to the reduction of unforeseen downtime. the profit obtained from such reductions makes this program a valuable agent of change. this maintenance program can also be used in other industries that have a continuous production process. the implementation of the just-in-time maintenance program makes all production planning easier, in addition to reducing unscheduled downtime. it is possible to replace parts at the necessary time, avoiding investments to keep parts in stock and, above all, aligning the production area, maintenance and production, preventing these areas from coming into conflict due to lack of planning or inadequate planning. the production line's availability increases due to the reduction of unscheduled stops, consequently reducing costs, producing more and at higher quality, making the industry more competitive. this is what distinguishes the just-in-time maintenance program. currently, this agribusiness uses total productive maintenance to manage the maintenance of its equipment. still, based on the results obtained in this article, the expectation is that it can take another look at the just-in-time maintenance program, considering the possibility of its implementation in the near future. another benefit with the implementation of the just-in-time maintenance program, not explored in this research, one that should be considered as suggestion for future research, would be in relation to supply chain management, in which the researched company could have many advantages like being a focal company, or as a supply chain player. by reducing unscheduled downtimes, it would be possible to improve the customer service extraordinarily, since the delivery would be made within the agreed term, guaranteed reduction in the product's price, the decline in production costs, and finally, the quality assured product. final considerations [5] bartz, t., siluk, j.c. m., & bartz, a.p.b. 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[36] takahashi, y., osada, t., (1990). tpm-total productive maintenance. asian productivity organization, tokyo. [37] teixeira, h. n., lopes, i., & braga, a. c. (2020). condition-based maintenance implementation: a literature review. procedia manufacturing, 51, 228-235. doi: 10.1016/j.promfg.2020.10.033 [38] velmurugan, r.s., dhingra, t., (2015). maintenance strategy selection and its impact in maintenance function: a conceptual framework. international journal of operations & production management, 35(12), 1622-1661. doi: 10.1108/ijopm-01-2014-0028 [39] wakjira, w., singh, a.p., (2012). total productive maintenance: a case study in manufacturing industry. global journal of researches in engineering, 12(1-g). [40] yang, l., ye, z. s., lee, c. g., yang, s. f., & peng, r. (2019). a two-phase preventive maintenance policy considering imperfect repair and postponed replacement. european journal of operational research, 274(3), 966-977. doi: 10.1016/j.ejor.2018.10.049 [41] yang, l., zhao, y., peng, r., & ma, x. (2018). hybrid preventive maintenance of competing failures under random environment. reliability engineering & system safety, 174, 130-140. doi: 10.1016/j.ress.2018.02.017 received: 2020-11-20 revisions requested: 2021-01-31 revised: 2021-02-08 (2 revisions) accepted: 2021-02-12 carlos augusto candêo fontanini pontifical catholic university of parana, brazil c.fontanini@pucpr.br carlos augusto candêo fontanini, ph.d. is an assistant professor at the pontifical catholic university of parana, business school. he is the coordinator of the accreditation center, and international agent business school, guest professor at beijing normal university china and iae pau-bayonne école universitaire de management france. he is also a vice president of association of brics business school (abbs) brazil. he is a consultant for public and private organizations. his research areas of interest include production & operations and supply chain management. dewev wollmann pontifical catholic university of parana, brazil dewey.wollmann@pucpr.br dewey wollmann, dr.eng. is a full professor at the pontifical catholic university of parana, polytechnic school. he is a professor in the undergraduate courses in civil engineering, industrial engineering, software engineering and computer science. he is a consultant for public and private organizations. his research areas of interest include strategic decision making using mathematical models (optimization, multi-criteria and simulation). 12 carlos augusto candêo fontanini, dewev wollmann 2021/26(3) about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07_mirela momcilovic:tipska.qxd 63 mirela momčilović¹, sanja vlaović begović¹, stevan tomašević¹, dajana ercegovac¹ ¹ higher school of professional business studies, novi sad sustainable growth rate: evidence from agricultural and food enterprises udc: 330.357:334.43 330.13 doi: 10.7595/management.fon.2015.0017 1. introduction profit is one of the most important performance measures of an enterprise. an additional extremely important performance measure is the enterprise’s sales growth. higgins (1977) proposed the use of sustainable growth rate as a maximal growth rate in sales that an enterprise can achieve while maintaining a given set of financial policies. the main task of higgins sustainable growth rate model is to enable managers to determine the optimal level of enterprise growth through weighting its financial targets and operational performances. also, an extremely important task of sustainable growth rate model is to enable regulators to stimulate sustainable growth of particular industry through the process of policy direction. according to the author’s knowledge, research regarding determination of sustainable growth rates of enterprises has not so far been conducted in serbia. therefore, the calculation of sustainable growth rates in 2011 and 2012 for 60 enterprises in serbia that belong to agricultural sector and food industry (as a part of manufacturing sector) will be presented in this paper. the agricultural sector is selected because serbia, due to its natural resources and climate characteristics, has a high development potential in the agricultural production domain. it should be pointed out that the importance of agricultural development in serbia is emphasized by the strategy of agriculture and rural development of serbia for the period 2014-2024 (2014), as well as by the number of authors (anufijev, dašić, 2011; vasiljevic et al., 2011; raicevic et al., 2012). on the other hand, the importance of food industry for the overall industry development and development of serbia is recognized and highlighted by the strategy and developement policy of the industry of the remanagement 2015/76 sustainable growth rate is a maximum growth rate that one enterprise may achieve with a given set of financial policies. the growth of an enterprise per rate higher than sustainable growth rate may lead to financial troubles, insolvency, even to the enterprise bankruptcy. in order to be able to finance a rapid growth, the enterprise will have to issue new shares, increase indebtedness, change its dividend policy, increase production efficiency or improve the asset turnover ratio. the enterprise growth per rate lower than sustainable may lead to a stagnation of the enterprise. the main goal of this paper is to show a sustainable growth rate calculation methodology and to apply this methodology in the determination of a sustainable growth rate in 2011 and 2012 for 60 enterprises in serbia belonging to the agricultural and food sectors. likewise, this paper is concerned with the comparison of the enterprise sustainable growth rate per stated sectors, the determination of existence of possible differences in their height in 2012 in relation to 2011 and with an overview of inflation effect on sustainable growth rate per selected sectors. all this is done in order to assess sustainable growth of agricultural and food sectors in the years under consideration. research results indicate that possibilities for the sustainable growth were scarce or there was no real sustainable growth in agricultural and food sectors in 2011 and 2012. keywords: sustainable growth rate, reinvestment rate, return on equity, inflation rate public of serbia from 2011 to 2020 (2011). taking into consideration the above mentioned strategy and the fact that agricultural production to a large degree represents the basis for the food industry development, the food industry is taken as the second sector of interest for this research. the main goal of this paper is to determine sustainable growth rates of agricultural and food sectors and to check whether they are in accordance with the development possibilities of the selected sectors. in accordance with the goal settled, the following hypotheses are tested in this paper: hypothesis 1: there is no significant difference in the level of a sustainable growth rate of those enterprises belonging to the agricultural and food sectors in years 2011 and 2012. hypothesis 2: there is no significant difference in the level of a sustainable growth rate of those enterprises belonging to the agricultural and food sectors in year 2012 compared to the year 2011. hypothesis 3: an average sustainable growth rate is equal to the rate of inflation measured with the consumer price index in the years 2011 and 2012. the rest of the paper is organized as follows: section 2 shows literature review related to sustainable growth rate and its use. section 3 provides information about the database which is used for sustainable growth rate calculation, as well as research methodology. empirical results are presented in section 4. the last section concludes the paper. 2. literature review many authors were involved in the research of sustainable growth rate of enterprises and different industries in order to assess their performance, control their growth and propose policies for growth stimulation. one of them was robert higgins, who tried to answer the question of how big the growth rate that one enterprise can afford to itself has to be (higgins, 1977), taking into consideration that an unrestrained growth of the enterprise may be opposite to financial policy of the enterprise. higgins (1981) also considered an effect of inflation upon a sustainable growth rate, taking into consideration that sales increase may be the result of an increased scope of product or increased price of the product. mcfaddin and clouse (1993) developed a model for evaluation of the interdependence of financial objectives, operational performance and sustainable growth rate in the us oil and gas utility industries. the developed model includes growth derived from equity issues and the effect of inflation. mcfaddin and clouse’s research covered the period from 1972 to 1989 and compared results of the new model with actual growth rates as well as with the higgins sustainable growth rates model. research results have shown that mcfaddin and clouse’s model represents a better tool for evaluation of sustainable growth rate and for directing policies that stimulate growth in oil and gas industries. also, research results have shown that the new model converges to the higgins model in cases in which there is no substantial growth that comes from equity issues or in cases when variables do not alter significantly from year to year. the relationship between the real and sustainable growth rates was an object of clouse and mcfaddin’s research (1994), which focused on the us gas utility industry from 1970 to 1990. the authors concluded that the potential for sustainable growth of the us gas utility was reflected through future stock issues, operational improvements and changes in financial objectives. they also concluded that the sustainable growth model represented an effective tool in financial planning and business policy addressing stimulation of growth in the us gas utility industry. platt et al. (1995) proposes a formula to calculate the sustainable growth rate for companies in financial distress. platt’s formula describes how much growth a company that has limited or no access to financial markets can endure. it represents a tool for assessing turnaround performance of companies in financial distress and a mean of control of its actual growth rate. in his paper, jegers (2003) claims that it is appropriate to express growth of non-profit organizations as activity growth. he derived a formula for sustainable growth rate of non-profit organizations according to which 64 2015/76management sustainable growth rate of non-profit organizations is jointly determined by their profitability, capital structure and efficiency. olson and pagano (2005) proposed a new application of sustainable growth rate according to which this measure is used for evaluation of the long run performance of bank mergers. these authors studied mergers of us publicly traded banks in the period from 1987 to 2000 and they proposed a model of sustainable growth which incorporates the return on assets of the bank, its dividend pay and equity capital ratio. the results of their study showed that acquiring bank’s sustainable growth rate before acquisition and changes in the growth rate after the acquisition, as well as dividend payout ratio of the bank are statistically significant determinants of the abnormal stock return performance of the merged bank. starting from real possibilities of the enterprise and the conditions on financial market, van horne also was engaged in determination of the sustainable growth rate (van horne, wachowicz, 2007). the goal was, based on aimed ratios of business, indebtedness and dividend payment, to determine a maximum percentage of sales growth. van horne pointed that each increase of assets must be equal to an increase of leverage and equity (through the retained earnings increase). on the basis of the data of 54 companies listed in the iran financial market amouzesh et al. (2011) investigated the relationship between deviation of the actual growth rate from the sustainable growth rate, on one hand, and return on assets, price to book value, current ratio and acid ratio, on the other hand. the authors noticed a significant connection between deviation of the actual growth rate from the sustainable growth rate and return on assets, as well as a significant connection between the deviation of the actual growth rate from the sustainable growth rate and price to book value ratio. rahid and saad (2014) examined the association between sustainable growth, capital structure and firm performance in association of southeast asian nations (asean). the results of their research showed that sustainable growth is associated with return on asset in all asean countries. however, they found out that only sustainable growth of malaysia and singapore is associated with capital structure (debt equity ratio, total equity, total debt). m.m. fonseka et al. (2012) compared the higgins model with the van horne model in order to determine which model is more suitable for determination of sustainable growth rate. they found that profitable enterprises sustainable growth rate based on higgins’ model is higher compared to the sustainable growth rate determined by application of the van horne’s model. on the other hand, they also determined in their research that in enterprises with high leverage the van horne’s model gives a higher sustainable growth rate in relation to the higgins’ model. however, the authors concluded that differences in models are not significant and that both tested models are equally suitable for use by the managers and researchers. yu-chun chang (2012) examined sustainable growth of an airline company in order to estimate the ability of the company to finance its future development. the author analyzed a real and higgins’ sustainable growth rates, showing great fluctuations up to the moment of merging of the analyzed airline company to another airline company. upon the merging of companies, a gradual increase and convergence of real and sustainable growth rate was recorded. hong-yi chen et al. (2013) investigated the relation between an investment decision on optimal growth and the policy of dividend payment. they expanded the higgins’ model of sustainable growth creating a model that optimizes a sustainable growth rate and ratio of dividend payment. they also showed that the covariance between profitability and growth rate represents one of dividend payment policy determinants and that interaction between the risk of unprofitability and growth rate may influence a permanent stop of dividend payment in one enterprise. alberola et al. (2013) suggested new methodology for determination of sustainable growth rate, as an alternative to measuring potential growth on an aggregate level. the authors took into consideration the information provided by imbalance indicators including inflation and they applied their methodology on the following countries: the united states (us), the united kingdom (uk), spain, germany and china. their research results showed that the estimated sustainable growth rates were lower than potential growth before global financial crisis, while the estimated sustainable growth rates were higher than potential growth after the global financial crisis in the us, the uk and spain. on the other hand, research results for germany and china revealed that sustainable growth rates did not differ much from potential growth before the crisis, 65 management 2015/76 while they were slightly lower than potential growth during the crisis. krupkina et al. (2014) dealt with a similar topic and proposed a model for estimation of sustainable output growth that incorporated information contained in different indicators. their model used a multivariate hp filter, which connected cyclical fluctuations in gdp with several macroeconomic imbalance indicators. the research covered 28 emerging countries and research results showed that the trend of output growth rates estimated on the basis of the proposed model was more stable and thus more consistent with the notion of sustainable output than that obtained with a univariate version of the filter. huang xiyuan and uhang jingui (2015) determined sustainable financial growth of the companies listed on growth enterprises market. also, they identified factors that influenced sustainable growth the most. their research results clearly showed that profitability was the most influential factor which impacted sustainable growth. 3. data and methodology the database, according to which a sustainable growth rate calculation is made, consists of 60 enterprises from the republic of serbia, whose shares are traded on the belgrade stock exchange (bse, http://www.belex.rs), 30 enterprises from agricultural and 30 enterprises from food sector. while forming the sample, a stratified sample method is used. namely, two strata are formed, consisting of all enterprises with shares which are traded on the belgrade stock exchange (bse), and which at the same time belong to the agricultural and food sectors. from each monitored stratum a mere random sample of 30 enterprises is chosen. the union of two random samples makes a stratified sample based on which this research is done. for the formation of the stratified sample it is particularly important that a total list of complete population be available and that each unit of the population can clearly be delineated into selected strata. although in this study all enterprises were easily assigned into the strata, a potential limitation of the study could be the fact that only agricultural and food enterprises with shares traded on bse are taken into consideration due to the difficulties to attain a complete list of all enterprises belonging to the selected sectors in serbia. the data on the inflation rate level measured with the consumer price index for 2011 and 2012 have been taken from the web site of the ministry of finance of the republic of serbia (osnovni indikatori makroekonomskih kretanja – basic indicators of macroeconomic developments, http://www.mfin.gov.rs/pages/article.php?d=7161). in sustainable growth rate determination, the following formula is used: (brealey, myers, 2003, pp 837) g=bxroe where g is higgins sustainable growth rate, b is the plowback ratio and roe is return on equity. a t-test of independent samples for testing the hypothesis 1 is used in this paper in order to determine a possible existence of statistically significant difference between the sustainable growth rate of the enterprises belonging to the chosen sectors in 2011 and 2012. a paired samples t-test is used for testing the hypothesis 2, i.e., for determination of possible statistically significant difference in the level of the sustainable growth rate of food and agricultural enterprises in 2012 in relation to 2011. based on one-sample t-test the hypothesis 3 is tested in order to determine if there is a statistically significant difference between an average sustainable growth rate of the food and agricultural enterprises and the rate of inflation in 2011 and 2012. all calculations are done in microsoft excel 2010 and eviews 7.1. 66 2015/76management 4. research results 4.1. determination of enterprise sustainable growth rate in serbia furthermore, this paper brings an overview of results of the sustainable growth rate of the enterprises from the sample, according to the previously shown methodology, per sectors and years. a sustainable growth rate of those enterprises from the sample, belonging to the food sector, is calculated and shown in table 1. based on the data presented in the table, it is possible to notice that the enterprises analyzed in the food sector allocated approximately 85% of net income for reinvestments, while the rest of the net income are paid off to the shareholders as dividends. the enterprises paying off the highest dividends and in that way keeping the smaller share of net income for reinvestment are sugar factories in crvenka and sajkas. in spite of that their sustainable growth rate is not the smallest in the observed sample, because of their high rate of return on equity. from table 1 it can be seen that a profit margin has the greatest influence on the level of sustainable growth rate of observed food enterprises. in 2011, the te-to, senta recorded the highest profit margin (21.01%) among the chosen enterprises. however, its profit margin was lowered to 16.80% in 2012. the efficiency of using the total assets of chosen enterprises in observed years averagely remained the same and total assets turnover ratio was the highest in the mlekara loznica dairy enterprise (3.04 in 2011 and 3.60 in 2012). the equity multiplier is relatively stable for the observed enterprises and it is in interval 1-3 in the examined years. exceptions are multipliers of the bioprotein enterprise and mlekara šabac, which are significantly higher in relation to other enterprises from the sample. in 2012, a significant increase in the mlekara šabac multiplier can be noticed, from 4.73 to 7.69, pointing to an increased reliance on borrowed financing sources. in 2011, the highest sustainable growth rate within the enterprises from the sample, belonging to the food industry, was achieved by the bečejska pekara enterprise (58.03%) and in 2012 by the te-to senta (52.67%). a high and stable growth rate in observed years was characteristic of the bambi enterprise (20.38% in 2011 and 20.51% in 2012). the lowest sustainable growth rate in 2011 was recorded in the cookolend paraćin (0.14%) and in the bečejska pakara in 2012 (0.07%). the biggest fall of the sustainable growth rate in 2012 in relation to 2011 was recorded at the bečejska pekara enterprise (57.96%) and the biggest growth was recorded in the te-to senta enterprise (25.04%). the sustainable growth rate of agricultural enterprises from the sample is determined for 2011 and 2012 (table 2). it is possible to notice from the table that changes in the policy of dividend pay in 2012 in relation to 2011 occurred in some agricultural enterprises. namely, in 2011, eight enterprises paid the dividends to the shareholders, while in 2012 that was done only by five enterprises. an amount of net income of the sava kovacevic enterprise achieved in 2011 was equivalent to the amount of dividends being paid, which caused its zero growth rate. the highest return on equity was recorded in the agrovet enterprise (32.68% in 2011 and 37.91% in 2012), the pionir enterprise (25.99% in 2011 and 27.39% in 2012) and the granicar enterprise (24.54 % in 2011 and 28.37% in 2012), with their slight decrease noticeable also in 2012 in relation to the year 2011. it should be noted that these enterprises in the observed years paid out a significant share of net income in the form of dividends which reflected on realization of a lower level of the growth rate in relation to a potentially maximum one. also, it can be seen from the table that agricultural enterprises from the sample have higher profit margins, but their total asset efficiency is lower in relation to enterprises from the food sector due to the nature of agricultural production, which requires a certain amount of time in order to finish the production cycle. the eq67 management 2015/76 uity multiplier of the agricultural enterprises from the sample is on an average lower than the equity multiplier of the food enterprises and it is in the interval 1-4. the exception is the multiplier of the agrovet melenci enterprise, which amounted to 6.09 in 2011 and to 5.61 in 2012. the highest sustainable growth rate in 2011 was recorded by the terravita enterprise (38.09%) while in 2012 the highest growth rate was recorded by the agrovet enterprise (37.91%). a stable sustainable growth rates in the observed years were achieved by the agrovrsac enterprise (9.1% in 2011 and 9.15% in 2012) and the bezdan enterprise (13.53% in 2011 and 13.49% in 2012). the highest fall of the sustainable growth rate in 2012 in relation to 2011 was recorded in the banatski despotovac enterprise (22.70%) and the enterprise borac had the highest increase in growth rate (16.39). table 1: the food enterprises sustainable growth rates in 2011 and 2012 68 2015/76management b roe profit margin asset turnover ratio equity multiplier g -1 (2)=3*4*5 -3 -4 -5 (6)=(1*2) company 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 neoplanta, novi sad 1 1 3.34 8.84 2.84 5.96 0.83 0.89 1.41 1.67 3.34 8.84 bambi, požarevac 0.8 0.79 25.48 25.87 11.56 13.48 1.15 0.98 1.92 1.95 20.38 20.51 frikom, beograd 1 1 10.58 8.37 6.83 4.91 0.78 0.94 1.98 1.82 10.58 8.37 žitosrem, in ija 0.46 0.54 16.83 15.21 8.98 6.77 1.37 1.52 1.37 1.47 7.74 8.21 sojaprotein, be ej 1 1 10.15 5.53 9.79 4.57 0.67 0.72 1.54 1.67 10.15 5.53 mlekara, šabac 1 1 20.86 17.84 3.31 1.57 1.33 1.48 4.73 7.69 20.86 17.84 crvenka fabrika še era, crven 0.04 0.14 21.03 27.77 16.59 14.29 0.8 1 1.58 1.94 0.92 3.83 medela, vrbas 1 1 7.17 5.96 8.25 9.58 0.73 0.53 1.19 1.18 7.17 5.96 žitopromet-mlin, senta 0.44 0.47 19.53 16.35 5.77 4.63 1.24 1.21 2.73 2.92 8.56 7.76 imlek, beograd 0.83 0.83 19.48 25.21 10.25 13.12 1.15 0.86 1.65 2.24 16.26 21 bag, ba ko gradište 1 1 2.76 9.65 3.81 13.68 0.63 0.57 1.15 1.24 2.76 9.65 fsh jabuka, pan evo 1 1 0.53 0.58 0.14 0.11 1.7 1.89 2.21 2.77 0.53 0.58 mlinprodukt, ada 1 1 12.63 4.16 6.04 2.27 1.16 1.01 1.8 1.81 12.63 4.16 pekarska industrija, pan evo 0.95 1 23 1.64 17.45 2.48 0.71 0.51 1.86 1.3 21.85 1.64 šajkaška fabrika še era, žabalj 0.02 0.21 19.52 25.04 10.28 10.99 0.8 1.05 2.37 2.18 0.3 5.19 niška mlekara, niš 1 0.79 10.95 11.69 2.8 2.98 1.64 1.53 2.38 2.56 10.95 9.27 dijamant, zrenjanin 1 1 11.38 16.43 6.78 9.61 0.75 0.78 2.22 2.2 11.38 16.43 pekarstvo, kraljevo 1 1 12.09 4.54 4.28 1.85 0.95 1.09 2.97 2.25 12.09 4.54 kikindski mlin, kikinda 1 1 2.37 0.68 2.03 0.63 0.67 0.58 1.74 1.85 2.37 0.68 te-to, senta 0.5 1 55.3 52.67 21.01 16.8 1.22 1.35 2.16 2.33 27.63 52.67 mlekara, loznica 1 1 7.28 8.73 1.08 1.32 3.04 3.6 2.22 1.84 7.28 8.73 be ejska pekara, be ej 1 1 58.03 0.07 9.66 0.01 2.7 1.22 2.23 4.14 58.03 0.07 okolend, para in 0.07 0.12 2.12 7.39 0.73 2.59 1.57 1.46 1.87 1.96 0.14 0.87 bioprotein, beograd 1 1 1.03 29.74 0.07 3.92 1.17 0.65 12.28 11.73 1.03 29.74 žitobanat, vršac 1 1 29.74 8.17 13.49 3.17 1.73 1.6 1.28 1.62 29.74 8.17 sreten guduri , užice 1 1 18.77 12.27 3.71 2.65 2.61 2.33 1.94 1.99 18.77 12.27 budimka, požega 1 1 0.57 0.12 0.83 0.2 0.24 0.19 2.94 3.12 0.57 0.12 pekara 1. maj, vršac 1 1 4.59 0.15 1.53 0.05 1.88 1.75 1.6 1.6 4.59 0.15 vo ar, svilajnac 1 1 2.14 2.65 2.95 5.47 0.5 0.32 1.45 1.53 2.14 2.65 banat fabrika ulja, nova crnja 1 1 10.57 2.73 6.56 1.12 0.78 0.97 2.06 2.49 10.57 2.73 average values 0.84 0.86 14.66 11.87 6.65 5.36 1.22 1.15 2.36 2.57 11.38 9.27 note: compiled by the authors table 2: sustainable growth rate of agricultural enterprises from the sample in 2011 and 2012 69 management 2015/76 b roe profit margin asset turnover ratio equity multiplier g -1 (2)=3*4*5 -3 -4 -5 (6)=(1*2) company 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 pd zaje ar 0.97 1 16.44 17.26 43.62 33.82 0.33 0.44 1.15 1.16 15.96 17.26 pionir, srbobran 0.27 0.38 25.99 27.39 30 25.53 0.83 0.95 1.04 1.12 6.96 10.31 agrovršac, vršac 1 1 9.1 9.15 13.48 19.3 0.46 0.33 1.46 1.44 9.1 9.15 borac, šurjan 0.4 0.75 5.48 24.73 2.41 9.31 1.36 1.48 1.68 1.8 2.19 18.58 grani ar, konak 0.25 0.7 24.54 28.37 15.56 18.99 1.43 1.25 1.1 1.2 6.24 19.88 hajdu ica, hajdu ica 1 1 5.05 1.92 3.29 1.06 0.85 1.13 1.8 1.61 5.05 1.92 podunavlje, elarevo 1 1 9.86 6.12 34.69 14.87 0.12 0.15 2.47 2.77 9.86 6.12 sloga, ka 1 1 7.05 6.23 17.53 26.33 0.35 0.19 1.16 1.24 7.05 6.23 napredak, stara pazova 1 1 0.54 2.13 1.34 4.23 0.31 0.37 1.29 1.37 0.54 2.13 agroba ka, ba ka topola 1 1 0.68 1.23 1.28 2.06 0.48 0.57 1.09 1.05 0.68 1.23 vojvodina, sombor 1 1 17.59 1.64 13.67 2.79 0.66 0.3 1.96 1.94 17.59 1.64 sava kova evi , vrbas 0 0.72 15.94 11.16 20.2 11.73 0.36 0.38 2.22 2.48 0 7.99 orahovo, novo orahovo 1 1 8.74 5.89 3.77 2.39 1.1 1.28 2.11 1.94 8.74 5.89 kozara, banatsko veliko selo 1 1 2.53 14.51 3.27 16.92 0.7 0.79 1.1 1.08 2.53 14.51 bezdan, bezdan 0.95 1 14.26 13.49 30.03 39.05 0.45 0.34 1.05 1.02 13.53 13.49 lu i prigrevica, novi sad 1 1 1.52 1.17 2.08 4.54 0.24 0.15 3.01 1.67 1.52 1.17 zlatica, lazarevo 1 1 13.99 18.22 31.88 36.74 0.43 0.48 1.01 1.02 13.99 18.22 ravnica, bajmok 0.9 1 24.09 8.46 35 14.76 0.64 0.52 1.08 1.1 21.65 8.46 feketi , sombor 1 1 12.46 14.12 8.09 13.23 0.35 0.28 4.41 3.85 12.46 14.12 dragan markovi , obrenovac 1 1 0.27 0.77 0.28 0.8 0.35 0.33 2.78 2.89 0.27 0.77 pkb, beograd 1 1 0.79 1.39 3.8 6.28 0.14 0.14 1.52 1.62 0.79 1.39 poljoprivreda novo selo, orom 1 1 1.48 0.96 2.24 1.33 0.19 0.23 3.5 3.2 1.48 0.96 pp pobleda, pobeda 1 1 1.28 0.63 1.09 0.48 0.69 0.71 1.72 1.84 1.28 0.63 pp mileti , sombor 1 1 8.63 20.5 4.5 18.63 0.51 0.35 3.78 3.16 8.63 20.5 banatski despotovac 1 1 23.48 0.78 19.48 1.12 0.89 0.43 1.35 1.62 23.48 0.78 budu nost, ba ka palanka 1 1 0.63 1.26 1.03 1.64 0.32 0.36 1.94 2.14 0.63 1.26 nova peš ara, delibato 1 1 6.81 5.37 4.9 3.13 0.96 1.17 1.45 1.46 6.81 5.37 agrovet, melenci 1 1 32.68 37.91 7.29 4.87 0.74 1.39 6.09 5.61 32.68 37.91 terravita, ratkovo 1 1 38.09 19.34 449.91 56.66 0.06 0.2 1.32 1.67 38.09 19.34 stari tamiš, pan evo 0.95 0.95 7.69 11.18 7.95 10.75 0.91 0.79 1.06 1.32 7.31 10.62 average values 0.89 0.95 11.26 10.44 27.12 13.44 0.57 0.58 1.96 1.91 9.24 9.26 note: compiled by the authors 4.2. sustainable growth rate comparative analysis in the remainder of the paper we will examine, based on comparative analysis, if there is any significant difference between the level of sustainable growth rates of food and agricultural enterprises from the sample in order to determine whether the sector affiliation of the enterprise affects its sustainable growth rate. also, special emphasis is placed on determination of changes in the level of sustainable growth rate in time, as well as on determination of relations of sustainable growth rate and the rate of inflation with an aim to overview the real growth of food and agricultural enterprises. the obtained results will help determine the adequacy of the level of sustainable growth rates achieved in the past by the food and agriculture sectors, emphasized as drivers of the future development of serbia. the average values of the sustainable growth rate of the enterprises from the sample, belonging to different sectors, are shown in table 3. based on comparative analysis, it is possible to see that in 2011 the highest average sustainable growth rate was recorded by those enterprises from the sample belonging to the food sector (11.38%), while in 2012 food and agricultural sector enterprises from the sample had approximately the same average sustainable growth rates (9.27% and 9.26%). the most significant deviation deviation from the average values of individual sustainable growth rates is recorded in the food sector in which the highest level of individual sustainable growth rate of all enterprises from the sample was also achieved, in both observed years. in 2011, a minimum sustainable growth rate of all enterprises from the sample was recorded by an agricultural enterprise which paid a total amount of net income in the form of dividends, while in 2012 a minimum sustainable growth rate was recorded in a food enterprise that paid the dividends in an amount that was almost the same as its net income in that year. . table 3: descriptive statistics of sustainable growth rate values of the enterprises from agricultural and food sectors. note: compiled by the authors from table 3 one can notice small deviations of average sustainable growth rates between food and agricultural sector enterprises as well as slight movements of average sustainable growth rates in time. results of jarque-bera test (table 3) indicate that sustainable growth rates for agricultural enterprises, food enterprises and all enterprises from the sample do not have normal distributions (p<0.00). for an overview of the existence of statistically significant difference in the level of the sustainable growth rate of the enterprises belonging to different sectors the t-test of independent samples is used.1 since research 70 2015/76management sustainable growth rate food sector agricultural sector total descriptive statistics 2011 2012 2011 2012 2011 2012 mean 11.38 9.27 9.24 9.26 10.31 9.27 median 9.36 6.86 7.01 7.11 7.53 7.00 maximum 58.03 52.67 38.09 37.91 58.03 52.67 minimum 0.14 0.07 0 0.63 0.00 0.07 std. dev. 12.1 10.89 9.63 8.75 10.90 9.80 skewness 2.07 2.4 1.44 1.24 1.93 2.04 kurtosis 8.41 9.65 4.64 4.75 7.96 8.60 observations 30 30 30 30 60 60 jarque-bera 15.16 12.94 64.62 93.67 110.19 134.12 probability 0.00 0.00 0.00 0.00 0.00 0.00 1 according to pallant (2009, pp. 205-206) assumptions for use of parametric procedures such as t-test are the following: dependent variable should be measured on a continuous scale, the research data used should be mutually independent, variances of the populations from which random samples are taken should be equal and distribution of the population from which the random samples are taken should be normal. however, pallant (2009, pp. 206), as well as ghasemi and zahediasl (2012) point out that even when normality assumption is violated, if the sample size is considered to be large, parametric procedures and t-test as one of them can be used. similarly, skovlund and fenstad (2001) stress out that t-test is robust to deviations from normality if the sample size is not very small. sample is considered to be large2 and results of levine test for equality of variances showed that there was no significant difference between variances of sustainable growth rates of food and agricultural enterprises (table 6), the t-test is appropriate. testing results of the hypothesis 1 (table 4) showed that there is no significant difference between sustainable growth rates of those enterprises belonging to the stated sectors (t(60)=0.76, p=0.45 for 2011 and t(60)=0.004, p=0.99 for 2012). it may be concluded that the differences in the sustainable growth rates of the enterprises belonging to different sectors are random and that the means in two groups of enterprises are equal, both in 2011 and in 2012. table 4: results of t-test of independent samples for 2011 and 2012 note: compiled by the authors to overview an existence of statistically significant difference in the level of a particular sector’s sustainable growth rates in 2012 in relation to the year 2011, a paired samples t-test is used and the hypothesis 2 is tested. the paired samples t-test is used because it is suitable for comparison of sustainable growth rate means of food and agricultural enterprises from the sample, which were determined on the two different occasions (for the year 2011 and the year 2012). table 5: results of paired samples t-test note: compiled by the authors the results of paired samples t-test (table 5) revealed that there is no statistically significant difference in the level of the sustainable growth rate of the food (t(60)=0.71, p=0.48) and agricultural (t(60)=-0.01, p=0.99) enterprises in 2012 in relation to the year 2011. in order to bring a valid conclusion on the real potential for growth of agricultural and food enterprises, the inflation rate is included in the analysis. the results of testing of hypothesis 3 are given in table 6. table 6: results of one sample t-test for 2011 and 2012 note: compiled by the authors table 6 shows the results of one sample t-test according to which it is possible to conclude that there is no statistically significant difference between the sustainable growth rate of the agricultural enterprises from the sample and the inflation rate measured with the consumer prices index in 2011 (7%) and therefore, no real growth possibilities existed for such enterprises because sustainable growth rate is at the level of infla71 management 2015/76 2011. 2012. method value probability value probability t-test (2-tailed) 0.76 0.45 0.004 0.99 levine 0.36 0.55 0.007 0.93 rate sector value probability t-test (2-tailed) food 0.71 0.48 t-test (2-tailed) agricultural 0.01 0.99 food sector agricultural sector method value probability value probability t-test (2-tailed) 2011 1.98 0.06 1.27 0.21 t-test (2-tailed) 2012 -1.47 0.09 -1.84 0.08 2 sample is considered to be large if it contains 30 or more elements (berenson et al., 2012, pp. 211; brase, brase, 2013, pp. 308). tion. on the other hand, the obtained results show that the sustainable growth rate of food enterprises is significantly higher than the inflation rate measured with the consumer prices index in 2011 (7%), which means that food enterprises had real potential for growth in 2011. also, based on the obtained results of the one sample t-test shown in table 6, the null hypothesis 3 for food and agricultural enterprises for 2012 must be discarded and it may be concluded that an average sustainable growth rate of these enterprises is statistically different from the inflation rate measured with the index of consumer prices (12.2%). the results indicate that average sustainable growth rates of food and agricultural enterprises from the sample are statistically lower than the inflation rate, which implies that inflation partially consumed their limited financial resources in 2012. 72 2015/76management a sustainable growth rate represents a growth rate which one enterprise can achieve, while at the same time ensuring that the enterprise does not fall into business problems caused by financing of growth that is too fast or, on the other hand, too slow. a sustainable growth rate is an important tool for financial planning and directing the growth of an enterprise or business sector. this tool can be used for assessment of growth results achieved in a particular sector in the past, as well as for determination of government policies adequate for the stimulation of its future growth. due to the importance of food and agricultural sectors for the development of serbia, the aim of this paper was to determine whether a sustainable growth rate for food and agricultural sectors was adequate in the past. since agriculture in serbia, due to its geographical position, natural resources of soil and favourable climate conditions, has a great development potential and a possibility to become a basis of economic development of the whole country, it would be expected that the enterprises from the agricultural sector achieve a high sustainable growth rate. the same could be said for food industry enterprises, because of the fact that agriculture to a large degree provides the basis necessary for food processing production. in this paper, the research of the sustainable growth rate was done for the years 2011 and 2012 on the basis of the sample that consists of 60 enterprises, 30 belonging to the food and 30 belonging to the agricultural sectors. the results revealed that there is no difference in the sustainable growth rate of food and agricultural enterprises in 2011 and 2012, nor is there any difference in the level of the sustainable growth rate of food and agricultural enterprises in 2012 compared to 2011. also, only food enterprises had opportunity for a real sustainable growth in 2011, while sustainable growth of the agricultural enterprises was at the level of inflation measured with the index of consumer prices (7%) and there were no opportunities for a real growth. in 2012 a statistically significant difference existed between average sustainable growth rates of the food and agricultural enterprises and the inflation growth rate measured with the index of consumer prices (12.2%). the obtained results indicate that the average sustainable growth rate of food and agricultural enterprises was lower than their rate of inflation and that those enterprises experienced a real decline in 2012. research results lead to a conclusion that although serbia has comparative advantages in the field of food and agricultural sectors and although government and different authors recognized the importance of food and agricultural sectors for the development of the whole country, the opportunities for the sustainable growth were scarce or there was no real sustainable growth in the mentioned sectors in 2011 and 2012. this was especially true for the enterprises from the agricultural sector. it should be pointed out that the obtained results are in accordance with the conclusion of a number of authors, who recognized the difficult position of agricultural and food sectors (pejanović et al., 2013; antevski et al., 2012; bešić et al., 2014). it is important to point out that a sustainable growth rate and its component analyses could be used by regulators as a tool for selection of the most appropriate regulations and measures for the incitement of growth and development of the selected sectors as mcfadden and clause (1993) suggested. therefore, regulators can focus on designing more efficient policies specific to agricultural and food sectors that would promote future sustainable growth, e.g., tax incentives, incentives for increased sale of domestic products on foreign markets, use of subventions for stimulating and protecting domestic producers, organizing visits to international fairs aimed at increasing sales of domestic products on foreign markets, dissemination of the newest knowledge and technologies through knowledge incubators and cooperation, access to cheap sources of indebtedness, etc. finally, it should be pointed out that this study was based on a sample that consisted of 60 enterprises, 30 from the food sector and 30 from the agricultural sector and that more extensive study should be undertaken in order to draw final conclusions about the state and growth possibilities of the food and agricultural sectors in serbia. also, in order to draw final conclusions about a sustainable growth rate a longer historic period should be taken into account, so that more realistic assessment of sustainable growth rate potential should be made, as well as better stimulating policy should be designed. conslusion references: [1] alberola, e., estrada, á., & santabárbara, d. (2013). growth beyond imbalances. sustainable growth rates and output gap reassessment. banco de espana working paper no. 1313. available at ssrn: http://ssrn.com/abstract=2338504 [2] amouzesh, n., moeinfar, z., & mousavi, z. (2011). sustainable growth rate and firm performance: evidence from iran stock exchange. international journal of business and social science, 23(2), 249-255. [3] antevski, m., petrović, p. & vesić, d. (2012). developement perspectives in agriculture and rural areas in serbia in the eu integration prosess, ekonomika poljorivrede, 59(2), 243-251. [4] anufijev, a. & dašić, g. (2011). agriculture as the salvation of the fallen serbian economy, ecologica, 18(62), 255-260. [5] belgrade stock exchange. (2013). retrieved 01.10.2013. from http://www.belex.rs/ [6] berenson, m., levine, d., szabat, k. a., & krehbiel, t. c. (2012). basic business statistics (3rd ed.). pearson higher education au. [7] bešić, c., ćoćkalo, d., đorđević, d. & bogetić, s. (2014). the analysis of aspects of food industry competitiveness in serbia, ekonomika poljoprivrede, 61(3), 647-660. [8] brase, c. h. & brase, c. p. (2013). understanding basic statistics (6th ed.). boston: brooks/cole cengage learning. [9] brealey, r., & myers, s. (2003). principles of corporate finance (7th ed.). new york: mcgraw-hill. [10] chang, y.c. (2012), strategy formulation implications from using a sustainable growth model, journal of air transport management, 20, 1-3. doi:10.1016/j.jairtraman.2011.03.010 [11] chen, h.y., gupta, m.c., lee, a.c., & lee, c.f. (2013), sustainable growth rate, optimal growth rate, and optimal payout ratio: a joint optimization approach, journal of banking & finance, 37(4),1205– 1222. doi:10.1016/j.jbankfin.2012.11.019 [12] clouse, m., & mcfaddin, s. (1994). sustainable growth in the us gas utility industry, resources policy, 20(2),117-123. doi:10.1016/0301-4207(94)90024-8 [13] fonseka, m.m., ramos, c.g., & tian, g. (2012). the most appropriate sustainable growth rate model for managers and researchers, the journal of applied business research, 28(3), 481-500. [14] ghasemi, a., & zahediasl, s. (2012). normality test for statistical analysis: a guide for non-statisticians, international journal of endocrinology and metabolism, 10(2), 486-489. doi: 10.5812/ijem.3505 [15] higgins, r.c. (1977). how much growth can a firm afford? financial management, 6 (3), 7-16. [16] higgins, r.c. (1981). sustainable growth under inflation. financial management, 10(4), 36-40. [17] huang, x., & zhang, j. (2015). research on the financial sustainable growth of the listed companies on gem. international business and management, 10(2), 32-37. doi:10.3968/6819 [18] jegers, m. (2003). the sustainable growth rate of non-profit organisations: the effect of efficiency, profitability and capital structure, financial accountability and management, 19(4), 309-313. doi: 10.1111/1468-0408.00176 [19] krupkina, a., deryugina, e. b., & ponomarenko, a. a., (2014). estimating sustainable output growth in emerging market economies. bofit discussion paper no. 11/2014. available at ssrn:http://ssrn.com/abstract=2428153 [20] mcfaddin, s., & clouse, m., (1993). a new model for sustainable growth in the energy industry, energy economics,15(1), 3-7. [21] ministarstvo finansija. (2013). osnovni indikatori makroekonomskih kretanja, retrieved 01.10.2013. from http://www.mfin.gov.rs/pages/article.php?d=7161 [22] olson, g., & pagano, m. (2005) a new application of sustainable growth: a multi-dimensional framework for evaluating the long run performance of bank mergers, journal of business finance and accounting, 32(9,10), 1995-2036. doi: 10.1111/j.0306-686x.2005.00656.x [23] pallant j. (2007). spss priručnik za preživljavanje (3 izdanje), beograd, mikro knjiga. [24] pejanović, r., glavaš-trbić, d., & tomaš-simin, m. (2013). o uzrocima krize poljoprivrede republike srbije. ekonomika poljoprivrede, 60(2), 253-264. [25] platt, h., platt, m. & chen, g. (1995). sustainable growth rate of firms in financial distress. journal of economics and finance, 19(2), 147-151. doi:10.1007/bf02920515 [26] raičević, v., ignjatijević, s., & pavlović, z. (2012). critical economic and legal determinants competitiveness of agricultural production, poslovna ekonomija, 6(1), 409-425. [27] rahim, n. & saad, n. (2014). sustainable growth of public listed companies (plc) using capital structure choices and firm performance in an asean market. proceeding of the global summit on education gse 2014, 4-5 march 2014, kuala lumpur, malaysia, 433-444. 73 management 2015/76 [28] skovlund, e. & fenstad, g. (2001). should we always choose a nonparametric test when comparing two apparently nonnormal distributions? journal of clinical epidemiology, 54(1), 86-92. doi:10.1016/s0895-4356(00)00264-x [29] strategija i politika razvoja industrije republike srbije za period od 2011. godine do 2020. godine, službeni glasnik rs, 55/2011. [30] strategija poljoprivrede i ruralnog razvoja republike srbije za period 2014-2024., službeni glasnik rs, 85/2014. [31] van horne, j.c., & wachowicz, j.m. (2007). osnovi finansijskog menadžmenta. beograd: datastatus. [32] vasiljević, z., zarić, v., & zakić, v. (2011). basic strategic determinations of agricultural and rural development in serbia until 2020, ekonomski vidici, 16(2), 275-287. receieved: february 2015. accepted: august 2015. mirela momčilović higher school of professional business studies, novi sad mirela.momcilovic@vps.ns.ac.rs mirela s. momcilovic received her b.sc. at the faculty of economics, university of novi sad, serbia in 2000. in 2004 she obtained a mba at the graduate school of business from the central european university in budapest, hungary. she is currently in the process of gaining a ph.d. degree at the faculty of economics, university of kragujevac, serbia. from 2007 she works as an assistant professor at the department of finance, the higher school of professional business studies in novi sad, where she teaches several financial courses. as author or coauthor, she published more than 20 papers in national and international conferences and journals. her basic scientific and professional interest includes teaching and research in the area of financial management and capital markets. sanja vlaović begović higher school of professional business studies, novi sad sanjavbegovic@gmail.com sanja vlaović begović graduated at the faculty of economics in subotica, university of novi sad, serbia in 2005, where she also completed her master studies in 2012. she proceeded to doctoral studies at the faculty of economics in niš. from 2007 she works at the higher school of professional business studies in novi sad, where she was elected a lecturer in 2012. from september 2013 she was promoted to the position of assistant of director for marketing and publishing activities. as author or coauthor, she published more than 20 papers in scientific journals and national and international conferences. her basic scientific and professional interests include teaching and research in the area of financial analysis and evaluation of companies. stevan tomašević higher school of professional business studies, novi sad stevan.tomasevic@vps.ns.ac.rs stevan tomašević holds a m.sc. degree from the faculty of economics, university of novi sad. he is a ph. d. student at the singidunum university. from 2007 he works as an assistant professor at the department of finance at the higher school of professional business studies in novi sad. as author or coauthor, he published more than 20 papers in scientific journals and national and international conferences. he is the manager of the scientific magazine school of business. the fields of his scientific and professional interests are related to accounting and auditing. 74 2015/76management about the author dajana ercegovac higher school of professional business studies, novi sad dajana_vindzanovic@yahoo.com dajana ercegovac graduated at the faculty of economics in subotica, university of novi sad, serbia in 2007 with a degree in financial management and accounting. in 2010 she finished her master’s degree in finance, banking and insurance at the faculty of economics in subotica. she is currently on her third year ofn doctoral studies in the area of finance financial markets and exchanges at the faculty of economics in subotica. from 2007 she works as an assistant professor at the higher school of professional business studies in novi sad, where she teaches the following courses: banking, financial markets and exchanges, accounting, national economy, etc. as author or coauthor, she published more than 20 papers in national and international conferences and journals and her research area is finance. 75 management 2015/76 teodora tica:tipska.qxd 1 teodora tica* university of novi sad, faculty of economics, subotica, serbia and ernst & young doo, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: teodora tica, e-mail: teodoratica@gmail.com research question: the aim of this paper is to present the effect of corporate income tax on capital structure in the food industry of the republic of serbia. motivation: based on the empirical results of moradi & paulet (2018) and kuc & kalicanin (2021), the author's aim of the research conducted in this paper is to analyse the impact of corporate income tax on the capital structure in the republic of serbia as a developing country with an underdeveloped capital market and to support the results of this sporadically researched area of corporate finance in the republic of serbia. idea: the author believes that by determining the optimal capital structure, it could be possible to reduce the burden of corporate income tax. given that the food industry is one of the most significant and profitable industries in the republic of serbia, the results of this theoretical and empirical research would be of a great benefit to the local tax authority and to large taxpayers. data: the research was conducted on a sample of 250 most active companies that operated within the food industry of the republic of serbia in the period from 2017 to 2019. the source of data for the purposes of this research are the official financial reports of companies registered with the serbian business registers agency. tools: elemental descriptive statistics techniques and panel regression analysis were applied throughout the data analysis. for the purpose of data processing the author used stata statistical software. findings: the results confirmed the existence of a negative and statistically significant relationship between tax savings based on depreciation costs and profitability on the one hand, and capital structure, on the other. thus, the results indicate the need of profitable companies to use high depreciation costs to provide a reduced burden of corporate income tax with a capital structure shifted to accumulated own financial resources. in addition, the results of the regression model showed the absence of a statistically significant effect of tax savings based on interest costs on capital structure. contribution: the contribution of this paper is reflected in additional support to existing discussions on impact of corporate income taxes on capital structure. further, the paper contributes to business practice by determining how corporate income tax burden could be reduced by choosing optimal financial mix. keywords: capital structure, corporate income tax, food industry jel classification: c20, c30, g30, l60, m20 the impact of corporate income tax on capital structure: evidence from serbian food industry doi: 10.7595/management.fon.2021.0030 abstract: 1. introduction the study of the optimal capital structure and financial mix is a never sufficiently researched topic in the field of corporate finance, which has been the subject of numerous studies by many authors for several decades. the answer to the key question of the optimal proportion between own and borrowed sources is examined by the top management of each company, considering the advantages and disadvantages of internal versus external sources of financing. the main advantage of the capital structure shifted to borrowed resources is related to the tax savings based on the deduction of interest costs, as opposed to the costs of dividends. in addition, it is believed that predominantly indebted companies lead to greater management discipline, since the existence of an obligation to repay borrowed money is leaving small amount of available cash flows for reckless investment. on the other hand, such capital structure creates certain risks. among them, the main risk refers to the inability to settle obligations to the lender, as well as the risk of bankruptcy. with further borrowing, each company loses flexibility regarding future external financing, i.e., lowers its credit rating, causing an increase in financing costs and worsening credit conditions. damodaran (2007) believes that any additional borrowing can evoke conflicts between the lender and the owner or shareholder. furthermore, two research directions have been considered in the literature so far. one group of authors believes that the benefits of borrowing are ultimately offset by interest costs, while another group of authors argues that the benefits of borrowing manifest only to a certain level. the purpose of the research conducted in this paper is the assessment of the impact of corporate income tax depending on interest costs and depreciation costs on the capital structure, as well as the assessment of the effects of other determinants of capital structure such as company size, asset tangibility, liquidity and profitability. the aim of the research is to theoretically and empirically present the effects of capital structure factors, primarily between tax savings and the proportion of borrowed and own financial sources of companies operating within food industry of the republic of serbia in the period from 2017 to 2019. the paper is presented through three related sections. the first section presents an overview of research results and conclusions of other authors regarding the influence of capital structure determinants on the proportion of internal and external sources of financing. the second part of the paper presents the composition of the sample, data source, overview of the variables used, as well as a description of the conducted research methodology. the third segment of the paper presents the results of the empirical section of the study, explanations and conclusions based on the evaluation of the regression model. 2 literature review by comparing the results of research works conducted in the last few decades regarding the influence of different determinants of capital structure, the presence of inconsistencies between the authors can be noticed. the main difference in conclusions refers to the discrepancy between the direction of the influence of a particular determinant on the capital structure, as well as in its statistical significance. below are presented the views of individual authors on the extent to which corporate income tax, profitability, size, liquidity and asset structure of companies affect changes in the capital structure. the capital structure reflects the way in which companies' funds are financed, showing the relative share of debts in total sources of financing. from the economic aspect, it is completely expected that every company does not finance the improvement and the growth of its business from exclusively accumulated own funds. consequently, companies often rely on external financing opportunities, which together with their own funds form capital structure. according to the research of petkovic et al. (2019), conducted on the example of companies from the republic of serbia, local companies mainly use internal funds, while external sources of financing are used to a lesser extent. the capital structure is a good indicator of a company's risk, given that companies with a higher share of debt in total sources are being considered as less flexible and much riskier (wahab & ramli, 2014). in addition, research conducted by kuc & kalicanin (2021) shows that large serbian companies have a low share of long-term debt and a very high share of short-term debt. there are several criteria and factors to be considered when choosing an appropriate financing source. the most common problem in this process is an existing contradiction between the determinants of the capital structure, which makes the choice itself extremely complex. subsequently after miller & modigliani (1963), had introduced additional changes to the former theory of capital structure by introducing a tax category, corporate income tax became of great influence on decisions on capital structure. one of the most influential proposition of amended m&m theory states that the greatest benefit from tax savings that is realized on the basis of tax deduction of interest cost is the increased value of the company. therefore, it leads to a situation in which a company is considered more valuable if it is more indebted. confirmation of this fact is precisely in the deduction of interest costs, which affects the reduction of the tax base in the tax balance, and thus also the liability for corporate income tax and cash outflows. given that the amount of collected and spent cash is considered when determining the value of the company, it was concluded that the deduction of interest expense is a factor of great importance. in the decades following the theory, corporate income tax became one of the main subjects of research in the field of corporate finance. in addition to the theoretical development of this topic, in recent years, tax authorities have been developing tax policies related to corporate income. the tax administrations of countries around the world have prescribed a set of costs whose deduction in the tax balance can reduce the amount of taxable profit, such 2 teodora tica forthcomin as interest costs. consequently, the capital structure directed mainly towards borrowed resources is an attractive choice for companies with high taxable profits. considering results of local research, it is necessary to refer to one of the latest analysis of this topic conducted by kuc & kalicanin (2021). they investigate determinants of capital structure of the top 141 largest serbian non-financial companies in the period following the global economic crisis in 2008. this study shows that effective tax rate measured by dividing tax expense for the period by profit before taxes, have no significant impact on capital structure of the largest companies in the republic of serbia. furthermore, vrzina (2019) investigates whether the serbian companies listed on the belgrade stock exchange have enhanced borrowing external funds after the increase of the prescribed corporate income tax rate in 2013. the author states that despite an increase in prescribed corporate income tax rates, companies in the republic of serbia have not boosted their debt levels. withal, vrzina considers a limited availability of borrowing funds, high interested rates on bank loans, low corporate income tax burden and availability of non-debt tax shields as a substitute for tax savings are the main causes of such behaviour of taxpayers in the republic of serbia. on the other hand, arsov (2016) analyzed the capital structure of the serbian joint-stock companies, most frequently traded on the belgrade stock exchange and concluded that average effective tax rates of companies have a significant and negative impact on capital structure. as far as foreign research is concerned, bauer (2004) and thalib et al. (2019) argue the existence of a positive relationship between tax savings based on interest expenses deductibility and capital structure. on the other hand, pirtea et al. (2014) concluded, after analyzing the capital structure of romanian companies, that there is a significant negative impact of tax rate, determined by dividing taxes paid by taxable income, to capital structure. moradi & paulet (2018) carried out a large sample survey of 559 companies operating within six developed european countries. the authors conducted the research from several aspects primarily from the aspect of different states. secondly, from the aspect of different industries, as well as from the time aspect as regards the euro crisis. in the end, they have concluded that tax shields are significantly negatively related to the capital structure. some authors such as nasution et al. (2017) consider that there is no statistically significant influence between tax shields and debt to total assets ratio. although many authors have measured tax shield effect as ratio of current tax expense and net income, in this paper, effective tax rate is determined as a ratio of total tax expenses, including either current or deferred taxes, and ebit or better known as operating income in serbian profit and loss statement. the reasons for this selection of measurement are twofold. firstly, the use of deferred taxes in addition to the current tax expense more accurately shows the effect of tax burden on the financial result of companies in one financial year. secondly, the use of operating profit instead of net profit provides a more precise estimate of business operations and level of activity, especially within a sample of manufacturing and non-financial corporations. according to the serbian corporate income tax law, many prescribed expenses are considered as deductible when compiling the annual tax balance. besides interest costs, asset depreciation costs are one of these. the negative relationship between the share of depreciation cost in total assets, on the one hand, and capital structure, on the other hand, is known as non-debt tax shields, which shows the taxpayer's intention to reduce the amount of taxable profit by incurring high depreciation costs. one of the most common ways to generate the increase in depreciation costs could be by determining the shorter life of fixed assets by accounting policies, or by increasing depreciation rates. accordingly, taxpayers will be able to use tax savings without directing the capital structure more towards borrowed resources. in this regard, the negative relationship was stipulated by deangelo et al. (1980), bauer (2004), deesomsak (2004) and nasution et al. (2017). notwithstanding the above, some authors share the opposite view. bradley et al. (1984) believe that companies that have a high value of fixed assets and intangible assets create an adequate collateral and more favourable credit conditions when borrowing. particularly, delcoure (2007), bajramovic (2017) and moradi & paulet (2018) believe that there is a positive relationship between the non-debt tax shields effect and the capital structure. kakilli acaravici (2015), singh (2016), pepur et al. (2016) and thalib et al. (2019) consider that the tax savings in this form are not a statistically significant category when analyzing the capital structure. company size is one of the most commonly used variables when analyzing capital structure (singh, 2016). the size of a company is a characteristic of legal entities that is closely related to the borrowing amount of the companies. since large companies have a high level of fixed assets, such companies usually have a greater ability to borrow and better creditworthiness with financial institutions. on the other hand, according to dogan (2013), the size of the company has a positive effect on profitability. consequently, large companies 3 management: journal of sustainable business and management solutions in emerging economies forthcoming are usually able to finance themselves from retained earnings of the current or previous years. wahab & ramli (2014), kakilli acaravci (2015), guner (2016), as well as bajramovic (2017) have agreed with the previous fact on the existence of a negative relationship between the size and the structure of capital in the last decade. when making decisions about capital structure, profitability plays an important role. results derived from stancic et al. (2016) research about testing relevance of alternative capital structure theories in serbian economy based on 674 production-oriented observations and 588 serviceoriented observation show that the level of leverage increases with the decrease in profitability. according to singh (2016), profitability leads to the creation of retained earnings and available reserves, thus it reduces the need for additional borrowing in the capital market. this attitude about the negative relationship between profitability and capital structure was confirmed by malinic et al. (2013), kakilli acaravci (2015), guner (2016), nasution et al. (2017), as well as thalib et al. (2019). according to harc (2014), companies are mainly financed according to the maturity of debts, i.e., there is a positive relationship between fixed tangible assets and long-term debts, while the relationship between fixed tangible assets and short-term debts is negative. the positive relationship between the asset structure and the capital structure was confirmed by the studies of wahab & ramli (2014), bajramovic (2017), moradi & paulet (2018), oktavina et al. (2018), buana & khafid (2018) and harc (2019). unlike them, when it comes to the negative impact of tangibility, stancic et al. (2016) state that the level of leverage increases with the decrease in share of fixed assets in total assets. the other group of authors, among them malinic et al. (2013), koralun-bereznicka (2013), kakilli acaravci (2015), arsov & naumoski (2016), agree that there exists a negative relationship between the tangibility and capital structure. in this particular case, malinic et al. (2013) point to the inflexibility of the serbian capital market and the lack of different sources of financing. additionally, deari & deari (2009), singh (2016), ariyani et al. (2018), silwal (2019) did not realize a statistically significant relationship between asset structure and capital structure. there are known views in the literature regarding the impact of liquidity on the capital structure. malinic et al. (2013), wahab & ramli (2014), singh (2016) and guner (2016) concluded through research that highly liquid companies have no need for additional borrowing. based on the aim of this research, as well as on the theoretical framework, the hypotheses that will be tested within the paper are the following: h1: there is a statistically significant relationship between the tax shield effect and the capital structure of companies within the food industry in the republic of serbia. h2: there is a statistically significant relationship between the non-debt tax shield effect without debts and the capital structure of companies within the food industry in the republic of serbia. 3. empirical data and methodology the subject of the research presented in the paper is the impact of corporate income tax on the capital structure of companies in the food industry of the republic of serbia in the period from 2017 to 2019. accordingly, the conducted research assesses the direction and strength of the influence of capital structure determinants, primarily corporate income tax. in addition, the paper includes an assessment of the impact of company size, liquidity, asset structure and profitability on the financial mix. the data source includes the official financial reports of companies registered with the business registers agency of the republic of serbia with activity codes within sector c, area 10 food production, according to the regulation on classification of activities (official gazette rs, 2010). the sample included top 250 active companies with the highest amount of operating income in 2019 within the food industry of the republic of serbia. in that manner, it is ensured that the sample includes the companies with the highest level of operations, regardless of the fact that some of them operated at a loss. thus, the results of the analysis were driven by the largest and most active representatives of this industry. considering that tp catalyst software, developed by bureau van dijk, was used for the formation of the sample, companies that did not provide financial data to tp catalyst for the entire analyzed period were excluded from the sample. 4 teodora tica forthcomin in addition, it should be noted that the food industry was taken into account primarily due to its largest contribution to the gdp of the republic of serbia, which accounted for up to 13.7% in 2019, according to the latest data (republicki zavod za statistiku (statistical office of the republic of serbia), 2020). the selection of dependent and independent variables is based on the theoretical framework. the following table shows the variables used in evaluating the model in this paper, together with the literature source. table 1: a review of theoretical framework for dependent and independent variables source: authors’ illustration 5 management: journal of sustainable business and management solutions in emerging economies forthcoming variable category variable name abbreviation variable formulation literature source dependent variable capital structure cs total debt / total assets delcoure (2007), malinic et al. (2013), wahab & ramli (2014), singh (2016), pepur et al. (2016), guner (2016), bajramovic (2017), vrzina (2019). tax shield effect ts total corporate income tax expense (including current and deferred expense) / ebit negash (2002), vatavu (2015), thalib et al. (2019). non-debt tax shield effect ndts depreciation expense / total assets bajramovic (2017), bauer (2004), delcoure (2007), deari & deari (2009), pirtea et al. (2014), kakilli acaravci (2015), guner (2016), pepur et al. (2016), nasution et al. (2017), moradi & paulet (2018). independen t variables asset structure as fixed assets / total assets delcoure (2007), deari & deari (2009), malinic et al. (2013), wahab & ramli (2014), saleh et al. (2015), kakilli acaravci (2015), vatavu (2015), singh (2016), stancic et al. (2016), pepur et al. (2016), arsov & neumoski (2016), pepur et al. (2016), setiadharma & machali (2017), bajramovic (2017), buana & khafid (2018), moradi & paulet (2018), harc (2019). size size ln total assets delcoure (2007), deari & deari (2009), wahab & ramli (2014), pepur et al. (2016), kakilli acaravci (2015), singh (2016), stancic et al. (2016), pepur et al. (2016), guner (2016), arsov & neumoski (2016), bajramovic (2017), moradi & paulet (2018), ariyani et al. (2018), silwal (2019). liquidity liq current assets / current liabilities malinic et al. (2013), wahab & ramli (2014), vatavu (2015), pepur et al. (2016), singh (2016), stancic et al. (2016), guner (2016), stevanovic et al. (2019). profitability profit roa delcoure (2007), deari & deari (2009), malinic et al. (2013), wahab & ramli (2014), vatavu (2015), kakilli acaravci (2015), pepur et al. (2016), stancic et al. (2016), guner (2016), bajramovic (2017), nasution et al. (2017), moradi & paulet (2018), oktavina et al. (2018), ariyani et al. (2018), silwal (2019), thalib et al. (2019), stevanovic et al. (2019). 4. results and discussion descriptive statistics of variables are presented in the following table. the table shows the arithmetic mean, standard deviation, as well as the minimum and maximum value of selected variables for 750 observations in a sample of 250 companies in the food industry of the republic of serbia. table 2: results of descriptive statistics source: authors’ calculations the results of the descriptive statistical analysis show that, on average, companies are mostly financed from their own sources. additionally, the asset structure of entities from the sample is balanced. hence, it can be interpreted that companies from the sample, on average, have an enviable guarantee substance for creditors on the financial market, in the form of a high value of long-term assets. in general, companies from serbian food industry are highly profitable and liquid. accordingly, it can be assumed that due to high profitability, companies are financed from current or retained earnings in previous years. at the beginning of the panel regression analysis, a regression model was determined in accordance with the previously formulated hypotheses and variables. the regression equation is shown below: (1) hausman’s test was used to detect more appropriate specification of the model. the result of the test showed that the fixed effects model was adequate. table 3: results of evaluation of a regression model with a fixed specification source: authors’ calculations furthermore, it is necessary to test the existence of autocorrelation, as the basic assumptions of regression analysis. autocorrelation is considered to be a form of connection between the values of the time series in different time periods of observation. the wooldridge test is applied for detecting the presence of autocorrelation in the regression model. since the obtained value p = 0.1610 > 0.05, the null hypothesis is confirmed and the absence of autocorrelation is determined. the results of the wooldridge test are presented in the table below. 6 teodora tica forthcomin �������� ������ ��� ���� � ������ ����� ��� ������� ������� �������� � ���� � ���� ������ ������ ������ ������ ������� ��� ���� ������ ������ �������� ������ �� �� !������ ��� ���� ���� ������ ������ ������ ������ �" � ���� ���#�� ����#� ������ ������� $ �%���!����&� ���� #����� ������ �������� ������� '�� �� � ���� � ���� ��##�� ����#� ������ ���#��� (�)�����&� ���� ������ ���#�� ������ ������� capital structure coefficient standard error t-statistic p > | t | tax shield 0.004 0.005 0.77 0.442 non-debt tax shield -1.358 0.527 -2.57 0.010 size 0.020 0.022 0.91 0.363 profitability -0.006 0.001 -7.96 0.000 asset structure 0.012 0.061 0.20 0.842 liquidity -0.003 0.002 -1.53 0.126 r-squared 0.1335 adjusted r-squared 0.1265 f-statistic 12.91 (p=0.000) table 4: the wooldridge test results source: authors’ calculations the results of regression analysis show that the debt driven determinant of capital structure such as corporate income tax based on interest costs is not statistically significant when considering its effect on capital structure. in this regard, hypotheses h1 is rejected. in this regard, the results of kuc & kalicanin (2021) and vrzina (2019) about the impact of tax shield on capital structure are confirmed. therefore, it can be concluded that the most active companies in the serbian food industry do not consider the tax rate when making a decision on the capital structure, i.e., the amount of additional borrowing. as far as foreign research is concerned, the results of the analysis are in accordance with the conclusion reached by nasution et al. (2017), who consider that there is no statistically significant influence between tax shields and debt to total assets ratio. further, since the estimated value p = 0.010 < 0.05 for the second regression coefficient regarding non-tax shield is lower than the significance threshold, hypothesis h2 is accepted and confirms the existence of a negative and statistically significant relationship between corporate income tax based on depreciation costs and capital structure. the negative relationship was stipulated by the authors deangelo et al. (1980), bauer (2004), deesomsak (2004) and nasution et al. (2017). in this particular case, the research conducted in this paper showed that the conclusions reached by the aforementioned authors also apply to companies operating in the food industry, one of the largest industries in the republic of serbia. in this manner, it is noticeable that serbian taxpayers take into account only non-debt shield when considering the debt-toequity ratio of the company. 7 management: journal of sustainable business and management solutions in emerging economies forthcoming �������� �� � �� ������� ���� ��� ���������� �� �� ������� ������ the food industry of the republic of serbia is one of the most important sectors of the domestic economy, making a large part of domestic exports. doing business in highly competitive areas of the economy requires careful decision-making on all segments of operations, both internal and external. one of the most vital decisions that needs to be made by top management is the decision on the capital structure. what precedes such a decision is taking into consideration all the factors that influence the proportion of borrowed and own financial sources. the aim of the research presented in this paper is to assess the effect of corporate income tax, as well as the tangibility, company size, profitability and liquidity on the capital structure of companies in the food industry of the republic of serbia. the results of the panel regression analysis showed that there is a negative and statistically significant impact of non-debt tax shield on the capital structure. in other words, companies use the right to deduct the costs of asset depreciation. in that manner, companies compensate the tax savings that would be obtained on the basis of interest costs by additional borrowing in a capital market. in this way, companies that perform business activities within the food industry are capable of bearing a lower burden of corporate income tax and have their capital structure turned more towards their own resources. considering the results of the research, it can be concluded that the entities in the sample take tax planning into account when it comes to this form of tax. further, the results of the regression model assessment also included the impact of the tax shield based on interest expenses deductibility. however, the research detected the absence of statistical significance of the mentioned capital structure determinant in the food industry of the republic of serbia. considering that the republic of serbia is a country with one of the lowest corporate income tax rates in europe, it was expected that the effective tax rate is not an important factor when deciding on the capital structure, what was confirmed by the results of the research. these results are in line with the conclusions of the kuc & kalicanin (2021), vrzina (2019) and nasution et al. (2017). additionally, serbian corporate income tax rate is lower than the rates that were in force at the time of the emergence of the m&m theory. taking into account the insufficiently developed capital market in the republic of serbia and a low corporate income tax rate, reduced interest of companies in additional borrowing in order to achieve tax savings could be expected. despite the wide range of research on the determinants of capital structures and on the validation of previously established theories of capital structure, the impact of corporate income tax on debt-to-assets ratio is not clear enough. the main reason is that the largest number of theories of capital structure originated in developed countries with developed capital market and high corporate income tax rates. therefore, the significance of this paper is that this topic has been partially covered based on a sample of companies from the republic of serbia, especially of companies that participate in one of the most successful and competitive manufacturing industries, such as food industry. additionally, the results obtained in this research will most likely be competitive to other production branches of the industry of the republic of serbia. also, conclusion references [1] ariyani, h. f., pangestuti, i. r. d., & raharjo, s. t. 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(2016). testing the relevance of alternative capital structure theories in serbian economy. teme, 4, 1309-1325. retrieved from: http://teme2.junis.ni.ac.rs/index.php/teme/article/view/277 9 management: journal of sustainable business and management solutions in emerging economies forthcoming 10 teodora tica forthcomin [35] stevanovic, s., minovic, j., & ljumovic, i. (2019). liquidity profitability trade-off: evidence from medium enterprises. management: journal of sustainable business and management solutions in emerging economies, 24(3), 71-77. doi: 10.7595/management.fon.2019.0004 [36] thalib, f., herdiyana, h., & wahid, a. (2019). tax and not tax on capital structure of real estate and property company. international journal of economics and financial issues, 9(2), 87-95. retrieved from: https://www.econjournals.com/index.php/ijefi/article/view/7613/pdf [37] official gazette rs (2010). uredba o klasifikaciji delatnosti. sluzbeni glasnik republike srbije, br. 54/2010. [38] vatavu, s. (2015). the impact of capital structure on financial performance in romanian listed companies. procedia economics and finance, 32, 1314 – 1322. retrieved from: https://core.ac.uk/download/pdf/82620497.pdf [39] vrzina, s. (2019). corporate income tax and financial structure in transition countries: a case of the republic of serbia. finansije, 1-6/2019, 37-52. retrieved from: https://mfin.gov.rs/upload/media/2t0jjr_6017df516b80e.pdf [40] wahab, s. n. a., & ramli, n. a. (2014). the determinants of capital structure: an empirical investigation of malaysian listed government linked companies. international journal of economics and financial issues, 4(4), 930-945. retrieved from: https://www.econjournals.com/index.php/ijefi/article/view/933/pdf [41] serbian corporate income tax law/zakon o porezu na dobit pravnih lica. (2019). sluzbeni glasnik republike srbije, br. 25/2001, 80/2002, 80/2002 dr. zakon, 43/2003, 84/2004, 18/2010, 101/2011, 119/2012, 47/2013, 108/2013, 68/2014 dr. zakon, 142/2014, 91/2015 autenticno tumacenje, 112/2015, 113/2017, 95/2018, 86/2019 i 153/2020. received: 2021-03-28 revisions requested: 2021-06-14 revised: 2021-08-09 (2 times) accepted: 2021-08-22 teodora tica university of novi sad, faculty of economics, subotica, serbia and ernst & young, belgrade, serbia teodoratica@gmail.com teodora tica is currently a phd candidate at faculty of economics in subotica, the university of novi sad, in corporate finance, accounting and assurance. she received a bachelor's and masters' degrees in finance, banking and insurance. her field of scientific interest is tax area of corporate finance as well as theories of capital structure. she is a senior consultant in ey belgrade business tax advisory department. she has over three years of experience in tax advisory, audits, restructurings and due diligences projects for various local and international clients operating in numerous industries. teodora’s skills include transaction tax, corporate income tax, vat, transfer pricing, tax incentives, tax structuring, etc. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08_dejan savic:tipska.qxd 73 dejan savić1, zoran bogetić2, marina dobrota3, nataša petrović3 1atos, pariske komune 22, belgrade, serbia 2 university of belgrade, faculty of economics, serbia 3 university of belgrade, faculty of organizational sciences, serbia management 2016/78 a multivariate approach in measurement of the sustainable development of european countries udc:005.216.1:[502.131.1:338.1(4) 330.341.1 doi:10.7595/management.fon.2016.0007 1. introduction the roots of the sustainability concept can be found in sources from many centuries ago, including ones from the sciences of religion, philosophy and economics (mebratu, 1998). however, the term “sustainable development” was used for the first time in the world conservation strategy (iucn, 1980). most commonly, sustainable development can be described as “development which satisfies the needs of the existing, without jeopardizing possibilities of the future generations to satisfy their own needs”, as it was defined in the bruntland report (wced, 1987). the concept of sustainable development includes numerous ecological, social and economic factors, which are stated as the three pillars or the triple bottom line for providing sustainability, and which do not exclude each other, but can even accent each other (un, 2005). a rising interest in sustainable development is a result of the perception of current actual conditions of the global human environment, which is largely unsatisfying and worrying, and demands urgent reaction of all members of the society, focused on long term environment protection and maintenance of biological stability (petrovic, 2012). although this topic is primarily considered on the level of national states, an increasing influence of the international institutions which regulate numerous interactions among states is obvious, and especially in the areas of systems and flows of international trade, finance, international property rights etc., which shows the general importance of the institutions in securing sustainable development as institutional capital (platje, 2008). sustainable development is a very important and popular concept which is open to different approaches and interpretations, so naturally a large number of researchers, organizations, institutions and international agencies developed and offered many various methodologies and concepts for measuring sustainability. however, there is still an extensive discussion as to in which directions and how sustainability metrics should due to the rising importance and popularity of the concept of sustainable development, a huge number of various methodologies and concepts for measuring sustainability have evolved in the last few decades. however, there are still challenges and issues that should be solved, suggesting the need for new approaches and sustainability metrics to be developed and proposed. the main goal of this paper is the present possibilities of application of i-distance methodology to measurement of the sustainable development as it could address some of the actual challenges related to subjective nature of usually applied normalization, weighting and aggregation methods.the proposed i-distance methodology was applied on a set of european countries. a twofold approach provided a deeper insight into not only domain dynamics, but also into total score dynamic. it can support policy makers to identify key indicators and focus the policy areas where appropriate policy measures would have the most significant influence on the overall positioning of the country. keywords: sustainable development; sustainability; composite indicators; i-distance methodology; i2-distance; twofold i-distance approach. further develop (ciegis et al., 2015; frugoliet al., 2015; hák et al., 2016; stigliz et al., 2009; tfsd, 2013), demonstrating both a significant space and need for new conceptual approaches which would open new perspectives for measuring sustainable development. the focus of this paper is on investigating the impact of the subjective nature of commonly applied normalization, weighting and aggregation methods on the results of the actual approaches in area of sustainable development indices. the main goals of this paper are to propose an i-distance methodology as alternative that can address those subjectivity-related challenges as well as to compare the results of our study with the results of some of the most recent approaches. our main research hypothesis claims that a coherent sustainable development composite indicator framework can be developed based on the statistically assessed significances of the variables. the remainder of the paper is organized as follows. the following section provides a review of the leading existing approaches in measuring sustainable development. in the next section a new approach is presented and applied on a set of european countries, including a comparative analysis of results with one of the most recent approaches. the final section presents conclusions of the paper. 2. actual approaches in measuring sustainable development the main goal of all sustainability metrics is to inform relevant communities included in the process of policy making within the wider process of sustainable development management (boulanger, 2008) and to provide an appropriate quantitative information base (ball, 2002). indicators of sustainability can provide information about any aspect of the process and relationship between life environment and social-economic activities. due to the rising importance of this topic, the metrics used for measuring sustainability are still being developed and consist of indicators, indices (composite indicators), benchmarks, new revision systems, new accounting concepts etc. which are applied on a wide range of spatial and time scales (hak et al., 2007; bell&morse, 2008). while some of these methods and approaches treat measuring and rating of different aspects of sustainability within business and other organizations (herzig&schaltegger, 2006) and local communities (ball, 2002; eiu, 2009), a whole list of methodological approaches is recognized that are focused on rating and comparing different aspects of sustainability and sustainable development management within national states. conceptual approaches in measuring sustainable development could be grouped in two general categories: (1) set of single, unaggregated indicators and (2) composite indicators. unlike the sets of indicators, composite indicators have the ability to summarize complex and sometimes elusive processes into a single figure to benchmark a country’s performance in policy consumption (giovannini et al., 2008) and such a summary statistic can indeed capture reality and provide meaningful information (sharpe, 2004). therefore, the main focus of this paper are the composite indicators of sustainable development, where table 1 provides a list of the approaches that are widely used and discussed in literature (tfsd, 2013), together with a summary of the approaches regarding the issues of normalization, weighting and aggregation. due to the vague interpretation of sustainability, examination of spatial, time and theme dimensions of measured phenomena is necessary to define a context for a clear understanding not only of exact topic of measurement, but also of the process of reaching sustainability (bell & morse, 2008). looking at the spatial dimension of the above mentioned metrics, there is a noticeable dominance of the “national sustainability” approach that considers the national state as a basic analytical unit. considering the time horizon, most approaches consider integral approach which tends to singularly perceive interests and needs of both present and future generations. regarding the thematic perspective, only the ssi approach tends to integrally consider all factors and parameters of all three dimensions of sustainable development – economic, environmental and social dimensions. others are rather focused on one dimension – economic (isew, gpi, gs/ans), environmental (esi, epi, ef), social (hdi) – or have a combined social-environmental focus (wi). having in mind that all natural-ecological and social-economic processes and systems are interconnected and in constant interaction on a global level, there are a number of opinions which consider the sustainability of civilization in modern terms possible to maintain only by looking at the big picture of global perspective of its functioning and interaction with the environment (gidens, 2009; stern, 2009; moldan et al., 2012), which requires new research efforts that target a global perspective of measuring sustainable development. 74 2016/78management table 1. actual approaches in measuring sustainable development and applied methods of normalization, weighting and aggregation integral perspective implies a tendency to cover all aspects of human welfare, which can lead it to lose focus and become a “theory of everything”, at the same time risking minimizing the relative importance of long term perspective, due to a “number of urgent problems that need attention here and now” (tfsd, 2013). the integral approach, with its focus on both wellbeing of present and future generations, is criticized because of its underestimating possible catastrophic consequences of the past and present socio-economic processes for future generations (bernstein, 2008), which makes compromises focused on welfare of the present generation improvement at the price of jeopardizing future ones unacceptable. increasing consideration of sustainable development from the perspective of human welfare is placing rising attention on economic and social dimensions, with no apparent connection to the environmental sustainability, defined by its biogeophysical aspects and focus on maintaining and improving the integrity of the earth’s life supporting systems (moldan et al., 2012). it is noticed that composite indicators in newly emerging policy areas such as sustainable development might be very subjective due to the lack of a transparent and solid underpinning theoretical and statistical framework (giovannini et al., 2008), where identification of the selection criteria for the underlying indicators is of specific importance, as they are the basis for deciding whether an indicator should be or should not be included in the overall index. their strong communicative power then can be disproportionate in comparison to their reliability, which could be generally considered as low because indices are strongly influenced by the methods chosen to build them (luzzati&gucciardi, 2015). regarding commonly applied methodologies and techniques, it is noted (böhringer&jochem, 2006) that current approaches, in general, fail to meet fundamental scientific requirements with respect to the three key areas: normalization, weighting and aggregation, as these topics are associated with subjective judgements which reveal a high degree of arbitrariness without mentioning or systematically assessing critical assumptions. normalization of data implies a value judgment, as different scales cannot not be harmonized in a meaningful manner (nardo et al., 2005). at the same time, normalization of data before aggregation does not provide a solution to the non-comparability of the data and the ensuing ambiguity of orderings (ebert &welsch, 2004). however, the composite indicators examined in this article use different normalization methods, proceeding either by transforming variables’ values into a new unique scale (e.g. 0 to 1) by translation and expansion (esi, epi, wi, hdi, ssi) or converting all the variables into another area or monetary units by expansion (isew, gpi, gs/ans, ef). similarly to normalization, weights are essentially value judgements (giovannini et al., 2008). it is noted that weighting poses a genuine problem as it ostensibly aims at the comparability of variables even though these are obviously not comparable and since this involves potentially normative ‘quotas of substitution’ (ebert&welsch, 2004). regarding approaches discussed in this paper, most of them use equal weighting (isew, gpi, gs/ans, ef, hdi, ssi), some of them use subjective, expert-based participatory methods (esi, 75 management 2016/78 index normalization weighting aggregation index for sustainableeconomicwelfare isew (daly&cobb, 1989) monetarized equal arithmetic mean genuineprogressindicator – gpi (cobb et al., 1995) monetarized equal arithmetic mean genuinesavings/adjusted net savings gs/ans (hamilton et al., 1997; wb, 2011) monetarized equal arithmetic mean environmentalsustainabilityindex esi (esty et al., 2005) standard deviation equal/experts arithmetic mean environmental performance index – epi (hsu et al., 2014) best = 100, worst = 0 pca and experts arithmetic mean ecologicalfootprint – ef (wackernagel&rees, 1997). transformation in km2 equal arithmetic mean well-beingindex – wi (prescott-allen, 2001) best = 100, worst = 0 subjective arithmetic mean human developmentindex – hdi (undp, 2014) min-max (0-1) equal arithmetic mean sustainablesocietyindex– ssi (van de kerk&maunel, 2014) min-max (1-10) equal geometric mean epi, wi) and only one at least partially uses pca as statistically-based method, combined with experts opinions. regarding the issue of aggregation, it is argued (ebert &welsch, 2004) that aggregation procedures for variables should depend on the measurement scales, where distinction between interval scales and ratio scales was made. they pointed out that aggregation based on an arithmetic mean is not an appropriate method for ratio-scaled variables. however, all indices listed in this paper have ratio-scaled variables that are aggregated based on arithmetic mean, with the exception of ssi which uses geometric mean for aggregation of its variables. 3. the analysis in this paper, a new approach based on the statistical i-distance methodology is proposed with the purpose of creating a new metrics of sustainable development which has the potential to solve some of the above mentioned issues and challenges related to the subjective and arbitrative nature of different methods applied in the area of normalization, weighting and aggregation. the proposed i-distance methodology was originally developed by ivanovic (ivanović, 1973, 1977) and has been recently significantly advanced (dobrota et al., 2015a,b, 2016; isljamovic et al., 2015; jeremić et al., 2011, 2013, 2014; jovanović-milenković et al., 2015; maričić& kostić-stanković, 2016; marković et al., 2015; radojičić et al., 2012; savić et al., 2016). in order to illustrate the applicability of the i-distance methodology and to propose a potential measurement framework for constructing a single synthesized composite indicator of sustainable development, the proposed methodology was applied on a set of all european countries (excluding microstates) listed in table 2. the set of indicators from table 3 was selected from the world bank list of world development indicators (wdi) (wb, 2015), based on two key selection criteria: (1) relevancy for any specific dimension of sustainable development (economic, environmental and social) and (2) availability of requested data for the selected european countries. the raw data for all variables for the year 2010 were obtained from the wdi database (wb, 2015). the year 2010 was selected as the most recent year for which the share of missing data was not higher than 5% for all countries and variables. values for missing data in the analyzed dataset were calculated and imputed based on a multiple imputation statistical method which was applied by the use of spss software with a linear regression model for scale variables. the spss multiple imputation program uses a markov chain monte carlo (mcmc) algorithm, known also as fully conditional specification (fcs) or chained equations imputation. in order to avoid the problem of a negative coefficient of partial correlation which can occur in cases where is not possible to achieve the same direction of all variables in all sets, the measure of the square i-distance (i2-distance) was used instead of regular i-distance measure. the i²-distance ranking method was first applied separately for each of the three groups of basic indicators (economic, environmental and social indicators) with the intention to define the separate ranking of countries in terms of economic, environmental and social sustainability dimensions. then the i²-distance ranking method was applied again on the previously calculated i²-distance values per dimensions in order to define the final ranking of countries referred to comprehensive understanding of sustainable development. the achieved results and ranks in four categories are given in table 2.this data set was further examined by use of the pearson correlation test in order to determine a correlation coefficient of each indicator with the i²-distance values of its economic (i2_eco), environmental (i2_env) and social dimensions (i2_soc) and with the final i²-distance value for all three dimensions together (i2_sd). the obtained results are incorporated into the graphical presentation given in figure 1, which provides a better insight into the inner dynamics of compounding dimensions and its most significant indicators, while detailed results for all indicators are provided in table 3. 76 2016/78management table 2. list of european countries with i²-distance values and ranking per dimensions and for overall sustainable development from the perspective of the economic dimension of sustainability, there are 10 indicators that are statistically significant, out of which 7 indicators of correlations are significant at the 0.01 level (table 3). as expected, the most significant indicators come from the economic area: gni growth (r = 0.828, p < 0.01), gdp growth (r = 0.795, p < 0.01), hfce per capita growth (r = 0.687, p < 0.01), ans excluding (r = 0.651, p < 0.01) and including particulate emission damage (r = 0.644, p < 0.01), gni (r = 0.389, p < 0.05) and gdp (r = 0.386, p < 0.05). there are also 3 social indicators with significant correlations: poverty headcount ratio (r = 0.533, p < 0.01), public spending on education (r = 0.500, p < 0.01) and unemployment (r = 0.388, p < 0.05). 77 management 2016/78 country i2_sd i2_eco i2_env i2_soc value rank value rank value rank value rank iceland 29.40 1 7.90 36 58.45 1 40.74 3 norway 22.09 2 25.07 8 9.08 17 53.78 1 switzerland 21.31 3 30.58 7 34.04 4 38.46 5 sweden 17.75 4 35.85 5 17.41 7 35.75 6 germany 17.47 5 39.77 2 16.11 8 30.01 10 luxembourg 17.11 6 31.51 6 11.98 10 40.88 2 moldova 17.09 7 36.40 4 34.61 3 13.31 30 belarus 14.71 8 41.72 1 1.47 39 20.89 19 cyprus 13.40 9 9.15 34 42.05 2 25.32 14 turkey 12.26 10 38.27 3 5.52 30 18.82 21 austria 11.65 11 19.24 14 9.11 15 40.17 4 the netherlands 8.36 12 17.89 19 8.21 20 34.15 7 finland 8.05 13 20.58 13 4.36 33 32.06 8 denmark 7.79 14 18.35 18 10.79 11 31.80 9 france 7.46 15 24.49 10 15.97 9 21.92 16 russian federation 7.08 16 24.35 11 5.40 31 25.33 13 albania 6.91 17 17.81 20 27.65 5 14.19 28 the united kingdom 5.27 18 24.53 9 8.86 18 15.15 25 italy 4.97 19 18.41 17 8.73 19 23.79 15 spain 4.76 20 11.87 28 10.36 12 27.51 11 belgium 4.35 21 19.00 15 7.39 23 20.97 18 slovenia 4.20 22 12.19 26 17.61 6 21.09 17 the czech republic 4.16 23 12.00 27 3.63 34 27.00 12 ukraine 3.60 24 22.23 12 2.16 38 9.09 37 poland 2.80 25 18.74 16 7.01 24 10.74 32 portugal 2.45 26 10.96 30 7.62 22 20.38 20 macedonia, fyr 2.31 27 14.28 21 2.80 36 17.64 23 ireland 2.15 28 13.02 24 9.17 13 15.89 24 montenegro 1.88 29 13.01 25 9.09 16 13.75 29 the slovak republic 1.81 30 14.02 22 9.16 14 10.51 33 bulgaria 1.46 31 10.05 32 8.05 21 15.13 26 estonia 1.26 32 13.27 23 2.87 35 9.90 35 lithuania 1.21 33 9.74 33 5.59 29 14.81 27 bosnia and herzegovina 1.17 34 5.73 38 2.75 37 18.06 22 latvia 0.96 35 10.99 29 6.85 25 6.74 40 hungary 0.92 36 10.27 31 6.34 28 10.39 34 greece 0.46 37 1.16 40 6.48 27 12.91 31 serbia 0.45 38 8.12 35 1.32 40 9.49 36 romania 0.41 39 6.44 37 6.71 26 7.52 38 croatia 0.18 40 4.83 39 4.79 32 7.34 39 table 3. selected indicators per dimensions, incl. correlations between indicators and i²-distance values for the related dimension and overall sustainable development * correlation is significant at the 0.05 level (2-tailed), p < 0.05 ** correlation is significant at the 0.01 level (2-tailed), p < 0.01 78 2016/78management dimension indicators i2_sd i2_eco i2_env i2_soc economic gdp (gross domestic product) (constant 2005 us$) 0.143 0.386* -0.011 0.17 gdp growth (annual %) 0.234 0.795** -0.116 0.032 gdp per capita (constant 2005 us$) 0.611** 0.281 0.311 0.810** gni (gross national income) (constant 2005 us$) 0.148 0.389* -0.006 0.171 gni growth (annual %) 0.442** 0.828** 0.105 0.243 gni per capita (constant 2005 us$) 0.604** 0.292 0.302 0.822** ans (adjusted net savings), excluding particulate emission damage (% of gni) 0.328* 0.651** -0.077 0.31 ans (adjusted net savings), including particulate emission damage (% of gni) 0.357* 0.644** -0.042 0.352* hfce (household final consumption expenditure) per capita (constant 2005 us$) 0.595** 0.242 0.364* 0.781** hfce (household final consumption expenditure) per capita growth (annual %) 0.341* 0.687** 0.032 0.075 environmental co2 emissions (kg per 2005 us$ of gdp) 0.610** 0.228 0.521** 0.665** co2 intensity (kg per kg of oil equivalent energy use) 0.603** 0.006 0.696** 0.363* co2 emissions (metric tons per capita) 0.059 0.123 0.366* -0.323* alternative and nuclear energy (% of total energy use) 0.480** -0.009 0.582** 0.376* fossil fuel energy consumption (% of total) 0.559** -0.036 0.641** 0.390* gdp per unit of energy use (constant 2011 ppp $ per kg of oil equivalent) -0.025 0.008 0.041 0.139 terrestrial and marine protected areas (% of total territorial area) 0.006 0.027 0.05 0.177 total natural resources rents (% of gdp) 0.187 -0.084 0.453** 0.116 population density (people per sq. km of land area) 0.498** -0.095 0.525** 0.337* fertilizer consumption (kilograms per hectare of arable land) -0.034 0.106 0.055 -0.228 social unemployment, total (% of total labour force) (modelled ilo estimate) 0.638** 0.388* 0.286 0.751** intentional homicides (per 100,000 people) 0.451** -0.069 0.423** 0.649** poverty headcount ratio at national poverty line (% of population) 0.633** 0.533** 0.201 0.775** proportion of seats held by women in national parliaments (%) 0.484** 0.225 0.159 0.649** primary completion rate, total (% of relevant age group) -0.189 -0.138 -0.165 -0.073 research and development expenditure (% of gdp) 0.461** 0.262 0.229 0.649** public spending on education, total (% of gdp) 0.600** 0.500** 0.355* 0.476** life expectancy at birth, total (years) 0.318* -0.041 0.292 0.601** mortality rate, under-5 (per 1,000 live births) 0.497** 0.054 0.314* 0.712** health expenditure per capita, ppp (constant 2005 international $) 0.515** 0.271 0.199 0.796** figure 1. inner dynamics of compounding dimensions and its most significant indicators these results indicate that the most important factors of the economic dimension of sustainability are rates of growth (gni, gdp and hfce) and rates of savings (ans indicators), rather than absolute total and per capita economic values. consequently, the highest ranked countries in terms of economic dimension in table 2 are belarus, germany and turkey, which had some of the highest values of those indicators in 2010, as opposed to the lowest ranked countries like greece, croatia and bosnia and herzegovina, which had among the lowest values. regarding the environmental dimension of sustainability, there are 11 statistically significant indicators, including 7 indicators with significance at the 0.01 level (table 3). the most important environmental indicators are: co2 intensity (r = 0.696, p < 0.01), fossil fuel energy consumption (r = 0.641, p < 0.01), alternative and nuclear energy (r = 0.582, p < 0.01), population density (r = 0.525, p < 0.01), co2 emissions per unit of gdp (r = 0.521, p < 0.01), total natural resources rents (r = 0.453, p < 0.01) and co2 emissions per capita (r = 0.366, p < 0.05). interestingly, a statistically significant correlation exists with only one economic indicator – hfce per capita (r = 0.364, p < 0.05), and three social indicators: intentional homicides (r = 0.423, p < 0.01), public spending on education (r = 0.355, p < 0.05) and mortality rate (r = 0.314, p < 0.05), implying that secured basic economic and social qualities could be an important factor of effective focus on achieving environmental sustainability. detection of the fact that as many as five indicators are related to greenhouse gases (ghg) emissions supports numerous opinions about the importance of solving ghg and climate change challenges in securing environmental sustainability (bernstein, 2008; stern, 2009). it also explains why the highest ranked countries in terms of the environmental dimension are iceland, cyprus, moldova and switzerland, as they have highest values on these indicators, in contrast to serbia, belarus and ukraine at the bottom of the rank list (table 2). the social dimension has the highest number of 19 statistically significant indicators, including 13 indicators with significance at the 0.01 level (table 3). among these 13 indicators, only 3 of them are economic indicators. however, they are on the 1st, 2nd and 4th places by statistical significance: gni per capita (r = 0.822, p < 0.01), gdp per capita (r = 0.810, p < 0.01) and hfce per capita (r = 0.781, p < 0.01). this demonstrates the importance of the average level of national wealth per capita as a basis for achieving higher levels of social sustainability. regarding social indicators, only one is not statistically significant (primary completion rate) and all 9 others are at 0.01 level of statistical significance, which illustrates the importance of various social aspects (healthcare, education, politics, poverty and crime) on social sustainability. however, as the most significant social indicators are health expenditure per capita (r = 0.796, p < 0.01), unemployment (r = 0.751, p < 0.01), poverty headcount ratio (r =0.775, p < 0.01) and mortality rate (r = 0.712, p < 0.01), healthcare and basic economic existence could be considered as more important 79 management 2016/78 gdp growth 0.795 i2_eco i2_soc i2_env gni growth 0.828 0.751 0.687 0.612 0.681 i2_sd 0.773 hfce p.c. growth 0.796 health exp. p.c. 0.775 poverty hc ratio unemployment co2 intensity alternative& nuclear energy 0.582 0.696 0.641 fossil fuel energy consum. areas of social policy. there are also 6 environmental indicators that are statistically significant, out of which 5 are related to ghg emissions, pointing out that those countries that are striving to reduce their ghg emissions are also most advanced in terms of the social dimension of sustainability. as a result, the top ranked countries as to social sustainability are norway, luxemburg and iceland, which all have higher values for the mentioned indicators, as opposed to latvia, croatia and romania, which are at the bottom of the list (table 2). finally, considering the comprehensive perspective of sustainable development, 21 statistically significant indicators are noted (out of which 17 are with significance at the 0.01 level), including 7 economical, 5 environmental and 9 social indicators (table 3). interestingly, almost all social indicators are statistically significant (except primary completion rate), including the 1st and 2nd ranked unemployment (r = 0.638, p < 0.01) and poverty headcount ratio (r = 0.633, p < 0.01) as well as public spending on education (7th, r = 0.600, p < 0.01), which is the only indicator assessed as statistically significant for all 3 dimensions of sustainable development. this could indicate the crucial importance of various social aspects for understanding and the perception of overall sustainable development, especially for those related to the level of satisfaction of basic socio-economic needs. among economic indicators, gdp per capita (3rd, r = 0.611, p < 0.01), gni per capita (5th, r = 0.604, p < 0.01) and hfce per capita (8th, r = 0.595, p < 0.01) can be identified as most important, denoting a significant correlation of average wealth of citizens to overall result. environmental indicators with the highest level of statistical significance are co2 emissions per unit of gdp (4th, r = 0.610, p < 0.01), co2 intensity (6th, r = 0.603, p < 0.01) and fossil fuel energy consumption (9th, r = 0.559, p < 0.01), which reveals the fundamental importance of ghg emissions for the achieved level of sustainable development. considering all 3 dimensions of sustainable development together (table 2), the highest ranked countries are iceland, norway, switzerland, sweden and germany, which all have very low levels of unemployment and poverty, significant spending on education, high levels of national wealth per capita and obvious national focus on the reduction of ghg emissions. the main contributors to iceland’s first position are outstanding environmental performances and very low levels of ghg emissions. on the other hand, the lowest ranked countries such as croatia, romania, serbia, and greece are characterized by struggling with poverty and unemployment issues, relatively low public expenditure for education, low rates of economic growth and weak average wealth measures, followed by poor environmental performances. as all these bottom-ranked countries come from south east europe, this can be considered as a warning signal that this region requires special attention and support in order to overcome actual issues and challenges. the pearson correlation test was also applied to determine a correlation coefficient between all four calculated i²-distance values, with the results given in table 4 that show correlation coefficients between all four calculated i²-distance values, demonstrating that a statistically significant correlation at the 0.01 level exists between the values for overall sustainable development, on the one hand, and values for each of 3 dimensions, on the other hand. it shows that there is no statistically significant correlation between economic and environmental dimension i²-distance values, implying that the level of economic development and performances in principle do not determine the level of environmental sustainability and vice versa. table 4. the correlation between different calculated i²-distance values * correlation is significant at the 0.05 level (2-tailed), p < 0.05 ** correlation is significant at the 0.01 level (2-tailed), p < 0.01 the relatively low statistically significant correlation at the 0.05 level between i²-distance values of social and economic as well as social and environmental dimensions prove the validity of the proposed measurement concept as it confirms that the measured dimensions represent statistically separated entities, but also discovers the specific influence of different social qualities for the achievement of higher levels of both economic and environmental performances. 80 2016/78management i2_sd i2_eco i2_env i2_soc i2_sd * 0.612** 0.681** 0.773** i2_eco * 0.091 0.381* i2_env * 0.349* i2_soc * for the purpose of comparison of the proposed i²-distance-based ranking with some of the actual approaches, sustainable society index (ssi) is chosen as it is the only one among discussed approaches that attempts to integrally comprehend all three dimensions of sustainable development. in general, ssi aims to describe societal progress along three dimensions of well-being (human, environmental and economic), based on the assessment of 8 policy categories and 21 indicators, that is calculated for 151 countries accounting for 99% of the world population (van de kerk&manuel, 2012). the ssi ranking results for year 2012 are considered to be most relevant, as they are based on data sources mostly from the year 2010, although general data source range is 2005-2011. global ranking is transformed to ranking of european countries by simple excluding non-european countries from the list. the variables considered in the ssi are normalized using the min-max method in 1-10 scale (10 = most sustainable score) and aggregated into categories by simple geometric mean, with equal weights assigned to all indicators. three ssi wellbeing dimensions are calculated as the geometric mean of the related underlying categories. the overall ssi index is calculated as the geometric mean of all eight categories. the comparison of ranking results of these two approaches for european countries is given in table 5. the examination was based on the spearman’s rank correlation coefficient method and the obtained results showed that there is no correlation between the two ranking lists (rho=0.193; p=0.234). although there is one country with the same position in both rankings (the united kingdom) and some of the higest ranked countries (switzerland, sweden, norway) have similar positions in terms of both approaches, a large numbers of countries show huge inconsistencies between their ranks. clearly, more attention needs to be focused on the most drastic inconsistencies between the sustainability ranks obtained by employing the i²distance method and the ssi approach. generally, there are 18 countries whose rankings fluctuate by more than ten places. in particular, the greatest ranking difference is noted for iceland (1st position on i²-distance list vs. 34th on ssi list) and latvia (35th vs. 4th position). in the i2-distance-based assessment (table 2), iceland demonstrated superior performances in environmental (1st place) and social (3rd place) dimensions, but quite a poor rank in economical dimension (36th place), which can be seen as in contrast with the 1st position on the overall sd ranking. however, it should be pointed out that different economic indicators showed to be statistically significant for the calculation of i2-distance values for the economical dimension only (i2_eco) and of i2-distance values for the overall sustainable development (i2_sd). for the ranking on the level of economical dimension alone, the most influencing indicators appeared to be gni growth, gdp growth, hfce per capita growth, ans excluding and ans including particulate emission damage, where the values of iceland were not impressive (39th, 34th, 26th , 38th and 38th position per indicator respectively). on the other hand, in terms of per capita values of gdp, gni and hfce, iceland is among the top ranked countries (4th, 6th and 4th positions per indicator, respectively). as these indicators of average wealth of citizens are denoted as statistically most significant economic indicators for overall i2_sd results, and having in mind that iceland has very low levels of unemployment and poverty, significant spending on education, outstanding environmental performances and very low levels of ghg emissions, this can be considered as a valid explanation of its 1st position on the overall sd ranking list. regarding the ssi ranking, iceland is the 1st positioned country in terms of human wellbeing, mid-positioned (16th) regarding environmental wellbeing, but with the lowest, 40th ranking position in terms of economic wellbeing, resulting with the low overall ssi ranking of iceland at the 34th place. here it should be pointed out that the ssi method uses a small number of indicators for each category, all with equal weights within category and therefore with significant influence on the related results. it implies concerns about the selection of indicators and their appropriateness to represent a valid measure for given categories, as well as the usage of predefined equal weights which do not provide for the ability for any correction of their influence based on its statistical significance. this is contrary to the i2-distance approach, which attempts to utilize statistical significances of indicators as a tool for objective statistically-based weighting of indicators, which also allows inclusion of a larger number of indicators without data normalization, where their weights would implicitly make their selection. so in the case of iceland, low performances in organic farming, genuine savings and public debt indicators outweigh good results of gdp and employment indicators, despite potential doubts if these indicators could be considered as equally relevant for the assessment of economical dimension. 81 management 2016/78 82 2016/78management country i2_ran k ssi rank differe nce country i2_ra nk ssi rank differe nce iceland 1 34 33 belgium 21 31 10 norway 2 5 3 slovenia 22 6 16 switzerland 3 1 2 the czech republic 23 13 10 sweden 4 2 2 ukraine 24 36 12 germany 5 14 9 poland 25 16 9 luxembourg 6 17 11 portugal 26 24 2 moldova 7 30 23 macedonia fyr 27 28 1 belarus 8 29 21 ireland 28 39 11 cyprus 9 33 24 montenegro 29 12 17 turkey 10 32 22 the slovak republic 30 8 22 austria 11 3 8 bulgaria 31 25 6 the netherlands 12 23 11 estonia 32 27 5 finland 13 7 6 lithuania 33 11 22 denmark 14 20 6 bosnia and herz. 34 40 6 france 15 21 6 latvia 35 4 31 the russian fed. 16 37 21 hungary 36 22 14 albania 17 9 8 greece 37 38 1 the united kingdom 18 18 0 serbia 38 35 3 italy 19 10 9 romania 39 19 20 spain 20 26 6 croatia 40 15 25 table 5. a comparison of the i²-distance and ssi ranking of european countries similarities can be noted in the case of latvia, which has quite a low, 35th position in i2-distance based ranking (followed by not a very impressive positioning in terms of all dimensions: economic 29th, environmental 25th and social 40th), which can be explained with latvian poor performances for statistically significant indicators of national wealth (gdp and gni) per capita, unemployment, poverty, spending on education, co2 emissions per unit of gdp and co2 intensity. at the same time, in terms of the ssi approach, latvia is highly ranked with 4th overall position, complemented with appropriate positions for environmental (2nd), economic (12th) and human (32nd) wellbeing dimensions, as it has better results for equally weighted basic indicators relevant for the ssi calculation. the obvious discrepancy between results can be explained with essentially different approach to weighting and aggregation of indicators into related composites. after a normalization of data based on min-max method, the ssi approach considers that a small number of equally weighted indicators determine results for each category, then a small number of equally weighted categories determine results for each dimension, which are then finally aggregated as equally weighted to the overall ssi rank. on the contrary, the i2-distance approach tends to use raw data for extensive range of indicators for direct calculation without intermediate steps, with weighting based on the assessed statistical significance of each considered indicator. conclusion sustainable development is one of the most important concerns of modern societies. hence a comprehensive assessment of sustainability has become crucial to measure progress, identify areas to be addressed and evaluate policy implications. due to the rising importance and popularity of sustainable development, a large number of researchers and institutions developed various concepts and methodologies for sustainability measuring. however, many sustainability indicators still lack a consistent definition of sustainability, have perspectives that are too short-termed, and are unable to model the complex dynamics of sustainability phenomena (somogyi, 2016). at the same time, composite sustainability indicators shape world views and embody broader visions of society through not only intended use but also a multiple unanticipated influence (lehtonen et al., 2016). references [1] ball, a. 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(1989). for the common good: redirecting the economy toward community, the environment, and a sustainable future, beacon press: boston, usa. 83 management 2016/78 in this paper, the i-distance methodology has been proposed as a framework and foundation for assessing sustainable development which is providing a new perspective on the measurement of sustainable development and addressing actual challenges related to the subjective and arbitrative nature of usually applied methods for normalization, weighting and aggregation. the i-distance methodology is able to synthesize many different indicators into a single numerical value which represents the basis for ranking observed entities. an applied twofold i-distance approach provided a deeper insight into not only domain dynamics, but also to total score dynamic (maričić& kostić-stanković, 2016). it can support policymakers to identify key indicators and focus the policy areas where appropriate policy measures would have the most efficient influence on the overall positioning of the country (savić et al., 2016). the initial hypothesis was tested and proven by the application of the proposed methodological framework on the set of statistical data from the world development indicator database (wb, 2015) for a set of all european countries (excluding microstates). a comparative analysis with the ssi approach showed the obvious discrepancy between results that could be explained with essentially different approach to normalization, weighting and aggregation of indicators into related composites. contrary to the ssi approach, the proposed i2-distance approach used raw data for an extensive range of indicators for direct calculation without intermediate steps, with weighting based on the assessed statistical significance of each considered indicator. in this way, the objectiveness, reliability and accuracy of sustainability metrics has been improved. as sustainability metrics are used as a quantitative information foundation for appropriate policy making processes, this proposal has important policy implications related to the improvement of objectiveness, reliability and accuracy of sustainability metrics used on all policy levels. the proposed approach is able to identify priority areas specific for each country so that policymakers can focus their attention on the areas where attention and action would have the most significant impact on the overall relative position of the country. it may be noted that countries from south eastern europe are predominantly among the lower ranked countries, including serbia on the unenviable 38th position. this is due to a very poor performance recorded in the indicators that were rated the most important. at the same time, it points out the areas in which there is the greatest potential for improvement and development that can have a most significant impact on the overall performances and relative position of serbia compared to other countries. these findings direct a special policy attention towards empowerment of economic growth (measured by gni, gdp and hfce), focus on poverty, unemployment and education policies and reductions in co2 intensity and fossil fuel energy consumption. the proposed approach provides a solid basis for a deeper understanding of differences between countries as well as insight into a relative statistical importance of the selected indicators, which may represent an effective and transparent means of identification of their respective significance in the overall aggregation calculation. therefore, it is concluded that the proposed approach could provide a new perspective and useful contribution to overall scientific efforts invested in this area, as well as a complement to numerous emerging approaches and studies related to the advancement of methodology and practice of sustainable development measurement. 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[54] wced (1987). our common future, world commission on environment and development. oxford university press: oxford, uk. receieved: february 2016. accepted: march 2016. 86 2016/78management about the author dejan savić atos, pariske komune 22, belgrade, serbia dejan savić was born in 1978 in banja luka, bosnia and herzegovina. he graduated from the faculty of organizational sciences in belgrade in 2002 and obtained his m.sc. at the faculty of economics in belgrade in 2009. he currently holds the position of regional head of sales for the south east europe at atos it solutions and services. he is a ph.d. candidate at the faculty of organizational sciences, university of belgrade. zoran bogetić university of belgrade, faculty of economics, serbia zoran bogetić was born in 1966 in podgorica, montenegro. he graduated from the faculty of economics in belgrade in 1991, received his m.sc. in 1995 and ph.d. in 2006 from the same institution. he currently holds the position of associate professor at the faculty of economics, university of belgrade. marina dobrota university of belgrade, faculty of organizational sciences, serbia dobrota.marina@fon.bg.ac.rs marina dobrota was born in 1984 in belgrade, serbia. she graduated from the faculty of organizational sciences at the university of belgrade in 2008, obtained her m.sc. in 2009, and a ph.d. in 2014 from the same institution. she currently holds the position of assistant professor at the faculty of organizational sciences, university of belgrade. natašapetrović university of belgrade, faculty of organizational sciences, serbia petrovic.natasa@fon.bg.ac.rs nataša petrović was born in 1966 in belgrade, serbia. she graduated from the faculty of organizational sciences at the university of belgrade in 1991, obtained her m.sc. in 1999, and a ph.d. in 2002 from the same institution. she currently holds the position of full professor at the faculty of organizational sciences, university of belgrade. jovica stankovic:tipska.qxd 1 jovica stanković, ksenija denčić-mihajlov*, jelena z. stanković**, evica petrović university of niš, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming * the paper is the result of research related to the author's obligations under the agreement on the realization and financing of scientific research in 2022 (registration number 451-03-68/2022-14), concluded between the ministry of education, science and technological development of the republic of serbia and the university of nis, faculty of economics. ** corresponding author: jelena z. stanković, e-mail: jelenas@eknfak.ni.ac.rs research question: this study examined the preconditions and efficiency of socially responsible investing (sri) in the developing capital market, specifically the belgrade stock exchange (bse). motivation: considering the increasing trend of sri (gsia, 2020) and importance of information on corporate social responsibility (csr) to investors (miralles-quiros, miralles-quiros, & arraiano, 2017), especially on social issues (giese, nagy, & lee, 2021), we explored the influence of applying the social criteria in asset selection on investment portfolio performance at the bse. this study builds on the existing literature that is mostly focused on developed capital markets of europe, the united states and canada (von wallis & klein, 2015) by analysing the issue of sri in the developing market. the provided setup for socially driven portfolio structuring based on market trends and social performance disclosure proved to be efficient in the long-term. idea: the core idea of this paper was to analyse the terms for sri and empirically evaluate the performance of social pillar-based portfolio on the bse in order to provide evidence to support the trend of sri in developing markets. the structure of the portfolios was set using the best-in-class strategy, while the classes were determined on the basis of the stocks’ return trends. data: the analysis was conducted using trading data and information from financial and non-financial reports of the companies listed on the bse. tools: cluster analysis was used for classification of stocks, while performances of portfolios were evaluated implementing return, volatility and risk-adjusted measures. findings: the social pillar-based portfolio outperformed the conventional one and benchmarking indices in the observed five-year period. however, mixed results were obtained in the short-term indicating that specific effects of csr practice on financial performance of the companies in observed developing market could still be obscured. contribution: this paper expands the existing research related to sri in the developing markets and offers practical recommendations for potential socially conscious investors. keywords: socially responsible investing, social performance disclosure index, social pillar, portfolio diversification, emerging markets, data mining, clustering jel classification: g32, g11, m14, c38, o16, q56 performance of social pillar-based portfolio in developing capital market doi: 10.7595/management.fon.2022.0015 abstract: 1. introduction the socially responsible investing (sri) is becoming increasingly important in financial markets. conceding the consequences of unethical behaviours, especially after the 2008-09 financial crisis, the growing number of investors have adopted the sri principles enlarging the global sustainable investments up to $35.3 trillion (gsia, 2020). there are various investment strategies that socially conscious investors use, but their implementation depends on numerous factors. a practical approach to defining an sri-based investment portfolio, includes both screening criteria used to identify stocks of socially responsible companies and methods of selection employed to determine the portfolio structure. in the selection of financial assets and the formulation of an optimal sri strategy, investors have been dominantly using the enhanced markowitz mean-variance optimization framework that incorporates the financial, social and environmental criteria in the portfolio selection process (oikonomou, platanakis, & sutcliffe, 2018). however, integrating the information on environmental, social and corporate governance (esg) issues in the portfolio optimization may be complex due to several reasons (davis, balkissoon, & heaps, 2017): (1) incompleteness and inaccuracy of the data accompanied by a low transparency in small and medium sized companies, as well as on the emerging and frontier markets; (2) increased risk of benchmark underperformance due to reduction in an investable set; (3) a challenge related to materiality management. moreover, not all esg pillars contribute to the corporate financial performance. observed over a longer period of time, social pillar drives firm value (bajic & yurtoglu, 2018), so the use of specific pillar score may influence significantly the structure of the portfolio and its performance. mature financial markets provide the most favourable environment for the development of sri due to their supporting institutional setting (adamska, dabrowski, & grygiel-tomaszewska, 2016). although investments in emerging markets can be sound (stankovic, markovic, & stojanovic, 2015) and contribute significantly to international portfolio risk diversification, a highly volatile nature of these markets and lack of affirmative set of institutional determinants prevent the accurate analysis, making sri highly unfeasible. therefore, the problem of diversification, when creating sri-based portfolios, requires the application of alternative datadriven methods based on artificial intelligence (bartram, branke, & motahari, 2020). in this paper, we follow the approach of incorporating the social criteria in the equity selection process based on the social performance disclosure index (spdi) and implement cluster analysis as a method for determining portfolio structure. under the assumption that employee related information is financially material to investment decision-makers, we explore the influence of integrating spdi in investment portfolio selection at the bse on its performance. therefore, the objectives of this study are twofold. by implementing content analysis of financial and non-financial reports of the companies listed on the bse and systemizing the gathered information on social issues we attempt to assess social pillar scores of the companies at the serbian capital market. moreover, we aim to create an efficient sri framework for the bse using data mining algorithms. to our knowledge, this is the first study applying sri principles to an available investment set at the serbian capital market, while simultaneously considering social dimension of sustainable business practice. this paper is structured as follows: the introductory part is followed by a brief review of the literature raising the issues of the effects of integration of sustainability criteria into portfolio analysis. subsequently, we present the used data set and methodology employed for the construction of spdi and portfolio structure. in the fourth part of the paper, we analyse the empirical results, while the final section provides the main conclusions. 2. literature review in order to achieve sustainable development goals (sdg), the economic development should be supported by the well-regulated and ethically oriented financial system, which will foster sri, on one hand, and facilitate sustainable and socially responsible business practice on the other (busch, bauer, & orlitzky, 2016; sciarelli et al., 2021). although there is a lack of uniform definition of sri, as well as heterogeneity of terms on terminological, strategic and practical levels (sandberg et al., 2009; talan & sharma, 2019), in a broad sense sri can be defined as an investment approach that use esg criteria to analyze potential investments that are commonly financially driven (migliorelli & dessertine, 2019, p. 65). depending on the investor’s preferences and availability of data, the esg criteria can be integrated differently into the investment analysis. most of the research in this area is based on overall esg-indicators. however, since the financial materiality of esg issues varies (amel-zadeh & serafeim, 2018), some studies differentiate environmental, social and governance indicators in separate groups of indices (jedynak, 2017). thus, the european investors consider information on corporate social responsibility (csr) as value-increasing (miralles-quiros, miralles-quiros, & arraiano, 2017), especially the ones concerning customers and employees, while the american investors find corporate governance issues material for their investment decisions and are more interested in development of new investment products (amel-zadeh & serafeim, 2018). investors have developed numerous approaches to integrate esg considerations in their investment strategies, but the main ones are (migliorelli & dessertine, 2019, pp. 19-20): sustainability themed strategies, bestin-class, norms-based, exclusion and engagement and voting strategies. usually, they employ more than one strategy in defining sri-based portfolio, as well as different methods to construct portfolio. passive investors may realize acceptable equity risk premium by examining the shares of companies encompassed by some of social responsibility rankings and attempting to mimic cap-weighted benchmarks with superior esg characteristics (e.g., melas, nagy, & kulkarni, 2017). active investors, however, integrate esg criteria 2 jovica stanković, ksenija denčić-mihajlov, jelena z. stanković, evica petrović forthcoming into their strategies implementing divergent screening criteria and optimization methods to determine the structure of the portfolio. despite the growing interest in sri, a small variety of studies investigates manners in which sri-based portfolio is determined. the common practice in empirical research regarding portfolio optimization is the usage of markowitz optimization framework and varieties of modern portfolio construction methods, which proved to be more efficient in comparison with simplistic techniques (oikonomou, platanakis, & sutclifee, 2018). numerous studies identified positive, negative, and neutral results regarding sri performance (for a literature review see: whelan et al., 2021). a number of studies that analysed single-pillar investment strategies showed that a social pillar investment strategy contributed to stock-price performance (edmans, 2011; edmans, li, & zhang, 2014; giese, nagy, & lee, 2021). the heterogeneity of sri performance can be explained by numerous factors: geographical areas, size of the sample, methodologies used to construct sribased portfolio and to measure its financial effects, analysis period and comparative benchmarks. a majority of the sri-related studies focuses on developed capital markets of europe, united states and canada studying the sri performance mostly on the smaller samples of shares, and neglecting the developing markets, especially eastern european ones (von wallis & klein, 2015). the studied observation period is usually shortand medium-term, while only few studies consider a long-term period of more than 10 years (talan & sharma, 2019). therefore, different sri performances in empirical studies could be explained by used methodologies for portfolio optimisation (oikonomou, platanakis, & sutcliffe, 2018) and the evaluation of its financial performance (revelli & viviani, 2015). during the global disruption due to the covid-19 pandemic, sri brought increased attention of investors to social issues (ubs global, 2020). although the impact of esg scores and its pillars varied across industries, sustainable business practice, especially environmental and social pillars of esg, significantly explained the returns of industry portfolios during the pandemic (diaz, ibrushi, & zhao, 2021). in such a specific investment environment emerging market could be considered as socially conscious investors’ new centre of interest (sherwood & pollard, 2018; sharma et al., 2021). therefore, this study attempts to address a research gap by analysing the implications of socially driven asset selection on portfolio performance in an emerging capital market. considering that the practice of sustainability reporting on the bse is recent (dencic-mihajlov & spasic, 2016) and that the most developed aspect is reporting on social responsibility (dencic-mihajlov et al., 2020), a social pillar-based portfolio will be determined based on the social criteria measured by spdi. the composition of the portfolio will be determined using soft data mining techniques since modern portfolio optimization framework suffers from significant drawbacks, especially on the emerging markets. therefore, focusing on the market characteristics and return trends may improve shares segmentation acquired from cluster analysis and may also provide efficiency superior basis for implementation of sri strategies on the observed emerging market (markovic et al., 2019). the typical investor tends to improve the esg quality of its portfolio by maximizing the esg score without diverging too much from the selected benchmark performance. accordingly, the straightforward objective function for the selection of the best-in-class shares from the bse is derived from the approach offered by the european sustainable investment forum (eurosif, 2018). 3. data and research methodology 3.1 sample description this study examines the possibility of constructing social pillar-based (sp-based) portfolio on the serbian capital market considering that this market can be investment-grade, mostly because it provides significant diversification benefits for international investors due to the low correlation with developed and south east european markets (zaimovic, arnaut-berilo, & mustafic, 2017). moreover, the increased turnover realized by the smaller number of transactions indicates that participation of large, institutional investors has been increasing, which confirms the increased economic importance of developing markets, especially in the period after the financial crisis (melas, 2019). in order to form a sp-based portfolio, a selection algorithm is applied to a group of stocks, which are continuously being traded on the regulated market and officially constituted the basket of belex 15 and belexline index on september 16, 2019. an evaluation of the social responsibility of the stocks issuers is performed on the sample consisting of 32 stocks (table 1), for which data on esg issues can be provided. considering the requirements for inclusion in belex 15 and belexline index, we assume that selected stocks are the most liquid securities on the bse. 3 management: journal of sustainable business and management solutions in emerging economies forthcoming table 1: the structure of the selected group of stocks according to the company’s sector source: belgrade stock exchange (www.belex.rs) the trading and reporting data used in this study were taken from the website of the bse (www.belex.rs). considering the fact that annual financial and non-financial reports for the previous year are publicly published till the end of april the following year, the period in which we test the efficiency of sri principles implementation is from may 2015 to may 2020 relying on the data in the reporting period 2014-2018. selection algorithms are executed using 32 assets observation, each of which with approximately 250 in-sample trading data, and repeated in four subsequent years. in the cluster algorithm we use the logarithmic daily returns of the selected stocks’ values. 3.2 the structure of the social performance disclosure index considering the positive effect of reporting on social issues on financial performance of bse companies (pavlovic, dencic-mihajlov, & stankovic, 2021), this study is focused on the social dimension of sustainable business practice. in this regard, spdi describes how company impacts the social system the part of which it is, i.e. the relationship of business with its stakeholders. by presenting information on the influence of corporate operations on society, social reporting is considered as the first added feature to long-established financial reporting. the orientation towards single-pillar-based approach derives from two facts. first, weak institutions, social poverty, limited consumer protection, human rights abuse or employee exploitation are at the heart of social debate in almost all emerging countries (odell & ali, 2016). second, most of the serbian companies have for a long time been applying different systems and accountability methods for their key stakeholders shareholders and customers. this relates historically to the workers’ self-management system that was a prevailing governance model during the period of yugoslav socialism. a special challenge “is to identify performance indicators related to impact on other stakeholders, such as communities, employees, suppliers, by including topics of business ethics” (see dencic-mihajlov & zeranski, 2018). for the purposes of this study, we observed information on the social issues available in the annual financial and non-financial reports, which have the character of both mandatory and non-mandatory disclosure, in accordance with the regulatory framework for financial reporting in the republic of serbia. taking into account the global reporting initiative (gri) guidelines (gri, 2016), the social dimension of csr report is covered by four reporting standards (gri 401: employment, gri 403: occupational health and safety, gri 404: training and education and gri 413: local communities), and composed of 11 indicators: qualification structure, gender structure, age structure, number of employees, termination of employment, volunteer activities, employee training, support for employees, internal and external communication capabilities, injuries at work and work days lost due to work injuries. in line with dencic-mihajlov et al. (2020), using content analysis we identify the abovementioned indicators and assign them the following scores: (1) 0 if the information about indicators is not disclosed, (2) 1 if the information in the report is descriptive, and (3) 2 in the situation where the information is disclosed and of a quantitative nature. the spdi is a composite indicator calculated for each company in the sample as the sum of equally weighted indicators using the following formula: (1) 4 jovica stanković, ksenija denčić-mihajlov, jelena z. stanković, evica petrović forthcoming ������� ������ �������� ������� ��������� ��� � ������������������������������������������ ������������������������� !�"� ��� !�� #� ���������������������$� � � ��� � ����� �%�&�%"���%���� ' � %"� � ����� � ��"(! ��� !����)�"�! ��%� *� ��������$������$� � !�%"" !��&���� %�� � ����)� �%�+� ��&���� ' � %"� ,� ����������� � ���� �&���)� �"� ���%���� ' � %"� -� ��.������ �������������������������� ����� �)/ � "� �� '%���)�"�((! ��"% ' �%� ��� ' � %"� � ����� ���!//!)�� !����)��!!)�"% ' �%� ��� ' � %"� � ����� 0+!&%"�&%���)� %�� &�� �)%� � ������ ����� � � ���� ���� �� � � � � � where spdit represents the value of the spdi in year t, t = 1,2,…,5, indn,t is the value of the n indicator in year t and wn,t are positive weighting coefficients satisfying: determining the weights of the indicators may have great impact on the composite indicator for measuring performance of corporate sustainable and socially responsible business practice (docekalova & kocmanova, 2016). in this study we treat all eleven indicators equally important for the assessment of the corporate commitment to the social aspect of sustainable business practice, and assign positive, equal weights to all of them. 3.3 stock selection strategy and portfolio performance measures in order to determine the structure of the sp-based portfolio and its conventional peer, in this study we use a data mining approach for classification of stocks into clusters. clustering can be considered an unsupervised machine learning technique because the class label information is not present and “clustering is a form of learning by observation, rather than learning by examples” (han, pei, & kamber, 2011). the selection of clustering algorithm is determined by the characteristics of analysed data and the concrete purpose and application. in financial time series classification hierarchical clustering using dynamic time warping (dtw) distance may provide improvement regarding portfolio diversification (lim & ong, 2021). therefore, dtw distance measure, which allows comparison of one-to-many points and belong to elastic measures, has been used increasingly as a similarity measurement due to its superiority in sequence-alignment flexibility (wang et al., 2013). the definition of the dtw distance is given by (kate, 2016): (2) where q and r represent two time series, w is the warping path, while max(m,n)≤k≤m+n-1 represents a group of matrix elements which define the mapping between q and r, with the k-th element wk=(ik, jk). thus, we have used financial time series clustering on daily logarithmic stock returns, which incorporates complete linkage hierarchical clustering and dtw distance measure, in order to classify the stocks for the purpose of determining the classes of stocks. after classification, we distribute the stocks inside each cluster for building portfolios relying on the best-inclass strategy. this sri strategy is one of the main alternatives for investors in the eu with positive compound annual growth rate of 20% in the previous years (eurosif, 2018). moreover, this strategy is used in determining the structure of the benchmarking sri index. the constituents of conventional portfolio are selected relying on the omega ratio as the criteria for selecting best performing stocks. with no restricting assumptions regarding the underlying distribution of returns, the omega ratio allows us to compare between risk and return at different threshold return levels. assuming that f(x) is a cumulative probability distribution function of returns on investment and rm is the minimum acceptable return, the omega ratio in this study is determined in the following manner (keating & shandwick, 2002): (3) therefore, the stocks with the highest omega ratio from each cluster are selected in order to form a conventional portfolio. to form an sp-based portfolio, we select the stocks according to their omega ratio and spdi. for that purpose, we calculate composite ospdi score as a sum of equally weighted normalized values of omega ratio and spdi for each stock. the stock with the highest ospdi score from each cluster is selected for the sp-based portfolio. the portfolios’ weights are determined according to 1/n asset allocation rule and rebalanced once in a year, specifically in may, since the annual financial and non-financial reports are publicly published till the end of april. following oikonomou, platanakis and sutcliffe (2018), as a general measure for the evaluation of the quality of the obtained portfolios, in this study we use the following different performance measures: the holding period return rh, the holding period risk σh, the sharpe ratio sr, the sortino ratio str and the maximum drawdown mdd, which are calculated according to the following equations: (4) (5) � �� �� ��� � ��� 5 management: journal of sustainable business and management solutions in emerging economies forthcoming �������� ������������������� � �!�" #�$%���&����'��"�%� �� ��� () � * +�,�.�/0.123 * -�.�0.2341 �� � � � $) � � 5678�� # 5678��,� ��� � � � � 9) � � �:;,:<� =;>? @ ,� ab�� � � � � (6) (7) (8) where cp represents the closing price of the stock at t, t = 1, 2, …, n, while n is the number of trading days within the observed holding period, and d is a drawdown of stock return from its running maximum over a period of time h. 4. research results and discussion socially driven allocation of financial means on the bse presented in this study results in twofold outcomes. first, the spdi of the most traded companies on the serbian capital market is defined using content analysis of annual reports of the companies. considering the fact that there are no rating agencies that rated the csr practices of the serbian companies, as well as proposed methodology for csr assessment, we can conclude that this research provides an objective rating of the socially responsible behaviour of the constituents of the market indices belex 15 and belexline. the descriptive statistics of spdis and omega ratios in the period 2014-2018 are presented in table 2. having in mind that the value of spdi ranges from 0 to 2, it can be noted that the level of spdi of the companies at the bse is rather low. during the observed period, the minimum value of the spdi remained 0.18, while the maximum value increased from 1.55 to 1.91. these results show that companies that do not practice reporting on social issues, have remained at the same low level of reporting during the observed period. however, companies that found engaging in social issues important, enhanced reporting and disclosed more information on this issue. the value of standard deviation, which is rather high, also indicate that values of spdis are spread from the mean. in 2014 the average value of spdi was 0.5 and remained at that level until 2017. in 2017 and 2018 we can observe the slight increase in the average value of spdi, which indicate an upward trend. moreover, the value of median also increased during this period and in 2018 was close to the value of mean, so we can conclude that the distribution of spdi was becoming symmetrical. the change of average value of omega ratios in the observed period also indicates an increasing trend and consequently a more favourable investment environment. from 2014 to 2017 the average value of omega ratio increased from 0.97 to 1.84, while in 2018 the average value was slightly lower (1.40). in the period 2014 – 2016 the value of median was close to the value of mean and followed the upward trend. however, the value of median in 2017 and 2018 departed from the mean value evidencing the asymmetrical distribution of the omega ratio. moreover, the wide range of the omega ratio values as well as the high variability show diversity of probability distribution of returns on selected stocks. table 2: descriptive statistics of spdis and omega ratios of the sample companies during the observed reporting years source: authors’ calculation relaying on the proposed methodology, we construct two portfolios and rebalance them in the same periods in order to compare their performance. thus, in the observed period we have analysed five differently structured sp-based and conventional portfolios (figure 1), as well as the overall performance of the spbased investing strategy on the bse (table 3). 6 jovica stanković, ksenija denčić-mihajlov, jelena z. stanković, evica petrović forthcoming ��) � :cdc�� � � � � �e�) � :cdfc� � � � � � g��) � �hi�jk�� l ��� � � � � � ����� ����� ����� ��� � ��� � �� �� ������ �� �� ������ �� �� ������ �� �� ������ �� �� ������ ����� �� �� �� �� ��� � ���� �� �� � �� �� �� ���� �� �� ���� ������� ����� ���� ����� �� �� ����� ���� ����� ���� ��� � ���� ������ ����� ����� ��� � �� � ����� � � ����� ��� � ����� � � ���� �� �� ����� �� �� ����� �� �� ����� �� �� ����� �� �� ����� ���� � � ����� � � ���� � � ����� � � ��� � � � ����� � figure 1: the similarity of portfolios’ structures in the observed investment periods following byrne and lee (2004) we calculate portfolio similarity index of sp-based and conventional portfolios in order to assess similarity in terms of portfolios’ compositions, as well as similarity between the weights attached to stocks in analyzed portfolios. comparing the structures of observed two types of portfolios, it can be concluded that the structures are changing and becoming more similar as disclosure on social issues improved. in the first two subperiods the similarity between the sp-based and the conventional portfolio was 16.67%, but in the following periods it increased, so in the last sub-period the structure of these two portfolios overlapped by 59.52%. in the line with the sharma et al. (2021), these results indicate that returns on the conventional and the sp-based portfolio in the bse became more synchronized both in frequency and in time. such results reveal that the investors on the bse, as investors on developed european market according to amel-zadeh and serafeim (2018), consider social aspects of companies’ businesses practice material for their investment decisions. according to the increasing trend of spdi, it is obvious that managers are aware of these positive signalling effects that create a stimulating framework for the improved csr disclosing practice on this market, which is in line with evidence from other emerging markets (odell & ali, 2016). moreover, contrary to the study of giese, nagy and lee (2021), the structures of the sp-based portfolios during this period show that stock-price performance of manufacturing companies and financial and insurance institutions are more exposed to the influence of social pillar score, and therefore more devoted to sustainable and socially responsible business practice in comparison with the companies from other industries. in order to provide a reliable comparative analysis of the investment performance we study the effects of conventional investment practice and socially driven asset allocation in the same manner. moreover, we compare the performance of the sp-based portfolio with the stock market performance represented by belex 15 and belexline indices, as well as with the cece sri index, which is composed of the leading sustainability-driven companies traded on the stock exchanges from the central, eastern and south-eastern europe, including bse. the achieved performance of various types of observed investment possibilities is presented in table 3. table 3: performance of sp-based portfolio and benchmarking portfolios during the observed period – from may 2015 to may 2020 7 management: journal of sustainable business and management solutions in emerging economies forthcoming � � ������� �� �������� � �� �� � � ������ ���� � �� �� � ��������� ���������� ����� ��� ������� ��� ��� ������ ������ ������� ����� ��� � ���������� ��������� ��� !"� #����$!� #���%!� ��%!� �����!� � ���������� ������� �%���!� � �%�!� ����!� ���$!� ����%!� &'(�����(�� � �������� #����� � #�� ����� ����% �� ���� �%� & ���� ��(�� � ������ � #����$$�� #�������� �����$ � ����$��� )(*�������(+� +�� # �%�!� # ����!� # ��$�!� # ����!� # %�$ !� "&�(����� (��,��� �������������� �&-#�(������.��������� �� �� � ��(����� ����� �.���� �(�������( ������� � ��#�(������������/�0����1� � � 8 jovica stanković, ksenija denčić-mihajlov, jelena z. stanković, evica petrović forthcoming confirming the results of the majority of investment studies that relied on the market-based measures of financial performance (whelan et al., 2021), we observe that the sp-based portfolio provides investors with higher returns up to 36% than belex 15 and approximately 28% higher than belexline in the long run. furthermore, socially driven investments in the bse provide superior returns in comparison with regional benchmark, since the sp-based portfolio return in the observed holding period are higher by up to 19.18% than cece sri index. the sp-based portfolios, however, did not show a lower level of volatility than observed market indices. risk diversification in this case may not be optimal due to the reduced number of stocks that constitute the sp-based portfolio and its conventional peer, as noted by davis, balkissoon and heaps (2017), compared to the bse indices and the cece sri index1. despite the volatility, the potential drop in sp-based portfolio return is lower than the magnitude of substantial drops in returns on the belex 15 and the cece sri index. due to the higher returns that socially conscious investors can achieve, the riskreturn trade off, concerning sp-based portfolios, is higher in comparison with the conventional ones. proving the potential for risk-adjusted return on esg integration in emerging markets observed by sherwood and pollard (2018), the overall performance measured by the sharpe and sortino ratio for the complete five-year period evidences that long-term oriented socially responsible investors can diversify their portfolios on the bse. the socially driven strategy of investing in companies with high social pillar score outperformed conventional peers, as showed by edmans (2011) and edmans, li and zhang (2014). figure 2: holding period return and standard deviation of conventional and sp-based portfolios during the observed sub-periods however, during the observed sub-periods, socially driven portfolios showed mixed performance compared to the benchmarking conventional ones (figure 2). although we cannot confirm the results of previous studies (revelli & viviani, 2015; oikonomou, platanakis, & sutcliffe, 2018) regarding benefits of applying quantitatively sophisticated optimization models in sri, we consider the obtained results encouraging for both investors and academics. the approach that is implemented in stocks segmentation as well as a relatively short period of analysis, although revealing important information for investors, has obscured the specific effect of csr on financial performance, as shown by revelli and viviani (2015). there were periods of downturn and upturn on the bse, which clearly affected the returns on selected stocks more than csr practice of their issuers. in line with davis, balkisson and heaps (2017) considering the low transparency of esg data, as well as adamska, dabrowski and grygiel-tomaszewska (2016) when it comes to insufficiently supportive institutional setting in the serbian developing market, we can conclude that there are various obstacles to defining the optimal sri strategy. nevertheless, it can be observed that disclosure on csr practice is a signal of the company’s capabilities that may create value for the investors in developing markets such as is the case in developed ones demonstrated by miralles-quiros, miralles-quiros and arraiano (2017). the period of unusual global economic uncertainty caused by covid-19 pandemic, shows now more than ever that long term orientation and resilience are critical components of portfolio construction, especially at emerging markets. in addition, this study suggests that the achievement of these components requires both the improvement of the quality and quantity of sustainability disclosure practice and the enhancement of the models used in sri-based portfolio construction. 1 the official methodology for belex15 and belexline calculation can be found at the website of the belgrade stock exchange: www.belex.rs, while the methodology for cece sri index is presented at the website of the vienna stock exchange: https://www.wienerborse.at. � references [1] adamska, a., dabrowski, t., & grygiel-tomaszewska, a. (2016). socially responsible investment in postcommunist and developed european countries. revue detudes comparatives est-ouest, (3), 7-43. [2] amel-zadeh, a., & serafeim, g. (2018). why and how investors use esg information: evidence from a global survey. financial analysts journal, 74(3), 87-103. [3] bajic, s., & yurtoglu, b. (2018). which aspects of csr predict firm market value?. journal of capital markets studies, 2(1), 50-69. [4] bartram, s. m., branke, j., & motahari, m. (2020). artificial intelligence in asset management (no. 14525). cfa institute research foundation. [5] busch, t., bauer, r., & orlitzky, m. (2016). sustainable development and financial markets: old paths and new avenues. business & society, 55(3), 303-329. [6] byrne, p., & lee, s. (2004). different risk measures: different portfolio compositions?. journal of property investment & finance, 22(6), 501-511. [7] davis, b., balkissoon, k., & heaps, t. (2017). performance and impact: can esg equity portfolios generate healthier financial returns? the journal of environmental volume, 8(1), 251-272. 9 management: journal of sustainable business and management solutions in emerging economies forthcoming considering the aforementioned gap in the literature on sri strategies in developing markets (talan & sharma, 2019), the present study aims to contribute to contemporary research by increasing the level of understanding of disclosure on csr practices and their impact on investment performance using the case of the bse. the analysis of investment practice on the serbian capital market provides no sound evidence that investors implement sri principles. therefore, the results of this study which indicate the possibility of achieving favourable performances on sp-based portfolios, should support socially responsible behaviour of investors on the bse. the analysis of the effects of socially driven asset allocation in this market evidences that in the long term investors can do good while improving risk-return trade off. this conclusion is in line with contemporary research conducted on the developed markets. the findings of this study offer important implications for policymakers and corporate managers as well. this study provides a comprehensive framework for measuring the level of csr performance of serbian listed companies on the basis of publicly available information. this should help policymakers to introduce an effective csr reporting system and promote the csr reporting in order to produce clear information necessary for the evaluation of the corporate social performance of companies listed on the bse and sri decision making. the new version of the law on accounting, which came into force on 1 january 2020, envisages, in accordance with eu directive 2014/95/eu, the introduction of a non-financial reporting obligation for large legal entities that should disclose information necessary to understand how the entity was coping with esg issues (official gazette of the rs, no. 73/2019). this is certainly a shift in regulation, but it does not precisely define the content of disclosure on social and, generally speaking, sustainability indicators. the next step can be to standardize information towards creating a minimally acceptable set of quantitative indicators, or a broader set of predefined qualitative and quantitative indicators (modelled according to the gri and forthcoming eu sustainability reporting standards). a moderate increasing trend of spdis of the sample companies listed on the bse indicates that corporate managers have become aware of the positive signalling on the market trends. certain similarities between the composition of sp-based portfolios and conventional portfolios show that the best performing stocks become more suitable for socially responsible investors. however, the potential of these effects is relatively diminished due to insufficient development of the institutional framework that will facilitate the comprehensive high-quality information on companies’ csr practice. having in mind the level of voluntary disclosure on sustainable and socially responsible business practice in developing markets, additional improvements of the proposed study should consider wider information on esg issues (e.g., environmental and governance issues) provided by various communication channels. second, the lack of availability of data has limited the sample size, so the future research should tend to present a basis for more generalized results by widening the analysed sample, preferably with the stocks traded on the similar neighbouring markets. acknowledgement this research study has been supported by the erasmus+ programme of the european union within the project no. 611831epp-1-2019-1-rs-eppjmo-module, “sustainable finance and insurance: eu principles, practices and challenges”. conslusion [8] dencic-mihajlov, k., & spasic, d. (2016). mandatory and voluntary disclosures of serbian listed companies-achieved level and some recommendation for improving their relevance. international journal of business and economic sciences applied research, 9(1). [9] dencic-mihajlov, k., & zeranski, s. (2018). development of sustainability indicators:approaches, challenges and opportunities. facta universitatis, series: economics and organization, 14(4), 291-306. [10] dencic-mihajlov, k., petrovic, e., stankovic, j., & pavlovic, m. (2020). evaluation of volume and quality of social performance indicators disclosure of companies included in belexline index. in international scientific conference strategic management and decision support systems in strategic management conference proceedings 25th international scientific conference strategic management and decision support systems in strategic management, subotica, 19th may, 2020 (pp. 41-48). subotica, serbia: university of novi sad, faculty of economics in subotica. [11] diaz, v., ibrushi, d., & zhao, j. (2021). reconsidering systematic factors during the covid-19 pandemic–the rising importance of esg. finance research letters, 38, 101870. [12] directive 2014/95/eu of the european parliament and of the council of 22 october 2014, office journal of the european union, strasbourg. [13] docekalova, m. p., & kocmanova, a. (2016). composite indicator for measuring corporate sustainability. ecological indicators, 61, 612-623. [14] edmans, a. (2011). does the stock market fully value intangibles? employee satisfaction and equity prices. journal of financial economics, 101(3), 621-640. [15] edmans, a., li, l., & zhang, c. (2014). employee satisfaction, labor market flexibility, and stock returns around the world (no. w20300). national bureau of economic research. [16] eurosif (2018). european sri study 2018, available at: http://www.eurosif.org/ (accessed may 2021) [17] giese, g., nagy, z., & lee, l. e. (2021). deconstructing esg ratings performance: risk and return for e, s, and g by time horizon, sector, and weighting. the journal of portfolio management, 47(3), 94-111. [18] gri (2016): gri 401, 403, 404, 413, available at: https://www.globalreporting.org/standards. [19] gsia (2020). global sustainable investment review 2020. available at: [20] han, j., pei, j., & kamber, m. (2011). data mining: concepts and techniques. elsevier. [21] jedynak, t. (2017). is it worth being good? –the efficiency and risk of socially responsible investing in light of various empirical studies. e-finanse, 13(3), 1-14. [22] kate, r. j. (2016). using dynamic time warping distances as features for improved time series classification. data mining and knowledge discovery, 30(2), 283-312. [23] keating, c., & shadwick, w. f. (2002). a universal performance measure. journal of performance measurement, 6(3), 59-84. [24] lim, t., & ong, c. s. (2021). portfolio diversification using shape-based clustering. the journal of financial data science, 3(1), 111-126. [25] markovic, i. p., stankovic, j. z., stojanovic, m. b., & stankovic, j. m. (2019, october). a hybrid model for financial portfolio optimization based on ls-svm and a clustering algorithm. in international conference on ict innovations (pp. 173-186). springer, cham. [26] melas, d. (2019). the future of emerging markets: 30 years on from the launch of the msci emerging markets index. msci research paper. [27] melas, d., nagy, z., & kulkarni, p. (2017). factor investing and esg integration. in factor investing (pp. 389-413). elsevier. [28] kozak, a. (2020). higher employee commitment by strong people management system. balkans journal of emerging trends in social sciences – balkans jetss, 3(2), 87-95. doi: 10.31410/balkans.jetss.2020.3.2.87-95 [29] miralles-quiros, m. d. m., miralles-quiros, j. l., & arraiano, i. g. (2017). are firms that contribute to sustainable development valued by investors?. corporate social responsibility and environmental management, 24(1), 71-84. [30] odell, j., & ali, u. (2016). esg investing in emerging and frontier markets. journal of applied corporate finance, 28(2), 96-101. [31] official gazette of the republic of serbia. (2019). law on accounting. 73/2019. [32] oikonomou, i., platanakis, e., & sutcliffe, c. (2018). socially responsible investment portfolios: does the optimization process matter?. the british accounting review, 50(4), 379-401. [33] lisbijanto, h. budiyanto. 2014. influence of servant leadership on organization performance through job satisfaction in employees cooperatives surabaya. international journal of business and management invention, 3(4), 1-6. [34] revelli, c., & viviani, j. l. (2015). financial performance of socially responsible investing (sri): what have we learned? a meta-analysis. business ethics: a european review, 24(2), 158-185. [35] sandberg, j., juravle, c., hedesstrom, t. m., & hamilton, i. (2009). the heterogeneity of socially responsible investment. journal of business ethics, 87(4), 519-533. 10 jovica stanković, ksenija denčić-mihajlov, jelena z. stanković, evica petrović forthcoming [36] sciarelli, m., cosimato, s., landi, g., & iandolo, f. (2021). socially responsible investment strategies for the transition towards sustainable development: the importance of integrating and communicating esg. the tqm journal. [37] sharma, g. d., tiwari, a. k., talan, g., & jain, m. (2021). revisiting the sustainable versus conventional investment dilemma in covid-19 times. energy policy, 112467. [38] sherwood, m. w., & pollard, j. l. (2018). the risk-adjusted return potential of integrating esg strategies into emerging market equities. journal of sustainable finance & investment, 8(1), 26-44. [39] stankovic, j., markovic, i., & stojanovic, m. (2015). investment strategy optimization using technical analysis and predictive modeling in emerging markets. procedia economics and finance, 19, 51-62. [40] talan, g., & sharma, g. d. (2019). doing well by doing good: a systematic review and research agenda for sustainable investment. sustainability, 11(2), 353. [41] ubs global, 2020. sustainable investing after covid-19. [42] von wallis, m., & klein, c. (2015). ethical requirement and financial interest: a literature review on socially responsible investing. business research, 8(1), 61-98. [43] wang, x., mueen, a., ding, h., trajcevski, g., scheuermann, p., & keogh, e. (2013). experimental comparison of representation methods and distance measures for time series data. data mining and knowledge discovery, 26(2), 275-309. [44] whelan,t., atz, u., holt, t. & clark, c. (2021), esg and financial performance: uncovering the relationship by aggregating evidence from 1,000 plus studies published between 2015 – 2020. nyu stern: centre for sustainable business [45] zaimovic, a., arnaut-berilo, a., & mustafic, a. (2017). portfolio diversification in the south-east european equity markets. south east european journal of economics and business, 12(1), 126-135. received: 2021-09-07 revision requested: 2024-02-24 revised: 2022-09-15 (3 revisions) accepted: 2022-09-23 jovica stanković university of niš, faculty of economics, serbia jovica.stankovic@eknfak.ni.ac.rs jovica stanković is an assistant professor at the university of niš, faculty of economics, serbia. he graduated and received his msc degree from the faculty of electronics at the university of niš, in the field of computer science and informatics. he received his phd degree from the faculty of economics at the university of niš, where he teaches courses at the undergraduate and graduate levels in the field of business informatics. his fields of interest include information technology, information systems, data bases and data science. ksenija denčić-mihajlov university of niš, faculty of economics, serbia ksenija.dencic-mihajlov@eknfak.ni.ac.rs ksenija denčić-mihajlov is a full professor at the university of niš, faculty of economics, serbia, where she teaches courses at the undergraduate and graduate levels in the field of corporate finance and business restructuring. she is a member of the center of scientific, interdisciplinary risk and sustainability management (zwirn) at the ostfalia university, germany, a founding member of the eastern european risk insurance association (eeria) and the associated editor of the south-eastern europe journal of economics. her key areas of scientific research interest include: sustainable finance and esg investing, sustainability reporting, corporate financing and restructuring. 11 management: journal of sustainable business and management solutions in emerging economies forthcoming about the authors 12 jovica stanković, ksenija denčić-mihajlov, jelena z. stanković, evica petrović forthcoming jelena z. stanković university of niš, faculty of economics, serbia jelenas@eknfak.ni.ac.rs jelena z. stanković is an assistant professor at the university of niš, faculty of economics, for the narrow scientific field accounting, auditing and financial management (teaching courses: corporate finance and risk management and insurance at the undergraduate level of studies, and strategic financial management, financial strategy of corporate enterprises and sustainability risk management in finance and insurance at the postgraduate level of studies). her research interests include sustainable investing, corporate financing and risk management in finance and insurance. evica petrović university of niš, faculty of economics, serbia evica.petrovic@eknfak.ni.ac.rs evica petrović is a full professor at the university of niš, faculty of economics, serbia, where she teaches courses at the undergraduate and graduate levels in the field of corporate finance and risk management and insurance. she currently holds a position of vice-rector of the 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice # 6 27_2 patrick ladipo:tipska.qxd 59 patrick ladipo, bolajoko dixon-ogbechi, olushola akeke*, ismail arebi, olukunle babarinde university of lagos, faculty of management sciences, akoka yaba, lagos, nigeria management: journal of sustainable business and management solutions in emerging economies 2022/27(2) *corresponding author: olushola akeke, e-mail: solomonyz4real@yahoo.com the purpose of this study is to determine the effect of market segmentation on competitive advantage in the nigerian telecommunications service sector in the lagos state. motivation: the nigerian government's decision to liberalize the communication industry has increased rivalry among enterprises, implying that a market segmentation approach will improve both transaction flow and the quality of life. as a result, enterprises in the telecommunications sector must look beyond their financial capabilities and concentrate their efforts on developing a market positioning strategy that results in competitive advantage. therefore, this study seeks to identify segmentation dimensions and their influence on competitive advantage and performance holistically: the focus was designed to establish the effect of factors of market segmentation such as measurability, accessibility, size, homogeneity, uniqueness and sustainability of a market segment on competitive advantage in the nigerian telecom service industry. data: a study of some selected telecommunications companies in the lagos state, nigeria, was adopted. both purposive and accidental sampling was used to select a sample of 370 members of the population involved in the study using the taro yamane. tools: simple percentages and frequency tables were used as descriptive statistics, while pearson correlation and regression analysis were used for hypotheses testing. findings: the study results indicate that measurability, accessibility, uniqueness, and size of a market segment are the most significant market segmentation variables that affect business competitive advantage in the nigerian telecommunication industry. as such, to achieve competitive advantage through market segmentation, these variables must be well identified and strategically attained. contribution: by comprehensively integrating and connecting the characteristics of market segmentation to competitive advantage, this study provides an understanding meaning to market segmentation based on the conceptual model. the study's implications for policymakers include that they should enhance these segmentation factors by incorporating additional characteristics outside of market segmentation to complement the market segmentation variables examined in this study in order to maintain competitiveness. additionally, marketers may leverage customer relationship management (crm) to create profitable market segments capable of recruiting new clients and lowering customer retention costs. keywords: market measurability, accessibility, market size, homogeneity, uniqueness jel classification codes: j42, m31, r12, l96, d41 market segmentation and competitive advantage in nigerian telecommunications doi: 10.7595/management.fon.2022.0002 abstract: 1. introduction due to the difficulty service providers encounter in determining and serving the demands and requirements of consumers in varied network coverage areas around nigeria, the nigerian telecommunications sector is becoming more unpredictable and competitive (gyemang & emeagwali, 2020). price sensitivity, quality service delivery, network coverage, marketing promotion and corporate social responsibility (csr) are only some of the techniques used to segment the market in these contests (ladipo, dixon-ogbechi, akeke, adejumola & arebi, 2019). given that nigeria's telecom regulatory body has put the industry under stringent oversight, the degree of competition in this oligopolistic market is exceedingly high and fierce (rizomyliotis, poulis, apostolos, konstantoulaki & kostopoulos, 2020). however, the nigerian communications act no. 75 of 1992 has supervised the telecommunications industry from its creation (nca, 2003). an industry moderator for free and flow networks, the nigerian communication commission (ncc) revised the statute in 1992, making it effective. according to the authors (aganbi and ojo, 2017), by establishing nigeria as the economic center of the world's rapidly expanding mobile markets, obafemi (2014) claims, the country's economy would benefit. over the last two decades, more than $3 billion were invested in this area, which is likely to propel the industry (obafemi, 2014). olusegun obasanjo, nigeria's former president, deserves special recognition for bringing the global system for mobile (gsm) to the country, which has aided communication and helped the country's economic progress (azubuike & obiefuna, 2014). as a result of this evolution, both individuals and organizations have benefited and will continue to profit. as a consequence of the nigerian government's decision to de-regulate the communications industry, competition among its participants has increased, and the plan for segmenting this market would enhance the flow of transactions and the general quality of life in nigeria concurrently (oyedijo, 2012; obafemi, 2014). market segmentation, on the other hand, is a marketing approach used to reach a specified target market with goods and services (kotler 2010; dixon-ogbechi, 2015). if you want to focus on just one market sector, market segmentation is what you need to do, according to sule (2015), a market analyst. markets are defined as a collection of customers who are concentrated in a certain area or environment (sultan, wong & sigala, 2018). when it comes to the issue of "place" as coverage, which relates to the location of certain brand customers in order to meet their needs, this marketing tactic is one option (kotler, 2010). it is difficult to please all customers equally as this it is due to complexities and challenges in determining their demands, as previously indicated (ibidunni, 2020). a market segmentation strategy was designed to help organizations of all sizes and capacities better understand the demands of their consumers, which may help them gain a long-term competitive edge in today's marketplace (porter, 1985; kazmi, 2002). regardless of whether the firms were productor service-oriented, their major task was to find and execute the most efficient approach for meeting the demands of their consumers (keegan & den hartog, 2019). according to kotler and armstrong (2012), the most crucial consideration in marketing choices is whether the customers are satisfied or not. they say that the value of marketing choices rests not only in underperformance or profit realization, but also in the prioritization of consumers as the main objective. as a result, the organization's primary purpose is to meet the demands of its customers, independent of market niche. previous research has mostly concentrated on the influence of each dimension/item on the functioning of the organization. an important purpose is to determine how market segmentation affects the strength of quantifiability, accessibility, size and homogeneity as well as the originality and longevity of a company's competitive advantage in nigerian telecom services. an in-depth analysis of lagos state nigerian telecommunications businesses was used to examine how market segmentation helps to distinguish the organizations in terms of their objectives and successes. research questions the purpose of this research was to investigate the effect of market segmentation on the competitive advantage in selected telecommunication companies in lagos state, nigeria – the nigerian telecom service industry (ntsi). the following research questions were coined to guide and address the study's perceived problems: 1. what is the effect of market segment measurability on competitive advantage in ntsi? 2. what is the effect of market segment accessibility on competitive advantage in ntsi? 3. what is the effect of market size on competitive advantage in ntsi? 4. what is the effect of market segment homogeneity on competitive advantage in ntsi? 5. what is the effect of market segment uniqueness on competitive advantage in ntsi? 6. what is the effect of market segment sustainability on competitive advantage in ntsi? research hypothesis the above listed six research questions were aptly transformed into the following six hypothetical statements that are subjected to testing in the analysis section. h01: market segment measurability has no significant effect on competitive advantage in ntsi. h02: market segment accessibility has no significant effect on competitive advantage in ntsi. h03: market size has no significant effect on competitive advantage ntsi. h04: market segment homogeneity has no significant effect on competitive advantage ntsi. h05: market segment uniqueness has no significant effect on competitive advantage ntsi. h06: market segment sustainability has no significant effect on competitive advantage ntsi. 60 patrick ladipo, bolajoko dixon-ogbechi, olushola akeke, ismail arebi, olukunle babarinde 2022/27(2) 2 literature review 2.1 the concept of market segmentation as a general rule, market segmentation can be defined as a marketing strategy and techniques used by organizations to determine the group of organization service users who have a variety of tastes and preferences that are tied to their individual needs and wants (kotler & armstrong, 2012). segmentation, according to freathy and o'connell (2012), is a realistic marketing approach in which complicated marketplaces are inspected into a tiny form that is modest enough to be handled and managed. instead, the tactical principle underlying market segmentation is that some particular set of customers with comparable requirements, desires, and preferences are deliberately placed into a suitable medium in order to offer and meet their needs, desires, or preferences (kotler, 2010). 2.2 measurability of market segment the idea of measurability may be described as the amount of time it takes an organization to identify the constituents or groups of customers in a market and quantify their importance (gajdosik, 2020). when it comes to measurability, time is a useful unit of measurement. an avenue through which a group of customers exists or is accessible, together with quantifiable elements that may be utilized to reach organizational goals and objectives to be fulfilled, according to kotler and armstrong (2012), is referred to as a measurable market. the market size and the consumer buying power are combined in order to analyze and execute marketing choices established by the business in this research, and the word measurability refers to the amount to which these two variables are taken into consideration (alhassan & sakara, 2014). understanding the measurability of a market group is crucial for marketers since it establishes the requirements for successful segmentation (kingsnorth, 2019). several researchers have concluded that every market sector is quantifiable when it includes customers who have made up their minds about what they want and need from comparable brands, at a specific price and quality, to satiate their taste and hunger (zhou et al., 2020). 2.3 accessibility of market segment accessibility may imply various things in different circumstances, depending on the subject matter that is sought to be addressed by the organization (handy & niemeier, 1997). it should be noted that the term 'accessibility' is synonymous ‘within reach’, which refers to "an organization's capacity to acquire the greatest amount of market share feasible in order to serve its intended audience." (handy and niemeier, 1997; vila, gonzález, and darcy, 2020). when it comes to assessing market segmentation, the notion of accessibility encompasses promotion relationships with distributional marketing instruments for capturing a market (michopoulou & buhalis, 2013). this aspect is highly significant for firms, particularly when trying to join a new market, and it is particularly crucial when entering an existing market (aghdaie & alimardani, 2015). accessibility is one of the most important factors that determine the people who live at a given location, as well as their geographical coverage and economic status (buhalis & michopoulou, 2011). it has been reported that certain markets are completely inaccessible, particularly when the culture and economics of the area are incompatible with the organization's planned brand and services, according to kim, wagman, and wickelgren (2019). for example, it is prohibited to enter arabian marketplaces that have trademarks that are connected with pork foods or alcoholic beverage use. furthermore, some forex traders continue to find it difficult to access the markets and economies of emerging nations such as nigeria, owing to the very unpredictable nature of the exchange rates and currency volatility. 2.4 size of market segmentation the importance of size in market segmentation components is determined by the quantity of clients and consumers in the marketplace (ding & niu, 2019). as a result, the size of the section is determined by the amount of revenue that may be generated from it (kotler, 2010; almgren, 2014). but the quality of a good market size is determined by its wideness in relation to the population that consists of the required customers, as well as important socio-demographic criteria such as gender, age, socioeconomic class, religion, and others. a good market size is defined as follows: (alhassan & sakara, 2014). additionally, while planning or constructing marketing tactics for decision making, it is equally necessary to consider a certain category and its size (cross, belich & rudelius, 2015). as an example, consider economies of scale as a good technique for mapping huge market sectors with a comprehensive size that may assist a firm in achieving its aims and objectives (pani, sahu & majumdar, 2019). 61 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) 2.5 homogeneity and uniqueness of market segmentation the homogeneity of the market and the similarity of the target audience's features are prerequisites for the effectiveness of market segmentation (horan, beck & tolbert, 1980; urbankova & krizek, 2020). according to kotler and armstrong (2012), demographics are an important factor in determining the homogeneity of a market group. these include characters with similar characteristics, such as gender, age, marital status, religion, culture, tribes, educational background, and so on. the same goes for class, whether it is low, middle or upper, when it comes to determining which brand or service is most suited for their consumptions (tarkkala & tupasela, 2018). in cavusgil, deligonul, kardes & casuzgil (2018), the middle class is a market driver and a homogeneous section that is critical to the emergence of a rising economy. because of this, an organization's efforts must be directed at pinpointing the desires and requirements of its target market while also creating a detailed market map. 2.6 competitive advantage and market segmentation massive and persistent changes in business settings throughout the world are allowing new segments or economies into global marketplaces, which is what is often referred to as "globalization" (hunt & arnett, 2004). as a result, the global market opens a plethora of chances and difficulties for its participants, while simultaneously expanding the market to the benefit of the organizations (dash, 2013). because of this, many firms have taken the notion of discovering, establishing, and maintaining a competitive market extremely seriously, with an ongoing race to gain a distinct advantage and edge (bowonder, dambal, kumar & shirodkar, 2010). the term "comparative advantage" refers to the situation when a company's products and services are more cost-effective than those of its rivals (wiseman, 1985). creating value for consumers boosts a company's competitive edge. value increases if rivals' prices are lower than yours, for example (porter, 1985; kazmi, 2002; wheelen & hunger, 2012). cost leadership, differentiation, and focus on market niche were all named by sahrp (1991) referencing porter (1985) as three of the porter generic management strategies. porter (1985) defined cost leadership as a strategy based on a company's capacity to have the lowest cost of service in a particular industry, enabling the company to cut its prices in comparison with its rivals. it was proposed by porter (1985) as well that "the company aspires to be distinctive in its business by putting its product and services apart." porter (1985). higher or lower quality may be achieved in terms of reduced or higher cost, consumer awareness, increased accessibility, and many other ways (freytag & clarke, 2001). as a result, this marketing approach is viewed as guaranteeing that the product offering is seen as distinctive by the buyer. rivalry between specialty groups has been cited as an example of a focus strategy (ladipo, awoniyi & arebi, 2017). 2.7 conceptual model the conceptual model shows the link between key measurement for effective market segmentation and competitive advantage, hence for a market segmentation strategy to be effective figure 1: conceptual model showing the effect of market segmentation on competitive advantage source: conceptual model adapted from the work of both hunt and arnett, (2004) and yabs (2014). 62 patrick ladipo, bolajoko dixon-ogbechi, olushola akeke, ismail arebi, olukunle babarinde 2022/27(2) market segmentation • measurability • accessibility • size • homogeneity • uniqueness • sustainability competitive advantage impact 2.8 theoretical framework the competitive advantage hypothesis developed by michael porter was used as a foundation for this investigation. micheal porter was the first to propose this hypothesis, which was published in 1985. it is defined as a technique that takes into account the influence of other firms on a company's operations. according to porter (1985), "governments and enterprises should adopt policies that encourage the production of high-quality commodities that can be sold at high prices in the market." according to the idea, competition is at the heart of a business's success or failure since it indicates the appropriateness of corporate operations that have an influence on company performance while taking into consideration both internal and external market environmental variables (kotler, 2010). when looking at competitive advantage from a general standpoint, porter (1985) outlined three marketing tactics that include cost leadership, distinctiveness, and focusing on a niche market (kazmi, 2002). to further describe cost leadership, porter (1985) pointed out that it is defined as a strategy based on a firm's capacity to have the lowest cost of production within an industry, which allows the organization to charge a cheaper price than its rivals. furthermore, porter (1985) noted that "organizations engaged in a differentiation strategy strive to be distinctive in their business by differentiating their products and services from their competitors." this may be accomplished by superior quality, cheaper or higher cost, more consumer awareness, greater availability, and other means (kazmi, 2002). as a result, marketing strategy is viewed as distinguishing the product from the competition and ensuring that the product offering is seen as distinctive by the consumer. finally, it is said that the competitive scope of a company defines the emphasis strategy. as a result, picking a sector or collection of segments within an industry and tailoring marketing methods to serve that segment is essential (kazmi, 2002; kotler, 2010; dixon-ogbechi, 2015). 3 research methods 3.1 population of the study population, according to asika (2012), is the total number of people who live in a certain geographical area or region. employees of the chosen nigerian telecommunications service providers such as mtn, airtel, 9mobile, and globacom are included in the research population, which totals 4,785 people in all (national bureau of statistics, 2020). however, due to a huge number of participants in the cross-sectional study during a certain period of time, the scope of this study was confined to the headquarters of the chosen telecommunications service firms in lagos state, nigeria, rather than the whole country. 3.2 sampling selection and data collection a sample is a medium where a representative element is drawn from the population frame (asika, 2012). in this study, both purposive and accidental sampling was used to select members of the population involved in the study. the targeted sample size was derived using the taro yamane (yamane, 1967) formula to calculate the sample size for this study. the formula was coined as: n = n = sample size n = total population e = precision estimate. confidence level is 95% while + or – is stationed at 5%. therefore, the sample size used for this study is calculated at 370. 3.3 data collection instrument this study adopted the questionnaire as the only evaluated research instrument used for data collection. the questionnaire was designed and piloted to ascertain its consistency in the reliability and accuracy in the validity test. = = 369.14 = 369 or 370 63 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) 4. data analyses the data generated from the field were analyzed and presented with simple percentages and frequency tables. for the data analysis, both descriptive and inferential statistical techniques were employed. for descriptive analysis, frequency and percentages were mostly used while pearson correlation and regression analysis were used for the hypotheses testing with the aid of statistical packages for social science (spss) version 20.0. test of hypotheses hypothesis one h01: market segment measurability has no significant effect on competitive advantage in ntsi. h11: market segment measurability has a significant effect on competitive advantage in ntsi. table 1: pearson correlation analysis between market segment measurability and competitive advantage **. correlation is significant at the 0.05 level (2-tailed). the first correlation table above illustrates the link between market segment measurability and competitive advantage in ntsi. the pearson correlation, on the other hand, displays a p-value lower than the level of significance (0.002: p 0.05), with a strong coefficient value of 0.911. this conclusion indicates that the market segment measurability has a considerable influence on competitive advantage in ntsi, whereas the null hypothesis that market segment measurability has no significant effect on competitive advantage is now rejected. hypothesis two h02: market segment accessibility has no significant effect on competitive advantage in ntsi. h12: market segment accessibility has a significant effect on competitive advantage in ntsi. table 2: pearson correlation analysis between market segment accessibility and competitive advantage **. correlation is significant at the 0.05 level (2-tailed). the link between market segment accessibility and business competitive advantage in ntsi is examined in the second correlation table above. there are no statistically significant differences between these two groups, however pearson's correlation shows that the correlation coefficient is strong (0.987) and the pvalue is below the level of significance (0.001). market segment accessibility has a significant effect on competitive advantage in ntsi, while a null hypothesis that market segment accessibility has no significant effect on competitive advantage in ntsi has been rejected by this research. 64 patrick ladipo, bolajoko dixon-ogbechi, olushola akeke, ismail arebi, olukunle babarinde 2022/27(2) spss output measurability competitive advantage measurability pearson correlation 1 .911** sig. (2-tailed) .002 n 309 309 competitive advantage pearson correlation .911** 1 sig. (2-tailed) .002 n 309 309 spss output accessibility competitive advantage accessibility pearson correlation 1 .987** sig. (2-tailed) .001 n 309 309 competitive advantage pearson correlation .987** 1 sig. (2-tailed) .001 n 309 309 hypothesis three h03: market size has no significant effect on competitive advantage in ntsi. h13: market size has a significant effect on competitive advantage in ntsi. table 3: pearson correlation analysis between market size and competitive advantage **. correlation is significant at the 0.05 level (2-tailed). the third table above shows the examination of association between the market size and the competitive advantage in ntsi. there is no statistical significance (p=0.032) in the pearson correlation, although there is a strong coefficient value (0.801) of 0.81. therefore, the null hypothesis that market size has no substantial impact on competitive advantage is rejected, since this study reveals that market size has a considerable impact on competitive advantage in ntsi. hypothesis four h04: market segment homogeneity has no significant effect on competitive advantage in ntsi. h14: market segment homogeneity has a significant effect on competitive advantage in ntsi. table 4: pearson correlation analysis between market segment homogeneity and competitive advantage **. correlation is significant at the 0.05 level (2-tailed). the fourth correlation table above illustrates the link between market segment homogeneity and competitive advantage in ntsi. pearson correlation, on the other hand, displays a p-value lower than the level of significance (0.011: p 0.05), with a positive coefficient value of 0.751. this study indicates that market segment homogeneity has a considerable influence on competitive advantage in ntsi, whereas the null hypothesis that market segment homogeneity has no significant effect on competitive advantage is therefore rejected. hypothesis five h05: market segment uniqueness has no significant effect on competitive advantage in ntsi. h15: market segment uniqueness has a significant effect on competitive advantage in ntsi. table 5: pearson correlation analysis between market segment uniqueness and competitive advantage **. correlation is significant at the 0.05 level (2-tailed). 65 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) spss output market size competitive advantage market size pearson correlation 1 .801** sig. (2-tailed) .032 n 309 309 competitive advantage pearson correlation .801** 1 sig. (2-tailed) .032 n 309 309 spss output homogeneity competitive advantage homogeneity pearson correlation 1 .751** sig. (2-tailed) .011 n 309 309 competitive advantage pearson correlation .751** 1 sig. (2-tailed) .011 n 309 309 spss output uniqueness competitive advantage uniqueness pearson correlation 1 .918** sig. (2-tailed) .003 n 309 309 competitive advantage pearson correlation .918** 1 sig. (2-tailed) .003 n 309 309 the fifth correlation table above illustrates the link between market segment uniqueness and competitive advantage in ntsi. however, the pearson correlation coefficient value of 0.918 indicates that the p-value is less than the level of significance (0.003: p 0.05). this conclusion indicates that market segment uniqueness has a considerable influence on competitive advantage in ntsi, whereas the null hypothesis that market segment uniqueness has no significant effect on competitive advantage is now rejected. hypothesis six h06: market segment sustainability has no significant effect on competitive advantage in ntsi. h16: market segment sustainability has a significant effect on competitive advantage in ntsi. table 6: pearson correlation analysis between market segment sustainability and competitive advantage **. correlation is significant at the 0.05 level (2-tailed). the sixth correlation table above illustrates the link between market segment sustainability and competitive advantage in ntsi. however, the pearson correlation coefficient value of 0.833 indicates that the p-value is less than the level of significance (0.000: p 0.05). this conclusion indicates that market segment sustainability has a considerable influence on competitive advantage in ntsi, whereas the null hypothesis that market segment sustainability has no significant effect on competitive advantage is now rejected. table 7: multiple regression analysis for testing the hypotheses model summary a. dependent variable: competitive advantage 66 patrick ladipo, bolajoko dixon-ogbechi, olushola akeke, ismail arebi, olukunle babarinde 2022/27(2) spss output sustainability competitive advantage sustainability pearson correlation 1 .833** sig. (2-tailed) .000 n 309 309 competitive advantage pearson correlation .833** 1 sig. (2-tailed) .000 n 309 309 model r r square adjusted r square std. error of the estimate 1 .869a .755 .704 .477 predictors: (constant), market segmentation anovaa model sum of squares df mean square f sig. 1 regression 1.901 1 1.901 8.356 .001b residual 24.338 308 .227 total 26.239 309 a. dependent variable: competitive advantage coefficientsa model unstandardized coefficients standardized coefficients t sig. b std. error beta 1 (constant) 1.122 .108 10.426 .000 market segmentation .101 .035 .269 2.891 .001 coefficients model unstandardized coefficients standardized coefficients f sig. b std. error beta 1 (constant) 2.890 0.203 0.234 14.265 0.000 measurability 0.268 0.056 0.061 4.771 0.001 accessibility 0.118 0.035 -.108 -1.500 0.020 market size 0.120 0.046 0.078 1.529 0.000 homogeneity 0.110 0.052 0.011 1.271 0.002 uniqueness 0.103 0.012 0.112 1.354 0.001 sustainability 0.212 0.045 0.100 1.423 0.000 67 management: journal of sustainable business and management solutions in emerging economies 2022/27(2) = + 1 1+ 2 2+ 3 3 is the dependent variable, a is the intercept. x1, x2, x3 etc. are the independent variables, while b1, b2, b the coefficients of the independent variables x1 = measurability x2 = accessibility x3 = size x4 = homogeneity x5 = uniqueness x6 = sustainability = competitive advantage the regression model is, therefore: = + x1+ x2+ x3+ x4+ x5+ x6 = 2.890+ 0.268 x1 + 0.118 x2 + 0.12 x3+ 0.11 x4 + 0.13 x5+0.10 x6 the six hypotheses as statements comprised of the research variables are depicted in the above regression tables. the competitive advantage is used as a dependent variable in the regression, whereas market segmentation components (i.e. measurability, accessibility, size, homogeneity, and uniqueness) are used as an independent variable in testing the hypotheses. the preceding analysis demonstrates the effect of the independent variable and its coefficients on the dependent variable. additionally, r-value =.869a indicates that the independent variable can explain 86.9% of the dependent variable. r squared equals.755. the regression table indicates that the f value is 8.356 at the .001 level of significance (p 0.05). the result indicates that the null hypothesis should be rejected while accepting the alternative hypothesis. 5. research findings specifically, a study of lagos-based telecommunications businesses was conducted to examine how market segmentation affects corporate competitiveness in ntsi. market segmentation characteristics are crucial and have a major impact on a company's ability to compete, according to the conclusions of this research. these are the coefficients: 0.268, 0.118, 0.120, 0.110, 0.103, 0.212 for measurability; for accessibility; for size; for homogeneity; for uniqueness; for sustainability. market segmentation is affected by the number of important characteristics, according to a research by hunt and arnett (2004) and alhassan and sakara (2014). according to the research results, pearson correlation has found that the most important characteristics in determining competitive advantage are measurability, accessibility, distinctiveness, and size. onaolapo et al. (2011), premkanth (2012), yabs (2014), and sule (2014) all obtained similar results (2015). conclusions, recommendations and implications a conclusion drawn from the above data is that market segmentation is crucial and has a major impact on the degree to which a company might gain an unfair advantage. we have also come to the conclusion that the most relevant market segmentation characteristics are measurability, accessibility, distinctiveness, and market segment size, which are all examined in this research. as a result, in order to create competitive advantage via market segmentation, it is necessary to identify and accomplish these characteristics in a strategic manner. however, the results of the research also have implications for practitioners, as they urge that market segmentation techniques be enhanced via the use of numerous marketing choices and marketing mix components, particularly those associated with market segments such as 'location.' additionally, competitive advantage must be developed around the vrio architecture by way of the market segmentation process. as a result, market sectors must be valued, uncommon, unique, and well-structured in order that they should succeed. finally, additional training should be provided in the use of technological platforms as part of market segmentation plans in order to gain a competitive edge. it is recommended that future research solicit additional literature and relevant resources that are relevant to the topic of this study. since this study concentrated on the influence of market segmentation on competitive advantage in the nigerian telecommunications service business, future research should consider doing studies in relation to other industries or comparing the different sectors of the industry in nigeria. references [1] aganbi, v. e., & ojo, t. o. 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(1985). strategy and computers: information systems as competitive weapons (pp. 5257). homewood, il: dow jones-irwin. [46] yabs, j. k., (2014). market segmentation strategies used as competitive advantage tool: a case of chloride exide kenya limited. journal of economics and sustainable development, 5(26), 63-81. [47] yamane, t. (1967). statistics: an introductory analysis. new york: harper and row. [48] zhou, j., zhai, l., & pantelous, a. a. (2020). market segmentation using high-dimensional sparse consumers data. expert systems with applications, 145, 113-136. doi: 10.1016/j.eswa.2019.113136 received: 2021-03-25 revisions requested: 2021-08-12 revised: 2021-09-18 (3 times) accepted: 2022-04-09 patrick ladipo university of lagos, faculty of management sciences, nigeria pkladipo@unilag.edu.ng patrick kunle ladipo ph.d. marketing (university of strathclyde, glasglow). he is currently an associate professor of marketing in the university of lagos, nigeria. married with children. bolajoko dixon-ogbechi university of lagos, faculty of management sciences, nigeria bdogbechi@gmail.com bolajoko dixon-ogbechi is a professor of marketing and decision sciences at the department of business administration, university of lagos, nigeria, and was also a visiting scholar to the salem state university, salem, ma, usa. olushola akeke university of lagos, faculty of management sciences, nigeria solomonyz4real@yahoo.com olushola solomon akeke is currently a doctoral student in marketing (university of lagos, nigeria). he is an adjunct lecturer at the lagos state university of science and technology, formerly lagos state polytechnic in marketing. his area of expertise is consumer behaviour, branding and social marketing. his area of research interest is social marketing. ismail arebi university of lagos, faculty of management sciences, nigeria arebi.ismail@gmail.com ismail arebi is a scholar and highly dedicated professional with years of progressive experience in marketing, research analytics and public procurement service. he is currently a doctoral student in marketing (university of lagos, nigeria) with research interest covering innovative health marketing and consumer wellbeing. olukunle babarinde university of lagos, faculty of management sciences, nigeria kuliobabs@yahoo.co.uk olukunle babarinde is currently a doctoral student in marketing (university of lagos, nigeria). he has a vast knowledge and capabilities in 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 05_jasmina omerbegovic bijelovic:tipska.qxd 45 jasmina omerbegović-bijelović1, zoran rakićević2, ana vučinić3 1, 2 university of belgrade, faculty of organisational sciences, serbia 3 ministry of interior, republic of serbia, police department belgrade management 2016/78 is the public sector of serbia ready for the entrepreneurial concept? udc:338.1(497.11) 334.722(497.11) doi:10.7595/management.fon.2016.0004 1. introduction entrepreneurship can be defined as a social function of creating new values through the creative combination of business resources (omerbegović-bijelović, 2010, p. 234). moreover, given the nature of values and their creation in which the broader community may be interested, we can talk not only about the combination of business but also about all other resources. the basis for such a definition lies in the fact that entrepreneurship is one of the key activities for launching and realization of changes, primarily economic, but also changes in health care, sport, culture and other areas of public interest. entrepreneurship is manifested as readiness to: take the initiative and steps/activities/ operations for assessing the value of potential business ventures launch, to activate the socio-economic mechanisms, knowingly taking risks while transforming ideas into business ventures, as well as the creation of new jobs and new business relationships (omerbegović-bijelović, 2010, p. 234). entrepreneurship has evolved from the classical concept that was characteristic of the private sector (lunt et al. 2015): the acceptance of risk for the realization of market opportunities and the establishment of small businesses. today, entrepreneurship is viewed in a broader sense, which includes companies and organizations of all kinds, in all phases of the business cycle (omerbegović-bijelović, 2010; kearney, hisrich, & roche, 2008). entrepreneurship is not only an issue of the private sector but it occurs and is also expected in the public sector organizations: railways, energy, post office, telephony, road institutions, forestry, water, educational institutions, theaters, media, health care institutions and others, including public administration (from the local community to the state level). the entrepreneur does not have to be a business owner; it may be an individual who is employed by an employer, but with the features which are typical of entrepreneurial behavior (omerbegović-bijelović, 2010, p. 236). these include launching of ideas in development, change, improvement, expansion of markets, innoentrepreneurship in the public sector is a form of entrepreneurship which is currently being implemented in public companies, state and/or local government and public institutions. it is often recognized as part of operations management because it relies on: the operations that change conditions of enterprises, ideas, innovation, resources, actions, planning, and other areas of operations management. this paper is part of the survey on entrepreneurship in the public sector of serbia, which was carried out by the fos center for entrepreneurship and smes in 2014 by interviewing 65 employees in the public sector. the aim of the survey was to explore whether the serbian public sector was ready for entrepreneurial concept through public sector employees’ awareness of the concept of entrepreneurship, as well as through the application of entrepreneurial practice in public enterprises and organizations. the results showed a low level of employees’ awareness of the entrepreneurship concept, as well as a low level of implementation of this concept in the public sector of serbia. based on the results presented in this paper, it can be concluded that it is necessary to stimulate the development of entrepreneurship concept in the public sector, primarily by further informing management and employees of the public sector about the potentials of entrepreneurship, and also educating them to use the possibilities and opportunities for the application of this concept. keywords: entrepreneursip, public sector, entrepreneurship in public sector, serbia. vation in products and/or services, the establishment of subsidiary companies, acquisition of other enterprises with the aim of increasing capital, profits or achieving some socially desirable goals. this is referred to as an “internal or corporate entrepreneurship” of employees, i.e., intrapreneurship. “state entrepreneurship” is also present, therefore entrepreneurship may include an innovative, pro-active role of the governing structures of a state in the management of the society in order to improve the quality of life of the population, which includes finding alternative income, improvement of internal processes and developing new solutions for inadequately met social and economic needs of the society (diefenbach, 2011; morris & jones, 1999). the paper is structured as follows: part 2 describes the public sector in serbia. part 3 describes the concept of entrepreneurship in the public sector. part 4 presents the research on the public sector in serbia. part 5 gives the research results and discussion. part 6 offers the conclusion of the paper. 2. public sector of serbia the public sector (ps) includes the government of a state and all publicly-controlled or publicly-funded agencies, companies and other entities that provide public services and goods to citizens and businesses, and implement a variety of programs at the state level (dube & danescu, 2011, p . 3). the main task of the management structure of the public sector is to ensure the quality and accessibility of services of general interest (those which enable meeting the needs of citizens, irrespective of the profitability of these services). the public sector (ps) of serbia encompasses (kavran, 2003, p. 23): 1) state and public administration, which includes a system of state bodies and organizations that protect the public interest of the citizens i.e., perform activities that, for whatever reason, citizens cannot perform for themselves; 2) public enterprises, whose owner is the state; 3) public institutions (health, education, culture, sports, security) which, as a rule, are funded by the budget, but have also the right to operate on the market. among the circumstances in which we observe and evaluate the ps in serbia today are: economic failures of the ps of serbia; too many employees in the ps; unbearably high costs of the ps ... in short, the public sector is oversized. the main problem is defined by the question: “how to harmonize an oversized ps with the needs for public services in serbia?” one solution is to downsize the number of employees in the ps, which according to the authors (datta & basu, 2015) is not always a successful solution. it also implies other problems, such as a rise in the unemployment rate in the whole country. another solution would be the provision of economically viable jobs for all employees in the ps, which leads to the application of the concept of entrepreneurship. thus, the development of entrepreneurship in the public sector can be a reasonable solution to improve the management of the ps of serbia. bearing in mind that the public sector is characterized by: 1) funding by the state budget, which, in serbia, (too) often fails to generate the desired income (and all because of politics the maintenance of “social peace” and unrealistically low prices of public services and goods, for example, the price of electricity (karolić, 2014.), water, transport, etc.) 2) inadequate resources management, which leads to excessive and irrational consumption (therefore making the ps operate with a loss and survive only due to subsidies from the state budget). the access of entrepreneurship in the public sector should contribute to increasing its profitability and performance (quality of management. an especially attractive form of cooperation between the public and the private sectors, which could generate and support the entrepreneurial initiative, is “a public-private partnership” (ppp). public-private partnerships can provide a legal and managerial basis for the introduction and / or implementation of entrepreneurship in the public sector, with the aim of improving the quality of public services. 3. entrepreneurship in the public sector entrepreneurship in the public sector is a form of entrepreneurship in which an individual or a group take the desired actions in the state or local government and public institutions and enterprises, with the aim to initiate a change within the organization, adapt to change and adopt innovation (kearney et al., 2007; diefenbach, 2011). morris and jones (1999, p 74) define entrepreneurship in the public sector as “the process of creating values for citizens, linking the unique combination of public and private resources in order to take advantage of social opportunities.”entrepreneurship in the public sector can lead to better organizational ef46 2016/78management ficiency (kearney et al., 2009). individuals who carry out entrepreneurship in public administration are referred to as public entrepreneurs. cohen (2012) defines them as individuals who reorganize and improve governmental services. the public sector entrepreneurship occurs when a government or a non-profit agent recognizes an opportunity and takes, depending on the context, direct or indirect action that leads to robust social networks and creates a positive economic activity (leyden and link, 2015; hayter, 2015). the specificity of entrepreneurship in the public sector, compared to the private sector, may be seen through a number of characteristics (kearney et al., 2009): • in the public sector there is a much greater diversity of objectives to be achieved, as well as a conflict between profitability and social responsibility; • in the public sector there is less flexibility in the decision-making process which is most strictly hierarchical; • financial incentives for improvement suggestions by employees are much lower in the public sector than in the private sector. entrepreneurial activities in the public sector should be directed primarily to the recognition of the entrepreneurial spirit and motivation of employees. the goal is to encourage employees to accept innovative, entrepreneurial approaches to business and to use the opportunities that entrepreneurship and innovation hold, thus contributing to the improvement of organization abilities. therefore, management makes a great contribution to the creation of an entrepreneurial climate in organizations; it should support the entrepreneurial behavior of employees (zampetakis & moustakis, 2007), as well as the development of a system of rewarding individuals within the organization. available research on entrepreneurship in the public sector has examined the different phenomena: in the paper (djordjevic, 2015) demonstrates that it is possible to introduce entrepreneurship in the public sector of serbia by means of projects (at the state level, specific industries, public sector enterprises and entrepreneurs themselves). the results of the research (balaž, 2015) show that intrapreneurship is modestly represented in the public sector; in other words, among the employees of the public sector. also, in terms of the development of intrapreneurship in different organizational systems of the public sector, the survey results (balaž, 2015) show that the strongest propensity for intrapreneurship lies with public institutions, and the weakest with public companies, although the author’s assumption was the opposite. on the other hand, the study of entrepreneurship in the private sector (lučić, 2015) showed that enterprises in serbia tend to have internal propensity for intrapreneurship through: propensity for recognizing business opportunities (to win the market, for business development), innovating and creating change, business matchmaking, and improving the quality of management. the following part of the paper presents the authors’ research on the topic of readiness of the public sector in serbia for entrepreneurial concepts. 4. survey on serbian public sector readiness for entrepreneurial concept the research on entrepreneurship in the public sector (ps) of serbia was conducted between may and august 2014, through questionnaires on the sample of 65 respondents. the respondent population consisted of the employed (employees and managers) of public enterprises and organizations in the ps of serbia. the task of the research was to explore the awareness of employees in the ps about the concept of entrepreneurship. the authors posed the following research questions (rq): rq1: how well are the employed in the public sector of serbia familiar with the concept of entrepreneurship? rq2: do the organizations from the ps of serbia, in which respondents work, apply the concept of entrepreneurship? the questionnaire consisted of three groups of questions: 1) the first group of questions referred to the characteristics of respondents (level of education, years of work experience, experience of work in the private sector, experience and education in entrepreneurship, job promotion) and the characteristics of the organizations in which they are employed (location, type of organization, activity, number of employees); 2) the second group of questions was about the relationship of employees in the ps and their familiarity with the concepts of entrepreneurship, intrapreneurship, entrepreneurship in the public sector and public-private partnerships; 47 management 2016/78 3) the third group of questions referred to the application of the concepts of entrepreneurship in the public sector. the sample of respondents was presented through frequencies of categorical variables in table 1. table 1: characteristics of respondents and their organizations the next part presents the results and provides answers to the two research questions (rq1 and rq2). 5. results and discussion the extent to which the employees in the public sector in serbia are familiar with the concept of entrepreneurship was tested through a series of closed-ended questions on the likert scale ranging from 1 to 5 (1 – i am not familiar at all; 2 – i am mostly not familiar; 3 – i do not know, i didn’t think; 4 – i am mostly familiar; 5yes, i am fully familiar). thefirst important question was: how much are you familiar with the concept of entrepreneurship (by the concept areas: entrepreneurship, intrapreneurship, entrepreneurship in the public sector, the public-private partnership)? the collected answers were processed and as a result of “employees’ familiarity in public sector with entrepreneurship” are presented in table 2, by mean values (m) and standard deviation (sd). 48 2016/78management categorical variables frequency [%] location beograd 23 lu ani 36.9 a ak 15.4 kragujevac 15.4 gornji milanovac 9.2 type of organization state and public administration 37 public enterprise 26 public institution 37 activity of organization education 27.7 healthcare 6.2 security 7.7 it & postal services 7.7 energy 6.2 public finance 16.9 construction and urbanism 10.8 local government 4.6 other 11.7 number of employees up to10 12.3 11-50 29.2 51-100 35.4 over 100 23.1 level of respondents’ education secondary school 24.5 college 9.2 university 64.6 master or doctorate 4.6 years of employment in the public sector up to 5 years 21.5 from 5 to 15 29.2 from 15 to 25 23.1 more than 25 26.2 work experience in private companies yes 36.9 no 63.1 experience and education in entrepreneurship seminars in entrepreneurship 12.3 entrepreneurship as a school or university subject 12.3 without experience 75.4 interval variables: mean value (m) standard deviation (sd) number of employee’s promotions 1.79 1.03 years of experience/work in private enterprises 7.02 6.08 table 2: familiarity of employees in ps of serbia with entrepreneurship based on these results, we can see that the public sector employees familiarity of the basic concepts of entrepreneurship is at the middle level (m = 3.35). regarding the employees’ awareness of other concepts: intrapreneurship (m = 2.50), entrepreneurship in the public sector (m = 2.67) and public-private partnerships (m = 2.82), it can be argued that the employees are hardly familiar with these concepts. looking at the overall average results of familiarity (m = 2.85), it can be further concluded that employees in the public sector in serbia are not adequately familiar with the concept of entrepreneurship. in addition to questions about familiarity with entrepreneurship, the research addressed the second important question regarding the application of the concepts of entrepreneurship in ps organizations; consequently, the employees and managers of the ps organizations were asked a specific research question: to what extent are the concepts of intrapreneurship and public-private partnership implemented in your organization? the answers were validated by the likert scale: 1 not implemented at all; 2 mostly not implemented; 3 i do not know; 4 mostly implemented; and 5 yes, they are fully implemented. the obtained mean values are: the implementation of intrapreneurship (m = 2.56) and the implementation of public-private partnership (m = 2.14) were at a low level (table 3). table 3: the representation of entrepreneurship in public sector of serbia the respondents were also asked a group of questions requiring a specific numerical answer about the number of created entrepreneurial ventures and the number of contracts on public-private partnership, for a specified period of time. results (table 4) show that the number of created ventures and partnerships is very small: • only 10.9 [%] (as the sum of 6.2% and 4.7%) of respondents have said that over the past 10 years, there have been entrepreneurial ventures in the public sector organizations where they work; • only 11.2 [%] (as the sum of 3.2% and 8%) of respondents have said that over the past 10 years there have been public-private partnership contracts in the public sector organizations where they work. table 4: the representation of entreprenership in public sector operations in serbia 49 management 2016/78 evaluation of familiarity with concepts: mean value (m) standard deviation (sd) entrepreneurship 3.35 1.34 intrapreneurship 2.50 1.20 entreprenership in public sector 2.67 1.21 pubilc-private partership 2.82 1.23 total: 2.85 1.02 implementation of entrepreneurship concepts mean value (m) standard deviation (sd) intrapreneurship 2.56 1.30 public-pivate partnership 2.14 1.26 questions –realized enterpreneurial ventures responses frequency [%] has there ever been created an entrepreneurial venture in your organization? yes 25.8 no 74.2 how many entrepreneurial ventures have been created in your organization over the last 10 years? don’t know 57.8 none 31.3 betwwen 1-5 6.2 more than 5 4.7 how many public-private partnership contracts have been signed in your organization in the past 10 years? don’t know 54 none 34.8 betwwen 1-5 3.2 more than 5 8 questions –realized enterpreneurial ventures responses frequency [%] has there ever been created an entrepreneurial venture in your organization? yes 25.8 no 74.2 how many entrepreneurial ventures have been created in your organization over the last 10 years? don’t know 57.8 none 31.3 betwwen 1-5 6.2 more than 5 4.7 how many public-private partnership contracts have been signed in your organization in the past 10 years? don’t know 54 none 34.8 betwwen 1-5 3.2 more than 5 8 based on presented results, it can be claimed that entrepreneurship (as theoretical and practical concept of management) is very modesty presented in the public sector of serbia. references [1] balaž, b. (2015). intrapreneurship in public sector organizations from the republic of serbia master’s thesis (mentor: omerbegović-bijelović, j.), university of belgrade, faculty of organisational sciences. [2] cohen, n. (2012). policy entrepreneurs and the design of public policy: conceptual framework and the case of the national health insurance law in israel. journal of social research & policy, 3(1), 5-26. [3] datta, d. k., & basuil, d. a. (2015). does employee downsizing really work?. in human resource management practices. springer international publishing, 197-221. http://dx.doi.org/10.1007/978-3-31908186-1_12 [4] dube, s. & danescu, d. (2011). supplemental guidance: public sector definition, the institute of internal auditors – global, altamonte springs, usa. [5] diefenbach, f.e. (2011). entrepreneurship in the public sector, dissertation university of st. gallen (hsg). [6] đorđević, m., (2015). implementation of entrepreneurship in public enterprises of the republic of serbia. master’s thesis (mentor: omerbegović-bijelović, j.), university of belgrade, faculty of organisational sciences. [7] hayter, c. s. (2015). public or private entrepreneurship? revisiting motivations and definitions of success among academic entrepreneurs. the journal of technology transfer, 40(6), 1003-1015. http://dx.doi.org/10.1007/s10961-015-9426-7 [8] karolić, r. (2014). prices of electricity and electro sector development policy in europe and serbia. balkan magazine. link: http://www.balkanmagazin.net/struja/cid189-95156/cene-struje-i-razvojnapolitika-elektro-sektora-evrope-i-srbije (accessed on 19.12.2015). [9] kearney, c., hisrich, r. d., & roche, f. (2007). facilitating public sector corporate entrepreneurship process: a conceptual model. journal of enterprising culture, 15(3), 275–299. http://dx.doi.org/10.1142/s0218495807000150 [10] kearney, c., hisrich, r., & roche, f. (2008). a conceptual model of public sector corporate entrepreneurship. international entrepreneurship and management journal, 4(3), 295-313. http://dx.doi.org/10.1007/s11365-007-0048-x [11] kearney, c., hisrich, r. d., & roche, f. (2009). public and private sector entrepreneur-ship: similarities, differences or a combination? journal of small business and enterprise development, 16(1), 2646. http://dx.doi.org/10.1108/14626000910932863 50 2016/78management this paper presents part of the research on entrepreneurship in the public sector (ps) in serbia, conducted in 2014 in the framework of activities of the fos center for entrepreneurship and smes. the results show that the employees of the public sector are very modestly familiar with the concept of entrepreneurship. the research has also shown that the existing practice of application of intrapreneurship and public-private partnerships in the ps in serbia is quite modest. these results may indicate the necessity of introduction and regulation of application of entrepreneurship in the ps in serbia. the state should have the main role here (through the provision of legal support to entrepreneurship of the ps), as well as the ps organizations and their employees. the solution is found in an adequate planning support to entrepreneurship through various phase models (rakićević, omerbegović-bijelović, & lecić-cvetković, 2016). more precisely, it is necessary to: a) plan effective training of ps employees on entrepreneurship; b) design and implement projects for the introduction of entrepreneurship in the ps; c) develop a methodology for encouraging creativity and entrepreneurial spirit of employees in the serbian ps; d) create tools for motivating employees in the ps to adopt innovative approaches and entrepreneurial concepts of management of organizations in which they work; e) introduce a methodology for obligatory improvement of management quality into the management practice of the ps (e.g., standardized procedures to encourage and support entrepreneurial initiatives), etc. the model of entrepreneurial management in the public sector, based on the entrepreneurial economy, the creation and implementation of entrepreneurial ideas of employees, can contribute to the generation of additional revenue, reduction in public expenditure and even to more justified engagement of employees in the ps. limitations of this study are reflected in the small number of organizations that participated in the survey. the authors intend to expand the survey sample, which would make the results even more significant. conclusion [12] leyden, d.p., link, a.n. (2015). public sector entrepreneurship: us technology and innovation policy, new york: oxford university press. [13] lučić, a. (2015). intrapreneurship in serbia during the economic crisis. master’s thesis (mentor: omerbegović-bijelović, j.), university of belgrade, faculty of organisational sciences. [14] lunt, n., exworthy, m., hanefeld, j., & smith, r. d. (2015). international patients within the nhs: a case of public sector entrepreneurialism. social science & medicine, 124, 338-345. http://dx.doi.org/10.1016/j.socscimed.2014.04.027 [15] morris, m.h. & jones, f.f., (1999). entrepreneurship in established organizations: the case of the public sector, entrepreneurship theory and practice, 24 (1), 71-91. [16] omerbegović-bijelović, j. (2010). basics of operations management. university of belgrade, faculty of organisational sciences. [17] omerbegović-bijelović, j. (2014a). entrepreneurship and management of smes, (book chapter), 398405, in: jaško, o. management and organization, university of belgrade, faculty of organisational sciences. [18] omerbegović-bijelović, j. (2014b). entrepreneurial management of smes, (book chapter), 359-406, in: jaško, o. management. university of belgrade, faculty of organisational sciences. [19] rakićević, z., omerbegović-bijelović, j., & lečić-cvetković, d. (2016). a model for effective planning of sme support services. evaluation and program planning, 54, 30-40. http://dx.doi.org/10.1016/j.evalprogplan.2015.09.004 [20] zampetakis, l. a., & moustakis, v. (2007). entrepreneurial behaviour in the greek public sector. international journal of entrepreneurial behavior & research, 13(1), 19-38. http://dx.doi.org/10.1108/13552550710725165 receieved: december 2015. accepted: march 2016. jasmina omerbegović-bijelović, university of belgrade, faculty of organisational sciences, serbia omeja@fon.bg.ac.rs jasmina omerbegović-bijelović, ph.d., is a full professor and head of chair of production and service management (department for operations management, faculty of organisational sciences, university of belgrade). her main areas of interest are: planning (of production, services and new business venture), entrepreneurship and management of sme, operations management, resources management, servicing management, value analysis & value engineering, tools for quality improvement and problem solving. she is an author of the metamanagement and metacybernetic system concepts and has published numerous papers in the fields mentioned above. zoran rakićević university of belgrade, faculty of organisational sciences, serbia zoran.rakicevic@fon.bg.ac.rs zoran rakićević, m.sc., works as a teaching assistant at the faculty of organisational sciences (fos), department for operations management (chair of production and service management). he has two master’s degrees in entrepreneurship and management of smes (2012) and operational research and computational statistics (2013) and is currently enrolled in ph.d. studies at the fos. his research and teaching areas of interest include: entrepreneurship and management of smes, planning of production and servicing and operations management. 51 management 2016/78 about the author ana vučinić ministry of interior, republic of serbia, police department, belgrade anavucinic@yahoo.com ana vučinić, msc, works at the ministry of interior, the republic of serbia, police department in belgrade. she completed her master studies at the faculty of organisational sciences in 2014 (module: entrepreneurial management of smes), and defended her master’s thesis: “entrepreneurship in the public sector of serbia”. her research areas are: entrepreneurship and management of smes, public entrepreneurship, intrapreneurship and corporate entrepreneurship, public sector, public and private partnership. 52 2016/78management 6 27_1 marko pavlovic:tipska.qxd 55 marko pavlović1, biljana stojanović-višić2*, marija runić ristić3 1pe post of serbia, belgrade, serbia 2union – nikola tesla university, faculty of engineering management, belgrade, serbia 3union – nikola tesla university, faculty of management, sremski karlovci, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(1) the relationship between workplace conflicts and job satisfaction in the public sector in serbia doi: 10.7595/management.fon.2021.0025 abstract: 1. introduction nowadays, one of the biggest challenges for most of organizations is low employee’ engagement. job satisfaction is one of the factors that increases employee engagement. various studies have analyzed job satisfaction and identified factors at workplace that influence it. however, the relationship between conflicts and job satisfaction is still one of the widely analyzed and intriguing themes. the purpose of this research paper is to examine the relationship between conflicts and job satisfaction in the public sector in serbia. job satisfaction and conflict management represent important aspects of human resource management (stoner, freeman & gilbert, 1995).1} some studies (de dreu & van vianen, 2001; rahim, 2002) have identified that conflict management culture represents an important point in analyzing the * corresponding author: biljana stojanović-višić, e-mail: bstojanovic33@yahoo.com research question: this paper starts with the research question regarding the relationship between workplace conflicts and job satisfaction in the public sector in serbia. motivation: the main motivation for this research study was: to examine a compromising conflict resolution in the public sector in serbia; to examine the frequency, causes, conflict resolution strategies and methods for their reduction and for improving work climate in the public sector in serbia; to examine the job satisfaction in the public sector in serbia; and to examine the relationship between workplace conflicts and job satisfaction in the public sector in serbia. idea: this research started with the intention to study job satisfaction or dissatisfaction and workplace conflicts in the public sector in serbia in order to reach a more efficient and effective human resource management. data: the research study was conducted from the beginning of march 2019 until the end of april 2019. the total sample size amounted to 300 respondents employed in the public sector in serbia. tools: two scales have been used to gather data and conduct the research: the compromising conflict resolution scale and the job satisfaction survey scale. findings: more than half of the respondents employed in the public sector in serbia believe that conflicts in their workplace are not frequent, while less than half of them finds them frequent. this finding shows that opinions are divided regarding conflicts. as the main reason for conflicts, the respondents reported personal conflicts, organizational conflicts and communication conflicts. the best strategies to handle conflicts, according to the employees in the public sector in serbia, are cooperation, competition and avoiding. at the same time, compromise occupies the bottom place according to its frequency occurrence. as regards the methods to lower the levels of conflict frequency and to improve the organizational climate, the employees in the public sector in serbia emphasized better planning and division of work and more resources that a company has at its disposal. regarding job satisfaction, these findings put employees in the category of ambivalent emotions. contribution: the primary contribution of this paper is in its effort to lead to better human resource management in the public sector in serbia due to the research study results. keywords: conflicts, job satisfaction, workplace, organization, public sector, serbia jel classification: c10, i31, m54 workplace environment. moreover, choi and ha (2008) have even discovered that it affects significantly a job satisfaction and productivity. therefore, this research paper aims to examine the relationship between conflicts and job satisfaction in the public sector in serbia. 1} the aim of the research is to: 1) study a compromising conflict resolution in the public sector in serbia, 2) study the frequency, causes, conflict resolution strategies and methods for their reduction and for improving work climate in the public sector in serbia, 3) study the job satisfaction in the public sector in serbia, and 4) study the relationship between workplace conflicts and job satisfaction in the public sector in serbia. for the purpose of this research, we have proposed the following hypotheses: h1: there is a statistically significant difference between a compromising conflict resolution and sociodemographic characteristics of employees in the public sector in serbia, h2: there is a statistically significant difference between the job satisfaction and socio-demographic characteristics of employees in the public sector in serbia, h3: there is a statistically significant correlation between a compromising conflict resolution and job satisfaction among employees in the public sector in serbia, h4: there is statistically significant effect of gender on correlation between a compromising conflict resolution and job satisfaction in the public sector in serbia, h5: there is statistically significant effect of age on correlation between a compromising conflict resolution and job satisfaction in the public sector in serbia. the research study was conducted from the beginning of march 2019 until the end of april 2019. the total sample size included 300 respondents employed in the public sector in serbia. the results show that more than a half of the respondents employed in the public sector in serbia believe that conflicts in their workplace are not frequent, while less than a half of them finds them frequent. this finding shows that opinions regarding conflicts are divided. the main reasons for conflicts are personal conflicts, organizational conflicts and communication conflicts. most frequently used to handle conflicts among the employees in the public sector are cooperation, competition and avoiding, while compromise occupies the bottom place according to its frequency occurrence. in order to lower the levels of conflict frequency and to improve the organizational climate, the employees in the public sector in serbia emphasized a better planning and division of work and more resources that a company has at its disposal. the paper consists of several sections. firstly, we analyze the literature on the relevant concepts, such as workplace conflicts and job satisfaction. secondly, we present the methodology and results. finally, we elaborate on our results. 2. workplace conflicts and job satisfaction in organizations workplace conflicts and job satisfaction are the two main factors that influence organizational efficiency. they have become crucial and have been studied in the last twenty years (kian, yusoff & rajah, 2014). some studies even analyzed the moderating role of employees’ collectivistic trait on the relationship between conflicts and employees’ job satisfaction (ye, liu & gu, 2019). 2.1. workplace conflicts workplace conflicts can be said to be one of the trending topics for researchers, both in psychology and in management (williams, 2010). different theories try to make their contributions in the study of human behavior, and to show how people achieve their personal growth and development in the workplace (janicijevic, 2008). workplace conflicts and their resolution are the key questions for the entire human activity, personal value systems, work activities, as well as the society in which the process is going on. both direct and indirect involvement in workplace conflicts have influence on individual well-being (enehaug, helmersen & mamelund, 2016). they are also one of the most intriguing and interesting subjects of the organizational behaviour and human resource management. workplace conflicts exist in the organizational structure and organizational culture in a specific way and they need to be resolved (vujic, 2008). it is even believed that certain conflicts are wanted, especially those which are the product of life and work. this does not mean that conflicts should be created and encouraged, quite 56 marko pavlović, biljana stojanović-višić, marija runić ristić 2022/27(1) the opposite; harmful and destructive conflicts should be identified and resolved as soon as possible (keranovic, 2005). modern organizations use both constructive and destructive conflicts in order to achieve certain organizational goals, strengthen their cohesion, create positive organizational climate, and avoid disorganization (jovanovic, zivkovic & cvetkovski, 2007). more recent studies show that conflicts describe organizational real values and they suggested that organizational conflicts can be used as a tool to assess the implementation of organizational values (titov, virovere & kuimet, 2018). workplace conflict resolution depends on the type, character, extent and intensity of conflicts (cvetkovski & cvetkovska-ocokoljic, 2007). in workgroups conflicts frequently arise because people are highly interdependent and often share incompatible values (carton & tewfik, 2016). each type of conflicts demand an appropriate approach and method in order to be resolved. in this way positive and constructive effects of conflicts are reached, while destructive and negative effects are removed (jovanovic, kulic & cvetkovski, 2008). whether the conflict is going to be resolved or only postponed so that it can reappear in new and changed circumstances, often even stronger, depends on the approach and conflict resolution strategy (jovanovic, zivkovic & cvetkovski, 2007). according to ting-toomey’s face negotiation theory, people from different cultures manage conflict differently (ting-toomey, 1988). previous studies have discovered that members of collectivistic cultures are more oriented towards compromising styles of handling conflict whereas individualists prefer dominating (forcing) styles (rahim, 1983; ting-toomey et al., 1991; morris et al., 1998; kozan & ergin, 1999; holt & devore, 2005; wang, jing & klossek, 2007; gunkel, schlaegel & taras, 2016; caputo, ayako & amoo, 2018). since serbia belongs to collectivistic cultures according to hofstede's cultural dimensions (hofstede, 2001), we believe that serbian employees in the public sector will be oriented towards using a compromising conflict resolution. the appropriate approach to conflict resolution is significant regarding the effectiveness and efficiency of the organization, and also regarding job satisfaction (bojicic, pavlovic & stojanovic-visic, 2018). 2.2. job satisfaction job satisfaction represents a measure, i.e., an estimation of emotions regarding the job or a cognitive estimation of the job (judge & church, 2000). it is subjective and it represents an emotional feeling that people have regarding their jobs (swarnalatha & tephillah, 2014). it also represents a complex attitude that involves certain presumptions and beliefs about the job, emotions and estimations about the job, and it has three main characteristics (herzberg, 1966): − organizations should be guided by human values, and should treat their employees with respect, and in such circumstances job satisfaction can be an indicator of the efficiency of the employees, − a high level of job satisfaction expresses a good emotional and mental health of the employees, which will affect the function and activities of the organization, and − job satisfaction is an indicator of the organizational activities. in many theories and models of certain attitudes and behaviour, job satisfaction has an important part, and research into it can be applied to improve human lives and organizational efficiency (judge & klinger, 2008). hoboubi et al. (2017) examined the effects of job stress and job satisfaction on workforce productivity, and identified factors associated with productivity decrement among employees. moreover, saari and judge (2004) concluded that the organization cannot influence the individual`s personality, but if the employees choose jobs that suit them best, their job satisfaction will also increase. it is necessary for organizations to encourage their employees to stay and to do their jobs, but also to overcome work routine and turn to creativity and innovativeness (pavlovic & markovic, 2014). even though there are certain differences in these definitions, job satisfaction is all about attitudes regarding the job, and it is viewed through two types of satisfactions based on the emotions about the job that employees have, namely, a general job satisfaction and emotions regarding certain workplace aspects, such as pay, benefits, hierarchy, promotions, work environment and the quality of the relationships with colleagues and management (mueller & kim, 2008). based on different questionnaires that measure satisfaction with various job aspects, the following work dimensions have emerged (spector, 1997): job, salary, promotion, the relationship with the superiors, relationship with the co-workers, benefits, rewards, work conditions, workplace safety, acquiring new knowledge, communication quality, and buyer satisfaction. 57 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) some research has shown that conflicts have negative effects on employees' job satisfaction. kammerhoff et al. (2019) even showed that relationship conflict mediated the effect of transformational leadership on job satisfaction. de wit et al. (2012) have also identified that conflicts had a negative effect on both job satisfaction and perceived organizational performance. on the other hand, some studies have concluded that conflicts can have both positive and negative effect on job satisfaction (chen, zhao, liu & wu, 2012; de dreu, 2006; terason, 2018). in the following part of the paper, we are going to provide the results of our study that analyzed the relationship between workplace conflicts and job satisfaction in the public sector in serbia. 3. research methodology the research study was conducted from the beginning of march 2019 until the end of april 2019. the respondents were given an already prepared questionnaire with a remark that the research is anonymous and that the received data will be used only for the purpose of this research study. in order to collect data and do research two scales have been used: the compromising conflict resolution scale and the job satisfaction survey scale. in addition to these scales, the questionnaire also included three additional questions regarding the frequency, main causes and best strategies for resolving workplace conflicts between the employees in the public sector, as well as the question about the methods which would improve the company`s climate and reduce conflicts. furthermore, there is also a part in the questionnaire that is related to general socio-demographic characteristics of the respondents (gender and age). 3.1. research sample the total research sample size amounts to 300 respondents, employed in the public sector in serbia. the research sample has been viewed through general socio-demographic characteristics (gender and age). regarding the gender of the respondents, a little more than a half of the sample are female respondents (59.8%), and a little less than a half are male respondents (40.2%). it can be said that the sample is balanced according to gender. regarding the age of the respondents, most employees in the public sector are 31 to 40 years old (45.1%). the youngest respondents, aged 18 to 30, are at the second place (22.5%), and the respondents from 41 to 50 years of age are at the third place (13.7%). there are significantly fewer employees in the public sector who are 51 to 60 years old (12.7%) or 61 and older (5.9%). 3.2. reliability of the research instruments in order to collect data and do the research, two scales have been used: the compromising conflict resolution scale and the job satisfaction survey scale. the compromising conflict resolution scale (ccr scale) was constructed for this research. the scale has closed-ended questions and it contains 18 statements for rating on a scale 1 to 5 (likert scale). replies are classified from 1 never, to 5 always, and a higher score on this scale means a higher level of readiness to express a compromising behavior while resolving workplace conflicts. statements 1, 6 and 9 are inverted and are reverse scored (1 always, 5 never). the scope of scores on the scale is from the minimum of 18 to the maximum 90. the job satisfaction survey scale (jss scale) was designed by spector (1997). the scale is a questionnaire for measuring job satisfaction on a six-point scale from 1 strongly disagree to 6 strongly agree. the statements 2, 4, 6, 8, 10, 12, 14, 16, 18, 19, 21, 23, 24, 26, 29, 31, 32, 34 and 36 are inverted and are reversely scored. the scale contains 36 items and based on the data received through this scale we can get ten independent scores. nine scores are the results of the individual subscales, and the tenth score is the summative score of the respondents for all items and it represents the general measurement of the job satisfaction. nine facets of the job satisfaction measured by this scale are: pay, promotion, supervision, benefits, contingent rewards, operating procedures, co-workers, nature of work and communication. the range of the entire jss scale is from 36 to 216, where the range from 36 to 108 signifies dissatisfaction, 58 marko pavlović, biljana stojanović-višić, marija runić ristić 2022/27(1) from 108 to 144 ambivalence, and from 144 to 216 job satisfaction. for individual aspects or subscales, the range is from 4 to 24, where scores from 4 to 12 mean dissatisfaction, from 12 to 16 ambivalence, and from 16 to 24 job satisfaction. regarding the reliability of the instruments, both scales have acceptable reliability (above arbitrary level α˂0.70). reliability for ccr scale is α=0.850 and it is considered high (above α˂0.80), while for jss scale it is α=0.740. both alpha coefficients show the reliability of the scales, especially considering the fact that the ccr scale has only 18 statements, and jss scale has 36 statements. 4. research results based on the gathered data, with the use of the ccr scale and the jss scale, the following issues have been studied: a compromising conflict resolution; the frequency, causes, conflict resolution strategies and methods for their reduction and for improving work climate; the job satisfaction; and the relationship between workplace conflicts and job satisfaction. 4.1. the study of a compromising conflict resolution in the public sector in serbia the compromising conflict resolution scale (ccr scale), on the level of the entire sample size, shows an above average value (as=55.88, sd=7.656). the empirical minimum is 39, and maximum is 73. regarding the range of the scale (18 to 90), the received score is considered high, or even above average. the levels of compromising conflict resolution were also studied in relation to socio-demographic characteristics of the respondents: gender and age. regarding the gender of the respondents, there were no statistically significant differences of scores on the ccr scale (t=-0.205, p=0.838). somewhat higher value was received with the male respondents (as=56.07, sd=6.890), and lower with female respondents (as=55.75, sd=8.185). regarding the age of the respondents, there were no statistically significant differences in the levels of compromising conflict resolution (f=0.492, p=0.742). the highest score was received with the youngest respondents, aged 18 to 30 (as=57.52, sd=7.360), and the lowest score was gained with the oldest respondents who are 61 and older (as=54.50, sd=11.640). regarding the scores for certain items of the ccr scale, the highest score was received for statement 7: while resolving conflicts, i try to do it to the mutual satisfaction (as=3.93, sd=0.870) and statement 13: when i am in conflict with other co-workers, i always ask them to explain to me what the problem is (as=3.86, sd=0.890). the highest score was also received for statement 14: it is not a problem for me to accept the criticism of others (as=3.75, sd=0.829) and statement 11: i negotiate with my co-workers in order to find a compromising solution (as=3.70, sd=0.888). the lowest score was for statement 1: when somebody does not agree with me, i defend my opinion (as=2.04, sd=1.024) and statement 6: while resolving a conflict, i try to maintain my opinion (as=2.12, sd=0.937). 4.2. the study of the frequency, causes, conflict resolution strategies and methods for their reduction and for improving work climate in the public sector in serbia this questionnaire, in addition to the ccr scale, also has three additional questions relating to the frequency, main causes and best strategies for conflict resolution in the public sector, and also relating to the methods in order to improve work climate and reduce the frequency of conflicts. the opinion was divided among the public sector employees as to whether there are frequent conflicts in their workplace. 49.0% of the employees believe that conflicts are frequent, while 51.0% believe they are not frequent. as the main cause for workplace conflicts the respondents indicated personal reasons (38.2%). organizational conflicts are at the second place (36.3%), and communication conflicts at the third (25.5%). it may be said that, as in the relation to the frequency of conflicts, the opinion of the employees in the public sector is divided and that all three causes of conflicts are present more or less equally. 59 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) the best strategy for conflict resolution, the respondents stated, was cooperation (34.3%). besides this, at the second place according to its frequency is competition (22.5%), and avoidance is at the third place (21.6%). furthermore, 12.7% of the employees in the public sector chose reconciliation as a strategy for conflict resolution, and only 8.8% chose compromise. regarding the methods for improving work climate and for reducing the frequency of conflicts, most employees in the public sector chose better planning and division of work (almost two thirds of the sample, or 67.6%), then more resources that a company has at its disposal (47.1%), more care for the employees (40.2%), as well as a more qualitative supervision at all levels (31.4%). the least frequency was given to a better rewarding system (22.5%) and better communication (24.5%). 4.3. the study of the job satisfaction in the public sector in serbia the job satisfaction survey scale (jss scale), as has already been mentioned, consists of 36 statements and has theory range from 36 to 216. the range of scores from 36 to 108 means dissatisfaction, from 108 to 144 ambivalence, and from 144 to 216 job satisfaction. for certain aspects or subscales, the theory range is from 4 to 24, where scores from 4 to 12 mean dissatisfaction, from 12 to 16 ambivalence, and from 16 to 24 job satisfaction. across the total sample, regarding the general job satisfaction (jss sum), the received value is as=125.75, sd=12.319. the empirical minimum is 90, and maximum is 150. this result puts employees in the category of ambivalence (neither satisfied nor dissatisfied). the similar results were also received regarding the scores on certain dimensions of the jss scale. in fact, the highest score was received for dimension operating procedures as=16.21, sd=3.170. the score for this dimension is at the same time the only one in the category of job satisfaction (or on the border between ambivalence and satisfaction). the received scores on other dimensions are in the category of ambivalence, and only the dimension promotion received the score that shows dissatisfaction (˂12) as=10.66, sd=3.007. moreover, the dimensions co-workers (as=15.73, sd=2.611), supervision (as=15.57, sd=1.875), communication (as=15.41, sd=2.653) and contingent rewards as=15.10, sd=3.170) received scores that are closer to job satisfaction. for dimensions nature of work, pay and benefits the received scores are between ambivalence and dissatisfaction. regarding the gender of the respondents, there are no statistically significant differences in the scores on the jss scale, nor in its dimensions. the biggest difference based on f statistics has been received for the dimension co-workers (f=1.859, p=0.066) which may be said to be on the border of statistical significance (but is not significant) with p˂0.05. regarding the scores in relation to the gender of the respondents, on the total score of jss sum and dimensions pay, supervision, contingent rewards, operating procedures and co-workers higher scores were received with female respondents, while with male respondents offered higher scores for dimensions promotion, benefits, nature of work and communication. regarding the age of the respondents, a statistically significant difference was received for the dimension co-workers (f=3.466, p=0.011). the received difference is significant at the level p˂0.05 and further analysis (lsd) showed that employees in the public sector aged 41 to 50 (as=16.86, sd=2.905) and 51 to 60 (as=17.38, sd=2.142) have significantly higher scores at this dimension than employees aged 18 to 30 (as=15.17, sd=2.387), and those aged 31 to 40 (as=15.07, sd=2.426). in addition, it is necessary to say that on the total score of the jss scale the highest score was received with the oldest respondents, aged 61 and older (as=132.17, sd=13.761), and the lowest with the youngest respondents, aged 18 to 30 (as=122.83, sd=9.476). 4.4. the study of the relationship between workplace conflicts and job satisfaction in the public sector in serbia based on the general idea of this research paper, the aim was to study the relationship between the levels of compromising conflict resolution in the workplace and job satisfaction of the employees in the public sector. the research results showed that the level of the ccr scale is statistically significantly related to the summation score of the jss scale (r=-0.272, p=0.006), and also with the dimensions contingent rewards (r=-0.211, p=0.033), nature of work r=-0.265, p=0.007) and communication r=-0.247, p=0.012). the correlation of the ccr scale and the summation score (jss sum) and dimension nature of work is significant 60 marko pavlović, biljana stojanović-višić, marija runić ristić 2022/27(1) at level p˂0.01 and in relation to dimensions contingent rewards and communication at level p˂0.05. all these correlations are negative and they show that with the increase of the level of job satisfaction, the level of compromising conflict resolution in the workplace decreases. in addition to the correlations between a compromising conflict resolution and job satisfaction, the jss sum has also shown numerous correlations between all nine dimensions. all received correlations are positive and significant at level p˂0.01. the only exception is correlation in relation to the dimension supervision which is significant at level p˂0.05 (on the border between p˂0.01 and p˂0.05). these positive correlations show that with the increase of scores on the summation score of the jss scale, the scores on its dimensions also increase, and vice versa. this finding has been expected, as well as the received correlation within the dimensions of the jss scale. it is interesting that the dimensions nature of work and operating procedures (r=-0.209, p=0.035) have negative correlations, while all other correlations within the dimensions of the jss scale are positive. after a detailed insight into the correlation between levels of compromising conflict resolution and job satisfaction, the correlation of these two scales (ccr scale and jss scale) was conducted in relation to the gender and age of the respondents (table 1 & table 2). table 1: correlation between levels of compromising conflict resolution and job satisfaction in relation to the gender of the respondents df1=179; df2=121; p˂0.01**; p˂0.05*; the obtained findings showed that in the subsample of female respondents (table 1), the correlation of the level of compromising conflict resolution is in relation to jss sum (r=-0.317, p=0.013) and in relation to the dimensions contingent rewards (r=-0.257, p=0.045), co-workers (r=-0.265, p=0.039) and nature of work (r=-0.312, p=0.014). the obtained correlations in the subsample of female respondents are significant at the level of significance of p<0.05 and have a negative sign, which indicates that with the increasing level of compromising conflict resolution, the level of job satisfaction decreases. in the subsample of male 61 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) �������� � � ���� ������� ������ �������������������������������������� ���������������������������������������������� ���������������������������������������������� ������� ������� ���� ����� � �� �� � �� ������������������������������������������� ���������������������������������������������� ���������������������������������������������� ���� �� �� � � ���� ������ ������ � �� ������ � ����������������������������� ���������������������������������������������� ���������������������������������������������� ������� �� �� ���� ������� ������ � �� ������ � � �������������������������� ���������������������������������������������� ���������������������������������������������� ������ �� �� ���� ������ ��� �� � �� � � ���������������������������������� ���������������������������������������������� ���������������������������������������������� ����� � ������ ���� ��� ��� ������ ��� �� � !� ����"��#�������������� ���������������������������������������������� ���������������������������������������������� ����$�� ���%$�� ���� ����� � ������ � �� &����� !����'�#������������� ���������������������������������������������� ���������������������������������������������� ��� � � ������ ���� ���� � ������ � �� ���"��(������������������������������ ���������������������������������������������� ���������������������������������������������� ����)$� ����*�� ���� ������ �� � � � �� �������� �"��(���������������������� ���������������������������������������������� ���������������������������������������������� ������� ����%�� ���� ���� �� �� � � � �� ����� '�� � �������������������� ���������������������������������������������� ���������������������������������������������� ������� �� �� ���� ���$��� �������� � �� respondents, statistically significant correlation between levels of compromising conflict resolution and job satisfaction was obtained only for the dimension communication (r=-0.532, p=0.000). the obtained correlation is significant at the level of p<0.01 and also has a negative sign. table 2: correlation between levels of compromising conflict resolution and job satisfaction in relation to the age of the respondents df1=68; df2 =135; df3=41; df4 =38; df5=38; p˂0.01**; p˂0.05*; when it comes to the age of the respondents (table 2), in the subsamples of respondents aged 18 to 30 years and 41 to 50 years, no correlation was obtained between levels of compromising conflict resolution and job satisfaction. in the subsample of respondents aged 31 to 40 years, a statistically significant correlation of the level of compromising conflict resolution was confirmed in relation to the dimension nature of work (r=-0.336, p=0.022). in addition, the same correlation, compromising conflict resolution was confirmed in relation to the dimension nature of work, in the subsample of the respondents aged 51 to 60 years (r=-0.746, p=0.003), while in a subsample of the respondents aged 61 and over, there was a statistically significant correlation between levels of compromising conflict resolution and job satisfaction in relation to the dimensions pay (r=-0.893, p=0.017) and co-workers (r=-0.821, p=0.045). all obtained correlations were significant at the significance level of p<0.05, except for the correlation obtained in a subsample of the respondents aged 51 to 60 years, which is significant at the significance level of p<0.01. furthermore, all the obtained correlations have a negative sign, which indicates that with the increase in the expression of job satisfaction, the level of compromising conflict resolution decreases and vice versa. 5. discussion our results give the support to h3, while h2, h4 and h5 are partially supported, and h1 is not supported. the scores on the ccr scale show that there is an above average value which shows the readiness of the respondents to reach a compromising conflict resolution. these statements have the highest value: while 62 marko pavlović, biljana stojanović-višić, marija runić ristić 2022/27(1) �������� � � ���� ���� � � ����� � ����� � ����� � �� ��������� ������������������������������������ �������������������������������������������� �������������������������������������������� ������ ������ ��� �� ��� �� ��� ��� �� ��� ��� � � � ������ ���� � ��� ���� � �� ��� �� ����������������������������������������� �������������������������������������������� �������������������������������������������� ������ ���� � ��� ���� � ������ ��� �� �� ������ � � ��� �� �� ��� ��� ���� �� ��� !"� �� ������ � ��������������������������� �������������������������������������������� �������������������������������������������� �� ��� �� � � ��� ��� �� ������ ��� ������ �� � � � � �� ��� ���� � ��� ������ ���� � �� �����# $ � ������������������������ �������������������������������������������� �������������������������������������������� �� ��� ������ ��� �� ��� ������ ��� �� ��� ��� � � � �� ��� ������ ��� ��� �� �� ��� �� %� �& �$������������������������������ �������������������������������������������� �������������������������������������������� �� ��� �� ��� ��� ��� �� ������ ��� ���� � ������ � � �� ��� ������ ��� ������ ������ �� �� � '� ����(���$����������� �������������������������������������������� �������������������������������������������� �� ��� ��� �� ��� �� ��� �� ��� ��� ������ ��� �� � � �� ��� ��� �� ��� ������ �� ��� �� )����� '����*�����$������� �������������������������������������������� �������������������������������������������� �� ��� ��� �� ��� �� ��� ������ ��� �� � � ������ � � �� ��� ������ ��� ������ ������ �� ���(��+��$������������������������� �������������������������������������������� �������������������������������������������� �� �� ������ ��� �� � � �� ��� ��� ������ ������ � � ������ �� ��� ��� ����� � �����"� �� ��������&�(��+�������������������� �������������������������������������������� �������������������������������������������� ������ ������ ��� ������� �����"� ��� �� ��� ��� � � � ���!��� �����""� ��� ������ ���� � �� ����� *�� � ������������������ �������������������������������������������� �������������������������������������������� ������ ������ ��� �� � � ��� � ��� ������ �� ��� � � ������ �� �� ��� ������ �� �� �� � resolving a conflict i try to do it to the mutual satisfaction, and when i am in conflict with other co-workers, i always ask them to explain to me what the problem is, while the lowest value is for the statements: when somebody does not agree with me, i defend my opinion, and while resolving a conflict, i try to maintain my opinion. our study supports the assumption that people from collectivistic cultures are less willing to use forcing styles of conflict management (e.g., kagan, knight & martinez-romero, 1982; leung, 1988; chiu & kosinski, 1994; elsayed-ekjiouly & buda, 1996; holt & devore, 2005; boonsathorn, 2007; gunkel, schlaegel & taras, 2016). the received values according to the jss scale categorize employees as ambivalent (neither satisfied nor dissatisfied). similar results were also received for some other dimensions. in fact, the highest score was reached for the dimension operating procedures. the score for this dimension is at the same time the only one in the job satisfaction category. the received scores for other dimensions are in the category of ambivalence, and only the score for the dimension promotion shows dissatisfaction. it is necessary to emphasize that received scores for the dimensions co-workers, supervision, communication and contingent rewards are closer to ambivalence than to job satisfaction, while scores for the dimensions nature of work, pay and benefits are between ambivalence and dissatisfaction. regarding h1 (there is a statistically significant difference between a compromising conflict resolution and socio-demographic characteristics of employees in the public sector in serbia), the findings reveal that there is no statistically significant difference between a compromising conflict resolution and socio-demographic characteristics. however, h2 (there is a statistically significant difference between the job satisfaction and socio-demographic characteristics of employees in the public sector in serbia) is partially confirmed, i.e., there is a statistically significant difference between some socio-demographic characteristics, but not between all. on the jss scale, statistically significant differences are received concerning the age of the respondents. in addition to the study of a compromising conflict resolution and the levels of job satisfaction of the total sample, the research also included the study of these scores according to socio-demographic characteristics of the respondents – gender and age. the research results showed that there are no statistically significant differences on the ccr scale in relation to socio-demographic characteristics of the respondents, and on the jss scale statistically significant differences were revealed in relation to the age of the respondents. regarding the age of the respondents, the dimension co-workers was statistically significant on the jss scale, and further analysis showed that for this dimension employees in the public sector in serbia aged 41 to 50, and 51 to 60 have significantly higher scores than the employees who are 18 to 30 years old and those aged 31 to 40. moreover, this research also included the relationship between compromising conflict resolution in the workplace and levels of job satisfaction of the employees in the public sector in serbia. the results confirm h3 (there is a statistically significant correlation between a compromising conflict resolution and job satisfaction among employees in the public sector in serbia) since there is the correlation between a compromising conflict resolution and job satisfaction. based on the received data there is a correlation between the ccr scale, the summation score jss sum and the dimensions contingent rewards, nature of work and communication. all these correlations are negative and show that with the increase of the level of job satisfaction, the level of compromising conflict resolution in the workplace decreases. this finding can be interpreted in many ways, and it may be assumed that compromising conflict resolution demand a lot of mental energy, and people often interpret such an effort as job dissatisfaction. on the whole, the more a person invests in compromising conflict resolution, the less satisfied they are with their job. when it comes to correlations between ccr scale and jss scale in relation to the gender of the respondents, the research results show that in the subsample of female respondents there is a correlation of compromising conflict resolution in relation to the average of the entire scale of job satisfaction and with the dimensions contingent rewards, co-workers and nature of work. in the subsample of male respondents, a statistically significant correlation between the level of compromising conflict resolution and job satisfaction was obtained only for the dimension communication. these results partially confirm h4 (there is statistically significant effect of gender on correlation between a compromising conflict resolution and job satisfaction in the public sector in serbia). in addition, it is important to mention that all obtained correlations, both in the subsample of female respondents and in the subsample of male respondents, had a negative sign, which indicates that with the increasing level of compromising conflict resolution, the degree of job satisfaction decreases. similarly, in addition to examining the correlations between ccr scale and jss scale according to the gender of the respondents, the research also examined the correlation between ccr scale and jss scale according to the age categories of the respondents. the obtained findings showed that statistically significant correlations exist in the subsamples of respondents aged 31 to 40 years, from 51 to 60 years and in the subsample of 63 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) respondents aged 61 and over. these results partially confirm h5 (there is statistically significant effect of age on correlation between a compromising conflict resolution and job satisfaction in the public sector in serbia). moreover, it is important to mention that the obtained results showed that in the subsamples of respondents aged 31 to 40 years, and 51 to 60 years, statistically significant correlations of the level of compromising conflict resolution exist in relation to the dimension nature of work. in the subsample of respondents aged 61 and over, a statistically significant correlation between levels of compromising conflict resolution and job satisfaction was confirmed in relation to the dimensions pay and co-workers. also, it is important to note that all the obtained correlations have a negative direction, which indicates that with the increase in the level of compromising conflict resolution, the degree of the expression of job satisfaction decreases. references [1] bojicic, r., pavlovic, m. & stojanovic-visic b. 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(1996). organizational conflict: a comparative analysis of conflict across cultures. international journal of conflict management, 7(1), 71-81. doi: 10.1108/eb022776 64 marko pavlović, biljana stojanović-višić, marija runić ristić 2022/27(1) the aim of this paper is to study the level of conflicts and the level of job satisfaction among the employees in the public sector in serbia. in order to collect data, two scales have been used: the compromising conflict resolution scale (ccr scale), specially created for the purposes of this research, and the job satisfaction survey scale (jss scale). we believed that the main cause of conflict in the public sector in serbia was related to tasks. however, the results show that employees mainly argue due to relational issues, e.g., aversion among employees, hostility, creating obstacles against one another, etc. moreover, regarding conflicts in the workplace, a little more than a half of the employees in the public sector in serbia believe that conflicts are not frequent, and a little less than a half of them believe they are frequent. this finding shows that opinions about conflicts are divided. as the main cause of conflicts, the respondents point out personal conflicts, organizational conflicts and communication conflicts. the best strategies to handle conflicts, according to most employees in the public sector in serbia are cooperation, competition, and then avoidance, while compromise is at the lower position place. regarding the methods for reducing the frequency of conflicts and for improving work climate, employees in the public sector in serbia prefer better planning and division of work and more resources that a company has at its disposal. conclusion [13] enehaug, h., helmersen, m. & mamelund, s.-e. (2016). individual and organizational well-being when workplace conflicts are on the agenda: a mixed-methods study. nordic journal of working life studies, 6(1), 83-104. doi: 10.19154/njwls.v6i1.4911 [14] gunkel, m., schlaegel, c. & taras, v. (2016). cultural values, emotional intelligence, and conflict handling styles: a global study. journal of world business, 51(4), 568-585. doi: 10.1016/j.jwb.2016.02.001 [15] herzberg, f. (1966). work and the nature of man. cleveland, oh: world publishing co. [16] hoboubi, n., choobineh, a., ghanavati, f. k., keshavarzi, s. & hosseini, a. a. (2017). the impact of job stress and job satisfaction on workforce productivity in an iranian petrochemical industry. safety and health at work, 8(1), 67-71. doi: 10.1016/j.shaw.2016.07.002 [17] hofstede, g. 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[28] kozan, m. k. & ergin, c. (1999). the influence of intra-cultural value differences on conflict management practices. international journal of conflict management, 10(3), 249-267. doi: 10.1108/eb022826 [29] leung, k. (1988). some determinants of conflict avoidance. journal of cross cultural psychology, 19(1), 125-136. doi: 10.1177/0022002188019001009 [30] morris, m. w., williams, k. y., leung, k., larrick r., mendoza m. t., bhatnagar d., li j., kondo m., luo j.-l. & hu j.-c. (1998). conflict management style: accounting for cross-national differences. journal of international business studies, 29, 729-747. doi: 10.1057/palgrave.jibs.8490050 [31] mueller, c. w. & kim, s.-w. (2008). the contented female worker: still a paradox?. in: k. a. hegtvedt & j. clay-warner (eds.), justice: advances in group processes, 25 (pp.117-149). bingley, uk: emerald group publishing limited. doi: 10.1016/s0882-6145(08)25006-x [32] pavlovic, m. & markovic, d. (2014). teorijski pristup zadovoljstvu poslom i motivaciji zaposlenih. vojno delo, 66(1), 289-302. doi: 10.5937/vojdelo1401289p [33] rahim, m. a. (1983). a measure of styles of handling interpersonal conflict. the academy of management journal, 26(2), 368-376. doi: 10.5465/255985 [34] rahim, m. a. (2002). toward a theory of managing organizational conflict. international journal of conflict management, 13(3), 206-235. doi: 10.1108/eb022874 [35] saari, l. m. & judge, t. a. (2004). employee attitudes and job satisfaction. human resource management, 43(4), 395-407. doi: 10.1002/hrm.20032 [36] spector, p. e. (1997). job satisfaction: application, assessment, causes, and consequences. thousand oaks, ca: sage publications, inc. [37] stoner, j., freeman, e. & gilbert, d. (1995). managment, 6th edition. englewood cliffs. new jersey: prentice hall, inc. [38] swarnalatha, c. & tephillah vasantham, s. (2014). factors affecting job satisfaction. indian streams research journal, 4(5), 25-37. 65 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) [39] terason, s. (2018). the effect of conflict management in thai public-sector sport organizations on employee job satisfaction and perceived organizational performance. academy of strategic management journal, 17(1), 1-9. [40] ting-toomey, s. (1988). intercultural conflicts: a face-negotiation theory. in: y. kim & w. gudykunst (eds.), theories in intercultural communication (pp. 213-235). newbury park, ca: sage publications, inc. [41] ting-toomey, s., gao, g., trubisky, p., yang, z., kim, h. s., lin, s.-l. & nishida, t. (1991). culture, face maintenance, and styles of handling interpersonal conflict: a study in five cultures. international journal of conflict management, 2(4), 275-296. doi: 10.1108/eb022702 [42] titov, e., virovere, a. & kuimet, k. (2018). conflict in organization: indicator for organizational values. in: organizational conflict (pp. 19-36). doi: 10.5772/intechopen.75496 [43] vujic, d. (2008). menadžment ljudskih resursa i kvalitet: ljudi – ključ kvaliteta i uspeha. centar za primenjenu psihologiju, beograd. [44] wang, g., jing, r. & klossek, a. (2007). antecedents and management of conflict: resolution styles of chinese top managers in multiple rounds of cognitive and affective conflict. international journal of conflict management, 18(1), 74-97. doi: 10.1108/10444060710759327 [45] williams, c. (2010). principi menadžmenta – mgmt. data status, beograd. [46] ye, z., liu, h. & gu, j. (2019). relationships between conflicts and employee perceived job performance: job satisfaction as mediator and collectivism as moderator. international journal of conflict management, 30(5), 706-728. doi: 10.1108/ijcma-01-2019-0010 received: 2019-10-02 revisions requested: 2020-04-29 revised: 2021-06-24 (4 times) accepted: 2021-06-25 marko pavlović pe post of serbia, belgrade markopavlovic25101982@gmail.com, markopavlovic82@mts.rs marko pavlović is employed at the pe post of serbia in belgrade. he obtained his phd in 2021 at the faculty of business studies and law in belgrade, union – nikola tesla university. he has participated in several international conferences and has published scientific papers in journals recognized by the ministry of education, science and technological development of the republic of serbia. more than twenty scientific papers he authored have been published so far. he was elected and worked as a teaching assistant at the faculty of economics and engineering management in novi sad, university business academy in novi sad, during three school years. the areas of his interest are: management, human resources management, banking and customer relations. biljana stojanović-višić faculty of engineering management, belgrade, union – nikola tesla university pe post of serbia, belgrade biljana.svisic@fim.rs, bstojanovic33@yahoo.com assistant professor at the faculty of engineering management in belgrade, union – nikola tesla university, and independent associate at the pe post of serbia in belgrade. she is a member of the international paneuropean union based in strasbourg, and as a delegate from serbia participated in numerous conferences throughout europe, attended by senior european officials. she is a member of the association of business women and entrepreneurs of serbia. the main areas of her academic interest are: european integration, serbia’s accession to the eu, socially responsible business and business communication. she obtained her phd in 2016 at the faculty of business studies in belgrade, megatrend university. she defended her master thesis in 2008 at the faculty of management in zaječar, megatrend university, where she completed her basic studies in 2004. she graduated from the ict college of vocational studies, university of belgrade, in 2002. she also completed the course of diplomatic protocol at the instituto europeo campus stellae. 66 marko pavlović, biljana stojanović-višić, marija runić ristić 2022/27(1) about the authors marija runić ristić faculty of management, sremski karlovci, union – nikola tesla university runic@famns.edu.rs assistant professor at faculty of management in sremski karlovci, union – nikola tesla university. she received her phd from the faculty of technical sciences, university of novi sad. between 2015 and 2018, she was a visiting assistant professor at the college of business and administration, american university in the emirates dubai, uae. for more than 10 years she has been an active researcher supervising numerous graduate and undergraduate theses and projects. she is the author of numerous conference papers and journal articles on human resource management and management issues ranging from employment relations, organizational behaviour, ethical behaviour and corporate best practices. 67 management: journal of sustainable business and management solutions in emerging economies 2022/27(1) << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged 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/includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice tipska 13 danka knezevic1, maja glogovac2 , nedeljko zivkovic2, milos dukanac3 1 td consulting, belgrade, serbia 2 university of belgrade, faculty of organizational sciences, serbia 3 msc doo, belgrade, serbia management 2015/74 assessment of the stakeholders’ importance using ahp method – modeling and application udc: 005.311 doi: 10.7595/management.fon.2015.0008 1. introduction drucker (1995) stated that every company is created to achieve some of the goals of individuals, groups, communities or social and state formations. niven (2002) noted that the most common targets of companies are related to financial interests that indicate the growth, profitability and value of the organizational system. however, the interests should not be strictly financial, so neely and adams (2000) categorized them into the interests of individuals (owners, employees, management), the interests of organizations and the state’s interests. vewing a company as a combination of explicit and implicit relationships (aghion and bolton, 1992; baker et al., 2002), in terms of a broader view of resource-based theory that includes intellectual property (takeya, 1997.), other parties in relationship with organization, not just the owners, should have the right to manage. neglect of the rights of the other stakeholders does not do well in the real world (stout, 2002). according to schlierer (et al., 2012) companies have to take into account and integrate the needs of all their stakeholders in the way they operate their business to create and distribute value. as a result, stakeholder value is becoming increasingly embedded in the strategic thinking to generate a long-term economic value. attention to stakeholders is emerging as a critical strategic issue (crilly and sloan, 2012) so dealing with this problem can be the basis for the sustainable management of organizational systems. meeting legitimate stakeholders’ requests would enhance a company’s endowment of trust and reputation, which, in turn, would increase both access to resources on factors’ markets and competitiveness on product markets (minoja, 2012). therefore, the management’s �rst steps towards a corporate social responsibility policy consist of identifying the different stakeholders or their business and their representatives and analyzing their interests and expectations in relation to the business (girard and sobczak, 2012). over the last 30 years, much management research has consequently focused on the methods of analyzing and mapping stakeholders and their interests, as well as the way the business managers may handle their relationships with them (stieb, 2009; bevan and werhane, 2011). while there is a well established body of literature that discusses stakeholder management, the concepts are not generally developed in ways that make them useful in practice (ackermann, and eden, 2011). attention to stakeholders, which means that companies bear responsibility for the implications of their actions, is emerging as a critical strategic issue. hence, meeting legitimate stakeholders’ requests would enhance the reputation of a company and increase its competitiveness on product markets. that is why an accurate identification of stakeholders and assessment of their importance is so significant for the companies. through an integration of the earlier models of excellence, models for identification and classification of stakeholders, models for assessing the quality of a company and the ahp method, widely applicable in various fields, a new model for assessment of stakeholders’ significance is proposed in this paper. the model also provides an assessment of a company based on the degree of the importance and satisfaction of stakeholders. the results of this model could be useful for companies and their management when it comes to defining a proper business strategy, monitoring the system changes over time, creating a basis for comparison with other similar systems or with itself. a practical example is given to demonstrate the effectiveness of the model. keywords: stakeholders, assessment, ahp, model 2. literature review 2.1. definitions of stakeholders the notion of stakeholder was �rst adopted in organizational studies, primarily as a new way of understanding business organizations as opposed to the mainstream shareholder view of the company (foo et al., 2011). starting from freeman’s definition of stakeholders (1984), one can conclude that current or potential stakeholders may include any of the following categories: individuals, groups, organizations, institutions, generally, anyone in the region (mitchell et al., 1997). thompson (et al., 1991) pointed out that stakeholders are the groups that are in some kind of relationship with the organization, while clarkson (1994) described that relationship as a voluntary or involuntary exposure to risk. there is a number of other definitions in literature (vos and achlerkamp, 2004; conti, 2004.; boutelle, 2004.; buysse and verbeke, 2003.; donaldson, 1999.; clarkson, 1995; donaldson and preston, 1995), which generally can be subsumed under the definition that stakeholders are individuals, groups and organizations that affect and/or that are affected by the observed system. 2.2. evaluation of stakeholders the impact of speci�c stakeholders is not always obvious (coff, 1999). however, as the companies are limited in time and all other resources, it is impossible to meet the demands of all stakeholders so it is necessary to determine their priority at a certain moment. in an attempt to further analyze the stakeholders on the project level, boutelle (2004) pointed out four steps in stakeholders analysis. mochal (2006) listed six steps. in both cases, the steps are almost identical, but none of them offers a concrete solution for the classification or determination of the stakeholder importance, considering that there is a difference between them. the fact that stakeholders can be seen as active and passive (vos et al., 2004), primary and secondary (overseas development administration), internal and external or as voluntarily and involuntarily involved (clarkson, 1994) confirms that there are differences among these parties from the standpoint of the importance to an organization. mitchell (et al., 1997) claims that all the stakeholders can be identified and classified on the basis of whether they have one, two or all three of the following attributes: power, legitimacy and urgency. although this theory gives partial solutions to the problem “who or what is taken into account” (freeman, 1994), when it is applied in practice, results are contrary to expectations. firstly, it is not clear what criteria are used to determine whether the requests of observed stekeholder are legitimate or not. it is the same when it is comes to urgency, because it is clear that this criterion, like legitimacy, leaves much space for subjectivity. the power, defined as the ability of one party to influence the decisions of others (dahl, 1957), is difficult to define but it is easy to recognize (weber, 1947), which unfortunately cannot be applied to the previous two criteria. moreover, it is not clear if an observed stakeholder should be given some of the attributes in case that different requests of the same stakeholder are evaluated differently according to some of the criteria. for example, the stakeholder has 6 requests, 3 of them are assessed as legitimate, while one of them is urgent and two of them are neither legitimate nor urgent. the question is whether the stakeholder should be given legitimacy and urgency. the conclusion is that these criteria can be used for the evaluation of the stakeholders’ significance only when they are observed on the level of their requests, under the condition that it is clearly defined from whose point of view the urgency and legitimacy will be assessed. 3. assessment of the stakeholders’ importance using ahp method it is clear from the previous discussion that each organizational system has to meet the needs of stakeholders. as organizational resources and capabilities are limited, the ability to fulfill the needs of all stakeholders is also limited. however, not all the effects between the stakeholders and the company are of 14 2015/74management the same intesity, which indicates that their importance to the company is not the same. if a company knew the importance of each stakeholder, it would be able to focus resources on meeting those needs that would provide them long-term survival. therefore, it is necessary to identify the stakeholders, determine their needs and determine their significance, and then implement that in the business strategy. integrating the previous models of excellence, models for identification and classification of stakeholders (mitchell et al., 1997), models for quality assessment of the company and the ahp method, widely applicable in various fields (chin et al., 2002; kang and lee, 2007; tseng et al., 2007; tseng et al., 2009.), a new model for assessment of stakeholders’ importance is proposed in this paper. the model also provides an assessment of the company based on the degree of importance and satisfaction of stakeholders. the results of this model could be useful for companies and their management to define a proper business strategy, monitor the system changes over time, create a basis for comparison with other similar systems or with itself (100% satisfaction – the best grade). also, the model could be a good basis for the improvement of excellence model and similar systems of evaluation and comparison of organizational systems which are not strictly based on financial indicators. figure 1. model for assessment of stakeholders’ importance eоc= im1*sf1 + im2*sf2 + ... + imi*sfi + ... + imn*sfn = σ imi*sfi , i=1...n (1) sfi= (sfi1 + sfi2 + ... + sfij + sfim)/m = σsfij/m , j=1...m (2) sfij=(ikij1*fkij1 + ikij2*fkij2 + ... + ikijl*fkijl + ... + ikijk*fkijk)/ (ikij1 + ikij2 +...+ ikijl + ...+ ikijk)*fkmax = σikijl*fkijl/ σikijl*fkmax , l=1...k , k=f(i) (3) eoc evaluation of the organizational system, imi level of importance of stakeholder group i, determined by using the ahp method, sfi level of satisfaction of stakeholder group i, sfij level of satisfaction of stakeholder j, which belongs to the stakeholder group i, 15 management 2015/74 ikijl level of importance of the request l, to the stakeholder j, which belongs to the stakeholder group i, fkijl level of importance of the request l according to oppinion of the stakeholder j, which belongs to the stakeholder group i, fkmax the highest possible mark for the requests, no metter if any stakeholder gave that mark to any request, n number of stakeholder groups, m number of stakeholders within one group, whose satisfaction is being evaluated (sample size), k overall number of requests according to which stakeholders are being evaluated. this number can vary depending on a stakeholder group. the model aims to: 1. take into account all the stakeholders, 2. take into account the fact that the level of importance is a varying category, 3. define elements for determing the level of importance of stakeholders, 4. be flexible and general enough, in order to provide widespread use, 5. be clear and easy to use, 6. define the elements for further management and improvement of the organizational system. the procedure consists of the following phases: 1. stakeholder identification, 2. evaluation of the importance of stakeholders, 3. determination of the stakeholders’ satisfaction, 4. data processing and analysis. phase 1 involves identifying the broadest possible set of individuals, groups and organizations that can influence the company and/or are under the influence of the organizational system. in general, stakeholders can be classified into one of the following groups: • the owners (shareholders, groups and individuals), • employees (management, executives), • suppliers, • customers and consumers, • banks (creditors), • donors, • the state and its institutions at different levels (ministries, agencies, government, etc..) • competition, • the community, • research institutions, • various activist groups and associations (consumer protection, business associations, trade unions, etc.). on the basis of possible groups of stakeholders, identification of stakeholders for for each system will be done. phase 2 involves assessment, carried out by applying the ahp (analytic hierarchy process) method and expert choice software. decision-makers make the assessment of significance of each stakeholder and asign them some grade from table 1. data processing is done by using the software. the problem that will inevitably occur in this phase is the lack of clear criteria by which one can assign appropriate grade to one stakeholder compared with another stakeholder. the other problem is the subjectivity of decision makers. the former problem can be partially overcome by taking into account the long-term survival of the company as the basic criterion for the assessment of significance. decision makers need to consider which of the two parties being compared is more important or whose (dis) satisfaction has a greater impact on a longterm survival of the organizational system. the latter is caused by the possibility that decision makers are the same ones who daily make decisions regarding the organizational system, ie., management. this is justified to some extent because management is responsible for leading and managing the organizational system, and therefore is responsible for its current state. undoubtedly, someone who is responsible should be involved in decision making, but the question is how much one is able to perceive all aspects objectively. therefore, it is proposed that representatives of all stakeholders should be involved into decision making. this would eliminate the subjectivity of some individuals to some extent and give a significantly more realistic evaluation of the importance of stakeholders. also, it is suggested that the decision makers should, among 16 2015/74management others, be experts from the environment (some kind of consultants), as individuals who are familiar with this issue and who are unbiased because of their exclusion from a relationship with an organizational system. phase 3 involves an identification of the stakeholders’ satisfaction through questionnaires. the questionnaire should be compiled with the representatives of stakeholders, because they are familliar with the widest range of requests of their stakeholder groups. for each of the identified groups of stakeholders a representative sample is defined and questionnaire is carried out. in the questionnaire, each stakeholder representative determines the significance of their requirements on the scale of 1 to 5, and then evaluates compliance with the relevant requirements. in this way, obtaining a more realistic evaluation of satisfaction is provided, because it is clear that all entities, even within the same group of stakeholders (e.g. employees) do not have the same perception of the significance of individual requirements. table 1: assessment phase and determination of the stakeholders’ satisfaction the example of the questionnaire before this phase is carried out completely, a pilot questionnaire should be conducted after identifying the requirements. it should include open questions, ie., space for additional requirements that may not be covered by the questionnaire, in order to avoid the risk of omitting important requirements. if respondents point out additional requirements in the pilot questionnaire, the questionnaire should be complemented by adding the missing requirements or by a different formulation of the existing one. the questionnaire should be changed if there are significant number of grades “0” (not enough information to assess the fulfillment of the requirements), because it indicates a potential lack of understanding of the requirements or even lack of significance of the requirements for the relevant stakeholders. 17 management 2015/74 grade explanation 9 absolutely the most significant stakeholder 8 the most significant stakeholder 7 exceptionally significant stakeholder 6 pretty significant stakeholder 5 significant stakeholder 4 very important stakeholder 3 important stakeholder 2 a little important stakeholder 1 equally important stakeholder first grade – level of importance of requirements evaluation system absolutely insignificant requirement insignificant requirement less significant requirement significant requirement the most significant requirement descri ption/ grade 1 2 3 4 5 second grade – level of fullfilment of requirements evaluation system extremely dissatisfied dissatisfied partially satisfied satisfied extremely satisfied without enough information descri ption/ grade 1 2 3 4 5 0 design ation requirement first grade – level of importance of requirements second grade – level of fullfilment of requirements the problem that could occur in this phase is the inability to interview some stakeholders which should be taken into account as a limiting factor. the proposal is to conduct phase 2 again in the way that stakeholders whose significance cannot be determined should be omitted from the assessment of the significance. such an act will give an incomplete picture of the observed system, but it will eliminate errors that would occur if the significance of those stakeholders was evaluated (because of the application of the ahp method, the sum of importance of all stakeholders must be 1) phase 4 involves data processing according to the previously expleined mathematical model. 4. the practical example the model was applied in the company that has existed for more than 70 years manufacturing footwear (safety, recreational and shoes of general purpose). it operates as a limited company, with less than 1000 employees. it was noticed in the first phase that the company had no donors, so this group of stakeholders was omitted. it was also noticed that the system has not had any contact with scientific institutions so this group of stakeholders was also omitted, while the social community, because of limited factors, was seen only through the non-governmental organizations and association, without directly interviewing citizens. in the evaluation of the significance of stakeholders representatives of all stakeholders were included, provided that the management of the company had the largest number of representatives. the total number of decision makers was 15, one representative for each group, provided that the owners had 2 representatives, the management had 5 representatives, and one expert, who was not in any relation with the company, was hired. the questionnaire for each group of stakeholders was compiled together with the management and representatives of the other groups of stakeholders and it was tested on test sample. the test sample pointed out the need for complementing requirements of two groups and reformulating requirements of four groups of stakeholders. depending on the (estimated) number of stakeholders within the observed group, a representative sample was selected and the results are shown in table 2. interviewing lasted for four months, and questionaires were delivered in a way that was the most convinient for the respondents (e-mail, fax...), ensuring anonymity as much as possible. after four months, the response rate exceeded 90%, so an overview of the situation was made and the results are shown below. table 2: representative sample 18 2015/74management no stakeholder sample size note 1. banks 100% 2. customers 10% domestic and foreign customers were taken into account. customers with significant annual volume of buying were selected. 3. the state 100% representatives of all state institutions in the community and the region who are significant for research were selected. 4. suppliers 10% domestic and foreign suppliers were taken into account. suppliers with significant annual volume of trade were selected. 5. competitors 100% 6. non-governmental organizations, associations (social community) 100% representatives of non-governmental organizations, sports associations etc. in the community were selected. 7. employees 10% employees within different organizational sectors, of different gender and age were taken into account. 8. owners 100% all the members of board of directors were taken into account as representatives of other stockholders. 9. management 100% after the survey was conducted, the results are analyzed and presented in table 3, as well as the results of evaluation of significance of stakeholders. table 3: results the results show that of greatest importance to the company are customers, and then owners, management and employees. this assessment of significance probably has its roots in the quality management system that is implemented and certified. the owners, management and employees are the internal stakeholders that are directly related to the top management, and are also part of the organizational system, so paying attention to them is logical. figure 2: evaluation of importance of the stakeholders (imi) the questionaires, which were to determine the level of satisfaction of identified stakeholders, showed that stakeholders that were evaluated as the most important expressed the lowest level of satisfaction. employees, management and owners are the least satisfied with the fulfillment of their requirements, while customers‘ level of satisfaction is in the middle. the state, non-governmental organizations and other associations as representatives of the community expressed a very high level of satisfaction, although they have the lowest significance for the organizational system. figure 3: evaluation of satisfaction of the stakeholders (sfi) 19 management 2015/74 no stakeholder level of satisfaction sfi level of importance imi final grade 1. employees 59.840 0.162 9.694 2. management 65.600 0.184 12.070 3. owners 70.000 0.206 14.420 4. banks 76.670 0.062 4.753 5. customers 78.880 0.209 16.486 6. competitors 80.000 0.037 2.960 7. suppliers 82.600 0.049 4.047 8. non-governmental organizations, associations 92.670 0.021 1.946 9. the state 93.930 0.070 6.575 the grade of the organizational system 72.951 observing the participation in the final grade of organizational system, it is clear that customers, owners, management and employees have a key share. the final grade of the company was 72,951 compared to a maximum of 100. however, at this level of information availability, it is difficult to make any judgment on whether this grade is acceptable or not, since there are no data on the evaluation in a prior period or some other system with which this grade could be compared. what is certain is that the company should take appropriate measures to increase the satisfaction of the most important groups of stakeholders, especially employees, since they are the least interested party. figure 4: the share of stakeholders in the final grade of the organizational system 20 2015/74management conclusion the stakeholder theory advocates that companies bear responsibility for the implications of their actions (fassin, 2012). the stakeholder theory addresses morals, values, and ethical obligations explicitly as a central feature of organizational management (phillips et al., 2003). dealing with this, organizations could achieve success so it is important thet shareholders should be defined well and then evaluated. the idea is that the requirements of stakeholders and the level of their satisfaction should be the basic concern in decision-making and evaluation of an organizational system. the possibility to evaluate the company according to the level of fulfillment of its stakeholders’ requirements is confirmed by the models of excellence, i.e., the deming application prize award and malcolm baldrige quality award. those models clearly indicate the importance of stakeholders’ involvement, but in addition to the noticed shortcomings (eskildsen et al., 2002.) they do not consider who stakeholders are, how they and their requirements can be identified, categorized and, finally, how final grade of observed organizational system is to be determined. therefore, in this paper, we propose a model for evaluating the stakeholders, based on the ahp method. the model is applicable in practice, as shown in the practical example and it can be considered as a partial improvement in comparison with the previous models. however there are still a lot of unresolved issues. subjectivity in assessing the significance of the stakeholders is one of them. all the decision makers should consider in detail the criteria according to which significance will be evaluated. 21 management 2015/74 also, the model does not provide a clear guidance on when and how often to evaluate the significance of stakeholders, considering that it is a variable category. furthermore, some groups of stakeholders should be separated in order to get the most realistic picture. this primarily refers to the customers who undoubtedly have different views and interests in dealing with a company. the question that the model also failed to answer is related to the level of thoroughness of the identification of stakeholders. where is the limit to which one should go in order to identify those who have an impact on the company or who are affected by it? should the analysis be reduced only to direct impact, or those who are indirectly exposed to the effect should also be considered (e.g. owners of local stores whose business directly depends on the purchasing power of the people who are employed in the observed organizational system)? a further direction of the model development should be the identification of relationships between the characteristics (performances) of a company and the stakeholders‘ requirements. performances can be seen in several hierarchical levels, from the simplest to the most complex. under the complexity we consider the comprehensiveness that is interdependent with the performance of the performances of the lower hierarchy level, as shown in the figure 5. (eg. profit directly depends on income and expenses, so it is at the higher level of hierarchy). furthermore, it would be necessary to find a direct link between each requirement with at least one performance, and vice versa, given that one performance can be linked with many requirements. figure 5: link among performances of a company and stakeholders‘ requirements in that case, decision-makers would have a more complex task, because they should determine the importance of each stakeholder in relation to all performances at the highest hierarchical level, so the model could look like as shown in the figure 6. evaluation of significance would be done by using the ahp method, with the difference that the final grade of one stakeholder would be calculated on the basis of more individual grades of significance where the number of those grades would be equal to the number of performances at the highest hierarchical level. the rest of the procedure would remain the same. references [1] ackermann, f., & eden, c. 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(2004). an instrumentfor stakeholder identification: phasing roles of involvement. university of groningen, research institute som (systems, organisations and management), research report , 04b32. [38] weber, m. (1947). the theory of social and economic organization. new york, free press. receieved: january 2015. accepted: february 2015. 23 management 2015/74 24 2015/74management about the author danka knezević td consulting, belgrade, serbia danka knezević, msc., is phd candidate at the faculty of organizational sciences, university of belgrade, serbia. she has been concerned with improving the process and the implementation of international standards for more than eight years. up to now, she has completed over 130 projects and has published over 20 papers in this field. currently, she works as a director at the consulting firm td consulting. maja glogovac university of belgrade, faculty of organizational sciences, serbia glogovac.maja@fon.bg.ac.rs maja krsmanović, msc., works as a teaching assistant at the faculty of organizational sciences, university of belgrade, serbia, where she obtained her bsc and msc degrees. currently, she is a phd student. her major interests are quality management, process control and standardization. she has published over 30 papers in this field. nedeljko zivković university of belgrade, faculty of organizational sciences, serbia zivkovic.nedeljko@fon.bg.ac.rs assistant professor nedeljko zivković, ph.d., is a quality management assistant professor at belgrade university, faculty of organizational sciences (serbia). he earned his ph.d. from belgrade university (serbia) faculty of organizational sciences and his bsme from belgrade university, school of mechanical engineering. he is a registered quality management system lead auditor. among many, his consulting activities include those in implementing management systems. he is the author of a large number of papers published in international and serbian journals. milos dukanac msc doo, belgrade, serbia milos dukanac, msc., graduated from the faculty of organizational sciences department of quality management, university of belgrade. he obtained his master deegre in quality engineering in 2012 at the faculty of organizational sciences. in 2012 he started to work for the ”management systems certification“ d.o.o., an accredited certification body for management systems certification, as a certification manager, with the following main responsibilities: creating business policies and procedures, promotion, communication to clients and other stakeholders, resolving complaints, evaluation of customer satisfaction, development of new services in the area of management systems, conducting trainings on international standards application. tipska 53 vladimir njegomir¹, jelena demko rihter ² ¹ high school „legal and business academic studies dr lazar vrkatiã“, novi sad, serbia ² faculty of technical sciences, trg dositeja obradovića 7, novi sad, serbia management 2015/77 the role and importance of insurance of business and supply chain interruptions udc: 005.334:005.552.1 doi: 10.7595/management.fon.2015.0025 1. introduction development of civilization was followed by the risk of the original community suffered from time immemorial to nowadays, making an integral part of all living and working activities of humans (njegomir, 2011). doing business is exposed to numerous risks that threaten property, life and health of employees, as well as business continuity. it is assumed that there are about 450 different types of risks in the world (marovic and avdalovic, 2006, p. 46). doyens of economic thought, samuelson and nordhaus emphasize that economic life is a risky business (samuelson and nordhaus, 2009, p. 205). recently, businesses are more exposed to uncertainty and various risks such as pandemics, terrorism, natural disasters, software viruses, and the like. new technologies, especially information and communications, modern ways of doing business that require delivery to business partners and consumers just when they need it, just-in-time (jit), as well as a rapidly changing business environment bring numerous advantages, but also numerous challenges. supply chains are becoming longer and highly technologically dependent, which, on the one hand, improves the efficiency of doing business, but at the same time, in the case of the risks that lead to business interruption, the potential consequences are far more devastating than they were twenty years ago due to the strong interdependence of risks. marine insurance was first developed and its traces date from the period of 5000 bc. over time it became necessary to finance the consequences of indirect losses that are not covered by the usual property insurance. afterwards, due to the expressed needs of businesses to ensure the continuity of their business as well as operating income the first forms of insurance against business interruption emerged as early as in 1797. minerva universal, a uk company paid insurance premium in case of lost operating income due to business interruption caused by the risk of fire. in the modern business conditions insurance coverage for business and supply chains interruption attract an increasing attention. the main reason lies in the fact that the indirect damages resulting from the realization of adverse events covered by property insurance in some cases become higher than the direct damage to property. having this in mind it becomes important to analyze achievements in this type of insurance. the authors first analyze the exposure to the business and especially supply chain disruptions, followed by the risk management and then the application of insurance as a key element of the management of all these risks. the subject of this paper is the issue of business continuity and risks of disruptions and the role of insurance. special importance is given to the problem of supply chain sustainability. the critical element of success in business is maintaining continuous operations. if companies are not in a position to achieve that aim, or to finance their losses after an accident that can cause interruption, they certainly will fail. insurance has a pivotal role in business and supply chain continuity risk management. as well as in all other cases, insurance cannot directly safeguard companies from accidents and subsequent disruptions but is the most important source of indemnification for losses when insured events materialize. unlike developed economies, this type of insurance still does not have such importance in serbia and other former yugoslavian republics. we conclude that insurance, as an integral part of risk management efforts, should be combined together with other risk management techniques in order to provide business and supply chain continuity. keywords: risk, business continuity, supply chain, risk management, insurance 2. exposures to the risks of business and supply chain interruptions in the last decade, the most significant event in terms of the risk of business interruptions and the whole insurance industry is the terrorist attack of the 11th september, 2001 in the united states. the total insurance expenses caused by this adverse event amounted to around us$ 40.2 billion of which $ 11 billion (i.i.i. insurance fact book 2004, p. 83) were expenditures of the insurance industry through the indemnities of lost profits and other costs caused by business interruptions, which indicates the importance of managing this type of risk. another significant impact on businesses, insurance sector and the entire economy was the hurricane season of 2005, when the top three hurricanes, katrina, rita and wilma, caused economic losses of nearly $ 170 billion, of which the insured losses totalled about $ 65 billion (lloyd’s, 2011). one of the causes of business interruption was the severe acute respiratory syndrome or sars, which, according to the asian development bank, caused losses in the form of reduced operating income and other costs related to business interruptions in the amount of approximately $ 60 billion in the countries of east and southeast asia. the possibility of pandemics (sars, avian and swine influenza) primarily cause mortality and threaten people’s lives, but also reduce availability of labour and cause business interruption, and it is necessary to manage this risk and implement preventive measures and draw up plans for crisis management. by now the focus in risk management has been on protecting the property from direct physical destruction that would lead to the business interruption, but the need to include the potential loss of human resources in the insurance is increasingly emphasized. figure 1: cases of key risk of business interruptions source: a risk management standard, airmic, alarm, irm, uk, 2002, p. 3 figure 1 shows the internal and external causes that may lead to business interruption, while emphasizing their mutual relations. in case of internal risk, an important factor may be the type of production and the necessary production conditions, and, for example, parallel production is less sensitive due to the use of multiple parallel machines, than mass production where the breakdown of one machine causes a slowdown of all the others. external causes may be a delay or interruption of energy supplies or raw materials where the problem is additionally complicated if the company applies the jit inventory management and relies on one or a small number of suppliers. supply chains imply the physical shifting of a product or all business activities which are focused on delivering products to customers. those activities are mutually related and form some kind of a supply chain. the main objective is to ensure the availability of goods and services to consumers at a time and place that best suits them, and at the same time to minimize the costs related to bridging temporal and spatial 54 2015/77management differences between production and consumption. there are numerous innovations in the field of supply chain management, and one of them is focusing on a small number of well-known suppliers, having in mind that establishing and developing cooperation with suppliers requires additional time and other resources. the development of jit inventory management system tends to minimize the cost of holding inventory in order to increase productivity and efficiency in terms of both buyers and suppliers. in these conditions, however, a mistake in delivery will cause more problems than a smaller quantity of inventories with following costs. a supply chain disruption occurs when the supplier cannot deliver on time. in order to reduce total operating costs some business operations can be redirected to other companies and it is known as outsourcing, but it increases the exposure to risk of supply chain disruption because of possible interruptions in the delivery, as well as of deviations from the defined quality of raw materials and semi-finished products used in the production of a finished product. globalization, jit delivery and minimum inventory levels that comply with the continuous delivery, focusing on a single supplier, the outsourcing of business operations which are not key operations and especially using of internet which enabled the exchange of information and ordering nearly in real time, caused high risk exposure to supply chain disruption. this can go “deeper” into the entire chain, which complicate the problem of identifying exposure to risk and the implementation of measures of risk assessment and treatment. 3. achieving business continuity through risk management interruptions in business can be caused by different reasons; some of them are predicted and some are not. althouhg the probability of any individual adverse event may be small, the overall effect on the business can be huge. continuity of business is not an ad hoc activity but a continuous process of planning where risk management plays a key role. integrated risk management in the context of achieving business continuity involves three elements: 1) risk avoidance, with the primary objective of limiting the probability of the adverse event and its size, 2) risk transfer with the main objective to mitigate risk of an adverse event through risk transfer to third parties or through insurance and 3) preparedness with the main objective to normalize the business, as it was before the adverse event (brauner, 2001, p. 5). in modern business conditions companies have the ability to identify risks, to assess their potential effects and, on the basis of the assessment results, to take proper action, such as transfer, prevention and reduction, avoidance or risk retention. risk management process is shown in figure 2. figure 2: risk management process source: crouhy, m., galai, d. and mark, r.: the essentials of risk management, mcgraw-hill, new york, 2006, p. 2. 55 management 2015/77 risk management implies the type and level of risk that are appropriate for the company to take in doing its usual business activities (crouhy, galai and mark, 2006, p. 2). companies must apply internally two forms of risk management, such as risk avoidance and preparedness in the case of adverse event. each company is trying to avoid the adverse event that may jeopardize business continuity and income. effective implementation of risk control measures, such as setting up a fire-extinguisher can greatly reduce the probability of occurrence and the extent of the potential damage and can have a positive impact on financial performance. safety is no longer seen as a technical issue. in recent times it is important to set up safety culture in the company as the most important measure of prevention of adverse events. safety culture as way of dealing with risk reflects the awareness, safety and risk of all employees and presents an integral part of corporate culture, influenced by corporate principles, strategies, goals, and technological and social development. despite all the measures taken, the company may still face the risk of business interruption caused by adverse events. regardless of covering risks by the insurance, companies have to prepare themselves systematically to be able to react appropriately in case of an adverse event. preparedness is not an alternative to prevention or to insurance but is complementary to them. regardless of the length of the business interruption the company still has to cover the fixed costs such as salaries, rent, depreciation of equipment and therefore the insurance of business interruption cover only fixed costs. furthermore, it usually needs a certain period to normalize the business where the period of generating income recovery is usually longer than the period of technical recovering. figure 3: normal operations source: meier, w. et al.: business interruption insurance, swiss re, zurich, 2004, p. 13 the main task of the crisis management is to minimize losses and to normalize business in the shortest possible time. a well-planned provision of business continuity in the case of an adverse event and a response in a short time can mean the difference between the survival and the end of business. this is not only the intention of companies themselves, but insurance companies force them to behave so, too. the liability of insurer to pay indemnity due to business interruption can be stopped if the company did not respond promptly to minimize the damage and period of business interruption. in addition to cost reduction in case of adverse events by insurable risks, managing of business continuity is extremely important in case of uninsurable risks, such as the risk of the loss of business reputation, which can not be avoided or transferred to the insurance company. according to the report of the world economic forum and the “accenture” company, more than 90% of the nearly 200 surveyed transport companies indicated that risk and need of supply chain risk management has become much more important compared to the previous period (new models for addressing supply chain and transport risk, world economic forum, 2012). also, the study carried out by the brokerage firm “aon” has identified that the issue of business interruption is on the third and disruption of supply chain is 56 2015/77management on the eighth place in the list of risk priorities of global managers (global risk management survey, aon corporation 2011). finally, the study conducted by the business continuity institute shows that 85% of the surveyed in the 550 organizations from 60 countries in the 2011 had at least one business interruption (supply chain resilience 2011, the business continuity institute 2011). for 17% of the surveyed the largest single loss due to disruption of the supply chain was eur one million and more. it is evident that awareness of exposure to risk of the supply chain disruption and of the need to manage this risk has significantly improved in recent years. globalization, focusing on maximum efficiency of the processes with minimal required resources as well as the geographic concentration of production improve efficiency of the global supply chain networks, but also affect the changes in the profile of supply chain disruption risk. the key events that have caused a paradigm shift in terms of security of supply chains and affected the recognition of the need to manage this risk include the global financial crisis, terrorist attacks, floods in thailand and australia and the earthquake and tsunami in japan. the aforementioned report indicates that by now the key impact to the supply chains disruptions has come from natural disasters and politically motivated unrest, sudden shocks in the field of demand and interruptions in information and communication flows. in order to achieve an effective and efficient risk management it is primarily important to understand the supply chain and its participants, to identify potential possibilities of suppliers’ business interruptions and to determine their own aggregate exposure to this type of risk and to quantify its potential impact. it is primarily needed to assess the exposure of business to this risk and then to define priorities. focusing on the dominant supplier or supplier that participate the most in the total value of procurement does not necessarily mean the best approach. in the process of prioritization it is necessary to start from the influence of the income and value, to focus on the critical types of product, as well as on the potential financial impact of the supply chain disruption. after that it is necessary to model the exposure to risk of the supply chain disruption and its potential impact to business performance. in order to reduce exposure to the negative financial effects of the supply chain disruption there are lots of available measures, such as the implementation of strict safety and quality standards, establishing cooperation with alternative suppliers or finding alternative supply chains and implementing other measures in the selection of suppliers. by choosing suppliers it is necessary to check whether they apply risk management programmes, whether their production is geographically concentrated, whether there is a possibility of using outsourcing, whether there is a dependence of the complex and not easy replaceable equipment, or whether they are exposed to other risks that could threaten business continuity of suppliers and lead to the supply chain disruption. reliance on a small number of suppliers and their geographic concentration, particularly suppliers of raw materials, semi-finished and finished products from china and other countries, increases exposure to the risk of supply chain disruption. in this assessment it is good to use advice and experience of business partners, insurance agents and brokers, insurance companies knowledgeable about the quality of the existing insurance coverage. 4. the role of insurance in business interruption risk management the main task of the risk management is to ensure an optimal risk-return relation through a variety of available risk management methods. risk retaining traditionally occurs as a supplement to the transfer of risk to the insurance and this form of hedging is applicable in situations where the possibility of risk and intensity of the adverse consequences are small. commercial insurance means insurance of companies such as producers, distributors, shippers, trading companies and wholesale and others. commercial insurance covers insurable risks of entrepreneurial activities, whether a property or a commercial liability insurance and focus on four key areas: • protection of employees a large number of employees or key personnel is difficult to be replaced and they may be unable to work for a longer period due to illness or injury caused by an accident; • protection against liability to third parties business activities can cause damage to third parties, for example in the case of defective product, and if the fee has to be paid by the company then its assets are exposed to risk; 57 management 2015/77 • protection of assets – property such as buildings, equipment, inventory or personal property may be damaged, destroyed or unusable after the occurence of risk event such as fire; • protection against downtime operating income can be reduced or totally lost in case of the adverse event and there are also fixed costs regardless of the degree of capacity utilization. in addition to the direct consequences expressed through the loss of property, companies have indirect consequences in the form of lost profits, fixed costs and additional costs related to the risk of business interruption. variable costs cannot be covered by insurance. insurance coverage of operating income, as it is well-known in the u.s., is additional insurance that is contracted by previously paid property insurance premium. having in mind that the most common cause of business interruption is risk of fire usually followed by the risk of breakdown of machines, it is usual to conclude a contract of insurance for business interruption caused by fire and other hazards and insurance of business interruption caused by machine breakdown. insurance of business interruption is typical for developed countries, especially their most important sectors such as energy or trade. in the region, a most common insurance is that for the cases of business interruption caused by fire or other hazard (marovic, kuzmanovic and njegomir 2009, p. 247). the basis of the problem of the insurance of business interruption is an evaluation of damage due to reduced or lost operating income and the existence of fixed and additional costs caused by the occurrence of an adverse event. insurance of business interruption covers reducing of net operating income of the insured company in the case of the risk covered by insurance. this reduction of net result is calculated by subtracting the revenue that the company actually generated during breaks in the business from the amount of revenue that the company could achieve during the same period under reasonable business circumstances. for example, the expected net operating income determined on the basis of revenues and expenditures realised in the previous year may have the following monthly structure: sales revenue amounted to 100,000 �, fixed costs 20,000 �, variable costs 20,000 �. thus, in case of normal business circumstances, net income would amount to 60,000 �. not taking into account the participation of the insured in the damage in the case of business interruption for a period of three months, the total lost operating income would be equal to the lost sales revenue and fixed costs multiplied by three, that is, 360,000 �. also, the company may incur additional costs due to the adverse event associated with the company’s efforts to overcome the problems caused by the interruption of business, such as the need for additional labor in order to recover the production process or to rent additional premises in another location in order to ensure the continuity of the production process or service provision (njegomir 2011, p. 305). at the international level, in terms of the duration of business interruption, there are two systems of compensation. the british system that is present in most countries means that the insurer has an obligation to indemnify until the recovery of ability of generating income and the u.s. system means that the insurer has a liability only until the technical recovery of the insured company (meier, werner, et. al, 2004, p. 31-33). bearing that in mind, the insured amount is essentially equal to the sum of the net profit and fixed costs, and when this amount is divided by the total amount of the annual turnover, this is the way to calculate the total profit rate. also, the insurer is allowed to reduce the amount of the indemnity or to completely abandon it if in case of business interruption the insured does not take the necessary measures to eliminate or minimize damage caused by business interruption and measures to reduce the duration of the interruption. insurers in all the countries of the former yugoslavia offer insurance coverage for business interruption caused by fire and other hazards. compensation covers operating profit that could not been realized due to business interruption. compensation also covers the costs that would not emerge if there was business continuity as well as lost market share and other losses caused by business interruption up to the maximum agreed limit of coverage. the insurance premium depends on the exposure to risk of fire and other hazards, the length of the contractual warranty period, objects of insurance (operating profit and fixed costs) and granted discounts. the sum of insurance is voluntarily contracted and depends on the expected annual profit and planned expenditures, on the one hand, and the duration of the warranty period, which means the period within which it is possible to receive indemnity for the damage caused by business interruption, on the other hand. in developed countries, especially in the united states, various types of additional coverage can be contracted, such as: a) business interruption caused by breakdown of computer, b) extended coverage of operating income (for example if the company suffered fire after reopening, additional time is needed for normalizing operations, due to the time gap between the recovering of the technical capacities and the 58 2015/77management capability to generate income, c) business interruption due to the activities of civil authorities, d) conditional insurance of business interruption caused by interruption of key supplier and e) various specialised types of insurance (rejda 2005, p. 285-287). some risks that are not covered by this insurance are the explosion of nuclear power, wars, political risks, pollution and contamination that have the character of fundamental risk. in addition to the indemnity, the insurer has a significant role in providing technical assistance to the insured in managing the financial statements and risk management in order to identify timely business potentials and risks that could threaten business continuity. discounts are usually given to companies that have established adequate internal risk management and that is the way to motivate companies to take care of risks that can cause business interruption. additional insuranance of business interruption has no purpose if it is not caused by physical damage on the property of the insured company or if business interruption is out of control of the insured. in those situations insurers have no obligation of indemnity and the problem escalated after some adverse events such as earthquake in japan and volcanic eruption in iceland. in order to meet the identified needs of corporate clients insurance companies have started to offer insurance coverage for the risk of supply chains disruptions, well known as trade disruption insurance. this type of insurance is especially important in modern business circumstances. adverse events such as natural disasters, terrorist attacks, viruses or political unrest frequently cause disruption to the business, having in mind that more and more companies are focused on cooperation with a smaller number of suppliers in order to reduce costs, on the implementation of the just-in-time system of inventory management, outsourcing. although companies are aware of an increasing exposure to risk of supply chains disruption and its negative financial effects, the demand for this type of insurance is still limited by unfavourable economic conditions, high cost of providing insurance coverage and the complex process of assessing exposure to this type of risk. determination of adequate insurance premiums and assessments of risk are very complicated, requiring a lot of information from the insured. there are numerous difficulties in understanding risk exposures throughout the supply chain and on different levels or “links” of the chain. it is only few leading insurance companies in the world that offer insurance of supply chain disruption. 59 management 2015/77 the terrorist attacks of 2001 and the hurricane season of 2005 stressed the importance of insurance of business interruption and supply chain disruption and highlighted the need to manage these risks. after the aforementioned events the modelling of these risks has been improved. the occurrence of these risks was manifested in the form of threatened financial position and a significant negative impact to the company balance sheet items. the importance of business continuity, especially in the field of providing continuity of supply chains is reflected in the fact that in the agenda of the world’s leading companies and non-profit organizations such as the world economic forum, the risk of disruption of supply chains has been in the focus of attention in recent years, especially after earthquakes, tsunami and nuclear contamination in japan in the first half of 2011. an increasing interest in managing this risk and providing insurance coverage as a key form of financing the consequences of insurable risks can be expected in the future. regarding the growth of probability of events that can cause interruption of business and supply chains, insurance companies that offer insurance coverage for these risks will review their exposure to these risks in the future. what can be expected is an increase in premiums due to higher exposure to risk, as well as due to a growing interest in these types of insurance. a standard exclusion of certain dangers out of insurance coverage indicates that companies cannot rely solely on the insurance as a form of risk management – risk must be managed through risk avoidance, prevention and reduction in case of adverse events. companies have to manage risks of business interruption through the implementation of all available risk management mechanisms, in which insurance has the most important role. conslusion 60 2015/77management references [1] a risk management standard, airmic, alarm, irm., (2002). united kingdom. [2] brauner, c., (2001). preparedness: basics of business continuity management. zurich, swiss reinsurance company. [3] clifford, f., (2002). maximizing profitability with safety culture development. oxford (uk), butterworthheinemann. [4] crouhy, m., galai, d., mark, r., (2006). the essentials of risk management. new york, mcgraw-hill. [5] global risk management survey, (2011), chicago (il), aon risk solutions, aon corporation. [6] lloyd’s (2011). us hurricanes 2005 case study. london, lloyd’s global underinsurance research, lloyd’s of london. [7] marović, b., avdalović, v., (2006). osiguranje i teorija rizika. novi sad, centar za automatizaciju i mehatroniku; beograd, beogradska bankarska akademija i fakultet za bankarstvo, osiguranje i finansije. [8] marović, b., kuzmanović, b., njegomir, v. (2009). osnovi osiguranja i reosiguranja. beograd, princip press. [9] meier, w., kuhn, m., simone, a., sormani, e., (2004). business interruption insurance. zurich, swiss re. [10] new models for addressing supply chain and transport risk, (2012). geneva, world economic forum, an initiative of the risk response network in collaboration with accenture. [11] njegomir, v., (2011). osiguranje. novi sad, ortomedics book. [12] rejda, g., (2005). risk management and insurance, pearson education, inc. [13] samuelson, p., nordhaus, w., (2009). ekonomija. beograd, mate d.o.o. [14] supply chain resilience, (2011). caversham (uk), the business continuity institute. [15] the i.i.i. insurance fact book, (2004). new york, insurance information institute. [16] the new supply chain challenge, (2006). risk management in a global economy. johnston (ri), fm global. [17] the review, (march 2006). london, informa uk ltd. receieved: april 2014. accepted: november 2015. vladimir njegomir high school „legal and business academic studies dr lazar vrkatić“, novi sad, serbia vnjegomir@eunet.rs vladimir njegomir was born in novi sad in 1977. he earned his master’s and doctoral degrees in the field of risk management, insurance and reinsurance. he was awarded as the best student of the generation at the faculty of economics in subotica. after the completion of his graduate studies within the stipulated time, he was employed as an economic analyst in a software company based in london, where he worked for nine years as business analyst, specialized in the insurance business. in 2010, he was appointed assistant professor at the faculty of legal and business studies in novi sad, where he teaches the “insurance” and “insurance risk management”. he has participated in projects and scientific conferences at home and abroad. he is the sole author of two books, co-author of three books and over 120 scientific papers in the field of risk management, insurance and reinsurance, both at home and abroad. he speaks english. he lives and works in novi sad. jelena demko rihter faculty of technical sciences, trg dositeja obradovića 7, novi sad, serbia jelena.ciric.ns@gmail.com jelena demko rihter is an assistant professor at the faculty of technical sciences, department for industrial engineering and management, novi sad. she holds a msc and a bsc in finance and a phd in management accounting. since 2003 she has been engaged in the teaching process at the faculty for subjects management accounting, financial management, investments. she is the author and co-author of many research and scientific papers on various issues regarding institutional investors, business financing, clusters, management accounting. about the author 02_vasil dhingra:tipska.qxd 13 vaishali s. dhingra1*, hemantkumar p. bulsara2 , shailesh gandhi3 ¹s.v.national institute of technology (svnit), surat, india ²s.v.national institute of technology (svnit), surat, india ³indian institute of management (iim), ahmedabad, india management 2015/75 forecasting foreign institutional investment flows towards india using arima modelling udc: 339.727.22(540) 005.22:330.322 doi: 10.7595/management.fon.2015.0009 1. introduction “the only thing that is constant is change – by heraclitus” is valid even in the case of ever changing and dynamic capital markets of world economies and india is no exception. a significant amount of capital flows are towards emerging economies from developed nations in search of higher yield. earlier, during the inception of globalization, liberalization and privatisation, most portions of the capital flows took the form of official grants and aid, which was later subdued by commercial borrowings. as a result of governments’ efforts, non-debt creating flows in the form of foreign direct investment and foreign institutional investment also gained momentum along with commercial borrowings. india’s share in net portfolio flows to emerging market and developing countries has grown in similar pattern to fdi. in contrast to developing and emerging market economies in most parts of the world, where fdi has constituted the main source of equity flows, india has witnessed a dominance of portfolio flows over fdi flows during various periods of time. however, not like fdi flows which exhibited more or less steady upward movement over the years, portfolio flows are more volatile and disrupting, moving in tandem with domestic and international market sentiments. a sharp rise in portfolio investment into india in the recent period reflects both global and domestic factors. the quest for yield in view of very low real long-term rates in advanced economies has been an important factor driving portfolio flows to emes and as a part of that group, india also has attracted such flows. 1 faculty of economics and management, management section, appliedmathematics and humanitiesdepartment, sardarvallabhbhai national institute of technology, surat, gujarat-395007, india; (m) 91-9913656187; e-mail: vaishalidhingra1@gmail.com. 2 assistant professor (economics& management), management section, appliedmathematics and humanitiesdepartment, sardarvallabhbhai national institute of technology, surat, gujarat-395007, india; (m) 919825535673; e-mail: hemantbulsara@gmail.com. 3 associate professor (finance & accounting), indian institute of management, ahmedabad, gujarat-380015, india; (m) 91-9825074864; e-mail: shailesh@iimahd.ernet.in. *corresponding author india has witnessed substantial increase in capital flows, particularly foreign institutional investment in equity as well as derivatives segment since the 1990s. however, fii flows are sighted as ‘hot money’more volatile than other type of flows, which gets affected by the domestic and globalmacro economic factors, thereby raising questions about the need to encourage fii flows in narrow and shallow (in terms of absorption capacity) capital market such as india. this paper attempts to forecast daily aggregate fii flow in indian capital market and particularly in futures market (derivative segment) using auto regressive integrated moving average (arima) model.the paper tries to examine fii flows in india towards futures market along with spot market by tracing which ar terms and/or ma terms influence the current inflow or outflow. keywords: foreign institutional investment, indian stock market, hot money, futures market, auto regressive integrated moving average (arima) 14 2015/75management many researchers show that a sudden stop or a sudden withdrawal is followed by large capital inflow in the form of foreign portfolio flows. the concept of “sudden stop” was first coined by and later calvo (1998) gave an analytical framework for examining the impact of a sudden and largely unexpected cut-back in foreign capital inflows to emerging economies. calvo (2009) pointed out that india might be going through a “sudden stop” episode with the onset of the global crisis. in india important peaks were seen in may 2006 and january 2008; correspondingly, decline was witnessed after 3 to 6 months of these peaks, which confirms the episode of a sudden stop. the first shock of the global crisis on india was felt in the stock market in january 2008.this came through the reversal of inflows from foreign institutional investors (fiis) into the country. at the end of march 2008, india’s foreign exchange reserves, at $309.7 billion, provided a cover of 140% to total external debt. capital flight in the form of ‘‘hot money’’ (stiglitz, 1999) drags the economy to adverse effects, especially during economic downturns in countries with small ‘‘absorptive capacity’’ (prassad et al., 2003) and weak investor protection (lemmon &lins, 2003). chakrabarti (2001) and tried to analyse fii flows to india and their relationship with other economic variables. they majorly detected that the fii net inflows are more likely to get affected by security returns than be the cause of equity market returns. gordon & gupta (2003), using multivariate regression model, uncovered significant negative relation between monthly flows and lagged returns. griffin, nardari, & stulz(2002) found that foreign flows are significant predictors of returns for korea, thailand, taiwan and india, indicating that foreign investors are buying before market index increases. ananthanarayanan, krishnamurti, & sen(2005) study the inter-relationship between fii flows and domestic market returns. their results are consistent with the base-broadening hypothesis. ahmad, ashraf, & ahmed (2005) and kumar (2009) reveal that the fiis are influenced by the previous trading day returns, confirming the adoption of positive feedback strategy by them. all the above mentioned studies testify the relationship of foreign institutional investment flows with indian capital market, whether it is a cause or an effect. albeit there is an increase in turnover of over all capital market of india, during 2011-12, the turnover of derivatives market exceeded the all-india cash market turnover by over 11 times ( as per the data provided by sebi). in the derivatives segment, institutional investors particularly foreign investors play a major role as their investment in rupee terms is much higher than that of the domestic institutional investors . when some new information arrives, the actions of speculators swiftly feed their information into the derivatives market causing changes in the prices of derivatives. therefore these markets indicate what is likely to happen and thus assist in better price discovery. the empirical research carried out by chan, chan, & karolyi(1991), antoniou & holmes (1995), choudhry (1997), pericil&koutmos (1997), bollen (1998), abhayankar (1998), gulen& mayhew (1999), mckenzie, brailsford, & faff (2001), gupta (2002), thenmozhi (2002), shenbagaraman (2003), hetamsaria (2003) and mukherjee &mishra (2006) also suggested that derivative trading might affect the underlying spot market and there is a lead lag relationship between the derivatives market and underlying spot market. no study has yet been contemplated to forecast the fii flows using auto regressive integrated moving average (arima) modelling except the study of sudalaimuthu&anbukarasi (2011). they tried to forecast the fii flow on monthly basis using monthly data. though the arima model was introduced in 1994, it is being widely used across various disciplines for forecasting, e.g., to detect faults in the railway system, forecast stock prices, examine market efficiency, forecast short-term load in electric power system operation and planning, predict hourly electricity prices, model long-range dependant internet traffic, for short-time traffic flow prediction, forecast daily metro passenger flows, forecast spot prices in bulk shipping, forecast chinese mobile user, examine the association between alcohol excise tax rates and alcohol-related traffic accidents, simulate the rain attenuation time series, predict air pollution pm2.5, detect and classify cancerous tumour etc.4.this study will try to forecast the daily flows of fii in indian capital market, both aggregate/overall flows towards india and towards derivatives segment, particularly futures. the paper is organized as follows: section 2 summarizes the data, sample period and the methodology used for modelling foreign institutional investment flows. section 3 discusses empirical results of the study. section 4 summarizes the findings and section 5 brings out the conclusion and discussion on the study. 4refermárquez, pedregal& roberts (2015), shan, dai, zhao,& liu (2015), ariyo, adewumi,& ayo (2014), aruga& cook (2014), cho, hwang,& chen (1995), fan, mao, & chen (2007), el hag & sharif (2007), chen, hu, meng, & zhang (2011), dong, jia, sun, li, & qin (2009), hai-yan (2010), geomelos, xideas, & mcmillan (2014), ye (2010), saar (2015), yang, li, zhao, & zhang (2013), wang &guo (2009), kumar, kumari, ranjan,&vaish (2014). 2. data and methodology period of study the data set comprises a daily flow of fii to india viz. aggregate inflow, outflow and netflow and daily positions of fii in derivatives market, especially long position in futures, short position in futures and futures open interest, for the period ranging from 1st january, 2004 to 30th september, 2012. the data were taken from the official website of the security and exchange board of india. these data comprise, on the one hand, the period of global crisis and eurozone crisis and, on the other hand, the period of 2007, when indian capital market (niftythe benchmark index) touched its highest level. both situations in turn cover the extreme values, so there is no need to assume that the market conditions remain unchanged or constant. sample the sample consists of 2118 observations each for daily closing price of nifty, daily fii flows viz. inflow, outflow, netflow, long position in futures market, short position in futures market and open interest. derivatives trading commenced in india in june 2000 after sebi granted the final approval with effect from may 2001. during the initial two years the derivatives market was in its infancy and investors were getting familiar with the new instruments, therefore data were collected from 1st january, 2004. methodology the first step of time series analysis is considered as checking the stationarity of the series. stationarity is examined using autocorrelation function and correlogram and unit root test. the acf at lag k is defined as: (1) the unit root test for stationarity can be represented as augmented dickey fuller (1979, 1981) regression and phillips-perron (1988) regression. they are as follow: 1) augmented dickey fuller test (2) 2) phillips-perron test (3) where the null hypothesis is that δ, the coefficient of is zero. this is called the unit root hypothesis. the acceptance of null hypothesis implies nonstationarity. the adf test adjusts the df to take care of a possible serial correlation in the error terms by adding the lagged difference terms of the regressand. phillips and perron use nonparametric statistical methods to take care of the serial correlation in the error terms without adding lagged difference terms. the pp test tends to be more robust to a wide range of serial correlation and time dependent heteroscedasticity. the time series could be either a difference stationary process or a trend stationary process. all the time series which represent the fii flow show a significant trend and lead to a detrending process, that is, before analysis, it is necessary to remove the deterministic trend. this has been accomplished by estimating the following regression: (4)�� � $� � $�� � ��� �� � � ������ � #� ��� � �� � ��� � ����� � �������� � � � � !�" �� � �� �� � ��� � �� � ��� ���� � �� � 15 management 2015/75 where t is the trend variable and vt is the error term with usual properties. after running this regression, we obtain; (5) the estimated error term now represents the detrended y time series, that is, y with the trend removed. box and jenkinsput forward a new generation forecasting tool, popularly known as the box–jenkins (bj) methodology, but technically known as the arima methodology. the bj-type time series models allow yt to be explained by past, or lagged, values of y itself and stochastic error terms, under the philosophy let the data speak for themselves. the bj methodology is based on the assumption that the time series under study is stationary. if a time series is stationary, we can model it in a variety of ways. yt is an autoregressive model of order p or ar(p) process in following difference equation or model (6), (6) model (7) is known as moving average of order q or ma(q) model, where yt is expressed as weighted or moving average of the current and past white noise error terms. (7) by combining ar and ma models, one can get the arma (p,q) model, with p autoregressive terms and q moving average terms. (8) if for making the time series differencing is needed, the process becomes integrated and is generally known as auto regressive integrated moving average or arima(p,d,q) model, where d denotes the number of times a time series has to be differenced to make it stationary. in case of the considered fii series, they all are stationary at level only, therefore they can be termed as i(0) and there is an absence of d term.the bj methodology follows the four-step procedure, viz. identification, estimation, diagnostic checking and forecasting, out of which up to a third stage the bj methodology is an iterative process. 3. empirical analysis for the convenience purpose all fii series have been identified using the following abbreviations. list of abbreviations �� � � � �� � � � � ����� ' � � � �(�!��� ) � � � �% � �� & � & ��) �� � �� � � � �� � � �� �� � � � � ����� ' � � � !�� 16 2015/75management 17 management 2015/75 table 1: unit root test for daily trends of fii in futures market and aggregate daily fii flows note: figures in parenthesis are mackinnon one-sided p-values. estimation procedure follows ordinary least square (ols) method. the t – statistics of the slope coefficient follows the τ (tau) statistics. critical values are -3.4119 and 3.1277 at 5% and 10% significance level respectively. the descriptive statistics of trends of daily fii in futures market in terms of buy (long) position, sell (short) position and open interest and daily aggregate investment of fiis in stock market in terms of inflow, outflow and netflow reject the hypothesis of normal distribution for all the series. autocorrelation coefficients are statistically significant as they fall outside the critical interval. this shows the presence of autocorrelation for all the considered series. for confirming the serial correlation or autocorrelation unit root test is applied. table 1 represents the result of augmented dickey fuller test and phillips-perron test which checks the presence of unit root for considered series. the absolute values of t-statistics or adjusted t-statistics (in case of phillip-perron test) exceed the critical value 3.4119 at 5% level and are highly significant. the δvalue which is represented by slope coefficients is also negative for all the series, therefore the null hypothesis for both tests is rejected and stationarity of all the series is confirmed.5 5 all fii series were stationary at i(0) level, but showed the presence of trend. therefore all the series have been detrended and the result shown in table 3 represents the unit root test for all detrended fii series. augmented dickey-fuller test statistic variable fiifb fiifs fiifoi fiip fiis fiin t-statistic -3.934 -3.907 -4.471 -8.244 -6.286 -12.727 (0.011) (0.012) (0.002) (0.000) (-0.017) (0.000) slope coefficient -0.185 -0.135 -0.027 -0.177 -0.122 -0.364 (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) intercept 17.134 12.149 16.245 -0.202 3.072 -1.466 (0.805) (0.793) (0.759) (0.996) (0.932) (0.965) trend coefficient -0.015 -0.011 -0.014 0.002 -0.002 0.002 (0.786) (0.764) (0.759) (0.952) (0.946) (0.938) phillips-perron test statistic variable fiifb fiifs fiifoi fiip fiis fiin adj. t-statistic -28.342 -19.937 -6.587 -23.050 -20.215 -29.567 (0.000) (0.000) (-0.002) (0.000) (0.000) (0.000) slope coefficient -0.551 -0.317 -0.040 -0.401 -0.323 -0.586 (0.000) (0.000) (0.000) (0.000) (0.000) (0.000) intercept -0.644 -1.273 13.095 1.778 2.387 -0.662 (0.993) (0.979) (0.823) (0.970) (0.9500 (0.985) trend coefficient 0.002 0.002 -0.013 -0.001 -0.002 0.001 (0.979) (0.951) (0.792) (0.978) (0.951) (0.979) 18 2015/75management the first step in bj methodology is identification. the chief tools in identification of p and q are the autocorrelation function (acf), the partial autocorrelation function (pacf), and the resulting correlograms, which are simply the plots of acfs and pacfs against the lag length. partial autocorrelation is the correlation between yt and yt−k after removing the effect of the intermediate y’s. table 2 represents the autocorrelation function (acf) and partial autocorrelation function (pacf) along with the correlogram for three series, namely, bought position of fii, short position of fii and open interest of fii in futures market. the acf statistics at lag 1-4 seem statistically different from zero for fiifb and fiifs and almost all other lags are insignificant as they fall within the asymptotic bounds 2t0.5 (±0.0434). the pacf with spikes 1 and 2 for fiifb and 1 and 3 for fiifs seem statistically significant, but the rest are not as they fall within the asymptotic bounds. moreover, as the exponential decay can be seen in acf, and pacf is showing spikes up to lag 2 for fiifb, it suggests ar(2) or ar(1) processes. fiifs shows exponential decay in only acf and significant spikes at lag 1 and 3 for pacf, which points towards the ar(1) or ar(1,3) processes. for fiifoi, the acf up to lag 15 seems highly significant, as at lag 15 also autocorrelation coefficient is 0.807 and most of the lags of pacf are insignificant except at lag 1-3, suggesting either the existence of ar(3) model or a combination of ar and ma processes, i.e., arma model, which requires few iterations. in table 3, correlogram of daily gross purchase (fiip), gross sales (fiis) and net flow (fiin) of fii in indian capital market have been shown. if the plots are observed minutely, it seems that higher order ar terms or again combination of arma process might be present. after identifying approximate p and q values, the next stage is to estimate the parameters of the autoregressive and moving average terms included in the model. for the best suited model, considered ar and ma terms (in particular model) should be statistically significant at 5% level of significance. apart from that, all the r-squared value should be highest and the values of akaike information criterion (aic)6 and schwarz bayesian criterion (sbc)7 should be the least. therefore estimation of best model adopts a trial and error approach. 6 like the adjusted r-squared, the aic criterion adds somewhat harsher penalty for adding more variables to the model; aic is defined as follows: 7 sbc is an alternative to aic criterion, which in its long form can be expressed as: here the penalty factor [(k/n) ln n] is harsher than that of aic. ����� � �� ��� � ���� ��� � �� ����� � ��� � ���� ��� � �� table 2: acf and pacf with resultant correlogram for daily trends of fii in futures market table 3: acf and pacf with resultant correlogram for aggregate daily fii flows 19 management 2015/75 fiifb fiifs fiifoi lag autocorrelati on partial correlation acf pacf q-stat autocorrelati on partial correlation acf pacf q-stat autocorrelati on partial correlation acf pacf q-stat 1 |*** | |*** | 0.45 0.45 426.58 |***** | |***** | 0.68 0.68 985.70 |******* |******* 0.96 0.96 1954.30 2 |** | |* | 0.29 0.12 610.57 |*** | | | 0.44 -0.04 1401.70 |******* |* | 0.94 0.21 3817.90 3 |* | | | 0.15 -0.02 660.37 |** | *| | 0.24 -0.08 1528.50 |******* |* | 0.92 0.09 5608.80 4 |* | | | 0.11 0.03 685.44 |* | | | 0.14 0.02 1568.20 |******* | | 0.90 0.07 7341.90 5 | | | | 0.07 0.01 696.62 | | | | 0.07 -0.01 1578.40 |******| | | 0.89 0.05 9024.10 6 | | | | 0.05 0.01 702.56 | | | | 0.03 -0.01 1580.60 |******| | | 0.88 0.02 10655.00 7 | | | | 0.01 -0.03 702.85 | | | | -0.01 -0.03 1580.60 |******| | | 0.87 0.05 12249.00 8 | | | | 0.01 0.00 702.90 | | | | -0.02 0.00 1581.50 |******| | | 0.85 0.00 13796.00 9 | | | | 0.01 0.02 703.16 | | | | -0.03 -0.01 1583.20 |******| | | 0.84 0.04 15309.00 10 | | | | -0.01 -0.03 703.48 | | | | -0.03 0.00 1584.60 |******| | | 0.83 0.03 16790.00 11 | | | | -0.03 -0.02 705.19 | | | | -0.04 -0.03 1587.10 |******| | | 0.83 0.03 18244.00 12 | | | | -0.01 0.03 705.27 | | | | -0.01 0.04 1587.60 |******| | | 0.82 0.05 19679.00 13 | | | | -0.01 0.00 705.34 | | | | 0.00 0.00 1587.60 |******| | | 0.81 0.02 21093.00 14 | | | | 0.03 0.04 707.08 | | | | 0.02 0.04 1588.80 |******| | | 0.81 0.05 22493.00 15 | | | | 0.05 0.04 712.23 | | | | 0.07 0.06 1598.00 |******| | | 0.81 0.05 23885.00 fiip fiis fiin lag autocorrelati on partial correlation acf pacf q-stat autocorrelat ion partial correlation acf pacf q-stat autocorrelat ion partial correlation acf pacf q-stat 1 |**** | |**** | 0.599 0.599 761.71 |***** | |***** | 0.677 0.677 972.12 |*** | |*** | 0.414 0.414 363.88 2 |*** | |* | 0.481 0.19 1252.9 |**** | |* | 0.57 0.208 1663.7 |** | |* | 0.285 0.137 536.41 3 |*** | |* | 0.445 0.159 1674.2 |**** | |* | 0.52 0.143 2239.3 |** | |* | 0.271 0.138 692.24 4 |*** | |* | 0.464 0.185 2131.4 |**** | |* | 0.531 0.189 2839.1 |** | |* | 0.237 0.079 811.63 5 |*** | |* | 0.456 0.122 2574.2 |**** | |* | 0.521 0.114 3415.8 |** | |* | 0.233 0.088 927.61 6 |*** | |* | 0.438 0.087 2982 |**** | |* | 0.502 0.079 3953 |* | | | 0.211 0.051 1022.1 7 |*** | | | 0.394 0.023 3312.7 |*** | | | 0.471 0.037 4425.5 |* | | | 0.162 0.002 1077.7 8 |*** | | | 0.391 0.061 3638.1 |*** | | | 0.46 0.054 4876.3 |* | | | 0.155 0.026 1128.6 9 |*** | | | 0.384 0.044 3953 |*** | |* | 0.47 0.083 5346.3 |* | | | 0.136 0.009 1167.9 10 |*** | |* | 0.402 0.081 4297.2 |*** | | | 0.467 0.054 5811 |* | |* | 0.181 0.085 1237.7 11 |*** | | | 0.374 0.014 4595.4 |*** | | | 0.444 0.016 6232.5 |* | | | 0.138 -0.005 1278.2 12 |*** | | | 0.375 0.053 4895.1 |*** | | | 0.438 0.042 6642 |* | | | 0.122 0.012 1310.1 13 |*** | | | 0.368 0.035 5183.6 |*** | | | 0.438 0.043 7051 |* | | | 0.132 0.03 1347.5 14 |*** | | | 0.358 0.019 5458.1 |*** | | | 0.436 0.034 7457.2 |* | | | 0.1 -0.014 1368.8 15 |** | | | 0.348 0.017 5716.6 |*** | | | 0.419 0.005 7832.1 |* | | | 0.083 -0.013 1383.5 table 4: estimates of parameters of arma models for fiifb, fiifs, fiifoi, fiip, fiis and fiin table 4 shows the results of estimated models for fiifb, fiifs, fiifoi, fiip, fiis and fiin respectively, based on clues absorbed from correlogram. for each of the series the model is chosen over other estimated model using the trial and error approach based on aic, bic and adjusted r-squared. table 5: breusch-godfrey serial correlation lm test for estimated models 20 2015/75management model type variabl e coefficient t-stat prob. adj r-squared aic sbc c 2.8381 0.0388 0.969 ar(1) 0.3964 18.350 0.000fiifb ar(2) ar(2) 0.1175 5.4363 0.000 0.2115 17.638 17.646 c 3.128 0.047 0.9625 ar(1) 0.7142 40.381 0.000 fiifs ar(1, 3) ar(3) -0.0711 -4.0189 0.0001 0.4687 16.832 16.840 c 79.5513 0.0369 0.9706 ar(1) 1.8040 49.190 0.0000 ar(2) -0.8047 -22.114 0.0000 ma(1) -1.0830 -24.417 0.0000 fiifoi arma(2, 2) ma(2) 0.1416 4.5079 0.0000 0.9264 17.182 17.196 c 33.7388 0.1432 0.8861 ar(1) 1.2880 38.568 0.0000 ar(2) -0.2918 -9.9164 0.0000 ar(4) 0.0505 2.4473 0.0145 ar(6) -0.0547 -3.1820 0.0015 fiip arma (1,2,4,6),1) ma(1) -0.9152 -36.443 0.0000 0.4394 16.680 16.696 c 3.1341 0.0097 0.9923 ar(1) 1.3701 53.524 0.0000 ar(2) -0.3329 -13.153 0.0000 ar(6) -0.0401 -3.8489 0.0001 fiis arma (1,2,6),1) ma(1) -0.9493 -66.953 0.0000 0.5276 16.264 16.278 c 4.0054 0.0690 0.9450 ar(1) 1.0988 24.836 0.0000 ar(2) -0.1589 -4.9016 0.0000 fiin arma (2,1) ma(1) -0.7899 -21.604 0.0000 0.2157 16.112 16.123 fiifbar(2) fiifsar(1,3) fiifoiarma(2,2) fiiparma((1,2,4,6),1) fiisarma((1,2,6),1) fiinarma(2,1) f-stat 0.719 0.625 0.928 0.806 1.105 1.421 prob. 0.768 0.856 0.532 0.673 0.346 0.128 obs. r2 10.819 9.419 13.954 12.135 16.598 21.294 χ2 -prob. 0.765 0.855 0.529 0.669 0.343 0.128 table 5 represents the breusch-godfrey serial correlation lm test for estimated models as a diagnostic tool for appropriateness of a model. the null hypothesis of the lm test is that there is no serial correlation up to lag order p, where p is a pre-specified integer. the f-statistic is an omitted variable test for the joint significance of all lagged residuals. the obs. r-squared statistic is the breuschgodfrey lm test statistic. both statistics of the serial correlation lm test for estimated equation with 15 lags fail to reject the null hypothesis of no serial correlation for all considered models. figure 6: inverse roots of estimated polynomials the acf, pacf and ljung-box q statistics have been computed for the residuals so obtained from the estimated models. it can be very easily inferred from table 6 that all acf and pacf are statistically significant suggesting the full absorption of available information in the model. after identifying the processes, as per the third step of bj methodology diagnostic checking was undertaken through acf, pacf, ljung-box q statistics, serial-correlation lm test and by plotting inverse roots of estimated polynomial, which are shown through table 12 and 13 and figure 1 . if the estimated arma process is (covariance) stationary, then all ar roots should lie inside the unit circle and if the estimated arma process is invertible, then all ma roots should lie inside the unit circle. figure 1 strengthens the fact about proper specification of estimated model using inverse root of polynomial, as all the ar and ma roots are falling inside the unity circle for all specified models. these charts are in the form of argand diagram. they allow for the fact that some roots may be complex numbers of the form z = (x+/iy), where the imaginary number, i, satisfies i2 = -1. the x-axis in those diagrams plots the real (x) part of z, and the y-axis plots the imaginary (y) part of z. so, if a root is real, it will lie on the horizontal axis; but if it is complex, it will be located at the point (x, y). 21 management 2015/75 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 ar roots ma roots fiifb-ar(2) fiifs-ar(1,3) fiifoi-arma(2,2) fiip-arma((1,2,4,6),1) fiis-arma((1,2,6),1) fiin-arma(2,1) table 7: diagnostic checking through acf, pacf and ljung-box q statistics for estimated models 4. findings based on the analysis the following equations are estimated for different series of fii flows, which can be used for forecasting future course. 1) fiifblong (bought) position of fii in futures marketar(2) (9) 2) fiifsshort (sold) position of fii in futures marketar(1,3) (10) 3) fiifoiopen interest of fii for futures marketarma(2,2) (11) 4) fiipaggregate foreign institutional inflow-arma((1,2,4,6),1) (12)*++:� � 2-699*++:��� & ,-6/29*++:��� �,-,4,4*++:��; & ,-,413*++:��< � !� &,-/246!��� *++*8+� � 2-9,1,*++*8+��� & ,-9,13*++*8+��� � !� & 2-,9.,!��� � ,-2102!��� *++*5� � ,-3216*++*5��� & ,-,322*++*5��7 �!� *++*�� � ,-./01*++*���� � ,-2234*++*���� � !� 22 2015/75management fiifb-ar(2) fiifs-ar(1,3) fiifoi-arma(2,2) lag acf pacf q-stat prob acf pacf q-stat prob acf pacf q-stat prob 1 0.002 0.002 0.011 -0.006 -0.006 0.070 0.001 0.001 0.003 2 0.006 0.006 0.081 0.010 0.010 0.303 -0.007 -0.007 0.093 3 -0.028 -0.028 1.762 0.184 -0.015 -0.014 0.752 0.386 -0.007 -0.007 0.207 4 0.010 0.010 1.957 0.376 0.013 0.012 1.092 0.579 0.011 0.011 0.449 5 0.012 0.012 2.260 0.520 0.007 0.007 1.194 0.754 0.025 0.025 1.751 0.186 6 0.024 0.023 3.490 0.479 0.022 0.022 2.248 0.690 -0.010 -0.010 1.971 0.373 7 -0.021 -0.021 4.462 0.485 -0.023 -0.022 3.361 0.645 0.034 0.035 4.468 0.215 8 -0.009 -0.009 4.647 0.590 -0.008 -0.008 3.490 0.745 -0.018 -0.018 5.170 0.270 9 0.023 0.024 5.763 0.568 -0.013 -0.012 3.823 0.800 -0.006 -0.007 5.257 0.385 10 -0.011 -0.012 6.002 0.647 0.014 0.012 4.216 0.837 -0.017 -0.017 5.880 0.437 11 -0.035 -0.036 8.644 0.471 -0.043 -0.042 8.103 0.524 -0.027 -0.027 7.387 0.390 12 0.004 0.005 8.672 0.563 0.016 0.015 8.637 0.567 0.005 0.003 7.440 0.490 13 -0.022 -0.021 9.710 0.557 -0.014 -0.012 9.084 0.614 -0.029 -0.028 9.199 0.419 14 0.008 0.005 9.839 0.630 -0.002 -0.004 9.092 0.695 -0.023 -0.024 10.339 0.411 15 -0.013 -0.013 10.184 0.679 0.016 0.018 9.644 0.723 -0.018 -0.016 11.058 0.438 fiip-arma((1,2,4,6),1) fiis-arma((1,2,6),1) fiin-arma(2,1) lag acf pacf q-stat prob acf pacf q-stat prob acf pacf q-stat prob 1 -0.002 -0.002 0.012 0.001 0.001 0.001 0.003 0.003 0.017 2 0.007 0.007 0.113 0.007 0.007 0.095 -0.020 -0.020 0.841 3 -0.006 -0.006 0.190 -0.051 -0.051 5.693 0.020 0.020 1.664 4 0.011 0.011 0.462 0.022 0.022 6.715 -0.006 -0.006 1.733 0.188 5 -0.017 -0.017 1.073 0.002 0.003 6.725 0.010 0.021 0.022 2.660 0.264 6 0.030 0.030 2.999 0.083 0.028 0.026 8.448 0.015 0.018 0.017 3.339 0.342 7 -0.028 -0.028 4.722 0.094 -0.013 -0.011 8.827 0.032 -0.034 -0.033 5.801 0.215 8 -0.001 -0.002 4.727 0.193 -0.016 -0.016 9.353 0.053 -0.013 -0.013 6.172 0.290 9 -0.019 -0.018 5.483 0.241 0.024 0.027 10.614 0.060 -0.038 -0.040 9.327 0.156 10 0.044 0.043 9.601 0.087 0.035 0.033 13.183 0.040 0.058 0.059 16.448 0.021 11 -0.018 -0.016 10.276 0.113 -0.008 -0.009 13.309 0.065 -0.005 -0.008 16.503 0.036 12 0.013 0.010 10.620 0.156 0.001 0.003 13.311 0.102 -0.011 -0.006 16.751 0.053 13 0.010 0.012 10.824 0.212 0.013 0.016 13.650 0.135 0.027 0.026 18.278 0.050 14 0.003 0.001 10.849 0.286 0.026 0.024 15.085 0.129 -0.012 -0.011 18.581 0.069 15 -0.015 -0.013 11.343 0.331 -0.005 -0.006 15.132 0.177 -0.029 -0.029 20.346 0.061 23 management 2015/75 5) fiisaggregate foreign institutional outflow-arma((1,2,6),1) (13) 6) fiinnet foreign institutional investment flow-arma(2,1) (14) the r-squared values for the above estimated models are 21.15 %, 46.87%, 92.64%, 43.94%, 52.76% and 21.57% for equations 9-14, respectively. *++5� � 2-.3,2*++5��� &,-..6/*++5��� & ,-,1,2*++5��< �!� & ,-/1/.!��� *++=� � 2-,/99*++=��� & ,-249/*++=��� � !� &,-39//!��� conclusion and discussion india being a capital scarce country has taken various steps to allure foreign investment since the beginning of globalization in 19991. india started receiving foreign investments in the form of institutional investments in 1993, and since then has become one of the main channels of foreign investments in india. foreign institutional investors are an entity established or incorporated outside india that proposes to make investments in india and is registered as an fii under sebi (fii) regulations, 1995. economic growth is a function of capital formation. asforeign institutional investments are source of non-debt creating capital for receiving economy; many emerging economies have been competing with each other to attract such flows through flexible investment norms/regulations or by offering fiscal sops. ever since the fiis were allowed to invest in indian financial market, they have been criticized due to characteristics such as hot money (stiglitz, 1999), herd mentality (tayde&rao, 2011), feedback traders (grinblatt&keloharju, 2000), short term speculative gains and their implications on domestic policy issues. secondary markets offer opportunities for speculation, which leads to a situation where the players indulge in outguessing the market in foreseeing changes in the short-term financial ratios. this converts the secondary market into a quasi-casino where people speculate on other people’s speculation (keynes, 1936). such speculative flows are inherently volatile and can play havoc at the time of sudden reversal. when investors flee from securities markets abruptly in a herd, the prices of bonds and shares are impacted. and when investors repatriate the redemption proceeds to their country, exchange rates go out of order. in such circumstances, if the reserve bank of india intervenes to bring orderly conditions into the foreign exchange market; liquidity will dry up in the money markets. hence, speculative flows affect all segments of financial markets—the securities market, the foreign exchange market, the money market and the credit market—since systemic risk transmits from one market to another instantly and may lead to output and employment losses (subbarao, 2010). as the indian capital market is relatively thin due to a lower retail investment base (less than 10 per cent), fii inflows will have a significant effect on the movement of stock prices (srikanth and kishore, 2012). thus trends and future prospects of fiis have become a topic of great concern. though numerous research have been carried out to study fii flows into indian capital market, most of them have been confined to assessing the impact of such flows on stock markets. this is the first study to our knowledge, which uses extensive dataset to forecast fii flows towards india using arima models. albeit the specifications of all models are appropriate, one cannot rely completely on technical analysis – fundamental aspects, upcoming events and other major economic factors also play a major role in affecting fii flows towards any country. moreover, the r-squared value reveals what percent of variance is explained by the specified model. the higher the r-squared value, the better the predictability or reliance of the model.the global financial crisis, the direct impact of lehman brothers going bankrupt, the euro zone crisis, depreciation of indian rupee against us dollar, and curbs on participatory notes issue are the main reasons for restricting the fii inflows into the indian capital market. moreover, all macro-economic factors whether country specific or global are inter-related, one cannot separate their effects. a shock to any economic factor would be channelized to all other economic factors, which can be seen in their values. the uniqueness of the research comes from the fact that this will help to develop better models as another forecasting tool for highly volatile indian market and particularly fii flows towards it. the use of high frequency data for longer time period tries to capture the effect of all ups and downs. as an implication of this work, one can extend the established models for exploring a day to day volatility using volatility cluster models. however, for prediction at different times in future, the model may be trained periodically and needs to be revalidated with changes in some of the features of the model. it is believed that this study will give a promising direction to the study of prediction of the fii flow, markets and other economic time series, as very few studies are available for forecasting activities of fii. 24 2015/75management references [1] abhyankar, a. 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(2009). air pollution pm2. 5 data analysis in los angeles long beach with seasonal arima model. paper presented at the energy and environment technology, 2009. iceet'09. international conference on. [52] yang, r., li, l., zhao, z., & zhang, y. (2013). simulation of rain attenuation time series by arima model. paper presented at the cross strait quad-regional radio science and wireless technology conference (csqrwc), 2013. [53] ye, x. (2010). the application of arima model in chinese mobile user prediction. paper presented at the granular computing (grc), 2010 ieee international conference on. jel classification codes: c580, f410, g100, g230 receieved: march 2014. accepted: may 2015. 25 management 2015/75 26 2015/75management about the author dr. vaishali s. dhingra s.v.national institute of technology (svnit), surat, india vaishalidhingra1@gmail.com dr.vaishali s. dhingra, mba, works as a teaching assistant at the svnit, surat, india, where she obtained her phd degree. she has more than 7 years of experience in corporate as well as academic areas. she has attended many workshops, seminars and conferences at national and international levels. she has also co-authored many papers in national and international journals. her areas of interest are security analysis and portfolio management, quantitative analysis, econometrics and time series analysis. dr. hemantkumar p. bulsara s.v.national institute of technology (svnit), surat, india hemantbulsara@gmail.com dr.hemantkumar p. bulsara received his bachelor of engineering (production engineering) degree from s. v. national institute of technology (nit), surat, india and double mba from dbim, vnsgu, surat, india. he did his fdpm from the indian institute of management, ahmedabad (iim a), india and completed his ph.d. from s. v. national institute of technology (nit), surat, india. at present, he is an assistant professor (economics & management) and in – charge of management section at s. v. national institute of technology (nit), surat, india. he has more than 15 years of experience. his areas of research are technology innovations and entrepreneurship, technology business incubation, marketing management, strategy and supply chain management. he has more than 50 publications. he is an editorial board member and reviewer of several national and international journals of repute. he has been a keynote speaker, conference chair and a session chair at national and international levels. he travelled to many countries such as usa, uk, france, netherlands, italy, bali indonesia, hong kong, macau, thailand, malaysia, singapore, finland, etc. dr. shailesh gandhi indian institute of management (iim), ahmedabad, india shailesh@iimahd.ernet.in dr. shailesh gandhi is currently the chairperson of 2-year post graduate programme in management (pgp), the flagship programme of iima. he has more than 28 years of experience in consultancy, industry and academics. the consulting experience includes working with several organizations in both private and public sectors and also on the assignments funded by international agencies such as the world bank, oecf, ica, the royal netherlands embassy, etc. the consulting areas include: financial restructuring, business systems development, accounting & costing systems and corporate performance measurement. his industry experience comes from the areas of corporate finance, accounting and mis in chemical companies. the academic experience includes teaching and research in the finance and accounting areas. tipska 69 biljana kitić1, milica kostić stanković2, jelena cvijović3, danica lečić cvetković4 1 samardžić, oreški, gecić & grbović, kralja petra 18, belgrade, serbia 2, 3, 4 university of belgrade,faculty of organizational sciences, serbia management 2015/74 environmental aspect of business communications udc: 005.57 ; 502.13:005.51 doi: 10.7595/management.fon.2015.0004 spin´ 13, belgrade, 05-06. november 2013. 1. introduction mankind is confronted with a series of existential crises today, ecological crises in particular. an ecological crisis can be defined as “any modification of the state of the physical environment due to human activities disrupting such state, with consequences regarded as unacceptable by society, according to adopted environmental standards” (farmer, 2002, p.54). in the 21st century, society is faced with the following global crises: damage of the biosphere and its ecosystems; overpopulation (more than 6 billion now, forecasted to be doubled by 2020); depletion and reduced quantities of various sources of mineral and energy raw materials; contamination of air, water and soil; global climate changes; extinction of flora and fauna species and the continued endangerment of biodiversity; homelessness (one fourth of the global population); harm to human health and threat to lives; high quantities of waste in all three aggregate conditions, etc. (cvejić & stefanović, 2010). the negative factors affecting environmental contamination in serbia are: the transfer of “dirty“ technologies from the west; underdeveloped technologies that would be more compliant with the principles of environmental policy; low utilization of unconventional sources of energy; underdeveloped innovation management; insufficient application of waste recycling methods; absence of necessary public awareness of the consequences of environmental contamination and so on. environmental awareness is fundamental to the continued sustainable development of environmental protection and implies that people should be aware of the characteristics of nature and its potentials, as well as the significance of its preservation for the purpose of their own survival (wells, 2012). the development of environmental awareness over the years moved from complete absence to formation of various movements tackling this global issue. the creation of an environmental culture arises as a must in overcoming man’s consumer attitude towards natural resources. environmental culture derives from an environmental view of the world based on ecological information and critical valuation of the relation towards the environment. the protection and improvement of the human environment is a major global problem of today’s society. its resolution initiates, among others, finding of a method for rational and complex use of natural resources, as well as a model for running an active demographic policy and developing and improving international coin the era of globalization, environmental endangerment and degradation are global in character, so the environmental protection has become a serious problem for civilisation in general. this paper emphasises the efforts being taken by companies to follow environmental changes and position themselves as ecologically responsible through the adoption of a unified business communication policy. the research was conducted on a sample of one hundred employees of the company “axa insurance” in order to determine the level of their ecological awareness and pro-environmental behaviour. the findings of the survey indicate that, due to the poor preparedness of serbian companies to meet environmental requirements and standards applicable in developed countries, environmental awareness of their employees is at a low level. therefore, this issue should be incorporated in companies’ business communication strategies that address both, internal and external target groups. keywords: ecology, environment, business communications, environmental awareness operation in the field of scientific research. a new attitude towards the environment and its incorporation in present-day business policies is becoming necessary. scientific approaches to solving this issue vary. some of them may be (fraj & martinez, 2006): • economic systems shifting from permanent growth to steady state; • creation of environmental awareness; • introduction of social programmes; • application of various technological measures (e.g. filters, electric cars, etc.); • self-regulating abilities of nature and inventive power of man that will timely detect and properly solve any issue. 2. the impact of environmental activities on business performance in the business context, factors such as the appearance of growing stakeholder activism, easy flow of information, striving towards global competitiveness and necessity of long-term sustainability, make companies switch their goals from profit-based to achieving a positive impact on both internal and external environments (collierand & esteban, 2007). in order to do that, organizations are required to produce more environmental responsibility information and distribute it to all the stakeholders, so they could better understand the impact of overall organization’s operations and get involved in some ecological activities (bakar & ameer, 2011). it makes organizations focus their activities towards 3ps value creation (people, planet, and profit) while communicating with different groups of stakeholders, based on the postulates of transparency and dialogue (cramer et al., 2004). setting up environmental standards and legally regulating environmental issues imposed an obligation on organizations to redefine their missions and incorporate environmental principles therein. these principles are based on the following elements (kostić – stanković, 2011): • creation of an appropriate internal climate and raising employees’ awareness; • adoption of a single communications policy in respect of environmental issues; • adoption of a single strategy for the environmental conservation through continuous communication with the wider community; • coordination and cooperation between pr, marketing and other business functions in solving environmental issues. an organization may be active in such programmes, either through donations and sponsorships or as a strategic initiator, but, no matter what the way of its engagement is, it is necessary that it should communicate with stakeholders about that, by using all business functions (birch, 2003; amaladoss & manohar, 2013). although organizations can have various motives for involvement in environmentally oriented activities (babiak & trendafilova, 2011), these motives are most often classified into two main categories: public-serving and firm-serving. public-serving motives represent organizational concern for the general, social interest, while firm-serving motives represent concern for benefits that the organization can have from such activities (e.g. improvement of corporate image). (de vries et al., 2013). in most cases these two motives interfere, so organizations put their focus to fundamentally different, environmentally-driven activities aimed at building up their corporate identity, image and reputation, while doing what is best for the welfare of the society. environmental care is definitely part of the image and reputation and, among all, constitutes the “good will” value of organizations themselves (lindridge et al., 2013). in order to really show its good will, an organization needs to base its business on the following postulates (straughan & roberts, 1999): compliance with all legal regulations in the environmental protection; minimizing the environmental contamination (all types of waste, noise, etc.); proper treatment of all hazardous materials and their proper storage and disposal; applying an internal environmental protection programme (recycling, energy saving, etc.). in addition to environmentally responsible business, an organization has a duty to keep its employees informed about continued environmental activities outside the organization and motivate them to get involved into the current environmental protection trends. in the production area, the integration of environmental goals is being promoted in all business aspects from planning, production strategy definition and production design to interaction with consumers. therefore, organizations need to find solutions to environmental challenges through modifying and adapting communication strategies, products and services, while keeping competitive attributes. this includes: new technologies for waste treatment and reduction of air pollution; standardization of products in order to ensure their environmental safety; provision of “genuinely” natural products; orientation of products on conservation of natural resources and a greater emphasis on health (petrović, 2012). by integrating them in business communication strategies, such solutions ensure organizations’ contribution to social needs and allow them to position themselves as environmentally responsible. 70 2015/74management 3. role of business communications in raising environmental awareness organizations must not only integrate environmental behaviour as part of their mission, but they must also communicate this to all stakeholders (brønn and vironi, 2001; ziek, 2009). stakeholders such as customers, government agencies, non-governmental organizations, employees, investment firms and the general public seek information concerning the organization’s policy on environmental issues, social programs and community involvement (dawkins & lewis, 2003). although communicating environmental issues is still mainly limited to large organizations (graafland et al., 2003; knox et al., 2005), a large number of smaller ones are finding their ways to involve themselves. business communications, observed at the company level, are intended to bring together environmental communication activities performed by an organization in its efforts to adapt to the environmental requirements (birth et al., 2006). as noted in the existing literature, many channels have been used for this kind of communication from the annual reports and nonfinancial reporting (haddock-fraser & fraser, 2008) to corporate web sites (guimarães-costa & pina e cunha, 2008). some of the communication activities that may be performed by an organization, as suggested by kostić – stanković (2011), are: • employee education aimed at raising their environmental awareness through internal communication channels using formal and informal channels, through various types of notices, reports, manuals, newsletters, inhouse publications, e-mail, small or large employee meetings or direct communication may have a major effect on employee awareness and behaviour. the intranet as a network used by all employees for information purposes greatly facilitates the transfer of important information and continually directs employee reactions and thoughts as regards conservation of the environment. • raising customer environmental awareness through integrated marketing communications even though there is a growing number of customers who consider themselves ecologically educated regarding the types of recyclable packaging or the use of paper bags instead of plastic ones, the majority is, unfortunately, not ready to change established habits yet. eco-friendly products for many people mean a higher price compared to the standard offer, hence, most customers, regardless of the increased safety of such products and their environmental component, still do not opt for them. in order to influence public perceptions, companies intend to invest in education and motivation of their customers, so they can realise what environmentally responsible purchasing means (hooghiemstra, 2000). education is crucial and should be carried out on several levels: during regular schooling; through alternative education; through media and promotional campaigns. • integration of environmental groups into target public groups globally speaking, the influence and significance of environmental protection advocates is on the rise, and there are various associations and groups in serbia as well, that are active in this area. cooperation is possible through different forms of sponsorships and donations which support individuals and groups to follow with their convictions that are in line with the activities promoted by the company. • labelling of eco-friendly products if a company identifies that, within a target group, there is a large number of people who call for conservation of the environment, then this strategy is considered to be justified. prior to its implementation, research should be conducted on customer environmental commitment, and based on the findings thereof, products and packaging should be labelled as eco-friendly. • promotion of eco-friendly products based on environmental protection requirements this activity is a logical step following implementation of the strategy for labelling eco-friendly products and packaging. after setting the target group requirements for such products, customers need to be informed of the actions taken. depending on the market itself, i.e. the demand for such products, a company will take appropriate actions, either only to communicate or to educate as well. • direct customer communication in line with the environmental protection direct communication with customers is based on an integration of social, economic and environmental dimensions in a dialogue on a voluntary basis (stainer, 2006). this type of communication may be applied on a market with environmentally committed customers in order to fully implement the 3rs (reduce; recycle; reuse) concept. these three instruments may be applied by reusing recycled material, using packaging which may be used again subsequently and reducing sales costs. 71 management 2015/74 4. research on environmental awareness level the main objective of the research conducted towards the end of 2012 on a sample of one hundred employees of the “axa insurance” company was to determine the level of environmental knowledge and proenvironmental behaviour. nearly half of the respondents demonstrated a total lack of information (or had erroneous information) about current environmental issues, which leads to the conclusion that there is still a lack of real interest in this topic. this information is somewhat worrying as the structure of employees sample consisted mainly of people with higher education. the low information level of the employees of axa insurance in serbia might partly be attributed to the absence of personal interest in environmental issues. however, the factor of the business environment which fails to provide sufficient volume of information on this matter and to motivate the involvement in environmental issues should not be eliminated. as many as 90% of respondents claimed not to have been made properly aware of implemented activities so that poor communication was the cause of their failure to get involved. owing to such a state of environmental awareness, employees had a passive attitude towards their involvement in decision-making and participating in specific campaigns for solving environmental issues. even though the majority of respondents demonstrated a high level of care regarding the existence of environmental infrastructure, a small percentage of them gave this topic priority over current “burning” social issues such as unemployment and a low living standard. since the solution of environmental issues requires extremely high capital investment, it may be assumed that neither the government nor non-governmental organisations want to disquiet the public by bringing it to the fore, aware that it is still far from implementation. the findings show that there was a prominent tendency towards pro-environmental behaviour in case of respondents who were 35 or younger, as they were more conversant with the current environmental issues than their elder co-workers. the majority of respondents understood the significance of education as a major factor in terms of future generations, so they stated that they would actually bring this to the attention of their children and encourage their involvement in environmental activities. the respondents felt that governmental approach to regulation of pro-environmental behaviour was poorly organized. the research findings showed that employees in serbia, even working in a company which performed its business on a global level, were considerably less active than their colleagues working for the same company in other countries, as well as that their environmental behaviour itself was insufficiently stimulated. the low participation in environmental activities might be explained by the fact that a small number of environmental campaigns were carried out at a government level, hence the small number of campaigns was carried out internally, by individual organizations. as it turned out, pro-environmental behaviour, for some respondents, was not a result of knowledge gathered on environmental issues and causes of their occurrence, nor of the critical attitude towards the environmental situation. on the other hand, the percentage of employees who had previously taken part in some environmental campaigns showed that knowledge about environmental issues and their causes, including ways of current situation evaluation, influenced environmentally-oriented behaviour. this means that as knowledge about these issues and their occurrence broadens and more significance is attached thereto, behaviour will be more and more oriented to their mitigation or elimination. as regards specific activities, the employees were mostly committed to recycling paper and plastic, whereas they felt that they did not have sufficient conditions for recycling other materials (batteries, cartridges and electronic equipment). nonetheless, when it comes to specific environmental protection campaigns, serbia is somewhere at the bottom of the list, among undeveloped third world countries, which is reflected in the fact that merely 3% of waste is recycled in serbia, while austria recycles 97% of hazardous materials, and sweden goes so far as to import recyclable materials (jovanović-kolomejceva, 2010). the majority of respondents noted that they came to work by car, whereas a small number of them came by bus, merely 2% by bicycle and no one came on foot. this piece of information evidenced not only employees’ habits but also of the habits of serbian citizens in general. when it comes to the motivation to take part in future environmental campaigns, the majority of respondents stated that a reward is the best incentive for doing that. by doing so, an individual is given a greater incentive to get involved in solving environmental issues. however, it should be taken into account that em72 2015/74management ployees opting for rewards mostly fell in the group of those who had not participated in environmental activities to the day of the survey, or who participated because they had to, although were not overly interested in the matter. the respondents who found motivation in their personal convictions and group efforts mostly belonged to the group of those who had taken part in environmental campaigns and who were satisfied with the effect of such activities. it is a fact that, over the past few years in serbia, environmental protection issues have become a more frequent topic of discussion and their significance has been highlighted. however, public discussions are not and cannot be the only way individuals should and can receive this information. the weak influence of educational institutions and non-governmental organizations and poor environmental protection controls are only some of the factors resulting in the absence of a pro-environmental attitude. an environmentally responsible person is formed during childhood, and therefore, given the gravity of the issue, it is necessary to introduce environmental education on all educational levels. the respondents with children older than seven felt that the introduction of such concept into the curriculum would encourage the young to think about this serious topic and that, at the same time, it would shape the values and behaviour in a pro-environmental direction. the environmentally active respondents’ children were involved through school groups and informed through the curriculum and lectures on this topic. regarding the level of environmental awareness, it was shown that women demonstrated a higher level of environmental awareness (57%) than men (43%). some studies indicated that there was a higher level of knowledge of environmental risks in men, but they demonstrate less care about environmental risks. this claim was based on assumptions that the gender role of women, acquired in the course of socialisation, is linked to a higher degree of care for others and an inclination towards demonstrating empathy and altruism. another possible explanation is that the differences come from biological, inherent differences between the genders. it could be assumed that women are more sensitive than men, and, owing to the maternal instinct, they have a natural predisposition to show more care for the environment as well (laroche et al., 2001). integration of these two theories results in a comprehensive explanation that the differences in valuing the environmental situation are the consequence of interaction between the inherent and acquired traits of women and men through socialisation. based on the foregoing, it can be concluded that social factors play a major role in creating and directing an environmentally desirable behaviour. the low level of information on environmental issues, as well as the low level of valuation of environmental issues, are the consequences of poor efforts invested by society and companies in educating the population, i.e., employees, regarding this topic. as the most efficient channels of environmental communication, the largest number of respondents stated press, the internet and television. figure 1: share of channels used for environmental communication 73 management 2015/74 employees saw the intranet as a very efficient means of communication as they have already developed the habit of using it. the intranet allows efficient communication and exchange of information on specific job issues, as well as on actual or future environmental campaigns. the respondents emphasised informal communication as very desirable regarding this topic, which can be explained by the absence of pressure from their superiors and by an opportunity to exchange experience. figure 2: channels of internal environmental communication in axa insurance references [1] amaladoss, m.x., & manohar, h.l. (2013). communicating corporate social responsibility – a case of csr communication in emerging economies. corporate social responsibility and environmental management, 20, 65–80. [2] babiak, k., & trendafilova, s. (2011). csr and environmental responsibility: motives and pressures to adopt green management practices. corporate social responsibility and environmental management, 18, 11–24. [3] bakar, a.s.a., & ameer, r. (2011). readability of corporate social responsibility communication in malaysia. corporate social responsibility and environmental management, 18, 50–60. [4] birth, g., illia, l., lurati, f., & zamparini, a. (2006). communicating csr: the practice in the top 300 companies in switzerland. 10th international conference on corporate reputation, identity and competitiveness, zurich. [5] brønn, p.s., & vrioni, a.b. (2001). corporate social responsibility and cause related marketing: an overview. international journal of advertising, 20, 207–222. 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(2004). corporate social responsibility: balancing between thinking and acting. international centre for corporate social responsibility, iccsr research paper series, no. 28. 74 2015/74management based on the findings of the survey, it can be concluded that, due to the fact that organizations are not nearly sufficiently prepared to meet requirements, norms and standards applicable on the markets of developed countries, as well as due to their their lagging behind the scientific, technological and industrial developments, environmental awareness of employees in serbia is at a very low level. in addition to enacting and enforcing laws in this field, it is necessary that continual environmental communication programmes should be implemented on all levels and encourage all stakeholders to take part in environmental protection oriented activities, aimed at establishing a balance between short-term benefits of individual stakeholders and long-term benefits for the society as a whole. conclusion [8] cvejić, r., & stefanović, s. 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(2003). strategies and instruments for organising csr by small and large businesses in the netherlands. journal of business ethics, 47, 45–60. [14] guimarães-costa, n., & pina e cunha, m. (2008). the atrium effect of website openness on the communication of corporate social responsibility. corporate social responsibility and environmental management, 15, 43–51. [15] haddock-fraser. j, & fraser, i. (2008). assessing corporate environment reporting motivations: differences between ‘close-to-market’ and ‘business-to-business’ companies. corporate social responsibility and environmental management, 15, 140–155. [16] hooghiemstra, r. (2000). corporate communication and impression management – new perspectives why companies engage in corporate social reporting. journal of business ethics, 27, 55–68. [17] jovanović kolomejceva, l. (2010). ecological management, belgrade: academia printing house. [18] knox, s., maklan, s., french, p. (2005). corporate social responsibility: exploring stakeholder relationships and programmed reporting across leading ftse companies. journal of business ethics, 61, 7– 28. [19] kostić-stanković, m. (2011). integated business communications. belgrade: faculty of organizational sciences. [20] laroche, m., bergeron, j., & barbaro forleo, g. (2001).targeting consumers who are willing to pay more for environmentally friendly products. journal of consumer marketing, 18(6), 503-520. [21] lindridge, a., macgaskill, s., ginch, w., & eadie, d. (2013). applying an ecological model to social marketing communications. the european journal of marketing, 45(2), 152-164. [22] petrović, n. (2012). ecological management. beograd: faculty of organizational sciences. [23] stainer, l. (2006). performance management and corporate social responsibility: the strategic connection. strategic change, 155, 253–264. [24] straughan, d. r., & roberts, j. a. (1999). environmental segmentation alternatives: a look at green consumer behaviour in the new millennium. journal of consumer marketing, 16(6), 558-575. [25] ziek, p. (2009). making sense of csr communication. corporate social responsibility and environmental management, 16, 137–145. [26] wells, v. k. (2012). foraging: an ecology model of consumer behaviour? marketing theory, 12(2), 117-136 receieved: december 2014. accepted: february 2015. 75 management 2015/74 76 2015/74management about the author biljana kitić samardžić, oreški, gecić & grbović law firm bee_ljana@yahoo.com biljana kitić works as a business development manager at the law firm samardžić, oreški, gecić & grbović. she received her msc degree in multimedia communications and public relations at the faculty of organizational sciences, university of belgrade in 2013. she focuses her career on the area of business development, brand management, corporate communications and practice-specific media presentations. milica kostić – stanković faculty of organizational sciences, university of belgrade milica@fon.rs milica kostić – stanković works as a full professor in the scientific field of marketing management, public relations and multimedia communications at the faculty of organizational sciences, university of belgrade. she is also engaged in organizing and developing the curriculum and teaching at the faculty of civil engineering, university of belgrade, as well as at the university of business engineering and management and the faculty of political sciences, university of banja luka in bosnia and herzegovina. jelena cvijović faculty of organizational sciences, university of belgrade jelencvijovic85@gmail.com jelena cvijović is a doctoral student at the faculty of organizational sciences, university of belgrade. the areas of her scientific interest are: marketing communications, indirect advertising, social marketing and consumer behaviour. she has so far published twenty research papers in international and national journals and conference proceedings. danica lečić-cvetković faculty of organizational sciences, university of belgrade danica@fon.bg.ac.rs danica lečić-cvetković is associate professor of production and services management and e-manufacturing at the department for operations management, at the faculty of organizational sciences, university of belgrade. her research interests and fields are related to operations management, production and services management, emanufacture. so far she has authored more than 70 papers in journals and conference proceedings, published in international and national journals and conferences. 07_milan mihajlovic:tipska.qxd 67 milan mihajlović1, samed karović2, slobodan ristić3, goran radovanović4 1university of defence, military academy, belgrade, serbia 2universuty educons in sremska kamenica, project management college, serbia. 3 university of belgrade, faculty of organizational sciences, serbia 4 ministry of defance, belgrade, serbia management 2016/81 the problem in planning costs of an operation, i.e., the problem of determining an optimal capacity of units used in time is a highly complex problem whose solution can be obtained in different ways, depending on what is taken as an optimality criterion and the types of limiting factors that are present during an operation’s realization. the main goal of this paper is to show the practical application of dynamic programming with the aim of improving planning and organizing forces and costs during the realization of the serbian army’s third mission. data on the use of serbian military’s units after the earthquake in the area of kraljevo in 2010 were analysed. the paper covers the use of dynamic programming, namely, the complex optimization problem of using military units, which depends on a large number of variables and can be extremely difficult to solve, is disassembled into several smaller partial problems that depend on one variable and are simpler to solve. the model of using the military is based on mission usage and represented as one of possible scenarios of natural disasters that engulfed a part of the serbian territory. keywords: dynamic programming, telecommunication security, costs, operation to provide aid to civilian authorities. udc: 005.336.5:004 005.922.1:351.076(497.11) application of dynamic programming in planning costs of telecommunication security operations to provide aid to civilian authorities doi: 10.7595/management.fon.2016.0029 1. introduction the use of the military in aiding civilian authorities represents a mission declared in the doctrinal documents of the republic of serbia. its use in such situations (sahin et al., 2008) is directly linked to consequences of natural and other types of disasters (breckner et al., 2016) that threaten citizens and material goods. the context of aiding civilian authorities in rehabilitating consequences caused by natural disasters (baker, 2014) includes various areas. one such area is telecommunications. the key moment represents re-establishing an impaired communications system in a territory’s region and the possibility of establishing communication flows so they can assist the military (sheu & pan, 2015). the paper highlights a segment through which the model of dynamic programming in the process of planning costs (elshqeirat et al., 2013) of telecommunication support (czajkowski & sobolewski, 2016) is explained. this support includes the area affected by earthquakes of catastrophic magnitude. this model is based on the data on the use of the serbian military units in the area of the raška district in 2010. the law on emergency situations (2009) defines the role of the military in such situations while the law on defence (2007) and the law on the army of the republic of serbia (2007) defines the use of the army of serbia in the implementation of operations for supporting civilian authorities in case of natural disasters. also, the planning, preparation and execution of operations employ many subsystems of the country whose performance depends on the ability to achieve defined goals (stanković, 2013). considering these regularities, it is possible to predict the future variations of human, financial and material resources that should be available in certain periods. for those needs, it is necessary to analyse the data on hiring the serbian army in the accomplishments of similar assignments. this paper’s contribution is in defining models of projecting necessary forces intended for supporting civilian authorities in case of natural disasters (sodhi, 2016), by applying dynamic programming ( zhu et al., 2015). this paper is motivated by the work of pavlovic & karovic (2015). they analysed the application of bass’s diffusion model in forecasting the number of users of telecommunication services in an event of a natural disaster. assistance to civilian authorities in mitigating consequences caused by natural disasters includes various actions. one such action is supporting telecommunication systems. the key issue is the restoration of broken communication systems within the affected regional location and the ability to re-establish the system with the assistance and engagement of the military’s units. 2. literature review richard e. bellman (bellman, 1954) was the first to define dynamic programming as a method of operational research for optimisation of multistage and multiphase processes. there are significant differences when applying methods of dynamic programming in relation to a majority of mathematical methods, especially linear programming. the main and basic difference is that in the application of dynamic programming there are no universal methods and corresponding algorithms (such as simplex method in linear programming or cpm and pert methods in network programming) whose application can solve a majority of problems in dynamic programming. unlike universal methods, a special and specific approach is necessary for solving almost all practical problems with the application of dynamic programming which is a multistage i.e., multiphase method (backovic et al., 2014). the application of dynamic programming in determining the capacity is presented in the work of (wang & 2017) who propose a solution to decision-making related to (i) technology replacement policy and (ii) a capacity to plan resources for satisfying customer demands under technological changes. here dynamic programming is primarily used for simultaneous capacity planning. certain authors (ferreira et al., 2016) propose a stochastic approach based on dynamic programming to mitigate adverse climate change impacts and to increase the adaptive capacity of forest stands. this approach is the more innovative as it fully integrates a stochastic dynamic approach with a process-based model that is sensitive to climate parameters. application of dynamic programming in the area of natural disasters takes several years into account (li et al., 2012). lim (lim et al., 2016) proposes to prioritize the evacuation based on the danger level in the impact areas during a hurricane landfall using dynamic programming. here the authors triy to find a set of hurricane evacuation zones that enable prioritized evacuation based on the danger level of each area. some authors (paul & macdonald, 2016) applied historical hurricane data to model storm-related uncertainty. their paper develops a stochastic optimization model to determine the stockpile location and capacities of medical supplies for improved disaster preparedness in the event of a hurricane. the application of dynamic programming incorporates facility damage and casualty losses, based upon their severity levels and remaining survivability time, as a function of time variant changes in hurricane conditions. (rettke et al., 2016) formulated a markov decision process (mdp) model to examine a military medical evacuation dispatching problem. they employed approximate dynamic programming (adp) techniques to obtain high quality dispatch policies relative to current practices. the analysed available literature shows the application of dynamic programming in circumstances similar to the conducted research. however, the limitation relates to the fact that there is no research that has optimized the engagement of defence system’s forces in aiding civilian authorities with dynamic programming. 3. methodology the last strong earthquake in the republic of serbia was in the area of kraljevo on the 3rd of november in 2010, with the epicentre in the village of sirca, and with the magnitude of 5.4 on the richter scale. the “re68 2016/81management port” (2010) stated that after the main shock, a series of aftershocks were recorded, where the magnitude varied from 1.0 to 4.4 units on the richter scale. based on the data of damage caused to buildings and roads, as well as data on the number of injured, measures were taken to provide assistance to people by the serbian military as auxiliary forces. it was necessary to consider the type and the extent of used units’ costs, for the purpose of the research. we analysed ten units of the serbian military employed in the activities of telecommunication security (gürkaynak et al., 2014). the time interval of the analysis was from the 3rd of november until the 30th of november, 2010. disregarding other activities, telecommunication security (steenbruggen et al., 2013) on the territory affected by consequences after the earthquake will be considered. the realization of this function required securing adequate supplies of modern communication devices to units. all costs occurred in the aforementioned period are shown in the table (table 1). table 1: costs incurred in the observed period (calculation by the author) costs and expenditure in the serbian defence system are categorized as: 1) personal; 2) operating and 3) expenses for investment. based on the data, it can be concluded that the most represented type is operating costs which amount to 88% in this case. within these, “current repairs and equipment maintenance” are dominant with almost 50% of total incurred costs. from the structure of costs that units had in the observed period, it is clear that costs of maintaining telecommunication equipment and network are highest. 3.1. analysis of the model of dynamic programming the aim of making the optimum expenses model of telecommunication security in operations of assisting civilian authorities in case of natural disasters by using dynamic programming (bertsekas, 2012) is to point to the possibility of determining the capacity of units for telecommunication security that should be used, and optimization of usage costs depending on the extent of disaster consequences. the problem is complex because it is necessary to determine the optimal unit capacity and costs of their engagement for the entire planned period t, comprised of several time intervals or units. which can be solved by applying different methods and models of dynamic programming (davis et al., 2016). let us say that during the planned period which comprises four intervals (miltenburg et al., 1990) , т = 4 q units are used, and if the number of users of telecommunication devices is known in each interval is derived based on the number of citizens that live in the observed area. the costs of using units in the predicted capacity were also projected, which can be assigned in different ways depending on the size of units in each time interval of the given planned period т. in these kinds of problems of planning units used in time, the capacity of a used unit in each time interval appears as a limiting factor, depending on the capacity of units foreseen for response, their equipment, training and the like. not all of the factors will be analysed for the purpose of making the model, but the 69 management 2016/81 costs account no. percentage field work 4221 12% fuel and lubricants 4264 11% food articles 4268 26% transport from leasing 4229 7% current repairs and equipment maintenance 4252 44% maximum possible capacity that can be used in each unit of time will be assumed. the minimum capacity can be set up as a second limiting factor, because the units are formed from permanent members and means which are already in use. if z marks units with the size q, formed in the т-1-time unit, which will be used in the т time unit, then it will be necessary to use in this time the unit exactly (1) if we assume the expenses of using the units are , which include costs of: field work, fuel and lubricants, food articles and transport from lease, current repair and maintenance, known through each time interval. relatively fixed costs can appear at any time, even when the unit is not used, i.e., when it is in standby mode in the field, i.e., in case when the number of users of telecommunication devices does not grow, but when currently used units are more than sufficient to appease the endangered, which can be shown in the following way , (2) where marks the capacity of the unit in time unit t, which needs to be determined, and the number of users of telecommunication devices. these expenses can be represented as (3) in the observed case this will be represented by a linear function, because even this type of expense moved with linear progression in the research. there are also limitations in regard to the maximum possible capacity of a unit, as well as a minimum capacity in each time interval. if represents a maximum possible capacity of a unit and a mandatory or minimum capacity of units (maximum and minimum capacities of units represent a certain number of users of telecommunication devices which a unit can service) in each time unit of a period т, then a limitation can be set up (powell, 2010) (4) or limits (5) the data on maximum possible capacity of a unit , and minimum capacity of a unit for each time interval ( ) are derived based on the research of the elements of forces level of preparedness and the ability to form twenty units from the previous research. a third group of costs is related to maintenance of telecommunication devices and a telecommunication network. this means that in some certain time units, the process of performing an operation can be found in such a state that serbian military’s units which perform operations are not adequately equipped with necessary resources. in that case units must perform emergency procurement of necessary resources which creates additional costs i.e., when (6) these costs can be analytically represented by the function (7) costs of emergency procurements can be presented using a quadratic function in the observed case, because we have shown that they account to 50% of total costs. 70 2016/81management in each time unit of the observed process of performing an operation, there are two different possibilities of planning operation costs which are: using a unit to service telecommunication devise users, which will cause an emergence of relatively fixed costs and usage costs that need to be minimised, which can be written in the form (8) with limitations: (9) (10) where unit capacity; minimum unit capacity; maximum unit capacity; z – size of a unit formed in previous time intervals, which will be used in т time unit. if the destruction of a telecommunication network is vast, the costs of maintaining telecommunication devices and a telecommunication network and the costs of usage that need to be minimized will appear. this can be shown in the following expression (11) with limitations (12) (13) the function with which total expenses in t time unit are minimized and can be written in the form (vuleta at all, 1996) (14) with limitation based on the derived function, it is necessary to establish patterns , for with which total expenses in т-1, т-2, until the first time unit are minimized, where the procedure ends with determining for . for t time unit the pattern can be written as 71 management 2016/81 (15) with limitation from the mentioned relation a conclusion can be derived that for the case in which costs of maintaining telecommunication devices and telecommunication network exist, in the pattern for determining total minimal expenses for expenses in the following period , only expenses for z =0 are taken into consideration. this is because z represents the capacity of the unit formed in previous and used in the observed time unit. however, seeing that there are relatively fixed costs in the time unit t, z =0 capacity of the given unit will be transferred into the following time unit t+1, thus only corresponding expenses for z =0, i.e., are present in the relation. 4. preliminary data analysis for the purpose of practical use of this model, based on the conducted research and the aforementioned, a following assumption can be set. in the kraljevo region, the administrative district of raška, an earthquake with the magnitude of 6.5 degrees on the richter scale occurred, causing vast material damage with a large number of injured and killed (a rather large earthquake – can cause damage in an area of 160 km in populated areas). this type of earthquake is characterized by aftershocks which can cause additional damage and take a death toll. serbian military units were deployed to provide assistance as auxiliary forces, where they executed their functions based on the capacity of forces and resources from which they were composed. the time period of the operation was twenty days and it was divided into four intervals for the needs of the model. the model based on division of the territory can be applied in a particular number of areas in accordance with the intensity of the natural disaster’s negative effects. a successful realization of operations for supporting civilian authorities in case of natural disasters requires that units should be equipped with modern telecommunications facilities. radio transceivers in the vhf frequency range for communications over shorter distances, and hf frequency range for communication over longer distances will be used in a unit with the brigade command-staff. (pavlovic & karovic, 2015) based on previously conducted research of the twenty units that participated in assisting civilian authorities after the earthquake in the region of kraljevo, the model represented the value of all variable inputs. all of these indicators are shown in table 2. table 2: variables in the proposed model 72 2016/81management t t=1 t=2 t=3 t=4 wt (in tens of thousands of citizens) 8 8 4 7 gt (expenses in millions of dinars) 3 5 8 5 ( )t ty v w 1 12( )v w 2 22( )v w 3 32( )v w 4 42( )v w 1( )t ty w v 2 1 1( )w v 2 2 2( )w v 2 3 3( )w v 2 4 4( )w v ct (in tens of thousands of citizens) 6 6 6 6 ct (in tens of thousands of citizens) 0 3 5 3 it is necessary to determine the optimal amount of telecommunication devices and equipment for units that perform operations for each of the four time intervals, so that total costs, comprising the costs of using telecommunication equipment, relatively fixed costs and costs for maintaining telecommunication devices and telecommunication network should be minimal while satisfying the given limitations. solution: if we subtract the value of minimum capacity of used units from the number of telecommunication device users , for each , we will obtain the number of telecommunication service users that are required to provide the unit with missing telecommunication equipment in each time period which, if marked with amounts to while the minimum unit capacity for each time period is now equal to zero, and costs of minimum capacity, when marked with will be the solution to the problem of dynamic programming starts with calculating the minimal value of the criterion function from the last stage t=4 to the first stage t=1. all of the obtained results can be represented in the table: table 3: overview of total minimum cost from this table the minimum costs can be obtained and they amount to 57 million dinars. based on the results shown in table 3, total costs for each interval separately can be calculated. the total minimum costs are obtained when we add costs of compulsory capacity marked with g to the minimum costs of 57 million dinars, so they amount to million dinars. cost overview per time interval is obtained in the following way: , for and which means that the capacity of units in the first interval is 60 thousand citizens and corresponding involvement costs will be million dinars. however, the number of endangered in the first interval is 80 thousand citizens, which means that there is a need to spend additional resources to equip the unit, which amounts to hence, total minimum costs for the first period are 22 million dinars. 73 management 2016/81 z 4( )y z 4v 3( )y z 3v 2( )y z 2v 1( )y z 1v 0 14 1 or 2 16 0 35 2 or 3 57 6 1 9 0 or 1 13 0 30 1 or 2 2 4 0 10 0 25 0 or 1 3 1 0 9 0 20 0 4 0 0 10 0 17 0 5 2 0 14 0 16 0 6 17 0 7 20 0 if we subtract the minimum total costs of the first interval from the total minimum costs of all intervals, we will obtain the total minimum costs of the remaining five intervals, which amounts to 57 – 22 =35 million dinars. from table 4 we can see that for , =2 or 3 for the second interval the total minimum costs amount to 19 million dinars and comprise costs for engaging the unit whose capacity is 2, i.e., 3 thousand citizens, which amounts to 10, i.e., 15 million dinars and costs of emergency procurement that amount to 9, i.e., 4 monetary units. continuing this procedure of determining the total minimum costs for each interval of hiring a unit, all of the necessary results are obtained, as given in table 6. table 4: overview of expenses according to time periods output results of the model shown in table 4 show that costs of maintaining telecommunication devices have a significant share in total costs, which corresponds to the results of the conducted research, the costs of used units in the operation of assisting civilian authorities after the earthquake in the kraljevo region. 74 2016/81management interval capacity of engaged unit costs of engagement relatively fixed expenses expenses of emergency procurements total expenses 1t 6 18 4 22 2t 2 or 3 10 or 15 9 or 4 19 3t 0 2 2 4t 1 or 2 5 or 10 9 or 4 14 total 9 or 11 33 or 43 2 22-12 57 this paper shows the possibility of planning operation telecommunication security costs in assisting civilian authorities in case of natural disasters by using dynamic programming. we stressed the situation that had such proportions that the existing telecommunication infrastructure was not usable. serbian military units were used as auxiliary forces in assisting the endangered citizens. the data analysis of hired units from the defence system in the previous time period is one of the key problems in an inadequate planning of forces and assets for realizing the third mission of the serbian army. unfortunately, the practical application of quantitative methods is on a low level. some of the possible reasons for this situation might be low levels of engineering/mathematical background in the defence system, lack of process-related data for modelling, lack of in-house operations research expertise and high costs of engaging external consultants. the main goal of this paper is to present and encourage practical application of different quantitative methods for the purpose of improving planning and organizing forces and assets intended for the realization of the third mission. this is among the first papers that used combined quantitative data analysis on engaging the serbian army in aiding civilian authorities during natural disasters the output of the model show that costs of maintaining telecommunication devices and the telecommunication network take the most significant share in the total costs, which corresponds to the results of the conducted research of using units in the operation of assisting civilian authorities after the earthquake in the kraljevo region. the reason for this is an insufficient number of telecommunication devices and equipment in units used for ensuring telecommunication security and aid to the destroyed infrastructure. the mentioned model can be used to set standards for corresponding resources and telecommunication equipment for serbian military units in order to assist civilian authorities in case of natural disasters, as well as reduce costs that occur during emergency procurement of missing resources. conslusion references [1] backovic, m., vuleta, j., popovic, z. 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(2016). natural disasters, the economy and population vulnerability as a vicious cycle with exogenous hazards. journal of operations management, 45(3), 101-113. doi: 10.1016/j.jom.2016.05.010 [25] steenbruggen, j., borzacchiello, m.t., nijkamp, p. & scholten, h. (2013). data from telecommunication networks for incident management: an exploratory review on transport safety and security. transport policy, 28(2), 86-102. doi: 10.1016/j.tranpol.2012.08.006 [26] stankovic, s. (2013), the economic factor for success realized of the defence system. oditor, 05, 4-9. udk 355:336.144.38(497.11) 75 management 2016/81 76 2016/81management [27] wang, k.j., nguyen, p.h. (2017). innovative applications of o.r.: capacity planning with technology replacement by stochastic dynamic programming. european journal of operational research, in press, 2017. doi: 10.1016/j.ejor.2016.12.046. [28] zhua, q., lujia f., mayyas, a., omar, m.a., al hammadi y., al saleh s. (2015). production energy optimization using low dynamic programming, a decision support tool for sustainable manufacturing. journal of cleaner production, 105 (1), 178–183. doi: 10.1016/j.jclepro.2014.02.066 receieved: november 2016. accepted: december 2016. milan mihajlović military academy, belgrade milan.mih83@gmail.com milan mihajlović, ph.d., is an assistant professor at the military academy in belgrade. he obtained his m.a. degree at the faculty of organizational sciences, university of belgrade, serbia. he earned his ph.d. degree in management and business at the military academy in belgrade. his research areas include: economics and operational research. he has published around 15 papers in scientific journals and 15 conference papers. samed karovic universuty educons in sremska kamenica, project management college, serbia. samedkarovic@sbb.rs samed m. karovic, ph.d., obtained his m.sc. and ph.d. degrees (military management) from the military academy, university of defence in belgrade, in 2003 and 2007, respectively. currently, he is an associate professor at the universuty educons in sremska kamenica, project management college, serbia. he has published more than 50 research papers at national and international conferences and in national and international journals. his research activity and interest are focused on military management, risk management and methodology of scientific research. slobodan ristić university of belgrade, faculty of organizational sciences, serbia slobodan ristić, ph.d., earned his ph.d. degree at the faculty of organisational sciences, university of belgrade. he was employed as college professor with the railway transportation college, belgrade. in the 2006 – 2011 period he was engaged as a director general in the fzv “zelvoz” company, smederevo. currently he works with the faculty of organisational sciences, belgrade as a student practical training assistant. he is an author or coauthor of a number of both academic and research papers in the area of management and organisation goran radovanović defense inspectorate, ministry of defence, serbia goran.radovanovic@vs.rs goran radovanović, ph.d., earned his m.sc. and ph.d. degrees (military management) from the military academy, university of defence in belgrade, in 2007 and 2016, respectively. currently, he is the director of the defense inspectorate ministry of defense, the republic of serbia. he has published more than 20 research papers at national, international conferences and in national and international journals. his research activity and interest are focused on military management, military developments, and methodology of inspections in different fields. about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07_slobodan radisic:tipska.qxd 69 slobodan radišić2, jožef kabok1, vladimir dj. djaković2, bogdan kuzmanović2 1provincial secretariat for science and technological development, novi sad, serbia 2university of novi sad, faculty of technical sciences, novi sad, serbia management 2016/79 the programme budget model as a basis for measuring the performance of the public sector in transition economies udc: 336.13.051 doi: 10.7595/management.fon.2016.0014 1. introduction improvement of the budgetary process is part of a more comprehensive public finance management reform, with a focus on determining the priorities and optimized spending for the purpose of stimulating economic growth (jednak& kragulj, 2015) and efficient provision of high quality services by the public administration. such budgeting enables a better management of public administration performance, a higher responsibility of the budget beneficiaries, establishing stronger connections between the annual budget, setting priority expenses and expenditures and conducting public policies. the aforesaid budget also enables greater transparency in the spending of public funding on the basis of better cost-benefit measuring. authorized spending of budgetary funds, or justification of such spending, was not traditionally a priority of governments and, as a rule, was sufficient to prove that the budgetary funds were spent in accordance with the existing legislation, regulations and standards. there was only a compliance with the restraints in terms of using inputs, whereas performance measuring was negligible in such systems. in time, it turned out that, in addition to complying with the legislation, it was also necessary to expand the responsibility to quantitative measuring of the public sector performance and results from using the budgetary funds (greiling, 2006). reforms aimed at introducing a programme budget, and measuring the performance, were initiated in 2005, and after a year of preparations, the programme budget concept was introduced in 2007, in four pilot ministries, and in the following year in one republic administration as well. it is now quite clear that the process of introducing the programme budget in serbia needs to proceed with greater determination (vujović, 2012), with a required expert capacity building, initiating new programme ideas and consolidating programmes in accordance with the budget priorities. programme budget model is a significant instrument for improving the situation in the public finance system, especially in transition economies. thus, the process of implementation of reforms and the consolidation of the public sector are essential for the creation of adequate baselines for further sustainable growth and development of transition economies while observing their specificities. accordingly, the subject of the research is the analysis of the current state of affairs in the process of financial system reforms, that is, public funding with a special focus on the area of budgeting of the higher education in the transition economies of serbia, croatia and hungary. the main objective of the research is determining the performance of the programme budget model in the public sector of the observed transition economies in order to improve public finance management. the research results indicate the adequacy and advantages of using the programme budget model in terms of significant improvement in budgetary performance and results in accordance with the defined programme activities. keywords: programme budget model, public sector, performance, transition economies, performances the subject of the research is the analysis of the current state of affairs in the budget process reforms in serbia with a special focus on the implementation of the programme budget model as a basis for measuring the performance of the public sector in transition economies, on the example of higher education budgeting. special attention is therefore given to the fact that the existing legislation regulates the transition to programme budgeting in 2015. the objective of the research is to analyse, by comparison with the eu member countries, hungary and croatia, the significance of programme budget model implementation for the purpose of a more efficient and effective use of public resources in serbia. this paper is important from the standpoint of the need to implement the new budget model based on budget programmes and projects in serbia, especially having in mind that transition has many organizational impacts in the public sector (todorović, komazec & čudanov, 2013).the paper is therefore important for a large professional and scientific public in transition economies with a special focus on serbia, and for competent authorities, local autonomies and local government authorities in the area of budgetary funds. after the introductory part, the second chapter of the paper analyses the theoretical background of the programme budget model. the third chapter of the paper gives a research methodology, whereas the fourth chapter presents the structure of this model with an example of implementation of the “higher education“ programme in serbia, croatia and hungary. the conclusions explaining the advantages and benefits of the programme budget model implementation are covered in the fifth chapter. 2. theorethical background many authors have dealt with research in a specialized area, which indicates the significance of the specialized area. namely, jordan &hackbart (1999), heinrich (2002), vujovic (2012) carried out research on performances concerning public sector management based on the outcomes. the authors especially emphasized the effectiveness of policies in the given sector, taking into account a greater reliability of the observed public sector. also, special attention was paid to the effects of an adequate public sector management and the system factors on the outcomes and impacts. the authors conclude that the available administrative data on measuring the activities and outcomes of the observed programme have a significant role in the effectiveness and efficiency of the public sector management system. propper & deborah (2003) empirically test the indicators of public sector performances, indicating the complexity and challenges of measuring thereof. namely, the authors focus on analysing the performances of multiple tasks and levels of responsiveness during their implementation. research is particulary important, as it perceives the state of affairs in the public sector of developed countries (the united states of america and great britain) with a special focus on the sectors of education and health care. the authors point out that the efficiency is improved by adequate measuring of performances, but also that improved services of the observed sector pose a special challenge. it is particularly important to pay attention to an adequate achievement of objectives formulated by creators of policies in the subject area. curristine, lonti & joumard (2007) analyse and identify key institutional factors which have an impact on the effectiveness and efficiency of the public sector systematically perceiving the budget processes, their performances, as well as hierarchical levels of the implementation thereof. thereby, the role and use of information is revealed in the process of quantification of the programme outcomes, actual programme activities in the scope of the corresponding budget. the authors particularly analyse the oecd countries due to the current increase in costs and the necessary improvements in the public sector performances on the whole. this research is important as it indicates the complexity of measuring the public sector efficiency, and especially the isolation of effects of individual institutional reforms from other external effects. van thiel & leeuw (2002) give an assessment of the public sector performances as a result of the previously implemented administrative reforms, as well as the impacts thereof on the effectiveness of the observed system. the authors state that it is particularly necessary to pay attention to the specificities of the given public sector, and that it is necessary to analyse multiple indicators of performance with an objective to give an adequate assessment of the outcome, both from the short-term and the long-term perspectives. thereby, due consideration particularly needs to be given to the legitimate interests of all stakeholders concerned and an adequate balance needs to be accordingly established. bogt, henk & van helden (2007) analyse the place, role and importance of consultants-researchers in the process of improving the programme budget performances on the example of holland. the authors emphasize the importance of research concerning the programme budget implementation in different 70 2016/79management phases. accordingly, special attention is paid to analysing the contribution of consultants-researchers in terms of the development of innovations in the field of management accounting in the public sector, and their possible institutional role. on the basis of research results, the authors conclude that the improved programme budget format is supported both by the beneficiaries, as well as by the creators of budget information, as the basis of effectiveness and efficiency of the whole public sector. taking the aforesaid into account, the actuality of analysing and testing the state of affairs in the public sector, or measuring the performances thereof by means of programme budgeting implementation is beyond any doubt. in the oecd (2007) and the world bank studies (2010) it is emphasized that most countries started with budgeting reforms based on performances relating to the public administration reform, already in the nineties of the past century. in favour of that goes also the fact that programme budgeting was introduced in 26 out of a total of 34 oecd countries and that it took more than ten years to implement the successive reforms which are still going on (anderson, 2008; bernhard, lojtner & francreb, 2011). a greater interest in measuring the budget performances in the developing countries and transition countries emerged during the previous century (olden, 2012; kraan, bergvall, hawkesworth& krause, 2006). the world bank studies (2009 2010) state that more and more latin american, asian and european countries have considered the possibility of introducing and promoting budget performances aiming at showing a positive impact of the programme budgeting and introducing the principle of strategic decision-making in the public sector. 3. methodology the methodology of the research, applied in this paper, is in the function of the main objective of the research and the establishment of performances of the programme budget model in the public sectors of transition economiessof serbia, croatia and hungary. the theoretical part of the research includes description, classification, explanation and forecast, as well as methods applied in all segments of scientific-research work, for example, the compilation method, classification method, comparison method, etc. the second phase of the research, which assumes the realization of the empirical part, includes the forecast and data processing referring to the indicators of the programme model performance by using the standard statistical methods and analyses. in the aforesaid research phase, secondary data, mostly official statistical reports and data on serbia, croatia and hungary were used. the methodological framework of examples of the programme budget model structure in the field of higher education assumes the establishment of the purpose of the “higher education“ programme, programme activities or project by expressing and describing the general social and/or economic effects which should be achieved on a long-term basis. two types of performance indicators were used in the paper: the indicators of outcomes and the indicators of outputs. regarding the implementation of the performance indicator, the basic (existing value), as well as the target values had to be determined for the following three years: 2015, 2016 and 2017. the basic value of the indicator was determined by using standard statistical sources, for a time sequence of the previous five years, whereas the target values in the mentioned years were determined by the empirical forecast and implementation of the linear trend method. the linear trend method was applied for the reason that in the initial years of implementation of the programme budget model no extreme increase or reduction of the performance indicator is expected, so that the aforesaid statistical method is considered to be adequate for this phase of research. the linear trend method is expressed by an adapted formula (kovacic 1995): (1) with: yt: linear trend of performance indicator; t: time period expressed in years; b0: time sequence value in matrix; b1: linear trend coefficient. coefficients b1 and b0 are calculated by the least square method: 71 management 2016/79 (2) with: b1: linear trend coefficient; y: time sequence of performance indicator; t: time period expressed in years; n: number of observed years (for t =1,2,3...n with constant pickup t=1). (3) with: b0: time sequence value in matrix; y: time sequence of performance indicator; b1: linear trend coefficient; t: time period expressed in years; n: number of observed years (for t =1,2,3...n with constant pickup t=1). likewise, it was necessary to determine, in the subject research, the amounts of funds required for implementing the “higher education“ programme in 2015, 2016 and 2017. a calculation of the total annual resources for the said programme, on the revenue side, was made on the basis of a modified formula method, applied in serbia (kabok, 2010), assuming that the revenues for the realization of the programme are plannned at the necessary level of expenditure in all the observed years. 4. results and discussion the educational sector is taken as an example of the programme budget structure presentation, due to the fact that in many european countries, and especially in the scandinavian countries with a developed eductional system, such as denmark, finland, norway and sweden (bernhard, lojtner & francreb, 2011), but also in other european countries such as croatia and hungary, this sector, that is a part of the educational sector – the higher education area, is budgeted according to the direct programme performance. the reason for this is that budgetary financing of university education, in the aforesaid countries, including serbia, is to a great extent based on the formula founded on the outcomes formula. if, in terms of the results and outcomes in the aforesaid area, there are clear objectives and indicators which can be easily quantified (curristine, 2005), the programme budget structure of higher education may be adequately perceived and analysed. 4.1 the programme budget in the area of higher education in the republic of serbia in accordance with the law on the prescribed obligation of adopting and implementing programme budgeting the programme budget model has been in force in serbia with full implementation as of the fiscal year 2015. the “higher education“ programme the purpose of the programme: promotion, development and establishment of an efficient higher education system enabling access to higher education for all persons concerned in order that the system should provide good quality higher education, and that it be efficient and competent. the objectives of the programme implementation in the period 2015-2017 and indicators of success which will be used to measure the achievement of objectives: objective1: reduction of unemployment of persons with a university degree so that the number of unemployed persons who graduated in 2015 is lower than 0.5% out of the total number of unemployed. 72 2016/79management table 1: outcome indicators source: statistical yearbook of the republic of serbia (2014) and the authors’ calculations objective 2: higher quality of studies at state universities table 2: output indicators source: statistical yearbook of the republic of serbia (2014) and the authors’ calculations 4.2 programme budget in the area of higher education in croatia croatia, in contrast to serbia, has made considerable progress in terms of programme budget model and strategic planning implementation. within the framework of the applied budgeting model, two types of budget performance indicators may generally be recognized: • output indicators, defined as a measurable level of production of goods and services from the planned activities defined on the level of ministries; • output indicators, defined as measurable achievement of strategic objectives that must be based on clearly defined, unambiguous and generally comprehensible concepts in order to enable monitoring and assessment of the achievements thereof. the “higher education“ programme programme purpose: stimulating high quality work and university management for the purpose of strengthening global competitivenes on the regional and international levels, as well as increasing the number of highly educated persons in croatia. the objectives of the programme implementation in the period 2015-2017 and indicators of success which will be used to measure the achievement of objectives: objective 1: promotion of the quality, management and higher education funding system. table 3: performance indicators source: state calculator of the republic of croatia for 2015 and projections for 2016 and 2017 73 management 2016/79 indicator 1 basic value 2015 2016 2017 percentage of unemployed persons with a university degree out of the total number of unemployed as of 31st december. 17.6 17.1 16.6 16.1 indicator 1 basic value 2015 2016 2017 yearly number of graduated students 47,797 48,500 48,800 48,850 indicator 1 basic value 2015 2016 2017 state universities, faculties and schools for higher education which introduced internal management mechanisms for conducting the “aggregate amount“ funding method 1 16 18 20 objective 2: develop quality insurance on all levels of pedagogy and education. table 4: performance indicators source: state calculator of the republic of croatia for 2015 and projections for 2016 and 2017 4.3 programme budget in the area of higher education in hungary in hungary, a specific programme budget model harmonized with the development strategies and objectives of an eu member country is in force (kraan, bergvall, hawkesworth& krause, 2007). the budget law of the republic of hungary for the year 2015 does not give indicators of results for monitoring the budget fund realization, but gives detailed information and explains the objectives whose implementation is planned by means of budget funding. likewise, the aforesaid 2015 law gives a budget projection for the following two fiscal years, 2016 and 2017, which is the practice in programme budgets and which is done in the state budgets of serbia and croatia for 2015. the “higher education“ programme the authorized ministry of higher education in hungary is the ministry for human resources within whose budget resources were planned for an unhindered functioning and development of higher education. the objectives were intended to be achieved by the implementation of budget funds in hungary, in 2015, in the area of higher education, refer to higher competitiveness in this scientific and educational field, realization of labour market requirements for highly professional staff, incentives for the development of technical sciences and the it sector, changes in the study programme structure for the purpose of ensuring a higher quality of education, as well as providing a return on invested social funds to higher education. other than that, higher education in hungary needs to provide implementation of higher education activities within the network of higher education institutions in hungary, international cooperation, development of scientificresearch activities and innovations, talents, as well as faster economic and technological development of the country. no indicators of results for the “higher education“ programme are given nor is it defined how the achievement of planned budget objectives in this area will be measured and perceived. 4.4 comparative analysis of planned resources for the “higher education“ programme in the republics of serbia, croatia and hungary implementation of the “higher education“ programme assumes yearly planning of resources intended for achieving programme activities and projects of the aforesaid programme in croatia and hungary, which are eu members, whereas serbia is a candidate member. planning of resources in 2015, 2016 and 2017 for this programme in the above countries, is included in table 5: 74 2016/79management indicator 1 basic value 2015 2016 2017 increased share of higher education institutions which are the basis of a functional internal system of quality insurance subject to an external review procedure 29 9 18 27 table 5: example of planned amounts of resources for the “higher education“ programme and share of resources in the aggregate budget for 2015, 2016 and 2017 in serbia, croatia and hungary source: budget law of the republic of serbia for 2015, state calculator of the republic of croatia for 2015 and projections for 2016 and 2017 and draft budget law of hungary for 2015 with explanations it may be concluded from the presented table that the greatest amount of resources is set aside in hungary for activities and development of higher education in the three analysed budget years. funding of higher education in hungary by the founders of institutions (government) is regulated according to the formula model, assuming that the resources set aside for higher education activities are planned in the budget on the basis of the mathematical formula (jongbloed, 2003). the basic funding criterion in the formula is determined on the basis of inputs, that is, number of accepted budget students for whose training costs complete funding is provided from the budget, in contrast to self-financing students who have to cover their university or higher education fees by themselves. significant resources for higher education funding, according to the programme budget model in the analysed three fiscal years, are also set aside in croatia. according to the above funding model in croatia, the aggregate resources are allocated to universities according to the “aggregate amount“ model. the “aggregate amount“ model assumes that total funds are allocated to higher education institutions, and not according to the prescribed budget items. it may therefore be concluded that the higher education financing model applied in croatia is directed towards the integration of universities, but not towards either a wider or a financial autonomy of higher education institutions (kabok,2013). in serbia, in comparison with the previously analysed two eu countries, the least amount of funds was set aside, on the basis of the programme budget model, for financing higher education in the analysed three fiscal years. the higher education funding model based on a formula with dominant input criteria in allocating funds to institutions from public sources is in use. the specificity of higher education funding in serbia is that faculties, as constituents of the university, are independent legal persons with independent financial operations and current account within the consolidated treasury. in accordance therewith the budget funds are allocated directly to faculties, and not through the integrated university which is the case in most european countries (kabok, 2010). with respect to the structure of planned resources for higher education, a similar structural share of funds intended for financing higher education is acknowledged in the total state budget of all three analysed countries. the aforesaid information is indicative for the reason that it indicates that the total volume of the state budget is important for financing higher education, and that more developed countries have a comparative advantage in that respect. 75 management 2016/79 no. state/percentage share 2015 2016 2017 1. serbia (eur) 341,350,000 342,960,000 345,850,000 1.1. percentage of share in the budget (%) 3.6 3.5 3.4 2. croatia (eur) 507,340,000 377,790,000 367,380,000 2.1. percentage of share in the budget(%) 3.0 2.2 2.2 3. hungary (eur) 1,549,300,000 1,467,900,000 1,470,700,000 3.1 percentage of share in the budget (%) 3.3 3.1 3.0 references [1] anderson, b. (2008, june). performance budgeting: a users guide. international conference budgeting, mexico city, mexico. [2] bernhard, r., lojtner, j.,& francreb, d. (2011). sector programme public finance, administrative reform, transparency initiatives, deutche gesellschaft internationale zusammenarbeit (giz) gmbh, eschborn. [3] bogt,t., henk j., & jan van helden, g. (2011). the role of consultant-researchers in the design and implementation process of a programme budget in a local government organization. management accounting research, 22 (1), 56-64. [4] budget law of the republic of serbia for 2015 (“official gazette ros“, no.142/14). [5] central budget of hungary for 2015, official gazette of hungary no.184 f 29th december 2014, 2014http://kozlonyok.hu/nkonline/mkpdf/hiteles/mk14184.pdf [6] curristine, t. (2005). performance information in the budget process: results of the oecd 2005 questionnaire. oecd journal on budgeting, 5(2), issn 1608-7143, http://www.oecd.org/gov/budgeting/43480959.pdf [7] curristine, t., lonti, z.,& joumard, i. (2007). improving public sector efficiency.oecd journal on budgeting, 7(1), 1-41. [8] greiling, d. (2006). performance measurement: a remedy for increasing the efficiency of public services?, international journal of productivity and performance management, 55 (6), 448 – 465. [9] heinrich, c. j. (2002). “outcomes–based performance management in the public sector: implications for government accountability and effectiveness.” public administration review, 62(6), 712-725. [10] hungarian government, draft law on the budget of hungary for 2015 with explanation, budapest, october, 2014. [11] jednak, s., & kragulj, d.(2015). achieving sustainable development and knowlwd-based economy in serbia. management, 75, 1-12. doi:10.7595/management.fon.2015.0015 [12] jongbloed, b. (2003). institutional funding and institutional change, in file, j. and l. goedegebuure (eds) real-time systems. reflections on higher education in the czech republic, hungary, poland and slovenia. vutium press, brno,115-146. [13] jordan, m.,& hackbart, m., (1999). performance budgeting and performance funding in the states: a states assessment. public budgeting and finance, 19(1), 68-99. [14] kabok, . (2010). models of investing in higher education. annals of the faculty of economics in subotica, 24, 155-168. [15] kabok, j. (2013). analysis of higher education efficiency in serbia,management, 67, 47-54, doi:10.7595/management.fon.2013.0008. [16] kovačić, z. (1995). analysis of time series, faculty of economics, university of belgrade, belgrade. [17] kraan, d.j., bergvall, d., hawkesworth, i.,& krause, p. (2006). budgeting in croatia. oecd journal on budgeting, 5(4), 1-60. 76 2016/79management on the basis of the research results, and with a special focus on the area of higher education budgeting, it may be concluded that the introduction of the programme budget model should improve the budget performance and results set by the programme budget model. namely, there is an undeniable need for a full implementation of the above budget model in serbia aiming at increasing the responsibility in the management of state affairs, for the purpose of improving the management of public finances. the formal requirements in terms of compliance of the budget and fiscal policies with the eu standards are also an important initiator of reforms in the area of public finances in serbia, assuming the implementation of the programme budget model and introduction of performance measuring. comparative analysis using the budgeting models, from the particular aspect of higher education budgeting in the two neighbouring eu member countries, croatia and hungary, only confirms this statement. the courses of further research in this area assume a continuous perspective of the results and outputs of the programme budget model in serbia, as well as in the regional countries, by measuring the defined indicators of outputs, outcomes and performance with special reference to the specificities of transition economies. conclusion [18] kraan, d.j., bergvall, d., hawkesworth, i.,& krause, p. (2007). budgeting in hungary. oecd journal on budgeting, 6(3), 1-61. [19] oecd (2007). performance budgeting in oecd countries, oecd publishing. [20] olden, b. (2012). programme budgeting according to performance – experience of southeast europe: their role in the fiscal consolidation process, pempal meeting, bohinj, slovenia. [21] propper, c.,& deborah, w. (2003).the use and usefulness of performance measures in the public sector.oxford review of economic policy, 19(2), 250-267. [22] state calculator of the republic of croatia for 2015 and projections for 2016 and 2017, croatian parliament, 2nd december 2014,http://www.mfin.hr/hr/state (statecalculator-2015). [23] statistical office of the republic of serbia, statistical yearbook of serbia, belgrade, 2014. [24] todorović, i., komazec, s., & čudanov, m. (2013). different successful patterns for implementing holding model in public sector. business systems research,4(2), 58-67. [25] van thiel, s., & leeuw, f., l. (2002). the performance paradox in the public sector.public performance & management review, 25(3), 267-281. [26] vujović, d. (2012). study on the efficient use of performance indicators in the process of drawing up the budget and plans in the public sector – creation of performance indicators for the purpose of improving the programme budget performance in serbia, usaid project for better business conditions, belgrade. [27] world bank (2009). performance – based budgeting and medium – term expedinture frameworks in emerging europe, editor team: kasek, l., & webber, d. [28] world bank, (2010). results, performance budgeting and trust in goverment, editor team: arizti, p., brumby, j., manning, n.,&. senderowitsch, r. receieved: may 2016. accepted: june 2016. slobodan radisic university of novi sad, faculty of technical sciences, novi sad, serbia dr slobodan radisic, phd is a docent at the faculty of technical sciences in novi sad, in the production systems, organization and management areas. he has attained the title of phd of economics at the faculty of economics of the university of niš and his field of research focused on the models of managing business risk in terms of business optimization. his research is focused on the revision process, accounting and public finance. he is also known as an author and co-author of the multiple scientific research in national and international magazines.the field area for this research is social and national capital privatization, revision and controlling in public services, management accounting and financial management. slobodan is also a lecturer at the faculty of economics and engineering in novi sad at business economy and finance study programme. dr jožef kabok provincial secretariat for higher education and scientific research, novi sad jozef.kabok@vojvodina.gov.rs dr jožef kabok is employed in the provincial secretariat for higher education and scientific research of the autonomous province of vojvodina. he successfully defended his master’s thesis in the field of management and business at the faculty of economics in subotica, university of novi sad, and his phd in the field of engineering management at the faculty of technical sciences in novi sad, university of novi sad. he has published papers in the areas of financing and management of higher education. he lives in novi sad. 77 management 2016/79 about the author 78 2016/79management vladimir djaković university of novi sad, faculty of technical sciences, novi sad, serbia vladimir djaković was born at novi sad on 1st february, 1980. he did his ph.d. thesis in 2013 in the field of investment management at the university of novi sad, faculty of technical sciences. assistant professor djakovic’s field of interest includes the following: investment management, financial management, risk management and portfolio management. his research focuses on the investment optimization processes using modern risk management investment tools. special emphasises in his research is placed on transitional economies and the possibilities of using modern investment optimisation tools on these markets. he has taught courses at all levels (b.sc., m.sc. and ph.d.). bogdan kuzmanovic university of novi sad, faculty of technical sciences, novi sad, serbia dr bogdan kuzmanovic has been employed at the faculty of technical sciences in novi sad, as an assistant professor in the field of insurance, prevention engineering and risk management at the undergraduate, master’s and doctoral studies. he has a several year experience in industry. 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice tipska 25 maria mikela chatzimichailidou 1 , stefanos katsavounis 2 , dusko lukac 3 1 polytechnic school, department of civil engineering, democritus university of thrace, greece 2 polytechnic school, department of production and management engineering, democritus university of thrace, greece 3 university of applied sciences, rheinische fachhochschule köln gmbh, germany management 2015/74 a conceptual grey analysis method for construction projects udc: 005.8.005.22 007:005.82 doi: 10.7595/management.fon.2015.0005 xiv international symposium symorg 2014, 06 10 june 2014, zlatibor, serbia 1. introduction it is apparent that project management is the core business process and competency, for which project managers (pms) create and monitor project schedules. probabilistic approaches were primarily used to bridge the gap between conflicting issues, such as cost, time, and uncertainty, whilst the newly introduced systems thinking suggests a more holistic view, under which the analyst should take into account many phenomena of the project’s internal and external environment [1]. probability and statistics, fuzzy mathematics, and grey systems theory are the three known research methods employed for the investigation of uncertain systems. probability and statistics study the phenomena of stochastic uncertainty, with the emphasis placed on revealing the historical statistical laws. they also investigate the chance for each possible outcome of the stochastic uncertain phenomenon to occur. their starting point is the availability of large samples that are required to satisfy a certain typical form of distribution. pert, the most traditionally used statistical tool in project management, is a method that analyzes the involved tasks in completing a given project, especially the time needed to complete each task and identify the estimated minimum time needed to complete the total project [1]. the pert technique is a specific type of the three point estimation technique. the difference between them lies in the weights that pert introduces in the formula of mean task durations. this weighting technique of pert is known as weighted average. pert’s drawbacks are probability approximations and lack of critical resources. in the context of the present paper, one of pert’s significant disadvantages is that it constitutes a precondition for all tasks, in order that they be invariably described by using the same shape and scale parameters of beta probability distribution that “works behind” pert. it is apparent that pert is insufficient in case of dynamic scheduling and projects with randomly concerning engineers, project management is a crucial field of research and development. projects of high uncertainty and scale are characterized by risk, primarily related to their completion time. thus, safe duration estimations, throughout the planning of a project, are a key objective for project managers. however, traditional linear approaches fail to include and sufficiently serve the dynamic nature of activities duration. on this ground, attention should be paid to designing and implementing methodologies that approximate the duration of the activities during the phase of planning and scheduling too. the grey analysis mathematical modeling seems to gain grounds, since it gradually becomes a well-adapted and up-to-date technique for numerous scientific sectors. this paper examines the contribution of the logic behind the aforementioned analysis, aiming to predict possible future divergences of task durations in big construction projects. based on time observations of critical instances, a conceptual method is developed for making duration estimations and communicating deviations from the original schedule, in a way that approximations will fit reality better. the whole procedure endeavors to investigate the decrease of uncertainty, regarding project completion time and reduce, up to a scale, a possible inaccurate estimation of a project manager. the utmost effort is about exploiting the gained experience and eliminating the “hedgehog syndrome”. this is attainable by designing a reliable, easily updated, and readable information system. an enlightening example is to be found in the last section. keywords: grey analysis, information system, project management, technical constructions, uncertainty distributed duration data [1]. there is indeed a necessity for tasks, not only the critical ones, to be systematically and carefully reconsidered, either in planning or execution phases. as regards the uncertainty of tasks duration in large-scale technical projects, the literature offers little evidence of approaches that involve stochastic activity durations. some of the most cited research works, e.g., [2], [3], refer to the parallel examination of time and cost, in a manner that cost affects duration and vice versa. there is also a group of research papers, e.g., [4], where duration is correlated with resource sufficiency and other significant and sophisticated research topics, such as the rcmpsp problem. but, such problems exceed the scope of this paper, although they have been examined by the authors in the recent past [5]. the aim of the present paper is not to question other proposed techniques in a general framework; its the contribution is in advocating the use of the gained experience through the use of data derived from past analogous large projects. apart from conventional methods, which are commonly used in project management, there is a need for a new perspective on the estimation of activity durations, based apparently on actual task durations. these data have to be taken into account, not only during the planning phase of a project by gathering information on similar past situations, but also in the execution phase. this can be achieved by utilizing any data of current projects. to this extent, grey analysis, as a group of mathematical models, is examined to introduce a different point of view. grey systems and fuzzy logic models are preceded by the same principle and they investigate situations with no crisp values but fuzzy ones. grey analysis is still in an infantile state; it is very popular in environmental matters though, once they do show great endogenous complexity. grey models make a practical tool in case of having sequences of data, something very common in activity durations. complied with this rule, and by utilizing previous time data, the present work focuses on grounding a database and an information system thereupon. this need accrued after reviewing a conference paper [1] which was about grey models in project management. after the paper was accepted by the conference editor, the co-authors realized that there was a pool of latent knowledge that must be definitely utilized. this pool is the experience of decision makers and project managers. as mentioned before, there does exist a so called “hedgehog syndrome”. this phenomenon refers to the inability of project contributors to learn from experiences, and utilize their knowledge in a beneficial, for the upcoming project, phase [6]. hedgehogs, for instance, are killed on the road, although they already know the existing risks. but why don’t they learn? the answer is often hidden in plain sight, but people can be blind to it. it is the feedback loops that render knowledge more concrete and transformable. there can be no gain by repeating the same mistakes and problematic processes, structured and standardized knowledge backups are promising though. 2. grey analysis many social, economic, agricultural, industrial, ecological, biological, etc. systems are named by considering the features of classes of the research objects, while grey systems are labeled using the color of the systems of concern. in the theory of control, people often make use of colors, to describe the degree of clearness of the available information. objects with unknown internal information are black boxes, where “black” indicates unknown information, hence “white” signifies the completely known information, and “grey” the partially known and partially unknown information. the research objects of grey systems theory consist of uncertain systems that are known only partially, with small samples and poor information. theory focuses on the generation and mining of the partially known information, to accurately describe and understand the material world. incomplete system information may arise either from the behavior of the system, or from its structure, boundaries, and elements. incompleteness in information is the fundamental meaning of being “grey”. it is apparent that such a general framework includes many interrelated fields. the (ga) main contents of grey analysis are [7]: grey algebraic system, grey sequences, grey cluster evaluation and analysis. moreover, gm (1,1) is the precondition for any estimation or prediction model, and decision-making models are represented by multi-attribute intelligent grey target decision models. the system of grey combined models is innovatively developed for producing new and practically useful results and the optimization model, consists mainly of grey programming, grey input-output analysis, grey game theory, and grey control. 26 2015/74management 2.1 the gm (1,1) and other models gm (1,1) model is the best-known grey forecasting model, exceedingly applicable in the field of industry, agriculture, society and economy and is indispensable among a range of other models such as gm (n, m), verhulst model, grey econometric model, grey markov, and grey neural network model [7]. the contribution of this model is the fact that there is no need of moderating data, but using them as raw information. it is also an estimation and prediction model, suitable in case of low amount of data, where decision makers should be objective and efficient. it also belongs to the broader family of gm (n, m) models, where n indicates the degree derivative and m is about the number of values making the input of the model. hence, gm (1,1) is the grey model of the first order and of one variable. in order to smoothen the randomness, the primitive data, obtained from the system to form the gm (1,1), are subjected to an operator named accumulating generation operator (ago). the differential equation of the gm (1,1) model is solved to obtain the k-step ahead of predicted value of the system. finally, using the predicted value, the inverse accumulating generation operator (iago) is applied to find the predicted values of the original data [8]. 3. information system design the main contribution of the present paper is focused on the fact that there has been no attempt, until now, that correlates grey analysis to project management. some pending challenges are presented below: ch.1 how are task durations estimated? ch.2 is this a part of the responsibility of project managers only? do they use their experience? ch.3 is there any documentation concerning previous similar projects? ch.4 is there any comparative data between observed and estimated durations? ch.5 are data well enough and carefully selected, so as to represent the duration of a task in crucial time points, i.e., 30%, 50%, 70% task completion, according to s-curves? ch.6 will it be helpful to systematically make measurement for each task of a given project? these challenges draw the context of the present paper and shape the whole algorithmic procedure, so as to achieve the best information flow and utilization. the information system (is) should cover both planning and execution phases, so that it will be realistic and effective. information systems are the basic tool that contributes to bringing out and reinforcing the information flow and display. above all stands a database (db), which is associated with information and records stemming from previous projects. proceeding from this necessity, the following list of necessary elements is collocated. this, in practice, constructs the is. id: task id is a unique number assigned to each new registration in the db. description: it simply refers to the name of the task, with the purpose that the pm should know which the examined task is. type_id: it is suggested to divide the tasks into categories, so as to shape groups of tasks that have suchlike attitude. these types are not random, they are carefully chosen instead, based on the deep knowledge of technical elements, e.g., foundation, scaffold etc., concerning tasks and the project as a whole. it is apparent, though, that according to the type of the project, e.g., construction, it, research, manufacturing, there is a different way of dispensing tasks to types and there are thus different types of tasks as well. it is interesting that, due to singularity characteristics, there may exist only one task for a kind of type. type_name: this information is coupled with the “type_id”, because it describes the type to which a task may belong. status: the status evidently depicts the phase in which a task evolves. there are four values referring to status: the “zero” (0) value is for tasks totally executed (100%) and belongs to normal duration, whereas number “one” (1) is for crashing duration, i.e., “compressed” task duration. tasks with execution percentage <100%, i.e., semi-executed, are given the number “two” (2) for normal duration, and the number “three” (3) for the crashing one. 27 management 2015/74 number: in respect of calculations, mostly referring to ga models and models that utilize sequences of data, the number of time-points comprising time-series is not random but needs to be considered according to the nature and the constraints of the project under consideration. with a quantitative means of interpreting the physical significance of these points, it is clear that the exact number of audits are done and the observation data during these audits are already known. it is of high significance to keep this kind of information, since it constitutes the input data for any sequence-based model, such as gm (1,1). %complete: this percentage represents the completion rate of each task of a project and the value entry is done manually. in this way the pm is always informed about the course of events and can decide how and to what extent he/she will take advantage of the available information. some possible scenarios may concern the following: (a) if a task is 100% complete, then he/she can use this information, as gained experience, to manage another project. (b) if, on the contrary, the task is incomplete, i.e., <100%, then the pm uses the known time-point to predict the recessive part of the incomplete task. at this point, the “number“ information is indispensable for the prediction of the remaining time that a task needs to be completed. project_code: this information refers to the project to which the examined task belongs, and it is useful mainly because of the following: in case the pm needs to ponder the behavior of the task, within the project context, and consider its influence on the project, he/she also needs to perceive the project as a whole, i.e., as the interaction between the tasks. project_date: in huge construction projects, e.g., superstructures, engineers and managers usually deal with tough decisions related to adjustments in the course of events, or in subprojects that need to be redesigned and re-planned, in order for the whole project to be successfully completed. these adjustments are inevitably affected by the level of the available technological infrastructure and the innovative ideas of the team of engineers, their utmost goal being to encounter challenging conditions, such as weather phenomena, composition of soil, even cultural characteristics, such as in, e.g., the shanghai world financial center. it is thus vital to base any decision on gained experience from projects belonging to the recent past. project date refers to the project completion date and it may be considered as being a practical filter, for avoiding obsolete data. if the db is further extended, other kinds of dates, such as the date when a project was delayed or when it malfunctioned, could be used as warning indicators for future projects. observed_total_duration: it corresponds to the total duration of tasks already completed, i.e., 100%. the tasks may belong either to a previous project, or to the ongoing one. it is one of the most important registrations because the pm can select, from the db, the task or tasks that have a total observed duration very close to the one pursued. observed_values: at this point, the db displays the time-points of a sequence of data separately. these points refer to the time-points where “informal” checks, i.e., not project milestones but task checks, took place during the execution of a task. practically, the points may contain input data for the gm (1,1) model, so as to estimate or predict task and project durations. estimated_total_duration: it is the output of the gm (1,1), or any time-series model. here, the estimated (with the use of the estimation model) values (estimated total duration values) derive from the use of “observed_values”, as input data to the gm (1,1) model, as used herein. estimated_values: it is the same as in the case of “observed_values“. relative_error: the deviation between the “observed_total_duration” and the “estimated_total_ duration” signifies the error between the two values. mainly for practical reasons, percent error is preferable and it is also by far easier to compare such types of error. 4. the conceptual model aiming to reclaim and use the hidden information codified through the aforementioned classification, a conceptual model, describing the fundamental decision and action steps, is of high significance and need. in the following two cases, normal duration in planning and execution phases are examined preparatively. 28 2015/74management before elaborating on the method, it is useful to point out that in the proposed model, resources are not taken into account directly, since gm (1,1) model only uses time-series data. under this consideration, the pm has to determine and exercise possible resource deficiency on his/her own. the input data and estimations will be affected by this assumption. figure 1: is matrices and types of relations 4.1 planning phase the conceptual model, i.e., the algorithmic steps, constitutes the core of the suggested procedure. the planning phase includes a sub-process, which is named a “preprocessing” phase, and it is the time period during which the pm should make some crucial and subjective decisions about the project as a whole. planning -start preprocessingstep 1: create the first project sheet in any project management software, where the pm will enter only his/her subjective estimations, about each activity of the project. he/she should namely decide on the following: • the tasks of the project • the task relationships: finish-to-start (fs), start-to-start (ss), finish-to-finish (ff), start-to-finish • (sf) the sequencing constraints, e.g., “not earlier than” • time estimations for each task, made by the pm the step that follows is the critical path calculation, which will draw a first picture regarding the project duration. after this, the pm can save the first baseline file of the project. that baseline will be updated in the next steps of the planning phase. 29 management 2015/74 -finish preprocessingusing db to update pm’s estimations: for each of the tasks, the pm should trace back to the db, so as to assign one or more (one-to-many relationship, 1 → ∞) “older” tasks to the one currently examined. step 2: search in the db for tasks having status=0, i.e., tasks already executed, having the same type_id, since the request is to look for tasks that belong to the same category or exhibit analogous behavior. step 3: in this step, the pm should definitely consider the maximum deviation amplitude between his/her estimation and the db entry. if this amplitude constraint is not covered by at least one registration, the pm should then proceed to the closest one. figure 2: algorithmic steps in the planning phase step 4: so, after the filtering, there are three possible scenarios for the db entries: 1. more than one tasks have “passed through the filters” 2. no task has “passed through the filters” 3. only one task has “passed through the filters” scenario 4.1: in this case one more filter referring to “relative_error” is put into action. the accepted values should lay down this threshold. in case of tie, the “project_date” the filter is activated. new ties are broken arbitrarily by the pm. if the db entry-task has the duration sonsistent with the pm’s estimation, then (1) either the sequence of data is kept as the one in the db, or (2) it is changed in such a way that the sum of the time-points is equal to the initial. then an estimation of the duration, based on gm (1,1), is made. if the two duration estimations disagree, the sequence should inevitably change, in such a way that the sum of the time-points is equal to the pm’s initial estimation. if, for example, the pm makes an estimation which is higher or lower than the db observed value, the sequence is slightly altered, in order to reach the pm’s estimation. after either of the two cases the gm (1,1) estimation model is applied. 30 2015/74management scenario 4.2: if no entry is compatible, then the pm leans on his/her own subjective estimation. scenario 4.3: in this case the same procedure is followed as the one mentioned in scenario 4.1 step 5: project managers perform the same actions for all the tasks of the project and also calculate the gm (1,1) estimations. then, the baseline file has to be updated and saved as baseline 0. this is the project plan that will be used in the execution phase. fig.2 is a graphical representation of the aforementioned procedure regarding normal duration in the planning phase. 4.2 execution phase in this phase, the objective is to approximate reality. it is of high importance to collect as much information as possible and translate it to time-points, which shape sequences of data, i.e., the input of sequence-based models. a safe (to an extent) prediction, with low uncertainty, needs to be achieved. in case of construction projects, the lowest number of time-points in a sequence of data is determined. this number is equal to five and this means that one needs at least three time-points to predict the other two, in case of an unfinished task. this number depends on the total duration of the task and of some technical and practical issues, such as cost, available human resources to perform control actions, and avoidance of destruction. frequent and informal checks, apart from predefined project milestones, aim to facilitate information management and flow, not to fetch process stiffness. if there is a task that lasts long, then a relatively satisfying number of timepoints is ten. to predict such an incomplete task, and for the same reasons argued about above, six out of ten time-points are adequate. execution step 1: one should first specify the dates of the milestones. a milestone is an event that receives special attention, thus in this case, the milestones approximate 30%, 50% and 70% of the total project duration, where projects tend to alter their behavior and performance. check dates should be posterior to the preceding ones and definitely posterior to project start date. figure 3: algorithmic steps in the execution phase step 2: for each and every task that has already started before the check dates there are the following options: 1. the task or tasks have finished, i.e., 100% completion, before the check date. in this case, the pm should enter into the project management software the observed-actual start and end dates, which may differ from the planned ones. as for the “%complete”, it is registered as equal to 100%. the sequence of data is also registered to the db and the “status” is “0” or “1”, since it refers to normal durations. 31 management 2015/74 2. there is a case where the starting date of a task precedes check dates but this is according to the planning. if during the execution phase this task is delayed for some reason, then the pm should enter 0% to the “%complete“ db element. 3. if the task has already started and it is still ongoing, then the following possibilities are recognized: if there is insufficient number of known time-points, i.e., the unofficial checks are not enough or the task is in a premature stage, then the pm had better avoid any prediction sequence-based model. he/she could enter the precise and observed value of “%complete” and the new starting date if this has changed due to delays or accelerations. if there is a sufficient number of known time-points, gm (1,1) forecasting model takes these points as an input and predicts the rest of the task duration. the predicted values are registered in the project management software, so as to predict the new total project duration. step 3: the last step is to update the project schedule and save the new baseline file, i.e., baseline 1. that procedure is repeated for every milestone of the project. after the last check date, i.e., milestone, the project management software displays the most recent prediction, referring to the updated project duration and end date. fig.3 illustrates the execution process. 5. comprehensive numerical example the numerical example is the one presented by chatzimichailidou et al. in [1]. for the reason that it was the incentive to design the aforementioned rudimentary is and db, the authors intentionally chose to present the same example to clear the mist. what is more, by using the same example it is also verified that the suggested db works in practice, and can be further developed and enforced to better cover real needs. 5.1. planning phase fig.4 [1] refers to task durations according to pm’s estimations. in particular, it displays durations and thirteen simply enumerated tasks, since bridges consist of specialized tasks, which are generally difficult to understand. in fig.4 the critical tasks are given, whilst the durations included in the table are those determined, during the phase of planning, by the project management team (project managers) and regarding their experience in bridge constructions. according to planning calculations the project is going to last 101 days due to critical path total duration. so, this is the point where planning phase starts. figure 4: basic information about the bridge construction project with pm’s estimations 32 2015/74management figure 5: data base with activated type_id and status filters the project tasks having been decided, the next step is to search for appropriate registrations in the db. the “%complete” filter is applied first for the first task, i.e., task a. status and type_id filters are also activated. this is because task a refers to “foundation” type of tasks, and the status is “0” for tasks totally executed in normal duration. hence compatible entries are depicted in fig.5. next, the amplitude of the task durations should be checked, so as to further reduce the db registrations. according to fig.5 and having defined an amplitude of ± 2, the entry which has 30 days total observed duration satisfies the following filters: amplitude, error, date. to sum up: pm’s estimation: 28d db entry: 30d the given sequence of data (see fig.5) is (2,4,1,7,2,2,3,2,3,4), which means that the timepoints were time snapshots, where unofficial milestones should take place because of critical subtasks. there is a slight change, i.e., the sequence is reduced by two units, so as to have a sum=28 and the new sequence of data is (2,4,1,5,2,2,3,2,3,4), which represents the input to gm (1,1) estimation model. gm (1,1) estimation: 27.99d (27d and 99/100*24h=27d and 23h) under the same notion the whole procedure concludes to a summary, fig.6 [1], aided by gm (1,1) estimations for all the other tasks. as far as one can notice, there are tasks that have a big amplitude respecting pm’s and gm (1,1) estimations and others do not; task h, for example. according to fig.6, this task was estimated to last 8 days and it finally takes 7.16 days to be completed. this shows a great gain of time, while on the contrary there are tasks, e.g., task a, which have low fluctuation concerning their estimated durations. this could stem from the distribution of time-points during the checks, and shows that the pm’s prediction is very close to the model output. in a complex, and vastly expensive project, such as long-lasting construction projects, even hours can affect the whole project outcome if someone attempts to accumulate them. increased sensitivity is one of the most meaningful advantages of the proposed method and it is the first one presented in the literature. hence, the model estimates that the project will be completed 9 hours earlier (100d & 15h) than stated in the initial pm’s estimation (101d). the amount of 101 days belongs to pm’s initial estimations and 100d & 15h to the first baseline file, i.e., baseline 0. this is the point, where the planning phase finishes and the rescheduling, due to execution updates, starts 5.2. execution phase in the phase of execution, task-progress data are measured by the staff, who monitor the tasks and subtasks. by using these data, the input data of the gm (1,1) prediction model are formed, and then the new estimated duration of the unfinished task is calculated. this input data of the gm (1,1) prediction model are a sequence belonging to the already executed project or part of the project. each sequence has a one-to-one relation with the project tasks and each point of this sequence of data represents the amount of days needed to partially execute the task being considered at that time. the days corresponding to the points of one sequence are those observed during milestone controls, i.e., unofficial inspections by the staff. along these lines, the number of the tasks concurs with the number of sequences. the number of time-points, consisting a sequence of data, depends on whether the task is about to last long or not, and can be subjectively determined [1]. 33 management 2015/74 figure 6: the pm’s and gm(1,1) estimations in the phase of planning figure 7: delayed and forwarded tasks during the first check at this stage, the pm has to choose some milestones, i.e., official inspections, to monitor and possibly update the project schedule. these milestones are usually imposed by s-curves, to the degree that each project shows change in its behavior of near 30%, 50% and 70% of its total duration [9]. in the examined project, the first check takes place at 35% [1] (36d of the project gone by), because the project needs to run and relatively proceed in order that enough data should be obtained for the forecasting process. tasks a and c are already executed, whilst b, d, and e are still under construction. keeping in mind that the data concern these unfinished tasks, the gm (1,1) prediction model is now used to approximate the new execution durations of b, d, and e [1]. specifically, the sequence of data for task b is (2,5,4,-,-), which means that eleven days of work are gone by, while the use of “-” symbol means that two milestones remain to be checked and forecasted by gm (1,1). similarly, for d is: (3,2,5,-,-), and for e (2,4,3,-,-). the information concerning b, d, and e tasks is presented in fig.7 [1]. the last step is to calculate the new total project duration, after the delay of b, and the unexpected progress of d and e. however, there is no change after the rescheduling, because b is not a critical task, so the project is going to be executed in 100 days. the new version of baseline is saved as baseline 1. the same procedure is performed for the 50% (baseline 2) of the project duration (54d of the project gone by), where f is unfinished, and then for the 70% (baseline 3) (68d of the project gone by). at this last check, h is unfinished, but there are no sufficient data to calculate its duration via gm (1,1), explaining the question mark in fig.8 [1]. in this manner, a task with a very short duration, e.g., 3d, is not appropriate to be divided into time-points, i.e., unofficial milestones. figure 8: the pm’s and gm (1,1) estimations in the phase of scheduling and execution by focusing on tasks 34 2015/74management figure 9: the different durations in planning and execution phases fig. 9 [1] refers to the project as a whole, and takes into account all these changes that took place in the previous fig. 8. since there is a high possibility for the critical activities to change, when durations change, they have to be carefully reconsidered. a typical case in complex projects is the existence of multiple critical paths. it must be feasible to detect and examine multiple critical paths, even though the known software packages present only one of them each time. the problem is probably detected in the choice of algorithmic criteria, thus a suitable algorithmic process could be used to create all the possible critical paths, assisting project managers to find the most appropriate schedule solution. 35 management 2015/74 the fluent duration is the most critical issue in the large-scale complex projects and implicates mismatches and failures, affected by the involved uncertainty. along these lines, the combination of data and information of traditional project reports, concerning current and previous projects, may contribute to organize suitable and elaborate databases, so as to retrieve helpful information when, and if, needed. besides, even the pm’s experience concerning time uncertainty can be effectively transformed and used to predict the duration of the overall project. an easily implemented is can be developed as a suitable tool for the proposed ga conceptual model. the fact that the initial gm (1,1) estimation, presented in the previous numerical example, indicated that the project will be completed only nine hours earlier than the pm’s estimation, does not constitute a weakness of the suggested method presented in this paper. the explanation may be twofold: on the one hand, there is always a possibility for the pm to make well-aimed estimations, owing to his/her experience, for example. besides, the gm (1,1) estimation is based on the entries of the db, which implies that experience from previous projects is indeed significant for the currently executed project. on the other hand, the fact that in the above numerical example, the chasm between the pm’s estimation, i.e. 101d, and the gm(1,1) estimation, i.e.100d & 15h, is not too wide, does not necessarily entail that this is the norm. the gm (1,1) estimation is always affected by data registered in the db. the efficiency of the proposed method can be further tested by using a crashing mode for each of the project activities. since crashing becomes relevant only during execution and by doing corrective movements, the pm has to take into account the possibility parameters of the crashing durations in order that he/she should schedule realistic emergency plans and avoid serious cost overruns, due to underestimated time delays. technical reports of activities that are not yet completed have to be considered carefully because of their importance to the overall project duration. one of our forthcoming research plans is to appropriately fit the above method to crashing settings as well. however, the conceptual model of the crashing mode seems not to be simple. that is, due to the plethora of constraints and unforeseen circumstances in the crashing of a project it would not be realistic to suggest the same conceptual model. the crashing process may sound simple on the theoretical and experimental bases, however, the validation of the crashing method is quite an extended task, and needs a whole paper dedicated to it in order that it be adequately presented, explained, as well as validated. as mentioned in the main body of this paper, it comprises the only published and extensive attempt which from the very planning phase uses data in combination with grey mathematical modeling to support pm in decision making. it also proves that gm (1,1) is the key factor in utilizing pm’s gained experience as well as information from previous projects. to conclude, the proposed method, its corresponding testing and validation are offered to scholars as an incentive to exercise and even doubt it. discussion and conclusions 36 2015/74management about the author references [1] chatzimichailidou, m.m., katsavounis, s., and lukac, d., “project duration estimations using grey analysis models”, international conference for entrepreneurship, innovation and regional development, istanbul, turkey, 2013. [2] ke, h., and liu, b., “project scheduling problem with stochastic activity duration times”, international journal of applied mathematics and computation, 168 (2005) 342-353. [3] ke, h., ma, w., and chen, x., “modeling stochastic project time-cost trade-offs with time-dependent activity durations”, international journal of applied mathematics and computation, 218 (2012) 9462-9469. [4] zhu, g, bard, j., and yu, g., “a two-stage stochastic programming approach for project planning with uncertain activity durations”, journal of scheduling, 10 (2007) 167-180. [5] chatzimichailidou, m.m., katsavounis, s., chatzopoulos, c., and lukac, d., “mass customization as a project portfolio for project-oriented organizations”, acta technica corviniensis, bullentin of engineering, 6 (2012) available on line: [6] maylor, h., project management, pearson, essex, 2010. [7] liu, s. f., and lin y., grey systems theory and applications, springer verlag, berlin, 2010. [8] kayacan, e., ulutas, b., and kaynak, o., “grey theory-based models in time series prediction”, journal of expert systems with applications, 37 (2009) 1784-1789. [9] cioffi, d.f., “a tool for managing projects: an analytic parameterization of the s-curve”, international journal of project management, 23 (2005) 215-222. receieved: december 2014. accepted: february 2015. maria mikela chatzimichailidou polytechnic school, department of civil engineering, democritus university of thrace, greece mikechat@civil.duth.gr maria mikela chatzimichailidou was born on 20 february 1988 in nicosia, cyprus and brought up all over greece by a military family. she has always been interested in the way things work and that is why she chose to study engineering. safety in any mode, i.e., time-cost safety, safety of human life and property and system safety as a specific field of research constitute the core of her research efforts. however, the awareness of the environment in which artifacts and people (i.e., socio-technical systems) are set is a precondition for systems to be less vulnerable against any kind of risk stefanos katsavounis polytechnic school, department of production and management engineering, democritus university of thrace, greece dr.stefanos katsavounis works as an assistant professor at democritus university of thrace, xanthi, greece. he also participates as a lecturer in the msc program on construction project management in aristotle’s university of thessaloniki, school of civil engineering. duško lukač university of applied sciences, rheinische fachhochschule köln gmbh, germany dr.duško lukač is a lecturer at rheinische fachhochschule köln, university of applied sciences in cologne, germany. his further responsibilities include cooperation between the rheinische university and industial companies and for the development and use of joint modules in education. he conducts and is also involved in different r&d projects. dr. lukač studied in cologne, london and krakow and earned his degrees in the fields of engineering sciences and economy. 08_maja levi jaksic:tipska.qxd book review udc: 005.591.6:338.45(049.32) doi: 10.7595/management.fon.2015.0016 this handbook represents a collection of works and contributions by researchers who approach techno-entrepreneurship, also referred to as ‘technological entrepreneurship’, ‘technology-based entrepreneurship’ or ‘techno-preneurship”, from diverse perspectives. it comprises 18 chapters written by 36 international contributors from 16 different countries. the economic crises that has in the past years severely hit many countries causing massive loss of jobs, decrease in productivity, raising unemployment and decreasing competitiveness, has shown that only by adopting the strategy of technological re-engineering and revitalization can these countries return to the path of economic recovery and prosperity. developing viable technology-based businesses has emerged as the strategy for future development of the underdeveloped as well as the developed nations. “having strong high-tech industries is important for emerging and transition countries as they often lack businesses offering added value and being potential exporters outside of the service sector.” the developed countries are confronted with mature industries where re-engineering and new technology are necessary for their revitalization. the interest of researchers in the field of techno-entrepreneurship has grown in the past ten years and, as it is emphasized, has diffused into different fields of management covering an array of research topics, such as academic entrepreneurship, frugal innovation, green and sustainable techno-entrepreneurship, family business, techno-intrapreneurship, e-entrepreneurship, commercialization process of innovation, and many others. techno-entrepreneurship is broadly defined “as the entrepreneurial and intrapreneurial activities of both existing and nascent companies operating in technology-intensive environments.” in this edition we come across multiple definitions that shed light on the phenomenon from different angles. the definitions range from simple statements that emphasize the commercialization role of techno-entrepreneurship (te) bringing emerging technological discoveries and innovation to the market to those that define te as a style of business leadership that “involves identifying high potential and technology-intensive commercial opportunities, managing rapid growth and significant risk, gathering resources such as talent and capital, including principled decision-making skills.” special attention is paid to the role of te in the established field of entrepreneurship at universities and research institutions. some researchers focus on the opportunity aspects analyzing the process of building organizational capacities based on resources and technological systems that capture value through exploration and exploitation of technological innovation. alternatives of organizational implementation that the technology entrepreneur can choose from are systematized according to criteria such as legal status and ownership. external, legally independent but company owned options are related to spin-outs that are realized through different arrangements. internal, legally dependent solutions based on company’s ownership are identified as intrapreneuring and also represented by a detailed analysis of intrapreneurship, corporate venturing and venture management. external, foreign property solutions are represented by start-up share involving corporate venture capital, venture nurturing and new-style venture considerations. spin-in is an option for foreign property and internal, legally dependent organization that is analyzed through integration/consolidation and merger/acquisition strategies. as related to the new roles of universities and science research institutions, diane isabelle, in the chapter “capitalization of science and technology knowledge: practices, trends and impacts on techno-entrepreneurship”, has cited a taxonomy of public research spin-off ventures in the following way: direct research 76 2016/75management maja levi jakšić university of belgrade, faculty of organizational sciences f. therin, ed. (2013) handbook of research on techno-entrepreneurship how technology and entrepreneurship are shaping the development of industries and companies, edward elgar, london spin-offs, as new ventures created to commercialize intellectual property(ip) arising out of research institution; technology transfer companies, as companies set up to exploit commercially the university’s tacit knowledge and know-how; start-ups or indirect spin-off companies, as companies set up by former or present university staff/students with no formal ip licensing or similar relationships to the university, and spin-ins, as new ventures derived from the licensing or other agreed exploitation of new knowledge generated by public research agencies. other researchers have contributed to the concept of new technology-based firms by stating their different modes of activity: consultancy and r&d contracting, product oriented modes, and technology asset oriented mode. new research results have shown rising trends of partnership and collaborative modes in, once very separate, worlds of university, industry and government. this convergence was presented by etzkowitz and leydersdorff in 1995, through the triple helix model. in this model it is emphasized that knowledge and technology are co-developed, rather than transferred. a new concept is emerging called science entrepreneurship and means a simultaneous dedication of a scientist to both the academic science and the commercial profit. some of the differences between countries can be recognized; while in the us this phenomenon is well established, it is relatively new in germany and japan “due to stronger compartmentalization between academia and industry”. the example of cambridge university is an interesting case for the history of entrepreneurial activities dated back to 1881 when the cambridge scientific instruments company was founded. it has become a tradition at cambridge university and in the last few decades companies rooted in the university have been rising. it is stated that this phenomenon today shows that nearly 20 percent of firms have a university as a founder. as related to spatial concentration, incubators, science parks, centers of excellence, clusters, public-private partnerships and public procurement are explained. the commercialization process in small technology firms is dependent on both internal activities and external support services, as jarkko pellika concludes in his theoretical research. another interesting new concept developed in this handbook is the frugal innovation defined as “business model characterized by the use of limited resources to create low cost products – from $35 tablet computers to $3000 cars – that are sustainable for the environment and individual communities”. preeta banerjee and ana leirner have stated in their research that frugal innovation begins in developing countries by asking the question: how can we do more with less while serving the basic needs of the bottom of pyramid population? the authors emphasize that in answering this question the innovations brought forward are often good quality, functional products that are reasonably priced even to customers of modest means. sustainable technology entrepreneurship is concluded to be of high potential for future research and effective use in the concrete situations in practice. the challenging new ideas, theoretical and multilevel frameworks, should further be investigated for the purpose of understanding sustainability and enabling technological entrepreneurs to play a key role in moving towards a sustainable society. receieved: may 2015. accepted: june 2015. 77 management 2016/75 01 sapic lazarevic marinkovic:tipska.qxd 1 srđan šapić, jovana lazarević*, veljko marinković university of kragujevac, faculty of economics, serbia management: journal of sustainable business and management solutions in emerging economies 2022/27(3) consumer lifestyle forming under the influence of national culture doi: 10.7595/management.fon.2021.0028 abstract: 1. introduction culture refers to the broadest framework of human behaviour, influences socialization of individuals, defines a framework for formation of consumer goals and ways of achieving them. a generally accepted definition of culture was given by geert hofstede (1994, p. 1) who defines culture as ‘’the collective programming of the mind which distinguishes the members of one category of people from another’’. authors zolt & kokovic (2017, p. 23) state that culture represents ‘’the sum of material, intelectual and artistical creations of people, their ways of behaviour and actions which realize social relations and social activities, as well as any creative expresison that does not have to be achieved‘’. on the other hand, wild & wild (2016, p. 70) see culture as ‘’the set of values, beliefs, rules, and institutions held by a specific group of people‘’. starting from the influence of culture on behaviour of individuals, culture can be defined as ‘’a set of learned beliefs, values and customs that create norms of behaviour in a particular society’’ (yau, 1994. p. 49). for the purpose of understanding the influence of culture on consumer behaviour, culture is defined as ‘’a list of acceptable values, beliefs, customs, rituals and myths that are characteristic of members of a particular society (maricic, 2011, p. 208). kovac-znidersic & maric (2007) state that values, beliefs, customs and rituals influence people's behaviour and lifestyle. cleveland, rojas-mendez, laroche & papadopoulos (2016) point out that culture is an important determinant of consumer behaviour and disparities of the same across countries. * corresponding author: jovana lazarević, e-mail: jsavic@kg.ac.rs research question: this paper examines the influence of femininity and collectivism as a dimension of serbian national culture on activities, interests and opinions, i.e. consumer lifestyle components. motivation: consumer lifestyle is largely shaped by the effects of the culture to which consumers belong. starting from the relevant kotler and keller (2017) consumer behaviour model that demonstrates the previously given fact, as well as identified research gap related to investigating the influence of hofstede's national culture dimensions on activities, interests and opinions as lifestyle components, the study gives useful insights into the importance of knowing and respecting cultural differences when defining marketing strategies that aim to shape or influence a particular consumer lifestyle. the study contributes to the existing literature by providing a new idea for developing a research framework that could be used in cross-cultural or consumer behaviour studies. idea: the basic idea of this study is to empirically test the relationship between national culture dimensions and consumer lifestyle components. the study was conducted using collectivism and femininity as independent variables, and activities, interest and opinions, i.e. lifestyle components as dependent variables. data: empirical research was conducted on a sample of 251 consumers from central serbia using a survey method during july and august 2020. tools: processing of primary data was performed using statistical software spss 20 and amos 20 utilizing descriptive statistics, reliability analysis, correlation analysis, confirmatory factor analysis and structural equation modelling. findings: the study first confirms the presence of collectivism and femininity as serbian national culture dimensions, and then indicates the existence of a statistically significant effect of observed national culture dimensions on consumer lifestyle components. related to this, results indicate the existence of a statistically significant effect of femininity on activities and opinions, while collectivism determines only activities as a lifestyle component. contribution: the paper provides an analysis of national culture influence on lifestyle as an important sociological determinant of consumer behaviour and also provides practical implications for marketers. keywords: lifestyle, national culture, dimensions of national culture, collectivism, femininity, aio tehnique jel classification: m31, z10 culture is a social characteristic of people that determines the way people live, how they dress, where they travel, how they eat, etc. culture determines interpersonal relationships, social roles, gender roles, learning, work, rest. in fact, the effects of culture permeate every segment of an individual’s life. on the other hand, lifestyle can be briefly explained as the umbrella concept related to behaviour including relations with others, consumption, leisure, work, religious activity etc. (zhang, lu & sun, 2021). vijloen, van der spuy & du rand (2018) indicate that lifestyle can be viewed as a habit stemming from rules and standards that influence consumer behaviour. in this regard, it is possible to see a clear relationship between culture and consumer lifestyle. accordingly, brocic (1995) states that culture is one of the important factors that determine individual’s lifestyle. sethna & blythe (2016) indicate that culture is one of main triggers of all consumer activities. examining lifestyle differences of consumers living in different cultural backgrounds has been the subject of analysis by numerous empirical studies (reid, li, bruwer & grunert, 2001; lee & sparks, 2007; donnelly et al., 2011; mangruwa, zaki, mahdzir & khalid, 2015), but a small number of studies have focused specifically on the influence of the national culture dimensions on lifestyle (sun, horn & merritt, 2004; tao, 2006; nagy & konyha, 2018). finally, according to authors' knowledge, the literature misses research related to the national culture dimensions influence on activities, interests and opinions as lifestyle components, where a research gap was identified. the subject of the paper refers to the analysis of national culture, observed through dimensions, as determinant of consumer lifestyle. empirical analysis is based on examining the influence of masculinity/femininity and individualism/collectivism, as dimensions of national culture defined by geert hofstede (1980), on consumer lifestyle measured using aio techniques (wells & tigert, 1971). precisely, the paper will look at the influence of femininity and collectivism given the fact that these dimensions, according to the hofstede’s index, are dominant in serbian national culture, as indicated by the value of masculinity index 43 and the value of individualism index 25 on the scale from 0 to 100 (sapic & golo, 2017; hofstede insights, 2020). the first part of the paper analyzes dimensions of national culture defined by hofstede (1980). the second part deals with the concept of consumer lifestyle and the most important psychographic techniques for measuring it. the third part presents theoretical models and results of previously conducted studies on the relationship between national culture and consumer lifestyle. in the fourth part the methodology of the study is defined and then results of the empirical study are shown. the concluding part highlights the most important knowledge, limitations of the study and possible directions for future research. 2. national culture dimensions the best-known cultural framework is defined by hofstede (1980) and includes uncertainty avoidance, power distance, individualism/collectivism and masculinity/femininity as dimensions of national culture. uncertainty avoidance indicates how strongly people feel the need to operate under well-organized and predictable circumstances or how much they are able to cope with unplanned situations (beugelsdijk & welzel, 2018). in societies with a low degree of uncertainty avoidance, individuals have tolerance for ambiguity and innovativeness and feel satisfaction with life, while individuals in high uncertainty avoidance societies tend to avoid uncertainty and ambiguity, feel stress and anxiety (de mooij, 2017). individualism/collectivism refers to ''the degree to which individuals in a society are integrated into groups'' (sapic & filipovic, 2019, p. 123). in individualistic cultures relationships between individuals are weak and everyone cares about themselves and their own interests. in collectivistic cultures there are strong relations between group members, harmony and mutual care. power distance indicates the degree to which society accepts and expects power to be unequally distributed in society (de mooij, 2017). in societies with a high power distance there is clear hierarchy and dominance of individuals with power. in societies with a low power distance everyone has equal rights and inequalities are reduced to a minimum. masculinity/femininity focuses on ''wheater gender roles are distinct (masculine cultures) or blurred (feminine cultures) within a society'' (mansson & sigurdardottir, 2017, p. 161). dominance of masculinity implies success, desire to acquire wealth and achievements, while dominance of femininity refers to the need for social contacts and general well-being (sapic, 2015). 3. consumer lifestyle lifestyle can most easily be understood as the way a person lives or wants to live. according to chouk & mani (2019, p. 452), lifestyle refers to ''individual factors that allow differentiation in the manner of being and living''. an individual can express himself, his needs and activities through different lifestyles, i.e. through the way he eats and what he eats, how and where he travels, how and where he lives, what he dresses, how well he is educated, how much he is politically or religiously engaged, how he spends free time, how he communicates with others (jensen, 2007). lifestyle is formed as a consequence of interaction of internal and external factors (kotler & keller, 2017) and has strong effect on consumer behaviour when buying products and services. the operative technique for measuring consumer lifestyle is psychography by offering 2 srđan šapić, jovana lazarević, veljko marinković 2022/27(3) consumers certain statements regarding their attitudes, values, beliefs, interests, activities, and opinions. consumers express their degree of agreement or disagreement with statements. the essence of psychographic analysis is to relate the observed psychographic variables to behaviour of individuals when purchasing and using products and services. the best-known technique for measuring consumer lifestyle is the aio technique by wells & tigert (1971). aio measures activities, i.e. how people spend their time and money, what their interests are or what they consider important as well as their opinions about themselves and world around them (bruwer, roediger & herbst, 2017). aio tecnique also includes consumer characteristics such as age, education, income, phase in the life cycle, etc. psychographic analysis based on the aio technique requires two steps (solomon, bamossy, askegaard & hogg, 2016). the first step is to determine which lifestyle segments are characteristic of heavy, moderate or light users of a particular product, and also to investigate patterns of usage and attitudes toward the product. after targeting primarly heavy users, in the next step of the analysis marketers consider how these consumers relate to the brand, i.e. their reasons for buying and using a paricular brand. 4. national culture role in lifestyle forming the first link between culture and consumer lifestyle was presented in the work of lazer (1963) (according to lawson & todd, 2002) who proposed lifestyle hierarchy according to which group and individual expectations and values originate from the culture in which an individual lives. expectations and values translate into lifestyle patterns that further determine purchasing decisions and consumer reactions. in addition to this hierarchy, there are certain models of consumer behaviour that indicate a clear link between culture and lifestyle such as the model given by kotler & keller (2017). this model views culture and lifestyle as determinants of consumer behaviour, where lifestyle is formed under the influence of culture in which an individual lives. culture as an external determinant combined with internal determinants such as learning, perception, emotions, motives and attitudes defines consumer lifestyle, which is then translated into consumer desires and needs and reflected in purchasing decisions. the literature contains results of empirical research focused on the study of lifestyles in areas such as tourism, nutrition, recreation or health in different cultural environments. the role of culture in shaping a healthy lifestyle is of great importance. katz (2014) points out that a healthy lifestyle does not develop in hospitals but in places where people live, work, pray, learn and love, namely, that the decision to lead a healthy lifestyle is the result of cultural influence. donnelly et al. (2011) empirically confirm that the effect of culture is crucial when it comes to decision of women in qatar to lead a healthy lifestyle. another area in which national culture has a significant impact on consumer lifestyle is tourism. it has been empirically proven that cultural differences determine preferences and travel patterns as in the study of lee & sparks (2007) or iversen, hem & mehmetoglu (2016). the effects of culture on lifestyle in terms of nutrition were examined in a study by reid et al. (2001) who have proved that consumers living in different national cultures have different preferences regarding the manner and motive of buying food, the way of preparation, the way of consuming food, etc. cultural influence on lifestyle related to energy use and environmental protection has also been confirmed in empirical studies (mangruwa et al., 2015; nguyen, lobo & greenland, 2017). when it comes to the role of masculinity/femininity and individualism/collectivism in shaping consumer lifestyles, tao (2006) has examined similarities and differences in terms of activities, interests and opinions between american and taiwanese consumers, taking into account differences concerning cultural dimensions in which these consumers live. a study that indicates the existence of insignificant relationship between masculinity/femininity and consumer lifestyle and a significant but weak influence of individualism on lifestyle is a study by nagy & konyha (2018) where the subject of analysis relates to the influence of national culture dimensions on environment protection as an essential aspect of sustainable lifestyle. tan, shaw, cheng & kim (2013) examine the emphasis on male values in the most popular american, taiwanese and chinese lifestyle magazines for men. the results obtained by authors indicate the absence of differences in terms of male value types that are emphasized in lifestyle magazines in observed countries with different cultural environments. a study examining differences in consumer lifestyle from individualistic and collectivist cultures was conducted by sun et al. (2004) where it was proven that consumers from individualistic cultures were more optimistic, more satisfied with life and financial situation and preferred to travel, in relation to consumers who came from collectivist cultures. previously presented theoretical and empirical knowledge is a basis for testing the following research hypotheses: h1: collectivism has a statistically significant effect on consumer lifestyle in serbia. h1a: collectivism has a statistically significant effect on consumer activities. h1b: collectivism has a statistically significant effect on consumer interests. h1c: collectivism has a statistically significant effect on consumer opinions. 3 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) h2: femininity has a statistically significant effects on consumer lifestyle in serbia. h2a: femininity has a statistically significant effects on consumer activities. h2b: femininity has a statistically significant effects on consumer interests. h2c: femininity has a statistically significant effects on consumer opinions. 5. research methodology the conducted empirical analysis is based on primary data collected by surveying 251 consumers from the territory of central serbia. the questionnaire (available at: https://pdfhost.io/v/j9kregvj4_appendixpdf.pdf?fbclid=iwar0ihustacjapeyxe7xgzxaqrt48al1ivx4n9lw s0wfktejdvkyolnve2yc), which was distributed to consumers in person during july & august 2020, includes three parts. the first part of the questionnaire consists of 8 statements (taken from: yoo, donthu & lenartowicz, 2011; guseva, 2013; kabir & sarker, 2015; langat & oduor, 2015; mojic, jovancevic & jovancevic, 2018) that refer to femininity and collectivism as national culture dimensions. the second part of the questionnaire includes 9 statements (taken from: wells & tigert, 1971; rathod & sony, 2014; aldmour, hammadan, al-dmour, alrowwad & khwaldeh, 2017) that refer to observed components of consumer lifestyle. the third part of the questionnaire contains demographic questions such as gender, age and level of education. despite the fact that the paper observes national culture dimensions given by hofstede, which are almost always used in analysis of culture (albors-garrigos, frass, schoeneberg & signes, 2017), it is important to emphasize that measuring of dimensions in the paper is done at one national culture level in line with methodology of authors such as sharma (2010), yoo et al. (2011) & others. accordingly, statements in the first two parts of the questionnaire are measured by a seven-point likert scale where grade 1 implies absolute disagreement and grade 7 absolute agreement with a given statement. when observing the structure of the surveyed sample, it is dominated by female respondents (137 or 54.6%), while there are fewer male respondents (114, i.e. 45.4%). according to age, the largest percentage of respondents (47.8%, i.e. 120) is between 26 and 45 years old, followed by 62 respondents (24.7%) aged between 18 and 25, followed by 49 respondents (19.5%) who are between 46 and 55 years old, while the least number of respondents are 56 years old and older (20 or 8%). in terms of employment status, most respondents are employed (113 or 45%), 65 are unemployed, which makes 25.9% of the sample, 51 respondents (20.3%) are students, while the fewest are pensioners (22 or 8.8%). statistical software spss 20 and amos 20 were used to process the primary data. descriptive statistics for determining the sample structure and values of arithmetic means for national culture dimensions, reliability analysis of observed variables and correlation analysis for determining degree of linear dependence between variables were conducted in spss software. hypotheses testing was performed in amos 20 software, where the validity of research models was tested by confirmatory factor analysis. then structural equation modeling was applied in order to test the observed effects of independent on dependent variables. the validity of the model was measured by calculating gfi (goodness-of-fit index), cfi (comparative fit index), tli (tucker-lewis index), ifi (incremental fit index) and rmsea (root mean square error of approximation) index and x2/df ration. the aio psychographic technique (wells & tigert, 1971) was used to measure lifestyle, as is often used in cultural research (tao, 2006; lee & sparks, 2007; kucukusta & denizci guillet, 2016). 6. research results and discussion in the first step of statistical analysis, reliability of variables was tested by measuring internal consistency of statements that make them up. reliability is reflected by value of the cronbach’s alpha coefficient and 0.6 is taken as a minimal threshold value (cossio-silva, revilla-camacho, vega-vazquez & palacios-florencio, 2016). obtained values (table 1) indicate that all variables have a satisfactory reliability level. 4 srđan šapić, jovana lazarević, veljko marinković 2022/27(3) table 1: cronbach’s alpha coefficient values source: authors variable cronbach's alpha collectivism 0.788 femininity 0.605 activities 0.718 interests 0.727 opinions 0.776 testing the influence of independent variables on dependent ones was preceded by examining the presence of linear dependence between variables. for these needs, correlation analysis was performed, and the value of the pearson coefficient was observed as a measure of correlation strength. table 2: correlation results ** all coefficients are significant at 0.01 level source: authors all obtained values of pearson's correlation coefficient are statistically significant at the 0.01 level, i.e. with 99% probability, which confirms the presence of a linear dependence between variables (table 2). the highest degree of correlation exists between interests and opinions while the weakest degree exists between activities and opinions. in order to test research hypotheses, it is first necessary to determine whether the observed features of the serbian cultural framework are confirmed. this can be determined based on the values of arithmetic means for national culture dimensions. by observing a seven-point likert scale, values from 1 to 4 indicate a tendency towards individualism and masculinity, while values from 4.1 to 7 reflect a dominance of collectivism and femininity. for both dimensions the value of arithmetic mean is higher than 4, so it can be confirmed that the serbian national culture is collectivistic with the dominance of femininity (table 3). the obtained result is in line with the previous results (vasilic & brkovic, 2017; sapic & golo, 2017; hofstede insights, 2020). also, results indicate the presence of a stronger tendency to maintain close ties with reference groups rather than to modesty and support to others. the obtained results enable testing of research hypotheses using structural equation modelling, where it is first important to test the reliability of research models using a confirmatory factor analysis. all confirmatory factor analysis indexes are within recommended limits (hair, black, babin & anderson, 2014; malaquias & hwang, 2016) (table 4). also, it is noticed that both independent variables have a statistically significant influence on consumer activities since p value for β coefficient is lower than 0.1 for both variables. a stronger influence on consumer activities is found in femininity compared to collectivism due to a higher value of β coefficient. the percentage of dependent variable variability described by the first model comprises 62.6%. the obtained results confirm research sub-hypotheses h1a and h2a. 5 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) collectivism femininity activities interests opinions collectivism 1 0.687** 0.592** 0.581** 0.609** femininity 0.687** 1 0.632** 0.601** 0.611** activities 0.592** 0.632** 1 0.598** 0.549** interests 0.581** 0.601** 0.598** 1 0.709** opinions 0.609** 0.611** 0.549** 0.709** 1 table 3: mean values for national culture dimensions source: authors index reccomended value obtained value relations p r2 chisquare/df 5 77.070/30=2.57 collectivismactivities 0.389 0.026* 0.626 gfi 0.8 0.950 cfi 0.9 0.958 tli 0.9 0.921 femininityactivities 0.430 0.021* ifi 0.9 0.957 rmsea 0.08 0.079 table 4: confirmatory factor analysis and sem results for first model *value is significant at 0.1 level source: authors dimension mean collectivism 5.62 femininity 5.24 it is further necessary to examine influence of national culture dimensions on interests as second aio component. the obtained values of indices indicate the suitability of the model for further analysis (table 5). independent variables do not show a statistically significant influence on consumer interests. the regression model covers 63.1% of the dependent variable variability. based on presented results, it can be concluded that research sub-hypotheses h1b and h2b have not been proven. the last analysis was conducted in order to test the influence of independent variables on opinions as the third component of aio technique. the results in table 6 show that the third research model is suitable for further statistical analysis. 63.9% of the dependent variable variability is covered by the regression model. results indicate the existence of statistically significant femininity effects and absence of collectivism influence on consumer opinions. accordingly, it can be concluded that the research sub-hypothesis h1c has not been proven, while the subhypothesis h2c has been proven. if we summarize the previously obtained results, we can conclude that the hypothesis h1 regarding the effects of collectivism on lifestyle has not been proven, while the hypothesis h2 related to influence of femininity on consumer lifestyle has been partially proven. 6 srđan šapić, jovana lazarević, veljko marinković 2022/27(3) table 5: confirmatory factor analysis and sem results for second model index reccomended value obtained value relations p r2 chisquare/df 5 52.671/26=2.02 collectivisminterests 0.917 0.193 0.631 gfi 0.8 0.965 cfi 0.9 0.977 tli 0.9 0.951 femininityinterests -0.129 0.854 ifi 0.9 0.977 rmsea 0.08 0.064 without *: value is insignificant source: authors table 6: confirmatory factor analysis and sem results for third model index reccomended value obtained value relations p r2 chisquare/df 5 71.895/30=2.40 collectivismopinions -0.103 0.732 0.639 gfi 0.9 0.953 cfi 0.8 0.966 tli 0.9 0.936 femininityopinions 0.892 0.008* ifi 0.9 0.965 rmsea 0.08 0.075 *value is significant at 0.1 level without *: value is insignificant source: authors the aim of the paper was to examine the influence of femininity and collectivism on activities, interests and opinions of consumers. the empirical study has first confirmed the presence of collectivism and femininity in the serbian national culture, which corresponds to the results of the research conducted by hofstede (hofstede 1980; hofstede insights, 2020), and then indicates the existence of a statistically significant effect of observed cultural dimensions on aio components, i.e. consumer lifestyle. femininity most strongly determines consumer opinions regarding personal perception, financial future and influence of lifestyle on shopping decisions, and then activities such as regular shopping, discount shopping and watching television. when it comes to consumer interest in new and different things, nice clothes and touring the world, femininity has not proven to be a significant predictor of these. collectivism has effects only on consumer activities while it conclusion references [1] albors-garrigos, j., frass, a., peiro signes, a. (2017). impact of national cultures on automotive sector after sales services perception. management journal of sustainable business and management solutions in emerging economies, 22(2), 13-27. doi: https://doi.org/10.7595/management.fon.2017.0014 [2] al-dmour, r., hammdan, f., al-dmour, h., alrowwad, a., khwaldeh, s. (2017). the effect of lifestyle on online purchasing decision for electronic services: the jordanian flying e-tickets case. asian social science, 13(11), 157-169. doi: 10.5539/ass.v13n11p157 [3] beugelsdijk, s., and welzel, c. (2018). dimensions and dynamics of national culture: synthesizing hofstede with inglehart. journal of cross-cultural psychology, 49(10), 1469-1505. doi: 10.1177/0022022118798505 [4] brocic, lj. (1995). stil zivota tradicionalnih i novih profesija: analiza rezultata jednog socioloskog istrazivanja. glasnik etnografskog instituta sanu, 44, 138-142. [5] bruwer, j., roediger, b., and herbst, f. (2017). domain-specific market segmentation: a wine-related lifestyle (wrl) approach. asia pacific journal of marketing and logistics, 29(1), 4-26. doi: 10.1108/apjml10-2015-0161 [6] chouk, i., and mani, z. (2019). factors for and against resistance to smart services: role of consumer lifestyle and ecosystem related variables. journal of services marketing, 33(4), 449-462. doi: 10.1108/jsm-01-2018-0046/full/html 7 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) does not influence formation of their opinions and interests. this indicates that the lifestyle of serbian consumers is shaped by their tendencies towards modesty, help and support to others much more than by a tendency to have close relationships with groups from the environment. the results related to the presence of significant collectivism effects on consumer lifestyle are not consistent with the results of studies by sun et al. (2004) or nagy and konyha (2018), but are similar to the results of research conducted by tao (2006) which also pointed out the absence of that effect. in view of the presence of femininity effects on consumer lifestyle, they are confirmed as in the research by the author tao (2006), but results differ when observing studies by authors such as tan et al. (2013) or nagy and konyha (2018) who have not determined this influence. given the fact that research in this domain is rare and that it is almost non-existent in domestic literature, the paper enables analysis of national culture effects on consumer lifestyle development. according to authors' knowledge, the literature lacks studies that investigate the influence of hofstedes' national culture dimensions on activities, interests and opinions as lifestyle components. the analysis of the relationship between these two determinants of consumer behaviour provides useful insights into their interdependence, which ultimately has a strong impact on overall consumer behaviour as evidenced by the kotler and keller (2017) model of consumer behaviour. the theoretical contribution of the paper is, according to the aforementioned, based on setting and empirically testing the proposed research model which can be used in future cross-cultural or consumer behaviour studies. also, the paper provides useful practical knowledge regarding the influence of cultural dimensions on consumers with certain psychographic characteristics and their behaviour, as well as regarding the importance of knowing and respecting cultural differences when defining marketing strategies aimed to shape consumer lifestyles. such knowledge is especially useful for companies operating in international market. by formulating and implementing marketing strategies based on the obtained knowledge regarding consumer cultural orientation, companies can provide a better access to the targeted market segments. further, the conducted psychographics analysis creates additional possibilities for marketing strategies adaptation and provides focus on those psychographics segments that are valuable for company business. finally, companies should use the effects of the observed cultural specifics on shaping consumer lifestyle as business opportunities. despite contributions, work limitations are an insufficiently representative sample, observation of only two dimensions of national culture and neglect of national culture effects on lifestyle depending on demographic characteristics of consumers. in accordance with the above, it is recommended that the future research should primarily include a larger sample of respondents, apply a holistic approach indicated by janicijevic (2003) which will include examining a common effect of national culture dimensions on consumer lifestyle and possibly focus on moderator effects analsysis of consumer demographic characteristics when examining the influence of national culture on lifestyle. it is desirable to perform a psychographic segmentation of consumers based on activities, interests and opinions as important psychographic criteria. recommendations can be given to marketers related to the development of business strategies based on knowledge and adaptation to cultural specifics of business areas and their influence on consumer lifestyle. in this regard, when presenting an offer to target market in serbia, marketers should adjust their marketing strategy to femininity due to the effects that the observed dimension has on consumer lifestyle. this can be achieved by promoting benefits of products and services not only for the consumer but also for his environment, which would help promotional strategy to achieve better effects on consumers in serbia because they show a growing tendency to care and support others. regarding collectivism as a dimension of culture that also determines lifestyle, recommendations may refer to highlighting benefits that a product or service offers for the whole family or showing their purchases together with family or friends to enhance effects of the observed dimension when it comes to consumer lifestyle components, especially their opinions and interests. this can be particularly interesting for service providers such as beauty salons, hotels, restaurants or cafes as they could promote consumption of their services by family or friends as a reflection of collective spirit. 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(2021). changing role of lifestyle in tourism entrepreneurship: case study of naked retreats enterprise. tourism management, 84 (2021), 104259. doi: 10.1016/j.tourman.2020.104259 [53] zolt, l., and kokovic, d. (2017). sociologija kulture: sa elementima kulturne antropologije. novi sad: mediterran publishing. received: 2020-10-28 revision requested: 2021-04-12 revised: 2021-05-26 (2 revisions) accepted: 2021-05-27 srđan šapić university of kragujevac, faculty of economics, serbia ssapic@kg.ac.rs srđan šapić was born in 1971 in kragujevac. he works as a full professor at the faculty of economics, university of kragujevac. his area of expertise is international marketing and international business, with the focus on cultural environment, international marketing communications and forms of enterprises internationalization. about the authors jovana lazarević university of kragujevac, faculty of economics, serbia jsavic@kg.ac.rs jovana savic was born in kragujevac, in 1992. from july 2018 she has been engaged at the faculty of economics, university of kragujevac, as a junior researcher, and currently as a research associate. jovana is interested in consumer behaviour and cross-cultural marketing. veljko marinković university of kragujevac, faculty of economics, serbia vmarinkovic@kg.ac.rs veljko marinković was born in 1978 in kragujevac. in 2019 he was appointed full professor at the faculty of economics, university of kragujevac. his scientific interest area covers services quality, consumer satisfaction and loyalty measurement, mobile marketing, tourism marketing, consumer ethnocentrism. 10 srđan šapić, jovana lazarević, veljko marinković 2022/27(3) << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07 ivona mileva:tipska.qxd 71 ivona mileva*, marjan bojadjiev, miodraga stefanovska-petkovska university american college skopje, republic of north macedonia management: journal of sustainable business and management solutions in emerging economies 2022/27(3) * corresponding author: ivona mileva, e-mail: ivona.mileva@uacs.edu.mk motivation and idea: entrepreneurial culture has been considered to have a significant positive relation with the organizational growth and self-efficacy. however, the success of entrepreneurial culture has been challenged by the covid19 pandemic and its influence on the well-being of employees who work in labour-intensive industries. more specifically, the level of stress among these workers is increased and that can result in physical and mental health issues, resulting in low mood and motivation, anxiety, depression, burnout, suicidal thoughts, etc. this may ultimately influence the turnover intention in these industries. research goal: this paper investigates whether a relationship exists between entrepreneurial organizational culture and turnover intention. the goal of this study is to explore the relationship between entrepreneurial organizational culture and turnover intention in labour-intensive industries with a focus on the mediating role of fear of covid-19, psychological distress and job satisfaction in turnover intention. data: quantitative research on 408 respondents has been conducted, whose results can serve as a reference for designing adequate human resource policies in labourintensive industries. findings: this study shows that covid-19 challenged not only economic and financial sustainability, but also the physical and mental well-being of the people. it shows that the organizations that foster an entrepreneurial culture assist people in reducing stress, resulting in members of those organizations experiencing less tension and fear, which is an important part of one's health at such a chaotic time. contribution: the paper is the first of its kind study and it expands existing research related to organizational culture during the pandemic, thus formulating practical suggestions to future leaders. this study has important implications for practitioners. although no similar studies exist within the labourintensive businesses, the analysis of these aspects will enable the leaders to assess and strengthen their connections to the company and to determine which segments of their organizational culture need to be improved so that employees should be happier and more satisfied. keywords: organizational culture, psychological distress, satisfaction with organizational culture, turnover intention, covid-19, labour-intensive industry jel classification: m1, i1 entrepreneurial organizational culture during a pandemic in a labour-intensive industry: the mediating role of fear of covid-19, psychological distress, and job satisfaction in turnover intention doi: 10.7595/management.fon.2021.0038 abstract: 1. introduction covid-19 has brought various changes to every aspect of living, which subsequently contribute to an increased level of anxiety and depression among people. doubtlessly, the covid-19 pandemic is the largest public health crisis that the world remembers, one that causes an economic crisis through decreased production in affected countries, fall in confidence and consumption, and a stock exchange negative response. besides, the pandemic has resulted in questioning the importance of the culture that every organization nurtures. organizational culture has never been more important than in the covid-19 period because the pandemic forces radical changes in the workplace. holding teams together, motivating people, taking care of them, and leading informally become as equally important as the concept of leadership. it is fascinating to see how people, who were not happy with the culture of the organization they were working in before covid-19 are now worried about the many changes organizational culture has had to go through during the pandemic. in fact, these changes that become a reason for the leaders to rethink the culture will not disappear once the pandemic stabilizes itself. the organizations will continue to cope with exceptional circumstances such as fight for equality, climate change, technological adaptation and many more. consequently, the organizational members will constantly be asked for new ways of leading and working. in this direction, covid-19 raises a question of which organizational culture type is best suitable in circumstances as such. research conducted by kokt and ramarumo (2015) shows that, in normal circumstances, the most dominant type of culture, rational culture, has a slight impact on stress, which means that in those organizations people experience a higher level of stress. group and development culture have more effect on stress, while hierarchical culture shows to have no significant relationship with stress. the stress level caused by a specific culture has a positive effect on employees’ performance and, therefore, one cannot say which cultural type is good or bad for a company. 2. literature review 2.1 organizational culture culture is an important factor that might affect organizational culture (hofstede, 1997). therefore, it “enjoys” its momentum among organizational researchers, consultants and corporate executives. through the concept of organizational culture, the influence of not only written organizational rules, but also of unwritten norms and values on employees is demonstrated (dyer, 1988; schein, 2004). harrison defines organizational culture as a “distinctive constellation of beliefs, values, work styles and relationships that distinguish one organization from another” (harrison, 1993 cited in maleka et al. 2015). on the other hand, schein (1990) described organizational culture through the concept of iceberg, as something composed of artifacts, perspectives, values and assumptions. in their studies, cammeron and quinn (2011) explain that organizational culture considers classification of different organizational core values. however, there is a divided opinion regardless of the organizational effectiveness and organizational culture: some organizations are more effective if they are flexible, while others can be more effective if they focus on stability (quinn & rohrbraugh, 1983). in this direction, a culture framework is designed, based on four cultural dimensions through which the core values are defined: family, adhocracy, market and hierarchy. the organizations have elements of all four culture types, but there is a dominance of only one specific cultural type (cammeron & quinn, 2011). due to its intent to see the world in the “right” way, organizational culture is of great importance and should not be taken for granted by organizational members (wilkins et al.,1983). it is composed of a variety of contracts through which the employee’s expectations, performance outcomes, rewards and punishments, and relationships within the organization are studied. according to wilkins et al. (1983), there are three situations when organizational culture becomes obvious: when there is a change in the employee’s role within the organization; when there is a subculture conflict; and when there are important decisions to be made by the top management. as stated by wallach (1983), effective organizational culture requires not only strong mission, purpose and strategies, but also compatibility with the employee’s needs and organization. therefore, he considered three cultural dimensions: bureaucratic, innovative and supportive. he explains that organizational culture cannot be split into three parts, but it is rather a combination of the three cultural dimensions with different intensity levels. entrepreneurial culture is considered to include the attitude, values, abilities, and individual power or group working together to generate profit. at the heart of entrepreneurial organization, there is innovation, one of the most crucial elements for organizational growth and success (kang, matusik, kim & philips, 2016). entrepreneurial activity is considered to have a significant positive relation with the organizational growth and self-efficacy (baum & locke, 2004). this means that the firms that show a low level of entrepreneurial activity are less profitable, and they grow slowly, in comparison with the organizations whose entrepreneurial activities are on a higher level. 72 ivona mileva, marjan bojadjiev, miodraga stefanovska-petkovska 2022/27(3) the mindset of being innovative needs to be driven through all organizational levels. it is not just the top management that need to be entrepreneurially oriented, but all organization members should nurture creativity and stimulate it. the organizations that nurture a truly entrepreneurial culture will gain a strong competitive advantage on the market, because the change rate is increasing in every field and industry (gadodia, 2020). thus, the culture that encourages innovativeness and creativeness is of vital importance for organizational success (pohlmann et al., 2005), where the entrepreneurial leaders are playing a main role in developing and stimulating innovation at work (shalley & gibson, 2004). in this direction, organizational culture is linked with leaders’ behaviour. the employees’ function in maintaining organizational culture should be appreciated by the leaders, so that healthy work environment should be created. work recognition and satisfaction can be achieved when the tasks are completed by the employee. subsequently, organizational culture has a significant role in building a happy and healthy workplace. 2.2 psychological distress, job satisfaction and turnover intention in times of covid-19 as a consequence of the external environment, stress is characterized as an individual response to what puts pressure on that individual (ivancevich, konapske & matteson, 2006). it is an actual response to different stressors, among which work-related stress. having this in mind, work-related stress can be considered as a response from the employee because of the work demands and pressures that do not correlate with their knowledge, abilities and skills. depending on the stress level, stress can contribute to either positive or negative job performance. lack of stress can result in decreased performance, due to bounded work challenge. however, if the stress increases, the performance increases as well, as the employee makes an effort to use all the resources that are needed for a specific task to be completed. at this stress level, employees have proven to perform beyond the limits and productivity. yet, when the stress reaches the saturation point, the performance starts decreasing and the employees show inconsistent behaviour (fonkeng, 2018). consequently, stress has a negative impact on both individual and organizational levels. on an individual level, the person experiences unhealthy symptoms, while what is experienced on the organizational level is a high rate of employee turnover and absenteeism. additionally, the organization will face various issues such as: reduced efficacy, lack of apprehension, performing capacity, responsibility, input, product or service quality and morale (dua, 1994; ben-baker et al., 1995). stress is especially emphasised during global pandemics like sars, ebola or covid-19. it is not only a result of the fear of contracting the virus, but also of the fear of separation from family and friends, uncertainty and feeling of helplessness (li & wang, 2020; cao et al., 2020). regarding work-related stress, employees who work remotely from home are exposed to different psychosocial risk, for instance: isolation, no workfamily boundaries, fear of losing the job, decreased salaries, reduced benefits, etc. all these aspects may have impact on people’s mental health (lund et al., 2018). due to psychosocial risks, the level of stress among people is increased and that can result in physical and mental health issues. people’s response to the issue includes a low mood and motivation, anxiety, depression, burnout, suicidal thoughts (stansfeld & candy, 2006) and health problems. besides, there can be a change in behaviour such as increased use of alcohol or drugs as a “tool” for coping with the circumstances and trying to relax. according to shiu (2020), “job stress is not a new phenomenon in any industrial society and, historically, workload has been a key contributor to workplace anxiety. yet, covid-19 has caused other factors to suddenly take the centre stage in influencing people’s levels of job stress”. there are three key reasons for increased stress in the workplace: income, fear of being exposed to the virus when at work, and fear of losing the job. in addition, stress is present among the work-from-home employees. this is due to the people’s inability to separate personal from work life as well as the stress created by simply working from home. home working can even lead to sleeping or eating disorders, which can further result in psychological stress. psychological risks and stress have been considered to have an impact on job satisfaction and other work aspects such as motivation and work engagement. job satisfaction is the degree to which people like or dislike their jobs (gimenez-espert et al., 2020). it is influenced by financial packages, development opportunities, and working conditions (rue & byars, 2003) as well as independence, superior support, personal development and relationships within the organization. the literature suggests that satisfied employees are associated with greater productivity in comparison with employees who show no satisfaction (likert, 1961). that does not mean that dissatisfied employees may quit the job, but the feeling of dissatisfaction will be reflected on the employee’s performance (squires et al., 2015). 73 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) moreover, in a covid-19 situation, according to the study conducted by bellmann and hubler (2020), there is a positive correlation between remote work and job satisfaction. however, there is no statistical significance regarding the preference of working hours and remote work, although working later in the day is considered negative while working early in the day is positive. this is reasonable if one takes into consideration that longer working hours are linked with lower level of job satisfaction. therefore, organizations should offer their employees opportunities to work remotely and should not restrict longer working hours. a higher level of stress and a lower level of job satisfaction can lead to increased employee turnover. this concept refers to the ratio of employees who leave an organization, expressed as a percentage of total workforce numbers (cipd, 2014). work-related, personal, and external factors are mostly used to explain why employees quit the job (mayihnan & pandey, 2008). it is defined by different organizational conditions: salary, service, performance, job satisfaction, leadership style, promotion opportunities and commitment. as a consequence of a high turnover rate, the company can face challenges related to higher costs, lower performance and productivity, and low competitiveness (long et al., 2012). people usually quit their job because their expectations are not met; the job is incompatible with their qualifications and skills; there is stress; there is lack of feedback, confidence, and trust; while no opportunities are offered (branham, 2005). in this direction, covid-19 poses a question of the role of organizations in a pandemic, those that nurture entrepreneurial culture, and the role of fear, stress, satisfaction with organizational culture and turnover intention in entrepreneurial organizations. 3. methodology 3.1 sample this was a quantitative research with a questionnaire as the main method of data collection. convenience sampling was used. the main inclusion criteria were: labour-intensive industries classified as small and medium enterprises, with entrepreneurial organizational culture (measured through vox organizationis). in accordance with this criteria, the research was conducted in 30 small and medium-sized enterprises in the republic of north macedonia, on a total sample of 408 participants: 378 employees and 30 leaders. all 30 companies belong to the private business sector. since this research was part of a larger national investigation of organizational culture, only the companies with entrepreneurial culture were retained for this research. overall, there were 408 respondents in the study (49% females and 51% males). the age dissemination suggested that the majority of the employees (41%) are between 25-35 years old, followed by the 35-45 years old (30%) and 45-55 (20%), while the respondents aged 55+ account for only 9%. the majority had two children. regarding the marital status, the dominant majority were married (76%). 3.2 instrument the instrument consisted of the following five main sections: • demographic data – demographic and job-related data were collected. in line with the main research aim, demographic data included self-reported health related to covid-19; while job-related data included items on adequate working conditions (opportunities for practising covid-19 measures at the workplace), access to adequate working equipment and salary level; • fear of covid-19 scale (fcv-19s) – a seven-item scale, using a five-item likert-type scale (1= “strongly disagree”; 5= “strongly agree”). higher scores indicate a higher fear of covid-19 (α=.77) (ahorsu et al., 2020); • vox organizationis and satisfaction with organizational culture – the instrument is used to assess the type of organizational culture and leadership style. using this instrument the research also assessed satisfaction with organizational culture. for the purpose of the research, only companies with entrepreneurial culture and leadership style were included. (α=.79) (bojadjiev, 2019); • general health questionnaire 12 (ghq-12) – this is a tool for screening mental disorders (in both community and workplace settings) that covers feelings of strain, depression, inability to cope, anxiety-based insomnia, lack of confidence and esteem, and other symptoms of psychological distress. (α=.85) (petkovska, bojadziev & stefanovska, 2015); • turnover intention – turnover intention was assessed through a one-item survey. answers were recorded on a 5-point likert-type scale where 1 meant “strongly disagree” and 5 meant “strongly agree”. higher scores indicated higher turnover intention (α=.78). 74 ivona mileva, marjan bojadjiev, miodraga stefanovska-petkovska 2022/27(3) 3.3 procedure data were collected in the period from june to november 2020. a link to the online survey was sent to all eligible participants. the invitation email contained information on the purpose of the research, as well as on the voluntary and anonymous nature of the survey. a total of 408 eligible participants submitted fully completed surveys. 3.4 data analyses descriptive statistics was used to describe the basic features of the sample in the study, with chi-square tests and two-sided t-tests were used to test differences between the samples on significant characteristics. significant differences in the data were explored through univariate analyses (p<0.05). data analysis was performed with ibm/spss version 22.0 and smartpls 2 software. 4. results the means and standard deviations of fear of covid-19, job satisfaction, psychological distress and turnover intention were 28.30 ± 3.15, 3.51±1.21, 5.43 ± 2.34, and 2.8 ± 0.68, respectively. furthermore, the correlation coefficients between the variables are presented in table 1. the results indicate that there is a significant positive relationship between psychological distress and fear of covid-19 (p<0.05). a significant negative relationship was found between turnover intention and fear of covid-19 (p<0.05), as well as between job satisfaction and fear of covid-19 (p<0.01), and job satisfaction and turnover intention (p<0.01). table 1: correlation coefficients among fear of covid-19, psychological distress, turnover intention and job satisfaction *p<0.05**;p<0.01; the analysis of ghq-12 results indicated that 29% of the participants suffered psychological distress. the analysis indicated higher scores among single mothers (or = 3.17; 95% ci 1.9-5.9; p<0.001) and those who had minor children (or = 2.9; 95% ci 1.4-5.5; p<0.001). in addition, a negative relationship was found between higher scores in entrepreneurial culture and psychological distress (χ2 =33.5, p<0.001), while a positive relationship was identified between turnover intention and fear of covid-19. this means that respondents who demonstrated a greater fear of covid-19 were more prone to consider leaving their job. the results of univariate analysis of the association between organizational-, joband health-related worker characteristics on one hand, and satisfaction with organizational culture results on the other hand indicated that higher scores in entrepreneurial leadership and culture had a positive association with satisfaction with organizational culture in cultures and with leaders who are more entrepreneurial, thus having employees with higher satisfaction with organizational culture rates (or = 1.60, 95% ci 1.02-1.65, p<.01; or = 0.97, 95% ci 0.94-1.03, p<.05 ). salary level was also found to be significantly associated with satisfaction with organizational culture, with participants who have lower salaries demonstrating lower satisfaction with organizational culture compared to the participants who were in the higher income group (or = 0.94, 95% ci 0.91-1.02, p<.05). health-related factors, such as having a chronic illness or classifying oneself as belonging to a covid-19 health risk group were associated with lower levels of satisfaction with organizational culture (or = -1.10, 95% ci 1.03-1.14, p<.05; or = -1.06, 95% ci 1.01-1.15, p<.05). finally, adequate working conditions and working on adequate equipment were related with higher satisfaction with organizational culture scores (or = 1.20, 95% ci 1.03-1.13, p<.05; or = 1.30, 95% ci 1.04-1.21, p<.05). 75 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) �������� � � ������ �� �� ��� ���� �� �������� �������� ��������� ��� �� ���� !��� ������"������� ������ �������� ���� ������� �� � � � ����������������� ������� �� � � � �!�"��� !��!� �!� ��#$� ��$���� �� � %�� ����� �!�& ����� �! '�� �!��� � �� ��� ��$��� ���($��� ��$()��� �� table 2: results of univariate analyses of the association between organizational and personal health characteristics on one hand, and job satisfaction results on the other finally, a path analysis was carried out to test the mediating role of fear of covid-19 and psychological distress on the relationship between entrepreneurial culture and turnover intention. figure 1 demonstrates the results of the path analysis method that is used here. the values of β coefficient for fear of covid-19 and psychological distress with entrepreneurial culture were β=-0.497 and β=-0.325, respectively. furthermore, the β coefficients for fear of covid-19 and psychological distress with turnover intention were β=0.410 and β=0.373, respectively. finally, the values for the β coefficient for entrepreneurial culture and turnover intention were -0.087. all t-index values were significant. figure 1. predicting model for work-life balance based on coping ability, psychological distress and fear of covid-19 (β-coefficients and t-indexes) 5. discussion this study investigated the entrepreneurial organizational culture during a pandemic in a labour-intensive industry, through the fear of covid-19, psychological distress, satisfaction with organizational culture satisfaction and turnover intention. to our knowledge, this study is the first of its kind, thus contributing significant results to the field of organizational behaviour. due to the pandemic, the fear of covid-19 proves to have a significant impact on job satisfaction, psychological distress and turnover intention. people’s feelings of fear and anxiety are a result of fear of being infected or infecting others, of social distancing, quarantine, work performance and their emotional and 76 ivona mileva, marjan bojadjiev, miodraga stefanovska-petkovska 2022/27(3) or lower 95% ci upper 95% ci p organizational characteristics entrepreneurial leader (higher score) 0.97 0.94 1.03 <05 entrepreneurial culture (higher score) 1.60 1.02 1.65 <01 organizational characteristics adequate work equipment (yes) 1.2 1.03 1.13 <05 adequate working conditions (yes) 1.3 1.04 1.21 <05 salary (high level) 0.94 0.91 1.02 <05 health issues chronic disease (yes) -1.10 1.03 1.14 <05 belong to covid-19 risk group (yes) -1.06 1.01 1.15 <05 know someone who has died from covid -19 (yes) -1.48 1.22 1.57 1.05 therefore, analyses has indicated that there is a negative and significant relationship between fear of covid-19 and entrepreneurial culture ( 497, ) and a positive and significant relationship between fear of covid-19 and turnover intention ( , ). entrepreneurial culture ( , ) and turnover intention ( , ) both had a significant relationship with psychological distress. finally, there was a significant negative relationship between entrepreneurial culture and turnover intention ( , ). psychological well-being. in this study, increased fear of covid-19 is associated with increased scores on stress level. this means that people who considered themselves as highly fearful of covid-19 tend to experience a higher level of stress, but a lower level of satisfaction with organizational culture and an intention to quit. the study conducted by satici et al. (2020), linked the increased level of fear of covid-19 with negative emotions such as anxiety, stress and depression. furthermore, another study showed similar idea that the covid-19-related fear has a significant positive relationship with those negative feelings (bakioglу et al., 2020). although fear is considered to be a useful “tool” for motivating individuals to respond effectively, the extreme fear may lead to stress, anxiety or other negative psychological reactions (gorman, 2008). covid-19 does not spare job satisfaction and turnover intention since the fear of it is considered to decrease job satisfaction and turnover intention. as an explanation, previous results provide an understanding that a higher level of negative emotions such as stress, may lead to lower level of satisfaction and performance (mccarthy et al., 2016). although job satisfaction is considered to have a significant relationship with the turnover intention (mahdi, 2020), this has not been a case during the covid-19 pandemic. the explanation behind this is that people do not feel comfortable changing workplaces in highly uncertain circumstances. furthermore, in the long term, this dissatisfaction may lead to an increased employee turnover rate. the study shows that in entrepreneurial organizations a higher level of satisfaction among the employees is experienced. this can be ascribed to the higher salary level and the excellent working conditions provided to organization members. despite that, fewer possibilities of health risks at/in the workplace during the covid-19 pandemic contribute to the higher level of satisfaction and, at the same time, to lower psychological stress experienced by organization members. according to the results, the fear of covid-19 can contribute to employees’ increased intention to quit their job. generally, this can be attributed to the stress and anxiety that organization members experience. however, in organizations that nurture entrepreneurial culture, there is a smaller chance that employees will report a covid-19 fear and their intention to quit the job is much lower. moreover, a negative and significant relationship between fear of covid-19 and entrepreneurial culture is determined. although the pandemic brings a lot of challenges, entrepreneurial organizations respond to uncertainty by being flexible, adoptive, and supportive to the business environment. finally, organizations that nurture entrepreneurial culture help people to relieve stress, therefore the members of those organizations experience less stress and fear, which is a crucial aspect of one’s health in hectic times as these. yet, there are certain inherent limitations to this study. first, the study was conducted in the republic of north macedonia, so the reflection from other countries may affect the generalizability of the findings. the second risk is the social desirability bias. 77 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) the covid-19 pandemic has significantly changed the workplace landscape with most of the global workforce moving into teleworking. however, this was not an option for the labour-intensive industries as their operations are highly dependent on the physical presence of the employees at the workplace. hence, the pandemic challenged not just their economic and financial sustainability, but also the physical and mental well-being of their employees. by conducting quantitative research on 408 employees from these industries, the study found a significant association among entrepreneurial culture, fear of covid-19, stress, job satisfaction and turnover intention. however, the findings should be taken with caution as additional factors may also play an important role in explaining the perception and feelings of the employees. for this reason, it is recommended that future studies explore additional individual and organizational variables that may influence the turnover intention in the light of the covid-19 pandemic. in times of uncertainty, such as the covid-19 pandemic, organizations need to reinvent their organizational culture to encompass the needs of the employees, organization and the wider economic environment. aspects such as organizational support, training, internet access infrastructure, support in increasing digital literacy, and understanding the individual wellbeing of employees, become an essential part in the survival mechanisms of an organization. the novelty of this study builds on previous studies of organizational culture during the pandemic, resulting in useful recommendations that future leaders may use in times of distress. in addition, the context in which the study was implemented, allows for raising a set of questions that can be taken into account by future research. more specifically, the pandemic has demonstrated that although the managerial world encountered a myriad of disruptions, these changes in normality presented 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(2020). psychosocial risks, work engagement, and job satisfaction of nurses during covid-19 pandemic. front. public health. doi: 10.3389/fpubh.2020.566896. 78 ivona mileva, marjan bojadjiev, miodraga stefanovska-petkovska 2022/27(3) ter understand organizations. the first set of potential opportunities rest in the assessment of the resilience of organizational cultures in turbulent times. how do they react? do they transform and in what ways? if organizational cultures change, then what is the impact of these changes on the individuals and organizations? how do they impact the well-being of employees? these are all questions that have existed in the research field for decades, however there was no better time to explore them than now. although no similar studies exist in labour-intensive businesses, the analysis of these aspects will allow leaders to assess and strengthen their connections to the company, as well as determine which aspects of their organizational culture need to be improved in order that employees be happier and more satisfied. contextually, caution should be present in generalising the study findings in organizational systems of other developing countries due to potential situational and cultural differences. the relevance of measuring organizational culture and its link with covid-19 fear, psychological distress, satisfaction with organizational culture, and turnover intention should be considered by leaders and practitioners in the field alike. 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(2004). what leaders need to know: a review of social and contextual factors that can foster or hinder creativity. the leadership quarterly, 15(1), 33–53. doi:10.1016/j.leaqua.2003.12.004 [35] schein, e.h. (1990). organizational culture. american psychologist, 45 (2), pp.109-119. [36] schein, e.h. (2004) organizational culture and leadership. 3rd edition, jossey-bass, san francisco. [37] shiu, e. (2020). the global covid-19 pandemic has created new causes of job-related stress that have displaced the ‘traditional’ main reason for workplace anxiety – ever-increasing workloads, according to new research. retrieved from: https://www.birmingham.ac.uk/news/latest/2020/11/covid-19pandemic-creates-new-causes-of-%27workplace%27-stress.aspx. [38] squires, j.e., hoben, m., linklater, s., carleton.s, l., graham, n., & estarbooks. n, g. (2015). job satisfaction among care aides in residential long-term care: a systematic review of contributing factors, both individual and organizational. nursing research and practice 2015(6):157924. doi: 10.1155/2015/157924 [39] stansfeld, s., & candy, b. (2006). psychosocial work environment and mental health — a meta-analytic review. scandinavian journal of work, environment & health, 32, 443–462.doi: 10.5271/sjweh.1050 79 management: journal of sustainable business and management solutions in emerging economies 2022/27(3) 80 ivona mileva, marjan bojadjiev, miodraga stefanovska-petkovska 2022/27(3) [40] wallach, e. (1983). individuals and organizations: the cultural match. training and development journal, 37(2), 28-36. [41] wilkins, a. l. & ouchi, w. g. (1983). efficient cultures: exploring the relationship between culture and organizational performance. administrative science quarterly, 28(3), 468-481. received: 2021-03-15 revision requested: 2021-04-15 revised: 2021-08-24 (2 times) accepted: 2021-10-04 ivona mileva, phd university american college skopje, republic of north macedonia ivona.mileva@uacs.edu.mk ivona mileva, msc, phdc., is a teaching assistant, chief academic officer and head of business administration and economics department at the school of business economics and management, university american college skopje. she graduated on the topic of luxury management and, currently, she enrolled in doctoral studies program in a focus of organizational behaviour field, specifically on the topic of organizational culture. ivona mileva, msc, has been part of the leadership summit ambassador program, organized by people to people at the harvard university and lately she has been awarded a certificate in entrepreneurship from the harvard business school. her academic research is focused on the area of organizational behaviour and management fields with a focus on organizational culture, leadership and motivation. she has attended a large number of conferences and co-authored academic articles both, domestically and internationally. marjan bojadjiev, phd university american college skopje, republic of north macedonia provost@uacs.edu.mk marjan i. bojadjiev, phd is a provost and a full professor at the university american collage skopje since the year 2010. previously, he has worked as ceo of the macedonian savings house from 1996 to 1999 and as ceo of the third largest bank in macedonia from 1999 to 2004. prof. bojadjiev has served as manager of several companies in macedonia, as a board member in professional organizations and as a moderator in conferences on national macedonian energy and investment policies. he has completed his doctoral studies at the ss. cyril and methodius university – skopje. he earned his specialization degree in international business management at the . he has a master of science degree in banking marketing. prof. bojadjiev has completed executive education courses at in 2008 and 2009. miodraga stefanovska-petkovska, phd university american college skopje, republic of north macedonia stefanovska@uacs.edu.mk miodraga stefanovska-petkovska, mba, phd, is an associate professor at the school of political sciences and psychology and school of business administration and management, university american college skopje. she graduated on the topic of individual and economic determinants of retirement and was awarded an honorary masters degree in business administration on her research on well-being among ageing workforce. she spent part of her doctoral studies at staffordshire university, united kingdom as a scholar of the open society institute on the topic of economic trust and cooperation among religious and ethnic minorities. she obtained a doctoral degree in social sciences and gender issues on the topic of discrimination and disparities in health care. dr. stefanovska-petkovska has been awarded a certificate in statistics for health research from the oxford university. her academic research is focused on the area of medical sociology and sociology of health, with special emphasis on the intersection of employment and health, health literacy and selfefficacy. she has co-authored books and academic articles domestically and internationally and has been a mentor/co-mentor of over 20 master theses. she has also been an ngo activist for more than 15 years in the field of hiv/aids/sti prevention and management with special focus on vulnerable groups and she has participated, designed and coordinated numerous national and international projects on these issues. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 07_zeljko tomic:tipska.qxd 63 željko tomić¹, mihailo jovanović² 1 electrical engineering, director at osa računaski inženjering co. serbia 2electrical engineering, executive director at the ptt serbia public enterprise, serbia management 2016/78 erp and crm data integration udc:004.738.5:339]::005.346 004.738.5:339 doi:10.7595/management.fon.2016.0008 1. introduction many business areas, such as industry, banking, administration, insurance, telecommunications, etc., involve complex business procedures and implement the e-business models (jovanović,m., rankov s., 2012), (veljko milutinović, frederic patricelli, 2003.) to optimise the business processes, time and profit. they comprise a series of tasks that may be linked (chained) to one another to form a sequence, run in parallel or loop, or a combination of these. such tasks are executed by a number of organisational units (both internal and external) and individuals. besides that, numerous tasks are performed by machines, either independently or in cooperation with humans. in order to accomplish the tasks, a large number of different documents are generated and used. these complex activities need to be managed and supervised, which may prove to be a difficult job. in order to define the reasons for generating the integration model (interface) based on the detected problems and shortcomings of a given system, it is crucial to consider both the erp and crm models i.e., the specific shortcomings of one or the other system (from the viewpoints of design, network environment, process/task organisation, optimisation of operating costs, client demands in relation to operation experiences in the implementation of the systems, separate application demands occurring in the implementation of the erp and crm systems, and specific demands related to the need for synchronising the company is (information system) in relation to the state of the is before implementing the erp and crm systems), based on which the design and programming framework is defined. from the structural viewpoint, the model of erp and crm integration is synchronised (through interface that synchronises different levels of inconsistencies between the systems, and analytically, at the level of individual needs and demands of companies whose experiences in the implementation of the erp and crm systems have been identified based on field research). the crm and erp systems are usually obtained and implemented separately and at different times. quite often they are purchased from different sellers and producers, and implemented by different teams. as a rule, the crm and erp systems contain separate databases even if they come from the same manufacturer. such separately kept databases also lead to separate basic records (identifiers), which primarily relate to business partners, items and services. this may create problems with updating and maintaining consistency of the data within the information system of a company. the crm and erp systems usually overlap in certain segments of business processes (e.g., orders, order confirmations, quotations, etc.), thus potentially creating redundant information and documents. more often than not, the crm and erp also differ in terms of technology, both by their vertical architectures and with regard to the dbms and api support. the objective of this paper is to generate an erp-crm integration data model by way of optimising the relevant processes and costs, and to provide details about the processes of integration of the logical and physical data models. the structural integration of the erp-crm databases provide the integration services that ensure all the necessary functionalities in various interface logics and technologies with regard to software solutions and applications given, or used for local adaptations of the existing erp and crm applications. keywords: erp, crm, interface, web services, workflow management, business processes, use case diagrams, dbms, databases there are different experiences in the erp and crm implementation, in terms of their integration into the existing system (showing the classes of problems that emerge at the level of their adaptation and synchronisation into the existing is); e.g., one large telecommunications company, and not only that one we observed, designed and implemented 26 interface modules of various functionalities and corrections that were necessary for the system to function as a whole (permanent interfaces that enable master data and document exchange between the sap module and the other applications within the is of the company). permanent interfaces were set up through the appropriate windows service on the non-sap side, which calls the web service implemented on the sap side: master data maintenance, buyers, functional locations and defect reporting, outgoing invoices and received advance payments, daily bank statements, payments by payment cards and international reply coupons, consumption of materials, salaries, data migration interfaces, transfer of the initial state, etc. the level of complexity of specific interfaces largely depends on the structure of the is and its flexibility with regard to different platforms, structure of data, business process organisation, data processing logic and types of message exchange. the defining of characteristics, the system logics, and the problems and errors identified during the system implementation processes have generated a framework for designing the interface, i.e., they introduced certain integrations that emerged as a consequence of the issues in the implementation of application solutions and that can be obtained as finished products in the software market. 2. identified problems – the existing situation the crm and erp systems are usually obtained and implemented separately and at different times. quite often they are purchased from different sellers and producers, and implemented by different teams, technology and framework for e-business (ravi kalakota and marcia robinson, 2011.), (dave chaffey, 2009) integration with erp and crm models. as a rule, the crm and erp systems contain separate databases even if they come from the same manufacturer and certainly require certain rules to follow in implementation processes. such separately kept databases also lead to separate basic records (identifiers), which primarily relate to business partners, items and services. this may create problems with updating and maintaining consistency of the data within the information system of a company. the crm and erp systems usually overlap in certain segments of business processes (e.g., orders, order confirmations, quotations, etc.), thus potentially creating redundant information and documents. 3. integration concepts in order to ensure business continuity and data consistency, as well as high-quality business analysis and reports, e.g., business intelligence (sauter, v. l., 2010), (stefanović, n., 2008), (ćirić, b., 2006) it is necessary to ensure their integration and: 1. ensure consistency and integrity of shared records (partners, items and services); 2. set a clear boundary between the crm and the erp, i.e., define the activity and the document (or documents) generated within the border activity. all the resources of the enterprise (staff, assets, stocks, finances, etc.) i.e., the continuity of its business operations are managed within the erp (enterprise resource planning). all of the above resources are important and highly interconnected, and their good management ensures a successful operation and growth of the company. yet, the most critical resource that can cause immediate business discontinuity is the company finances. finances can be viewed from the aspect of liquidity and from the aspect of balance (accounting aspect). as regards business discontinuity, the more critical of the two aspects is certainly the financial liquidity of the company, which is why a proper finance management from the liquidity aspect is of utmost importance for preventing business discontinuity (excluding, of course, cases of force majeure, such as natural disasters, wars, etc.). 64 2016/78management successful management of financial liquidity of the company requires not only its proper monitoring and supervision, but also proper planning. therefore, the erp should manage all documents that create financial obligations or revenue for the company, regardless of whether they are accounting documents or not. this implies that the erp must be in charge of orders (from the time of acceptance) and quotations, as well as contracts that precisely define the dynamics of revenues and expenses. everything that happens, before the evidence of the articles and services in the communication with customers, already contains articles and services in databases or some of the other data stores of the systems, if once they have been identified (materials, finished products, other products informations) with all necessary data, characteristics and price lists (bearing in mind that each of the products and services can have more than one price in the price lists). 4. consistency the register of items and services the inventory of items and services contains items (materials, finished products, goods) and services, with their features and pricing (each item and service can have a number of prices). from the point of the erp, all entries in this consolidated inventory are important parts of the different processes managed within the erp (murrell g. shields, 2001). from the point of the crm, only those entries that can be delivered (sold) to customers are relevant, and they include goods, finished products and services, and involve a limited set of data, which mandatorily include pricelists. bearing in mind that detailed data on purchase, input and sales prices and their breakdown must be kept in the erp system, this consolidated inventory is updated exclusively through the erp applications in the erp database, while the other subsystems (including the crm) only use these data, which means that they do not add new or change the existing data in this inventory. bearing in mind that the crm works over a separate database, it is necessary to ensure its integration so that each item added or altered within this consolidated inventory is transferred to the crm base as soon as it has been successfully processed in the erp base, thus enabling a continuous synchronisation of data in both databases. this integration module should ensure the transfer of all the data necessary for the work of the crm, which represents a subset of the data necessary for the erp. 5. consistency of partner registers company representatives can establish contact with new customers in several ways and in different business scenarios. the first group of scenarios involves establishing contact with potential customers through presales (first contact, meetings, presentations, preparation of specifications, etc.) with an aim to lead the potential customer towards the first formal order, i.e., the initial sale of a product or service. in this group of scenarios the business partner first appears in the presales process that is managed by the crm (jill dyshe, 2001), and it is logical that he will first appear in the crm database. it is only later, upon closing the first sale, that the partner (buyer) will also appear in the erp database. the second group of scenarios contains all the situations in which the customer makes a direct contact and seeks a specific product : fig 1: use case product (j.rumbaugh, i.jacobson, g.booch, 2005) or service and immediately orders it skipping the presales process (the “quotation, please” or “i would like to order ......” scenario). 65 management 2016/78 fig 1: use case articles in this group of scenarios the business partner emerges in the processes managed by the erp, wherefore it is logical that he will instantly appear in the erp database. besides the above scenarios, it should be noted that companies always introduce the erp first, simply because it covers the management of the most critical resources, while other systems, including the crm, are implemented later, when the erp is already well established. this means that the erp database already contains a large number of business partners the crp must inherit. based on the main groups of scenarios we can also define global statuses in which the buyer may be found within the business processes covered by the crm and erp. the global statuses in which the business partner can be found from the first contact through to the closing of a deal and beyond are: 1. buyer candidate global status in which the partner is located until the initial purchase is completed. business processes within this global status of the buyer are managed by the crm system. 2. buyer the buyer has realised at least one order, i.e., at least one of the erp documents (order, dispatch note, invoice, etc.) has been exchanged with him. both of the global statuses can be further segmented into a number of intermediate statuses in accordance with business processes that occur in the interaction with the business partner (table 1). bearing in mind that, due to their connection with the legal and financial documents and changes that are managed through the erp (contracts, invoices, dispatch notes, records, etc.), it is prohibited to change the data on business partners (customers/buyers) contained in the other systems (crm and the like), it follows that changes to such data from the side of the crm system are only possible while the partner is located in the “buyer candidate” global status. 66 2016/78management table 1: situations when synchronising the business partner (buyer) registers between the crm and erp systems: * due to the fact that the partner appears in the legal and financial documents (contracts, invoices, dispatch notes, records, etc.), uncontrolled changes of data from the crm are not allowed; a possible exception could be to change certain data only in the crm base, without their synchronisation in the erp and where the logic of specific web services (amazon web services llc sap-on-aws@amazon.com version: 3 – april 2013) so requires (in this case it is checked and adjusted by the authorised person following verification). 6. scenarios of the first appearance of partners within the integrated erp and crm business partners (actually the data about them) may appear for the first time: 1. during the presales process, when they are first entered in the register of partners within the crm 2. during the sales processes (contracting, issuing quotations or invoices with the document confirming shipment, provision of service, acceptance, final order, etc.), when the new partner is entered in the partner register of the erp base. in the former case, the partner may be entered with an incomplete set of data, and the accuracy of each piece of information is not of utmost importance here. generally speaking, the partner could be registered only in the crm data base as long as he moves through the different phases of the presales process: 67 management 2016/78 1. entered in the crm base 2. does not exist in the erp base allowed in the “buyer candidate” global status synchronised in the erp base with the available set of data changes allowed from the crm 3. entered in the erp base 4. does not exist in the crm base immediately enters the “buyer” global status synchronised in the crm base with all the data changes not allowed from the crm 5. changed in the erp base 6. exists in the crm base already in the “buyer” global status synchronised in the crm base with all the data changes not allowed from the crm 7. changed in the crm base 8. exists in the erp base not allowed * not implemented changes not allowed from the crm fig 2: use case creating/editing and sinchronising new partner in erp database – presales processes the only limitation is the fact that a partner whose status corresponds with some of the presales phases in regard of one group of products or services may also appear as a direct buyer in the erp database. fig 3: use case creating/editing sinchronising new partner in erp database in sales processes in order to avoid double entries of the same partner in the crm and erp bases, each new partner entered in the crm base must be synchronised in the erp base: fig 3: buyer status, partner use case status, but together with one of the adopted presales statuses (in general the “buyer candidate” status). while the partner is in this status it is allowed to change or supplement the data about him through the crm base and applications, but each of them must be synchronised with the erp base. in the case the same partner first appears in one of the roles managed by the erp, further changes can only be effected through the erp base and applications, and each such change is synchronised with the crm base. 68 2016/78management if a new partner appears directly in the sales (erp) processes, he is entered in the partner register in the erp base and synchronised with the crm, while all further data changes are effected through the erp base and applications. it is prohibited to change partner data through the crm applications. 7. resolving the issue of integration the general case of having separate crm and erp systems means and has been resolved: 1. that the systems can work on different dbmss (oracle, 2012), see the erp-crm system integration image-fig. 4, and the information (sandra jednak, dragana kragulj, 2015) and data flow between the databases and intelligent independent agents (adam sofronijević vesna milićević, aleksandar marković, 2015) running for the data integration fig. 4 – erp-crm model of data integration (interface) 2. that the systems can have different vertical architectures (with or without application servers, as desktop or web applications ( david chappell, tyler jewell, 2002) etc. 3. that they can be installed on servers located in different physical locations and having completely independent systems that ensure continuity of work (ups, raid, etc.), (somasundaram gnanasundaram alok shrivastava, 2012) which makes it very likely that interruptions in their operation can occur separately. 4. that it is not possible to ensure changes of any system application by the producer, but only the producer’s api is used. considering the above characteristics of the general case, it follows that the integration programme module must be and is: 1. autonomous and independent of the crm and erp; 2. configurable and easily adaptable to the data integration structure; 3. capable of providing integration templates for different crm and erp databases and/or application servers; 4. capable of ensuring detection of failures of either of the two systems and waiting for it to resume working without losses in terms of data synchronisation. 69 management 2016/78 the current trends in the field of software development suggest that the integration module should be developed as a service, or several services, or broadly speaking as a web service.(chong kwong chen, 2011), (li fang, sylvia patrecia, june 2005) the service should communicate with both systems by receiving and sending the corresponding xml data structures regarding partners and contacts, and products and services. the xml structures should be configurable by way of parameterisation within the parameter base of the service itself, but without changing the programme code or recompiling the service. the service should be able to locally cache (store) data until it is finally checked that the data have been synchronised (in cases where one of the systems is temporarily unavailable). it is advisable to ensure that the service is accompanied by templates for the communication between the service and various databases or application servers of the crm and erp systems. it is also recommended to cover the most frequently used dbmss (e.g., oracle, ms sql server). 70 2016/78management as recommended, the authors have fulfilled all the requirements in line with the integration of the erp and crm applications and model structure, i.e., first the processes of both systems are listed and later optimized, all in order to prepare the ground for the midleware interface, the data exchange and store in the erp and crm databases and the design and implementation of the generated software applications that support the integration in favour of the customers. the key elements of the integration processes are the cost optimisation and reconsiliation of both transactions and data flow, respecting the principles and business rules from the data input in both systems to the final booking and data store in the sequence, ordered by those mentioned business rules and situations when synchronising the business partner (buyer data) registers between the crm and erp systems. the paper is part of the complex research and scientific project which is connected to the detailed work in software design and programming, later implementation for a certain number of customers proving that the value created has to serve the strategic and operational purpose, to simplify the work and processes of the both erp and crm systems implementations increasing the customer satisfaction. conclusion literature [1] veljko milutinović and frederic patricelli, “mastering e-business infrastructure”, kluwer academic publishers, 2003. [2] jill dyshe, “the crm handbook: a business guide to customer relationship management”, addison wesley, 2001. [3] ravi kalakota and marcia robinson, “e-business 2.0: roadmap to success”, addison wesley, 2001. [4] jovanović,m., rankov s.: “primena elektronskog poslovanja u upravljanju složenim sistemima“, isbn 97-86-7038-054-7, cobiss.sr-id 191422220, izdavač jp ptt saobraćaja“srbija“, 2012 [5] e-business and e-commerce management, dave chaffey, 2009 [6] sauter, v. l. (2010). decision support systems for business intelligence (second.). hoboken: new jersey: john wiley & sons, inc. [7] stefanović, n. (2008). razvoj modela poslovne inteligencije u adaptivnim b2b mrežama. doktorska disertacija. fakultet organizacionih nauka, univerzitet u beogradu. [8] ćirić, b. (2006). poslovna inteligencija. data status. [9] j.rumbaugh, i.jacobson, g.booch, unified modeling language reference manual, second edition, addison-wesley, 2005 [10] oracle. (2012). oracle information architecture: an architect’s guide to big data. retrieved from 1522052.pdf [11] java web services david chappell tyler jewell publisher: o’reilly first edition march 2002 isbn: 0-59600269-6, 276 pages, pp.28, pp.72 [12] information storage and management storing, managing and protecting digital information in classic, virtualized, and cloud environments 2nd edition edited by somasundaram gnanasundaram alok shrivastava, j.w. & sons, 2012 pp. 51 [13] chong kwong chen “a middleware integrating erp, crm and supply chain management system using service oriented architecture”, faculty of computer science and information technology university of malaya kuala lumpur, may 2011 [14] li fang, sylvia patrecia, june 2005 critical success factors in erp implementation it and business renewal, jönköping international business school jönköping university source: proposed enterprise system benefits framework (seddon et al., 2003, p 79) [15] sandra jednak, dragana kragulj, university of belgrade, faculty of organizational sciencesmanagement 2015/75 achieving sustainable development and knowledge-based economyin serbia udc: 330.341.1(497.11) 005.94 doi: 10.7595/managment.fon.2015.0015, str 2. [16] adam sofronijević1, vesna milićević2, aleksandar marković3 , 1university of belgrade,university library„svetozar marković”2,3, university of belgrade, faculty of organizational sciences, serbia, management 2015/74, new internet business initiatives in the context ofn change management udc:005.336.5:004 004.738.5 005.591:005.21 doi:10.7595/str.37 [17] murrell g. shields “e-business and erp rapid implementation and project planning” , 2001 by john wiley & sons, inc., isbn 0-471-40677-5, pp.10 [18] implementing sap solutions on amazon web services created by: amazon web services llc sap-onaws@amazon.com version: 3 – april 2013 receieved: february 2016. accepted: march 2016. 71 management 2016/78 željko tomić electrical engineering, director at osa računaski inženjering co. serbia zeljko.tomic@osa.rs željko tomić was born on 04th february,1956 in brinj, croatia. he completed his primary and secondary education in belgrade, a top student at the “nikola tesla“ high school of electrical engineering. in 1980 he graduated from the faculty of electrical engineering, university of belgrade. from 1981 till 1983 he worked as a teacher at the “nikola tesla“ high school of electrical engineering.from 1983 until 1990 he was employed with the “svetlost“ enterprise of electrical engineering as construction site engineer, construction manager and director of electrical production. together with two partners he established a private company “osa – computer engineering“ ltd. in 1989, one of the first hundred private enterprises registered in the former yugoslavia. since 1990 until the present day he has been engaged as the director of the “osa – computer engineering“ ltd.he is a member of the serbian manager association (sam). in 2007 he was declared the manager of the year. mihailo jovanović 2electrical engineering, executive director at the ptt serbia public enterprise, serbia mihailo.jovanovic@ptt.rs doc. dr mihailo jovanović graduated from the faculty of electrical engineering, department of telecommunications, university of belgrade, in 1996. it was also at this faculty that he completed his magisterial studies at the department of telecommunications and computer networks. he earned his ph.d. degree at the faculty of business studies, megatrend university, with the doctoral dissertation titled “systems of registered electronic and hybrid mail of the public postal operator and electronic access channels“. he is the author or co-author of 30 scientific works in the area of information and communication technology, electronic business and economics, presented at the leading national and international conferences and reference journals. he was appointed senior lecturer (docent) for the scientific area of quantitative methods, for the courses in fundamentals of computer science and business and information systems. since 2004 he has been a member of the serbian chamber of engineers, licenced as chief designer and responsible contracting engineer in the field of telecommunication networks and systems. he was awarded by the ministry of science, technology and development of the government of the republic of serbia following the public competition for “young scientists whose engagement contributed to the development of science and technology, change in the country and reforms; who stayed in the country and did their best to enhance the development and connections of this country with the world community“. since 1996 he has been employed with the pe post of serbia and in 2004 he was appointed chief executive director for information technologies, electronic communications and development function of the post of serbia. 72 2016/78management about the author # avlijas:tipska.qxd 1 goran avlijaš singidunum university, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: goran avlijaš, e-mail: gavlijas@singidunum.ac.rs research question: the aim of this paper is to provide a state-of-science review and offer a critical analysis of contemporary schedule related earned value management (evm) approaches. motivation: since the introduction of the evm as a tool for project control in the late 1960s, academics have tried to improve its best application. although this method significantly contributed to efficient cost management, application of evm to schedule management was falling behind. a significant effort has been made to improve its usability for project time management, which resulted in a dramatic evolution. the paper builds on existing literature and earlier studies, adding value with the inclusion of the cost-based and time-based approaches for assessing project schedule performance. idea: the idea of this paper was to evaluate some of the most significant evm schedule control methods and identify open issues. the main study hypothesis is that the most recent approaches provide a more reliable forecast and thus a solid ground for further improvements. data: a case study in the form of a simplified project was used to illustrate how different contemporary approaches compare in terms of conceptualization, methodological issues, and theoretical underpinnings. tools: a combination of statistical analysis and monte carlo simulation was used to evaluate the performance of different evm approaches. microsoft excel was used for data processing, microsoft project and sata software for data visualization, and oracle crystal ball for monte carlo simulation. findings: quantitative analysis confirmed that the project-specific earned duration management (edm) and earned schedule (es) approaches provide sustainable and more accurate results during the whole projects lifespan, while forecasts obtained by more traditional methods proved to be unreliable in the later stages of the project. while practical application generally lags after the growing theory, the latest literature paves the way to the integration of evm and risk management making the contemporary evm approaches stochastic and therefore more realistic. contribution: the results of this study can be used as a basis for introducing advanced and generally more usable evm models, which will improve the project schedule control. keywords: earned value; project duration forecasting; earned schedule; earned duration. jel classification: c53, o22 using earned value management for more sustainable project schedule control doi: 10.7595/management.fon.2022.0011 abstract: 1. introduction although effective project control involves the use of many methods and techniques, just a few of them have experienced such evolution as the earned value management. developed in 1967 by the us department of defence as the cost / schedule control system criteria (christensen, 1990) and later renamed to earned value management (evm) in the late 1970s (fleming & koppelman, 2010), the method earned its true fame in the early 1990s. one of the reasons for the increased attention was the cancellation of the us navy avenger ii program due to the inability to achieve time and costs targets, which was detected by evm (stevenson, 2001). the primary goal of evm is measuring and forecasting actual progress on the project by integrating cost, time, and scope as three key elements of project management. the method considers the work done, the time spent, and the costs incurred to assess the progress of the project based on monetary units. the basic principles of the method and its possible application are broadly represented by many authors (e.g. anbari, 2003; fleming & koppelman, 2010). despite the fact that evm was originally developed for monitoring project costs and time, most of the research effort and application was related solely to cost management. the reason for the less successful implementation in the field of schedule management lies in the nature of the original indicators whose usability decreases in later phases of projects that miss the original deadline. the inability to ensure consistency between forecasted and actual values throughout the whole project significantly limited the use of the evm exclusively to cost management for decades. the limited use of evm for project time management reduced the opportunity of reaching a full potential of sustainable project management. this implies performing a project as efficiently as possible, minimizing different kinds of waste. in other words, benefits of sustainable evm approach stretch beyond the project schedule control, and include having less waste, reduced delivery costs, better use of resources and their skills, economies of mass production, etc. in the last fifteen years several significant efforts have been made towards a wider application of the evm in the field of project time management. some of the key events in this process were the development of planned value method (anbari, 2003), earned schedule method (lipke, 2003), earned duration method (jacob & kane, 2004) and earned duration management (khamooshi & golafshani, 2014), which created an opportunity for further improvements. application of new methods requires the use of different types of inputs and complex calculations, which further questions their actual usability in practice. the goal of this paper is to clarify the application of the most significant methods and evaluate their major benefits and drawbacks using a simplified case study. quantitative evaluation of major scheduling approaches, including the one suggested by khamooshi & golafshani (2014), aims to contribute to better understanding and thus selection of the appropriate approach. this should further result in a more accurate forecast and successful application in practice. the paper is structured as follows. the second section represents an introduction to the concept of the evm, which is followed by four major and some minor improvements related to project schedule management. the third section provides information on methodology used and the description of the simplified project data used for the case study. the last part of the paper includes a practical demonstration of methods, discussion, and a critical review of the obtained results. the paper concludes with additional observations and recommendations for practitioners. 2. theoretical background in this section, the most important theoretical concepts used in this study are discussed. for the sake of clarity, issues related to basic scheduling concept, major improvements, and minor improvements of contemporary approaches were grouped together. finally, table 1 summarizes the concepts used in this paper. 2.1 issues related to basic scheduling concept to evaluate project progress evm calculates two widely known schedule performance indicators, the schedule performance index (spi) and the schedule variance (sv). the sv compares the amount of work done in relation to the amount of work planned, which is calculated as the difference between the earned and planned value, i.e. sv = ev – pv. this is illustrated in figure 1 (ismael, 2013). the spi measures the efficiency of the work, which is calculated as the ratio between the earned value and planned value, i.e. spi = ev / pv. although expressed as monetary value, interpretation of the sv is straightforward. if sv < 0, the project is behind plan as the amount of work earned is lower than planned. similarly, if sv > 0, the project is ahead of plan as the amount of work earned is higher than planned. if sv = 0, the earned work equals planned, which means that the project is executed according to schedule. when the project is completed, the ev equals pv, which means that sv always tends to zero. since spi uses the same inputs as sv, interpretation is very similar. if spi > 1, the schedule efficiency is higher than planned. likewise, spi = 1, means efficiency is equal, and if spi < 1, efficiency is lower than planned. when the project is completed, the spi always equals 1. the behaviour of these two indicators was often criticized by many academics and stated as the main reason for insufficient use in practice. 2 goran avlijaš forthcoming figure 1: illustration of the basic evm concept source: adapted from ismael, 2013 the problem has three dimensions: (1) over the last third of the project sv and spi indicators become unreliable since sv always converges to 0 and spi to 1; (2) sv is not represented in time units, rather in monetary units; (3) sv = 0 or spi = 1 could mean that work is completed, but also that execution is performed as planned. finally, the evm concept considers the linear projection of the activity duration ignoring the situation that the corresponding percentage of the activity duration may require a larger amount of work (browning, 2019). 2.2 major improvements of evm scheduling concept described drawbacks led to the development of several improvements of evm in the past two decades. anbari (2003), lipke (2003), jacob & kane (2004) and khamooshi & golafshani (2014) suggested several key modifications of schedule indicators, and some of their usability was later evaluated and confirmed in the series of articles (vandevoorde & vanhoucke, 2006; vanhoucke & vandevoorde, 2007; lipke, 2009; vanhoucke et al., 2015; avlijas et al., 2015; batselier & vanhoucke, 2015a; batselier & vanhoucke, 2015b). these new approaches have made possible further improvements described in section 2.3, whose evaluation lasts to this day. the following part summarizes some of the key modifications and demonstrates their usability on a simplified project data. 2.2.1. the planned value method (pvm) anbari (2003) stated that the sv can be translated into time units by introducing the planned value rate. the planned value rate is calculated as the ratio of budget at competition (bac) and planned duration (pd). in other words, pv rate = bac / pd and represents the average planned value per duration period. sv presented in time units was named time variance (tv), and is calculated as follows: (1) vandevoorde and vanhoucke (2006) presented a generic formula for estimated project duration as: (2) eac(t) represents the estimated project duration, ad the actual duration and pdwr the planed duration of the work remaining. since pdwr is estimated and depends on project characteristics, some authors distinguish three scenarios that can be applied in situations where the project is not facing irreversible problems i.e. where schedule planning can be useful. these scenarios are: pdwr is according to plan, pdwr follows spi trend and pdwr follows sci trend. although general overview of these measures can be found in the literature (vandevoorde & vanhoucke, 2006), the two most common scenarios that will be considered in this paper are pdwr is according to plan and pdwr follows spi trend. the rest of the paper denotes the forecasts that use the first scenario as eac(t)_1 and the forecasts that use the second scenario as eac(t)_2. according to the described nature of 3 management: journal of sustainable business and management solutions in emerging economies forthcoming pdwr, the following forecasting formulas can be derived for the planned value method: (3) (4) 2.2.2. the earned duration method (ed) the approach suggested by jacob and kane (2004) was named “earned duration method” as it uses earned duration (ed) to calculate estimated project duration (eac(t)). the earned duration is calculated as the product of actual duration and schedule performance index (ed = ad x spi). therefore, the generic formula for estimated project duration by this approach can be given as: (5) performance factor (pf) can be used to account for the project characteristics, i.e. two already described scenarios (pdwr is according to plan, pf = 1; pdwr follows spi trend, pf = spi): (6) (7) in cases where the project is not complete and surpasses the planned duration (pd), in the above-mentioned formulas pd should be substituted by the actual duration (ad): (8) (9) 2.2.3. the earned schedule method (es) the earned schedule method was proposed by lipke (2003) and later improved by lipke (2009; 2011) and elshaer (2013). according to this method, ev at review point is traced backwards or forwards to the pv (schedule baseline). in other words, earned schedule (es) includes identification of pv increment in which ev occurs. this way ev is translated into time units and compares real performance to expected performance. the formula for earned schedule can be defined as: , where n denotes the increment of the pv in time units that is lower than current pv, denotes pv at time n and represents pv at time n+1. the generic formula is: (10)as with the earned duration method, the performance factor (pf) can be used to account for two already described scenarios (pdwr is according to plan, pf = 1; pdwr follows spi(t) trend, presented as pf = spi(t)): (11) (12) 2.2.4. the earned duration management (edm) khamooshi and golafshani (2014) created earned duration management (edm) to address the drawbacks of es which uses cost-based data in assessing project schedule performance. edm is based solely on timebased data for the generation of indicators of physical progress, and it replaces es metric by earned duration (ed(t)). ed(t) represents the projection of the total earned duration (ted sum of the earned durations of all completed and in-progress activities at actual time) on total planned duration (tpd sum of the planned durations of all planned activities at actual time according to the baseline schedule). (13) in order to calculate expected duration based on edm methodology, a formula very similar to the traditional pv method can be used (eac(t)=pd/spi). the only change represents the use of the duration performance index (dpi) as performance factor: (14) dpi indicates schedule performance and how the project is doing in relation to the target completion date. it is calculated and interpreted very similarly to spi(t) as ed(t)/ad. as with the earlier methods, the performance factor (pf) can be used to account for two already described scenarios (pdwr is according to plan, pf = 1; pdwr follows dpi trend, pf = dpi): 4 goran avlijaš forthcoming (15) (16) 2.3 further improvements of scheduling concepts to improve es, lipke et al. (2009) first applied the statistical method, and later extended the technique by considering schedule adherence, performance and occurrence of rework (lipke, 2020). elshaer (2013) suggested integration of evm and schedule risk analysis (sra) through the introduction of activity sensitivity information. batselier and vanhoucke (2017) integrated evm with the exponential smoothing forecasting and developed exponential smoothing-based method (xsm) that achieved performance comparable to the most accurate previous methods. ballesteros-perez et al. (2019) proposed earned schedule min and earned schedule max to prioritize activities and allocate resources to shorten the duration of the project. similarly, hammad et al. (2018) suggested integration of the earned schedule with the theory of constraints, introducing buffer analysis according to task completion (project buffer and feeding buffer). several researchers strived to change deterministic duration prediction using es method into a probabilistic duration prediction (anondho et al., 2018). to improve the accuracy of the edm method, de andrade et al. (2019) introduced a forecasting approach that combines the schedule performance and schedule adherence of the project during execution. khamooshi and abdi (2016) have demonstrated the benefits of using the earned duration index (edi) in combination with the already defined exponential smoothing technique to forecast a project completion date. de andrade and vanhoucke (2017) combined edm and evm and used ed and pv to produce an edm-based project-level earned value (evd). votto et al. (2020) suggested further improvement of edm method and use of control charts to monitor deviations during project execution and to identify special sources of variation, interpreted as evidence of real risk of project delays. roghabadi and moselhi (2020) presented a new risk-based earned duration management model (rbedm) for monitoring and estimating schedule performance of projects considering critical activities only and their associated risk factors. another risk-related improvement included a new triangular intuitionistic fuzzy-edm model to improve the applicability of time performance indices (hamzeh et al., 2020). one of the most recent improvements from aerospace industry include the enhanced-earned value management (e-evm) model with a capacity to detect both delayed and advanced projects by converting times (hours) into monetary units (lopez pascual et al., 2021). another recent study from construction industry proposed the application of ann and mathematical models to earned value management to estimate the schedule indices, which provided excellent results (mohammed et al., 2021). besides risk related improvements and combining different methods, some of the recent studies go beyond schedule and cost constrains and include scope, quality, and resources (liu & jiang, 2020; song et al., 2022). despite many suggested improvements in recent years, the general use of evm is slowly gaining on importance in different industries and practitioners are trying to balance between advanced algorithms and their convenient application (bryde et al., 2018). as the general goal is to keep it simple, this study focuses on the major approaches only. these are presented within table 1. table 1: inputs and terminology used in major approaches 5 management: journal of sustainable business and management solutions in emerging economies forthcoming �������� ���� � ���� � ���� ���� � �������� � ���� ���� � ��� ��� � ���� ���� � �������� ����� � �� ������ �������� � ���� �������� � ���� �������� � ���� � � ���� � ���� ������ �� �� ���� �� ������ �������� � ���� ���� � ��������� � ���� ��� ��������� �� ��� �� � ������������ � ���� ��� ������������� � � ������������ ���� ��� ������������� � � ������������ ���� ��� ��������� �� � �!������ � � "� ��������� �� � �!������ � � "� ������������ �� � �!������ � � "� � � � ����������� ��� �!������ � � "� ��������� �� ���� ������ ��� ����� � � �� ��� ������ �#�$����%� ����%�����&����'� (��� ������ #�$�� ���&��)�%������ ������ �#�$�� ���*����%���� ������ �#�$�� ���*����%������� ������ �)�$� ���'����� ������ )�$�� ���'����� ������ �)�$�� ���*�����%�����'� ������� ������ �)�$���� *�����%��������'����� � 3. research approach and methodology to illustrate the key benefits and drawbacks of the major approaches, a case study in the form of a simplified production planning project was used. the goal of the case study approach is twofold. first, it provides insights into the nature of the required inputs, which further defines usability and reliability of the estimated project duration. second, a controlled case provides a step-by-step analysis and illustrates how different kinds of deviation from schedule impact the accuracy of different forecasting methods. 3.1 illustrative example the goal of the production planning project is to achieve efficient and uninterrupted production flow by a timely product design, materials planning and control, organization of the production facilities (workforce, machines, etc.), achieving optimal allocation and scheduling of resources and coordination of different departments. the project consists of five activities and their attributes are given in table 2. table 2: sample project data product development and design (task a) represents developing and designing a new product with all the features needed for its effective use. forecasting (task b) is the process of estimating future demand. the next step is the process planning and routing (task c), which determines the specific technological steps and sequence in which products will be produced. this task is executed along with the material and tools planning (task d), which determines the requirements of various tools, materials, and subassemblies. finally, loading and scheduling (task e) aim at assignment of jobs to different machines, and determination of timing and sequencing of the work. as can be seen from table 2 and figure 2, the project was completed late. it took 11 weeks to complete the project instead of initial 9 weeks. according to figure 2, the delay in activity a caused the late start of activities c and d. activity d lasted 1 week less than planned, so the planned finish date was accomplished. on the other hand, delay in the critical activity c led to the late start of activity e. additionally, due to an external factor, the start of activity e was postponed by additional 1 week, so the total delay in activity e was 2 weeks. therefore, the critical points to be analyzed are week 4, and week 7, and special focus was put on these points. to calculate some of the indicators for the edm approach, additional activity-based data were derived and presented in table 3. figure 2: tracking gantt chart for the project (black bars – planned, shaded bars – actual) 3.2 methods and tools calculations and graphs presented within section 4 (results and discussion) were done using a microsoft excel and stata software. monte carlo analysis and oracle crystal ball software were used to evaluate the impact of potential extension of activity e on the performance of each of four forecasting methods, and both project scenarios. to quantify the differences in the accuracy of the suggested evm approaches, the periodic forecasts were compared with the final project duration and evaluated by the following measure: (17) 6 goran avlijaš forthcoming ����� ��� � ���� �� ����� �� ��������� ������� ��������� ��� ��� � ������ ��� ��� � ������� �������� ������ �������� ������� ��� ��� � ����� �� �� ������ � ����� � ������� ������� ������� ����� � � �� �� �� ����� � ����� � ������� ����� � ������� ����� � � � �� �� �� ����� � ����� � ����� � ������� ������� ������� �� � �� �� �� ������ � ������ � ����� � ������� ������� ������� � � �� �� �� ������ � ������ � ������� ������� ������� �������� � � �� � mean absolute percentage error (mape) represents the average of the absolute values of the relative deviations between the periodic time predictions (eac(t)) and final project duration (rd). while the mean percentage error (mpe) calculations can result in negative and positive values and measure over and underestimations of the final project duration, mape provides an indication on average deviations in nonnegative value (vanhoucke, 2016). table 3: activity-based project data 7 management: journal of sustainable business and management solutions in emerging economies forthcoming ������ �� �� �� �� �� �� � � �� ��� ��� ���� ������ �� � ���� �� �� �� �� �� �� �� �� �� �� �� �� �� 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������������� ��� � ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� ���� � ���� ������� �������� �� � ��� � ��� � ��� � ��� �� ��� �� ����� ����� ����� ����� ����� ����� � �� ������ ��� �� �� �� �� �� �� �� �� �� �� �� ��� �������� �������� �� � �� �� � �� ��� ��� ��� ��� � � � � � � �� ������� �������� �� � ��� � ��� �� ��� �� �� �� ��� �� ��� �� ���� �� ���� �� ���� �� ���� �� � �� �� �� � 4. results and discussion to compare the performance of four major approaches, all schedule related evm indicators given within table 1 were calculated. figure 3a reveals that the cost-based schedule variance (sv) recorded a negative trend until week 4, which was followed by a positive trend, finally reaching a zero value. on the other hand, sv(t) and sv(tdt) indicators developed by lipke (2003) and khamooshi and golafshani (2014), respectively, have a similar pattern, and show a negative trend that ends with a cumulative variance of 2 weeks, which represents the actual delay. a similar effect can be attributed to schedule performance index and duration performance index (figure 3b). during the early stage (first 3 weeks) and middle stage (next 3 weeks), all three measures exhibit similar values. however, within the last project phase (at the ca. 60% of completion), the spi becomes unreliable and indicates improvement while the project continues to lag. this schedule decline is clearly illustrated by the spi(t) and dpi indicators. (a)(b)figure 3: (a) sv, sv(t), sv(tdt); (b) spi, spi(t), dpi (a)(b)figure 4: (a) pf=1; (b) pf= spi, spi(t), dpi figures 4a and 4b display four different schedule forecasting methods in two different project scenarios (pf=1 and pf follows spi/dpi trend). all four methods demonstrate similar performance in the early and middle project stages. however, earned schedule (eac(t)es) and earned duration management (eac(t)edm) methods clearly outperform the other two approaches during the final project stage. at the same time, very strange results for the planned value method have been recorded once the planned completion time (9 weeks) has been reached and thus cannot be considered as a reliable predictor. the following step in evaluation was inclusion of the stochastic risk-related factor. additional extension of activity e was defined by betapert distribution where optimistic extension was 0, most likely 0.5, and pessimistic 1 week (figure 5). monte carlo simulation was used to evaluate the impact of potential extension of activity e on the performance of each of four forecasting methods (pvm, ed, es, edm), and both project scenarios (pf=1 and pf follows spi/dpi trend). 8 goran avlijaš forthcoming figure 5: betapert distribution for activity e results of the mape calculation were given in table 4. asterisks in the last column indicate the methods producing the smallest error. the pvm approach demonstrates the worst performance in both scenarios and highest forecast deviation (mape=0.1409 and 0.0959). the ed method scores as the second worse (mape=0.1238 and 0.0722). as expected, quantitative analysis shows that es and edm methods outperform the other two methods. specifically, the es method shows slightly better results with both scenarios (mape=0.1004 and 0.0502). mape values of edm approach are very close to es (0.1075 and 0.0539). table 4: mape calculation for different forecasting methods and scenarios generally, edm proved to be a valid approach for project duration forecasting and represents a complement to the already widely accepted and recommended es methodology. when it comes to the performance of es and edm as two most reliable methods, es turned out to be more sensitive to changes, which is clearly illustrated by the curve change on week 7 on both graphs (fig. 4). this can be attributed to the dynamics of es and ed metrics and increments of earned value in monetary and time units. when it comes to the performance factor, all methods recorded much better results with the second scenario (pf= spi, spi(t), dpi), as a delay on activity c was followed by a delay and extension of activity e, without usual corrective actions performed by the management. the results presented in this illustrative case confirmed some of the earlier findings, although there is still no clear consensus in the literature when it comes to the selection and the use of a single approach. in their real-life project studies, vanhoucke and vandevoorde (2007) and batselier and vanhoucke (2015a) stated that es outperforms pv and edm and therefore represents the most reliable metric. a detailed insight into the data used by this study and the obtained results leads to the conclusion that the performance of costbased es and time-based edm largely depends on the dynamics of available inputs, which may differ. the selection of the most reliable performance factor has been another important subject of earlier studies. while the simulation of vanhoucke and vandevoorde (2007) suggested the use of spi(t) as the best performing factor, batselier and vanhoucke (2015b) found that pf = 1 shows the best performance in case of real-life project data. another relevant research employed statistical forecasting and found that schedule forecasting from evm data is improved when the pf = 1 (lipke, 2017). however, some precaution was suggested when real data is used, and thus, some conclusions given in the recent literature should be further examined. 9 management: journal of sustainable business and management solutions in emerging economies forthcoming ������� �� �� ��� ������ � ���� ���� ����� �� �� �� ����� ����� �� ����� � ��� ��� ����� � ��� ���� ������� ���� �� ������� ���� �� ���������� � ��� ��� ������� ���� unweighted methods (i.e. pf = 1) can partially account for possible corrective actions made by managers to improve lagging performance, and this can lead to more accurate forecast than those made with spi, spi(t) and dpi performance factor (batselier & vanhoucke, 2015a). the same authors concluded that the performance of the standard versions of spi(t) based es and dpi based edm is strongly similar. moreover, they provided a slight advantage to dpi-based edm over spi(t)-based es (batselier & vanhoucke, 2015b). the illustrative project has showed that the selection of the weighted method (pf=spi, spi(t), dpi) provides more accurate results with the absence of managerial action that usually put project back on track. a slightly better performance is recorded with spi(t)-based es than dpi-based edm. since validation of these approaches is often based on a limited number of historical cases, willems and vanhoucke (2015) suggested extending the research by using a larger and a more diverse historical dataset or by a well-designed simulation experiment. however, this kind of experiment is difficult to execute due to the nature of the different kinds of input data. other improvements to existing techniques could include a shift from deterministic to probabilistic risk-related approaches (acebes et al., 2015), introduction of other functions (besides time and cost) to evaluate performance more realistically, and development, implementation, and analysis of corrective action procedures, as previously described in section 2.3. references [1] acebes, f., pereda, m., poza, d., pajares, j., & galan, j. m. (2015). stochastic earned value analysis using monte carlo simulation and statistical learning techniques. international journal of project management, 33(7), 1597-1609. doi: 10.1016/j.ijproman.2015.06.012. [2] anbari f.t. (2003). earned value project management methods and extensions, project management journal, 34(4), 12-23, doi: 10.1177/875697280303400403. 10 goran avlijaš forthcoming although the evm method has existed for more than five decades, when it comes to schedule management, scientific community has made an exceptional progress in the last fifteen years. in this paper, some of the most significant evm based project duration methods were presented and evaluated on an illustrative project data. generic formulas that forecast the project duration using different earned value metrics were given and further linked to two different forecasting models (i.e. performance factors). the sample project illustrated the nature of the main contemporary approaches. it confirmed that the es and edm methods generate reliable results during the whole project lifespan and as such provide a solid ground for future improvements. it also confirmed that the forecasts obtained by the pvm and the ed methods become unreliable in the later stages of the project. however, when it comes to choosing between es and edm, there is still no clear consensus within the scientific community. a similar situation is with the selection of the appropriate pf, except that the slight preference is given to unweighted factors since they account for potential corrective management actions in real-life projects. in the observed project es in combination with weighted performance factor (pf= spi(t)) provided better results over edm and (pf=dpi), due to cost-based data that contributed to a more sensitive forecast and the absence of managerial action. this study has shown that a quest for one best approach (es or edm) and scenario (pf=1 or pf= spi(t), dpi) may be in vain, as the performance of different approaches mainly depends on the dynamics of cost and time-based input data and the natural project uncertainty. it is affected not only by the risk we may capture by stochastic modelling, but by risks we were not able to define. it is expected that future research will fully confirm that the selection of the right approach cannot be generalized. this kind of research should include a simulation with multiple early/late project scenarios and multiple stochastic inputs, where both methods will be tested with different performance metrics. however, this study has shown that this kind of experiment is very difficult to set-up, as it requires the use of different types and structures of inputs (cost and time-based). when it comes to managerial implications, a general conclusion is that practitioners should focus on two best performing forecasting approaches (es and edm) and use the one that fits best to project needs. further theoretical efforts should be oriented towards the development of easy-to-use software tools that can facilitate the acceptance and dissemination of findings. these should further encourage practitioners to test described improvements in practice and provide feedback for the future academic efforts. conclusion [3] anondho, b., latief, y., & krishna, m. (2018). probabilistic duration calculation based on earned schedule approach. international journal of civil engineering and technology, 9(5), 1121-1127. [4] avlijas, r., avlijas, g., & heleta, m. (2015). application of earned value based metrics on small-scale construction projects, the european journal of applied economics, 12(2), 1-8, doi: 10.5937/ejae128515. [5] ballesteros-perez, p., sanz-ablanedo, e., mora-melia, d., gonzalez-cruz, m. c., fuentes-bargues, j. l., & pellicer, e. (2019). earned schedule min-max: two new evm metrics for monitoring and controlling projects, automation in construction, 103, 279–290,. [6] batselier, j., & vanhoucke, m. (2015a). empirical evaluation of earned value management forecasting accuracy for time and cost, journal of construction engineering and management, 141(11), 05015010, doi: 10.1061/(asce)co.1943-7862.0001008. [7] batselier, j., & vanhoucke, m. (2015b). evaluation of deterministic state-of-the-art forecasting approaches for project duration based on earned value management, international journal of project management, 33(7), 1588-1596, doi: 10.1016/j.ijproman.2015.04.003. [8] batselier, j., & vanhoucke, m. (2017). improving project forecast accuracy by integrating earned value management with exponential smoothing and reference class forecasting, international journal of project management, 35(1), 28-43, doi: 10.1016/j.ijproman.2016.10.003. [9] browning, t. r. (2019). planning, tracking, and reducing a complex project’s value at risk, project management journal, 50(1), 71–85, doi: 10.1177/8756972818810967. [10] bryde, d., unterhitzenberger, c., & joby, r. (2018). conditions of success for earned value analysis in projects. international journal of project management, 36(3), 474-484.. doi: 10.1016/j.ijproman.2017.12.002. [11] christensen, d. s. (1990). the role of analysis in c/scsc, program manager magazine, july – august, 26-33. [12] de andrade, p. a., martens, a., & vanhoucke, m. (2019). using real project schedule data to compare earned schedule and earned duration management project time forecasting capabilities, automation in construction, 99, 68-78, doi: 10.1016/j.autcon.2018.11.030. [13] de andrade, p. a., & vanhoucke, m. (2017). combining edm and evm: a proposed simplification for project time and cost management, the journal of modern project management, 5(2), 94-107, doi:10.19255/jmpm01410. [14] elshaer, r. (2013). impact of sensitivity information on the prediction of project's duration using earned schedule method, international journal of project management, 31(4), 579-588, doi: 10.1016/j.ijproman.2012.10.006. [15] fleming, q. w., & koppelman, j. m. (2010). earned value project management (4 ed.), project management institute, newtown square, pennsylvania, usa. [16] hammad, m. w., abbasi, a., & ryan, m. j. (2018). developing a novel framework to manage schedule contingency using theory of constraints and earned schedule method, journal of construction engineering and management, 144(4), 04018011, doi: . [17] hamzeh, a. m., mousavi, s. m., & gitinavard, h. (2020). imprecise earned duration model for time evaluation of construction projects with risk considerations. automation in construction, 111, 102993. doi: 10.1016/j.autcon.2019.102993. [18] ismael, h. (2013 january 22). evm earned value management. planning engineer. https://planningengineer.net/evm-earned-value-management/ [19] jacob, d. s., & kane, m. (2004). forecasting schedule completion using earned value metrics revisited, the measurable news, college of performance management, reston, 11-17. [20] khamooshi, h., & abdi, a. (2016). project duration forecasting using earned duration management with exponential smoothing techniques, journal of management in engineering, 33(1), 04016032 doi: 10.1061/(asce)me.1943-5479.0000475. [21] khamooshi, h., & golafshani, h. (2014). edm: earned duration management, a new approach to schedule performance management and measurement. international journal of project management, 32(6), 1019-1041, doi: 10.1016/j.ijproman.2013.11.002. [22] lipke, w. (2003). schedule is different, the measurable news, college of performance management, reston, 31–34. [23] lipke, w. (2009). project duration forecasting: a comparison of earned value management methods to earned schedule, the measurable news, college of performance management, reston, 24–31. [24] lipke, w. (2011). schedule adherence and rework. pm world today, 13(7), 1-14. [25] lipke, w. (2017). assessing earned value management and earned schedule forecasting. college of performance management, 4, 19-27. [26] lipke, w. (2020). schedule performance impact from rework. pm world journal, 9, 1-10. [27] lipke, w., zwikael, o., henderson, k., & anbari, f. (2009). prediction of project outcome: the application of statistical methods to earned value management and earned schedule performance indexes. international journal of project management, 27(4), 400-407, doi: 10.1016/j.ijproman.2008.02.009. 11 management: journal of sustainable business and management solutions in emerging economies forthcoming 12 goran avlijaš forthcoming [28] liu, g., & jiang, h. (2020). performance monitoring of project earned value considering scope and quality. ksce journal of civil engineering, 24(1), 10-18. doi: 10.1007/s12205-020-1054-6 [29] lopez pascual, j., melendez rodriguez, j. c., & cruz rambaud, s. (2021). the enhanced-earned value management (e-evm) model: a proposal for the aerospace industry. symmetry, 13(2), 232. doi: 10.3390/sym13020232. [30] mohammed, s. j., abdel-khalek, h. a., & hafez, s. m. (2021). predicting performance measurement of residential buildings using an artificial neural network. civil engineering journal, 7(3), 461-476. doi: 10.28991/cej-2021-03091666. [31] roghabadi, m. a., & moselhi, o. (2020). forecasting project duration using risk-based earned duration management. international journal of construction management. advance online publication. doi: 10.1080/15623599.2020.1840272. [32] song, j., martens, a., & vanhoucke, m. (2022). using earned value management and schedule risk analysis with resource constraints for project control. european journal of operational research, 297(2), 451-466. [33] stevenson, j. p. (2001). the $5 billion misunderstanding: the collapse of the navy’s a-12 stealth bomber program (1 ed.), us naval institute press annapolis, maryland, usa. [34] vandevoorde, s., & vanhoucke, m. (2006). a comparison of different project duration forecasting methods using earned value metrics. international journal of project management, 24(4), 289-302, doi: 10.1016/j.ijproman.2005.10.004. [35] vanhoucke, m. (2016). integrated project management sourcebook. basel: springer international publishing. doi: 10.1007/978-3-319-27373-0. [36] vanhoucke, m., andrade, p., salvaterra, f., & batselier, j. (2015). introduction to earned duration, the measurable news, 2, college of performance management, 15-27. [37] vanhoucke, m., & vandevoorde, s. (2007). a simulation and evaluation of earned value metrics to forecast the project duration, journal of the operational research society, 58(10), 1361-1374, doi: 10.1057/palgrave.jors.2602296. [38] votto, r., ho, l. l., & berssaneti, f. (2020). multivariate control charts using earned value and earned duration management observations to monitor project performance. computers & industrial engineering, 148, 106691. doi: 10.1016/j.cie.2020.106691. [39] willems, l. l., & vanhoucke, m. (2015). classification of articles and journals on project control and earned value management, international journal of project management, 33(7), 1610-1634, doi: 10.1016/j.ijproman.2015.06.003. received: 2022-01-31 revision requested: 2022-03-20 revised: 2022-07-19 (3 revisions) accepted: 2022-08-05 goran avlijaš singidunum university, belgrade, serbia gavlijas@singidunum.ac.rs goran avlijaš holds the position of associate professor at the singidunum university, where he teaches project management and entrepreneurship courses. he has obtained his bachelor’s and master’s degrees from the faculty of organizational sciences, and earned his phd degree from the singidunum university. he has worked in the distribution sector, project management and management consulting in several multinational companies. he is also a certified project management professional (pmp), the author of two textbooks and numerous scientific papers, as well as a visiting lecturer within the erasmus+ mobility 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 08_maja levi jaksic:tipska.qxd 76 2015/76management maja levi jakšić university of belgrade, facultety of organization sciences, serbia book review udc: 330.141.1(049.32) doi: 10.7595/management.fon.2015.0024 at the very beginning, in their introduction, the editors point out that this volume was inspired by the european year of creativity and innovation and lisbon agenda. the two interrelated events show clearly that europe is targeting innovation and growth of innovation capacity as stated in the purpose of lisbon agenda «to make the eu the most competitive, knowledge-based, economy in the world by 2010.» understanding innovation as the crucial underlying force of global competitiveness is broadly defined as «the creation of better or more effective products, processes, services, technologies or ideas that are accepted by markets, governments and society». this volume brings together academics from universities in europe: belgium, sweden, france, switzerland, portugal, uk, netherlands as well as from the usa, in the effort to shed more light on some of the most important aspects of innovation and creativity. the interdispiplinary and very broad perspective of this volume has brought together scientists in the effort to tackle different and complex innovation and creativity issues at different levels, focusing on specific aspects. the first set of chapters deal with the country level aspects, the second set tackles innovation and creativity at the firm-level, and the third set is focussed on multinational companies. in their study on international trade in disembodied technology, the authors nathalie avallone, severine chedor and jean-louis mucchielli found that there is a trend of growth in international trade in technology based on the balance of payments statistics showing that the volume of transactions is increasing. in addition to innovations being developed internationally, international trade of innovations based on technology diffusion realized by technology transfers and spillovers is also rising. the activities, implications and effects of international trade in technology, especially disembodied technology transfers and spillovers, do not receive due attention and are rather neglected by economists despite their undoubtedly significant role, representing global challenge for countries and firms striving for competitiveness. technology transfer, taking different forms of licensing or selling technology to foreign purchasers is appraised by market transactions. the domain of disembodied technology trade at international level is increasingly important and encompasses international patent licensing, technical assistance, engineering and external r&d services, know-how contracts. the empirical analysis is based on the available data and the traditional input-output analysis of innovative activities. serious limitations to the research are related to difficulties in collecting specific data and also data for the european union as a whole which makes it difficult to highlight any european specificity. this is yet another argument to the conclusion that these aspects have been neglected. the generation, diffusion and utilization of knowledge is also pointed out as the core characteristic of firms and economic activity as a whole by peter teirlinck in the chapter that deals with science, technology and innovation policies and indicators for belgium. the same author emphasizes the accelerated internationalization of innovation, mostly represented by intertwining of regional and national innovation systems. at the same time we witness the emergence of international systems, such as the eu, presenting a new context for innovation policy making. the author points out that «despite the lisbon strategy, europe has been unable to reduce its business r&d deficit within the triad and is challenged by newly emerging economies such as china and india». this author also concludes that research results in the fields of developing measures and collecting internationally comparable data on crossborder r&d and (open) innovation would contribute to better adjusted policies regarding outsourcing, internal and external r&d actions for strengthening innovation capacities and leading to effective r&d. in a different chapter related to the analysis of innovation performance of firms located in belgium the authors show that most r&d in belgium is performed by foreign subsidiaries or belgian multinational groups and that multinationals outperform purely domestic companies, leading to the conclusion that both companies and governments should «take steps towards increasing the internationalization of firms in order to improve their innovativeness.» f. d. beule and y. nauwelaerts, ed. (2013) innovation and creativity, pillars of the future global economy, edward elgar, london 77 management 2015/76 the level and growth of technological knowledge has been proved to be directly related to the level of foreign exposure of firms. in their research on portuguese firms, the authors show that firms that are more globally engaged have a higher ability to innovate. this study has also shown that the access to knowledge information flows has a higher impact on innovation ability than knowledge inputs, concluding that the existing knowledge stock is not uniformely accessible throughout the world. firms could engage more and improve both their accesibility and their capacity for taking advantage of the knowledge and technology. this calls for specific competences to be developed, strengthening the ambidexterity of firms and is related to the capacity to improve firms‘ openness through accessibility and adoption of external technology, at the same time fostering their internal innovative efforts and absorptive capacities. in their study on the effects of basic research on the technological performance of firms in the pharmaceutical sector, the authors demonstrate that firms that perform basic research may benefit from «firstmover advantages» drawing on the analysis of r&d, patent and publication activities of 33 large us, european and japanese pharmaceutical firms. it is also shown that technological performance is a monotoneously increasing function of basic research intensity. in the chapter by cantwell and smeets difference is made between technology seeking and technology exploiting foreign direct investment (fdi) with the important findings that technology seeking fdi arrangements are at least as likely to induce positive productivity effects in the host country as technology exploiting fdi. this is based on the high knowledge spillover potential of technology seeking fdi. recent research in the field of international business has given proof of the fact that developing and diffusing technology throughout the multinational entreprise network «constitutes on of its most important policies and sources of competitive advantage.» katarina blomkvist looks at the reverse side in analyzing reverse technology diffusion from the subsidiary to the headquarters of mne and the main finding suggests an increased speed of reverse diffusion from foreign advanced subsidiaries to headquarters. the results also show that there is a difference beween the observed subsidiaries in terms of the greenfield and competence-creating ones. this is emphasized as supporting previous research arguing that acquisitions are often used in order to gain access to new technologies and that the technological assets and capabilities are under detailed analysis of the headquarters. it is also found that the speed of diffusion from foreign subsidiaries to headquarters is higher from large markets, taking the example of automotive or pharmaceutical industries. following on the theme of these relations, another study presented in this book focuses on the determinants and outcomes of the innovative initiative within foreign subsidiaries in south korea. it is pointed out that «innovation initiative and innovation output are related to long-term goals that can differ from sales growth, which tends to be a short-term goal». it is also concluded that since mnes started investing substantially into south korea since the late 1990s, there have been only a few studies on the ability of south korean foreign subsidiaries to develop innovation initiatives and to contribute knowledge to the multinational network. it has been found that during the time they have developed competences and have started benefiting from the technological base of their host economy. again, like in other studies presented in this volume, it is stated that the limitation of the study is mostly related to the use of available data which acts in a restrictive manner in relation to the number of variables that can be included in the model. an applied case study has been presented by jens meissner and martin sprenger who show linkages between the innovation process and the culture in a large service company. the book gives emphasis to the issues of creativity and innovation as important drivers of competitiveness with a focus on some crucial theoretical results and findings with an explicit reference to practical use and implications. starting from the conclusion that most european firms and regions are not performing well in terms of innovation, despite the proclaimed goals and tasks put forward in lisbon strategy, and despite the commitment to support and achieve these goals, this volume aims at providing valuable material for reversing this trend towards the fullment of lisbon goals. the readers will recognize that this this book has a mission, as an additional specific value, and is to be understood in the context of this mission to help practitioners and theoreticians, managers and policy makers as well as politicians and academics to «gain better and new insights» into how to enhance innovative capacities of countries, regions and companies. receieved: august 2015. accepted: september 2015. #_05_snezana knezevic:tipska.qxd 47 snežana knežević1, ksenija mandić1,aleksandra mitrović2, veljko dmitrović1, boris delibašić1 1university of belgrade, faculty of organizational sciences, serbia 2university of kragujevac, faculty of hotel management and tourism, serbia management: journal of sustainable business and management solutions in emerging economies 2017/22(2) udc: an fahp-topsis framework for analysis of the employee productivity in the serbian electrical power companies doi: 10.7595/management.fon.2017.0011 1. introduction continuous technological progress puts more complex demands before company employees. in this context, the management of the company is expected to activate all relevant components through appropriate organisational structures to increase the productivity of employees. employees can create added value, and this stems from a combination of factors of the situation and characteristics of workers, primarily of a manager, who represents the driving force of the company. stewart (1991) defined intellectual capital (ic) as “knowledge, information, intellectual property, experience – that can be put to use to create wealth”. roos et al. (2005) classify intellectual capital into human capital, organisational capital, and relational capital. according to peng et al. (2007), “intellectual capital is the set of critical resources used by firms to facilitate productive activities and generate economic rents”. employees represent the intellectual equity of the company if they have a sufficient amount of formal education, experience and ability, learned reflex or even talent to react in a crisis and expected situations in order to make more abstract: the aim of this paper is to apply an integrated model, which combines methods of classical and fuzzy multi-criteria decision making (mcdm) in selected six large equity companies from the serbian energy sector. the data considered are retrieved from the official financial statements. four main criteria were analyzed, identified by the previous researchers and pointing to the employees’ productivity: operating income/number of employees, equity/number of employees, net income/number of employees and total assets/number of employees. the contribution of this paper lies in the application of a hybrid model that integrates two mcdm methods: fuzzy analytic hierarchy process (fahp) and technique for order performance by similarity to ideal solution (topsis) to analyse the employee productivity in selected d-electrical power supply companies operating in serbia. the fahp is an effective method for mathematical representation of uncertain and imprecise evaluations made by humans, while the topsis method is an efficient way to rank the alternatives. results show that operating income is of highest importance for estimating employee productivity and decision making, while equity is of the weakest. furthermore, the most productive operations in large enterprises from selected companies of the sector d-electrical power supply are found in the company pc eps beograd, and the lowest are in the ed center llc kragujevac. keywords: employee productivity, serbian companies, electricity sector, fuzzy logic, mcdm methods, fahp, topsis. jel classification: c20, c60, p28, q40, j24 corresponding author: snezana knezevic, e-mail: knezevic.snezana@fon.bg.ac.rs accurate business decisions (lentjusenkova & lapina 2016). this equity merges into the enterprise and creates value thereof. the efficiency of the company is an expression of performance adjustment to market environment and internal operating conditions, which is necessary for the survival, growth and development. the efficiency of enterprises is a synthetic indicator of the output to input relation, i.e., it demonstrates the successfulness of a company in the use of resources at its disposal material and human resources. in this context, it is especially important nowadays that companies develop a mechanism for proper management of the employee productivity. also necessary for this is an appropriate reporting system, both at the enterprise level and at the narrower organisational department one, as well as a strong support of information technology. according to classical economic theory, efficiency is measured as the ratio between one output and one input. however, in practice, this is much more complex as the entities have many different inputs and outputs. the problem arises if you cannot find a common term for them. generally speaking, the principle of efficiency is achieved if there are the highest possible economic effects of output values (output) with minimum economic investment (input). it should especially be borne in mind that in times of economic crises, each company must perceive competitors in order to improve the efficiency of operations. efficiency is measured as the ratio between one output and one input and companies have many diverse inputs and outputs (markovic et al., 2015). productivity is an important instrument for increasing the overall efficiency of banks (andries, 2011) and insurance companies. to manage the productivity of employees in enterprises, it is possible to use different ratios, as follows (knezevic, 2006): • operating income/total number of employees in the company; • operating income/number of full time employees in the company; • operating income/total number of effective work hours; • net income/total number of employees in the company; • net income/number of full time employees in the company; • equity/total number of employees in the company; • equity/total number of full time employees in the company; • net profit/number of organisational units of the company; • net income/total number of effective working hours; • profit centre income/total number of employees in the profit center; • profit centre income/total number of full time employees in the profit center; • profit centre income/total number of effective working hours, as well as many other indicators. “efficiency shows the degree of effectiveness of the companies that have specific inputs (equity and reserves, deposits, borrowings, engaged funds, property) for the production or services to obtain the output values, e.g., revenues and profit” (knezevic et al., 2015). equity and total assets are the key inputs presented in the balance sheet. operating income and net income are the key financial outputs presented in the income statement. inputs and outputs are correlated. as a base for research in this paper four coefficients were used to test the productivity of employees, as follows: 1) operating income/number of employees, 2) equity/number of employees, 3) net income/number of employees and 4) total assets/number of employees. the number of workers can be expressed in two ways, that is, as the strength of the workers who are on the job and as the average number of employees based on working hours. the study includes the sample of six companies among the largest first-ranked by the equity in serbia. the criteria for selection was the high degree of concentration of financial power for companies operating in the same sector (electricity power supply, six top-ranked) and which are classified as large companies. for the selected companies, public accessible, relevant financial information and data were taken from the agency for business registers. there are financial reports of companies published, as well as statistics on the number of employees from the same source (http://www.apr.gov.rs/, 2017). the starting hypothesis of the research is: the use of linguistic variables, which are expressed by triangular fuzzy numbers, allows decision-makers to calculate more realistic weights of criteria and thus enable more effective ranking of alternatives. the aim of this research is to analyse the employee productivity in se48 snežana knežević, ksenija mandić, aleksandra mitrović, veljko dmitrović, boris delibašić 2017/22(2) lected serbian electrical power companies by using fahp-topsis model. within the paper, an integrated model for ranking the companies from the sector of the d-electrical power supply is proposed by four coefficients of employee productivity. this model combines the method of fuzzy mcdm such as fahp and the method of classical mcdm such as topsis. the objective of this paper is to determine the priority weights for four primary coefficients of employee productivity using fahp method; while using the topsis method ranking of the companies from the sector of the d-electrical power supply is performed on the basis of the mentioned coefficients. it is of practical interest to explore how classical and fuzzy mcdm methods can be combined and the manner in which they contribute to the process of ranking. the priority vectors for the selected criteria are set by including the fuzzy mcdm (fahp) method in the research. this method involves the use of fuzzy numbers and thus does not require precise (numerically determined) information. by using this method, it is possible to work with uncertain and imprecise data. on the other hand, using the classical mcdm method, topsis enabled the ranking of companies and in this way it is possible to determine which company is closer to the positive ideal solution or farther to the negative ideal solution. the paper is structured as follows. section 2 presents a brief literature overview about productivity and application of the different models. section 3 points to the used sample and methodology. however, the appendix covers a brief outline of the used fahp and topsis methods. besides, a used model constructed by integrating the presented mcdm methods is also presented. the proposed model allows the ranking of large companies from the sector of d-electrical power supply concerning the productivity of employees. section 4 presents findings, results and discussion. the paper ends with concluding remarks in section 5. 2. literature overview economic engagement of the factors of production in the field of production of goods and generating services where sales price exceeds the costs is more and more in the focus of new entrepreneurship due to increasingly complex operating conditions and tough competition in the market. in this framework, there is a close connection between economics and management in the company and the way their relationship determines their effectiveness and efficiency at the company level. indicators focused on the relationship between a company’s input and output elements are productivity, efficiency and profitability. in the economic theory discussed and in the economic practices implemented there are various quantitative (and qualitative) sets of indicators. productivity should be monitored in relation to the planned size or realisation of similar size (comparable) companies, but the comparison with the leader in the relevant branch should also be monitored. according to knezevic et al. (2012), productivity can be measured as a quotient of one output and one input; then the obtained indices are divided from one period to another. one of the plans of strategic importance for the company is the plan of measures to increase the company’s productivity. according to knezevic (2006), factors of labour productivity in enterprises can in principle be systematised in two parts, objective factors and subjective factors) or in three parts: (1) absolutely objective factors general economic conditions (the pace of development of science and technology, market development); (2) relatively objective factors specific economic conditions in the market (location and capacity of the company, financial strength and business orientation, technology, organisation) and (3) subjective factors of company specific activities – managing company, motivating employees, staff attitudes, working conditions and employees’ living conditions). economic efficiency and an increase of labour productivity are of particular interest due to their importance for progress in any field and level. based on particular research interests issue of productivity can be analysed. there are productivity differences due to many factors (syverson, 2011). in recent years, innovation and new technologies are seen as factors that have a significant influence on productivity and organisational performances (skare and tomic, 2016).there are several methods and models which are used for measuring productivity and efficiency of decision-making units. the most popular methods of evaluation and benchmarking for performances of decision-making units are data envelopment analysis (dea), stochastic frontier analysis and distance based analysis (dba) (çelen, 2013; jayaraman et al., 49 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) 2013). many factors can have an impact on the efficiency and productivity but also can be mutually conflicted. due to this fact, multiple-criteria decision-making (mcdm) is necessary to be implemented. in the literature a multitude of papers can be found that have developed models based on the mcdm methods. in most of the papers, in addition to the classic mcmd method, also used is the theory of fuzzy sets, as an effective way to mathematically represent vague and imprecise human preferences. in recent years, numerous authors applied classical mcdm method in combination with fuzzy methods for choosing the optimal solution: patil & kant (2014) created a fuzzy ahp-topsis framework for ranking the solutions of knowledge management adoption in the supply chain to overcome its barriers. on the other hand, prakash & barua (2015) integrated ahp-topsis method for prioritising the solutions of reverse logistics adoption to overcome its barriers under fuzzy environment. also, zyoud et al. (2016) proposed the integrated fahpftopsis model for dealing with complicated issues in the context of water loss management. hosseini & keshavarz (2017) used fahp and ftopsis for strategic analysis measurement of service quality in the banking industry. to analyse the e-service quality of banking internet özdaðoðlu (2016) combined fahp and ftopsis, while keshavarz et al. (2014) use the same combination of methods for prioritisation of technological competencies to maximise the financial and non-financial performance. mandic et al. (2014) analysed financial parameters of serbian banks through the application of the fuzzy ahp and topsis methods. pramanik et al. (2017) dealt with resilient supplier selection using ahp-topsis-qfd under a fuzzy environment. tadic et al. (2014) evaluated and ranked the organisational resilience factor by using fahp and ftopsis. also, tadic et al. (2013) used the same methods to evaluate quality goals. kannan et al. (2014) used ftopsis for selecting a green supplier. vinodh et al. (2014) integrated fahp-topsis for selecting the best plastic recycling method. lima junior et al. (2014) compared fahp and ftopsis methods to supplier selection. samvredi et al. (2013) integrated fahp-ftopsis to quantify risks in a supply chain. onar et al. (2014) used hesitant ftopsis and interval type-2 fahp for strategic decision selection. therefore, in this paper an integrated model that combines the fuzzy ahp method and classical mcdm method for ranking topsis is applied. the fahp method is used to determine the priority weights of employee productivity criteria being analysed, whereas the topsis method is used to rank the electrical companies in serbia. the application of the classical mcdm method and fuzzy methods for analysing the electrical power supply and distribution sector can be found in the following studies. bas (2013) has proposed the swot-fuzzy topsis methodology combined with ahp for analysis of electricity supply chain in turkey. kabir & sumi (2014) have integrated fahp and promethee methods to select power substation location (case study from bangladesh). on the other hand, et al. (2015) used ftopsis for ranking renewable energy supply systems in turkey. also, zare et al. (2015) analysed the electricity supply chain using ahp and ftopsis. choudhary & shankar (2012) have introduced fuzzy ahp-topsis framework for evaluation and selection of thermal power plant location in india. 3. sample and methods in this section, the integrated multi-criteria model for the analysis of employee productivity in the companies of the sector d-electrical power supply operating on the territory of serbia will be presented. the data considered are retrieved from the official financial statements displayed on the website of the agency for business registers. the study includes the sample of six large companies from the sector d-electrical power supply. four basic criteria were analysed identified by the financial experts pointing to the employee productivity: operating income/number of employees, equity/number of employees, net income/number of employees and total assets/number of employees. the model is created integrating two methods of fuzzy and multi-criteria decision-making such as: fuzzy analytic hierarchy process – fahp and technique for order performance by similarity to ideal solution – topsis. the fahp method uses the priority vectors for decision-making criteria. this method uses linguistic variables and thus enables decision makers to represent the vague statements in a much simpler manner. on the other hand, the topsis method is used for effectively ranking the alternatives based on the distance from the positive ideal solution (pis) and negative ideal solution (nis). a detailed overview of the employed framework is presented in appendix and papers mandic et al. (2017), mandic et al. (2014). 50 snežana knežević, ksenija mandić, aleksandra mitrović, veljko dmitrović, boris delibašić 2017/22(2) 4. findings and results the first step within the fahp method defines the research goal, in our case, „the analysis of employee productivity in the companies from the sector d-electrical power supply operating in the territory of serbia”. for this purpose, four basic criteria of employee productivity were considered: operating income/number of employees, equity/number of employees, net income/number of employees and total assets/number of employees. further, in the second step the priority weights were calculated for each of the criteria individually using the logistical scale of importance (table 1). the linguistic scale of importance (kilincci & onal, 2011) shows the manner in which the linguistic variables convert into triangular fuzzy numbers. table 1: linguistic scale of importance source: author’s analysis within table 2 a comparison is given of four basic criteria of employee productivity using the triangular fuzzy numbers and their reciprocal values, based on which priority weights were calculated (wc) for each criterium individually. table 2: fuzzy comparison matrix for four attributes with respect to the objective and its priority vectors source: author’s analysis table 2 shows that in the process of estimating the employee productivity, the criteria operating income/number of employees has the highest importance with the weight vector of 0.349; the second is net income/number of employees with 0.300, the third is total assets/number of employees with 0.220, whereas the fourth place belongs to equity/ number of employees with 0.131. table 3 shows relevant data for the companies in sector d-electrical power supply retrieved from the financial statements of the agency of business registers. as shown in table 3, six large companies from sector d-electrical power supply were chosen, operating in the territory of serbia. 51 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) linguistic scale of importance triangular fuzzy numbers reciprocal value of triangular fuzzy numbers equal (1,1,1) (1,1,1) weak (1/2,1,3/2) (2/3,1,2) fairly strong (3/2,2,5/2) (2/5, 1/2, 2/3) very strong (5/2,3,7/2) (2/7, 1/3, 2/5) absolute (7/2,4,9/2) (2/9, 1/4, 2/7) criteria operating income/number of employees equity/number of employees net income/number of employees total assets/number of employees priority vector (wc) operating income/number of employees (1,1,1) (3/2,2,5/2) (1/2,1,3/2) (3/2,2,5/2) 0.349548 equity/number of employees (2/5,1/2,2/3) (1,1,1) (2/5,1/2,2/3) (1/2,1,3/2) 0.131118 net income/number of employees (2/3,1,2) (3/2,2,5/2) (1,1,1) (1/2,1,3/2) 0.299606 total assets/number of employees (2/5,1/2,2/3) (2/3,1,2) (2/3,1,2) (1,1,1) 0.219728 52 snežana knežević, ksenija mandić, aleksandra mitrović, veljko dmitrović, boris delibašić 2017/22(2) table 3: values of the companies productivity source: author’s analysis after determining weight vectors for the criteria of productivity of employees using fahp methodology, the next step suggested within this paper is using the topsis method for ranking the companies. within the topsis method, the first phase is normalisation of decision-making matrix, followed by the calculation of the weighted normalised matrix so that the normalised matrix is multiplied by fahp weight vectors for the productivity criteria. then the shortest distance from the pis and the farthest distance from the nis are determined. after calculating pis and nis, it is possible to obtain the similarity coefficients (cci) for each alternative. table 4 presents the display parameters pis, nis, cci and rank for large enterprises. table 4 shows the parameters pis, nis and cci and ranking for large companies. the primary goal of the topsis method is to consider simultaneously both pis and nis distances so that at the end the ideal solution is calculated closest to pis and farthest from nis. table 4: pis, nis, cci and the ranking of enterprises source: author’s analysis table 4 shows that the most productive operations in large enterprises from sector d-electrical power supply were performed by the company pc eps beograd, followed by ebd llc beograd, pc ems beograd, elektrosrbija llc kraljevo, elektrovojvodina llc novi sad and finally ed center llc kragujevac. operating incomes are a key factor in operating profit, and it is of particular importance to financial performance metrics. for measuring the productivity of employees concerning the actual financial performance on an annual basis in the company, operating incomes are an especially important factor for assessing the real efficiency of the companies. the structure of total incomes regarding the allocation, and thus the operating income as its integral part, is made of the expenditures of the production elements (cost of items of work, means of work and labour), as well as gains. the greatest opportunities for increasing labour productivity are precisely in an adequate drive of the human factor. in this sense, gaining even greater importance in the productivity metrics is the operating income criterion. staff motivation is conditioned by the manner of rewarding and incentives implemented by the company management. ������� ��� ��� ������ ��� �� ���� ���� ��� �� ����� ��������� � � ����� ���� ��� �� ����� ���� �� ���� ���� ��� �� ����� ! ������������ ��� ���� ��� � �� ����� ���"�"�� �������� ���##��� $%��$&�'��()*+� #�,�#�-.�-,�� -���/,".�""#� ��/,�.-�/,/�� ,�/��,�."��"� ���0!)�&)'12*�+���� 0)*�2�3�� ��#��./,/�/�� #-����.������ ""�,/.���,�,� �-��//./�"/"� ���0!)�3�23�+1�*�+���� ��31�&*+� "��4"�.-,,-/� #-��,".�#,,� ,"�./�#4�##� ���4�-.��4��� $%��5&�'��()*+� "���4�./�#4�� �#��/#.#,""/� "�#�/.�"/4//� /��,,�."#��,� �+'�+���'��()*+� "4�,#�.��"#/� #-�-"�.�,�,/� "��-/."4��/-� ���-��./#���� �+�%��!*)�+���� 0)*(62�3*%� ,��,-.-�,#-,� #"�#/-.#4��/� /4#.-�-�,#/� �#�-/�.�4�,�� large companies d+ dcci rank pc eps beograd 0 0.464026 1 1 elektrosrbija llc kraljevo 0.44883833 0.035058 0.07244865 4 elektrovojvodina llc novi sad 0.45541963 0.011139 0.02387425 5 pc ems beograd 0.43947313 0.038114 0.07980507 3 ebd llc beograd 0.43712221 0.047745 0.09847014 2 ed center llc kragujevac 0.46402599 0 0 6 it is also necessary to emphasize that excessive workloads placed before the employees can negatively affect the results of the productivity metrics, thus, in addition to monitoring the productivity in the company, the fluctuation of employees should also be analyzed (number of newly admitted workers in relation to the total number of employees, the number of employees who left the company in relation to the total number of employees and the number of replacement workers in relation to the total number of employees). frequent employee fluctuation regarding leaving the workplace may indicate that the employees of a particular company cannot keep the required operating pace as it is defined following the actual standards, in the long run. 53 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) conclusion the primary purpose of this research is to apply a hybrid model which is based on a combination of classical and fuzzy mcdm methods to analyse the problem of employee productivity in electrical power supply companies of serbia. the used model allows for the priority vectors for the selected criteria of productivity of employees to be determined. besides, the model also allows ranking of the selected companies. the results of this paper demonstrate the capability and effectiveness of the proposed model in choosing the most appropriate electrical company in accordance with the analysis the employee productivity problem. in the paper, the integrated model combining the two methods of multi-criteria decision analysis was developed: fuzzy ahp and topsis. as it can be seen from the study, in the first step we determined the priority weights for the four basic criteria of productivity using the fahp: operating income/number of employees, equity/number of employees, net income/number of employees and total assets /number of employees. we have concluded that the most important criterion is operating income/number of employees with a weight vector of 0.349, the second is net income/number of employees with 0.300, the third is total assets/number of employees with 0.220, while the forth place is occupied by equity/number of employees with 0.131. the next step taken in this study is the ranking of large enterprises from sector d-electrical power supply by using the topsis method. this method enabled the determination of the distances of each alternative from pis and nis, and thus an ideal solution was obtained which was nearest to pis and farthest from the nis. among large companies, pc eps beograd was ranked as a company that achieved the best results according to the selected criteria of productivity, followed by ebd llc beograd, pc ems beograd, elektrosrbija llc kraljevo, elektrovojvodina llc novi sad and, finally, ed center llc kragujevac. the electricity market of the republic of serbia remains dominant, depending on the actual trends in the segment of operating incomes, so that in making decisions particular attention should be paid to it, bearing in mind the exposure of the companies to competition risk. having also in mind that the market of the republic of serbia remains distinctive in that it is characterized by the pressure of disloyal competition, which in terms of a small number of market participants and the existence of market concentrations allows a misuse of a dominant position by several largest producers (especially in the case of restrictions on the transmission network), gives the efficiency increase even greater significance. the main limitation of this research, is indicated to be the possibility of obtaining better results by combining two fuzzy 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(2016). a framework for water loss management in developing countries under fuzzy environment: integration of fuzzy ahp with fuzzy topsis. expert systems with applications, 61(2016), 86-105. doi: 10.1016/j.eswa.2016.05.016 55 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) appendix fahp-topsis framework fuzzy analytic hierarchy process (fahp) in order to deal with uncertain and imprecise data, numerous fahp methodologies are proposed in the literature by various authors (van laarhoven & pedrycz, 1983; buckley, 1985; chang, 1996). the fahp method was developed for hierarchical problems solving. it represents a systematic approach to selecting alternatives and solving problems using the concept of fuzzy sets theory (zadeh, 1965) and the ahp method, implemented through the use of triangular fuzzy numbers (chang, 1996). a fuzzy set is a class of objects characterised by membership functions, where each object has a membership function in the interval [0,1]. a fuzzy set is usually mark as “ “, and defined by subset with the membership function . triangular fuzzy numbers are special classes of fuzzy numbers whose membership is defined by three real numbers, expressed as (l, m, u) (dubois & prade, 1978). the symbols (l, m, u) represent the minimum possible value, the possible value and the maximum possible value, respectively. triangular fuzzy numbers are used for the preferences of one criterion over another. therefore, the triangular fuzzy scale of preferences or linguistic scale of importance is given in table 1. the most commonly used is the fahp methodology which was extensively analysed by chang (1996): let be a set of objects, and let be a set of goals. according to the methodology of extended analysis which was set up by chang (1996), an extended analysis of goal gi is performed for every taken object. the values of extended analysis m for each object can be represented as follows: (1) where are fuzzy triangular numbers. chang’s extended analysis consists of the following steps: step 1: the values of fuzzy extensions for the i-th object are given in expression (2): (2) in order to obtain the expression , it is necessary to perform additional fuzzy operations with values of the extended analysis, which is represented by expressions (3), (4): , (3) , (4) in other words, it is necessary to calculate the inverse vector using expression (5): 56 snežana knežević, ksenija mandić, aleksandra mitrović, veljko dmitrović, boris delibašić 2017/22(2) , (5) step 2: the degree of possibility for and is defined by expression (6): , (6) it can be represented in the following manner by expression (7): (7) where is the ordinate of the highest intersection point between and (figure 1). in order to compare and , values of both and are needed. figure 1: the intersection between m1 and m2 step 3: the degree of possibility for a convex fuzzy number to be greater than the k convex numbers can be defined by expression (8): 57 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) = (8) let us assume that expression (9) is true: (9) for . the weight vector is obtained by expression (10): (10) where consists of n elements. step 4: through normalization, the weight vectors are reduced to expression (11): (11) where w does not represent a fuzzy number (büyüközkan et al., 2008; kahraman et al., 2006). topsis method (technique for order performance by similarity to ideal solution) the topsis is one of the most used classical multi-criteria decision-making methods. this method is very useful for real problem solving, providing the optimal solution or the alternatives’ ranking. the topsis ranks alternatives according to their distance from the positive ideal solution (pis) and negative ideal solution (nis). pis maximises the benefit criteria and minimises the cost criteria, while nis maximises the cost criteria and minimises the benefit criteria (). the fundamental principle is that the chosen alternative should have the shortest distance from the pis and the farthest distance from the nis (abo-sinna & amer, 2005; jahanshahloo et al., 2006; shih, shyur & lee, 2007; gumus, 2009). the topsis methodology presented by (hwang & yoon, 1981) consists of the following steps: step 1: the decision matrix is normalised through the application of expression (12): (12) step 2: a weighted normalised decision matrix is obtained by multiplying the normalised matrix with the weights of the criteria, expression (13): (13) step 3: pis (maximum value) and nis (minimum value) are determined by expressions (14, 15): (14) (15) step 4: the distance of each alternative from pis and nis is calculated using expressions (16), (17): (16) 58 snežana knežević, ksenija mandić, aleksandra mitrović, veljko dmitrović, boris delibašić 2017/22(2) 59 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) about the author (17) step 5: the closeness coefficient for each alternative (cci) is calculated by applying expression (18): (18) step 6: at the end of the analysis, the ranking of alternatives is made possible by comparing the (cci) values. (received/accepted) (january 2017 / july 2017) snežana knežević university of belgrade, faculty of organizational sciences, serbia knezevic.snezana@fon.bg.ac.rs snežana knežević was born in pančevo (jabuka), where she finished school of economics. she graduated from the faculty of economics at the university of belgrade, where she also got her msc degree. she got her phd degree at the faculty of organizational sciences at the university of belgrade. her fileds of interest include accounting, financial analysis, and valuation. she is bilingual fluency in both english and french. she has published several monographs and she has produced over 50 papers of scientific and professional orientation in the country and abroad. she is currently working at the faculty of organizational sciences in belgrade, department of financial management and accounting as an associate professor. she is the owner of the agency for accounting and consulting services. ksenija mandić university of belgrade, faculty of organizational sciences, serbia ksenija mandić received her bsc, msc and the phd degrees in faculty of organizational science from the university of belgrade, serbia, in 2006, 2008 and 2015 respectively. she works in telecommunication company crony since 2007. her research interests are decision making theory, supply chain management, multi-criteria decision making methods, fuzzy logic and interpolative boolean algebra. 60 snežana knežević, ksenija mandić, aleksandra mitrović, veljko dmitrović, boris delibašić 2017/22(2) aleksandra mitrović university of kragujevac, faculty of hotel management and tourism aleksandra.stankovic@kg.ac.rs aleksandra mitrović, ph.d., works as a assistant professor at the faculty of hotel management and tourism in vrnjačka banja, university of kragujevac. she completed her bachelor studies in accounting and corporate finance as well as her master studies at the faculty of economics in kragujevac. she got her phd degree in 2016. the fields of her scientific and professional interests are related to accounting and finance. veljko dmitrović university of belgrade, faculty of organizational sciences, serbia dmitrovicv@fon.bg.ac.rs veljko dmitrović works at the faculty of organizational sciences, university of belgrade, at the department of financial management and accounting as assistant professor. he achieved phd degree at the faculty of organizational sciences. he achieved his msc degree in financial management at the faculty of organizational sciences, university of belgrade, and his bsc and ma degrees in marketing management at the faculty of economics in subotica, university of novi sad. so far he has authored and coauthored more than 50 papers published in international and national journals and conferences. he has been involved in several research projects. before the academic career he gained practical experience working for five years in “fidelinka” a.d., subotica. boris delibašić university of belgrade, faculty of organizational sciences, serbia boris.delibasic@fon.bg.ac.rs boris delibašić is professor at the university of belgrade faculty of organizational sciences, serbia. his research interests lie in business intelligence, data mining, machine learning, multicriteria decision analysis, and decision support systems. he serves in editorial boards of several international journals. he is a coordinator of the euro working group on decision support systems. he obtained his phd in 2007 from the university of belgrade. he was awarded with the fulbright visiting scholar grant in 2011. he speaks fluently english, and german, and speaks also russian, french, and italian. his research profile is available at https://www.researchgate.net/profile/boris_delibasic << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 03_natasa petrovic:tipska.qxd 23 tatjana borojević1, drago vuk1, nataša petrović2, dragoslav slović2 1 university of maribor, faculty of organizational sciences, slovenia 2 university of belgrade, faculty of organizational sciences, serbia the level of youth activism: case study of the city of belgrade udc: 316.346.32-053.6(497.11)”2007/2014” 316.64-053.6:32(497.11)”2007/2014” doi: 10.7595/management.fon.2015.0023 1. introduction there is no universally accepted nor one and only definition of “youth”. thus, youth may be defined as a relatively particular ensemble which each society identifies as such, and generally represents the age group, the socalled young generation ranging from 14 to 30 years of age. of course, it is difficult not only to determine and define the age limit of youth and the youths, because the formal definitions of this life age differ among the institutions of the united nations, which define youth “as persons between 15 and 24 years of age” (un, 2015); “european union (eu) the current political definitions of youth from european countries and eu institutions are defined as members of youth groups that are between 15 and 25 years of age, or in some cases between 14 and 30 years of age, with the age limit varying by the field of study, i.e., whether it comes to education, health, employment, financial assistance, etc.” (bendit, 2006). “youth is a particular period of life which signifies not only biological and psychological maturing but also the process of inclusion of an individual into society. during this period young people are expected to develop skills and abilities to be able to take part in all areas of social action. the process of inclusion of an individual into society usually lasts until reaching an adequate level of social autonomy, responsibility and independence” (jović-lazić, 2004). “youth is shorter with those groups of young people who are less educated whereas it is a longer time path to grow up when it comes to young people who receive the longest education. in countries in transition, such as the republic of serbia, prolonged youth is often a matter of intimidation. in regards to how their lives are to be considered the youths in serbia are asking that upper youth limit be defined as thirty years of age.” (conference advisory committee, 2007). “in the republic of serbia, in the national youth strategy, the youths are defined as people between fifteen to thirty years of age. in the republic of serbia there are about a million and a half young people which in comparison to the total population number make twenty percent.” (ministry of youth and sports, 2008). in recent years the current situation in the republic of serbia has been characterized by a severe economic crisis which, with the existence of the transitional development concept, stipulates the general poverty in society, particularly vulnerable population groups which include the young; the challenges they are facing are huge. hence the decision to move the youth upper age limit to thirty years of age. the specifics of the republic of serbia are reflected in the radical systemic changes, i.e., in post-socialist transformation (transition), thus revealing a highly multidimensional process which equally deeply entails management 2015/76 during the period from 2007 to 2014, and in addition to huge institutional changes, large steps were taken in the field of youth policy in the republic of serbia in order to create national resources which would have influence on the improvement of the youth status and life. on the other hand, the practice shows that the existence of the national framework for youth support, as a local service network intended for youths, is not a crucial prerequisite to change the current situation when it comes to improving the quality of life of young people, but that the existence of the critical level of youth activism is a key driving force that leads to changes. this paper presents an overview of the level of youth activism in the city of belgrade. the results show that young people accept a proactive attitude to life when it comes to their personal or family problems and issues whilst the engagement in the social field and especially a political one are not seen as a preferable type of behaviour. keywords: youth, youth activism, participation, level of youth activism economic, political and cultural subsystems of the global society whilst in every-day frame it impacts the living conditions of groups and individuals, redefining their relations, changing behaviours, expectations and perspectives. the status of social devastation that occurs as a consequence of the catastrophic social events (inter ethnic wars, the collapse of the economic system, the deterioration of public services and institutions, value decline...) struck various social aggregates and groups with different intensity (jović-lazić, 2004). the catastrophic social events are not of equal dimensions hence they are not homogeneous. these events are marked with deep cleavages: on one side there are modern and on the other one anti-modern trends; on one side there is the past whilst on the other there is the future; on one side there is parochialism and on the other mondialism; on one side there is an authoritarian regime and on the other there is democracy; on one side there is a traditional opinion whilst on the other there is rationality; on one side there is an ethnic and on the other there is a civil state. the youths are the first to respond to social changes and shifts and they are the first ones who are affected by the consequences of these changes and, in the opinion of a number of authors, the young represent one of the most vulnerable groups in the transition process. furthermore, the importance of youth can be seen in the national youth strategy for the period 2015 – 2025 of the republic of serbia (ministry of youth and sports, 2015): “the republic of serbia recognizes young people and their special and important role in the society. young people are the present and the future of our society, a resource of innovations and a driving force of the development of the society. therefore, it is required that it should be continuously and systematically invested in youth development and that a partnership be established between the young and the state in order to increase the active participation of young people in the society, encourage their social integration and ensure their inclusion in the development of youth policy.” the above mentioned overview of the situation points to the fact that a lot of activities were conducted at the national and local levels so that young people get a greater variety of content which will improve their status. all this resulted in a need to measure and analyse the level of youth activism and participation in a local community, also being addressed in this paper. as a preliminary study based on a case study on attitudes of young people living in the city of belgrade and including 1,427 respondents, the paper showed not only good preliminary results but also provided answers to the following questions: (1) do young people in the city of belgrade accept a proactive attitude to life when their personal or family issues and events are in question and especially when they are not interested in political issues? (2) do young people participate in the work of organizations and institutions to a very small degree even in those which have “youth” as their prefix or are basically intended for young people? (3) is there a significant reserve of the youths against politics and is it true that politics is not a significant subject of interest to the young? 2. youth activism “activism has increasingly become a growing interest among public relations scholars” (ciszek, 2015). activism can be defined as a process in which a group of people: • put pressure on organizations or other institutions to change polices, practices, or conditions that they find problematic (smith, 2005) • strive to raise awareness, change attitudes, and encourage/discourage specific actions (taylor & das, 2010) • target social norms, embedded practices, policies, or the dominance of some social groups (zoller, 2009; ciszek, 2015). also, activism is a term describing a volunteer culture of political participation at various levels, be it a struggle over specific and local issues or a universal criticism of social and political systems, as well as the voice of the young people, gathered around the common idea of making a social change (borojevic, petrovic & vuk, 2014). generally speaking, activism (as well as the specific forms of activism) has its foundation in value orientation wherein it is examined whether or not it is good to be committed both for you and for others. regardless of how absurd the situation might seem where the question of one’s commitment is valued in general, certain social circumstances or characteristics of individuals often lead to fatalism which is manifested in the attitude “no matter what we do, someone else/something else decides for us”. the situation may be even more drastic when it comes to activism towards improving the status of others, to solidarity and altruism. activism as a value orientation is a very complex phenomenon because it contains at least two aspects: 24 2015/76management • activism as a preferable type of behaviour in the process of meeting the interests and needs of others (which is basically founded on altruism or “humane oriented unselfishness”), • activism as a type of behaviour directed towards meeting personal interests and needs (which is basically founded on egoism or “self-centeredness”) (cesid & ministry of youth and sports, 2007). there are different forms of activism aimed at certain social issues such as economic activism (boycotts, strikes), lobbying, media activism, propaganda, nonviolent confrontation, violent confrontation (riots, and even terrorism), demonstrations, petitions, so-called civil disobedience, etc. numerous examples can be found of successful actions that have encouraged the public to think, have raised ethical considerations, have examined the legitimacy of the government and have created a social climate that made it necessary for the politicians, those who make decisions, to change their opinions, and those were successful because they were initiated and accomplished by encouraging enthusiasm, optimism, experience and good will. youth activism has its own forms (hopkins & todd, 2015): • engagements with immigration systems and debates (cahill, 2010; crawley, 2010), • political engagements (hopkins, 2004; hopkins, 2007; horschelmann, 2008), • performance of citizenship (staeheli, attoh, & mitchell, 2013), • everyday emotional geopolitics (pain, panelli, kindon, & little, 2010), • the political worlds of children (elwood & mitchell, 2012; kallio & hakli, 2011; mitchell & elwood, 2013). active participation of the youth in solving local community issues and issues universal to all people at all places is important not only for their healthy growing-up but also for obtaining a better quality functioning of any society. in the context of activism we must mention volunteerism as a basis of activism. volunteerism may be defined as an activity of any individual that can make a contribution in time, skills and knowledge through voluntary actions in order to achieve development and peace (unv, 2015). volunteerism has various forms and meanings. it is heavily influenced by history, politics, religion and culture of a particular region. however, it is possible to determine some key characteristics of what defines each voluntary activity. the common denominators of voluntary work are: • free-of-charge work, • voluntary work, • work that takes a certain amount of time (a certain number of hours of engagement), • work aimed at achieving the well-being of other people (aid directed towards people with whom a volunteer is not in family relations). 3. research methodology the aim of this research is to measure the level of the youth activism in the city of belgrade. for the purpose of the study, the authors used the data from public opinion survey on a representative sample of the young people aged 15 to 30, conducted by the strategic marketing agency for the purposes of the youth office of the city of belgrade (cesid & ministry of youth and sports, 2007).the sample included 1,427 respondents. the multistage sample was designed by making a sample out of 150 polling stations in the city of belgrade which are representative of the level of the capital city. the data were collected by direct interviews with respondents. the methods for studying the levels of youth activism include a theoretical part where the descriptive method was used (collecting literature, reports and internet sources) and an empirical part where the data were gathered during interviews. the research findings are, except for the area of the whole city of belgrade, also representative for the socalled three circles of belgrade which the report names belgrade 1, belgrade 2 and belgrade 3. this division is made on the experience from previous research, i.e., on the basis of the substantial heterogeneity of the capital city in many respects, which is reflected upon the public opinion and indicates significant differences among different areas of the capital. the division is not of administrative nature and is made according to the type of neighbourhood and distance from the city centre. according to this division, belgrade 1 consists of the central city municipalities (novi beograd, stari grad, vracar) and of parts of the municipalities which 25 management 2015/76 are partially included in the central city zone. the second circle, belgrade 2, includes a wider city centre (as well as urban areas of the suburban municipalities (mladenovac, lazarevac, sopot, barajevo, surcin), whilst belgrade 3 covers rural parts of all the municipalities of the city. the description of the research sample is given in table 1. table 1: research sample (resource: cesid & ministry of youth and sports, 2007) the main goals of our research were to obtain answers to three questions: • q1: do young people in the city of belgrade accept a proactive attitude to life when their personal or family issues and events are in question and especially when they are not interested in political issues? (explanation: the assumption that the youth demonstrate a very low level of desire for an active and participatitative exploit in social flows both at the national and local levels (the city of belgrade) is seen in a very low interest of the youth to be involved in the planning process at the level of the city of belgrade which defines the guidelines of the youth policy in the period of five years.) • q2: do young people participate in the work of organizations and institutions to a very small degree, even in those which have “youth” as its prefix or are basically intended for young people? (explanation: having in mind that reducing youth unemployment is one of the national priorities in the field of the youth policy, poor involvement of the youth in the work of organizations and institutions, even those that address the basic issues of the youth, deprives the youth from important information and experience that directly affect the socio-economic status and cause a large percentage of unemployed youth.) • q3: is there a significant reserve of the youth against politics and is it true that politics is not a significant subject of interest to the young? (explanation: the general impression is that the youth are fundamentally uninterested in the political participation, i.e., in a more active involvement in the political life of the city of belgrade believing that “it is not possible to change the current situation” and that political decisions which are crucial to their life are not brought in accordance to their needs but in compliance with the “instant needs of political parties”.) 4. results and discussion activism as a value orientation, i.e., as a desirable and acceptable type of behaviour was researched in such a way that respondents were given a set of ten statements of which five treated activism in an affirmative sense. the other five suggested that social or personal involvement did not make much sense. at the level of value orientation, we can be satisfied with the attitude of the youth in the city of belgrade: • the extent of agreement with the statements that speak about activism in an affirmative sense: as much as 72 percent of the youth claim to be “constantly on the move”, that they cannot sit still and 26 2015/76management gender: 1. female 49 percent, 2. male – 51 percent. age: • from 15 to 19 years of age – 28 percent, • from 20 to 25 years of age – 30 percent, • from 26 to 30 years of age – 42 percent. education (current status): • high school students – 17 percent, • students – 27 percent, • without elementary school or up to elementary school – 3 percent, • occupational school completed – 9 percent, • four-year high school completed – 22 percent, • college completed – 6 percent, • faculty completed – 16 percent. do nothing, or undertake something, or be inactive. the intensity of the statement is strong, because out of this number of respondents 43 percent of them absolutely agree with this statement, while 29 percent tend to generally agree. • the agreement with the statement that they want to achieve in life not only what others expect of them but more than that: 63 percent of respondents assert this attitude. however, every fifth respondent is not sure about this statement while 18 percent of the youth do only what others expect them to do. when we “shift” activism from the personal field to the field of public life, we see that young people are to a large extent sceptical about whether they should be active in social and particularly in political life: • although 40 percent of them agree that ordinary people can influence politics and politicians, more than one-third (36 percent) disagree while one-quarter are indecisive. • less than half of young people believe that politics and politicians can be influenced, which is a worrying fact which speaks not only about the youth, but also about the character of our policy which will be discussed further on in this report. it is a very similar situation with the statement about how it is important to the youth that they can have discussions on social issues: • although there is a predominance of positive response to this claim, the advantage is very small and the responses are almost evenly distributed among those who agree, who disagree and who are indecisive. • to a large number of young people, therefore, it would not be a “handicap” if they were forbidden to talk about social issues. when it comes to the statement about the public appearance, the results show that: • 36 percent of responders declared that they love appearing in public and be engaged in solving problems through speaking publicly. • 38 percent of them were indecisive. • 29 percent of young people expressed disagreement. what causes concern is that: • more than a half of the respondents do not like to deal with social problems; they would rather leave them to someone else. • they themselves were concerned only with their own problems. a very similar situation is with the next statement (although young people constitute “the most rebellious” part of the population): • 46 percent of young would not “uselessly fix up already established mechanisms in society” and thus address social issues. • 26 percent of them may be expected to do such things. in the case of showing interest in the state issues, young people were divided into two almost equal groups: • those who agree and those disagree with the fact that they are not interested in the state issues because they have enough of their own. however, as soon as we get back to the area of personal issues, young people show a remarkable degree of proactive attitude, thus: • more than a half disagree with the fact that we should not try to change anything in our personal lives. • 71 percent do not reconcile with giving up before bigger obstacles. the key aim of this study has been to provide answers to questions about the way that young people treat activism in the city of belgrade. the findings of our research demonstrated that: • as much as 72 percent of the youth claim to be “constantly on the move” that they cannot sit still and do nothing, not undertake anything, or be inactive. the intensity of the statement is strong because 43 percent of this number of respondents absolutely agree with this statement, while 29 percent tend to generally agree. although 40 percent of them agree that ordinary people can influence politics and politicians, more than one-third (36 percent) disagree while one-quarter is indecisive. the point of this finding is that less than half of young people believe that politics and politicians can be influenced 27 management 2015/76 which is a worrying fact as it speaks not only about the youth but also about the character of our policy. more than a half of the young respondents do not like to deal with social problems, they would rather leave them to someone else; they themselves are concerned only with their own problems. although young people constitute “the most rebellious” part of the population, 46 percent of them would not “fix up the situation” and thus address social issues, while 26 percent may be expected to do so. • the results reveal that almost half of the young people (48 percent) have absolutely no contact with either one of organizations, in the form of either passive or active membership. 29 percent of young people show a very low degree of participation which is reflected in their passive membership in at least one organization and at most in three organizations. nor is it possible to say that they are institutionally networked because since passive membership does not necessarily mean anything, is a dead letter, for more than three-quarters of young people (77 percent) we may surely conclude, according to our research, that they are institutionally passive. one-fifth of the young (21 percent) indicate that they participate to a certain level, while 2 percent of young people are active in various organizations, what is more, in several of them. participation in organizations depends on the level of education of young people or their current status in the educational process. those who are now students show the highest level of formal networking in an institution, and then there are high school students, i.e., those who still do not work and who obviously have more time and need for additional engagement. those who have completed their education already work or are occupied with finding a job and have no special interest in engaging in an organization. participation in organizations obviously does not depend on the level of education, in the sense in which it is expected that those who have completed a higher level of education are more active, because it showed that those with higher or university education are at an average level in terms of participation in the work of organizations. participation in organizations, therefore, depends more on the amount of free time and on how that time is organized. • on an average, a quarter of young people are regularly informed about politics through the media (26 percent), slightly more than a half of them get informed from time to time (55 percent) and every fifth respondent (19 percent) never does it. this number is significantly different in the groups of young people – being informed about politics through the media increases with the age of the respondents. further on, only 14 percent of young people regularly talk about politics with friends; half of them do it sometimes, and a third of them never. again, age is a significant correlate of this indicator of political participation. the third indicator means interest in politics at a crucial political event, such as elections. half of young people (49 percent) do not follow anything in relation with elections, and this is broadcast by media; 38 percent do so sometimes, and only 13 percent regularly. in this respect, also, the youngest show the least interest. 28 2015/76management the results of our research showed that the youth accept a proactive attitude to life when their personal or family issues and events are in question, but that they do not see engagement in the social field and especially in a political one as a preferable type of behaviour. more precisely, they do not reject it a priori but believe that this type of engagement cannot lead to the desired outcomes. this, on the one hand, tells about the young people who cannot connect what happens in their lives with the general social and political developments. a number of them simply do not see themselves as “deeply rooted” in the system in which they live as though they did not share the fate of that system and as though they had no direct influence onto what occurs somewhere far away from them, against their will and desire. on the other hand, these findings do not speak only of the “guilt” of the youth for this attitude but also about a system that maybe does not ensure enough conditions for the youth to feel like they are part of the system and the community to which they belong. a very small number of respondents only 2 percent showed a completely passive attitude towards issues of personal and social activism. slightly more than one-third 35 percent was mainly passive, and almost one half of respondents – 48 percent, showed a moderate pro-active attitude. finally, 15 percent claimed to be highly active in every type of engagement and acting. our results also pointed out that the strategy of each country is to allow the youth to achieve their goals in life and provide assistance to them in finding their place in the society. the level of youth activism, both in personal and social life, is one of the basic criteria determining whether the opportunities, being provided for young generations by the society, will be adequately exploited. finally, it can be concluded that: “when youth are engaged, particularly when empowerment and development opportunities are provided, there are multiple benefits for society” (maconachie, 2014; powers & tiffany, 2006; ho, clarke & dougherty, 2015). conslusion references [1] bendit, r. (2006). youth sociology and comparative analysis in the european union member states. papers: revista de sociologia, (79), 49-76. [2] borojevic,t.,petrovic, n.b., & vuk, d. (2014). youth and environmental education for sustainable development. international journal of science and research (ijsr), volume 3 issue 9, september 2014, 57-62. [3] cahill, c. (2010). ‘why do they hate us’: reframing immigration through participatory action research. area, 42(2), 152-161. [4] center for free elections and democracycesid & ministry of youth and sports. report on the active participation of young people in societal life. belgrade: ministry of youth and sports, 2007. (in serbian) [5] ciszek, e.l. (2015). bridging the gap: mapping the relationship between activism and public relations. public relations review. doi:10.1016/j.pubrev.2015.05.016. [6] conference advisory committee. valjevo, november 2007. (in serbian) [7] crawley, h. (2010). ‘no one gives you a chance to say what you are: finding space for children’s agency in the uk asylum system. area, 42(2), 162-169. [8] elwood, s., & mitchell, k. (2012). mapping children’s politics: spatial stories, dialogic relations and political formation. geografiska annaler: human geography, 94(1), 1-15. [9] ho, e., clarke, a., & dougherty, i. (2015). youth-led social change: topics, engagement types, organizational types, strategies, and impacts. futures, 67(2015), 52-62. [10] hopkins, p. (2004). young muslim men in scotland: inclusions and exclusions. children’s geographies, 2(2), 257-272 [11] hopkins, p. (2007). global events, national politics, local lives: young muslim men in scotland. environment and planning a, 39(5), 1119-1122. [12] hopkins, p., & todd, l. (2015). creating an intentionally dialogic space: student activism and the newcastle occupation 2010. political geography, 46(2015), 31-40. [13] horschelmann, k. (2008). populating the landscape of critical geopolitics young people’s responses to the iraq war (2003). political geography, 27(5), 587-609. [14] jović-lazić, a. activity of unesco and membership of the state union of serbia and montenegro. yearbook 2000–2003, belgrade: association for the international, 2004. (in serbian) [15] kallio, k. p., & hakli, j. (2011). tracing children’s politics. political geography, 30(2), 99-109. [16] maconachie, r. (2014). dispossession, exploitation or employment? youth livelihoods and extractive industry investment in sierra leone. futures, 62(part a(0)), 75-82. http://dx.doi.org/10.1016/j.futures.2013.08.003. [17] ministry of youth and sports (2008). national strategy for youth. retrieved from http://www.ombudsman.pravadeteta.compercent2fattachmentspercent2f286_nacionalnapercent 2520strategijapercent2520zapercent2520mlade.doc&ei=tugvzv0m8gmsagy2b6wcq&usg=afqjcnhv9oqmeak0ie11-hmcf8qyisgvwg&sig2=trxeobwh11 wsdmt47npjog&bvm=bv.96339352,d.bgg. (in serbian) [18] ministry of youth and sports (2015). national youth strategy for the period 2015 – 2025. retrieved from http://www.mos.gov.rs/wp-content/uploads/download-manager-files/nsmpercent2020152025percent20englishpercent20.pdf. (in serbian) [19] mitchell, k., & elwood, s. (2013). intergenerational mapping and the cultural politics of memory. space and polity, 17(1), 33-52. [20] pain, r., panelli, r., kindon, s., & little, j. (2010). moments in everyday/distant geopolitics: young people’s fears and hopes. geoforum, 41(6), 972-982. [21] powers, j., & tiffany, j. (2006). engaging youth in participatory research and evaluation. journal of public health management and practice, 12(suppl. 6), s79-s87. [22] smith, m.f. (1997). activism. in r. l. heath (ed.), encyclopedia of public relations (pp. 5–10). thousand oaks, ca: sage. [23] staeheli, l., attoh, k., & mitchell, d. (2013). contested engagements: youth and the politics of citizenship. space and polity, 17(1), 88-105. [24] taylor, m., & das, s. (2010). public relations in advocacy: stem cell research organizations’ use of the internet in resource mobilization. public relations journal, 4(4) http://www.prsa.org/intelligence/prjournal/documents/2011falltaylordas.pdf. [25] united nations – un (2015). definition of youth. retrieved from http://www.un.org/esa/socdev/documents/youth/fact-sheets/youth-definition.pdf. [26] united nations volunteers – unv (2015). how to volunteer. retrieved from http://www.unv.org/how-tovolunteer.html. 29 management 2015/76 30 2015/76management about the author zoller, h. (2009). narratives of corporate change: public participation through environmental health activism, stakeholder dialogue, and regulation. in l. m. harter, m. j. dutta, & c. e. cole (eds.), communication for social impact: engaging communication theory, research, and pedagogy (pp91–114). cresskill, nj: hampton press. receieved: august 2015. accepted: september 2015. ‘ tatjana borojević university of maribor, faculty of organizational sciences, slovenia tatjana borojević is a phd student at the faculty of organizational sciences, university of maribor, the republic of slovenia. she has over 13 years of work experience in the fields of social policy, youth policy and reform of public administration, based on civil society strengthening, local government capacity building and community development. the key areas of her interest are decentralisation processes in the republic of serbia in the fields of social and youth policy with specalisation in the social aspect of transition. drago vuk university of maribor, faculty of organizational sciences, slovenia dr drago vuk is a full professor at the faculty of organizational sciences, university of maribor, the republic of slovenia, where he acquired his ph.d. (1986) degree in environmental management. the areas of his research include: environmental management, environmental science, sustainable development and environmental education. nataša petrović university of belgrade, faculty of organizational sciences,serbia dr nataša b. petrović is a full professor at the faculty of organizational sciences, university of belgrade, the republic of serbia, where she acquired her m.sc. (1999) and ph.d. (2002) degrees in environmental management. the areas of her research include: environmental management, environmental science, sustainable development, green marketing, environmental education and education for sustainable development, environmental risk management, energy efficiency, management skills for environmental managers, public participation in environmental protection. dragoslav slović university of belgrade, faculty of organizational sciences,serbia dragoslav r. slović is an associate professor at the faculty of organizational sciences, university of belgrade, the republic of serbia. he graduated and received his phd degree in industrial engineering and management from the university of belgrade faculty of organizational sciences. the key areas of his scientific interest are performance and compensation management and production efficiency increasing by the application of continuous processes improvement, lean and kaizen approach and fundamentals of industrial engineering. 1 mirjana petković1, dubravka djedović-nègre2, jelena lukić3 1university of belgrade, faculty of economics, serbia 2european investment bank1, luxembourg 3parallel d.o.o., belgrade1 management 2015/77 public-private partnerships: interorganizational design as key success factor udc: 658.114.2 005.53:005.591.45 doi: 10.7595/management.fon.2015.0028 1. introduction public-private partnerships (ppps) are a current topic in academic, professional and political circles of the modern era, in both developed and less developed countries. for serbia, this issue is of particular importance, since it is a low income country that has no potential to independently implement large and expensive projects that are a precondition for attracting investors, increasing employment, providing better quality of life, as well as social and political stability. in order to be implemented, the road infrastructure, railways, power plants, municipal landfill sites and many other expensive projects often have to be supported by various forms of partnerships. this model of implementation of large, complex and expensive ventures is not a novelty. from ancient greece and rome and byzantium, the great monarchies and republics, people have sought to develop and improve infrastructure as a necessary precondition for the development of all economic activities. in parallel with the development of technology, new needs of society emerged, the existing infrastructure was becoming outdated, and the new one was increasingly expensive to invest into and maintain. since the mid-twentieth century, and especially since the beginning of the 90s onwards, there is a need for alternative ways of financing large and expensive projects in which the public sector is traditionally interested, perceiving them as a possibility to improve economic growth and employment at the national level. however, as countries were increasingly faced with limited budgetary resources for financing public needs, the establishment of interorganizational relations with the private sector seemed an all the more attractive strategy. namely, establishing relations with employers, who carry out their business in different sectors of the economy and who have excess capital and interest to invest in large and expensive infrastructure projects, is seen as a life-saving solution for many countries which have become aware that ppp is the only way to renew their infrastructure and to build new facilities of public importance. 1expressed opinions are personal. public-private partnership (ppp), as a current topic in theory and practice, has mostly been treated from the perspective of legislation and recognized by classical macroeconomic paradigm. the aim of this paper is to open a new aspect of dealing with this topic, both organizational and managerial. the paper underlines the importance of organizational design in a ppp, because experience has shown that without strong organization, coordination, defined rules and principles, there is no successful outcome and initiatives amount to a failed attempt. this is why interorganizational relations require well defined organizational architecture where it is clearly determined who, what, how and by when needs to deliver. in a ppp, this is achieved through a contractual framework and the creation of a special purpose company (spc). the paper also affirms a new managerial position ppp manager that apart from the general managerial skills and knowledge needs to be specialised in managing ppps. keywords: public private partnership, interorganizational design, coordination, formalization, ppp manager this strategy has become so widespread in practice it can even be said that the ppp has led to a real revolution in relation to traditional financing of public services in much of the world. however, regardless of this, it is symptomatic that there is still a lack of scientifically based analysis and descriptions of ppps from which it could be seen how issues of organization and management are regulated, as well as which organizational model is a good support for the partnership. even fewer are the analyses of the effects of the partnership. in this regard, attention in this paper is particularly paid to the matter of choosing the shape of the organizational forms of partnership, management models and side effects of interorganizational relations established between the partners. the reason for this is an undoubted fact that in any business, organizational design is a key success factor. in this sense, the objective of this study is to analyse the role and significance of interorganizational design that should be a support for the accomplishment of the established partnership goals. the initial research questions are: (1) can interorganizational relations in a ppp be supported by the traditional forms of organizational design, which are known as hierarchical structures? (2) does ppp require a new design with a looser structure and more flexibility? (3) if ppp is a loose structure, how to ensure coordination and authority? and (4) does managing a ppp involve specific managerial skills and abilities, and which ones? first, we will present the key features of the basic elements of a ppp, as well as the motives for their establishment from the perspective of the public and private partners. then we will highlight the importance and role of interorganizational design that needs to support and assist the realization of ppp objectives, with special reference to the specifics of coordination mechanisms, the degree of formalisation of the participants’ behaviour, authority holders and their competences. 2. public-private partnership: key characteristics and principles public-private partnership is characterized by long-term cooperative and legal relations established between the public and private sectors with a view to plan, design, finance, build and manage the projects that belong to the domain of public services. a key feature of ppp is cooperation, as the ability of people and organizations from the private and public sectors to work together and combine what is best from these two sectors (davey, 2010) and achieve multiple benefits by joint actions (holland, 1984). through long-term cooperative relations between public and private organizations, ppp has a number of advantages over the traditional reliance on the public sector (ho, 2006) that realized it could no longer cope on its own in meeting the growing needs of modern society (handy, 1990). these advantages are reflected through (osborne, 2000): 1) synergy effect, because the sum of the joint work of partners is higher than the sum of the results that the partners would independently achieve; 2) shared leadership, in which partners alternate in the role of leadership in individual phases of the project, depending on the required knowledge, skills, experience and competences they possess; 3) creating value for the community. in this sense, one can speak about the characteristics of a ppp, which have become eventually manifested as distinctive features of ppps (see table 1). table 1: key characteristics of ppps source: adapted from yescombe, e. r. (2007). public-private partnership, principles of policy & finance. london: yescombe consulting ltd. 2 2015/77management key characteristics of public-private partnership 1) ppp is a contractual relationship with defined rights and obligations between the public and private partners; 2) ppp engages the two sides in the long term usually over 10 and 15 years, and sometimes up to 30 years; 3) ppp requires capital investment by the private partner; 4) in ppp the services are provided at the level defined by the public partner; 5) in ppp the ownership of capital goods lies in the hands of the public partner; 6) in ppp the private partner receives compensation from the public partner or the users of capital goods for the provision of services and contractual obligations; 7) in ppp the allocation of risk between the public and private sector is defined. through the so-called traditional procurement of public services and infrastructure, the public sector has a role of the contractor and financier, where the infrastructure is built separately from its management and maintenance. state ministries and public authorities announce a call for the construction of infrastructure and pay the compensation for the construction from their own budgetary resources. after the completion of the project, public service and maintenance are provided by the public sector through its employees or through contracts with specialized operators. ppp brings all these activities together, so that the public sector appoints one contractor through a public call that, associated with several specialized partners in specific areas – finances, constructs – maintains and organises the provision of services in the long term based on the contractual relationship with the public partner. one of the driving goals of ppp is to utilize the management expertise, business practices (rules and procedures), financial capability and efficient organization of the private sector with the aim of providing public services better and more efficiently than the public sector (yang, hou, & wang, 2013). however, it is important to emphasize that the ppps go a step further than the contractual obligations of public and private partners. a public authority or the competent ministry is not just a client to a private entity, but also a partner that bears a part of the project risk. in each of the project stages, the public partner has different roles. the public authority performs an analysis of public needs, adopts national development and sector strategies by which it identifies investment needs and announces public tenders, prepare a draft of concession or ppp agreements. in addition, the public partner defines the performances and standards the private partner is to achieve, oversees the implementation of tasks and monitors the availability of public services in line with national and project objectives. on the other hand, the private partner undertakes to build, fund, manage capital goods and maintain them by such standards as defined by the public partner in a ppp agreement. the private partner establishes a special purpose vehicle or company (spv/spc), which may be its individual ownership or a shareholding of different companies selected through a public tender to implement ppp projects. 3. interorganizational design as a public private partnership’s success factor viewed through history, certain forms of organization have been conditioned by economic, technological and social circumstances (miles & snow, 1992). the ppp is undoubtedly the kind of strategy based on interorganizational relationships, which consequently implies finding an appropriate organization design to support ppp objectives. classic chandler’s rule that “structure follows strategy” (chandler, 1962), here reflects that the ppp as a business strategy should involve an appropriate organization. this rule implies that the strategy of ppp requires layered organizational adjustments of partners. unfortunately, only the most advanced managers pay organizational design appropriate attention, because they have learned through experience that without good organization even the best projects come down to mere attempts. up to today, studies of ppps have been focused on the benefits achieved by pooling: reduced costs, increased productivity, synergistic effect, risk-sharing between the partners, a shorter time needed for the project realization and the like (jamali, 2004; roseneau, 1999; zhang, 2005). mostly, the focus has been on direct economic effects that can be quantified, while at the same time it is ignored that behind this stands a particular organization and management. in addition, the importance of indirect effects that are manifested much later, such as the adopted work technologies, new knowledge, standards, leadership, culture, human resources policies, and other so-called invisible dimensions of organization, are unjustly neglected. organizational components of ppp functioning are placed in the background, and many ppps fail precisely because they are not well managed, because they do not have an appropriate organization as support, nor clearly enough defined coordination mechanisms of project participants. in the process of choosing a model of organization and creation of its components, the specificity of ppp should be respected (see table 1), meaning that organizational solutions from other companies should not be copied, as managers and consultants often do. organizational design is by nature an unstructured problem in which it is necessary to reconcile the interests of different stakeholders (grandori, 2002), which is particularly evident in the ppp where there is a large number of participants from both the public and private sectors that have different interests and organizational characteristics. public organizations differ from the private ones in many features (van der wal, de graaf&lasthuizen, 2008). first of all, public organizations have higher levels of bureaucracy and formalisation, their operation depends on a number of other organizations, operational efficiency is lower, while managers have not only a much lower degree of freedom in making decisions, but most often lack managerial 3 management 2015/77 skills and abilities (rainey & bozeman, 2000). therefore, it is more difficult for public organizations to change their usual way of functioning and switch from the hierarchy and isolation to cooperation and openness by entering into a ppp and changing the key elements of the established organizational design: strategy, structure, business processes, human resource policy, reward system (kates & galbraith, 2007). interorganizational design should enable all partners in the ppp to accomplish their objectives, but also the objectives for which they entered the interorganizational relationship (osborn &baughn, 1990), because they bring in their specific resources space, technology, people, knowledge, and access to new markets (delgado, porter, & scott, 2010). in the internal organizational design there has to be a repositioning of employees and changes in their roles, and then an external organizational design is created, from which arise various manifestation forms of interorganizational design, usually in the form of:interorganizational networks (miles & snow, 1992), interorganizational teams (stock, 2006), meta (informal) organizations (gulati, phanish, &tushman, 2012), and organizations oriented to the actors (fjeldstad et al., 2012). these organizational forms differ from the traditional structure models in their ability to adapt to the conditions in which partnership projects are realized (jaško, jaško, &čudanov, 2010). in this respect, their efficiency is enhanced due to the fact that by decentralising the decision ensuring that they clearly address responsibility and authority. decisions are made by those who have the greatest knowledge and have the best information, which in turn leads to greater self-reliance of individuals and teams (petković&lazarević, 2012; mijatović, 2014; petković, aleksić-mirić, &čudanov, 2014). in interorganizational relationships such as ppp, the research focus should be shifted from individual organizations to a wider and larger ecosystem such as partner networks (figure 1) in which individual organizations become only nodes that have the same goal successful implementation of the project (o’callaghan, 2005). figure 1: interorganizational design source: adapted fromhiggins, k. l., &maciariello, j. a. (2004). leading complex collaboration in network organizations: a multidisciplinary approach. in m. beyerlein, d. johnson & s. beyerlein (eds.), building the capabilities for working across boundaries, elsevier, vol. 10, pp. 203-241. interorgranizational design, as illustrated in figure 1, includes the establishment of cooperation between a large number of participants that can be organizations, teams or individuals (alvesson & thompson, 2005; zammuto et al., 2007). in a ppp, this is achieved through the establishment of a special purpose vehicle or company (spv/ spc) whose aim is to gather, often virtually, all the ppp participants. the primary task of an spc is the realization / implementation of the project which is the subject of the ppp or the concession agreement. the spc is the main hub of the realization of a ppp project through which most of the decisions are made, in accordance with the contractual provisions (figure 2). 4 2015/77management figure 2: ppp model example for a road concession source: adapted from yescombe, e. r. (2007). public-private partnership, principles of policy & finance. london: yescombe consulting ltd., p. 9 from the previous review, it is clear that the traditional organization in its original form cannot be applied to the ppp as its basic model of organization, because it does not provide the necessary flexibility and dynamism. however, it cannot be a priori rejected either, because each organization, including the ppp needs rules and procedures, discipline, responsibility and authority. compared to traditional forms of cooperation such as alliances, ppps differ considerably because ppp participants do not have the same organizational structure. one partner is from the public sector, while the other is from the private sector. also, the results of a ppp are always related to value creation for third parties, or a society as a whole (zhang &jia, 2009). it follows that the organization of the ppp through a special purpose company (spc), which is established for the purposes of implementing the ppp project, must be some sort of a hybrid organization (snow et al., 1993). as a rule, these are matrix structures based on different types of teams (expert, working, homogeneous, heterogeneous, virtual, and global). matrix structures provide necessary conditions for the successful functioning of the ppp. in the first place, it is the transfer of knowledge and learning in teams, and then the necessary coordination and integration of the undertaken activities. in addition, matrix structures are suitable for the development of a team leadership, or a co-leadership. on the other hand, the matrix structures have disadvantages in terms that they are not suitable for the stability of organization and routine behaviour, which the employees in the public sector are inclined to, so that can create an atmosphere of instability, uncertainty and insecurity, which does support the increase in labour productivity. therefore, it is necessary to prepare the human resources for teamwork in advance, especially due to the presence of employees from different departments of the public partner, who may be good individual experts, but not used to teamwork. therefore, it is necessary to organize trainings for the ppp participants, in order to prepare them to carry out project tasks successfully. interorganizational design that supports the ppp, in addition to the classic issues of micro organization of the work process, also involves the behavioural dimension of the ppp, where trust among partners is of crucial importance. there are few works on this subject, and yet in the few professional publications it can be seen that this dimension is greatly highlighted, namely, that without trust there is virtually no partnership. the partnership is entered into with trusted partners (zhang &jia, 2009). when establishing interorganizational relations, the concept of trust refers to the trust that exists among all participants (zhang &jia, 2009). trust in a partnership is an expectation that the other party will fulfil its obligations in a previously defined manner (zaheer, mcevily, &perrone, 1998). in ppp initiatives, it has been proven that the key elements of trust are (smyth &edkins, 2007): expectations from the other party, belief that the other party will behave in an agreed manner, hope that the other party will behave as defined, and the reliability of partners (their confidence). 5 management 2015/77 6 2015/77management tasks and responsibilities managing the ppp implementation consulting all line managers relevant to different project stages forming and managing project teams monitoring the flow of spent and available resources and reporting to relevant entities managing information systems necessary for the process of planning and implementing the further course of the project monitoring the results of individual project stages solving conflicts, motivating the participants 4. coordination mechanisms in ppp the presence of a large number of participants in a ppp increases the need for clearly defined coordination mechanisms, because poor coordination between public and private partners, as well as poor coordination within each of these groups would inevitably lead to problems in the project implementation, exceeding deadlines and increased costs. key participants that commonly occur on the part of the public partners are technical, financial and legal advisors, while on the side of the private partners there are, in addition, architects, constructors, and operators (robinson, 2010). apart from them, a number of other participants play a role in a ppp, such as banks and creditors, insurance companies, independent auditors, subcontractors, various other advisers, etc. coordination is a mechanism for integrating the efforts of individual parts of the organization towards a single goal. traditional mechanisms of coordination (mintzberg, 1980) direct supervision, mutual adjustment, standardization of inputs, outputs, knowledge and skills are being increasingly replaced by the so-called soft organizational instruments such as organizational culture and leadership (jones, 2012; burton &obel, 2004). in addition, with the influence of modern technology and the appearance of complex forms of labour, there has been the emergence of entirely new forms of coordination mechanisms such as informal groups, electronic communication, teams, integrating managerial positions (coordinators), dual (matrix) reporting forms (galbraith, 2014). a key coordination mechanism of a ppp is a concession or ppp agreement, which defines the rights, obligations and responsibilities of all participants. however, in practice, the agreement is usually not sufficient and it is not the only guarantee of success because partners enter into conflicts, breach of contract and disputes. a high level of integration in the ppp can be achieved by soft organizational instruments, such as organizational culture, leadership, trust, and communication. for this reason, it is of great importance for all the participants in the ppp that there are managers (coordinators) who will play an integrative role and will be engaged full-time in the distribution and control of the tasks performed by all participants of the ppp that make a team with a common goal. as this is a partnership between public and private partners, both sides have to be represented in the project leadership. this is why the concept of co-leadership is very important. management of the ppp is the responsibility of the ppp managers, both on the public and the private sector sides. this position is critical to the success of a ppp. therefore, it cannot be occupied by managers without required references. all stakeholders in the partnership should have their ppp managers with specific knowledge and experience. in this respect, the position of a ppp manager involves certain responsibilities, such as resource allocation, cooperation between different project participants, coordination of the project participants public partners, private companies (the so-called sponsors), creditors, consultants and advisers, monitoring project implementation, reporting on the stages of implementation, etc. in addition, managers’ tasks are focused on the co-ordination of roles and responsibilities of individual participants in the project. consequently, the position of a ppp manager requires a multidiscipline (possession of professional knowledge in the field of the project but also the so-called soft business skills) and experience in the field of the project2. table 2: key tasks and responsibilities of a ppp manager source: authors 2 for more information look in: innovative program delivery (2012) establishing a public-private partnership program: an example, p3 toolkit. a ppp manger needs to have the characteristics of the so-called t professional, who has in-depth knowledge in one field (vertical line of the letter t) and at the same time possesses knowledge and skills in other fields and disciplines (horizontal line of the letter t), which makes such a professional equipped to cooperate with other experts. the characteristics of a t-shape person are almost impossible to acquire through traditional education because the knowledge gained in this way is not sufficient for performing the job in today’s circumstances, which is why additional education of employees, as systematic acquisition and development of knowledge, skills and abilities, is becoming increasingly important (latham, 1988). 5. formalization methods of interorganizational relations in ppp: concession agreement and ppp agreement formalization reflects the degree to which the behaviour of the organization members is based on rules, regulations and procedures, i.e., it reflects the extent to which this behaviour is standardized (jones, 2012). the formalization of behaviour may be done by job, work flow and rules and its main goal is to regulate the behaviour of employees (mintzberg, 1979). it becomes more relevant when the relationship involves numerous partners whose behaviour needs to be directed towards the objectives realization, and when one needs to make sure not to hamper a positive initiative, creativity and useful ideas. in a ppp, particular care should be taken to regulate the partnership in accordance with the contractual obligations and legislation, so as to avoid potential problems arising from different system values of the partners. the private partner is motivated by profit maximization, whereas the public partner is focused on providing a service at a satisfactory level and achieving the greatest value for money. the foundation of the ppp is the relevant ppp legislation, national sector strategy and supporting legislation (osborne, 2000). these documents define the types of services and expected results, identify the relevant public institutions and their roles, expertise and resources available to the public sector, the necessary processes and mechanisms of monitoring and control to achieve the planned results. for a country it is important to have an established central ppp unit, whose task is to oversee and channel the realization of projects of this kind. this unit has the task to coordinate the different public institutions involved in the procurement process and the implementation of ppp projects. the first comprehensive law on ppp in serbia, the “law on public-private partnership and concessions“ (official gazette of rs, no. 88/2011), was adopted in 2011 with the aim to create a suitable legal framework for the promotion and implementation of projects funded by the private sector in the field of infrastructure and public services. the law on ppp with the recently adopted changes and amendments to the “law on communal services” (official gazette of rs, no. 88/2011) and the “law on public procurement” (official gazette of rs, no. 116/2008), constitute the core of the legal system for the implementation of ppp projects in serbia. in addition to the law of 2012, a commission for ppp has been constituted as a central government organization in charge of the ppp (epec, 2014). pursuant to the law on ppp in serbia, the compensation to the private partner stipulated in the agreement can be paid by the state or the beneficiary. the duration of the agreement can be between 5 and 50 years, while the ppp may take the form of a concession or consortium (the so-called institutional ppp). the concession is defined as the right of the private partner to use a natural or public resource, or to organize activities of public importance and in turn receive a concession fee paid by the state or beneficiary3. the private partner bears the commercial risk of exploitation of the commodity subject to concession. within the consortium (or institutional ppp), the public partner buys shares or participates in the ownership of the company in charge of project implementation (epec, 2014). in the ppp, there are a number of different contracts that regulate and formalize the behaviour of ppp participants: concession agreement, direct agreements, shareholders’ agreement, credit facility agreements, design and build contract, operation and maintenance contract, etc. a key element of the legal structure of 7 management 2015/77 3the state pays the compensation for the service provided by the private partner, and after the expiry of the ppp agreement, the state is left with the infrastructure it can further exploit. 8 2015/77management every ppp is the project or the concession agreement. this agreement stipulates the rights and obligations of the public and private partners, specifications and results the private partner is to deliver in the concession period, as well as the risk allocation. precisely the risk allocation agreed in the concession agreement is the most important link in the ppp realization, since it is the basis for preparing the sub-contracts such as design and construction contract and the operation and maintenance contract. most of the risks taken by the special purpose company (spc) in the concession agreement are transferred to the constructors and operators through the above mentioned contracts, to the greatest extent possible. the goal of efficient risk allocation is to minimize risks borne by the spc itself, and transfer as much risk as possible to the public partner, on the one hand, and the private sector, on the other, because such a cascade riskallocation is one of the basic conditions of project bankability. countries like great britain and france, based on their longstanding practical experience, have developed models of ppp agreements that give a detailed and standardized definition of risk allocation among the partners. exactly this is the specificity of ppp, because through numerous agreements many decisions have to be based on the principles and provisions agreed in those agreements, starting from the project agreement or the concession contract. thus in england there is a so-called sopc4 (standardization of project finance initiative contracts version 4), in scotland there is the npd (non-profit distribution) model, and in france there is the partnership agreement4. in serbia there is still no such a model, nor any indications for its development. at first glance, one might be under the impression that in the interorganizational relations within the ppp the decision making process is decentralized to the participants that in a given project stage have the most important role. however, a more detailed analysis leads to the conclusion that most of the decisions are determined in advance by the contractual framework to which all participants must adhere. potential problems arise in situations when participants do not obey the defined procedures and rules, which is one of the causes for failure and termination of ppp contracts.this is the reason why the organization and management of the ppp have to be thought of well in advance and properly arranged. successful organization of the ppp should reconcile the principles of stability and flexibility, and provide ppp managers with manoeuvring space to make necessary interventions as they go along. 4contrat de partenariat interorganizational design and ppps have become a very current topic in both theory and practice. the phenomenon of ppp has mainly been addressed from the perspective of legislation and generally recognized by classical macroeconomic paradigm. the paper tried to open a new perspective of dealing with this subject, from both organisational and managerial aspects. in this sense, the paper stresses the significance of organizational design of the ppp and spc, which is in charge of implementing the project, so that the project in question has a solid support. the experience has shown that without strong organization, defined rules and principles, there is no successful project. this is why interorganizational relations involve a well-designed organizational structure focused on ppp objectives, and then appropriate organizational architecture, which clearly determines who should do what, how and by when. this is accomplished by establishing the special purpose companies (spc), as well as through formal and legal organizational instruments such as the ppp agreements. in this paper affirmed are the benefits of the ppp and the significance and role of organizational support. the focus is on the knowledge transfer and learning, but also on the introduction of a managerial position from both private and public sector point of view – ppp manager, who needs to be a specialist in leading the ppp, apart from possessing general managerial skills. in serbia, where capital, technologies and knowledge are scarce resources (petković, aleksić-mirić, & stojković, 2014), the ppp model is more than welcome. the paper emphasizes the need for a more comprehensive understanding of the benefits of the ppp. implementation of the project involves 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(2009). when does trust influence cooperation effects in public-private partnerships? sam advanced management journal, 21-32. receieved: october 2015. accepted: december 2015. mirjana petković university of belgrade, faculty of economics, serbia mirjana.ekof@beotel.net mirjana petković, ph.d., is a professor at the university of belgrade, faculty of economics, where she is a lecturer in the following courses: enterprise organization, organizational design, organizational behaviour and human resource management. she is the author of the book organizational behaviour with human resource management and the author and co-author of several monographs and numerous articles in the fields of organizational theory, organizational structure, organizational behaviour, organizational design, culture and changes. professor petković has also taken part in many projects as a consultant or project manager. about the author 11 management 2015/77 dubravka djedović–nègre european investment bank (eib) djedovic@eib.org dubravka djedović-nčgre is in charge in the eib of financing public-private partnerships (ppps) and project finance initiatives in benelux, france, ireland and uk mostly in transport, energy, health and education sectors. prior to that, dubravka was in charge of financing infrastructure projects in the western balkans, including serbia. she won the project finance and emea finance magazine deal of the year in 2013 for financing zagreb airport concession project in croatia, the first ever ppp for the eib to reach the financial close in the balkans. she holds a masters degree from the sda bocconi in milan, italy (2004) and a bachelor degree of the faculty of economics, university of belgrade (2002). jelena lukić, parallel d.o.o. jelena.jl.lukic@gmail.com jelena lukić received a bachelor (2011) and a masters (2012) degrees from the faculty of economics, university of belgrade. currently she is a phd student in business management with a special interest in big data technologies and organizational design. she is the author or co-author of several research papers in the field of information and communication technologies and organizational design jelena krstic:tipska.qxd 1 jelena krstić1*, nino ćorić2 1economics institute, belgrade, serbia 2university of mostar, faculty of philosophy, bosnia and herzegovina management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: jelena krstić, e-mail: jelena.krstic@ecinst.org.rs research question: what are the characteristics of the target population which public health messages should be tailored to, in order to contribute to skin cancer prevention and early detection? motivation: the implementation of preventive behaviour is of key importance taking into account the global increase in the incidence of skin cancer over the past decades. communication campaigns represent an effective tool in creating awareness and education of population on harmful effects of exposure to uvr and a necessity of conducting preventive measures. the basis for creating such campaigns is to examine the knowledge, behaviour and information habits of target population. idea: to examine the knowledge and attitudes regarding harmful effects of exposure to uvr, as well as preventive practices of adult urban population and determine the main sources of information on this topic. data: the research took place in the period march-may 2018 in belgrade and was based on surveing of 237 adult respondents from belgrade. the sample was acquired by using the method of convenience sampling. tools: the questionnaire consited of close-type questions with multiple choices of answers regarding sociodemographic characteristics, knowledge about risks of uvr exposure, preventive behaviour and preferred information sources. it was distributed in paper to patients while waiting for their appointments. obtained data were manually coded and analysed by using spss. results: a majority of both women (45.6%) and men (42.9%) report that they use sunscreens regularly, but a larger percentage of men (25% vs. 11.9%), as well as older respondents did not use sunscreens at all. women reported to spend longer hours sunbathing (41.9% vs. 33%) and using indoor tanning than men (17.6% vs. 5.2%). youngest respondents (age 20-30) also claim to practice excessive sunbathing (52.6%) and use indoor tanning (23.2%). older respondents consider them being at higher risk of skin cancer (68.2% of those older than 60). there is a higher level of awareness of female in comparison with male respondents regarding the importance of skin cancer screening (62.3% vs. 44.7%), as well as of university educated respondents. television has been noted to be the most significant source of information (57.8%), followed by internet sources (43.5%) and printed media (40.5%). contribution: knowledge, attitudes and behaviour, as well as preferred sources of information differ by gender, age and education of respondents so targeted public health campaigns should be tailored to specific characteristics of target groups. keywords: public health communication, skin cancer prevention, knowledge, attitudes, preventive behaviour, information sources. jel classification: i18, i12, m39 public health communication: skin cancer prevention implications doi: 10.7595/management.fon.2021.0036 abstract: 1. introduction a dramatic increase in the prevalence of skin cancer at the global level has been recognized over the past decades. according to the world health organization, non-melanoma skin cancers were among six most common cancers in 2020, with 1.20 million registered cases worldwide (world health organization, 2021). in spite of various initiatives and increased public awareness of the risks and prevention of skin cancer, the incidence of non-melanoma and melanoma skin cancer continues to increase all around the world (seite, del marmol, moyal, & friedman, 2017; lopez, carvajal, & geskin, 2018). ultraviolet radiation (uvr) is detected as a main risk factor, so unprotected and extensive exposure to ultraviolet radiation can lead to skin cancer development (bowman, lewis, lee, & yao, 2015; watson, holman, & maguire-eisen, 2016). more importantly, skin cancer is can be prevented by applying certain patterns of behaviour – reduction of unprotected exposure to ultraviolet radiation (thoonen, osch, vries, jongen, & schneider, 2020), sun protection and screening. the increase in the knowledge of general population and, especially, risk groups, regarding this topic is particularly important in order to stimulate early detection of skin cancer (kamell, mitchell, & leslie, 2013). empirical evidence confirmed that greater exposure to communication and education programmes led to increased sun protection behaviour (reynolds et al., 2008). prevention programmes represent an efficient means to combat this public health issue (tizek et al., 2019). primary prevention programmes have the goal to reduce skin cancer risk behaviour of the population, by raising awareness on the topic and educating people about preventive practices (nguyen et al., 2020; parsons et al., 2018). conduction of mass media informational and educational campaigns appears to be an effective tool for rising population’s knowledge level and preventive behaviour (calloway, fricke, carpenter, & yaroch, 2021). such a comprehensive and holistic model of communication supplements other public health promotion approaches by its possibility to influence knowledge and attitudes of the target group members regarding risks of uv radiation exposure and discouragement of indoor tanning (mayer et al., 2011; watson et al., 2013; lee & kang, 2018). in order to develop effective communication strategies, it is necessary to get a valuable insight into awareness, attitudes and behavioural patterns of the target population, which is a necessary foundation for the development of tailored communication programs. these were the topic of the research of authors in different countries, such as trad and estaville (2017) in usa, garcia-montero et al. (2020) in spain, nguyen et al. (2020) in vietnam and sideris and thomas (2020) in australia. in accordance with the previous research which pointed out to valuable differences among demographic groups of study population, the authors have recognized the need to conduct a comprehensive research on this important topic in serbia. therefore, research objective was to examine the knowledge and attitudes regarding harmful effects of exposure to uv radiation, as well as preventive practices of adult urban population and determine the main sources of information on this topic. the paper is organized in four sections. after the introductory part, study materials and methods are explained in the second section. the third section refers to research findings and discussion of the obtained results. concluding remarks, as well as limitations of the study and guidelines for future research are given in the final, fourth section. 2. methods 2.1 study population the research was conducted from march to may 2018. the sample included 237 respondents who were patients of one private health care institution in belgrade, serbia, and all were residents of this city. the survey sample was acquired by the method of convenience sampling. the patients were given the questionnaire in printed form to fill in while waiting for their appointments which were not related to dermatological problems or skin cancer. patients were approached by researchers in the waiting room and they were asked to participate in the survey whose objectives and purpose were clearly explained to them. eligible participants were patients older than 20 and no other condition was required. the research was conducted in accordance with esomar ethical and professional guidance related to social research and data analytics. the participants gave oral consent for the participation. the participation of respondents was on voluntary basis and completely anonymous, so, complete protection of participants’ personal data was assured during whole research process. the survey did not demand provision of any sensitive personal patients’ data related to their medical histories and current health conditions. 2.2 research instrument the survey instrument (questionnaire) was developed based on literature review on this topic. the questionnaire included the following groups of questions: • demographic characteristics (gender, age, education, skin type); • knowledge and attitudes (spf meaning and issues related to skin cancer preventive behaviour and risks) • behavioural patterns (application of sunscreen, time spent sunbathing, sunburning in the childhood, indoor tanning, measures of preventive behaviour) • main media sources of information about skin cancer prevention; • perceived most responsible subjects for the education of general public regarding skin cancer prevention and risk factors. 2 jelena krstić, nino ćorić forthcoming the questionnaire contained solely close-type questions in order to ensure an easier coding and analysis. demographic questions were put at the beginning of the questionnaire. after that, there were questions related to respondents’ knowledge (choice between options), attitudes (5-point likert scale) and behaviour (choice between options). at the end, questions related to sources of information were given in close-type form (choice between options). 2.3 statistical analysis the obtained data were manually coded and analyzed by using statistical software spss (v. 17.0). comparisons were made by demographic variables gender, age, education and, where applicable, skin type. the analysis was performed by using methods of descriptive statistics. 3. research results and discussion 3.1 knowledge and attitudes within the sample, there were 77 male respondents (32.5%) and 160 female respondents (67.5%). the sample was structured by age into four categories. minimum age was 20, and maximum 78, while the mean age of respondents was 40.49 years. as regards education, the majority had higher education (62.0%), while 37.1% had secondary school education and 0.8% had primary school education (table 1). table 1: structure of the survey sample the results indicated that there seems to be a reasonable level of knowledge of respondents regarding skin cancer prevention and hazards of overexposure to the sun. sunscreen was noted as the most used means for sun protection, such was the case in some of the other research such as those performed by seite et al., (2017) and nguyen et al., (2020). the majority of both women (45.6%) and men (42.9%) claimed to use sunscreen with spf30 regularly when sunbathing. however, almost one quarter of men did not use spf sunscreen at all, while in case of women that percentage was lower (11.9%). this is in accordance with previous findings which indicate that female patients are more likely to practice preventive behaviour than male (e.g., cathcart et al., 2011; nguyen et al., 2020; seite et al., 2017; sideris & thomas, 2020). although a high number of respondents within all age groups claimed to use sunscreens with spf, age as demographic factor still appears to be relevant when it comes to the usage of sunscreen. a larger number of older respondents stated not to have the habit of using sunscreen at all (25% respondents from 51 to 60 and 45.5% older than 60). this is in accordance with the findings of sideris and thomas (2020) who found out that males and respondents over 60 were least likely to conduct sun protection measures. when it comes to education, there were differences, although not statistically significant, regarding usage of sunscreens. in particular, a higher percentage of respondents with secondary education did not use protective creams (22.7%) in comparison with university educated respondents (10.9%). seite et al., (2017) also noted that individuals with lower education level were found to be least likely to conduct preventive measures. skin type was also found to be an important factor for sunscreen application, since the majority of respondents with very light and light tone of skin, said that they used protective creams with higher spf regularly, while the situation was worse when it comes to respondents with darker skin, since more than 20% stated they did not use it at all. this is noted in literature as “a sunscreen paradox” which explains that individuals who perceive themselves not to be at risk or being at a lower risk of skin cancer occurrence (mainly less sensitive 3 management: journal of sustainable business and management solutions in emerging economies forthcoming � ��������� ������� ���� �� � �� �� � ������� � �� � ���� ����� ������ ���� �� �� � �� � ������ ���� ���� � ����� ���� ���� � ������ ���� ��� � ����� ���� �� �� ����� ���� ���������� ��������� ��!"#���$�� ����� � ��� %�#$�!�� ��!"#���$�� ������ ���� &����� ��!"#���$�� ��� ���� skin types) may, therefore, pay less attention to proper usage of sunscreen, so the risk of sunburn may be increased (autier, boniol & dore, 2007). the knowledge of respondents regarding the meaning of spf in sunscreens was at a low level. only 17.1% of men and 20% of women gave the right answer. the probability of giving the right answer rose with age categories. so, one quarter of respondents aged 51 to 60 gave the right answer, as well as 22.7% of respondents from the oldest group, while the percentage was lower in other age groups. a smaller percent of respondents with secondary education (14.8%) than those with university education (21.9%) gave the correct answer (table 2). similarly, earlier research also indicated that most sunscreen users actually did not understand what spf means and, therefore, most often associate high spf with “agents that block their tanning ability”, which leads to disobeying application instructions (stengel & fernandez, 2005). as noted in the literature, sun burns are often a consequence of less amount of sunscreen that is actually being applied in relation to the amount recommended by manufacturers, often because instructions are not clear to them (szepietowski, nowicka, reich & melon, 2004). table 2: knowledge of the meaning of spf in sunscreens 3.2 behavioural patterns a larger number of women than men (41.9% vs. 33%) claimed that they spend from three to five hours sunbathing on daily basis during vacations. this is in accordance with findings of other authors who also noted that women were more prone to deliberate sunbathing than men (stanton et al., 2004), even twice as likely as men, in order that they get a suntan faster (branstrom, ullen, & brandberg, 2004). observed by age categories, the highest percentage of youngest respondents (52.6%) regularly spent three to five hours sunbathing, while the percentage was lower in case of other age groups, which indicates that youngest respondents were more likely to consider long hours of sunbathing as acceptable behaviour. asked about the sunburning at the early age, a larger number of men than women reported to have got sunburned five or more times during early age. also, the percentage of those who sunburned at an early age decreases across age categories, so younger respondents seemed to be less careful. a very high percentage of those with very light skin tone (35.7%) got sunburned, the same as one fifth of respondents with light and moderately dark skin tone. the research conducted by parsons et al., (2018) in usa has also shown that more than a half of respondents reported being four or more times seriously sunburned at the early age. the obtained results indicate the alarming situation taking into consideration that skin cancer occurs more commonly in people with light tone of skin who spend a lot of time sunbathing. an important issue in skin cancer prevention relates to the usage of indoor tanning, due to risks connected with it. it is proved that exposure to uvr from indoor tanning devices (tanning booths, beds and sun lamps) increases the risk of skin cancer development, including melanoma as the deadliest type (watson et al., 2013; mayer, swetter, guild & geller, 2015; parsons et al., 2018). the usage of indoor tanning was low among respondents, which represents a positive result of this research. as expected, a higher number of female respondents than male ones reported to use indoor tanning (17.6% vs. 5.2%). among those respondents who use indoor tanning, those aged 20 to 30 made the highest percentage (23.2%). younger respondents were 4 jelena krstić, nino ćorić forthcoming ��������� � � � � ��� ������� � ���������� � ����� ������� ���� ����� � ��� � ����������� ��� ������ ��� �� �������� � ������������ � ������� ��� �� ������ ����������� � ��� �� ����������� �����!� "������ ������� � � �� ��� �� �� �� �� �� ��� �� � ��� ����� ��� �� ��� ��� � ��� ��� � ��� ��� ��� #���� ������ ��� �� �� �� � ��� �� � ��� � � ��� ������ ��� �� ��� ��� � ��� ��� � ��� � ��� ������ ��� �� ��� �� � ��� � � ��� �� � ��� ��� �� �� � ��� �� � ��� �� � ��� �� � ��� �� �� � � ��� �� � ��� �� � ��� � ��� $����� ��� �������� �� ��� � ��� � � ��� � � ��� ����� ���� ��� � ��� ��� � ��� ��� � ��� ��� � ��� !��"��#�$�� ��� �� ��� ��� �� �� � � �� ��� ��� � ��� � more aware that usage of indoor tanning may cause the skin cancer, although they were also identified as its most frequent users. so, 82.1% of youngest respondents reported to be aware of the risks, as did 80.3% of those from 31 to 40, 53.4% of those from 41 to 50, 74.3% of those from 51 to 60 and 77.3% of those older than 60 (table 3). also, previous research pointed out that women are more likely to be indoor tanning users (stanton et al, 2004; trad & estaville, 2017) and some especially emphasized young females as the most common users of indoor tanning (watson et al., 2013; seidenberg, mahalingam-dhingra, weinstock, sinclair, & geller, 2015; friedman, english & ferris, 2015). also, the usage of indoor tanning is mostly practiced during the summer season (61.3% of those who use tanning booths). while using tanning booths, one third of respondents got their skin burned, therefore, this indicates the excessive indoor tanning behaviour due to insufficient knowledge of possible consequences. prevention campaigns appeared to be an effective means for education of population regarding harmfulness of indoor tanning. for example, as a result of prevention campaigning, the use of sunbed was reduced significantly in denmark during 2007-2015 (koster, meyer, andersson, engholm & dalum, 2018). also, as a result of a wider media coverage of health-related topics, national-level legislative changes may occur; such was the case with the california indoor tanning ban (mayer et al., 2011). even though the percentage of indoor tanning users was not high in this research, it is still important to invest communication efforts in changing the current social norms regarding the desirability of a tanned skin in order to reduce that harmful behaviour (johnson et al., 2009). table 3: using of indoor tanning level of significance: * p<0.01, ** p<0.001 the results showed gender differences related to the usage of sunscreens only during summer holidays. it seems that preventive behaviour knowledge levels are higher in case of women, as also noted by owen, fitzpatrick, dolan and gavin (2004). men were less likely to practice preventive measures when they are exposed to the sun (wear protective hats, caps, sunglasses). a higher percentage of men considered that redness is a normal consequence of sun bathing (40% vs 25%). also, it was found out that respondents who were familiar with the real meaning of spf reported to use sunscreens in other settings than summer holidays and beaches (38.3%). this points out to the lack of respondents’ awareness of harmfulness of overexposure to sun during all seasons. it is necessary to apply preventive behaviour during the winter season when practicing winter sports, such as skiing and snowboarding since uv reflection from the snow surface brings an increased risk of skin cancer (varedi et al., 2018). results indicate that the largest number of youngest respondents never uses sunscreens with spf during winter holidays, while the level of awareness rose with older groups. education seems to be a significant factor when it comes to practicing preventive measures, spending time in sunshade and wearing protective clothing (hats, caps, sunglasses). so, a higher number of respondents with university education than those with secondary education conduct such preventive measures (85% vs. 47%). a smaller number of respondents with higher education than those with secondary education considered that redness of a skin represents a normal consequence in the process of tanning (26% vs. 42%). 5 management: journal of sustainable business and management solutions in emerging economies forthcoming ��������� � � � � ��� ������� � �� � ��� ������ ����������� ������� ��������� �������� � � ��� �� ���� ������ ����� � ����� ��� ��� �� ������� ������ ��� ����� ��� � ���� ������ ����� ��� ������ ������ �� ����� ��� ���� ������ � ����� ��� ��� �� ����� � ����� �� � �� ������ ��� �������� � ����� � ����� ����� ���� ��� ����� ��� ������ !��"��#�$�� � � ���� ���� ��� �� �� ��� ��� %������&'$� � �� �� ��� ����� (�&'$� ��� ����� �� � ���� )��*� ��� �� �� �� ������ %���� ��*� �� ����� ��� �� �� table 4: evaluation of statements related to skin cancer preventive behaviour when it comes to respecting the recommendations regarding preventive measures provided by different sources (health practitioners, experts, media etc.), differences were noted in case of age and education categories. the perception of the importance of such recommendations rose in accordance with respondents’ age. such recommendations were important to approximately 50% of the respondents in the age group from 20 to 30; 75.2% of those from 31 to 40; 77.6% of those from 41 to 50; 84.6% of those from 51 to 60 and 81.8% of those older than 60. for respondents with higher education it was less likely to forget to reapply sunscreen when necessary (34.7% vs. 51.1%). considering that sunburns often occur as a result of forgotten reapplication of sunscreen, some of marketing communication strategies should be designed and implemented simply as a ‘reminder’ communication (johnson et al., 2009). as was shown in some other research (e.g., cathcart et al., 2011), respondents were familiar that inappropriate and excessive exposure to sun could cause skin cancer. however, in practice, individuals may face conflicting messages about risks and benefits of moderate sun exposure, which may lead to wrong perception of desirable behaviour (klein et al., 2014). knowledge levels of respondents of different age categories regarding the fact that overexposure to uvr may be connected with the development of skin cancer differed slightly. besides being more aware of risks, older respondents were more familiar with certain positive consequence (vitamin d synthesis) as a consequence of moderate sunbathing. a majority of respondents (67.9%) from the age category 20 to 30, agreed with that, while one quarter wasn’t familiar with that. respondents old 31 to 40 mainly agreed (67.2%). slightly more than half of respondents from the group from 41 to 50 agreed, and slightly more than one fifth did not know that moderate exposure to sun may have such benefit. a higher percentage of respondents from 51 to 60 (77%) reported to be aware of that, as well as 81.8% of respondents older than 60. the results differed between age categories in attitudes of those belonging to the critical group when it comes to the development of skin cancer. respondents from the youngest group in 37.5% of cases considered themselves being at some risk, as well as 42.6% of respondents from age group 31 to 40. more 6 jelena krstić, nino ćorić forthcoming � ����� ���� ���� ���� ������ ����������� ���� ���� � ��������� �� ������� �� ����� ��� �� �� �� ����� �� �������� ������������������ ��� ���������� �� ������ ���� ����� �� �� �� �� �� ����� � ����� � ��������������������� ���� ��� ������������� ����� ��������� ����� �� �� ����� �� �� �� ����������� ������� � � ����!�� ���� ��� � �� ����� � ���� �� �� �� �� �� ����� ���������� �����"�� ��� �� ����!�����#�� �� !���� �� �� ���� �� ����� ��� ����� �� �� �� $� �����%� �� ��� ��������&���!�� �� �����"�� �� ������'����&�����&�����������(� �� �� ����� �� �� �� ������ �� ��� ��������� ���������������������� � � ������� ����� �� �� ����� ��� �� �� �� ������������%�� ��)� �� ���� ��� ���� ��" � � �%� �� ��� ������������������ � � ��������� �*� ��� � ��������� �� ����� �� ����� ��� ����� ��� �� �� +�����#�� ��"����� �&�������������� ������� ��� �����!������������ ���� ��� ���������������� �� �� ����� ��� �� ����� �� ������!� ���������������� ����� ����������� ���� ��� ����� �!�����%�����"���%� �� ��� �,-� ���� �� �� ����� ��� �� �� ��� ��� � ������������������������ ������� ���� � � ���������� � ���%�����"���%� �� ��� ��������� �� �� �� �� �� .%� �� ��� ����� ����������� ������ ������������ ���������������� ���� �� �"�������$� �� ����� �� �� �� ����� �� /���� ��������� ���� �����&�� �������������� ��� � ��������� ������ ��� �� �� �� ����� ��� ����� �� �� ������!� �������������� ������ ������ ����� � ��� � ��� ��� ��� ��� ���������������� ����� � !�����%�����"���%� �� ��� �,-� � ���� ������� � ��������� ���� �� ����� �� ����� ��� �� ����� �� �� �� ������������� ���� ���� �������� ���!���� ����� ����� � ��� ��������� ��� ��� ��� �� � �� ����� �� �� �� �� � than 50% of respondents from age groups 41 to 50 and 51 to 60 reported to consider themselves being at risk. older respondents were more likely to consider them being at higher risk, so 68.2% of those older than 60 expressed their concern of being under higher risk. there are identified benefits of screening when it comes to prevention of skin cancer (brunssen, waldmann, eisemann & katalinic, 2017). more men than women stated that they did not feel it is necessary to go for skin examination and dermoscopy (55.3% vs. 32.7%), which indicates a higher level of awareness of female respondents in this regard. this is in accordance with previous findings that women demonstrate a more considerable concern about skin cancer and consequences of uvr exposure than men. on the other hand, women also report higher rates of deliberate sunbathing and indoor tanning use. the research of nguyen et al., (2020) has shown that almost 40% of respondents considered that they were at risk of skin cancer, but women were less aware of their skin cancer risk. a significant percentage of respondents of all age groups had never conducted screening and never considered it to be necessary (from 30-40%), although that percentage was the lowest in case of the oldest group. on the other hand, the percentage of those who understood the necessity was high, but, despite that, they had never practiced it. a higher percentage of university educated respondents went to screening, more than those with secondary education (29.5% vs. 12.6%). in general, the percentage of respondents who performed skin examination and dermoscopy was very low, which indicates the lack of awareness on the necessity of timely screening. it was also significantly lower than was the case in research performed in italy by suppa et al., (2014). observing by skin types, it is notable that respondents with lighter skin were more concerned with this topic (35.7% of those with very light skin tone performed the screening, as well as 23.3% of respondents with light skin tone, 22.2% with moderately dark skin tone and 15.8% with darker skin tone). so, the percentage was the lowest in case of those with dark skin tone, probably as they consider themselves to be under low risk of skin cancer development or not to be at risk at all (table 5). table 5: performance of skin examination and dermoscopy level of significance: * p<0.01, ** p<0.001 3.3 sources of information for male and female respondents of all age categories and education levels, the most suitable sources of skin cancer communication and information were healthcare providers and media. the importance of health care providers in relation to the implementation of health communication efforts that can reach target groups, contribute to their health-related education and promote the adoption of health-related preventive behaviour is identified in literature (e.g., cokkinides, kirkland, andrews, sullivan, & lichtenfeld, 2009; friedman et al., 2015). informational and educational campaigns are based on mass media as a powerful tool in healthrelated education of target groups of population (dobbinson et al., 2008). television was noted to be the most significant media since 57.8% of respondents watched some content dedicated to skin cancer prevention. some respondents (15.2% of them) watched such programme only during public campaigns, and considered that this topic was not promoted continually. eleven percent of respondents saw a television programme dedicated to prevention, but were not interested in that topic and 14.3% thought that, in general, there was a lack of such content on television. observed by gender, a larger number of male respondents 7 management: journal of sustainable business and management solutions in emerging economies forthcoming ��������� � � � � ��� ������� � �������� �������� �� ���������� ���������� ����������� ������ ����������� ������� ������ � ������� � � �� � ��� ��� � ��� ���� � �� �� � ����� � � ���� � ��� ��� � ��� ��� � �� ��� � !��� ����� �� ���� � ��� ��� � � � ��� � � ��� � ������ �� ��� � � ��� � ��� ��� � ��� � ������ � ��� � �� ��� � ��� ��� � ��� � ������ ��� ��� � ��� ��� � �� �� � �� � � ����� �� ��� � � ��� � � �� � � � � ������ �� � �������� � ��� � � � � � � � � � � ����� ���� ��� ��� � �� ���� � �� ��� � � ��� � !��"��#�$�� ��� ���� � ��� ��� � ��� ���� � � ��� � "# ������� %������&'$� �� �� � �� ��� � � �� � � � � (�&'$� ��� ���� � ��� ���� � �� ��� � � ��� � )��*� ��� ���� � ��� ���� � � ��� � � ��� � %���� ��*� ��� ��� � � ��� � � ��� � � ��� � than female respondents were not interested in watching a tv programme on this topic (18.4% vs. 7.6%). radio appeared not to be a significant media form for dissemination of this type of information since 47.3% of respondents had never heard such content on the radio. the results indicate that printed media represents the most important source of information on the topic of prevention for 40.5% of respondents. thirteen percent of respondents read on this topic only during specialized campaigns, while 6.3% were not interested in reading such content even though they had the opportunity to do so. a smaller percent (8.4%) did not remember having ever seen such content in printed media. gender, age and education were found to be important factors in this aspect. more male than female respondents (44.7% vs. 39.5%) selected daily newspapers as their preferred choice. magazines dedicated to health and beauty were more often selected by women than men (37.6% vs 15.8%). this genre of magazines often focusses on providing health-promoting messages, through texts and advertisements, with the goal to educate women and raise their awareness on certain topics. women demonstrated a higher knowledge on this topic than men in the light of reading women’s magazines that cover skin cancer and tanning-related contents (cho, hall, kosmoski, fox & mastin, 2010). it is notable that women's magazines publish more articles on skin cancer prevention than men's magazines (mcwhirter & hoffman-goetz, 2015). therefore, printed media, and especially magazines, represent an appropriate channel for dissemination of skin cancer information. due to their potential to influence women's attitudes and behaviours, health and beauty magazines represent an important medium for health-related communication with women as a target group (basch, ethan, clarke hillyer & berdnik, 2014). however, despite the potential for conveying messages, there is a significant pool of research evidence that magazines, and printed media in general, often fail to address the issue of skin cancer prevention in a sufficient and appropriate manner (kemp et al., 2011; dixon, warne, scully, wakefield & dobbinson, 2011; cokkinides et al., 2009; mcwhirter & hoffman-goetz, 2016; mcwhirter & hoffman-goetz, 2015). magazines were the dominating choice for younger respondents (35.7% of those from 20 to 30), while daily newspapers were a preferred choice of three older age groups (47.4% of respondents from 41 to 50, half of the other two). daily newspapers were selected as a popular source of information by respondents with secondary school (51.7%), while university educated respondents selected specialized magazines as their preferred source of information. so, it is obvious that television and newspapers can support educational campaigns by ensuring the distribution of key messages regarding preventive behaviour to target groups (kemp, eagle & verne, 2011; basch, clarke hillyer & basch, 2013). table 6: the most important sources of communication and information on skin cancer prevention however, while television is still considered to be the most powerful motivator, the significance of the internet and social media cannot be ignored, especially in case of younger people (johnson et al., 2009). the internet is widely used as media for searching for information regarding skin cancer (tizek et al., 2019; hopkins & secrest, 2019). the results indicate that the internet is indeed an important media vehicle for skin cancer prevention education, especially web sites dedicated to health-related topics which appeared to be a significant media source for a majority of respondents (43.5%). ten percent of respondents have read such information on websites of health institutions, 8.0% on forums/blogs dedicated to health care and 9.3% in online editions of magazines. also, more than one quarter of respondents have never searched for such information on the internet due to the lack of their personal motivation to do so. klein et al., (2014) warned that an increasing popularity of the internet as a channel for dissemination of skin cancer related content carry certain potential problems as “cancer myths” can spread faster virally. such “myths” can bring confusion to internet users, especially in cases when there is a lack of credible sites hosted by government or academic institutions, or in case information presented on those sites is not understandable to all target groups. one of the common segments of educational campaigns is the distribution of brochures and other similar informative material. approximately 60% of respondents received brochures on the topic of skin cancer prevention at some point, out of which 44.7% read them carefully and 16.5% were not interested in doing that. a significant percentage (37.1%) of respondents noted that they have never received any informative material on this topic. there is a difference between female and male respondents when it comes to willingness to read information provided in informative brochures. women expressed more interest in reading such material than men (50.3% vs. 35.5%). also, a higher percentage of men who received such informative material wasn’t interested in reading them, in comparison to women (27.6% vs. 11.5%). 8 jelena krstić, nino ćorić forthcoming ������ �� �� � ���� ������� � � �������� ��������� �� � � � � � ����� � � � � ��� ��� ����� �� � � �� � � �� � � � � ��� �� � � � � ��������� �� � � � � � table 7: main sources of information on the topic of skin cancer prevention all demographic categories of respondents perceived the ministry of health as the most responsible subject for education of general public on health-related topics. health institutions were ranked in the second place by importance and responsibility to disseminate information on the topic of skin cancer prevention. primary care physicians are seen to have an important role in skin cancer prevention by conducting counselling of patients on this topic (perez & bashline, 2019). comparing by gender, medical practitioners were selected by more male than female respondents (47.4% vs. 36.9%). more female than male respondents considered media to be the most important source of information on this topic. self-responsibility for gathering such information was noted by a higher number of male respondents than female ones (11.8% vs. 9.6%). selfinitiative was also rated low in importance by female respondents in research on prevention of other cancer types (cvijovic, kostic-stankovic, krstic & stojanovic, 2016). self-initiative was more valued by older respondents, respondents from 51 to 60 and respondents older than 60. respondents with higher education valued the role of the ministry of health and media more than those with secondary education, while giving the lower importance to self-initiative in information gathering and knowledge acquiring (6.5% vs. 16.1%). 9 management: journal of sustainable business and management solutions in emerging economies forthcoming findings from this research indicate that knowledge, attitudes and behaviour, as well as preferred sources of information differ by gender, age and, up to a certain point, education of respondents. women demonstrated a higher level of prevention knowledge and preventive behaviour than men, and older participants in the research also showed a more protective behaviour than younger ones. the conclusion is that targeted public health campaigns should be tailored to specific characteristics and needs of the target groups and be based on the using of specific channels of communication. these findings support the results obtained by other authors that, in order to be effective and to bring social change, informational and educational programmes dedicated to cancer prevention must be focused and tailored in accordance with target group’s attitudes, current knowledge level and informational and communication habits (glanz et al., 2015; calloway et al., 2021). by implementing preventive communication initiatives, bigger social changes can be expected. they could lead to higher public awareness on the harmful effects of exposure to uvr, and, consequently, to the reduction of skin cancer incidences and mortality rates. segmentation and target group selection should be performed on the basis of demographic, psychographic and behavioural characteristics, so designed messages and selected communication channels can be more relevant to members of a certain intended target group (dearing & kreuter, 2010). those segmentation criteria are essential and should be taken into consideration by marketing communication programme developers; such was previously concluded by some other authors (e.g., johnson et al., 2009). the contribution of this research lies in the setting of empirical and theoretical bases for further investigation on this topic. however, this research has certain limitations which are related to survey organization and methods. first of all, a convenience sample was used, so participants were selected based on availability and willingness to participate. although some useful results were obtained, the results are prone to significant bias, so results may not reflect the situation related to general population. also, some factors that may be significant were not taken into consideration, like medical history of patients or cases of skin cancer incidence in their social circles, which could influence their knowledge and behaviour. besides, the analysis was limited to descriptive statistics solely, so the upgraded research on this topic would benefit from the application of advanced statistical methods. hence, the future research on this topic should cover larger samples selected based on some of probability sampling methods and should include more influential factors in the analysis. also, the focus of the future research should be put on the potential for integration of different communication channels, especially digital ones, so individuals of different demographic profiles could obtain reliable information more efficiently. ��������� � � � � ��� ������� � � � ����� � ������� ��� ���� ����� � ���� � ��� �� ��� � � � �� ��� � ������ ��� ����� ������ ����������� ������� ������� ������� � � �� ��� ��� �� ��� ��� ��� ��� � ��� � � ��� ����� ��� �� ��� ��� � ��� � � ��� �� � ��� � � ��� ���� ������ ��� �� ��� �� � ��� � � ��� � � ��� � � ��� ������ �� �� ��� ��� ��� � � ��� � � ��� � � ��� ������ �� � ��� ��� �� ��� � � ��� � � ��� � � ��� ������ � � � ��� � � ��� � � ��� � � ��� � � ��� ����� � � ��� � � ��� � � ��� � � ��� � � ��� ����� ��� �������� � ��� � � ��� � ��� � � ��� � ��� ����� ���� ��� �� ��� ��� �� ��� � � ��� ��� � ��� � � ��� !��"��#�$�� ��� �� ��� ��� �� ��� � � � ��� � � ��� � ��� conclusion references [1] autier, p., boniol, m., & doré, j f. 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(2017). university student awareness of skin cancer: behaviours, recognition, and prevention. radiologic technology, 88(4), 373-377. pmid: 28298495 [45] varedi, a., secrest, a.m., harding, g., maness, l., branson, d., smith, k., & hull, c.m. (2018). comprehensive outreach, prevention education, and skin cancer screening for utah ski resorts. dermatology online journal, 24(2). [46] watson, m., holman, d.m., & maguire-eisen, m. (2016). ultraviolet radiation exposure and its impact on skin cancer risk. seminars in oncology nursing, 32(3), 241-54. doi: 10.1016/j.soncn.2016.05.005. [47] watson, m., holman, d.m., fox, k.a., guy, g.p., seidenberg, a.b., sampson, b.p., sinclair, c., & lazovich, d. (2013). preventing skin cancer through reduction of indoor tanning: current evidence. american journal of preventive medicine, 44(6), 682-689. doi: 10.1016/j.amepre.2013.02.015 [48] world health organization (2021). cancer. retrieved from: https://www.who.int/news-room/factsheets/detail/cancer received: 2021-06-08 revision requested: 2021-06-30 revised: 2021-08-11 accepted: 2021-09-11 jelena krstić, phd, research associate economics institute, belgrade jelena.krstic@ecinst.org.rs jelena krstić is employed at the economics institute in belgrade, with the current position of research associate and as a member of the scientific board. she received her phd digree in 2016 at the faculty of organizational sciences, university of belgrade, on the topic of integrated advertising. she is a section editor of the scientific journal industrija. as a researcher and consultant, she participated in a number of scientific and practical projects, conducted in various economic areas. her research interests are related to marketing communication and advertising, public relations and consumer behaviour. so far she has published two monographs and two chapters in international monographs, as well as more than fifty papers in international and national journals and proceedings of scientific conferences. nino ćorić, phd, associate professor university of mostar, faculty of philosophy, bosnia and herzegovina nino.coric@ff.sum.ba nino ćorić is an associate professor at the faculty of philosophy, university of mostar and a visiting professor at the universities of sarajevo and east sarajevo. he is an author of about thirty scientific and professional papers in the field of communication and one textbook. his specific areas of interest are corporate communication, internal communication and socially responsible business. he is the editor of the library komunikacij@ of the publishing house synopsis (zagreb-sarajevo). he is a member of the editorial board and international councils of several scientific journals in bosnia and herzegovina and abroad. he is editor-in-chief of the scientific journal south eastern european journal of communication. he has many years of managerial experience in the field of marketing, public relations and corporate communications. he has won professional awards in bosnia and herzegovina and abroad. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice tipska 77 biljana ratković njegovan faculty of technical sciences, novi sad, serbia management 2015/74 book review essentials of modern management udc: 005.13(075.8)(049.32) doi: 10.7595/management.fon.2015.0006 textbooks serve as an important and powerful educational and instructional aid on condition that they are content, methodologicaly and graphically well devised. they facilitate the cognition process offering contents of the greatest value for a given course or a given scientific discipline, in a well organized and systematic manner. textbooks help incorporate new knowledge into an individual structure of knowledge; they serve as support in the development of new intellectual operations, they enhance autonomy in thinking. according to dijana plut (textbook as cultural-supportive system (in serbian), zuns, beograd, 2003), textbooks help support practical activities following the emergence of new psychical structures or are even a precondition for them, binding together different systems, different functions and symbolic domains. finally, this type of literature affects modelling of behaviour, motivation for learning, and especially forming a value system of an individual and even of the entire generations of students. at the time when university lecturers are burdened with the “ssci list syndrome“, as wittily defined by chuing prudence chou (the ssci syndrome in higher education, 2014), there is a decreasing number of those willing to devote themselves to a highly demanding task of creating a textbook. this is so for a number of reasons. the first, pragmatic reason is that, in veiw of evaluation of scientific contribution, the textbook is not valued as a significant scientific reference; actually, it is not valuated at all. secondly, when announcing the contents and outcomes of their subject and their exam requirements, the lecturers often inform their students on abundant available literature of any kinds, whereby they confuse students and put themselves into an ambiguous position. thirdly, increasingly frequent changes in curricula make teachers unable to and discourage them to devote themselves to a thorough and long-term study of one scientific discilpine, namely, to immerse themselves in defining the subject and method of a given discipline, define the necessary notions and concepts, explain their meaning, illustrate all these with examples, formulate statements – all these in a manuscript structured as a textbook. it is for this reason that the recently published textbook, the principles of modern management, by two young authors, assisstant professors slavica mitrović and boban melović, both committed to the study of principles of modern organizational management, deserves our attention. the book reviewers, prof. dr. ilija ćosić and prof. dr. gordana kokeza almost unanimously state that this textbook is based on the modern theoretical and practical contributions to management in any types of organizations. following the basic principles of a good textbook – that it is a functional educational tool, that it offers a valuable selection of contents in a systematic manner, that it ensures a deep insight into the subject matter in a manner attractive to target groups it is meant for – the authors structured the text into thirteen easyto-survey chapters, i.e., theme areas. between the graphically attractive covers of the book, in 535 pages, the authors arranged seemingly heterogeneous topics into a content-rich and consistent text whose problem matter in general is the principles of modern organizational management, treating this complex phenomenon primarily from the point of view of engineering management. slavica mitrović, boban melović, the principles of modern management, faculty of technical sciences, novi sad, 2013, pp.535. isbn: 978-86-7892-487-3 the authors are very cautios in defining a multi-layer concept of management, offering numerous and nuanced interpretations, finding a common denominator of this concept in its three key words, namely: process, achieving organizational goals and managing resources – human and financial, raw materials and capital. they conclude with a more than acceptable diagnosis that a common constant of management is contained in improving business on the basis of goal achievement through optimal business decisions and through employees’ purposive work. evidently sincerely committed to this research area, mitrović and belović define management as the oldest, the most important, the most numerous, the most complex, the most effortful, the most risky and the most controversial profession. the authors point out that management engineer is today one of the most popular professions since, according to research (apesma), about 35% engineers see themselves as holders of the management functions. providing a neat survey of management schools, the authors tackle the issue of interdisciplinary nature of the management science through, on the one hand, the relationship of management with the natural and social sciences, through general, specific and individual sciences, and, on the other hand, through the interdisciplinary character of management regarding certain academic and, in the managerial practice, developed areas. they continue to branch the interdisciplinary identity of management into strategic, operations, entrepreneurial and financial management, management in services, banking, tourism, accomodation industry, commerce, health care, transportation, sports, public sector, education, culture, media, agriculture. the authors pay special attention to engineering management, pointing out that the management engineers, as a rule, do not deal with technical affairs; they rather act via human resources, using varied decision-making methods, such as kepner-tragoe method, monte carlo method, etc. a somewhat closer attention, according to the scope and various aspects of analysis, is paid to knowledge, skills and types of managers, especially to the managers in the domestic business practice. the authors differ between “aroused“ and “dormant“ managers, usurper-managers or quasi-managers and “self-made“ managers, stressing that management in the serbian business practice is understood rather as a function, not a profession, and illustrate it by the syndrome of political (clientelistic – authors’ remark) management. hence, three basic groups of managerial knowledge and skills are necessary in order that business success should be achieved: technical skills and knowledge, knowledge and skills of handling people and conceptual knowledge and skills in the sense of (onthological and epistemological – authors’ remark) skills and capabilities of abstract thinking, diagnosing and forecasting. these are also the preconditions of efficiency and effectiveness of managerial activities given that, in case these managerial performances are absent, it is possible that an efficient business system fails to produce effective outcomes and vice-versa. listing the modern approaches to management that enable managers to successfully respond to the challenges of modern business, the authors describe the concept of re-engineering, customer relationship management (crm), total quality management (tqm), six sigma approach (“magic of quality“), the lean concept, green management, knowledge management concepts, learning organization, balanced scorecard (bsc) and brand management. it is in this context that they describe the functions of management and managerial activities and present modern organizational models in detail. the authors devoted more that fifty pages to an important issue of leadership where they explain the importance of leadership from a number of aspects, primarily from that of power, namely, an individual’s ability to affect the behaviour and the changes in the behaviour of other individuals or groups, through the dimensions of authority, influence and responsibility. the authors discuss the leadership styles, the importance of personal traits for an effective leadership, as well as modern approaches to ledership, such as: charismatic, transformational, team, emotional, ethical, online, intercultural, heroic and effective. one issue that mitrović and melović also included in their book is the issue of corporate social responsibility in the sense of the consequences of organizational impact upon the society, stressing the fundamental principles of responsibility, namely: honest and equal behaviour towards employees, ethical and honest business doing, respect for the basic human rights, responsible conduct towards environment and the society in general. organizations develop different strategies of social responsibility, such as 78 2015/74management defensive, investment and commercial strategy, externally or internally oriented socially responsible business activities and socially responsible business doing as an organizational business style. towards the end of this voluminous manuscript the authors offer the examples of management in ten organizations, among which are manufacturing organizations, media conglomerates, health care, telecommunication and pharmaceutical organizations. the authors conclude the book with ten tests in which they test general managerial skills, time management, decision-making style and method, motivation, emotional intelligence, control, and finally, the extent to which the reader mastered the acquired knowledge. it is our suggestion that an index of concepts and authors should be helpful in better understanding the contents. nevertheless, we hope that slavica mitrović and boban melović’s book, the principles of modern management, will be widely read and studied, not only among the beginners in this field of study but also among the advanced students and experts whose professional interests are the principles of modern organizational management. together with a significant theoretical dimension it has, this book is also, in all its aspects, composed as a modern pedagogical reading material – for learning and for study. receieved: december 2014. accepted: february 2015. 79 management 2015/74 # mihajlovic:tipska.qxd 1 nina mihajlović1, sanja marinković2*, jovana rakićević2 1sustainability district, belgrade, serbia 2university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: sanja marinkovic, e-mail: sanja.marinkovic@fon.bg.ac.rs towards a review of key success factors in technology entrepreneurship doi: 10.7595/management.fon.2022.0007 abstract: 1. introduction an extremely fast development of technology and short innovation cycles lead to the trend of increasingly frequent launches of technological ventures on a global level. technological entrepreneurial ventures are one of the basic sources of change in the way we live and work at the local and national levels. from innovative solutions to job creation, they are seen as the drivers of positive changes in societies. however, the conditions of uncertainty and the dynamic environment in which one technological venture operates, affect the fact that only a small number of them succeed. more than 90% of all launched technology startups fail in the market for many different reasons. factors that are necessary for business success, or whose lack leads to business failure, are defined as key success factors (santisteban & mauricio, 2017). in other words, research question: through a systematic review of the relevant literature, this paper identifies and analyses key success factors in technology entrepreneurship and provides a novel classification and systematization of the factors. also, it provides a prioritization of the selected factors by tech entrepreneurs. motivation: the conditions of uncertainty and the dynamic environment in which one technological venture operates cause that only a small number of them succeed (baron, 2000; changsok et al., 2012; tomy & pardede, 2018; chen et al., 2019). comprehensive systematization of success factors is lacking in the professional literature. this paper contributes to the literature in this field by systematizing and prioritizing the key success factors in technological entrepreneurship, as a usable basis for further research and decision making. idea: the core idea of this paper was to provide an overview of existing knowledge and a systematized basis for further research, but also for work in the practice of technological entrepreneurship, giving guidance to all stakeholders and decision makers, entrepreneurs, investors and policymakers. data: the review was conducted using online repositories of scientific publications on technology entrepreneurship success factors published in the period from 1980 to 2021. in total, 661 articles were identified, while 45 articles met the selection criteria and represent the basis for further research of this paper. in order to determine the prioritization of the identified factors, empirical research was conducted among decision makers of technological entrepreneurial ventures. tools: the research and review of the literature were conducted by structured keyword search of the web of science database, while the process of article selection was performed using the identified selection algorithm, based on two phases, which both included the selection criteria. for the purposes of empirical research, the google form questionnaire was used for collecting the data on the prioritization of the factors by technology entrepreneurs. findings: the factors that are key to the success of technology ventures are often complex in nature. 151 originally identified success factors from different authors were classed into 31 groups. based on the identified groups, five large groups of factors were used for classification: "characteristics of the founder/founding team", "environment", "technology and innovation", "organization" and "strategy". as a result of empirical research, the factor “motivation” emerges as the most influential factor on a venture’s success, while the “size of the founding team” is identified as the least influential. contribution: this paper extends the existing literature providing the systematization of key technology entrepreneurship success factors with the systematization of scientific publications as a basis for further research. keywords: technology entrepreneurship, business success, factors. jel classification: l26, o32, q55, m13 factors that are decisive for the success of a company are most commonly referred to as critical or key success factors (freund, 1988). these factors are understood as a small number of key business areas where things must go well, for business to grow and management goals to be achieved. in order to determine the success factors, it is necessary to first understand the notion of success itself. business success can be defined in different ways according to who interprets it, and what interests it has in relation to the venture. an entrepreneur, investor or even a customer may perceive the success of the same venture in different ways (kim et al., 2018). what is more, a review of the literature has shown that different perceptions of success are not only present among market participants but can also be seen in the literature. colombo and grilli (2012) define that the venture is successful if it has been acquired by another company or if it goes public (colombo & grilli, 2012). a review (santisteban & mauricio, 2017) provides insight into different business success measures in the literature: the number of jobs the company has generated, creating something that really impacts people’s lives, good financial performance and company indicators, achieving the goals set by the company, size of the company’s market share, growth of sales and profitability. it is concluded that the concept of success is extensive and complex, and can also refer to the domain of finance, supply chain, positive impact on the community, users and employees and many other business segments. according to the authors (santisteban & mauricio, 2021), a successful technology venture is a venture that meets the needs and requirements of the customers, has a higher profit than the industry average or has been acquired by another company for a price higher than its value. for the past two decades, the research interest in the field of key success factors in technology entrepreneurship has grown significantly since the success rate is very low. according to the most recent startup genome report (startup genome, 2021), only 1 in 12 tech-startups succeeds. various reasons lead to the success or failure of technology ventures. some authors focus on the internal factors, while others focus on external ones. furthermore, some of the authors analyse the influence of a single factor or a single group of factors, while others research the importance of a number of factors different in nature. from the technology itself (tomy & pardede, 2018; bailetti, 2012; kim et al., 2018; chorev & anderson, 2006; santisteban & mauricio 2017), market characteristics (santisteban & mauricio, 2017; cooper, 1993; durmusoglu, 2018), availability of financial resources (song, 2008; durmusoglu, 2018; kim et al., 2018; lash et al., 2007; cooper et al., 1994; santisteban et al., 2021), to the founder (baron, 2000; lans et al., 2014; cooper, 1994; cope 2011; naffziger, 1994) and many more, researchers focus on different business aspects when analysing success factors of a technology venture. throughout an extensive literature review that included articles published between 1980 and 2021, covering the field of technology entrepreneurship, it was concluded that a unified identification of the key success factors in technological entrepreneurship is missing in the professional literature. on the other hand, what entrepreneurs, their advisors and investors need is a better understanding of the factors and drivers associated with successful business practice (cooper et al., 1994). understanding the importance of technology entrepreneurship, this paper aims to fill this gap, offering a systematization and classification of key success factors in technology entrepreneurship, found in the analysed literature. therefore, this article seeks to identify what the individual factors and group of factors that are crucial for technological entrepreneurial success are, as well as to conclude, based on performed empirical study, which factor and group of factors emerge as the most significant, and which as the least significant in terms of entrepreneurial success, on a given sample. the paper is organized as follows. section 2 provides the overview of the theoretical background and available literature on the key success factors in technology entrepreneurship, section 3 explains the research methodology according to which the selection of articles and systematization of factors was performed, while the following section, section 4, provides the explanation and classification of 31 identified key success factors into 5 large groups: "characteristics of the founder/founding team", "environment", "technology and innovation", "organization" and "strategy". this section also discusses the results of performed empirical research aimed at providing the evaluation and prioritization of 31 identified success factors. the final section provides the conclusion, where the contribution, limitations of this paper, as well as suggestions for future research on this topic, are presented. 2. theoretical background an extremely fast development of technologies and emerging innovations lead to the trend of increasingly frequent launches of technology ventures. new technologies, only combined with clear market opportunity, can provide real business and social value. technological innovations in most cases occur within technological ventures which also appear in the literature under the following names: technology startups, high-technology ventures, high-technology startups, or new technology-based firms. technological 2 nina mihajlović, sanja marinković, jovana rakićević forthcoming entrepreneurship combines the field of entrepreneurship and technological innovation (beckman et al., 2012). it is characterized by the creation of products and/or services that are based on the application of technology and advanced technological knowledge. the development of technological endeavours opens new challenges that entrepreneurs face: from raising funds, finding talented and interested employees to facing bureaucratic procedures and extremely high uncertainty of the environment (isenberg, 2014). while these are the endeavors that are extremely innovative with the solutions they provide, unlike large companies, they are facing a high risk of failure, due to the limited amount of resources at their disposal (li, 2001). compared to other types of entrepreneurship, technological entrepreneurship is characterized by an extremely difficult path to success, but if it occurs, the benefits for the venture and its environment can be exceptional (chen et al., 2019). technological entrepreneurship is the driver of social and economic development, through the opening of new business positions and growth of the industry through new and innovative technologies. economic research around the world increasingly links technological entrepreneurship with job creation, increasing competitiveness through the introduction of radical technological innovation in the industry, gdp growth and long-term productivity (isenberg, 2011). technological entrepreneurship is essential for growth, development and competitive advantage at the regional and national levels, and it is seen as a tool that promotes the prosperity of individuals, companies, regions and nations (bailetti, 2012). all the social and economic benefits of technological entrepreneurship come with the condition of its success. however, according to research, most high-tech ventures do not reach the growth stage, due to a large number of factors that must be met in order to survive in conditions of high uncertainty and a dynamic environment. 2.1. success measures in technology entrepreneurship the business environment in which a company operates is characterized by specific constraints, requirements, opportunities and threats, to which the company adapts its strategy, skills and resources in order to achieve business success (grunert & ellegaard, 1992). the combination of internal and external factors of a certain endeavour will influence its success or failure. factors that are necessary for business success, or whose lack leads to business failure, are defined as key success factors (santisteban & mauricio, 2017). in other words, factors that are decisive for the success of a company are most commonly referred to as critical or key success factors (freund, 1988). according to bullen and rockart (1981), critical success factors represent a limited number of fields in which satisfactory results will ensure a successful and competitive performance of a company. these factors are understood as a small number of key business areas where things must go well, for business to grow and for management goals to be achieved. grunert and ellegaard (1992) define key success factors as a skill or resource in which a company can invest, which, in the market in which it operates, leads to success. they can be characterized as internal or external, as well as the extent to which management has control over them (grunert & ellegaard, 1992). leidecker and bruno (1984) define key success factors as those characteristics, conditions, or variables that, when properly maintained and managed, have a significant impact on the success of a firm operating within a particular industry. once identified, key success factors become the basis of a company’s management information system and enable the creation of performance measurement standards. identification of key success factors is the basis of the management information system, business strategy, strategic planning, as well as consideration of threats and opportunities from the environment, and internal strengths and weaknesses (leidecker & bruno, 1984). knowing the challenges, to survive and thrive in a contemporary business environment, it is very important to identify the key factors responsible for the success of technological endeavours. a successful endeavour is considered to be the one that offers products and/or services that are accepted in the market, that meet or even create the needs of end users, create new jobs and have financial performance above average in the industry in which they operate (wing-ki et al., 2005; santisteban et al., 2021). from technology, market, stage of development, the team and entrepreneur itself, there is a broad spectrum of variables that influence the state and development of a technology venture. therefore, the research interest among different authors focuses on different success factors. it is important to mention that key success factors in the literature also appear under some of the following names: performance drivers (efrat & shoham, 2012), success factors (zaheer et al., 2018; skawinska & zalewski, 2020), critical success factors (kim et al., 2018; santisteban & mauricio, 2017; metzemaekers, 2000), factors of internal and external uncertainty (tomy & pardede, 2018). 3 management: journal of sustainable business and management solutions in emerging economies forthcoming some authors focus on researching the impact of a single factor, while most authors investigate the significance and impact of several factors, different in nature, on the success of a technology venture (kim et al., 2018). certain authors have addressed the question of why some entrepreneurs are more successful than others, and what are the characteristics of an individual that can predict whether a person will embark on the entrepreneurial journey. back in 1994, naffziger and co-authors (1994) focused their research on the factors of entrepreneurial motivation and those that predict entrepreneurial potential, whereas montielcampos and palma-chorres (2016) investigate the impact of entrepreneurial passion on the creative process of entrepreneurship itself, with results indicating a positive impact of passion on creativity. besides factors related to the entrepreneurial characteristics, xiao and north (2017) explore the impact of technology business incubators and their technical, professional, entrepreneurial, and financial support services on successful technology commercialization. sonta-draczkowska et al. (2019) research the role of project management in the process of new product development within new technology-based firms. in addition to identifying and researching into the impact of individual factors, a review of the literature showed that most authors have researched the impact of a number of factors, different in nature, on the success of the endeavour (chorev & anderson, 2006; zaheer et al., 2018; van de ven et al., 1984; lash et al., 2007; durmusoglu, 2018; efrat & shoham, 2012; kirchberger & pohl, 2016; park et al., 2016; kim et al., 2018; tomy & pardede, 2018; chen et al., 2019; kakati et al., 2003; skawinska & zalewski, 2020; santisteban & mauricio, 2017; santisteban & mauricio, 2021; song 2008). such research supports the view that it is impossible to identify just one factor, or just one group of factors, such as psychological, strategic or industrial, that are responsible for the success of an endeavour, but that there is a range of different factors that lead to the success of a venture (roure & keeley, 1990). in this case, however, it can be noticed that many studies of this character are contradictory, meaning that in some articles the most significant are the factors that in other studies appear to be the least significant ones. this can be due to the differences in the research samples that different studies used. as an example, in 2018, kim and co-authors (2018) investigate critical success factors of design startups on a sample of 24 ventures. the results of the study suggest that the commercialization of an idea is the most important factor of success, while entrepreneurial characteristics (such as goal orientation and competencies) emerged as important success factors as well (kim et al., 2018). the same year, zaheer and co-authors investigated the success factors that founders of 12 australian digital startups considered to have influenced their success. the results of the study identify relationships in the founding team; mission, vision, and values as the most important factors, while environmental factors and factors considering the wider ecosystem have not been considered as significant by the founders at all (zaheer et al., 2018). on the other hand, in their study, lash and co-authors (2007) focus on the factors that led to the success of 220 ict startups, concluding that human capital and previous work and entrepreneurial experience do not have a significant impact on the success of new ventures (lash et al., 2007). similar results emerged in the study of durmusoglu (2018), whose research was based on the identification of factors that influence the governmental selection process for funding the techno-entrepreneurship projects. the results of the study showed that individual factors, such as gender, education and experience do not significantly affect the choice of the project, while the market, budget, location and employees are listed as the most important factors when selecting the techno-entrepreneurship project that will be incentivised. 3. research methodology through a systematic review of the relevant literature, this paper identifies and analyses key success factors in technology entrepreneurship and provides a novel classification and systematization of the factors. also, it provides a prioritization of the selected factors by tech entrepreneurs. thus, the research has two main phases: systematization and prioritization of critical success factors in technology entrepreneurship (see figure 1). the research and review of the literature were conducted in the period from january to june 2021, through a structured keyword search of the web of science database, covering the articles published in the period between 1980 and 2021. this search resulted in 661 identified articles. afterwards, the process of article selection was performed in two phases. the first phase included the article selection based on title and abstract, on the basis of which 490 papers were excluded from the future research. in the second phase, articles were further filtered based on 5 inclusion criteria, following the example of the author’s model (dziallas & blind, 2019): peer-reviewed articles published in journals; articles in english; articles that comprise one of the keywords: “success factor“, “success indicator“ or “success determinant“ in the title, abstract or full text; articles published between 1980 and 2021, and finally, articles covering the field of technology entrepreneurship. after the second phase, another 126 articles were eliminated. in total, 45 articles met the selection criteria, and they represent the basis of this paper for further systematization, classification and evaluation of key success factors in technology entrepreneurship. 4 nina mihajlović, sanja marinković, jovana rakićević forthcoming figure 1: flow of the research the covered literature is rich in various factors different in nature, that the authors have identified as drivers of entrepreneurial success in their research. from the detailed screening of selected articles, 151 success factors were identified. in order to further classify factors by similar characteristics, and to facilitate their management, it was necessary to identify groups of factors and further classify the aforementioned factors by given groups. for the purposes of identifying groups of factors, the methodologies of the authors listed below were used. kakati (2003) identifies groups that describe characteristics of the entrepreneur, market characteristics, characteristics of the product, financial characteristics and competitive strategy and performance measures. nassir and sahibuddin (2011) in their paper divide success factors into 3 major groups: factors related to human resources, factors related to organizational processes, and factors related to technology. authors santisteban and mauricio (2017) identify the following 3 categories of success factors: organizational factors, which represent a group of factors that describe the organizational characteristics of startups; human capital factors a group of factors concerning the characteristics of the entrepreneur and the characteristics of the founding team, as well as environmental factors, which are factors that describe the external environment of the enterprise. the authors (boyoung, hyojin & youngok, 2018) identify key success factors for design startups and classify them into 4 major groups by the following names: entrepreneurship, innovation, technology, and economics and finance. 4. research results and discussion this section presents and discusses the findings from the literature review on success factors. 151 originally identified success factors from different authors were synthesized into 31, due to overlapping of the same factors that were repeated by different authors. based on the identified factor groups, and for the purposes of systematization and classification of success factors in this paper, five large groups of factors were identified: "characteristics of the founder/founding team", "environment", "technology and innovation", "organization" and "strategy". all 31 success factors were further classified in the above-mentioned groups of factors, where a vast majority of factors (nine) fell under the group "characteristics of the founder/founding team", six fell into the group "environment", five in the group "technology and organization" and finally six in the group "organization", as well as in the group "strategy". the following table (table 1) provides assigned names of the factors, their definition, the authors of the papers in which these factors were mentioned and names under which these factors were previously mentioned by authors. 5 management: journal of sustainable business and management solutions in emerging economies forthcoming table 1: systematization and classification of key success factors in technology entrepreneurship 6 nina mihajlović, sanja marinković, jovana rakićević forthcoming factor factor definition authors characteristics of the founder/founding team level of education the level of formal education that the founder/founding team possesses. van de ven (1984), colombo & grilli (2005); durmusoglu (2018); santisteban & mauricio (2017); cooper et al. (1994) previous working (entrepreneurial/management) experience previous working experience in the same/similar industry. founder/members of the founding team have already participated in entrepreneurial ventures or grew up in an entrepreneurial family. previous experience in a management position within an organization. colombo & grilli (2005); santisteban & mauricio (2017); song (2008); mitchelmore et al. (2009); cooper et al. (1994); efrat & shoham (2012); naffziger et al. (1994); van de ven (1984); durmusoglu (2018) risk orientation and internal locus of control understanding and accepting uncertainty and ability to manage risk van de ven (1984); naffziger et al. (1994); kim et al. (2018); sonta-draczkowska et al. (2019) motivation high level of commitment to the idea and venturemotivation and goal-orientation. willingness to make a personal investment in the form of time and money; clear vision about the business success and desire for achievement van de ven (1984); cooper et al. (1994); naffziger et al. (1994); kim et al. (2018); santisteban & mauricio (2017) founding team founding team based on longterm personal relations, previous joint working experience (not less than six months), complementary technical skills and business expertise. chorev & anderson (2006); zaheer et al. (2018); roure & keeley (1990); durmusoglu (2018); santisteban et al. (2021) size of the founding team the number of people who participated in starting the venture. song (2008); santisteban & mauricio (2017) social competence and leadership skills interpersonal skills of the founder/members of the founding team: ability to communicate effectively, negotiation skills, precision in assessing others, ability to leave a positive impression on others. baron (2000); mitchelmore et al. (2009); chorev & anderson (2006); santisteban & mauricio (2017) functional competencies and abilities knowledge and expertise in the field of hr, marketing and ir. previous engagement in hr, marketing, ir activities/positions. mitchelmore et al. (2009); efrat & shohan (2012); santisteban & mauricio (2017); song (2008); kim et al. (2018); chen et al. (2019) environment competition strength and intensity of the competition within the industry. roure & keeley (1990); tomy & pardede (2018); chen et al. (2019) santisteban & mauricio (2017); song (2008); durmusoglu (2018) customer concentration and market growth the existence of an unmet need in the market and size of the target market; expected growth and size of the target market. roure & keeley (1990); lash et al. (2007); tomy & pardede (2018); durmusoglu (2018); chen et al. (2019) song (2008); efrat & shoham (2012) level of technological changes speed and frequency of technological changes within the industry. li (2001); efrat & shoham (2018); tomy & pardede (2018); santisteban & mauricio (2017); song (2008) 7 management: journal of sustainable business and management solutions in emerging economies forthcoming level of the entrepreneurial ecosystem development a set of private and public institutions and individuals that support innovation and entrepreneurship. development of the entrepreneurial ecosystem within the area in which the venture operates and the presence of support institutions, such as technology business incubators and their technical, financial, entrepreneurial, and professional support services. xiao & north (2017); koohi & feizbakhish (2017); santisteban et al. (2021); santisteban & mauricio (2017) legal regulations and procedures government support for technological entrepreneurship in the form of financial incentives and initiatives to support the development of entrepreneurial activities; current laws in the field of entrepreneurship, innovation, science, and technology development. tomy & pardede (2018); santisteban & mauricio (2017) resource availability availability of institutions and external sources of funding (such as venture capital funds); availability of qualified and educated workforce. tomy & pardede (2018); santisteban & mauricio (2017); kim et al. (2018); bertoni et al. (2011) technology and innovation uniqueness and superior product/ technology performance unique and differentiated product that meets/ exceeds customer needs and offers superior value. roure & keeley (1990); li (2001); chen et al. (2019); santisteban et al. (2021); santisteban & mauricio (2017); chorev & andreson (2006); moroni et al. (2015); kim et al. (2018) time to market the period from the initial development of the product to its commercialization. tomy & pardede (2018); chen et al. (2019) creative and proactive use of technology active acceptance and recognition of new and emerging technologies; organized and continuous process of obtaining external information about the progress in the field of technology and science, analysis of obtained data and process of turning that knowledge into a tool for the decision-making process. kim et al. (2018); santisteban et al. (2021) pivoting development of product/technology in iterations to achieve the right productmarket fit. jocquet et al. (2015) protection of intellectual property secure protection of property from potential copying, protection of products or technological processes song (2008); kim et al. (2018) organization stage of development number of years the venture is active (stage of development in which venture is currently in) song (2008); santisteban & mauricio (2017) location the geographical location of the venture and the applicability of the business idea to the location within which the venture is being developed santisteban & mauricio (2017); durmusoglu (2018) financial resources the level of financial resources available to the enterprise and the development of appropriate financing instruments throughout the lifecycle of the enterprise song (2008); durmusoglu (2018); kim et al. (2018); lash et al. (2007); cooper et al. (1994); santisteban et al. (2021) market-oriented organizational culture and flexibility organizational culture characterized by the ability to quickly adapt to market conditions, and which focuses on timely market entry and the delivery of products and services valued by customers. chorev & anderson (2006); zaheer et al. (2018); sontadraczkowska et al. (2019); santisteban et al. (2021); kim et al. (2018) source: authors in recognizing the success factors, many authors emphasize the importance of education, and previous experiences of the entrepreneur (in establishing new businesses and others), communication and social connections with customers, suppliers, distributors, and investors. their personal characteristics, motivation, goal orientation, readiness to take risks and learn from failure, and openness for personal development of management and other skills, as well as complementarity of these skills within the founding team, are also found as relevant. these factors are systemized in the first group. the second group of factors focuses on the role of the environment in endeavours’ success. it is widely known that technology-based ventures are operating in market conditions of high uncertainty and frequent changes. therefore, it is important to consider the intensity of competition in a given market, customer concentration and market growth, as well as the level of technological changes that are present in the market. some authors consider the presence of a developed entrepreneurial ecosystem, strong legal regulations and procedures that promote entrepreneurship and innovation, as well as resource availability as equally important when it comes to the external environment of the venture. the success of a technology venture can also be linked to the factors that form the group “technology and innovation”. those are the factors that determine the technology itself, characterizing its uniqueness and superiority, its creative and proactive use, as well as iterative development. the mechanism for protection of intellectual property as well as the period from the initial development of the product to its commercialization can play a significant role in succeeding in an ever-changing and developing environment. many authors write about the importance of organization-related factors. the practice of continuous identification of new opportunities, encouragement of experimentation and learning from failure, flexibility, and responsiveness as well as creativity and innovation (encouragement of experimentation and generation 8 nina mihajlović, sanja marinković, jovana rakićević forthcoming innovative and entrepreneurial organizational culture organizational culture that is innovationdriven and that enhances the generation of original ideas, experimentation and learning from failure. ability to quickly overcome failure and solve challenging situations, as well as effectively cope with crisis. kim et al. (2018); santisteban et al. (2021); skawinska & zalewski (2020); metzemaekers (2000); cope (2011); duchek (2012) partnerships and networks established partnerships and presence of a professional network of people available to the founder/ founding team. song (2008); santisteban & mauricio (2017); skawinska & zalewski ( 2020); durmusoglu (2018); spiegel et al. (2015) strategy r&d investments quantity of investments in internal research and development activities. song (2008) marketing strategy comprehensive knowledge of the market, with development and clear marketing plan. chorev & anderson (2006) business plan vision of a clear business idea that is applicable to the given market and meets market needs. existence of clearly defined business plan, that provides detailed analysis of unmet market need and that gathers necessary knowledge and information through frequent market analysis and continuous adjustments to change. van de ven (1984); naffziger et al. (1994); chorev & anderson (2006); zaheer et al. (2018); kim et al. (2018) focus and incremental expansion focus is on a specific customer segment/product, while the expansion of business scope is based on previously achieved success and is incremental. van de ven (1984); zaheer et al. (2018) value management and sustainable development social responsibility of the venture and its activities, where the focus is on value creation for venture’s stakeholders and further management and maintenance of created value. skawinska & zalewski (2020) technology globalization the extent to which the technology is marketed and scaled to foreign markets kim et al. (2018); song (2008) of ideas in the process of product/service development) can play a key role in a venture’s business achievements and are deeply connected to the organizational culture. location, stage of development, partnerships and networks and availability of financial resources are seen as equally important and altogether belong to the third group of factors. closely related to organizational factors, the next and the last group identifies factors falling under the “strategy” group. when creating a strategy that is sustainable in the context of technology entrepreneurship, the focus should be on the presence of a clearly defined business plan. marketing strategy, technology globalization, the number of internal r&d investments as well as the focus on value creation and sustainable development are all factors to be considered when shaping the long-term plan for the venture. 4.1. empirical research results to provide the prioritization of 31 identified success factors, empirical research was performed. the research was conducted from 3rd to 11th september 2021, on a test sample of 33 decision makers of technological entrepreneurial ventures from the database of ict hub based in belgrade and technological ventures created within the belgrade-based plusplusnt company. out of 82, 33 entrepreneurs completed the questionnaire correctly, resulting in the response rate of 43.42%. for the research purposes, a google form questionnaire was created and distributed in the mentioned period. the survey involved determining the significance of each of the identified factors, based on a scale from one to five, with respondents rating a factor that has no influence with number one and a factor that is very influential in the terms of venture’s success with number five. the average of collected ratings was applied to determine the priority of each factor, while the formula for standard deviation was used to determine experts’ agreement on the given priority of each factor. the following table (table 2) provides results of the empirical research, where for each of the identified factors the average rating, standard deviation, as well as overall priority can be assessed. table 2: evaluation of key success factors in technology entrepreneurship 9 management: journal of sustainable business and management solutions in emerging economies forthcoming ������� ������ ��� ��� ��������� �� �� ��� �� �� ��� ���������� �� ���� ������ ������ ��� ������ ��������������������� �� !�� ������ ��� "��������� � ������ ��� ��������� �������� ���� ��!�!� �� ##� �� ��� �� ��� ������ ������ �� $� � ���� ��%� ������ �� ��� �� &�'����� (���� � ���� ��%� ������ #�� #� �#� &��������%�� ������� ���� ���(���������� �� ��� ���#!� �� $ �� ��������%�� ��������� ��)��� ���� ���#�� �� ��� ��� *�%�� � ���� ���� � ���! � � � * � �%��������� �� ������ �%���� ����� (� ������ �� ��� #�� ��������� ��(�����������(������ ��#��� ������ #�� ����������� ������� ���������+� �%� ������%�� � ����#� �� �!� # � ��������� �� ������� ������ ���� �� !�� ������ �!� "��� ����������)��� +� ������ ���#�� #�� ,���������� �� ���������� � .� ��(�����+� ������%����� ���� � �� ��� !� /�%�� ��%���� � ����#� �� �!� #�� *��� ������ ������ ���� ������ ��(�����+� ������ �� ��� #!� ���� ���� ������ ���� � #�� ��� �� ��������� ����� ��������� +� ������ ������ �#� & ������� ������%�� � ��#�#� #��!�� ��� ���� ���� ��! �� #����� ��� $������������� ����� ������ ���#�� #�� 0���� 1����� � �������'� ������� � ����� ������)��� +� ��!#!� ��� �� �� 2����� ������ ��� ������� �����������'� ������� � ��� �� � � ��!# � �� ��� ����(������ ��� ������ ������ �� ��� ##� "34������ %�� �� ������ ����#� ��� 0���� ����� �� ��+� ��!#!� ���� � � 5 ������������ �� ��� ������ �� $�� ���� ������%�� �������������� ������ ���#�� ��� 6�� ��%�����%�� ��� �� � ����)��� ������%�� � ��� �� #����� #�� /��(�����+����)���'� ���� ���� � #���!� ��� � based on the results of the research, it can be concluded that experts see motivation that falls under the group “characteristics of the founder/founding team“, as the most significant factor for a venture’s success with an average rating of 4.939, while also being the factor around which experts were the most in agreement, with a standard deviation 2.422. this result confirms the research results of some of the previously analysed studies (chorev & anderson, 2006; van de ven, 1984). among the most important success factors based on experts’ opinion these can also be found: “social competence and leadership skills“ belonging to the group “characteristics of the founder/founding team“, “business plan“ from the “strategy“ group, “innovative and entrepreneurial organizational culture“ from the group “organization“, as well as “uniqueness and superior product/ technology performance“ that falls under the group “technology and innovation“. there were no average ratings below this result. factors “location“, “competition“, “legal regulations and procedures“ as well as the “level of education“ are all factors considered to be on a low level of influence for the success of the venture. as the least significant factor the “size of the founding team“ belonging to the group “characteristics of the founder/founding team“, was identified, with an average rating of 2.909. the experts were the least in agreement while assessing the importance of the factor “location“ which belongs to the group “organization“ and whose standard deviation is 1.200. references [1] bailetti, t., bot, s., duxbury, t., hudson, d., mcphee, c., muegge, s., et al. (2012). an overview of four issues on technology entrepreneurship in the tim review. technology innovation management review, 2(2), 28-34. http://doi.org/10.22215/timreview/557 [2] baron, r. a. (2000). psychological perspectives on entrepreneurship: cognitive and social factors in entrepreneur’s success. current directions in psychological sciences, 9(1), 15-18. https://doi.org/10.1111/1467-8721.00050 [3] beckman, c., eisenhardt, k., kotha, s., meyer, a., & rajagopalan, n. (2012). technology entrepreneurship. strategic entrepreneurship journal, 6(2), 89-93. https://doi.org/10.1002/sej.1134 10 nina mihajlović, sanja marinković, jovana rakićević forthcoming to encourage the development of technology entrepreneurship and enable all the benefits it brings, there has to be an understanding of its importance and the nature of its success. furthermore, it is necessary to consider and identify all aspects of this type of endeavour – from the very definition to each factor that makes it either success or a failure. this process is complex and demanding, and often undermanaged, considering that business success can be perceived in different ways, while factors that can affect it are numerous. both in literature and economy, there is no uniform and standardized process for factor identification and comparison, which is much needed, considering that the success rate of startups in technology entrepreneurship is lower than 10%. contributing to the simplification of this process, this study was performed in order to determine, systemize and classify key success factors in technology entrepreneurship. extensive literature review was performed and from 661 articles initially identified, 45 met the selection criteria, out of which 151 success factors were extracted and later synthesized into 31 factors, based on the carefully performed analysis. these factors where then classified into five categories, according to their nature and similarities: “characteristics of the founder/founding team”, “environment”, “technology and innovation”, “organization” and “strategy”, providing a clear and understandable overview. furthermore, in order to compare factors with each other and prioritize them, the empirical study was performed. results of the empirical research indicated that the experts who participated consider the most important success factor to be the factor “motivation”, which refers to the commitment of the founder in the terms of financial resources and time, but also to the existence of a desire for success. common to all of the factors that emerged with highest ratings, such as “social competence and leadership skills”, “business plan” and “innovative and entrepreneurial organizational culture”, is that they are all internal in nature and in the power of the endeavour itself to manage them, but still belong to different groups, leading to a conclusion that when speaking of success, factors are interrelated and only when combined, lead to positive results. this empirical research was performed on a test sample, and it is proposed that future studies should include a larger sample of experts from various industries. considering that certain factors within the performed study have a high level of standard deviation within the answers of experts, more detailed research of their significance is proposed. also, it is necessary to keep in mind that the results of research on the significance of key success factors in technological entrepreneurship may vary depending on the sample selected for evaluation of the factors, given that the factors are complex in nature and can be differently evaluated depending on the lenses through which they are observed. still, the contribution of this paper is relevant both from the perspective of academicians and that of practitioners. from the academic perspective, it represents a valuable base for further research, enriching the literature on key success factors in technology entrepreneurship, and providing a new perspective on its classification. from the business perspective, this paper provides an extensive list of factors that can be used as a support, for both entrepreneurs and investors, as well as for all interested parties, in the process of identification and tracking of success factors necessary for the growth and development of technology ventures themselves. conclusion [4] bertoni, f., colombo, m. g., & grilli, l. 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(2017). the role of technological business incubators in supporting business innovation in china: a case of regional adaptability?. entrepreneurship & regional development, 30(1), 1–29. https://doi.org/10.1080/08985626.2017.1364789 [54] zaheer, h., breyer, y., dumay, j., & enjeti, m. (2018). straight from the horse’s mouth: founders’ perspectives on achieving ‘traction’ in digital start-ups. computers in human behavior, 95, 261-274. https://doi.org/10.1016/j.chb.2018.03.002 received: 2021-12-20 revision requested: 2022-02-08 revised: 2022-05-26 (2 revisions) accepted: 2022-05-27 nina mihajlović sustainability district, belgrade, serbia nina.m@sustainabilitydistrict.com nina mihajlović is a master engineer in organizational sciences, working in the field of sustainability and circular economy consultancy. nina’s research focus and practical expertise lie in the areas of technology entrepreneurship, sustainable development and circular and sustainable business models. she is also a gri certified sustainability professional. sanja marinković university of belgrade, faculty of organizational sciences, serbia sanja.marinkovic@fon.bg.ac.rs sanja marinković, phd is an associate professor of the department for management of technology, innovation and sustainable development at the faculty of organizational sciences. she is the author and co-author of several books and more than 70 scientific papers. she is also a lecturer for the dual award master programme international business and management, validated by middlesex university london. her research and teaching interests are in the fields of technology and innovation management, service digitalization, and technology commercialization. jovana rakićević university of belgrade, faculty of organizational sciences, serbia jovana.rakicevic@fon.bg.ac.rs jovana rakićević is a teaching assistant at the department for management of technology, innovation and sustainable development at the faculty of organizational sciences. she is the author and co-author of over 40 scientific papers in proceedings of domestic and international conferences and journals, as well as of 5 chapters in international monographs. jovana's research and practical interest is in the fields of technological entrepreneurship, management of technological development, and entrepreneurial ecosystem support. she was hired as a business mentor at the imagineif accelerator programme for health technology startups in serbia, and is an active member of the international triple helix association. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice zenaida sabotic:tipska.qxd 1 zenaida šabotić*, ahmedin lekpek state university of novi pazar, department of economics sciences management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: zenaida šabotić, e-mail: zsabotic@np.ac.rs research question: this paper analyses whether a relationship exists between the financial policy of the companies, embodied in the structure of assets and liabilities, and their financial health during the covid-19 pandemic. motivation: the paper aims to consider the impact of changes in the value of individual items of the balance sheet of selected companies on the movement of profitability, liquidity, and market value of companies, as measures of the companies’ financial health. idea: the core idea of this paper was to empirically evaluate the financial health of domestic companies, where the financial policy that the selected companies implemented was taken as a factor of financial health. the financial policy was viewed through the structure of assets and financing of the chosen companies, while financial resilience observation was based on indicators of profitability, liquidity, and market value of the companies. data: secondary data from the reference database (index of the belgrade stock exchange) during the period 2016-2020, which includes 30 companies from the real sector, serve as the relevant basis for the realization of the research within the adequately set area of the research. tools will be used to study the relationship, i.e. connectivity of selected research variables based on regression analysis in the frame of parametric quantitative procedures. the financial policy was viewed through the structure of assets and financing of the chosen companies, based on their balance sheets, while financial resilience observation was based on indicators of profitability, liquidity, and market value of the companies, which were used as dependent variables in the research. findings: the point that changes in a relatively small number of the balance sheet items of selected companies influenced the movement of the mentioned financial health indicators during the covid-19 pandemic. contribution: presented research results are significant and representative for future corporate practice. the key contribution of this research is the identification of assets’ elements with a critical impact on companies’ financial health. keywords: corporate financial policy, corporate financial health, covid-19, belgrade stock exchange jel classification: g31, g32 corporate financial policy as a factor of corporate sustainability and health during covid-19 pandemic period doi: 10.7595/management.fon.2022.0013 abstract: 1. introduction in 2020, the world was faced with the biggest pandemic in this century. in the short time since the wuhan epidemic, covid-19 has become a global pandemic and a key obstacle to the normal functioning of society and the economy (he et al., 2020). in terms of scope and intensity of action, only the medieval plague pandemic and the spanish flu pandemic, which occurred a century ago, are comparable to the current covid-19 pandemic (ceylan et al., 2020). since such pandemics rarely happen, they are not considered significant threats to the global economy (rizvi et al., 2020). this is supported by the fact that the world economic forum, in its global risk report published in early 2020, listed environmental problems as critical risks to the world economy, while, according to the assessed impact and dangers, “infectious diseases“ were ranked only on the tenth place (ramelli & wagner, 2020, 623). therefore, it is not surprising that the pandemic found the world unprepared, without defined rules and standards that should be followed in such situations (phan & narayan, 2020) to preserve overall social stability. the political, business, professional, and scientific public have faced hopelessness (chevallier, 2020). to stop the pandemic, governments introduced several restrictive measures that restricted movement and travel and hence the pursuit of daily economic and social activities (cheema-fox et al., 2020; hasan et al., 2020). the imposed restrictions negatively affected both supplies, where there was a slowdown and sometimes complete cessation of business activities, and demand, which dropped significantly in conditions of uncertainty and crisis (randelovic, 2021). the results are substantial economic losses, closures of numerous companies around the world (rababah et al., 2020), and a decline in economic activity equal to those achieved during the global economic crises and world wars (arif et al., 2021; savic et al., 2021). governments have used various fiscal and monetary policy instruments to provide the economy with the necessary infusion of financial resources and to prevent economic collapse (jiang et al., 2021). governments that have implemented on-time economic measures to save the economy have faced a smaller decline in the volume of economic activity (randelovic, 2021). however, the implementation of these measures is mainly accompanied by long-term unsustainable expansionary fiscal policy, which creates a growing budget deficit, which must be covered by either additional borrowing or increasing tax burden on households and the economy (labus, 2021). the covid-19 pandemic has triggered a radical change in the economy and society’s environment (koutoupis et al., 2021). it is unreasonable to expect that everything will return to normal even when the pandemic ends. the political, economic, and academic elite must devise a new concept of the world, in which economic and financial flows will be managed by the principles of sustainable development (arif et al., 2021; quatrini, 2021) and with the increasing digitalization of business processes (bai et al., 2021; paunovic & anicic, 2021; savic et al., 2021). however, the pandemic was not equally detrimental to all sectors. moreover, certain categories of companies have successfully passed through the vortex of the pandemic crisis (according to jedynak and bak (2021)). in the first place, these are pharmaceutical companies and medical equipment producers. the second category includes companies that have used the gap created by imposing social distance, such as delivery companies, e-commerce platforms and online grocery sales. the third category consists of companies from the it sector, consulting, media, and entertainment. finally, there are companies whose sectors have been hit by a crisis of significant intensity, such as insurance and catering, but some of them, with their creativity and innovation of their services, have managed to beat the competition. this paper analyses the impact of corporate investment and financing policies on the ability of companies to preserve and strengthen their financial health in a situation where a global pandemic undermines the foundations of the world economy. the paper also aims to consider the impact of changes in the value of individual items of the balance sheet of selected companies on the movement of profitability, liquidity and market value of companies, as measures of financial health of companies. the paper is organized by first reviewing the literature, then presenting the data and applied research methodology, after which the research results are given and the last part brings the discussions and conclusion. 2. literature review for companies to successfully overcome the vortex of the crisis in which they were thrown due to the covid-19 pandemic, it is necessary to develop and implement an adequate policy to mitigate the negative effects of the pandemic (rababah et al., 2020). the practice has shown that even during the current crisis, companies with an adequate crisis management policy and teams that properly implement it deal most effectively with its challenges (lukic et al., 2020). however, the best form of crisis management is stable and responsible business, which primarily protects the economic health of companies from the harmful effects of internally generated crises. in the conditions of dynamic market changes and the emergence of increasingly demanding and less loyal customers (kaur & kaur, 2020), only companies that maintain internal stability can hope for business success. the financial policy of the company is an essential factor of business stability. the recession caused by the pandemic has shown that the success of companies in overcoming the current crisis is largely conditioned by the validity of their investment and financing policies. 2 zenaida šabotić, ahmedin lekpek forthcoming 3 management: journal of sustainable business and management solutions in emerging economies forthcoming an adequate financial policy must lead to the preservation of solvency and liquidity and the ability of companies to take advantage of attractive investment opportunities. mirza et al. (2020) state that the decline in corporate solvency is one of the most significant economic consequences of the covid-19 epidemic in the european union. ding et al. (2021) studied the factors of business resilience to the consequences of a pandemic in 61 selected economies. their research showed that companies that borrowed less, borrowed in the longer term, and had a more considerable amount of cash than their counterparts showed the most outstanding resilience. analysing the impact of the pandemic on the investments of chinese companies present on the stock exchanges, jiang et al. (2021) conclude that high cash reserves were a powerful instrument for maintaining business stability, which allowed companies to continue with ongoing and preparing development activities. starting also from the companies listed on the chinese stock exchanges, qin et al. (2020) come to the same conclusion about the importance of available cash in protecting companies from the effects of the pandemic crisis. they believe that, according to the conclusion given above, management should support shareholders in maintaining adequate cash reserves. ramelli and wagner (2020) confirmed the thesis about the importance of cash reserves in the case of selected american companies, not missing the opportunity to point out the high costs that keeping high cash reserves brings to the company. however, many companies cannot boast of sufficient cash reserves. this is supported by a survey conducted by vito and gomez (2020) on a sample of companies listed on stock exchanges in oecd countries and china. their research showed that there is a danger that 10% of the observed companies will become illiquid in the following six months and that in the current conditions, the average observed company will be left without cash in two years. an important aspect of the companies’ financial policy is the dividend payment policy. examining the dividend policy of the companies included in the s&p1500 index basket, mazur et al. (2020) conclude that over 80% of the observed companies maintained or even increased the number of dividends paid, regardless of the deterioration caused by the pandemic. on the other hand, pettenuzzo et al. (2021) observed a significantly larger sample of american companies1, and found a significantly larger sample of american companies that withdrew from the payment of dividends and strengthened their cash positions, often seeking external sources of financing. krieger et al. (2020) state that companies listed on the u. s. stock exchanges reduced dividend payments during the current pandemic crisis to a greater extent than during the 2008 global financial crisis. an important factor in the financial resilience of a company is the capital structure (huang & ye, 2021), which dictates the cost of financing and shows the degree of exposure of the companies to financial risk. during the pandemic crisis, there was a sharp increase in demand for commercial bank loans. however, access to credit was provided primarily to companies that were perceived as low-risk due to efficiency and business stability (francis et al., 2020). the level of business efficiency of companies can be seen primarily through their balance sheets and income statements. in efficient companies, they show that the optimal investment and financing structure has been achieved, as well as low indebtedness measured by leverage ratios, which clark et al. (2021) showed on the example of companies in the hospitality sector. observing selected american companies, neukirchen et al. (2021) concluded that during the current crisis, efficient companies achieved a total return close to 10% higher than other companies. on the other hand, it is natural that companies that generated low incomes and underinvestment before the crisis feel the severe consequences of the economic impact of the pandemic (shen et al., 2020). to increase their efficiency and protect themselves from the adverse effects of the pandemic crisis, companies have mainly decided to reduce operating costs as an instrument to achieve these goals (rababah et al., 2020; nguyen et al., 2021). some authors followed the change in the companies’ financial position during the pandemic crisis by observing the movement of the value of selected ratios. thus, devi et al. (2020) found that most companies listed on the indonesian stock exchange saw a decline in the value of liquidity and profitability ratios and an increase in the leverage ratio, with only companies in the consumer goods sector recording opposite trends. on the other hand, bravo and hernandez (2021) tested the financial resilience of companies, specifically oil companies operating on the american continent, using the altmanʼs z-score approach. they conclude that the highest degree of financial resilience was shown by companies whose z-score in the last three years was equal to or higher than three and by those which did not use external sources of financing. 1 the sample includes companies listed on the most prominent us stock exchanges. 4 zenaida šabotić, ahmedin lekpek forthcoming 3. methodology this research aims to examine the financial health of domestic companies in the period of the pandemic caused by the covid-19 virus, where the financial policy that the selected companies implemented in the observed period was taken as a factor of financial health. the financial policy was viewed through the structure of assets and financing of the chosen companies, based on their balance sheets, while financial resilience observation was based on indicators of profitability, liquidity, and market value of the companies which were used as dependent variables in the research. the period 2016-2020 was considered. the sample consists of companies from the real sector2 in the index basket of belexline, the index of the belgrade stock exchange. the authors have selected the following dependent variables: • return on equity (roe), expressed as a percentage, represents the ratio between the company’s net profit and total capital – y1; • return on assets (roa), expressed as a percentage, represents the ratio between the company’s net profit and total assets – y2; • the current liquidity ratio, expressed as a percentage, represents the ratio between total current assets and short-term liabilities – y3; • share price – y4. the authors have selected the following independent variables: • total current assets, presented in billions of dinars – x1; • short-term financial placements, presented in billions of dinars – x2 3; • cash and cash equivalent, presented in billions of dinars – x3; • value added tax, presented in millions of dinars – x4 4; • subscribed and unpaid capital, presented in millions of dinars – x5 5; • repurchased own shares, presented in millions of dinars – x6 6; • reserves, presented in billions of dinars – x7 7; • deferred tax liabilities, presented in millions of dinars – x8 8; • liabilities for other taxes, benefits, and other duties, presented in billions of dinars – x9. model: (1) (2) (3) (4) 4. data and analysis among the analysed companies, the most affected by the pandemic are companies that depend on human mobility, such as nikola tesla airport, lasta carrier, jugoprevoz krusevac, construction companies and industries whose business is closely related to transport and exports. other analysed companies managed to cut their business, viewed through roe and roa indicators in the same ratio, or even a slight improvement over the previous period. prior to analysing which independent variables were statistically significantly related to changes in selected dependent variables, to indicate the consequences of the covid2 the survey covered 30 companies, while the remaining four companies covered by the belexline index basket, which operate in the financial sector, were excluded from the study. 3 it appears as an item in the assets of the balance sheet in 25 observed companies. 4 it appears as an item in the assets of the balance sheet in 27 observed companies. 5 it appears as an item in the balance sheet assets in 2 observed companies, where it represents a statistically significant variable. 6 it appears as an item in the balance sheet assets in 14 observed companies, where it represents a statistically significant variable. 7 it appears as an item in the assets of the balance sheet in 21 observed companies. 8 it appears as an item in the assets of the balance sheet in 22 observed companies. �� �� �� � �� � � �� � � � ������ � ��� �� �� �� � �� � � �� � � � ������ � ��� �� �� �� � �� � � ������ � ��� 19 pandemic, we will examine whether there is a statistically significant difference in the values of selected dependent variables for the period before (2016-2019) and during the covid-19 (2020) pandemic. for the first selected dependent variable roe, after testing the normality of the schedule, a nonparametric mannwhitney u test was applied, and the results showed that there was a statistically significant difference in roe values before and after the pandemic (p = 0.048). also, a statistically significant difference was confirmed for the second dependent variable roa (p = 0.043). regarding the current liquidity ratio, no statistically significant difference in values before and after the pandemic was confirmed (p = 0.684). a statistically significant difference was not confirmed for the share price either (p = 0.804). graphical representations of the results of nonparametric tests are given below. 5. empirical results to determine the intensity and direction of the relationship between dependent and independent variables, univariate and multivariate regression analysis was applied. using regression analysis, it is possible to determine the relationship between dependent and independent variables, as well as to determine how changes in the independent (predictor) variable affect changes in the dependent (categorical) variable. we performed univariate and multivariate regression analysis using the spss program (version 26). univariate linear regression showed that companies’ performance presented through roe was statistically significantly related to cash and cash equivalents (p < 0.0005). the coefficient b is 0.954, which means any increase in cash and cash equivalents by one billion increases roe by 0.954. as f = 15.325 (p < 0.0005), this linear model significantly predicts the values of the dependent variable roe. r2 is 0.113, which means that the model explains 11.3% of the roe variance. the model for roe is: (5) 5 management: journal of sustainable business and management solutions in emerging economies forthcoming �� �� ����� � ����� � � ������������� � � � � � ������������� � ���� figure 1: mann-whitney u test for lr figure 2: mann-whitney u test for smp figure 3: mann-whitney u test for roe figure 4: mann-whitney u test for roa similarly, table 1 interprets the relationship of the variable roe with subscribed and unpaid capital, repurchased own shares, and liabilities for other taxes, benefits, and other duties. table 1: univariate linear regression for roe source: authors’ calculation there was no statistically significant correlation between other assets items and the roe value. regarding the results of multivariate linear regression, out of four independent variables that stood out as statistically significant during the implementation of univariate linear regression, only the variable liability for other taxes, benefits, and other duties was retained in the multivariate regression model (p < 0.0005). univariate linear regression showed that the companies’ performance presented through the roa indicator was statistically significantly related to the total current assets (p = 0.008). the coefficient b is 0.150, which means that any increase in total current assets by one billion leads to an increase in roa by 0.150. as f = 7.335, p = 0.008, this linear model significantly predicts the values of the dependent variable, i.e. the change in roa. r2 is 0.055, which means that the model explains 5.5% of the roa variance. the model for roa is: (6) similarly, table 2 interprets the relationship between the variable roa and short-term financial placements, cash, and cash equivalents, subscribed and unpaid capital, repurchased own shares, reserves, deferred tax liabilities, and liabilities for other taxes, benefits, and other duties. table 2: univariate linear regression for roa source: authors’ calculation 6 zenaida šabotić, ahmedin lekpek forthcoming �� �� ����� � ����� � � ��� �� �� �� ��� � ������ ����� �� ���� ��� �� ����� ������ ������� ��������� ������ ������ ��������������������� � ��! ��� � �� "� �� ��" ���� ���#�� ��#$$� ����$� �#�#��� %������ ������#�#���%��������� &�" !������� '( ����!��� ���$#� ���$�� ������ ��#�#� ������ �������#�#����������� ) � � � ���*'!� '���!������+� � �* ���� �� '���!�� � ��� ������ ���$�� ������ ����$� ��#��� ���������$�����#����� � ��� �� �� �� ��� � ������ ��������� �� � ���� ����� � �� ����� ����� ����� ����� ����� �� � ����� � ������� ��� �!"�#��� � � $ ���� ����% ������ & ������ ����� ��%�� �� � ����� � ��%���' �"(����(�$ � $ " ���$ ������� ����� %���� ���'� ����'� ������ �� � ����'� ) ������� *��"������$ �+ ������ ����� �%���� & ������ ����% ����� �� � ����% � ������� *����#�� ����' ����� ����� ����� ����� �� � ����� � ������� ,������$ ��� ���(������� ����� ����� ���'� ���%% ����� �� � ���%% � ������% -��(������� ��� ����� �����. (� �����. � $ ����� $"���� ����� �����% ����� '�'�% ����� �� � ����� � ������� there was no statistically significant correlation between other assets items and the roa value. regarding the results of multivariate linear regression, out of eight independent variables that stood out as statistically significant during the implementation of univariate linear regression, only the variable liability for other taxes, benefits, and other duties was retained in the multivariate regression model (p = 0.014). univariate linear regression showed that only assets items have a statistically significant impact on the performance of companies presented through the current liquidity ratio, specifically short-term financial placements, and value-added tax. regarding the value of short-term financial placements, the coefficient b is 62.748, p = 0.003, which means that any increase in short-term financial placements by one billion leads to an increase in liquidity ratios by 62.758. as f = 9.529, p = 0.003, this linear model significantly predicts the values of the dependent variable represented through the current liquidity ratio. r2 is 0.085, which means that the model explains 8.5% of the liquidity ratio variance. the model for the liquidity ratio is: (7) similarly, table 3 interprets the relationship between the variable current liquidity ratio and value-added tax. table 3: univariate linear regression for current liquidity ratio source: authors’ calculation regarding the results of multivariate linear regression analysis, the conclusion of univariate linear regression was confirmed, i.e. after using the backward method, both variables were retained within the multivariate regression model (p = 0.001). the analysis of the relationship between all balance sheet items, as independent variables, and stock prices, as a dependent variable, confirmed for only one item, repurchased own shares, a statistically significant relationship. the coefficient b is 62.157, p = 0.010, which means that any increase in the value of repurchased treasury shares by one million increases share prices by 62.157. the stock price model is: (8) as f = 7.170, p = 0.010, this linear model significantly predicts the values of the dependent variable (stock prices). r2 is 0.128, which means that the model explains 12.8% of the stock price variance. 7 management: journal of sustainable business and management solutions in emerging economies forthcoming �� �� ������� � ������ � �� �� �������� � ������ � ��� �� �� �� ��� � ������ ����������� �� � ��� � ��� � ��� ��� ��� �� ��� �� � ��� ��� � � ����� the covid-19 pandemic has significantly destabilized global economic flows and threatened the business of companies around the world. companies whose activities depended on the mobility of people and capital experienced the most significant decline in the value of roe and roa indicators in serbia. however, companies that have developed and implemented effective crisis management policies, as well as financial policies, have proven to be far more financially resilient than companies where this was not the case. starting from that premise, in this paper the research of the influence of the companies’ financial policy on the profitability, liquidity, and market value, as financial health indicators, was conducted. the research efforts focused on identifying the elements of the companies’ assets and sources of financing that most strongly influence the stated indicators of the companies’ financial health. the research started from companies from the real sector listed on the belgrade stock exchange. the research results show that the covid-19 pandemic significantly affected the profitability of selected companies measured by roe and roa indicators, while its occurrence did not significantly affect their liquidity and market value. when it comes to the impact of changes in the value of individual items of assets and sources of financing on the financial health state of the observed companies, the research came to the following facts. the profitability of all analysed companies measured by the roe indicator significantly depends on the flow of cash and cash equivalents and other taxes, benefits, and other duties, while subscribed and unpaid capital and repurchased own shares had a significant impact on the roe of several observed companies. on the other hand, the movement of roa indicator is positively and strongly influenced by changes in shortterm financial placements, cash, and cash equivalents, repurchased own shares, reserves, deferred tax liabilities, and liabilities for other taxes, benefits, and other duties, while the impact of subscribed and unpaid capital is negative. other balance sheet items of the observed companies do not have a statistically significant effect on the movement of their profitability. however, after conducting a multivariate regression analysis, it was shown that the only liabilities item which conslusion references [1] 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2022, from https://www.belex.rs/trgovanje/informator/nssj [19] belgrade stock exchange. balance sheets and income statements of tehnohemija a.d., beograd. retrieved january 25, 2022, from https://www.belex.rs/trgovanje/informator/thhm 8 zenaida šabotić, ahmedin lekpek forthcoming has a statically significant impact on the movement of both profitability indicators are taxes, benefits, and other duties. only short-term financial placements, whose influence is positive, and value-added tax, which has a negative effect, have a statistically significant impact on the observed companies’ liquidity shown by the current liquidity ratio. the statistically significant influence of the mentioned independent variables on the movement of the current liquidity ratio was confirmed with the help of multivariate regression analysis. finally, the only balance sheet item that has a statistically significant, and at the same time, a positive impact on the selected companies’ share price movement are repurchased own shares. financial health factors that this research deals with are critical, both for corporate financial policymakers and the academic public interested in the corporate finance sector. understanding the impact of certain elements of assets and capital on the companies’ financial health should be an incentive for creators and implementers of corporate financial policies to strive to create an optimal investment and capital structure. this strengthens companies’ financial position and financial resilience, which is particularly important, especially in the turbulent socio-economic circumstances for the global society and economy caused by covid-19 pandemic. subsequent research should, among other things, overcome certain limitations of this research. the first limitation is objective and concerns the shortness of the observed period of the covid-19 pandemic, while the second is subjective and refers to a relatively small sample of observed companies. however, we believe that these restrictions do not diminish the importance and quality of research results because all current relevant data are included, and the sample consists of companies whose significance for the economy of the republic of serbia is exceptional. 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(2020). the impact of the covid-19 pandemic on firm performance. emerging markets finance and trade, 56(10), 2213-2230. https://doi.org/10.1080/1540496x.2020.1785863 [66] vito, a., & gomez, j. (2020). estimating the covid-19 cash crunch: global evidence and policy. retrieved january 28, 2022, from https://ssrn.com/abstract=3560612 [67] world economic forum. (2020). the global risks report 2020. report. world economic forum, cologny, switzerland. retrieved january 20, 2022, from https://www.weforum.org/reports/the-globalrisks-report-2020 received: 2022-02-22 revision requested: 2022-04-29 revised: 2022-11-03 (2 revisions) accepted: 2022-11-07 10 zenaida šabotić, ahmedin lekpek forthcoming 11 management: journal of sustainable business and management solutions in emerging economies forthcoming about the authors zenaida šabotić state university of novi pazar, department of economics sciences, serbia zsabotic@np.ac.rs zenaida šabotić is assistant professor of finance at the department of economics sciences at the state university of novi pazar, republic of serbia. she received her phd in 2014 from the faculty of economics, university of niš. her research interest includes finance and banking. she intensively deals with the problems of international finance, monetary finance, european integration, optimal currency area, with detailed statistical analysis and interpretation of current economic trends. she has published numerous papers in international and national journals and conference proceedings. ahmedin lekpek state university of novi pazar, department of economics sciences, serbia alekpek@np.ac.rs ahmedin lekpek is assistant professor of banking and finance at the department of economics sciences at the state university of novi pazar, republic of serbia. he received his phd in 2013 from the faculty of economics, university of niš. his research interests include islamic banking, conventional banking and corporate finance. he has published numerous papers in international and national journals, proceedings of international and national scientific conferences and a thematic collection of papers. << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 06_jasna petkovic:tipska.qxd 49 jasna petković1, milica jovanović1, maja levi-jakšić1, sanja marinković1, marija djordjević1 1 university of belgrade, faculty of organizational sciences, serbia ranking technology forecasting journals by using data envelopment analysis udc: 005.521:050.486 005.311.11 doi: 10.7595/management.fon.2015.0018 1. introduction there are many overlapping forms of forecasting technological developments, such as technology intelligence, forecasting, roadmapping, assessment, and foresight. (madnick & woon, 2003-2009). many of these forecasting forms use similar tools, at the same time accomplishing similar goals. however, there is a generally accepted tendency in government to use phrases that separate theory from practice, such as “assessment” and “foresight”, while economics uses phrases that link theory and practice, such as “roadmapping” and “competitive technological intelligence”. there are international differences as well, launched by different social expectations on behalf of the market and the government as well. industrial roadmapping, a largely private sector led initiative, emerged and became prevalent in the united states of america, while foresight, a government sponsored activity, became preferred alternative in europe. these forms of forecasting national technology foresight, roadmapping, and competitive technological intelligence gained weight at different times, but the authors have invested little effort to clarify their similarities and differences (coates et al., 2001; campbell, 1996). technology forecasting usually focuses on specific technologies, but sometimes the scope is more encompassing (reuven & dongchui, 1995). a company might roadmap a set of related technologies and products; an industrial branch might roadmap the range of emerging technologies that could make potential impact on a given sector, or the state could roadmap technologies that cover its entire economic base. management 2015/76 the goal of this paper is to present the ranking of the journals in the field of technology forecasting (tf) through the application of the data envelopment analysis dea. over the past four decades, we have witnessed a rapid development in the field of technology forecasting. this development, both in theory and in practice, has been fuelled by the increase in complexity, even greater competition, and rapid changes in the business environment. back in the past, little attention was paid to the importance and conceptual development in the field of tf, which caused numerous overlaps of the forms of tf development and its influence. the changes that have resulted in the emergence of information technology and modern manufacturing technology have actually increased the need for application of technology forecasting, as well as for explosive growth in scientific and engineering literature worldwide. the paper shows the ranking of 39 journals in the field of tf over the period from 1999 to 2011 through the application of the data envelopment analysis, as well as through analyzing trend changes in publishing professional publications in the field of technology forecasting. also pointed out are the shortcomings of previous methods of ranking journals by using impact factors, as one of the most important indicators of the quality of journals, as well as the possibilities of applying indicators obtained by using other methodologies. the results of such method of ranking should point out to publishing trends to the researchers engaged in this field, and direct them to journals in which they could present the results of their research. the aim of this research is to show that more than one criterion must be taken in order to create the rank of a journal from a specific area. in this way we get a more realistic ranking of leading journals from the observed area, since other necessary elements that contribute to the importance of a journal for a relevant field are also taken into consideration. keywords: technology forecasting, data envelopment analysis, ranking, journal methodologically, both national foresight studies and roadmapping usually bring together people of different expertise and interests, and use instruments and procedures that allow participants to simultaneously adopt a micro view on their own disciplines, as well as a more comprehensive view on most important or shared objectives (zhu & porter, 2002; gordon & glenn, 2003). it has been noticed through literature review that the trends and directions of the development of scientific areas are determined by analyzing tendencies in publishing expert results (togia & tsigilis, 2006; leydesdorff, 2008; rafols et al., 2012). this way of analyzing the actual condition of a certain field is also used by scientists in the field of management of technology and innovations (linton & thongpapanl, 2004; linton, 2009; thongpapanl, 2012; ratinho et al., 2015), so this paper also shows that the authors have made an effort to examine current trends in publishing research in this field. we have also presented the possibility of ranking journals with the help of alternative ranking methods the data envelopment analysis, which has proven to be convenient for this type of ranking. (tüselmann et al., 2015). 2. trend in tp publications in 2003, the technology futures analysis methods working group (tfamwg) sought to lay out a framework from which to advance the processes and the methods. they combined different forms of technology forecasting studies under the term future/oriented technology analyses (fta) and classified different forms as follows (tfamwg, 2004): • gathering and interpreting information: technology monitoring, technology watch, technology alerts. • converting that information into actionable intelligence: technical intelligence and competitive intelligence. • anticipating the direction and pace of changes: technology forecasting. • relating anticipated advances in technologies and products to generate plans: technology roadmapping. • anticipating the unintended, indirect, and delayed effects of technological changes: technology assessment, and forms of impact assessment, including strategic environmental assessment. • effecting development strategy, often involving participatory mechanisms: technology foresight, also national and regional foresight. how much the fta research publication is out there? figure 1 shows the results of querying web of science for “technological forecasting” or “technology forecasting”. the activity seems encouraging for the fta. figure 1. number of hit counts for “technology forecasting” or “technological forecasting ” from web of science between 1996. and 2009. (firat, 2010) 50 2015/76management 51 management 2015/76 type # of articles # of authorships % of articles academic 567 779 58% gov′t/ngo′s/institutes 174 210 18% industry 109 142 11% other 128 13% in 2006, alan porter (zhu & porter, 2002) prepared a literature profile of the fta domain helping to characterize the growing body of knowledge. this study shows that the number of scholarly articles relating to fta is increasing. the study also examines the sectoral mix of institutions involved in the fta as shown in table 1 below. note that the second grouping consolidates several difficult to distinguish types governmental and non-governmental organizations, and other such institutes. publication of the fta articles is strongly led by the academic community which has the greatest stake in such publications but the substantial participation by government and industry is also notable. table 1. leading authoring organizations by sector (firat, 2010, p. 24) where is fta work being published? alan porter’s study (zhu & porter, 2002) for the period from 1996 to 20061 lists 11 journals with 10 or more publications, where “technological forecasting & social change” ranks first with strong representation of leading technology management journals. table 2 displays the most impotant journals in the field of technology management. the “journal of cleaner production” focuses on sustainable development, while “solid state technology” shows a number of technology roadmapping articles. (porter & van der duin, 2007, pp. 183-207). table 2. leading fta journals (1996-2006) table 3 represents (sorted) areas of articles in which we recognized 20 out of 36 key words that show 15 times, or more. 1 search results downloaded from the “web of science” on october 16, 2006. process repeated on october 30 to capture cited references as well. this seems like a reasonable information resource to use in that it provides excellent coverage of journal articles in the sciences (sci), decent coverage of engineering, good coverage of social sciences (ssci), and additional treatment of humanities (ahci). it does not include conference papers and books. leading fta journals (# of articles) technological forecasting & social change (114) international journal of technology management (52) futures (49) research-technology management (26) abstracts of papers, american chemical society (14) technovation (13) journal of cleaner production (12) journal of forecasting (12) r & d management (11) solid state technology (11) technology analysis & strategic management (11) 52 2015/76management table 3. key terms in the fta articles (porter & van der duin, 2007a, p. 190) based on the results of search of more than 25 words in different combinations (browsing did not show adequate results, for example, “future studies” or “scenario” and ”trend analysis” because those terms are too general), the presumption is that the relevant articles do not contain general fta terms (for example, technology foresight or forecasting). for that reason, delphi, triz, backcasting and cross-impact are browsed explicitly. unfortunately, the two predominant phrases “delphi” and “technology assessment” proved highly problematic. delphi captured certain physics research as well as articles mentioning the company of that name. technology assessment mainly yielded “health technology assessment”, its own arena of detailed evaluations of medical technologies and programs. (porter & van der duin, 2007a, p. 184). to deal with these issues, all results were combined in vantagepoint2. duplicates were removed. an iterative process was then used: • removing inessential articles • base revision • repeated check different entries were browsed (titles, key words, journals, files) so as to avoid irrelevant articles. the set of separated records has then been browsed in order to detect the presence of the fta terms. the volume of admissibility has included the approach of decision support. although this approach is not perfect, it has allowed for keeping a certain number of materials related with delphi and technology assessment, which would be discarded otherwise. 3. empirical results and discussion in this chapter, the ranking of journals in the field of technology forecasting was carried out by applying the data envelopment analysis dea. in previous research, dea has proven very adequate when it comes to multi-criteria ranking, and it has also been used as a tool for journal ranking (tüselmann et al., 2015). this method is highly suitable because, while creating the end score, one can use criteria that employ different measure units. in addition, one more advantage of the dea method for this way of ranking is to be found in the fact that weight coefficients are not previously determined (fixed) values, but only the perimeter is given 2 software for market analysis and forecasting key fta terms # technology assessment 92 technology 48 innovation 43 management 36 future 35 science 33 delphi 32 forecasting 28 delphi method 26 delphi study 25 technology foresight 25 model 22 triz 21 foresight 19 sustainability 19 systems 19 models 17 sustainable development 17 backcasting 16 technology forecasting 15 within which weight coefficients should range. in this way, every observed unit (in this case, a journal) is allowed to choose on its own a combination of criteria that is most suitable for gaining as high a rank as possible (tüselmann et al., 2015). the dea models generally have two forms: input or output oriented model. input orientation has a goal of minimizing the inputs necessary for creating the specified quantity of outputs. on the other hand, the output orientation tries to maximize outputs at the specified level of input values (popovic, 2006a). this paper uses a dual, output oriented dea model, or the so called “envelopment problem”. dual model is used to construct a hypothetic composite unit beyond the existing units, all this for a given unit. in case this is possible, the observed unit is inefficient, and if not, than it is efficient. although there are no inputs that could be used while ranking, the dea model has been applied because of the listed feature saying that it can use diverse criteria, which is the case in the ranking problem that is the subject of this paper. in the output oriented dea model, the values for dual weights show the importance that every dmu had while defining the input and output of the composite unit, and they are being determined so as none of the inputs of composite unit ( ) is higher than the value of that input for kth dmu. by using dual weights chosen in this way, a necessary quantity ( ) that kth dmu should generate in order to be effective is calculated for each output (popovic, 2006b). if the observed kth dmu generates a small amount of outputs, then the intensity factor λj shows how much it should increase its outputs proportionally so it should become efficient. when in optimal solution only λkj has a positive value out of all λj ( j= 1, 2, ...,n), then kth dmu is on the very edge of efficiency and it is not possible to construct a composite unit out of remaining dmu, that could generate greater amount of outputs with the same level of inputs as kth dmu (savic, 2012). dual model has a following form: (1) p.o. (2) (3) (4) however, such model cannot be used for ranking, because more effective units are not comparable having in mind that their efficiency scores are mutually equal, i.e., all have value 1. this is the reason why we will use a modification of the basic dea model, the super-efficiency grade that will allow for the ranking of observed units, and it was proposed by andersen and petersen (andersen & petersen, 1993). the only modification here is leaving out the unit for which the efficiency is measured in the limitation from (1 4) relation, i.e., the limitation in the primary model has a following form: (5) while dual model now has the following form: (6) p.o. (7) (8) (9) (j=1,..,n) represents a weighting coefficient allocated to dmuj while assessing the efficiency of the observed dmuk, and speaks of its importance while determining goals if the observed unit is found inefficient. this model differs from basic dea models, because the unit that is being assessed (dmuk) is excluded from the production set that forms the efficiency frontier (savic, 2012). 53 management 2015/76 54 2015/76management the basic questions that the authors wanted to obtain answers to by ranking journals in this way are: which are currently the leading journals in the field of technology forecasting? what are the trends like in publishing publications in this field? has anything been changed since porter’s (zhu & porter, 2002) study? what are the key problems that the researchers in this field are dealing with? impact factor is one of indicators of the quality of a journal, but it is not sufficient and it is not the only indicator that should be used for this purpose (woodside, 2009; hirsch, 2005; harzing & van der wal, 2009). based on alan porter’s study (porter & van der duin, 2007a, pp. 183-207), a total of 25 journals have been ranked in this chapter, with an addition of 14 new journals that are considered to be leading in this area. these 14 journals have been selected by browsing the journalcitationreports3 online base, and we have selected the journals that deal with this topic with the highest impact factor. the research has been conducted for the period from 1999 to 2011. the journals have been ranked based on four criteria: total number of published articles, total number of published articles in the fta field, impact factor and number of quotations per article. the total number of published articles has been taken as basic output result of publishing one journal, but it has the least importance in this research, since it does not say much of the quality of publishing results in the fta field. for that reason, we have taken into consideration the total number of articles in the fta field that was obtained based on browsing key words. as one of the basic indicators for journal ranking (franceschet, 2010), a biannual impact factor has also been taken into consideration. however, the information obtained from literature shows that the impact factor is not a sufficient indicator for the comparison of journals (woodside, 2009; togia & tsigilis, 2006), so one needs to consider the quotation of papers as well. while creating the impact factor, one must relate the overall number of published papers with the number of quotations, so it may seem there is a data redundancy. however, the biannual impact factor does not consider the overall period of publishing that the authors wanted to take into consideration, so they tried to overcome the potential problem which refers to “nearsightedness” of a biannual impact factor by involving the abovementioned criterion (togia & tsigilis, 2006). in addition, it must be stressed that the criterion number of quotations per article refers to all publications, and not only to those from the fta field. in the end, the first two criteria are put into relation with the frequency of journal editing, i.e., with annual number of published journals, so we can say that this indicator has not been used explicitly, but it is used for gaining relative values of the first two criteria. while generating a dea model, it is necessary to allocate the range of importance to each of the used criteria, which has been done in this paper through author’s subjective assessment. total number of articles has been graded as least important, while number of quotations per article is twice more important in comparison with total number of articles. impact factor and total number of articles in the field are listed as the most important factors and are twice more important than number of quotations per article, i.e., four times more important than total number of articles. these data have been collected from the ”web of science”4 site, which contains official information on all journals on the sci and ssci lists. as for data regarding the number of articles in the fta field, on the abovementioned site, a number of articles for 18 key words in this area have been searched for every journal, and they were identified by porter (porter & van der duin, 2007a, p. 190): • delphi • technology assessment • (forecast or forecasting or forecasts) same (technology or technologies)) • (“technology roadmap” or “technology roadmaps” or “technology roadmapping”) • technology foresight • roadmapping • tech intelligence • (analysis same technologies same emerging) • futures research • triz • backcasting • cross-impact 3 available on http://jcr.incites.thomsonreuters.com 4 available on http://webofknowledge.com/ • (“foresight program” or “foresight programme”) • technology monitoring • technology watch • national foresight • technology same prospecting • tech mining in order to perform journal ranking, based on defined criteria and collected data, the data envelopment analysis has been used. in order to solve dea models (6-9), the ems5 software was used. solving the basic dea model was made possible by including a virtual input in the analysis, and the value of this input equaled 1 for all journals. in this way, the consistency of data and results was not undermined, taking into consideration that the efficiency could be observed as a ratio of a weighted sum of the output and weighted sum of the input. table 4 shows journals ranked in accordance with four stipulated criteria (where the first two criteria are put in relation with annual number of editions in order to get their relative value), for the period from 1999 to 2011. table 4. ranked fta journals for period from 1999 to 2011 55 management 2015/76 5 ems efficiency measurement system, it is used for calculating the efficiency using dea method, available on http://www.holger-scheel.de/ems/ journal title tot. number of mag. number of art. in the field impact factor number of quotations per document annual number of editions technological forecasting & social change 1013 245 1.709 2.362 9 international journal of technology management 1227 50 0.516 0.742 16 futures 1084 78 1.287 1.500 10 research-technology management 759 39 0.885 0.682 6 abstracts of papers of the american chemical society 38631 0 9.907 9.896 52 technovation 1024 30 3.287 4.085 12 journal of cleaner production 1846 29 2.727 3.115 18 journal of forecasting 509 16 0.930 1.159 8 r & d management 465 23 2.507 3.929 5 solid state technology 2312 17 0.271 0.63 12 technology analysis & strategic management 505 31 0.701 0.868 5 journal of engineering and technology management 219 10 1.032 1.806 4 ieee transactions on industrial informatics 325 0 2.990 4.143 4 journal of product innovation management 560 4 2.109 2.661 6 journal of materials processing technology 8763 2 1.783 2.370 42 international journal of production economics 2939 5 1.760 2.545 12 journal of quality technology 434 0 1.564 1.873 4 computers and industrial engineering 1783 3 1.589 2.632 8 strategic management journal 921 0 3.783 4.566 13 business strategy and the environment 426 0 1.960 2.320 6 journal of information technology 353 0 2.321 2.140 4 international journal of forecasting 712 14 1.485 1.678 4 manufacturing and service operations management 372 1 1.475 1.975 6 organizational research methods 342 0 3.257 3.268 4 management science 1706 1 1.733 2.174 12 while collecting data, it was noticed that one of the journals, “abstracts of papers of the american chemical society”, has incomparably higher values according to almost all criteria, and therefore, it was marked inadequate for comparison with other journals, i.e., it was left out from further comparison. the results of the application of the dea method on the remaining 24 journals are shown in table 5. it should be noted that the third column, “efficiency score” gave a final score that was obtained using the dea method, and journal ranking was performed based on it. because of the output oriented model, journals that have a lower score have accomplished a higher rank. in addition, the remaining four columns represent the values of weighted coefficients (ponders) which were allocated to each of the used criteria, and indicate how much each of those criteria contributed to the creation of the efficiency score. in this way, higher values of ponder were given to those criteria that allow the observed unit to accomplish a higher rank based on set limitations. table 5. application dea method on fta journals the obtained results show that the best journal in the fta field is ”technological forecasting & social change”. this journal was ranked first because it publishes a large number of papers from this area, so this criterion was given ponder 1, while other criteria are neglected. also, in addition to this journal, other two that rank highest are ”international journal of production economics”, which has equable good values under all criteria, and ”strategic management journal”, which ensured its good ranking due to a high impact factor. therefore, the journal that ranks highest is ”technological forecasting & social change”, such is the case in alan porter’s study (porter & van der duin, 2007, pp. 183-207), while second-ranked and third-ranked journals from porters (porter & van der duin, 2007) list, namely the “international journal of technology management” and the “futures” are ranked lower according to the dea method (on 24th and 15th position, respectively), because in spite of a large number of papers from the observed area, they have a significantly lower impact factor compared to other journals, as well as the number of quotations per article. since the 56 2015/76management dea method comprised more information by performing ranking based on four criteria, it is only logical that the “international journal of technology management” and the “futures” are poorly ranked because of the lower values under other criteria. as can be observed, the dea method is quite practical for application for these purposes, and the list of the leading journals in the fta field could be easily updated on regular basis. the ranking list of journals based on application of the dea method is as follows: table 6. leading fta journals (1999-2011) in addition, one could determine if there was a change in the ranking between journals ranked by porter (porter & van der duin, 2007), by using comparative analysis of the number of fta articles for the period from 1996 to 2006, and from 1999 to 2011. 57 management 2015/76 journal efficiency score 1 technological forecasting & social change 0.287 2 strategic management journal 0.869 3 internat. journal of production economics 0.929 4 technovation 1.037 5 computers and industrial engineering 1.073 6 journal of materials processing technology 1.108 7 r & d management 1.117 8 ieee transactions on industrial informatics 1.124 9 organizational research methods 1.139 10 journal of cleaner production 1.173 11 international journal of forecasting 1.273 12 management science 1.379 13 journal of product innovation management 1.427 14 journal of information technology 1.472 15 futures 1.577 16 journal of quality technology 1.663 17 business strategy and the environment 1.765 18 solid state technology 1.720 19 research-technology management 1.802 20 manufacturing and service operations management 2.052 21 technology analysis & strategic manag. 2.095 22 journal of engineering and techn. manag. 2.332 23 journal of forecasting 2.613 24 international journal of techn. management 2.898 table 7. comparative display of ranked journals (1996-2006/1999-2011) it can be noted that significant changes in ranking have occurred only for journals ”abstracts of papers”, “american chemical society”, which did not publish any article in the fta field in the observed period, and “technology analysis & strategic management”, which improved its ranking by six positions. also, the total number of articles published in the fta field, in the period from 1999 to 2011, is higher in comparison with the previous period, which indicates the trend of growth in the number of articles in the field of technology forecasting. in addition, we pointed out a further direction of research that would include empirical research related with the development of education in the field of technology management in serbia and worldwide, as well as the need for certain knowledge that is obtained by practice. however, this research also has certain deficiencies when it comes to the selection of ranking criteria. as for the number of quotations per document, it would be more adequate to update it for articles that refer to the field of technology forecasting. in addition, bearing in mind the shortcomings of the impact factor (woodside, 2009), it is necessary to make corrections as regards this indicator. namely, there are other methodologies that could help in determining journal ranking more objectively (oosthuizen & fenton, 2014). one of the solutions would be using snip (source normalized impact per paper), which takes into consideration the popularity of a certain field due to index normalization, thus solving the problem of “weight” of publishing papers in certain areas. as for future research, it would be convenient to use snip for one of the criteria used for journal ranking, after which journal ranks should be compared to results displayed in this paper. 58 2015/76management leading fta journals according to porter's study number of articles 1996-2006. rank 19962006. number of articles 1999-2011. rank 19992011. change in ranking technological forecasting & social change 114 1 245 1 0 international journal of technology management 52 2 50 3 -1 futures 49 3 78 2 1 research-technology management 26 4 39 4 0 abstracts of papers, american chemical society 14 5 0 11 -6 technovation 13 6 30 6 0 journal of cleaner production 12 7 29 7 0 journal of forecasting 12 8 16 10 -2 r & d management 11 9 23 8 1 solid state technology 11 10 17 9 1 technology analysis & strategic management 11 11 31 5 6 references [1] andersen, p., & petersen, n. c. (1993). a procedure for ranking efficient units in data envelopment analysis1993. management science, 39 (10), 1261-4. [2] campbell, r. (1996). a methodological study of the utilization of experts in business forecasting, phd dissertation, ucla. [3] coates, v., faroque, m., klavins, r., lapid, k., linstone, h.a., pistorius, c., & porter, a.l. (2001). on the future of technological forecasting, technol. forecast. soc. change 67 (1),1 17. [4] firat ayse kaya. (2010). early growth technology analysis: case studies in solar energy and geothermal energy, working paper cisl#02. [5] franceschet, m. (2010). journal influence factors. journal of informetrics 4(3), 239-248. [6] gordon, t.j., & glenn j.c. (eds.). (july 2003). futures research methodology, version 2.0 millennium project of the american council for the united nations university.. [7] harzing, a.-w., & van der wal, r. (2009). a google scholar h-index for journals: an alternative metric to measure journal impact in economics and business. journal of the american society for information science and technology, 60(1), 41–46. [8] hirsch, j.e. (2005). an index to quantify an individual’s scientific research output. proceedings of the national academy of sciences of the u.s.a. 102(46), 16569–16572. [9] leydesdorff, l. (2008). caveats for the use of citation indicators in research and journal evaluations. journal of the american society for information science and technology. 59(2), 278-287. [10] linton, j.d., thongpapanl, n. (2004). perspective: ranking the technology innovation management journals. the journal of product innovation management. 21(2), 123-139. [11] linton, j.d. (2009). technology innovation management’s growing influence and impact. technovation. 29 (10), 643–644. [12] linton, j.d. (2011). how influential are technology innovation management journals—technology innovation management journal 2010 impact factors in comparison with financial times 45. technovation. 31(9), 425–426. [13] madnick, s., & woon, w.l. (2003-2009). technology forecasting using data mining and semantics, mit/mist collaborative research. [14] oosthuizen, j.c., & fenton, j.e. (2014). alternatives to the impact factor. the surgeon, 12(5), 239–243. [15] savić, g. (2012). komparativna analiza efikasnosti u finansijskom sektoru, doktorska disertacija, fakultet organizacionih nauka, beograd. [16] porter, a.l. p., & p. in van der duin. (2007). knowing tomorrow? how science deals with the future, eburon academic publishers, 183-201. 59 management 2015/76 this paper studies journals that publish papers in the fta (future/oriented technology analysis) field. the research has been conducted for the period from 1999 to 2011, and it was based on alan porter”s study (porter & van der duin, 2007). apart from ranking according to number of papers in the fta field, the ranking was also carried out based on several criteria, by using the dea method. while the results of ranking according to number of papers in fta field show similar ranks, with small oscillations compared to previous research (porter & van der duin, 2007), the ranks obtained by the dea method show significant deviations. these deviations emerged because of introducing new criteria in the analysis (total number of articles, impact factor, and number of quotations per article). some of the leading journals from the previous analysis now ranked lower because their values were low for other criteria. this research aims to show that more than one criterion must be taken for the creation of journal ranking in a certain field (fta, in this case). in this way, more realistic ranking of leading journals in the observed area is obtained, since other necessary factors that contribute to the importance of the journal for a relevant field are taken into consideration. also, the analysis of journals that publish papers in the field of technology forecasting has been performed. the dea method has been used in order to rank journals in this field. in the end, a possible development of the research is noticed through a selection of precise indicators for rank creation through the methodology used by the dea. the results of such a way of ranking should indicate the publishing trends to researchers in this field, and to orient them towards journals in which they could present the results of their research. also, the further research direction is pointed out, which would comprise another significant indicator for journal ranking, and that is the snip (source normalized impact per paper). conslusion 60 2015/76management about the author [17] popović, g. (2006a). ocena efikasnosti kreditnih programa pomocu analize obavijanja podataka, magistarski rad. beograd, fon. [18] popovic, g., martic, m., & bulajic, m. (2006b). primena dea metode u rangiranju banaka srbije. [19] rafols, i., leydesdorff, l., o’harea, a., nightingale, p., & stirling, a. (2012). how journal rankings can suppress interdisciplinary research: a comparison between innovation studies and business & management. research policy, 41(7), 1262–1282. [20] ratinho, t., harms, r., & walsh, s. (2015). structuring the technology entrepreneurship publication landscape: making sense out of chaos. technological forecasting & social change. http://dx.doi.org/10.1016/j.techfore.2015.05.004 [21] reger, g. ( 2001). technology foresight in companies: from an indicator to a network and process perspective.technology analysis & strategic management, 13(4), 533– 553. [22] reuven, l. r., & dongchui, h. (1995). choosing a technological forecasting method. industrial management, 37(1), 14. [23] thongpapanl, n. (2012). the changing landscape of technology and innovation management: an updated ranking of journals in the field. technovation, 32(5), 257–271. [24] togia, a., & tsigilis, n. (2006). impact factor and education journals: a critical examination and analysis. international journal of educational research. 45(6), 362-379. [25] tüselmann, h., sinkovics, r., & pishchulov, g. (2015). towards a consolidation of worldwide journal rankings a classification using random forests and aggregate rating via data envelopment analysis, omega 51, 11-23. [26] tfamwg, (2004). technology futures analysis methods working group (tfamwg). technology futures analysis: toward integration of the field and new methods. technological forecasting & social change 71 (3), 287-303. [27] woodside, a.g. (2009). journal and author impact metrics: an editorial. journal of business research. 62, 1-4. [28] zhu, d., & porter, a.l. (2002). automated extraction and visualization of information for technological intelligence and forecasting, technological forecasting and social change 69, 495-506. receieved: march 2015. accepted: september 2015. jasna petković university of belgrade, faculty of organizational sciences, serbia jasna.petkovic@fon.bg.ac.rs jasna petković is an assistant professor at the faculty of organizational sciences, university of belgrade, serbia, where she earned her msc and phd degrees. she is an author and co-author of several books and more than 60 scientific papers. her research and teaching interests are in the fields of technology management, technology forecasting and smes development. milica jovanović university of belgrade, faculty of organizational sciences, serbia milica jovanović, msc., works as a teaching assistant at the faculty of organizational sciences, department for technology, innovation and development management. she is completing her phd studies at the faculty of organizational sciences, university of belgrade information systems and management. she has been involved in 3 consulting projects and 1 strategic project funded by the ministry of education, science and technological development of the republic of serbia. her main research interests include: technology and innovation management, quantitative management, sustainable development and performance management. maja levi jakšić university of belgrade, faculty of organizational sciences, serbia maja levi jakšić, phd is a full professor at the faculty of organizational sciences, head of department for technology, innovation and development management. she has been teaching as visiting professor at universities in greece, united kingdom, japan, and france and is a dual diploma master programme leader with middlesex university from london. prof levi jaksic has published more than 20 books and monographs, about eighty articles in journals and more than ninety papers in the proceedings of domestic and international scientific conferences. she has also been a project leader and member on about twenty domestic and international scientific projects. she is a member ofthe editorial board of technovation. sanja marinković university of belgrade, faculty of organizational sciences, serbia sanja marinković, phd is an assistant professor at the faculty of organizational sciences, department for technology, innovation and development management. she is an author and co-author of several books and more than 60 scientific papers. she is a lecturer at dual award master programme international business and management, validated by middlesex university, london. her research and teaching interests are in the fields of technology and innovation management, sustainable development and smes development. marija djordjević university of belgrade, faculty of organizational sciences, serbia marija djordjević is student of doctoral studies at the faculty of organizational sciences, belgrade university, department of management, and an assistant for the development of postal technologies in the pe „post of serbia“. she completed her graduate studies at the faculty of organizational sciences, university of belgrade. first of all, she graduated from the department of management and organization, on the operations management module. she earned her master’s degree from the department of engineering and operations management, on the engineering management module. she is an author and co-author of seven scientific papers in journals and proceedings of domestic and international scientific conferences. her research area of interest includes engineering process, performance measurement, and technology and inovation management. 61 management 2015/76 05_veljko dmitrovic:tipska.qxd 47 veljko dmitrovic1, marina dobrota1, snezana knezevic1 1university of belgrade, faculty of organizational sciences management 2016/75 a statistical approach to evaluating bank productivity udc: 005.61:336.71(497.11) 005.311.121 doi: 10.7595/management.fon.2015.0010 1. introduction in the times of economic crises, the banking sector was an issue of discussion worldwide (houston et al., 2010; chiorazzo & milani, 2011; maggi & guida, 2011; claessens & van horen, 2012). the financial crisis led to a reemergence of the debates and the issue became even more critical since the current crisis challenged most of the conventional wisdom regarding the design and use of monetary policy (caraiani, 2011). for instance, wu, yang and liang (2006) stress that analyzes in service industries attract increasing attention in today’s economics and society. we should add that this fact is even more apparent in conditions of economic crisis. it is also well established that when it is difficult to increase income significantly, attention is rather focused on rational cost management, as well as on increasing the productivity and efficiency of financial and other institutions. a similar situation has befallen serbia (bulajic, savic, & savic, 2012). since 2001, the serbian banking sector has incurred deep changes, when a new cycle in its economic transition process was forcefully launched. hence the necessity to continually evaluate and measure the performance and efficiency of its banking sector. efficiency is a success indicator (park & cho, 2011; koutsomanoli-filippaki, margaritis, & staikouras, 2012; zhang, wang & qu, 2012). it demonstrates the degree of effectiveness of banks that take specific inputs (deposits, borrowings, assets employment, etc.) to obtain outputs (revenue, profits, etc.). to adequately analyze a bank’s efficiency, it is particularly important to select appropriate combinations of inputs and outputs. relevant academic literature has presented different possibilities of combining inputs and outputs to test the efficiency of a bank (kasman, kasman, & turgutlu, 2011; hadad et al., 2012). under conditions of the current economic crisis (wu, luca & jeon, 2011), it is crucial to monitor the efficiency of banks. for developing countries (tecles & tabak, 2010; olson & zoubi, 2011; benkovic & dobrota, 2012), it is especially important to monitor the efficiency of the accounting periods for domestic banks and compare them with those of foreign banks in the region (yudistira, 2003; shin & kim, 2011; uludag & gokmen, 2011; huang, chiang, & chen, 2011). one aspect of monitoring a bank’s efficiency is the analysis of its productivity. the effective managing of bank productivity includes monitoring the bank in three segments: since 2001, when a new cycle in the process of economic transition was vigorously launched in the country, the serbian banking sector has incurred deep changes. this issue has acutely affected the banking sector in serbia proper, directly influencing its performance and efficiency. this paper deals with the application of a new statistical approach – the i-distance method in measuring the financial performance of banks that do business in serbia in order to determine their productivity level, thus stressing the performance of banks from the perspective of productivity. additionally, this point of view is essential for projecting productivity in evaluating overall bank operation efficiency. keywords: banks, efficiency, productivity, i-distance method, ranking • in relation to its planned size; • in relation to the achievements of other banks in the banking sector; • in comparison with the leader of the banking sector: productivity is an important instrument for increasing the overall efficiency of banks (andries, 2011). fixler and zieschang (1999), concerned with measuring the output of the banking sector, stress that banking output is multidimensional and in these terms it is necessary to underline the complexity of the application of economic statistics and productivity models. in a work by kirikal (2005), an empirical study measuring the productivity of estonian banks was shown. fiordelisi and molyneux (2010) examined shareholder value drivers in european banking by focusing on the efficiency and productivity of individual banks, utilizing french, italian, uk and german banking systems for the years 1995 2002 as their sample. in addition, many authors in south-eastern europe have used different methods to measure bank productivity. for instance, roghanian, rasli, and gheysari (2012) examined productivity through effectiveness and efficiency in the banking industry, concentrating on identifying a precise position of productivity via an effectivenessefficiency matrix. in order to measure a bank’s productivity, various techniques can be used. one of them is ratio analysis, which measures a bank’s productivity based on financial information. such indicators of productivity could include: • the relationship between bank’s assets and the number of employees • the relationship between a bank’s net interest margin and the number of employees • the relationship between a bank’s total revenue and total hours of work • the relationship between a bank’s profit before tax ratio and its total number of bank employees (knezevic et al., 2011) the financial performance of banks is necessary to be tracked and analyzed (festic & kavkler, 2012). it has been measured using a combination of financial ratio analysis, benchmarking, and measuring performance against a bank’s budget or an amalgam of these methodologies (avkiran, 1995). however, the use of ratio analysis is a one-sided approach, or, rather, a partial indicator of efficiency. therefore, other techniques for measuring the efficiency of banks, such as various statistical methods (dobrota, jeremic, & markovic, 2012; horvat et al., 2013), the dea (data envelopment analysis) method (dekker & post, 2001; liu, 2009; paradi, rouatt, & haiyan, 2011), the malmquist’s index method (primorac & troskot, 2005; kirikal, 2005), or the idistance method (knezevic et al., 2011) may also be used. the following section explains the problem definition in detail, followed by method elaboration in section 3. a presentation of the results and a robust discussion are given in section 4. finally, some concluding remarks are provided. 2. problem definition this paper attempts to analyze the efficiency of banks in the serbian banking sector exclusively from the perspective of productivity. for this matter, a number of input variables have been defined, which are measured as the values of the original variables divided by the number of a bank’s employees. data gathered from 2010 have been used, the latest available. partial efficiency indicators of entities are 1) productivity, 2) cost effectiveness, 3) profitability. productivity in this paper is examined through work productivity, which represents the relationship between the financially quantified bank performance and the number of employees in the bank. the statistical i-distance method has been used to research this problem. the issue at hand is to use a single comprehensive methodology that will define a set of variables relevant to the analysis. based on the correlation between the criteria and the i-distance measure, the i-distance method provides a proper overview of the importance of input measures and, subsequently, the order of importance for input criteria as it can be determined. thereby, this method provides an answer to the question of which variables are most important in measuring a bank’s efficiency from the perspective of productivity. 48 2016/75management an important matter in analyzing bank efficiency is the careful selection of the input variables used. for instance, when examining the efficiency and productivity of banks in descriptive european banking statistics, fiordelisi and molyneux (2010) utilized the following variables: eva/ci, roa, roe, total assets, total deposits and total loans. the precise nature of banking services complicates the process of measuring productivity: in the total costs of the bank, labor costs have a high share. among the subjective factors that have a substantial impact on productivity, the bank’s management and qualified and motivated bank personnel are singled out. variables for productivity indicators were selected as relevant since they are the principal financial performances, also presenting contribution of employees to the overall productivity of the bank by their height depending largely on the capacity of the bank personnel. therefore they may be brought to direct connection with the performance on the basis of the information presented in the annual report and in internal reports created by the management accountants for the purpose of measuring performance by narrower organizational departments of the bank. 2.1. financial data for this paper here on the serbian banking sector, the input variables have been carefully chosen so that they should not be excessively correlated, yet still be sufficiently explanatory. according to these terms, the variables that have been used as input criteria, as well as the reasons for choosing these particular variables, have been listed below. all the input variables are divided by the bank’s number of employees in order to observe the banking efficiency issue solely from a perspective of productivity: • assets per employee – composed of non-current (fixed) and current assets, these are the total assets a bank owns, which it uses to achieve its business goals. • equity per employee – the equity’s height indicates which parts of the bank’s assets are financed by its capital. equity is defined as the security for the bank’s depositors and creditors. • earnings before tax (ebt) per employee pre-tax profit, the positive difference between the total revenue and total expenses for the bank’s accounting period (usually one year). it indicates the bank’s strength of profitability. • fees and commissions income (f&ci) per employee – the income from fees and commissions charged by a bank for its services. in addition to interest, income represents key essential business income for both the survival of a bank and its long-term success. • net fees and commissions income (nf&ci) per employee – the difference between a bank’s income from fees/commissions and its expenses. these are the investments that management has made to provide services that are classified as revenue noted above. • total net income (tni) per employee – the difference between a bank’s total interest income and interest expense. it is important for this variable to be positive since interest is one of the main generators of income for banks as financial institutions. • total income (ti) per employee indicates the revenue power of a bank as it synthesizes the total interest income, fee income and commissions gained on the sale of equity investments and other long-term investments, income from exchange rate differences and other sources of income. this variable is highly important in determining the profitability of income. these variables have been selected as best to measure bank efficiency as they intentionally indicate the productivity of resources used by banks through the various forms of the financial results of their operations. 2.2. i-distance method quite often the ranking of entities is affected by the ranking methodology (ivanovic, 1973; ivanovic & fanchette, 1973; radojicic & jeremic, 2012). the i-distance method can solve this problem as elaborated in literature review (jeremic et al., 2011; radojicic & jeremic, 2012; jovanovic et al., 2012; isljamovic et al., 2014; seke et al., 2013; jeremic et al., 2013; jeremic & jovanovic-milenkovic, 2014; jovanovic-milenkovic, jeremic, & martic, 2014; dobrota et al., in press). for a selected set of variables that characterize the entities, the i-distance between the two entities and is defined as 49 management 2016/75 (1) where is the distance between the values of variable for and , e.g., the discriminate effect, is the standard deviation of and is a partial coefficient of the correlation between and , , (ivanovic, 1973; jeremic, markovic, & radojicic, 2011; jeremic et al., 2012; dobrota, jeremic, & markovic, 2012). for the purpose of this analysis, we have used the square i-distance method, which can be presented by the following expression: (2) 3. results and discussion the results of the i-distance method used to measure and rank bank efficiency are displayed in table 1. as can be seen, if efficiency were to be measured from the point of productivity, than aik bank, unicredit bank, banca intesa, hypo-alpe-adria bank, volks bank and raiffeisen bank would find themselves foremost on the ranking list. on the other hand, kbc bank, srpska bank, vojvodjanska bank, opportunity bank and dunav bank would be located at the bottom. table1 1: i-distance rank 50 2016/75management ����� ��� ���� � ��� ���� ������ ��������� ��� � � ��������������� ���� �� ������������� ������ � ������ �������������� �� !�� �� "� �������� � �� � #��$$����������� %�% !� �� &�������'����� �� !�!%�� �� ()'�(*��+���� ��!%!� �� ,�������������������� �� % � !� �-��+���� ���%�� %� .����/��������� ����!� � ��0����1� �������� ��% � �� ���/��2� ������ �!� � � (���������� ����� �� 34������� � �� � �������������� ��!��� �� #��"�1/������ ������ �� 5��.(&������ ��� � �� ,�����-���� ��% !� !� ,�������������� �%�!� �%� ,����*������� �%�!� � � ��������-���� ������� ����!� ��� 67,������ �� � � � )����0����������� ��%��� ��� � �8������� ����� � � 5*-�+����� � ��� ��� ����������� � ��� ��� .��$�������� � � ��� ��������� � ��� �!� &����������� � �� %� "�1/��1����������� �%�� � 6�����*���������� %��� � �� 9*��/������ %� % � � � one of the most significant advantages of the i-distance method is its ability to determine the relevance of input criteria, which allows for a better understanding of the ranking results, as well as for a better comprehension of measuring efficiency from the point of view of productivity. this can be achieved by calculating a pearson correlation coefficient between the i-distance metrics and each of the input variables. accordingly, it is essential to establish an order of importance for the input variables. the correlations are presented in table 2. table 2: variable importance as measured by correlation with the i-distance the most significant variable for evaluating bank efficiency from the standpoint of a bank’s productivity is total income (ti) per employee, with r=0.934, p<0.001, followed by total net income (tni) per employee, earnings before tax (ebt) per employee, equity per employee and assets per employee. as has been already indicated, all these variables are pertinent to investigation as they can explain the top position held by individual banks. the aik bank has vast values of total income (ti), total net income (tni), earnings before tax (ebt), equity and assets, in comparison with the others reviewed. when divided by its number of employees, it is launched even higher in its level of productivity efficiency. the aik bank is, therefore, the bank that most certainly has the best productivity results. similar are the cases of the unicredit bank, banca intesa, and the hypo-alpe-adria bank. in order to provide a complete picture of this particular ranking of serbian banks, it is interesting to compare the results gained from the research carried out for this paper, with those results that have previously published in other studies concerning the same matter. firstly let this study’s findings be compared with those of a study conducted by mihailovic, bulajic and savic (2009), who were among the first to publish results obtained from the i-distance method. as has already been elaborated upon in section 1, these authors utilized both the i-distance and dea method in order to measure bank efficiency and rank them accordingly. the first main difference in regard to this current paper and theirs is reflected in the fact that these authors were driven by the results of the dea method and chose the input variables of i-distance method as such. the second main difference is that bulajic and savic did not examine efficiency from the point of view of productivity, which is the primary goal of the research undertaken in this current paper presented within. if the results of the i-distance methods are compared, it will be seen that those banks that top both methods are relatively the same. mihailovic et al. (2009) present the aik bank (1st place in the results here), raiffeisen bank (6th place), delta bank today known as banca intesa (3rd place), komercijalna bank (12th place) and vojvodjanska bank (31st place) as those banks that top their ranking. there has been a multitude of changes in the banking sector since their study was initially conducted: certain banks have been liquidated; some of them have changed their name. bearing this in mind, a pearson coefficient of correlation between the i-distance metrics used in this paper and the one obtained in the research of bulajic and savic has been calculated. the correlation between them is 0.582, p=0.004, significant at a 0.01 level and demonstrating a strong correlation (cohen, 1988). bulajic et al. (2011) offered a newer perspective on bank efficiency, as they measured it by using the dea method one that provides results based on a set of inputs and outputs. nevertheless, the primary difference between their research and the study presented within is that they utilized a different method based on a different set of criteria. in their paper, the inputs were based on available data for each bank and for every observed year (bulajic et al., 2011), which entailed: 51 management 2016/75 ��������� ��������� ���� ��� ������� �� �������� � ����� ������ ������� �������� ������������ � ������ ������ ������� �������� ��������� ������� �������� ������������ ������� �������� !!��!������ ������� ��"#���� ����$��!���%�&� �!!���!��� � � ��$'&� ������ ������� ����(��� $��!���%�&� �!!���!��� � ���$'&� ������ ������� �������� � • the measure of a bank’s operating costs as its fixed asset-to-equity capital ratio; • the unit price of a bank’s current assets as the ratio of annual interest expenses to its total loanable funds; • the measure of the riskiness of a bank’s overall portfolio as a ratio of its provisions to its total assets; • the measure of a bank’s size as its total assets on january the 1st of the observed year; • a bank’s number of employees; • the number of a bank’s branches. bulajic et al. also utilized the following outputs: • a bank’s total assets on december the 31st of the observed year (a bank’s total assets at the beginning of the year, plus the annual profit/loss as a measure of a bank’s business performance); • a bank’s total revenue from the 1st of january to the 31st of december; • a bank’s interest rates’ income (a measure for the bank’s primary income driver). again, the second main difference is that the analysis of bulajic et al. is focused on the overall measurement of a bank’s efficiency, not concerned with the perspective of productivity, unlike the study that is presented in this paper. a comparison of the results gained by bulajic et al. in this manner and the results of the analysis of the current study of this paper have shown the following banks to top their ranking: raiffeisen bank (6st place within the current study’s results), the aik bank (1st place), banca intesa (3rd place), the hypo-alpeadria bank (4th place), komercijalna bank (12th place) and unicredit bank (2nd place). these results are far more compatible with the results of measuring bank efficiency exclusively from the point of productivity. the pearson correlation of these was calculated to be 0.647, p<0.000, indicating a strong correlation (cohen, 1988). furthermore, a spearmen’s correlation of these ranks between the two ranking lists has also been calculated, which has given a correlation of 0.642, p<0.000. another study has focused on examining the serbian banking sector in order to rank serbian banks. in this study, 14 variables were used as the input: (i) nim (net interest margin), (ii) equity ratio, (iii) cbni/cbi (core net business income/core business income), (iv) roe (return on equity), (v) roa (return on assets), (vi) active ir (active interest rate), (vii) net interest income, (viii) cbni, (ix) cbi, (x) equity, (xi) assets, (xii) loans, (xiii) deposits and (xiv) passive ir (passive interest rate). while this study has given a comprehensive analysis of the serbian banking sector, from a productivity point of view it is far too effusive. in order to examine efficiency from a standpoint of productivity, the research undertaken within the paper presented here has been in-framed, as has been described in section 2. the top banks here also show excellent performance in the study conducted by knezevic et al. (2011). however, significant differences are to be found in the dunav bank. even though it tops the research results of knezevic et al., the results obtained for this paper from a point of productivity ranks it at the bottom position. compared to others from a point of productivity, the dunav bank is extremely weak in the variables total income (ti) and total net income (tni) per employee, while ebt and equity per employee are found to be significantly less than in other banks. this is why the pearson correlation between the study and the current i-distance measure is 0.265. moreover, it is also insignificant, showing a weak connection between these two measures. nevertheless, the spearman’s rho has been calculated to be 0.454, p=0.008. the accelerated development of banking capacities has not been followed by a visible growth in productivity in serbian domestic banks. according to the productivity indicators applied in the research into structural changes and performance of the serbian banking sector, it has been observed that serbia belongs to the most underdeveloped countries in europe (vukovic, 2009). in this regard, the importance of the comparison of productivity with a reference group of countries is emphasized in relation to the mere testing of the productivity of the banks within one country and their subsequent ranking. in this study, a methodology of the european central bank and the european bank for reconstruction and development has been used, which represents an adequate basis for comparison with different groups of european countries. additionally, the following indicators have been used in this study as critical indicators of productivity in banking: assets, deposits and loans per employee. by observing productivity per employee, the research has shown that the serbian banking sector has lower assets in relation to the eu countries. 52 2016/75management references [1] andries, a.m. (2011). the determinants of bank efficiency and productivity growth in the central and eastern european banking systems. eastern european economics, 49(6), 38-59. doi:10.2753/eee00128775490603 [2] avkiran, n. k. (1995). developing an instrument to measure customer service quality in branch banking. international journal of banks marketing, 12(6), 10-18. doi:10.1108/02652329410063223 [3] benkovic, s., & dobrota, m. (2012). application of teaching methods and techniques at serbian universities: progress over time. management, 16(63), 35-43. doi:10.7595/management.fon.2012.0007 [4] bulajic, m., savic, g., savic s., mihailovic, n., & martic, m. (2011). efficiency assessment of banks in serbia, technics technologies education management, 6(3), 657-662. [5] bulajic, m., savic, s. & savic, g. (2012). analysis of competition in banking sector of serbia. actual problems of economics, 134(8), 330-338. 53 management 2016/75 conclusion the purpose of this study is to perform a ranking of banks according to the efficiency in terms of productivity at which key financial variables and the number of bank employees were used. there are studies where the economic variables in financial and operational accounting records are used. for example mandić et al. (2014) applied the fuzzy ahp and topsis methods to analyze financial parameters of serbian banks. in the paper of knezevic et al. (2012), where the dea method was applied, it is pointed out that one of the fundamental principles is the principle of efficiency, and it is emphasized that, for developing countries, it is particularly important to monitor the efficiency of banks and compare it with countries in the region. yang (2009) presented the evaluation of 240 branches of one big canadian bank using the data envelopment analysis (dea), and the traditional performance ratios (an operational efficiency model, a production approach) were used. the technical and allocative efficiency of a bank constitutes the measure in the sum of its overall economic efficiency. taking the ranks that have been obtained in this study into consideration, it can be seen that the aik bank, the unicredit bank, banca intesa, the hypo-alpe-adria bank and raiffeisen bank achieve particularly good results in this efficiency field. considering the selected key financial parameters, this would suggest that their management effectively governs the operations of their banks in the serbian banking market and that they are the strongest from the standpoint of productivity. when compared to previous study results obtained by mihailovic et al. (2009), it can be noted that the best players remain similar (aik bank, raiffeisen bank, banca intesa); however, the situation is quite different in regard to komercijalna bank and vojvodjanska bank. this is a very interesting conclusion and shall be the future course of subsequent research undertaken by the authors of this paper. nevertheless, bulajic et al. (2011) show similar results, where these same banks (raiffeisen bank, aik bank, banca intesa, hypo-alpe-adria bank and unicredit bank) score the best results while komercijalna bank remains under a cloud. one of the most important contributions of this paper is the ability of its method to single out those variables which most influence bank efficiency from the perspective of productivity, taking into account the very order of their importance; such variables are total income per employee, total net income per employee, ebt per employee, equity per employee and asset per employee. the future course of research by this paper’s authors will also further examine these. to monitor and measure productivity, it is logical to use those financial ratios that best reflect both the actual relationship between the achieved financial performances of a bank’s employees and the average number of its employees. merely using a bank’s total assets or its assets financed by equity does not provide the clearest picture possible of the bank market. employees achieve outputs in the form of profits and total revenues with lower or higher levels of economic efficiency and, within that, they increase productivity; hence the exact reason as to why it is quite necessary to switch the entirety of the observing aspect to the perspective of bank productivity. for future research, it would be useful that the productivity of the serbian banking sector be compared to productivity in other countries within the reference group. 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(2012). bank risk taking, efficiency and law enforcement: evidence from chinese city commercial banks. china economic review, 23(2), 284-295. doi:10.1016/j.chieco.2011.12.001 receieved: september 2014. accepted: may 2015. veljko dmitrović university of belgrade, faculty of organizational sciences dmitrovicv@fon.bg.ac.rs veljko dmitrović works at the faculty of organizational sciences, university of belgrade, at the department of financial management and accounting. he is completing his phd studies at the faculty of organizational sciences. he achieved his msc degree in financial management at the faculty of organizational sciences, university of belgrade, and his bsc and ma degrees in marketing management at the faculty of economics in subotica, university of novi sad. so far he has authored and coauthored more than 50 papers published in international and national journals and conferences. he has been involved in several research projects. before the academic career he gained practical experience working for five years in “fidelinka” a.d., subotica. marina dobrota university of belgrade, faculty of organizational sciences dobrota.marina@fon.bg.ac.rs marina dobrota works as a teaching assistant at the faculty of organizational sciences, university of belgrade, serbia. she completed her phd studies at the faculty of organizational sciences. her major professional interests are applied statistics, composite indicators, ict development strategy, data mining in medicine, and biostatistics. she published more than 30 articles in scientific journals and conferences. she reviewed several papers in scientific journals in ssci and sci-e. snežana knežević faculty of organizational science,university of belgrade knezevic.snezana@fon.bg.ac.rs snežana knežević was born in 1966 in pančevo (jabuka), where she graduated from the school of economics. she graduated from the faculty of economics in belgrade where she also got her msc degree. she got her phd degree at the faculty of organizational sciences in belgrade. the areas of her scientific interest are finance, accounting and environmental protection. she is fluent in french and english. she has published several monographs and papers of scientific and professional orientation in the country and abroad. currently, she works at the faculty of organizational sciences in belgrade, department of financial management. she is an associate member of the scientific society of economists and a member ot the eummas (europeanmarketing and management association). 56 2016/75management about the author # ljumovic:tipska.qxd 1 isidora ljumović*, jelena minović, slavica stevanović institute of economic sciences, belgrade, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming * corresponding author: isidora ljumović, e-mail: isidora.ljumovic@ien.bg.ac.rs research question: this paper examines how investing in intellectual capital (ic) influences bank profitability measured by return on average assets and return on average equity. motivation: ic is a source of non-physical (added) value for innovative companies in the knowledge-based economy. in finance and banking, efficient use of ic is critical since a bank's capacity to supply high-quality services is based on its investment in ic. as a result, our goal was to throw light on the components of ic and examine how they relate to the commercial bank's financial performance in serbia. idea: the main idea behind this paper is to assess the relationship between components of ic and bank profitability. we used the three most common components: human capital efficiency (hce), capital employed efficiency (cee), and structural capital efficiency (sce), as well as control variables such as banks' size and leverage. data: we used a bankscope data set that included 27 serbian commercial banks from 2011 to 2019, with 212 observations. tools: we used breusch–pagan lagrange multiplier and the pesaran test to examine cross-section dependence. based on the test results, we used the system generalized method of moments (gmm) to assess the relationship between ic components and bank profitability. findings: in serbian banking industry, both hce and cee considerably impact bank profitability. however, we couldn't find evidence that sce contributes to bank profitability. contribution: this paper adds to the existing literature on the relationship between ic and bank profitability. however, it also includes a policy recommendation for bank executives as we discovered that investing in ic can positively influence bank profitability. keywords: intellectual capital, banks, profitability, gmm, serbia jel classification: g21, o34 intellectual capital and bank profitability: evidence from serbia doi: broj 10.7595/management.fon.2022.0010 abstract: 1. introduction we live in a knowledge-based economy, where a successful use of intangible assets determines a most value creation (chowdhury et al., 2019). knowledge becomes a new source of financial performance and competitive advantage (soewarno & tjahjadi, 2020). the resource-based theory acknowledges that the assets owned by an organization are unique and drive its performance as an essential source of competitive advantage. according to the resource-based view, a firm's performance is determined by its unique resources, both tangible and intangible (soewarno & tjahjadi, 2020). human capital is an essential component of intellectual capital (milosevic et al., 2021), along with capital employed efficiency and structural capital efficiency (janosevic & dzenopoljac, 2012; janosevic et al., 2013; mrazkova et al., 2016; nawaz, 2019; haris et al., 2019; kweh et al., 2019; oppong & pattanayak, 2019; soewarno & tjahjadi, 2020; le & nguyen, 2020; anwar et al., 2020; xu & liu, 2020). as a strategic resource, accumulated intellectual capital can account for a large portion of a bank's or firm's market worth. intellectual capital refers to the sources of non-physical (added) value for a company or organization: human capital, relational capital, and structural capital (stahle et al., 2011), that can be transformed into organizational performance (mahmood & mubarik, 2020). it is challenging to capture ic's structure, functions, and benefits in terms of operationalization. researchers developed several ic models and methodologies for analysing and monitoring ic to improve total business performance, especially financial performance. modern companies, particularly financial institutions, focus on optimizing intellectual capital efficiency to improve their financial performance. due to continuous technological advancements, globalization, increasing international competition, and economic downturns, the global financial environment has changed, putting additional pressure on bank performance. banks can increase their returns by improving service culture and customer satisfaction, utilizing new technologies, implementing effective marketing strategies, or increasing the riskiness of their assets. nonetheless, boosting intellectual capital efficiency has recently gained popularity and has become one of the most important determinants of bank performance (hamdan, 2018). as the banking sector is classified under knowledge concentrated/intensive companies, investigating ic in the banking sector is vital (oppong & pattanayak, 2019; rehman et al., 2021). an efficient use of intellectual capital is essential in finance and banking, as a bank's ability to deliver highquality services is dependent on its investment in intellectual capital-related items (ahuja & ahuja, 2012). serbia's banking system is characterized by significant changes in the number and relative importance of banking institutions and an increase in the relative proportion of foreign banks. after 2000, serbia's banking sector experienced significant changes due to strategic commitments to minimize public forms of ownership and the need to reform and modernize the banking system. with the advent of innovation and new technologies, foreign bank entry contributed to creating a competitive banking environment, as foreign banks are already technologically advanced and thus contribute to enhanced industry competition (oppong & pattanayak, 2019). this research aims to highlight the components of intellectual capital and examine how they relate to commercial bank financial performance in serbia. hence, the study includes five sections, an introduction, a review of the existing literature, methodology, findings, discussion, and a conclusion. the final section provides concluding remarks and wraps up with the debate on the policy implications. 2. literature review the relationship between intellectual capital and business success is analysed in depth across countries for different types of companies, including financial institutions. the literature on the relationship between intellectual capital and bank performance is growing and includes evidence from the indonesian banking industry (sidharta & affandi, 2016; soewarno & tjahjadi, 2020; anwar et al., 2020), the banking system in vietnam (le & nguyen, 2020), pakistani financial institutions (haris et al., 2019), gulf nations (buallay et al., 2020), islamic banks (nawaz, 2017; nawaz, 2019; rehman et al., 2021), indian commercial banks' (oppong & pattanayak, 2019) and other. the relationship between ic and bank performance has been thoroughly investigated in serbia (bontis et al., 2013; radic, 2018; milosevic et al., 2018; ognjanovic & pesterac, 2019; pekovic et al., 2020). there is also a substantial body of research on the link between human capital and bank success (milosevic et al., 2021). the value-added intellectual coefficient (vaic) is the most common proxy to measure the impact of intellectual capital on specified performance metrics. the vaic model was developed in 1998, as described in pulic (2004). because it has proven to be trustworthy, many academics still use it to analyze intellectual capital efficiency (janosevic et al., 2013; sidharta & affandi, 2016; mrazkova et al., 2016; nawaz, 2019; haris et al., 2019; kweh et al., 2019; oppong & pattanayak, 2019; soewarno & tjahjadi, 2020; le & nguyen, 2020; anwar et al., 2020). even though the three components listed above are the most widely employed, researchers use a variety of approaches to assess intellectual capital. particular academics include r&d investment and copyrights as a measure of structural capital and call it innovation capital. others prefer the modified and extended vaic, which uses human capital efficiency, capital employed efficiency, and innovation capital efficiency as the main components of a-vaic (nadeem et al., 2018) or capital employed efficiency, human capital efficiency, structural capital efficiency, innovation capital efficiency and relational capital efficiency (xu & liu, 2020). similarly, soewarno and tjahjadi (2020) use both the traditional vaic methodology and the adjusted value-added intellectual coefficient (a-vaic) model in their research. more recently, rehman et al. (2021) examined human capital efficiency, structural capital efficiency, and relation capital efficiency as factors representing intellectual capital. in today's literature, there is a variety of indicators for assessing financial performance. while some authors analyse the impact of intellectual capital on financial performances using individual measures such as return on assets (roa) (anwar et al., 2020), others use a combination of roa and return on equity (roe) (bontis et al., 2013; radic, 2018; nawaz, 2017; nawaz, 2019; nadeem et al., 2018, pekovic et al., 2020) or risk2 isidora ljumović, jelena minović, slavica stevanović forthcoming adjusted returns on equity and risk-adjusted returns on assets (le & nguyen, 2020). in some cases, roa is combined with the operating cash flow ratio to determine a company's performance (kweh et al., 2019). roa and roe are occasionally combined with additional indicators: net profit, operating revenues, and operating profit (janosevic et al., 2013); operational cost, non-performing loan, capital adequacy ratio, and loan to deposit ratio (sidharta & affandi, 2016). xu and liu (2020) and soewarno and tjahjadi (2020) assess firm performance using roa and roe for profitability, asset turnover ratio as a proxy for productivity, and market-to-book ratio as a market value measure. the following indicators of profitability also appear in the literature: return on capital, tobin’s q, revenue growth opportunities and employee productivity (sherif & elsayed, 2016); market-to-book ratio and employee productivity (mrazkova et al., 2016); net interest margin and profit margin (haris et al., 2019); asset turnover and employee productivity (oppong & pattanayak, 2019) and more recently tobin's q (rehman et al., 2021). in certain cases, authors use a mix of indicators: roa, market value, and tobin's q (castro et al., 2021). the positive relation between ic and its components on bank performance is well documented in several studies. ic as the sum of human capital, capital employed and structural capital efficiency positively influence the banks’ profitability measured by roa and roe (radic, 2018; nawaz, 2019; le & nguyen, 2020). anwar et al. (2020) only used roa to confirm this connection. capital employed efficiency (cee) and human capital efficiency (hce) have a positive effect on the financial performance of banks when vaic is broken down into its component elements (ozkan et al., 2017). the system generalized method of moments gmm showed an inverted u-shaped relationship between vaic and profitability measured by roa, roe, net interest margin, and profit margin (haris et al., 2019). the same methodology was used to assess the relationship between vaic and risk-adjusted returns on equity and assets (le & nguyen, 2020). using fixed and random effects methods and gmm estimator to check for robustness, yao et al. (2019) discovered a ushaped relationship between ic and performance, arguing that profitability and productivity rise with an increase in ic performance up to a point, after which a further increase in ic performance causes a decline in profitability and productivity. ic also impacts banks' productivity measured by asset turnover and employee productivity (oppong & pattanayak, 2019). even though the majority of literature indicates the positive relationship between profitability and intellectual capital, castro et al. (2021) found inconsistent patterns and a variety of relationships between vaic, financial performance, and corporate value. although some studies have discovered that the ic impacts bank profitability, each ic component can have a different effect. human capital efficiency (hce) has been proven to have a beneficial influence on bank profitability as assessed by roa and roe (nawaz, 2019; haris et al., 2019; pekovic et al., 2020; le & nguyen, 2020; xu & liu, 2020; soewarno & tjahjadi, 2020; adesina, 2021), or on banks’ productivity measured by assets turnover (oppong & pattanayak, 2019). this is the most important component of ic and outperforms other components (ousama et al., 2019; yao et al., 2019). in addition, human capital can be critical to the bank's performance and innovation speed (milosevic et al., 2021). nonetheless, certain studies confirmed that hce can negatively affect banks' performance (rehman et al., 2021). as the connection between hce and bank performance is established, employee expenses should be considered investments because they provide long-term benefits to the firm and contribute to its financial performance (pulic, 2004). sce (structural capital efficiency) positively impacts bank profitability as measured by roa and roe (le & nguyen, 2020; pekovic et al., 2020; soewarno & tjahjadi, 2020; xu & liu, 2020; rehman et al., 2021) and on banks’ productivity (oppong & pattanayak, 2019). on the contrary, there is evidence that sce can have a negative impact on the banks' performance measured by net interest margin and profit margin (haris et al., 2019). sce provides for the working conditions and the efficiency of the employees (nawaz, 2019), contributing to banks' added value. finally, it is evidenced that capital employed efficiency (cee) can positively influence banks' profitability measured by roa and roe (sidharta & affandi, 2016; radic, 2018; nawaz, 2019; haris et al., 2019; le & nguyen, 2020; pekovic et al., 2020; soewarno & tjahjadi, 2020; xu & liu, 2020), and bank productivity indicated by assets turnover and employee performance (oppong & pattanayak, 2019). following the aforementioned literature on the intellectual capital and bank performances, we formed the following hypotheses: h1. the impact of hce on bank profitability assessed by roaa and roae is positive. h2. the impact of cee on bank profitability assessed by roaa and roae is positive. h3. the impact of sce on bank profitability assessed by roaa and roae is positive. 3 management: journal of sustainable business and management solutions in emerging economies forthcoming 3. research methodology 3.1. data this study uses a dataset from bankscope (bs) financial reports (balance sheet and income statement). the sample spans the years 2011 to 2019 and includes all banks operating in serbia as of the end of 2019, including 26 commercial banks (excluding the bank of china). one bank from the sample was established in 2015 and the data are from then on. four banks had experienced organizational changes in 2011-2013, and we used data from 2013. we did not have data for three banks for 2019, and their interval runs from 2011 to 2018. we randomly verified data using the authorized individual financial reports. after careful examination, we eliminated all missing firm-year observations and outlier data. finally, our dataset comprises unbalanced panel data with 212 observations. 3.2. variables for the data set of serbian commercial banks, we used return on average assets (roaa=net profit/average of total assets) and return on average equity (roae=net profit/average of equity), as our dependent variables, in keeping with previous research on the impact of intellectual capital on profitability (bontis et al., 2013; sidharta & affandi, 2016; radic, 2018; nawaz, 2017; nawaz, 2019; nadeem et al., 2018, pekovic et al., 2020; aslam & haron, 2020a). we used hce, sce and cee as our independent variables, amended with a set of bank-specific control variables (hce=(operating profit + staff expenses + depreciation & amortisation expenses)/staff expenses; cee=(operating profit + staff expenses + depreciation & amortisation expenses)/total equity, and sce=(operating profit + depreciation & amortisation expenses)/(operating profit + staff expenses + depreciation & amortisation expenses). as in rehman et al. (2021), we employed control values to isolate the influence of other variables that may have an anticipated impact on serbian bank performance. we measure bank size as the natural logarithm of total assets (ta) and bank leverage (lev) as the sum of total liabilities relative to total assets. 3.3. model researchers often use multiple linear regression, panel data regression analysis, or system generalized method of moments – gmm to assess the relationship between ic and bank performance analysis. previous studies use multiple linear regression analyses (janosevic et al., 2013, sidharta & affandi, 2016; soewarno & tjahjadi, 2020), while more recent studies employ panel regression (radic, 2018; nawaz, 2019; haris et al., 2019; oppong & pattanayak, 2019; le & nguyen, 2020; xu & liu, 2020; pekovic et al., 2020; rehman et al., 2021). the latest trend in analyzing the relationship between intellectual capital and bank financial performances is gmm, applying a two-step system generalized method of moments (2sys-gmm) estimator on panel data (haris et al., 2019; le & nguyen, 2020; rehman et al., 2021). endogeneity issues may arise due to unobserved heterogeneity and the presence of a lagged dependent variable, according to oppong et al. (2019). as a result, using ols estimators to assess parameters and fixed-effect models can be inconsistent and ineffective. the problem of endogeneity can be addressed using a more reliable dynamic panel estimator (gmm system) (oppong et al., 2019). oppong et al. (2019) state that “the gmm estimator uses the combination of a system with regression taking in all first differences (instrumented with the lags of their levels) and at all levels (are instrumented with the lags of their differences). this helps control endogeneity by using internal instruments and tackles the autoregressive properties in the dependent variables. ” this study used the dynamic panel model estimation provided by arellano and bover (1995), also known as the gmm technique, to examine a dynamic link between intellectual capital and bank profitability in serbia, as described in oppong et al. (2019). the estimated equations are as follows: (1) precisely, we tested the following models: model 1: (2) 4 isidora ljumović, jelena minović, slavica stevanović forthcoming where denotes a vector of dependent variables (roaa and roae) of bank i at time t, entails the lagged value of dependent variables for bank i at time t-1, is the vector of independent variables (hce, sce, and cee), is a vector of control variables (ta and lev), it is an error term. model 2: (3) where the terms α1 and α2 indicate the persistent bank profitability, whereas β and λ are the coefficients. 4. results and discussion table 1 shows the descriptive statistics of the sample consisting of 212 observations. the average roaa, according to the findings, is -0.001; however, the median is 0.844. the standard deviation for roaa is 4.024. roae has a mean of 0.625 and a median of 4.189, with a slightly higher standard deviation (19.387). values of roaa and roae can significantly vary among countries, depending on the economic conditions in the country, type of the banking system, regulatory standards, etc. hce has a mean of 1.792 and a standard deviation of 2.068, cee has a mean of 0.127 (sd=0.166), and sce 0.664 (sd=3.842). concerning the control variables mean log of total assets is 17.962 (sd=1.329), and the average value of leverage is 0.795 (sd=0.084). the standard deviation is much larger than the average value for most independent variables (excluding ta and lev), indicating that these indicators are highly variable. this is primarily due to different organizational changes within individual banks in serbia. the mean and median values for roaa and roae deviate significantly, indicating that the variables are not normally distributed. table 1: descriptive statistics notes: roaa-return of average assets, roae-return on average equity, hce-human capital efficiency, ceecapital employed efficiency, sce-structural capital efficiency, ta-total assets, lev-leverage source: authors’ estimation based on bankscope data. we examined heteroscedasticity before evaluating our model when one or more regressors are endogenous, as le and nguyen (2020) did. breusch and pagan (1980) test is used to test the null hypothesis of homoscedasticity. we used pooled ols with robust standard errors to estimate the equations when roaa and roae are dependent variables and hce, cee, sce, ta, and lev are independent variables. then, we run the breusch-pagan lagrange multiplier tests. table 2 shows the heteroscedasticity test by breusch and pagan (1980) for roaa and roae, respectively. similar to vo and tran (2021), the breusch – pagan lagrange multiplier test results demonstrate that the p-value for both models is lower than 1%, indicating that the problem of heteroskedasticity is present. this finding is comparable to le and nguyen's (2020), who claim that "the gmm method is preferred to cope with this issue." table 2: heteroscedasticity test source: authors’ estimation based on bankscope data. 5 management: journal of sustainable business and management solutions in emerging economies forthcoming �� ����� ������� ����� ��� ��� ����� ����� � �� ��� ������ ��� � ������ �� �� ��� �� �� � ����� �� �� ���� � � � �� ��� �� � � �� ��� �� � ������ ������ �� ��� ��� ������ ����� ����� � �� ������ �� �� ��� �� ������� ��� ������ ������������������� ����� ����� ��� �������� ���� ��� �� ���� ����� � ����� � ���������������������� �������� ���� ���� as suggested by le and nguyen (2020) and oppong et al. (2019), we presented a correlation matrix in table 3 to test multicollinearity problems between independent variables. results from table 3 show a high degree of statistically significant correlation between individual independent variables. as a result, it is reasonable to conclude that there is a problem with multicollinearity among variables (similar to that in oppong et al., 2019). oppong et al. (2019) state that “the problem of endogeneity is inherent in a model where correlation among independent variables is above 30 percent”. in our case, the correlation coefficient is above 0.6 in some cases, indicating that endogeneity is present. as a result, we used a gmm estimator to control endogeneity and heteroscedasticity. the gmm dynamic estimator system, according to baum et al. (2003) and roodman (2009), minimizes endogeneity and overcomes heteroskedasticity concerns (oppong et al., 2019; haris et al., 2019). vo and tran (2021) emphasize that “even in the context of endogeneity assumptions, gmm produces robust, unbiased and efficient estimates.” table 3: correlation matrix notes: ***, ** denotes significance at 1%, and 5% levels, respectively; in parentheses are presented the values of tstatistics. roaa-return of average assets, roae-return on average equity, hce-human capital efficiency, ceecapital employed efficiency, sce-structural capital efficiency, ta-total assets, lev-leverage source: authors’ estimation based on bankscope data. we proceed to test cross-section dependence. table 4 shows cross-section dependence test by pesaran (2004) because, in our case, the cross-sectional dimension (n) is greater than the time dimension (t); n>t. for this, the null test hypothesis is that there is no cross-section dependence (correlation) in the residuals of the models when roaa and roae are dependent variables, respectively. as p-values in both cases are insignificant, we cannot reject the null hypothesis of no cross-sectional dependence. this suggests that the disturbances have no cross-sectional dependence. de hoyos and sarafidis (2006) provide more information on cross-sectional dependence tests. under the null hypothesis of cross-sectional independence, the gmm estimator is consistent. table 4: cross-section dependence test source: authors’ estimation based on bankscope data. table 5 shows panel regression analysis with return on average assets (roaa) as the dependent variable. we used hansen's (1982) test to evaluate the dynamic model's validity and instruments. as a result, we conclude that the hansen (1982) overidentification test does not provide evidence for misclassification (as shown in kripfganz & schwarz, 2019). in other words, if j-statistic is small enough, we can judge that the specified model is correct. we used the arellano and bond (1991) specification test for the absence of autocorrelation in the first-differenced residuals. we found that the statistics were insignificant, indicating no 6 isidora ljumović, jelena minović, slavica stevanović forthcoming ����� ����� ���� ��� ���� �� ���� ������ �� ������ � �� � �� ��� � ��� ����� � ��� � � ��� � �� ��� ����� ��� ����� ����� �� ��� � �� ���� �� ���� �� ��� ����� ��� ����� ��� ����� ����� � ��� � � � � � � ��� � �� � �� �� ��� �� �� ��� ����� ��� ����� ��� ����� ���� � ��� � � ��� � � ��� � �� ���� � ��� � �� �� ����� �� ����� �� ����� ��� ���� �� ����� ����� � ��� � � ���� �� ���� �� ��� � � ��� � � ��� � �� �� ����� �� ����� ��� �� �� ��� �� �� �� ����� �� ����� �������� �� � ��� � ��� ������������ �� � � �� � �������� ���� � � � serial correlation in the residuals of the estimated model. apart from sce, table 5 reveals that the influence of the other two ic components is positive and statistically significant at the 1% level in explaining bank profitability as assessed by roaa. table 5: panel regression results with gmm for model 1: dependent variable is roaa notes: ***, **, * denotes significance at 1%, 5%, and 10% levels, respectively; roaa-return of average assets, hcehuman capital efficiency, ceecapital employed efficiency, sce-structural capital efficiency, ta-total assets, lev-leverage. the ar (1) tests the null hypothesis of the absence of first-order autocorrelation. source: authors’ estimation based on bankscope data. as we already mentioned, research is mainly grouped between two approaches: regression analysis (meles et al., 2016; radic, 2018; nawaz, 2019; pekovic et al., 2020; soewarno & tjahjadi, 2020) and gmm model (le & nguyen, 2020; haris et al., 2019; rehman et al., 2021). our gmm model results are somewhat consistent with le and nguyen (2020) for vietnamese banks. they did, however, use slightly modified variables, that is, risk-adjusted returns. on the other hand, our findings are only partially consistent with haris et al. (2019) for hce (other variables were not tested) for pakistani banks and rehman et al. (2021), who found a statistically significant positive correlation on a sample of islamic banks between hce and roa when tested only for hce. still, on the other hand, he found a statistically significant negative correlation when he included all ic variables. the authors did not test for the cee, while contrary to our results, they found a statistically significant relation between sce and roa (rehman et al., 2021). when comparing results with the regression analysis approach, the results are statistically more similar. our findings are in line with meles et al. (2016) for us commercial banks (hce has the biggest impact, sce is not significant), ousama et al., (2019) (cee and the hce have a positive and significant relationship with the roe and the roa); and partially with the results from radic (2018), who found a statistically significant relation between cee and roa on a sample of serbian banks. results from our research are entirely consistent with nawaz (2019) for islamic banks operating in the uk, pekovic et al. (2020) for serbia, buallay et al. (2020) for gulf nations and vo and tran (2021) for vietnamese banks. finally, while soewarno and tjahjadi (2020) found a statistically significant relation between cee and sce and roa, they could not confirm the positive impact of hce on roa in a sample of indonesian banks. the results confirm that the bank size plays a vital role in profitability (alhassan & asare, 2016; nawaz, 2019; haris et al., 2019; buallay et al., 2020; rehman et al., 2021). regarding size, our results are contrary to the conclusions of radic (2018), who did not find statistical significance between size and profitability. in addition, as reported by radic (2018), soewarno and tjahjadi (2020), and rehman et al. (2021), we also found statistical significance concerning leverage. next, we tested for hce, sce, and cee results on return on average equity (roae) (table 6). according to hansen’s (1982) results, the j-statistic test is insignificant, and we can conclude that the specified model is correct. also, following values for the arellano and bond (1991) specification tests for first-order autocorrelation, we see that the statistics are insignificant, so there is no serial correlation in the residuals of the estimated model. all independent variables in the model have statistically significant coefficients at the 1% level, except for structural capital efficiency (sce), as in model 1. to be more specific, capital employed efficiency (cee) has the highest importance in model 2, with roae as a dependent variable. 7 management: journal of sustainable business and management solutions in emerging economies forthcoming �������� ����� ���� ���� ����� ���������� ����� �������� � � ��� � � ��� � ��� ������� � �� ������ � ��� � � � � ����� ���� ��� ��������� �� � ��� �� � �� ��� ���� � �� ��� �� � ��� ��� �� �� � ����� � �� ��������� �� � ������ �� ! "#$%��� ���� �� !� ������ �� ������ �� ��� &����� �� ! "#$%� ����� ����� ���� table 6: panel regression results with gmm for model 2: dependent variable is roae notes: ***, **, * denotes significance at 1%, 5%, and 10% levels, respectively; roae-return on average equity, hcehuman capital efficiency, ceecapital employed efficiency, sce-structural capital efficiency, ta-total assets, lev-leverage. the ar (1) tests the null hypothesis of the absence of first-order autocorrelation. source: authors’ estimation based on bankscope data. as in the case of roaa, the results of our research related to roae are, to a large extent, consistent with the majority of literature using the gmm model. they partially corroborate findings from le and nguyen (2020) for risk-adjusted returns in vietnamese banks and are in line with haris et al. (2019) for pakistani banks. rehman et al. (2021) found a statistically significant positive relationship between hce and roe, but contrary to our results also discovered a statistically significant relationship between sce and roe. research using regression analysis shows similar results. meles et al. (2016) confirm the relationship between hce (as in our case) and sce (opposite to our results), and roe. they did not test cee. the findings of our study related to roae are entirely consistent with pekovic et al. (2020) for serbia and with buallay et al. (2020) for gulf nations but opposite to nawaz (2019) for islamic banks operating in the uk. he did not find statistically significant relations among any of the ic components. soewarno and tjahjadi (2020) discovered the exact influence of selected variables on roe as in roa and a statistically significant relationship between cee and sce and roe but were unable to corroborate the favourable impact of hce on roe in a sample of indonesian banks. regarding our control variables, we found confirmation of the influence of bank size on roae as in alhassan and asare (2016) and rehman et al. (2021), but contrary to radic (2018). also, our results indicate a statistically significant negative relationship between leverage and roae. we borrowed interpretation from aslam and haron (2020a), who argue that increasing debt levels may negatively impact bank profits. we interpret the results of the sample of serbian banks as the fact that good capital management contributes to bank profitability measured by roaa and roae. the capital employed (physical and financial) generates value-added for serbian banks. nonetheless, banks have acknowledged the value of human capital and proven that bank staff possess the essential skills and capacities to accomplish their tasks to maximize earnings. we interpret the results obtained for roae as similar to those for roaa. banks find it helpful to utilize equity and invest in people to achieve higher profitability. 8 isidora ljumović, jelena minović, slavica stevanović forthcoming �������� ����� ���� ���� ����� ���������� ����� ������� ���� ��� ����� � ���� ��� � ��� ��������� ����� ����� ����� ��� ��� � ����� ���� �� �� ��� ��������� ���� ����� ����� �� ���� ���� ����� ��� � ����� ��� ����������� �� �� � ����� ����� ��������� �� � ������ �� ! "#$%��� ���� �� ! ������ ���� ������ �� ��� &����� �� ! "#$%� ���� ���� � ���� in this study, we provided an empirical analysis of the ic components on the performance of serbian banks measured by roaa and roae. we analysed human capital efficiency, capital employed efficiency, structural capital efficiency, and the control variables: bank size and leverage. in conclusion, the study finds that both hce and cee have a significant impact on the profitability of serbian banks. however, when it comes to sce, we couldn't find any evidence to back up such claims. sce is the knowledge that stays with a company even after an employee leaves it (poh et al., 2018) and results from past human capital performance (aslam & haron, 2020b). the highest score among ic components has cee, showing that banks' physical and financial capital impact income creation more than the other ic components (oppong & pattanayak, 2019). parallel to this, hce proved to be statistically significant, demonstrating that investing in knowledge, experience, education, and staff skills pays off, as these are the foundations of hce (alamanda, 2019). employees take these assets when they leave a company, so they are not permanent assets. overall, our results give a clear policy conclusion references [1] adesina, k. s. 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(2021). intellectual capital efficiency and bank performance: evidence from islamic banks, borsa istanbul review, 22(1), 113-121. doi: 10.1016/j.bir.2021.02.004 10 isidora ljumović, jelena minović, slavica stevanović forthcoming 11 management: journal of sustainable business and management solutions in emerging economies forthcoming about the authors [44] roodman, d. (2009). how to do xtabond2: an introduction to difference and system gmm in stata. the stata journal, 9(1), 86-136. [45] sherif, m., & elsayed, m. (2016). the impact of intellectual capital on corporate performance: evidence from the egyptian insurance market. international journal of innovation management, 20(3), 1650034. doi: 10.1142/s1363919616500341 [46] sidharta, i., & affandi, a. (2016). the empirical study on intellectual capital approach toward financial performance on rural banking sectors in indonesia. international journal of economics and financial issues, 6(3), 1247-1253. [47] soewarno, n., & tjahjadi, b. (2020). measures that matter: an empirical investigation of intellectual capital and financial performance of banking firms in indonesia. journal of intellectual capital 21(6), 1085-1106. doi: 10.1108/jic-09-2019-0225. [48] stahle, p., stahle, s., & aho, s. (2011). value added intellectual coefficient (vaic): a critical analysis. journal of intellectual capital 12(4), 531-551. doi: 10.1108/14691931111181715. [49] vo, d. h., & tran, n. p. (2021). intellectual capital and bank performance in vietnam. managerial finance, 47(8), 1094-1106. doi: 10.1108/mf-03-2020-0143 [50] xu, j., & liu, f. (2020). the impact of intellectual capital on firm performance: a modified and extended vaic model. journal of competitiveness, 12(1), 161-176. doi: 10.7441/joc.2020.01.10. [51] yao, h., haris, m., tariq, g., javaid, h. m., & khan, m. a. s. (2019). intellectual capital, profitability, and productivity: evidence from pakistani financial institutions. sustainability, 11(14), 3842. doi: received: 2021-09-03 revision requested: 2021-11-23 revised: 2022-06-30 (3 revisions) accepted: 2022-17-07 isidora ljumović institute of economic sciences, belgrade, serbia isidora.ljumovic@ien.bg.ac.rs isidora ljumović, phd is a senior research associate at the institute of economic sciences in belgrade. she graduated in the field of organizational sciences, and she got her master's and phd degrees in the field of banking. she is engaged in several domestic and international projects, including projects financed by the mestd ros, the world bank, the european union, and other international donors. she has published two monographs and numerous scientific papers in domestic and international scientific journals and has participated in scientific conferences in serbia and abroad. her field of interest include entrepreneurial finance, entrepreneurship, and banking. jelena minović institute of economic sciences, belgrade, serbia jelena.minovic@ien.bg.ac.rs jelena minović, phd, is senior research associate at the institute of economic sciences in belgrade. she acquired a phd degree (2012) at the faculty of economics, university of belgrade. jelena graduated from european business school (ebs university) in wiesbaden, germany for post-doc research stay from may 2013 to august 2013. jelena participated in many international and national conferences. as the author and co-author, she published a significant number of papers (over 100). her research interests are: quantitative methods and models in finance and economics, econometrics, time series analysis, financial economics and financial markets. her articles have been published in various international journals, such as applied economics, journal of balkan and near eastern studies, economic research, panoeconomicus, engineering economics, mathematics, international journal of engineering education, polish journal of environmental studies, fresenius environmental bulletin, economic annals, theoretical and applied economics, and others. slavica stevanović institute of economic sciences, belgrade, serbia slavica.stevanovic@ien.bg.ac.rs slavica stevanović, phd is employed as a senior research associate at the institute of economic sciences in belgrade. she graduated and she got her master’s degree at the faculty of economics, university of belgrade. she acquired her phd degree at the belgrade banking academy faculty for banking, insurance, and financing, university union in belgrade. slavica participated in international and national scientific conferences and, as author and co-author, she published numerous scientific papers. her research interests are financial reporting and analyses, cash flow analyses, and environmental reporting and accounting. she is engaged in several projects. 12 isidora ljumović, jelena minović, slavica stevanović 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 01_sandra jednak:tipska.qxd 1 sandra jednak1, dragana kragulj1 1university of belgrade, faculty of organizational sciences management 2015/75 achieving sustainable development and knowledge-based economy in serbia udc: 330.341.1(497.11) 005.94 doi: 10.7595/management.fon.2015.0015 1. introduction constant changes that result not only from scientific, technological and technical development, but also from modern ways of doing business, happen every day all around the world. global market participants need to adapt their activities to the ongoing changes. furthermore, each country tries to improve the level of its economic development to achieve a greater living standard and well-being. economic development rests on certain factors that should increase the levels of production, employment, income, consumption, and other economic indicators. however, owing to global changes, a new concept was introduced in the 1980s – the concept of sustainable development. the concept includes economic, social cultural and ecological components. besides economic goals, the concept of sustainable development includes other goals as well, such as: poverty, education, health care, environmental protection, population migrations, urban overcrowding, social inclusion, etc. this concept has its focus on human development, i.e., equally developing all the spheres within a society. economic development, along with environmental protection and conservation is the main purpose of sustainable development. in october 1987, the world commission on environment and development (wced), the brundtland commission in the report our common future gave a definition of sustainable development. this definition has been most frequently quoted, and it states that “sustainable development is the ability to make development sustainable to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs“. each country needs to increase its level of development depending on the available resources. the resources have to be used for achieving development, but as most of the resources are finite they should be sustained to provide for the needs of future generations. today, many countries conduct the process of sustainable development along with the process of establishing knowledge-based economy. the two processes have to be harmonised in order to achieve some relevant changes and reforms. a country needs to adopt a national sustainable development strategy to be able to conduct the process of sustainable development. these are the basic research issues discussed within this paper. the aim of the paper is to assess the progress of sustainable development and knowledge-based economy processes in serbia. sustainable development and knowledge-based economy are the two concepts that are being conducted by the majority of countries in the world, including the eu member countries and the eu candidates. the aim of this paper is to analyse the progress in achieving sustainable development and knowledge-based economy in serbia, a eu candidate country. a comparative analysis of conducting sustainable development and knowledge-based economy has been performed between serbia and the eu(28). the focus is on economic aspects of these two concepts. the results differ. the goals that were initially set for achieving sustainable development and knowledge-based economy were either not reached or were hindered due to the global economic crisis and redirected towards solving more urgent economic issues. this is particularly noticeable in serbia, which is carrying out economic reforms in order to achieve economic progress and meet the requirements for getting access to the eu. keywords: knowledge-based economy, sustainable development, serbia, the eu the paper is organised as follows: section 2 provides a theoretical overview of sustainable development and knowledge-based economy concepts and their mutual interrelation. sections 3 and 4 provide an overview of indicators for measurement of sustainable development and the comparative analysis of sustainable development and knowledge-based economy between serbia and the eu(28). the final section summarises the conclusions. 2. the concepts of sustainable development and knowledge-based economy in the times of global changes and integrations, new concepts are being established. economic growth and development are based on various factors. over the course of time, some new factors were introduced and consequently the theories of economic growth and development have been changed. measuring the influences and contributions of certain factors to economic growth is based on various growth models. the models are used both to predict and estimate economic growth and to measure the contribution of each factor to the growth. capital, labour and natural resources are the traditional factors that contribute to the growth and development of a country. gradually, some new factors have been introduced: technology, human capital, knowledge and innovation. (solow, 1956; schumpeter, 1982; romer,1986; lucas, 1988; jones, 1995; barro, 1991; rostow, 1960). according to the endogenous growth theory (romer, 1994), economic growth can be achieved by investment in human capital, innovation (r&d) and knowledge. drucker (1993) argues that knowledge is the key factor for achieving economic growth in the knowledge society. investing into knowledge brings about growth in productivity and efficiency of other factors in production. furthermore, knowledge as a growth factor that includes environmental protection is a popular issue discussed in various research studies (huggins and izushi, 2007; sabau 2010; gorghiu and petrescu, 2014). environmental protection and natural resources conservation, on one hand, and achieving economic growth and development, on the other, have become a mutual goal of many countries worldwide as this is the best way to achieve sustainable growth and development. such development is a long-lasting, comprehensive and synergetic process that affects all aspects of life on all its levels (locally, regionally and globally) (kragulj, 2014). in 2000, the eu set a goal to establish knowledge-based economy and obtain sustainable development. all the members, candidate and potential candidate countries are obliged to adjust their strategies to conform to the eu strategies and to converge towards the goals set by the eu. 2.1 the concept of knowledge-based economy the new concept of economy has different terms – knowledge-based economy, knowledge economy, etc. even though these terms are used like synonyms because knowledge is the key factor of development, there are some differences. the oecd defines “knowledge-based economies” as “economies which are directly based on the production, distribution and use of knowledge and information” (oecd, 1996). according to chen and dahlman (2005) knowledge economy is “one that utilizes where knowledge is acquired, created, disseminated and used effectively to enhance economic growth and development of knowledge”. powell and shenllman (2004) define the knowledge economy “as production and services based on knowledge-intensive activities that contribute to an accelerated pace of technical and scientific advance, as well as rapid obsolescence”. the eu has set a goal to become the most competitive and knowledge-based economy in the world. according to the set goal, development could be obtained by a triangle of knowledge, i.e., the integration of education, r&d and innovation. there is a need for synergy, cooperation and coordination of knowledge, innovation and advanced technologies. new knowledge creates innovation, which has applications in manufacturing and service industries. advanced technologies are a tool that enables a dynamic and efficient creation and application of new knowledge. depending on the sector, knowledge is analyzed as: production (r&d), transmission (education and training) and transfer (diffusion of knowledge and innovation). further, there is tactic and explicit knowledge (nonaka and takeuchi, 1995). explicit knowledge is a codified knowledge embodied or contained in a system or process. it is available and can be transferred. this knowledge is obtained by education and training. implicit or tactic knowledge is based on the experience and intuition. it is personal in nature and hard to attain. knowledge-based economy is increasingly viewed as a continuous process of transformation of the economy towards activities and sectors based on knowledge (education, r&d, ict, media, art and information). developed countries have already related their economies to knowledge. one solution to increase their out2 2015/75management 3 put is to build a knowledge-based economy. this option can be used in countries where productivity and growth are less dependent on natural resources, and which have a certain quality of human capital. there are a few methodologies that examine the development of the kbe. the methodology of the world bank uses the knowledge assessment methodology (kam). this methodology has two indicators: knowledge economy index (kei) and knowledge index (ki). the european union uses the so-called european innovation scoreboards and lisbon 2000 indicators. the wef competitiveness index is one that measures competitiveness. moreover, there are other indicators showing the development of the kbe: investments in r&d, investments in highly educated capital (researchers and doctor degree holders), capacities and quality of educational system (expenses of education and learning throughout the whole life), e-government (procurement of new equipment and modernization of public services), labour productivity, use of informationcommunication technologies, etc. (cook and leydesdorff, 2006). establishing and development of knowledge-based economy cause the changes in the growth factors and increase competitiveness. the traditional growth and development resources are less and less contributing to the progress, while knowledge and innovation gain more and more importance. competitiveness represents “the set of institutions, policies and factors that determine the level of productivity of a country” (the world economic forum report 2014-2015) and leads towards economic growth and prosperity by increasing the level of productivity. the countries that possess human capital, but whose productivity and growth depend to a lesser degree on natural resources, invest in knowledge to improve their productivity factors. investing into knowledge, innovation and new technology helps attain economic growth and development. such tendency is present in the most developed economies throughout the world, those that invest heavily in research and development (jednak and kragulj, 2010). economic activities and systems that directly establish creation, circulation and application of knowledge and information are essential for knowledge-based economy. lisbon strategy and europe 2020 since 2000, various economic reforms have been carried out in the eu. the lisbon strategy (2000) was set out in 2000 to help the eu create knowledge-based economy and make it the most competitive economy in the world by the year 2010. the key component of the lisbon strategy is the development and improvement of knowledge by increasing investment in education and professional improvement, as well as scientific and technological research and innovation. however, since many goals had not been achieved, a mid-term review of the achieved goals and results of the lisbon strategy (2005) was conducted. according to the review, the goals were not achieved because they were too broadly defined and they were not harmonised among the member states in terms of coordination, responsibility and priorities. the goals were set again, but basically, they were not much different from the previous ones. unfortunately, the reforms envisaged by the lisbon strategy were not carried out until 2010, mostly due to external factors such as economic crisis. therefore, a new eu growth strategy was launched in 2010 – europe 2020. the key target set by the eu growth strategy – europe 2020 is to make the eu a smart, sustainable and inclusive economy that will raise the level of productivity, employment and social cohesion (european commission, 2010). according to this strategy, the eu should exit from the crisis by a smart, sustainable and inclusive growth. a smart growth is actually economic development based on knowledge and innovation. sustainable growth promotes better resource efficiency, greener and more competitive economy, while the inclusive growth provides full employment in the economy that influences both social and territorial cohesion. within each of the priorities, i.e., growth, there are certain initiatives. the headline targets set by europe 2020 are: 1) higher employment rate (20-60 year-olds) from 69% to 75%, 2) increased investment in r&d from 1.9% of the eu’s gdp to 3% gdp, 3) reduced energy consumption (carbon-dioxide and other greenhouse gas emissions should be decreased by 20% as compared to 1990, while the share of renewable energy should increase by 20% in total consumption), 4) education and applied science (40% of people that completed tertiary instead of the current 30%), 5) reduced number of people living below the poverty lines from 80 to 60 million (european commission, 2010). 2.2 the concept of sustainable development sustainable development is the goal set by many economies. the term sustainable development was first mentioned in the 1930s, and in 1987 in rio, the world commission on environment and development officially defined the term. this concept of development was differently accepted and understood by different countries, because their available resources were different (rudawska et al., 2013). the concept connects present generations to the future ones, since sustainable development should meet the needs of the present without compromising the needs of future generations to meet their own needs (kragulj, 2014). finite natural resources should be used today to a degree where they can provide economic growth, but they should also be sustained for the future generations to improve their quality of life. therefore, the main concepts of sustainable development are: the concept of need and the idea of limitations of our environmental resources’ availability to meet our present and future needs (wced, 1987). goodland and ledec (1987) state that „...sustainable development implies using renewable natural resources in a manner that does not eliminate or degrade them, or otherwise diminish their usefulness for future generations.“ according to solow (1991) sustainable development can be achieved if the spent non-renewable resources are compensated by the increased quantity and quality of physical and human capital. he also mentions that we cannot know the preferences and technology of future generations. moreover, goods and services can be substituted by each other. the resources can also be substituted. therefore, sustainable development is based on the sustainable possibilities for production. however, all the definitions agree that the existing natural resources must not decrease. if technology and population growth are observed, it is clear that technology increases output making capital more efficient, while population growth decreases the stock of capital, thus making sustainable development less feasible (pearce and atkinson, 1998). efficient management of the available natural resources and an adequate use of knowledge may have positive effects on sustainable development. according to al-roubaie (2013) management and organisation of both physical and human resources is needed for sustainable development. sustainable development implies a convergence between the three main pillars: 1) economic development – includes economic sustainability, i.e., the possibility to maintain a certain level of economic production, 2) social equality a state of affairs where a country indefinitely maintains a defined level of social well-being, while the gap between rich and poor social classes is being reduced, 3) environmental protection – the possibility to maintain a defined level of environmental quality and to conserve natural resources. besides the above mentioned pillars, there are suggestions that two more should be added: cultural diversification pillar (hawkes, 2001, unesco, 2002) and political–institutional pillar (commission on sustainable development, 1995; djekic and hafner, 2013). the concept of sustainable development is recognised as a prerequisite for the progress of humanity. it is explained by sustainable economic activity, ecological component of development and more efficient development. sustainable economic activity prevents total exhaustion of natural resources. the resources should be conserved, so that future generations can also utilise them for production. ecological component implies that humans are part of nature and the activities they do should not endanger nature. a more efficient economic growth is achieved by utilising resources in an optimal way by making a balance between input and output (pesic, 2002). economic approaches to sustainable development two economic approaches appear in research: neoclassical and ecological economics give different explanations for the concept of sustainable development. the neoclassical theory rests on the marginal analysis. the central position belongs to a rational individual that tries to maximise his or her utility and preferences by interacting with the others through the market. neoclassical economics focuses on prices, output and income distributions that are determined by supply and demand (henning, 2008). according to this market theory, markets automatically assess austerity through price system. although this school recognises the importance of developed markets, institutions and free trade for achieving economic growth, it does not recognise the importance of natural resources and sustainable development (henning, 2008). neoclassicists believe that sustainable development can be achieved by never-ending economic growth, since the society wants to have a never-ending well-being. they admit that natural resources are finite, but they do not see the reason why this is considered to be a limiting factor for achieving economic growth. they explain it by the fact that a decrease in natural capital can be compensated by increasing the capital produced by the society (vivien, 2008). they see scientific technological progress as the crucial factor of economic progress. all until recently, ecology was not considered important for making a success. the sources of economic success were created by cutting ecological costs. ecological economics examines the relationship between economic and ecological systems with an aim to maintain ecological-economic system, i.e., a long-lasting, economically efficient, yet ecologically acceptable and ethically legitimate economy (pokrajac, 2009). such 4 2015/75management economy improves the economic theory by integrating natural systems, human values, health and well-being. it connects human and natural systems by choosing efficient policies that enable ecological sustainability, balanced resource distribution and efficient allocation of meagre resources. ecological economics states that economic growth cannot exist without destroying natural resources and the environment, so the cost must include externalities, i.e., the expenditures such as: the cost of the damaged resources and natural systems, human health and well-being compromised by pollution. this is the only way to achieve sustainability, i.e., sustainable development. according to romeriro (2012) “sustainable development must be economically sustainable (or efficient), socially desirable (or inclusive) and ecologically prudent (or balanced)”. 2.3 the interrelation between knowledge-based economy and sustainable development knowledge-based economy (kbe) and sustainable development (sd) are set as goals by many economies worldwide. such concepts connect economic, social and environmental aspects. certain studies have shown that there is a connection between the two concepts. knowledge-based economy can promote sustainable development through innovation sustained by economic growth. knowledge-based economy is “based on production, distribution and use of knowledge and information“ (oecd,1996). research generates knowledge that in return generates innovation, which contributes to better competitiveness that brings about better economic performances. the integration of science, i.e., research and development, education, and it is becoming a more and more important factor of development. sustainable development should create a balance between economic growth and environmental protection. by applying knowledge-based economy factors – knowledge, information and new technology, it is possible to utilise natural resources in a more efficient way and protect the environment without compromising economic growth. one of the europe 2020 targets is achieving sustainable growth. according to vivien (2008), sustainable growth is a necessary and sufficient condition for achieving sustainable development. sabau (2010) claims that the complex of life-sustaining aggregate consists of economy, society and environmental protection, and that they are preconditioned by time, space and objective limits. he uses these dimensions as a basis to more broadly explain knowledgebased economy and sustainable development and the connection between them. sabau explains that these two concepts have intangible dimensions that show the complementarity of the concepts. according to lapinskiene (2011), economic growth is important for achieving sustainable development. the research confirms that there is a connection between competitiveness and sustainability indicators and that maintaining economic growth improves sustainability in developing countries. increased labour productivity is a competitiveness factor both on a national level and on the level of sustainable economic growth (balu and mladen, 1995). melinkas (2010) claims that the establishing of knowledge-based society and knowledge economy is connected to sustainable development in the sense that the observation of attitudes and goals of sustainable development is a precondition for developing a knowledge-based society and knowledge economy. the countries that have an innovation system, human resource development, ict infrastructure and business environment, also have sustainable economic growth (piech, 2004). the lisbon strategy and europe 2020 that set their goals and targets to increase competitiveness and build knowledge-based economy are mostly focused on economic growth and creating new jobs, while the eu sustainable development strategy has its focus on social and environmental issues. the strategies are mutually complementary in terms of creating sustainable development in the eu, although with different emphases. the lisbon strategy and europe 2020 try to achieve sustainable development by increasing competitiveness, economic growth and employment. the eu sustainable development strategy sees economic development as a possibility to achieve sustainable development. of utter importance for the eu sustainable development strategy are the quality of life, inter and intra generational inheritance and the cohesion of all policies. (sterure and berger, 2010). according to the national strategy for sustainable development serbia (2008), one of the sustainable development pillars is knowledge-based economy, along with two other pillars economic and social issues and environmental protection. 3. overview of indicators for measurement of sustainable development sustainable development indicators have been developed by international organisations, both in the eu and globally. however, there is no unique indicator to measure the progress of sustainable development. the un have their own methodology for sustainable development observation and measurement. millennium development goals are incorporated into the un sustainable development indicators. in 2006, the commission 5 management 2015/75 on sustainable development (csd) revised the indicators. there is a core set of 50 indicators that include 96 indicators of sustainable development. the indicators have been organised into csd indicator themes: poverty; governance; health; education; demographics; natural hazards; atmosphere; land; oceans, seas and coasts; freshwater; biodiversity; economic development; global economic partnership; and consumption and production patterns. the eu has developed a set of indicators that measure the levels of sustainable development of its members. they have been organised into ten main themes that cover more than one hundred indicators, twelve of which have been chosen as the headline indicators (eurostat, 2015). the main themes are: socio-economic development, sustainable consumption and production, social inclusion, demographic changes, public health, climate change and energy, sustainable transport, natural resources, global partnership and good governance. sustainable development indicators provide an overview of conducting sustainable development policies by answering the key questions: what is the quality of life, how are the resources allocated and how equitably, are they utilised efficiently, what is the condition of the resources and are there any consequences to the environment? the national strategy for sustainable development serbia conformed both to the un indicators and to the eu sustainable strategy. serbia is the eu candidate country and for that reason the eu methodology will be used for the analysis of knowledge-based economy, competitiveness and sustainable development. since not all the data about serbia are provided by eurostat, only the indicators covering the field of socioeconomic development will be presented. the indicators were chosen to cover the progress of knowledge-based economy, namely, whether the targets and sustainable development indicators of europe 2020 have been achieved in accordance with the goals of the eu sustainable development strategy. 4. discussion of findings based on the indictors serbia is carrying out economic reforms and policies that will help it achieve economic progress. furthermore, serbia is adjusting its policy to meet the eu policies in order to become a full eu member. since 2000, when the process of transition started, serbia has recorded positive results in conducting economic and other reforms. however, due to the economic crisis, the progress slowed down, but in the post-crisis period, positive results have been recorded again. the reforms include the establishing of knowledge-based economy and sustainable development. the poor kbe establishment and implementation of sustainable development was the result of economic conditions in serbia. implementation of activities for achieving the sustainable development and kbe are defined by national documents. sustainable development strategy of serbia (2008) is compliant with the eu sustainable development strategy, the lisbon strategy, the millennium development goals un, the national millennium development goals of development in republic of serbia and other national strategies and documents. the strategy is based on three pillars: knowledgebased economy, social issues and environmental protection. the strategy`s key pillar is knowledge-based economy. education ensures the human capital that will apply knowledge towards economic development in the future period. national priorities are: 1) the eu membership; 2) development of competitive market economy and sustainable growth; 3) development of human resources and employment increase; 4) infrastructure development and balanced regional development and 5) protection and improvement of the environment and rational use of natural resources. the implementation of sustainable development in serbia does not go fast. the most intense periods of strategy implementation were 2002-2003 and 2009-2011. of the total planned, activities were realized mainly in the area of kbe, then in social development and least in the area of environmental protection. economic reforms were implemented which influence the fulfilled aims of the economic pillar, i.e., knowledge-based economy. sustainable development data for serbia in eurostat are only available for socio-economic theme and sustainable consumption and production. figures 1 and 2 present the two themes with their main indicators: real gdp per capita and resource productivity for the eu(28) and for serbia. 6 2015/75management source: eurostat in the observed period, the eu real gdp per capita ranged from € 23500 (2002) to € 25500 (2013). after a drop in 2008, the eu has kept flat gdp per capita. the countries with the highest gdp per capita are also the countries with the largest population (germany, uk, spain, and france). apart from them, the countries with the highest gdp per capita are luxembourg and the netherlands (30% above the eu(28) average). the reason for the growing gdp per capita in these countries lies in the fact that the netherlands have legalised coffee shops with drugs and prostitution as well, while luxembourg employs a great number of foreign residents. during the economic crisis the gdp per capita decreased. however, since 2010 onwards, a growth of economic activity has been recorded. in the period 2002-2013 serbia had a trend similar to the eu(28), but on a lower level. in the pre-crisis period serbia had an economic growth and gdp per capita rise due to economic reforms, high capital inflows, credit expansion, financial and trade integration with the eu. the model of economic growth was based on the domestic demand, foreign funds and imports. until 2008, economic growth was obtained. however, with the global crisis and change of the model of economic growth, the gdp per capita started to decrease. the new model was based on the export and investment oriented growth. export and foreign capital inflows started to fall during the economic crisis reflecting a drop in economic growth. furthermore, tight fiscal policy, inadequate infrastructure and low productivity had a negative influence on the economic growth. serbia recorded a drop in employment that exceeded the drop in gdp per capita. the gdp per capita ranged from € 2900 to €4 300. serbian gdp per capita is about 60% below the eu(28) average. in 2013, unemployment in the eu (28) was 10.9%, while in serbia it was about 24%. restructuring, privatisation, inflexible labour market, underdeveloped private sector, decreases in economic activities during economic crisis caused high unemployment in serbia. along with the increased income and standard of living, consumption also increases, influencing the increased utilisation of natural resources. in order to observe the connection between economic growth and utilisation of natural resources a resource productivity indicator is used. better resource productivity influences better environmental protection and increased competitiveness. source: eurostat figure 2 shows that in the observed period 2002-2013, the eu generated more and more income from its domestic material consumption. it was particularly noticeable after 2008. the uk and luxembourg are the eu member states that are the most resource-productive, while romania and bulgaria are ranked the lowest within this indicator. serbia, like romania, has low resource productivity. the differences in resource productivity are determined by structure of economy (basic industry vs. hi-tech manufacturing), share of service sector, the scale of consumption, the main source of energy and level of construction activities. the 7 management 2015/75 difference in the structure of the economies is the reason why the eu has so highly generated income in regard to its domestic material consumption (€ 1.43/kg to € 1.81/kg) as compared to serbia. the eu is a welldeveloped economy where the dominant sector is the service sector that generates most of gdp with low raw material consumption. during the observed period, serbia recorded a slight growth of this indicator (€ 0.19/kg to € 0.24/kg). during the period 2001 2011 serbian economy generated higher amount of gdp by using one unit of material. resource productivity increased, while material intensity decreased. this means that less materials in kg was needed to produce one million dinars of gdp. despite the growth in recourse usage, resource productivity had averagely risen by 1.9% per year. this is the result of a larger increase in gdp (3.3%) than in domestic material consumption (1.4%). serbia has obtained sustainable development aim decoupling. even so, in 2013 resource productivity decreased by 5,6 % compared to 2012. the material consumption grew faster than gross domestic product (statistical office of the republic of serbia, 2013). the total r&d expenditure is the indicator used to measure innovation. it shows the level of investment that participates in generating new knowledge. figure 3 presents this indicator for the eu(28) and serbia, respectively. source: eurostat in the period 2009-2013, the total r&d expenditure was growing. yet, it has to grow more for the target of 3% of gdp to be achieved. serbia has insufficient investments in education, human capital, and r & d. therefore, serbia has an insufficient number of highly educated people, inadequate qualification and skilled labour force, and underdeveloped educational and r & d infrastructure. additional problems for developing the higher education and r & d are: 1) low interest of the population in higher education; 2) low demand for innovation in the economy; 3) poor cooperation between business and universities, and between the universities and institutes; 4) low rate of the participation of researchers in the total number of employees approximately 0.5% (in the eu it is 1.5%); 5) the largest number of researchers employed in private companies (51%), then in higher education (35%) and institutes (14%); 6) number of registered and protected patents is small – 53 patents per million inhabitants in serbia (in the eu this number is 230), and the highest percentage of the patents are by individuals and not by organizations (guide through the europe 2020 strategy / vodic kroz strategiju evropa 2020). in the period 2009-2013 the indicator was about 2% of gdp in the eu(28). serbia invests much less in r&d than the eu; investment is below 1% of gdp. in serbia, the largest share, 0.9% of gdp, has been allocated to education, while a smaller part to the r & d, particularly for scientific research. about 90% of these allocations are for the salaries of employees in this sector, while a smaller part is directed to investments. in the eu the private sector share of r&d amounts to about 63%, while it is about 25% in serbia. (erawatch, 2013). in serbia both private and public investments in r&d have remained on a very low level, while the number of researchers is getting smaller and smaller. there seems to be no particular need to connect research to business and there is also a lack of integration into global knowledge networks. however, certain improvements have been made in r&d and innovation, but serbia still needs to meet many challenges in order to fully achieve the set targets. serbia needs to invest more into r&d, innovation and knowledge in order to bridge the technological and economic gap that exists between serbia and the eu. in addition, these investments will contribute to the development of the knowledge-based economy which would build a serbian competitive advantage in the international market. the eu indicators of the socio-economic development theme during the period 2002-2013 varied. some areas recorded progress, while others did not. it is characteristic of these indicators that during an economic crisis all the economic activities slow down. investments, labour productivity and energy consump8 2015/75management tion decrease, while r&d expenditure increases and there is also the unemployment issue. sustainable development decreases during the economic crisis, but there is always progress in the post-crisis period. this is characteristic of the eu. it is also typical of serbia, but on a lower level. according the report on the progress in realisation of sustainable development national strategy for the period 2009-2017 (2009) serbia achieved some positive results, but there are still many problems to be solved. serbia needs to reduce its fiscal deficit by increasing austerity measures, enable growth based on a new development model and provide funds to finance it. although financial resources were considered to be a dominant factor of growth, according to various analyses, human resources are considered to be the most competitive factor of development. a balance needs to be reached between current expenditure and production in order to decrease the growing number of obligations that are being created by contemporary generations, which the future generations will have to fulfill. as regards environmental issues, regulations were adopted and conformed to the eu regulations: building environmental infrastructure, modernising the system of economic instruments for rational use of natural resources, natural resources conservation and establishing the necessary institutions. the targets of knowledge-based economy that were made by the lisbon strategy and continued with europe 2020 were not achieved due to the effects of the economic crisis. if we observe the goals directed towards increased growth, employment and competitiveness, there are different results. the eu achieved quite positive results in employment with 68.4% of the population (2013) (target 75%) and r&d investments with 2.02 % of gdp (2013) (target 3%). poverty still remains the greatest issue. positive results have been achieved in education. education increases productivity, innovation and competitiveness. a smart and sustainable r&d growth generates new knowledge and innovation, and along with an efficient use of natural resources leads towards better competitiveness. in order to improve the conditions induced by the economic crisis, the eu underwent fiscal consolidation and banking system restructuring to regain trust. the competitiveness was pushed into the background during that period. however, when the fiscal situation improved, the eu got back to its primary goal to achieve competitiveness by increasing productivity, employment and progress. the europe 2020 competitiveness index (wef, 2014) uses a 1-7 scale. in 2014, the eu(28) scored 4.56. if compared to the most developed countries in the world, the eu(28) lags behind. the difficult macroeconomic situation in serbia prevents the implementation of the sustainable development strategy. slow progress of structural reforms, decrease in foreign capital inflows, low national savings, investment orientation towards the primary sector, not towards infrastructure, r&d, education and other sectors based on knowledge, have led to rise in unemployment and low productivity and competitiveness. according to the global competitiveness index serbia is ranked 94th out of 144 countries. obstacles for competitiveness improving and achieving economic growth are: institutional factors (excessive state regulation and an inadequate legal system), the inefficiency of the market of goods, business sophistication, negative credit rating and low national savings. serbia’s goal is to obtain a better business environment and increase a demand for domestic products for achieving economic growth. based on the europe 2020 wef competitiveness index (the europe 2020 competitiveness report, 2014) serbia scored 3.46 (scale is from 1 to 7). in order to achieve a better rank and to increase competitiveness serbia needs to undergo reforms first by establishing institutional capacities in the country, and then by adopting certain policies and development factors. this is the way to increase productivity and employment that will bring about higher competitiveness. government efforts should be focused on the improvement of institutional capacities, business environment, digital agenda, and education and training. also, serbia should address problems, i.e., constrains such as inefficient government bureaucracy, access to financing, corruption, policy instability and government instability (wef europe 2020 competitiveness report, 2014). furthermore, the kbe is achieved at a modest growth rate. the kei and ki show that serbia is ranked 49th out of 146 countries. serbia has highest results in ict that are considered to be one of the factors that can influence economic growth. a low employment rate of 45% (2013), low allocations in r&d around 1% of gdp (2013), low productivity, increased poverty, high 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(2010). know, live and let live: towards a redefinition of the knowledge-based economysustainable development nexus. ecological economics 69. [37] schumpeter, j.a. (1982). the theory of economic development: an inquiry into profits, capital, credit, interest, and the business cycle. transaction publisher [38] solow, r. (1956). a contribution to the theory of economic growth, quarterly journal of economics, 70(1), 65–94. [39] solow, r.m. (1991). sustainability: an economist’s perspectiv. in dorfman, r. and dorfman, n. (1993) economics of the environment: selected readings 3rd ed. new york, w.w. norton [40] statistical office of the republic of serbia. (2013). material flow indicators for the republic of serbia 2001-2011. isbn 978-86-6161-064-6 [41] steurer, r. & berger, g. (2010). the lisbon strategy and sustainable development strategies across europe: how different governance arrangements shape the european coherence of policy documents. institute of forest, environmental, and natural resource policy. university of natural resources and applied life sciences, vienna (boku) [42] the europe 2020 competitiveness report. 2014. [43] the report on the progress in realisation of sustainable development national strategy for the period 2009-2017 [44] the world economic forum report 2014-2015 [45] unesco universal declaration on cultural diversity (2002). the records of the 31st session of the general conference, un educational, scientific and cultural organization. [46] vivien, f.d. (2008). sustainable development: an overview of economic proposals. s.a.p.i.en.s. vol.1, no.2. 1193-1201 [47] vodic kroz strategiju evropa 2020. evropski pokret srbije. fond za otvoreno drustvo srbije. [48] wef, (2014). the europe 2020 competitiveness report – building a more competitive europe. world economic forum [49] wced world commission on environment and development, (1987). the brundtland commission`s report: our common future. receieved: may 2015. accepted: june 2015. 11 management 2015/75 sandra jednak university of belgrade, faculty of organizational sciences sjednak@fon.bg.ac.rs sandra jednak is employed at the faculty of organizational sciences, university of belgrade as an assistant professor. she has published numerous scientific research papers in international and national monographs, journals and conference proceedings. her teaching areas are introduction to economics, macroeconomics, microeconomics, economic development and the eu. her research focus is on the economic growth and development of see countries. besides, her research interests are economics of ict, knowledge (based) economy, energy economics, international economics and higher education. dragana kragulj university of belgrade, faculty of organizational sciences kragulj@fon.bg.ac.rs dragana kragulj, ph.d., is a full professor at the faculty of organizational sciences, university of belgrade. she was a chair of the department of economics, business planning and international management. she has published several editions of different textbooks on economics, two monographs of her own and over 100 scientific papers published in reputable national and international journals and conferences. she has been involved in several research projects. in addition to her teaching, she is occupied with research of macroeconomic problems, prices, market, inflation, economic development, investment, international trade, agriculture, energy economics, process of transition, international economic integrations, the european union. 12 2015/75management about the author 03_marko mihic:tipska.qxd 27 golub marković1, marko mihić2 , vladimir obradović3 1cardboard mill umka, kappastar group, serbia 2,3university of belgrade, faculty of organizational sciences, serbia management 2015/75 implementation of project management concept into industrial energetics: case study in paper factory udc: 005.8:[338.45:620.91 005.52:005.33 doi: 10.7595/management.fon.2015.0011 1. introduction projects are of essential importance for the success of any company, combining activities that lead to new products and services, improving procedures, administration and development of jobs. successful projects boost sales and cut costs, improve quality, clients` satisfaction and operating environment and also lead to other benefits. therefore, more companies started to use project management as a basic strategy for maintaining competitiveness, increasing the number of possibilities of bringing in new values into their businesses. (salazar-aramayo, rodrigues-da-silveira, rodrigues-de-almeida, & neuma de castro-dantas, 2012). on the other hand, it is well known that energy market is not stabile and often deals with price changes. according to that, big systems such as factories with processing production and other big facilities that are supplied by boiler rooms and use a certain type of fuel, need to search constantly for the most economical and profitable energy-generating product so they can cut their production costs and manage to save money. exploring the literature concerning this theme, the conclusion is drawn that there is not enough empirical proofs about the implementation of project management concept on projects in industrial energetics. the fact is that this type of projects is part of a constant companies` tendency to find more profitable energygenerating products for their facilities. unfortunately, such of projects are being realized, but a small number of companies dedicate enough time to document the experiences from those projects, towards creating a knowledge base that can be used in some projects to come, in the same or similar areas. a scientific contribution of this research is that it brings a detailed elaboration and describes projects in industrial energetics and the use of modern methods from project management in improving the knowledge base of projects from this area. a more profitable usage of energy-generating products in industry, cutting industry costs, energy saving, implementation of modern methods in project management are the main principles this research follows. fuel changing is directly linked to market movements of energy sources, consequently, large companies adapt to these changes and move towards economically worthwhile strategies. the appearance of an energy source, change or fuel production startup, is a complex investment project in the field of industrial energetics. this research paper brings a case study of transition from gas to solid fuel in the paper factory, where the factory achieved significant savings by changing the basic fuel. in this study we applied a large number of criteria and parameters of the project management concepts (such as wbs structure, gantt chart, swot analysis, criteria for settlement date, etc.). the purpose of this study is to demonstrate and broaden the knowledge base of in the industrial and energy sectors and to show significant benefits and cost savings which occur as a result of changes of energy sources in the industry involving mass production processes. keywords: energy saving, industrial energy, energy projects, steam boilers, boiler fuel, project management. one of the research goals is to encourage managers in this and other related areas to start to exchange experiences and to enlarge the knowledge base in this area. by broadening knowledge one improves methods and methodology of changing energy-generating products in big industries, and it will lead to accomplishment of more important benefits concerned directly to saving energy, cutting industry costs , that is, increasing the profit of an organization, etc. in this paper we describe an example of switching from gas to solid fuel, ans the savings resulting after the completion of these projects. the industry of paper production is a very complicated production process. it operates on steam pressure that flows through all the machines that are part of this production. this paper shows how this factory has changed its basic energy-generating product that supplies the daily needed steam through caldron which is necessary in the production process. in the beginning, this factory had gas caldron in its boiler rooms that has been in use for years supplying steam and also supplying heating through the winter season. in the last years the gas price has been constantly rising, hence production overheads have been more expensive, which directly influences the products` price. the research of energy-generating product market in our region has started and the conclusion is that coal is cheaper than gas. also, the steam caldrons with coal can also supply factory with steam, at lower costs. in this case study a realistic example of changing fuel in big industry is shown, as well savings resulting upon the completion of this project. this paper is also about the project managing concept as well as new trends in industrial energetics. this research also describes other examples of fuel changing, for example, changeover from gas to biomass. in this research it is also concluded that there are different energy-generating product markets and that their prices vary from state to state, depending on their liabilities towards certain fuel taxes/excises. hence we deal with different types of changes of energy-generating products in industries. apart from the case study, this paper also shows the case study methodology, the preview of used methods, techniques and criteria during the realization of this project. as noted above, one of the most important goals of this research is the exchange of knowledge in this area; methods and techniques applied in project management in this case study are, in a certain way, a pioneer attempt in broadening the knowledge base of this projects. 2. industrial energetics trends why considering fuel changes? the first step in recognizing the forces that motivate the decision to change from coal to coal or vice versa, depends on the market price. the main forces are about regulator (both in the emission sense and as offset for the new unit), fuel costs, the age of a power plant and its needs (kaupp, 2009). recognizing the options the first step is to provide the engineer`s study towards helping to decide which options are the best for particular utilization. among many considerable options there are the following (kaupp, 2009): • changeover to fuel with the changes of current cauldron; • changeover to fuel for the current cauldron with the addition of the gas turbine on the current cauldron`s cycle, such as adding simple cycle to the current system, re-starting or combined cycle resupplying; • the new combined cycle in the power plant (the elemental examination) with withdrawing of the current coal factory; • there are many reasons for the changeover of the fuel (jr., 2008); • the ecological reasons for air pollution reduction; • economic reasons, because the new fuel is cheaper; • the old cauldron will be replaced with the new one that uses different fuel; • the professional technical person has recommended it; • the cauldron`s fuel is no longer available. 28 2015/75management the goal is to cut the costs of steam formation without the growth of energy production. the decision making is based on the list of all positive and negative circumstances from the changeover to fuel, without calculating new steam costs and comparing with current costs. the most frequent cases of fuel changeover are as follows (jr., 2008): 1) from light to heavy fuel which is less expensive this changeover requires a change of burner (the burning chamber) and the oil pre-warming systems. this can lead to the growth of corrosion because of a bigger amount of sulfur and ashes with cheaper heavy fuels. 2) from light fuel to gas the economy of such changeover much depends on the comparison of fuel costs by mj fuel energy. the gas cauldrons have a very clean burning out and lower preservation. the warmth efficiency will not as well change a lot, however, it will improve due to reducing air odds. the investment costs for the package of cauldrons with the smoking pipe are almost the same as for the gas and oil version. sometimes the changeover is done to comply with the strict rules for air pollution control. 3) from solid fuels to heavy oil this changeover is often made in re-utilization of solid fuel in the burning chambers. the thermal efficiency will increase considerably. the changeover reasons are the difficulties of receiving solid fuel or the management`s decision about elimination of chaotic handling of supplying fuel for solid fuel cauldrons. occasionally both fuels are being turned on. the hereditary danger is an enhanced cauldron firing. 4) the changeover from heavy fuels to solid ones this changeover is advised only if the old cauldron is replaced by a new one, with solid fuels. re-utilization of cauldrons for liquid fuel for solid fuel is rarely done. the thermal efficiency will be reduced and it is certainly a big mistake to reduce investment costs by buying cauldrons for solid fuel without the system for automatic charging. in this last case efficiency can be reduced from high 83% to less than 50% and thus partially eliminate the price advantage of the solid fuel. 5) the changeover of fuels by changing the size of solid fuels the correct dimensioning of solid fuels has an express effect on the system efficiency. specifically, in the cauldrons that are heated with coal, the focus is on correct dimensioning of coal and benefit. 6) the changeover from one to the other solid fuel there are a lot of reasons. the complications change the content of ashes and water, fuel dimensioning too. in economic assessments it is important to be careful with the differences in costs of fuel benefit. 3. the research goals once the theoretical basis has been illustrated in the previous chapter, we will proceed to illustrate the main goals of this research. the main goals of this research can be illustrated through one main hypothesis and two supporting ones: the main hypothesis: the utilization of project management concept will contribute to more qualitative and efficient project realization in industrial energetics. the modern development of project management, i.e., its methods and criteria, will directly influence a better project planning, realization and control in this domain. supporting hypothesis 1: the project evaluation in industrial energetics will directly contribute to a better acceptance of project management concept. supporting hypothesis 2: using analysis and lessons learned, the database from this domain is being extended and the base for effective realization of the projects to come is being built. 29 management 2015/75 4. the results and discussion: the reconstruction of the energetic system in the paper factory 4.1.introduction the rapid development of the cauldron technique in the last decades has conditioned abrupt changes of particular constructed elements, as well as of the whole conception of the steaming cauldron, which in this state of development represents a complex of variety of devices. providing that in the last few years the coal has become important again, because the prices of other energy-generating products have dramatically risen, a lot of projects dealing with changeover from cauldron plants to coal, i.e., adaptation from boiler room with cauldrons to the solid fuel have been adopted. a poor energy policy, mostly illustrated as price disparity of energy-generating products and a sudden increase in price and the gas price have all made a lot of companies, especially those with production of their own, to find a new solution concerning energy sources. exactly because of these market movements of the energy-generating products, the companies start new projects that consist of the following main phases: • the purchase of new/second hand coal cauldrons; • the breakup of cauldron to coal; • the transport from cauldron to a purchaser (a factory); • the preparation of boiler room for the assembly of a new cauldron/cauldrons; • the assembly of cauldron and work release of cauldron`s plants. 4.2. the description of energy reconstruction to continue the whole project structure ̀ breakups, the transport and the assembly of cauldrons to coal` will be illustrated, in the boiler room of the factory which deals with process production. the investment plan of the factory is focused on the change of energy system, i.e., the transition to the solid fuel (coal) instead of former gas (tng). the project of dislodgment of the cauldron`s plant from the boiler room, which is dislocated in some other place in serbia, i.e., from the boiler room outside the serbia`s boarders, represents a complex project from the industrial energetic domain. precisely, it is about two very similar projects whose realization will go parallelly. cauldron 1: the cauldron`s disassembly, the transport and assembly for production of 20 t/h fired up by the coal from a place in serbia, in the boiler room of the factory that deals with the process production in belgrade. generally speaking, it is necessary to disassemble the present, old cauldron, to transport it to the factory`s site in belgrade, and after that to assemble the cauldron in the boiler room in the factory. the cauldron is produced by `minel kotlogradnja`. the basic information about the cauldron: • _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ the way to fire it up……………………………the chain rost 3300/6300 mm • _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ the cauldron`s capacity……………………….20/ t/h, saturated steam • _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ the steaming pressure on the cauldron`s exit…………….42 bar 30 2015/75management • _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ the temperature of the saturated steam…………………...253°c • _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ the temperature of the feed water ……………………..…..105°c • _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ examining cauldron`s pressure……………………………....67,5 bar • _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ the level of cauldron`s efficiency……………………….……82,5% • _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ the coal consumption…………………………………………4560 kg/h cauldron 2: the cauldron` s disassembly, the transport and assembly for production of 10 t/h fired up by the coal from a place in macedonia, in the boiler room of the factory that deals with the process production in belgrade. as already done with the first project, generally speaking, it is necessary to disassemble the present cauldron in macedonia, to transport it to the factory`s site in belgrade and after that to assemble the cauldron in the factory`s boiler room. the cauldron is produced by `djuro djakovic`. the information about cauldron mentioned in this documentation is the following: • the year of production.................................1996 • the maximal steam production....................10 t/h • the highest allowed overpressure.................12 bar • the examining overpressure......................19 bar • the temperature of saturated steam............192°c • the temperature of feed water.....................105°c • the temperature of heated air......................150°c • the whole warming surface.........................380,5 m2 • the content of water at the medium level......30,2 m3 • the content of steam at the medium level.....6,7 m2 • the fuel.........................................................brown coal • assortment....................................................0-30 mm • the fuel consumption....................................2878 kg/h the main project, adaptation of the current boiler room in the process production factory in belgrade, is about two parallel, divided projects, which are very similar according to the their contents. one of the main goals of the boiler room`s adaptation is a significant means savings, which will succeed by transition to the solid fuel, i.e., coal. 1) cauldron 1: the cauldron` s disassembly, the transport and assembly for production of 20 t/h fired up by the coal from a place in serbia, in the boiler room of the factory that deals with the process production in belgrade. 2) cauldron 2: the cauldron` s disassembly, the transport and assembly for production of 10 t/h fired up by the coal from a place in macedonia, in the boiler room of the factory that deals with the process production in belgrade the new boiler room with its work will have sufficient capacity to satisfy all the factory`s needs. 31 management 2015/75 4.3. the swot analysis (mihić, obradović, & todoeovic, economic analysis of social services for the elderly in serbia: two sides of the same coin, 2014). table 3 the swot analysis of the project 4.4.the defining of the wbs project phase table 4 wbs project phase the time of the project duration: 4 months table 5 the structure of the costs for cauldron 1: *source paper factory 32 2015/75management strengts opportunities • the successful, involved team of people in the project • acomplishment in savings by transition from gas to coal • involved, stable supplier and the best, negotiated prize • the short period of gaining of the investment • exicting experience with the coal cauldron • low financing costs • confirmed and clear aim and the project reazlization plan • acomplishment in savings during negotions, involving more suppliers • usage of turbine instalation to make savings in electric energy weaknesses threats • not enough experiences in projects in the industrial energetics • unplanned prolongation of the project realization • the complex logistics of the supply from coal to fhb • the boost of additional costs of the investment • the complexity of the project • the age of the cauldrons and equioment • the coal – diertier technology • after cauldrons instalation, the technical defaults are being discovered • the boost of coal costs • ecological licence • the filter costs wbs phase name a. phase 1: purchase of the coal cauldrons b. phase 2: the choice of a supplier/ work expontent c. phase 3: the breakup of the steam cauldron d. phase 4: the transport of cauldron`s plants e. phase 5: the assembly of the cauldron in the factory in belgrade f. phase 6: the testing of cauldrons g. phase 7:the project closing nb. the phase of the project planned costs (no vat) 1 purchase of the cauldron plant in stragar € 120,000 2 breakup of the steam cauldron in stragar € 127,000 3 transport of the cauldron`s plant € 38,000 4 assembly of the cauldron in fhb € 177,000 5 purchase of the accessories € 230,000 6 reconstruction of the cauldron from 21t to 25t € 250,000 7 construction work € 200,000 8 additional costs (supervisory body + unplanned costs) € 150,000 9 the project closing € 150,000 total: € 1,442,000 table 6 the structure of the costs for cauldron 2: *source paper factory 4.5. project savings calculations the calculations of the savings by transition from gas to solid fuel. in the next part the calculation of the savings will be illustrated, if we use both cauldrons. the prices and the comparisons: 1) the coal price: the coal price includes transport from diggings to the factory: • coal rb banovići 65 eur/t= 7237.75 rsd/t; • coal rb kolubara 78.4 eur/t = 8729.84 rsd/t. the gas price is gas=40 rsd/nm3, this price is an arithmetic mean. 2) the price of ash disposal: this price also includes the disposal on the depot and the transport from the paper factory to the depot, and it amounts to 37 eur/t= 4119.95 rsd/t. 3) labour force: for labour force is planned to include 17 workers: 5 cauldron specialists, 4 cauldron specialists` assistants, 4 workers for coal and ash transport, 2 locksmiths, 1 headman, 1 chief. the average gross wage is 65000 rsd/per month. now we have 8 workers, and for them the same value of gross wage is taken. 4) the price for cauldron maintenance: this price is adopted on experience data basis. the price of the ongoing maintenance on the monthly level is co=155,890.00 rsd/per month. the budget of the coal consumption – cauldron 1 for the budget of the coal consumption the following input data are used: • steam production d=25t/h • steam pressure on the caldron exit piz= 42bar • steam temperature on the caldron exit tiz= 253˚c • feed ware pressure (the caldron entrance) pul= 46bar (adopted on the experience basis) • the temperature of the feed water (the caldron s entrance) tul= 105˚c • the caldron efficiency level ηk= 82.5%, • the values gained by calculating are presented in table 1. calculation of coal production – cauldron 2 for the budget of the coal consumption the following input data are used: • steam production d=10t/h • the highest allowed pressure= 42bar • the steam temperature on the caldron exit tiz= 192˚c • the temperature of the feed water (the caldron entrance) tul= 105˚c • the caldron efficiency level ηk= 82.5%, 33 management 2015/75 r.b. the phase of the project planned costs (no vat) 1 purchase of the cauldron`s plant in berane € 40,000 2 breakup of the steam cauldron in berane € 37,000 3 transport of the cauldron`s plant € 10,000 4 assembly of the cauldron in fhb € 81,000 5 purchase of the accessories € 00,000 6 reconstruction of the cauldron from 21t to 25t € 150,000 7 the construction work € 100,000 8 additional costs (supervisory body + unplanned costs) included in the assembly 9 the testing of the cauldron included in the assembly total: € 518,000 table 7 the whole coal consumption *source paper factory table 8 savings cauldron 1+2 *source paper factory monthly effect amounts to cca € 360.000 the more savings are made by using coal from the “banovići” mining tank, by cca 17% in comparison with the coal from “kolubara“. criteria for settlement date: t= i/np t-the settlement date in years i-the total invested means np-the annual amount of net effect (net income) from the project table 9 the global projection of total invested means` structure i= 2,110.000 € monthly net effect: € 360.000 annual net effect: € 4.320.000 34 2015/75management coal consumption – total cauldron 1 + 2 position name: lignit dried nut 1530mm banovi i nut 1540mm wet w (%) 23.2 21.49 ash a (%) 8,99 12.09 bottom thermal energy hd(kj/kg) 17,567.00 17,000.00 coal consumption b(t/h) 5.69 5.88 coal consumption b(t/daily) 136.58 141.13 coal consumption b(t/monthly) 4097.26 4233.91 mass portion of ash ag (t/daily) 12.28 17.07 mass portion of ash ag(t/monthly) 368.34 511.88 savings cauldron 1 + 2 position name: lignit dried banovi i nut gas the prices of coal and gas (rsd/monthly); (rsd/nm3) 35,768,383.38 30,643,965.46 74,592,000.00 the price of ash disposal (rsd/monthly 1,517,534.31 2,108,917.05 labour force (rsd/monthly) 1,105,000.00 1,105,000.00 520,000.00 the price of cauldron maintenance (rsd/monthly) 155,890.00 155,890.00 monthly total (rsd/monthly) 38,546,807.69 34,013,772.51 75.112,000.00 gas savings (rsd/monthly) 36,565,192.31 41,098,227.49 r.b. name amount eur (no vat) 1 cauldron 1 € 1,442,000 2 caldron 2 € 518,000 3 project financing costs € 150,000 grand total: € 2,110.000 table 10 the dynamics of returned invested means preview roi = 5.9 months by applying the illustrated formula it can be inferred from the callculations that both caldrons invesments will be paid off in 5.9 months, and detailed calculations are illustrated in the table. 35 management 2015/75 months np-annual amount of project`s net effect accumulative annual amount of project` net effect 1 € 60,000 2 € 360,000 € 360,000 3 € 360,000 € 720,000 4 € 360,000 € 1,080,000 5 € 360,000 € 1,440,000 6 € 360,000 € 2,160,000 7 € 360,000 € 2,520,000 8 € 360,000 € 2,880,000 9 € 360,000 € 3,240,000 conclusions and discussion based on all previously presented, it can be concluded that investing in industrial energetics is a necessary tak for big companies that deal in with process paper production. the boiler rooms represent the basic part of every production and directly influence the prices of end products. according to that, it is necessary to constantly search for better and more profitable solutions in energy-generating products production. the main aim, i.e., the main hypothesis of this research, is about the usage and adoption of the project managing concept in industrial energetics. this research is used to present an example of successful implementation of this concept in the paper industry, more precisely, in a paper factory. an adequate pre-investing study is carried out, a lot of project management methods are applied (wbs structure, gantt chart, swot analysis, criteria for settlement date, etc.). also, a significant amount of savings is made by the realization of this project and the settlement date is shorter that one year so we can conclude that the main hypothesis is confirmed through this example. the emergence of such projects is more and more common, because currently the market conditions dictate the pace of using the most cost-effective energy-generating products, one of them being coal. what is paradoxical is the fact that the `dirty` and maybe `archaic` methods for activation of production in factories (coal caldrons) are being welcomed back, and that the gas caldrons are being thrown out and become less represented on the market. of course, the main motive for all companies is to find the most economic and best sollutions for their sources to supply the production. such sollutions in industrial energetics are very complex investment projects. the realization of such projects requires a high level of knowledge of project management and industrial energetics. using the synergy of sciences we get a successful team of people who are necesssary for the realization of one big project, one represented in this research. documenting, analysis and evaluation of these projects represent one important segment of the project realization in industrial energetics. desirable is that after project closing is made an adequate report, where the most important experiences, problems and critical events from the project will be presented. the completed project evaluation will contribute to a more effective adoption of the project management concept, what is illustrated in the first supporting hypothesis. in this research all crucial events on this project have been presented, all problems arising when there is a transition from one to another type of energy-generating products have been noted, e.g., the costs incurred when a new energy-generating product is being introduced. this part is illustrated in more detail in the second and the fourth chapters, where the general conclusion is that the coal is the most economic energy-generating product and it requires engagement of more people to use it. also, from the ecological point of view, problems arise when obtaining adequate licenses from the state. with this research, the supporting hypothesis is confirmed. 36 2015/75management from the technical and the project points of view, this research presents all the most frequently applied modern project methods, all important details about caldron type, the way of managing this project, cost projection of transition to the new energy-generating product, etc. for example, the information that the utilization of coal from the `banovici` mining site in this project is more cost-effective by cca 17% than that of the coal from `kolubara`, can be treated as very important information for the products to come in this domain. it can be concluded that this approach of documenting and analysis of these projects is more than desirable and necessary, and that in this way the knowledge basis is being enhanced and the base for the most effective realization of the future projects is being established, where the supporting hypothesis is confirmed. the modern development of the project management concept will definitely improve a successful project realization in the industrial energetics domain. the spread of this concept in this industry with the adequate formatting of the base will contribute to this concept to be envitable in the future in the execution of such projects. references [1] barroso, j., barreas, f., & ballester, j. (2004). behavior of a high-capacity steam boiler using heavy fuel oil part i. high-temperature corrosion. fuel processing technology 86, 89– 105. [2] binkiewicz, kleisley, mcmahon, monacelli, & roth. (2008). natural gas conversions of existing coalfired boilers. babcock & wilcox power generation group (str. 5-12). ohio, usa: babcock & wilcox. [3] chuah, k., tummala, r., & nkasu, m. (1995). project management structures in hong kong industries. international journal of project management vol. 13, 253-257. [4] farzana, a., & pinnington, a. (2013). exploring the value of project management: linking project management performance and project success. international journal of project management. [5] gulić, m., brkić, l., & perunović, p. (1991). parni kotlovi. beograd: mašinski fakultet. [6] hussain, r., & wearne, s. (2005). problems and needs of project managament in the process and other industries. trans icheme, part a, 372–378. [7] jovanović, p., & mihić, m. (2006). upravljanje projektima. beograd: fakultet organizacionih nauka. [8] kaupp, a. (2009). energising sustainable development. gtz. [9] marković, d., petrović, d., & mihić , m. (2012). cost-benefit analiza projekata proizvodnje električne energije iz obnovljivih izvora. management, 64, 39-45. [10] mehmod, a., gale, a., brown, m., & kidd, c. (2008). the development and delivery of an industry led project management professional development programme: a case study in project management education and success management. international journal of project management 26, 223–237. [11] mihić, m. (2011). strateško upravljanje projektima. zadužbina andrejević, (str. 118). [12] mihić, m., obradović, v., & todoeovic, m. (2014, august). economic analysis of social services for the elderly in serbia: two sides of the same coin. evaluation and program planning, 45, 9-21. doi:10.1016/j [13] mihić, m., petrović, d., & vučković, a. (2014). comparative analysis of global trends in energy sustainability. environmental engineering and management journal, 13, 947-960. [14] mihić, m., petrović, d., obradović, v., djurović, d., & vučković, a. (2012). application and importance of cost-benefit analysis in energy efficiency projects implemented in public buildings the case of serbia. thermal science, 915-929. [15] mihić, m., petrović, d., vučković, a., obradović, v., & djurović, d. (2012). application and importance of cost-benefit analysis in energy efficiency projects implemented in public buildings: the case of serbia. thermal science, 16, 915-929. [16] mihić, m., vučković, a., & vučković, m. (2012). upravljanje koristima u projektima energetske efikasnosti u javnim zgradama u srbiji. management, 64, 57-65. [17] munns, b., & bjerimi, k. (1996). the role of project management in achieving project success. international journal of project management vol. 14, no. 2, 81-87. [18] salazar-aramayo, j., rodrigues-da-silveira, r., rodrigues-de-almeida, m., & neuma de castro-dantas, t. (2012). a conceptual model for project management of exploration and production in the oil and gas industry: the case of a brazilian company. international journal of project management 31, 589– 601. [19] sandenberg, p., & soderstrom, m. (2003). industrial energy efficiency: the need for investment decision support from a manager perspective. energy policy, 1623–1634. [20] scott-young, c., & samson, d. (2008). project success and project team management: evidence from 37 management 2015/75 capital projects in the process industries. journal of operations management 26, 749–766. [21] terrence, c., & arzymanow, a. (2003). the maturity of project management in different industries: an investigation into variations between project management models. international journal of project management 21, 471–478. [22] too, e. g., & weaver, p. (2013). the management of project management: a conceptual framework for project governance. international journal of project management (2013). [23] vasquez, j. r., perez, r., moriano, s., & gonzalez, p. (2008). system identification of steam pressure in a fire-tube boiler. computers and chemical engineering 32, 2839–2848. [24] vuckovic, a., mihić, m., & petrović, d. (2013). strategic management of energy efficiency project portfolio in public buildings. tehnika menadžment, 943-968. [25] wirth, i. (1996). how generic and how industry specific is the project management proffesion? international journal of project management vol. 14, 7-11. [26] worrell, e., berkel, r., fengqi, z., menke, c., schae!er, r., & williams, r. (2001). technology transfer of energy efficient technologies in industry: a review of trends and policy issues. energy policy, 29-43. receieved: october 2014. accepted: may 2015. golub markovic cardboard mill umka, kappastar group, 13.oktobra 1 golub.markovic@kappastar.com golub markovic is a phd candidate at the faculty of organizational sciences, department of management, university of belgrade. the author works as a head of purchasing department at cardboard mill umka which is member of kappastar group. he completed his undergraduate and master studies at the faculty of organizational sciences in belgrade, with the major occupational fields : management and organisation, project management, strategic management. marko mihic university of belgrade, faculty of organizational sciences mihic.marko@fon.rs marko mihic is an associate professor at the faculty of organizational sciences, management department. his research interests include strategic management, project management and cost–benefit analysis. he has published 8 books and over 100 peerreviewed papers. as an expert consultant, he has worked extensively for the serbian government institutions, as well as for several leading national and multinational companies and investors in serbia. vladimir obradovic university of belgrade, faculty of organizational sciences obradovicv@fon.bg.ac.rs vladimir obradovic works as an assistant professor at the department of management and specialized management disciplines. for his research results he has been honored a highest scientific status by the serbian ministry of science. he is a director of yupma cert – serbian project management association certification body. so far he has published 8 books and over 50 papers in peer-reviewed conferences and journals.. about the author # ernad kahrovic:tipska.qxd 1 ernad kahrović*, atif avdović state university of novi pazar, serbia management: journal of sustainable business and management solutions in emerging economies forthcoming impact of digital technologies on business performance in serbia doi:10.7595/management.fon.2021.0039 abstract: 1. introduction one of the worldwide trends in the global economy is the process of digitalisation, which represents a complete transformation of society and economy, as well as a necessary precondition for the survival of companies on domestic and international markets. the implementation of up-to-date and innovative technological solutions based on information and communication technology (ict) is becoming one of the essential tools for boosting productivity, competitiveness and economic growth. the implementation of the abovementioned solutions brings about a change not only in economic trends but also in the entire society, owing to communications, information, innovations and networking. * corresponding author: ernad kahrović, e-mail: ekahrovic@np.ac.rs research question: the main goal of the study was to investigate the degree to which serbian businesses accept and use digital technologies as part of the digital business transformation process. motivation: the main aim was to research the specific determinants of the digital economy, digital technology and digital business transformation. through an empirical analysis, digital technologies were classified as primary and secondary and the motive was to examine whether digital technologies affect revenue growth, productivity improvement, increase in market share, customer satisfaction and employee satisfaction, reduction in operating costs, development and use of digital products, digital market expansion and digital platform development. idea: the main idea behind the study was to determine to what extent the said technologies are employed in serbian businesses, as well as to develop a model of the impact of digital technologies on business performance, which may serve as a basis for further research. data: the research was conducted from october 2020 to march 2021. a questionnaire was sent to over 500 email addresses of serbian companies, and 98 questionnaires were filled in and duly returned. we displayed the most important characteristics of our sample and that way pointed out its randomness and representativeness and explained the choice of data analytics methods we use. tools: the research instrument was a questionnaire including the general information (part i). part ii included the question regarding the primary and secondary digital technologies used in their daily business activities. in part iii, the participants were required to state the specific outcomes their company expects to obtain as a result of digital business transformation. findings: mobile technologies, social networks and cloud computing were found to be dominantly employed technologies by the serbian businesses from the sample. in percentage terms, the second class of disruptive technologies was shown to be insignificantly present in the serbian companies. finally, it appears that the role and importance of robotics and artificial intelligence have started to be recognised on the business scene. there is a significant impact of digital technologies on business performances, and we also give correlations between specific digital technologies and business performances, and intensity and statistical significance of impact in each case. we have also determined that some significant technologies make a latent, indirect impact on performances and shown the way that occurs. the analysis is performed after standardizing the ordinal scale values of variables making the results more accurate. contribution: the paper provides the state of affairs regarding digital technologies use by serbian businesses, as well as that of digital business transformation. keywords: digital economy, digital technology, digital business transformation jel classification: m21, m15 ernad kahrović, atif avdović forthcoming 2 in essence, the digital economy transforms the market structure, or more specifically it conditions consumer behaviour and salesperson actions in line with their behaviour within traditional markets. on the one hand, market supply gets transformed with the launch of new products or services through their specific quality and purpose. digital (virtual) products and services, which are made and offered by digital (virtual) producers, also emerge. on the other hand, digital markets create a completely new form of market demand. it is the market of digital (virtual) purchasers, both individuals as well as companies (lazovic & djurickovic, 2018, p. 208). furthermore, digital technologies have brought about a specific revolution in marketing communication and product distribution. more precisely, the occurrence of digital marketing channels makes way for direct communication between the buyer and the seller. the digital economy allows for the exclusion of numerous go-betweens in the supply chain, hence significantly increasing the value for the end consumer through reduced prices and higher delivery speed. digital technologies make a difference to payment methods, in a sense that nowadays the majority of transactions are carried out via cashless pay systems, with the highest growth of mobile payments and uses of cryptocurrencies. it is already evident at this point that future smartphones will be routinely equipped with apps enabling mobile payments (apple pay, google wallet, and the like). digital economy trends will soon exert a great impact on almost all business sectors. underlining the significance of the digital economy, the european union adopted the digital agenda for europe in 2010, which was also launched for the western balkans by the european commission in 2018. the objective of this agenda was to support the transition of the region into a digital economy and bring the benefits of digital transformation, such as swifter economic growth, more jobs and better services. the commission is committed to the following: to invest in broadband connectivity; to increase cybersecurity, trust and digitalisation of industry; to strengthen the digital economy and society; to boost research and innovation. despite the stated, there is still, to a certain extent, a high degree of digital inequality in serbia, as well as in other countries of the western balkans in comparison with the developed eu countries. to reduce the level of this inequality, it is necessary to institute considerable changes in the economic system, besides the required financial assistance, so that these changes may provide support and construction of new business models based on knowledge, innovation and advanced technology (celik, 2020; spremic, 2020). the most relevant infrastructural factors of the digital economy are digital technologies, relating to the use of digital resources (technologies, tools, apps and algorithms), through which digital goods in a computing environment are found, analysed, created, shared and used efficiently. digital technologies may be classified into two groups, or more specifically as: primary and secondary. primary digital technologies, which have been transforming the world’s economy into the digital economy in the past years, are as follows: mobile technologies, social networks, cloud computing, the internet of things (iot) and big data analytics (rogers, 2016, p. 21). the listed primary digital technologies represent convergent forces of digital disruption, which may significantly influence the changes about to happen on the market. these forces are innovative and revolutionary in their own right, but when combined, they will radically transform society and business, eliminate the old business methods and create new digital leaders (schwertner, 2017, p. 392). apart from primary, other, secondary digital technologies are also frequently employed, such as 3d printers, robotics, drones, wearable technology and artificial intelligence. this paper aims to determine to what extent the said technologies are employed in serbian companies, as well as to develop a model of the impact of digital technologies on business performance, and investigate whether digital technologies affect their revenue growth, productivity improvement, increase in market share, customer satisfaction and employee satisfaction, reduction in operating costs, development and use of digital products, digital market expansion and digital platform development. like any other model of the impact, they are not necessarily instantly applicable in the improvement of any company’s business performances but are important theoretical, and methodological tools for developing experimental models which can also depend on many factors, such as legal form, business size etc. this paper has been constructed in the three aspects, all stated in the following way. the first aspect represents a theretical background and a releveant literature review, related to digital technologies and business performance. in the second part of the paper, the research methodology has been presented, the characteristics of the research sample, as well as the extent to which serbian companies are acquainted with the digital technology concept and digital business transformation. the last segment stated here explains the research results and discussions and a model of the impact of digital technologies on business performance. 2. literature review the impact of information and communication technology (ict), similarly to digital technologies, like mobile technologies, social networks, cloud computing, the internet of things (iot), big data analytics has been examined in a lot of studies. the business value of ict and digital technologies (bvit) is valuable from a management perspective and generally included to foresee the it performance impact, together with productivity enhancement, profitability improvement, then cost reduction, competitive advantage, and finally, inventory reduction (tang, huang & wang, 2018; devaraj & kohli, 2003; hitt & brynjolfsson, 1996). kohli and grover (2008) have emphasised it value to be shown in a lot of ways, where several aspects are also within it, such as emphasising productivity gains, process improvements, profitability enhancement, increased consumer surplus, and improvements in supply chains or innovation at the inter-organizational level (p. 26). sabherwal and jeyaraj (2015) have examined the empirical bvit, where the focus has been on ''studies at the organizational level related to it-related independent variables and the same stands for dependent variables related to it’s organizational impact'' (p. 810). melville, kraemer & gurbaxani (2004) have emphasized bvit as ''the organizational performance impacts of it at both levels, comprise efficiency impacts and competitive impacts'' (p. 287). mobile technologies are an imperative part of modern organizations (car, pilepic & simunic, 2014) and influence competitive business environment globally, confronting organizations nowadays. levi-bliech, naveh, pliskin & fink (2018) have developed the model to explain how the mechanisms of mobile technologies generate business value and how they enable collaborative capabilities, where six different dimensions of a business process performance (bpp) are stated: cost, efficiency, flexibility, quality innovation and the final one, sustainability. this model has been tested by utilizing survey data given by managers in six european countries. the obtained results have had an impact related to mobile technology to be positively associated with both external and internal collaborative capabilities, where bpp is the utmost, in a case when the development of internal capabilities has priority compared to the development of external ones. braojos, benitez & llorens (2019) have recommended that the social commerce-it capabilities of social media and e-commerce should influence positively and individually a firm performance via an online client engagement. as gelogo and kim (2014) have asserted cloud computing comprises performance and productivity and better tracking of organizational resources and raw material. tang et al., (2018) have examined the impact of iot implementation on any firm performance. their study has confirmed for iot implementation to have a positive influence on organizations’ tobin’s q and financial performance. specifically, it has to comprise the return on assets (roa). thus, having had a scope of measurements, the examined results show for iot adopters to have a higher impact on performance and market value compared to non-iot adopters. the findings of wamba, gunasekaran, akter, ren, dubey & childe (2017) have also confirmed the value of the entanglement conceptualization of the hierarchical bdac (big data analytics capability) model, where both direct and indirect impacts have been present in firm performance. the correlation between ict, digital technologies, and business strategy and competitive advantage has been of interest in a lot of discussions in the past decade (fadhilah & subriadi, 2019, p. 259). saeidi, saeidi, sofian, saeidi, nilashi & mardani (2019) have researched the influence of the enterprise risk management (erm) on competitive advantage (ca), where a moderating role of information technology dimensions has been present; information technology (it) strategy and information technology (it) structure, both examined within it. the study has proved for erm displayed to have an important positive impact on a firm competitive advantage. the obtained results proved for it strategy and it structure to have a direct effect upon the competitive advantage, and a moderating effect on erm-competitive advantage relationship has also been an integral part of this effect. having used structural equations modelling with data collected from 63 firms, benitez, llorens & braojos (2018) have found it capability to have a proactive environmental strategy and it is also of importance in mediating the effects of it on firm performance. as regards the data used from a matched survey of it and business executives in 148 chinese manufacturing firms, chen, wang, nevo, benitez & kou (2017) have confirmed that there are positive, important links between it support for core competencies and strategic flexibility, where strategic flexibility and firm performance are of equal status. hao and song (2016) have also wanted to research how strategic capabilities mediate the effect of technology-driven strategy on firm performance. their data have shown for a technology-driven strategy to have very positive capabilities of both technology and information technology, but it has a negative effect related to marketing capabilities and market-linking capabilities. additionally, all types of strategic capabilities are of a positive relation to firm performance (p. 757). the contribution of morimura and sakagawa (2018) is related to the development of an integrated framework to analyse the effect of it use in exploiting and exploring a standardization of pricing and promotion strategies, where there are two different uses of it. the it use has had a positive effect on the 3 management: journal of sustainable business and management solutions in emerging economies forthcoming standardization of promotion strategies, and another positive effect of it is visible in the standardization of pricing strategies. degroote and marx (2013) have argued for it’s impact on supply chain agility to be measured by the firm’s ability to reply to market changes, and the impact of supply chain agility is closely related to firm performance. these results have proven that it increases the supply chain’s ability, while market changes can be accomplished by improving information quality and developing a response to it. their research has also shown that the supply chain agility can be improved in the segment of the firm’s financial and operating performance, where sales, market share, profitability, speed to market, and customer satisfaction cannot be excluded and they make an integral part of the entire process. the findings of kim’s study (2017) have shown for it to be very positively associated with firm performance via supply chain integration (sci). regarding the data of 125 multichannel retailers in singapore, oh, teo & sambamurthy (2012) have proven that the retail channel integration, when using it, can be efficient in delivering the current offers, and it can also have an innovative role in creating offers in the future. the examined data of ilmudeen and bao (2018) has shown the empirical evidence of val-it’s components (value governance, portfolio management, and investment management), all related to the management of it (mit); they are shown to be a significant mediator between val-it components and firm performance. kim, wimble & sambamurthy (2018) have also investigated into when and how each it capital type could contribute to firm performance by analyzing the 5-year panel data of 1,548 us firms. their results have shown that individual information access capital and collective information access capital have immediate effects on profitability via cost efficiency or sales growth. dale stoel and muhanna (2009) have demonstrated in their research the relation of it capabilities and firm performance, proving that it is more complex than previously theorized. specifically, the effect of the external environment is the one of the most importance. their analysis has given an insight into the general support of an it capability that depends upon the characteristics of the environment/ industry, the area where all firms are in a process of competition.their shown results have confirmed a link between the type of it resources/capabilities of a firm and the demands of the environment, where the effect of the externally oriented it capabilities has also been positive. also, melville et al., (2004) have developed a model of it business value based on the resource-based view of a firm. their primary result for it is to be valuable, but the extent and dimensions depend on internal and external factors, where they also include complimentary organizational resources and a firm’s partners, the competitive and macro environment. drnevich and croson (2013) have maintained for a greater business digitalisation to be beneficial to organisations by cost savings, increased connectivity, greater flexibility, and adaptability in currently increased complex and competitive environments. benitez et al., (2018) have found that it infrastructure provides the basics for business experimentation and the flexibility of exploring business opportunities; and it-enabled business flexibility could help firms to develop operational proficiency, and also exploit opportunities for their increased performance. the results of arora and rahman (2017) have shown the impact of superior it capability on the financial performance of firms in the chemicals and chemical products industry in india. the most important result has been a positive association between superior it capability and returns on sales (ros). turulja and bajgoric (2018) have examined a conceptual framework to clarify the nature of the effects of a firm’s information technology (it) capability, the present knowledge management (km) capability and the last segment of human resource management (hrm) capability in business performance of an organization. 39 it capability also comprises hrm and km capability. for this, km capability together with it capability influence highly the organizational business performance. perez-mendez and machado-cabezas’ (2015) partial least squares (pls) statistical technique has proved the positive effects the information systems (is) strategy has on a firm’s financial results. the is quality has also shown a positive correlation with improved financial performance. the findings from a logistic regression analysis have also had a positive effect of nmts (new management tools) on profitability improvement since they are part of an is of high strategic relevance. the organizations with higher technological infrastructure, development methodologies, and competence of their programmers, have had better results of the quality of the system, where they have contributed to the individual and organizational development of the company (solano, garcía, & bernal, 2014, p. 33). also, cespedes-lorente, magen-díaz & martinez-ros (2019) proved a positive relationship between extensive it use in various business areas. to understand better what leads to success and/or failure when a company uses ict and digital technology in business performance, mit sloan management review and capgemini consulting surveyed in 2013, 4 ernad kahrović, atif avdović forthcoming examined 1,559 executives and managers in various industries. the participants’ answers have illustrated that managers believe in technology and are aware that it can bring transformational changes to businesses and that there is difficulty in achieving excellent results via new technology (fitzgerald, kruschwitz, bonnet & welch, 2014). martinez-caroa, cegarra-navarrob and alfonso-ruiz, 2020) have conducted a survey with 93 multinational-company production centres in more than ten countries. structural equation modelling has been used to test the given theoretical model, and these findings have indicated that business digitisation improves the development of value activities, and companies “unleash this potential” when a digital organisation culture is completely adopted. 3. research methodology the research was conducted in the period from october 2020 to march 2021, in 98 serbian companies. the research instrument was a questionnaire including the general information, such as the company’s name, principal place and address of the business, legal form, business size, their core business. namely, in its effort to comply with the eu standards, i.e., the european statistical system (ess) standards, the republic of serbia adopted the regulation on classification of economic activities (the official gazette of the republic of serbia no. 54, 2010), under the law on the classification of economic activities (the official gazette of the republic of serbia no. 104, 2009). in the current research, the serbian businesses have been classified according to this regulation. in addition, in this part, the participants were also required to state whether the management is acquainted with the digital technology concept, as well as that of digital transformation. part ii of the questionnaire involved the questions on the companies’ use of primary and secondary technologies in their daily business. in part iii, the participants were asked to state the specific results their company expects to achieve as a consequence of digital business transformation, or more precisely, whether digital technologies affect their revenue growth, productivity improvement, increase in market share, customer satisfaction and employee satisfaction, reduction in operating costs, development and use of digital products, digital market expansion and digital platform development. the data in part ii and part iii were collected using the 5-point likert scale from strongly disagree to strongly agree. the questionnaire was sent via google docs, requiring that every question must be answered. it was sent to over 500 email addresses of serbian companies, and 98 questionnaires were filled in and duly returned, i.e., approximately 20% of the initial sample. all the participants were guaranteed data confidentiality. to analyse the data, we used microsoft excel 2020 and the statistical programme spss 25.0. based on the analysis of the acceptance level of digital technologies by serbian businesses, it is possible to derive a model of the impact of digitisation on business performance (figure 1). namely, the resourcebased view (rbv) is the dominant theory in the literature, where the link between digital technologies and business performance has also been examined in detail (melville, kraemer & gurbaxani, 2004). rbv has been used as a measuring unit to examine the superior performance and competitive advantage implications, where the following ones are also present and are firm-specific, valuable, rare, imperfectly imitable and, they cannot be strategically substituted by other resources (ghobakhloo & hong, 2014). in the context of digital technologies, as specific firm resources, it is useful to analyze whether and how digital technologies may be associated with competitive advantage and business performance. strategy researchers have used rbv to analyze in theory the competitive advantage implications related to information technology (mata, fuerst & barney, 1995), and they have empirically accessed the complementarities between technologies and other resources of any firm (powell & dent-micallef, 1997). digital and it researchers have also started to employ the resource perspective, where they have expanded and deepened the understanding of it business value (bharadwaj, 2000; caldeira and ward, 2003; melville, kraemer & gurbaxani, 2004;). the conceptual foundations of the literature on digital and it-enabled organizational capabilities have been a strating platform to propose the model of the study as shown in figure 1. model of the impact of digitisation on business performance includes the most used digital technologies, i.e., a large number of independent variables affecting business performance, which in turn affects dependent variables on the right side of the model. primary dependent variables from the model include revenue growth, productivity improvement, increase in market share, customer satisfaction and employee satisfaction, reduction in operating costs, development and use of digital products, digital market expansion and digital platform development. 5 management: journal of sustainable business and management solutions in emerging economies forthcoming figure 1: model of the impact of digitisation on business performance the choice of variables is determined by the digital technologies most used worldwide (statista, 2021, https://www.statista.com/topics/6778/digital-transformation/), and the ones we kept among all of such variables and included in our analysis are the ones that are commonly used in serbian companies, based on the responses we got by the companies included in this research. the reliability of data, i.e., the validity of the questionnaire was checked using cronbach’s alpha coefficient. a value that is higher than 0.6 is acceptable, higher than 0.8 is excellent and higher than 0.9 is perfect (fajgelj, 2021). we will find a significant effect of the independent variables, i.e., digital technologies on the dependent variables, i.e., business performances. we will also determine in what way, significantly or not, each digital technology affects each business performance. since we have an ordinal scale of measurement, i.e., {1, 2, 3, 4, 5}, and our goal is to determine the effect of digital technologies on business results, we will transform our scale into a numerical one which will enable us to perform the analysis in accordance to our goal using linear regression analysis. the smaller the number of dependent variable modalities, the greater need for proper data modification is required (vukovic, 1997; vukovic, 2007; bogdanovic et al., 2013). usually, when the measurement scale of the dependent variable is ordinal the multinomial regression analysis is used, however, it determines how changes of predictors affect the value of odds ratio of exactly two modalities, which is not what we need. also, the sample size, more than three modalities, same scale variables, and many more, counterwork the precision of results of multinominal logistic regression analysis (fajgelj, 2021; ibm, 2021, https://www.ibm.com/docs/en/spss-statistics/version-missing?topic=regressionmultinomial-logistic). for each variable, each sample element in the variable we obtained, we have computed standardized zvalues. the z value is calculated as the difference between the element of the sample and the sample mean divided by the standard deviation. this way we made new variables that are numerical and are scaling more precisely. since new variables contain standardised values, their mean is 0, and the standard deviation is 1 (bogdanovic et al., 2013). multivariate linear regression analysis, when performed on standardized z values, usually does not change the conclusion, always gives us the more precise percentage of change of dependent variable caused by the change of predictor, and has the regression constant negligibly different from zero with no statistical significance. also, standardized beta coefficient equals to regression coefficient when linear regression analysis is performed on z values of the sample. that makes results much more concise and easier to read. in subchapter 4.2. we have also formed a new variable “digital technologies utilization” which represents the 6 ernad kahrović, atif avdović forthcoming �������� �� ���� �� �� � ������� ��� �������� ������ ����� �� �� � �������� ������������ �� �� � �� ����� ������������ ������ � ������� ����� ������� ������ �� ��� ����� ������� ������� �� ��� ���� ������� ������ �� ��� ���� ������ ������������ ������ �������� ����� ��� ����� ��������� ������������ �������� �������� � �� � �� � ����� ��� � �� ���� �� !"!� !�# $����%&!� !"!� !�# $����%&!� sum of all the z-values of independent variables, thus the values of the total digitalisation measure of the company. the same is done for dependent variables, i.e., a new dependent variable “business results” is created. using multivariate linear regression analysis, in chapter 4. subchapters 4.2. and 4.3, we will present how increased digital technologies utilization (in general) affects business results more precisely. the (partial) regression coefficients “b” for predictor (independent variable) show how much the value of the dependent variable changes (b>0 indicates increase, b<0 indicates decrease) if a given predictor is increased by one unit of measurement (in multivariate linear regression analysis, i.e., with multiple predictors, all other predictors are considered unchanged). we also have the 95% confidence intervals for partial regression coefficients, i.e., the interval which will contain the regression coefficient for a given predictor with a probability of 95%. the coefficient of multiple determination gives us information on what percentage of the variability of the dependent variable is determined r2 (predicted) by changing the values of the predictor variable(s). anova gives us the statistical significance of the predictive ability of the obtained model. the results of correlation and the “stepwise” method of multivariate linear regression analysis will overlap when it comes to significant interdependence between chosen independent variables and one dependent variable. that is why we will only determine which independent variables have a significant effect on the dependent variable, and in what way it can be achieved, using multivariate linear regression analysis. this will be done for each dependent variable. the multivariate linear regression is given with the equation: where y is the dependent variable, betas are partial regression coefficients an xs are independent variables or predictors, alpha is a regression constant (zero when values of variables are standardized) and epsilons are residuals. on some occasions there is a possibility of an insignificant direct effect of one predictor (x) on some dependent variable (y), however, the effect of our predictor on some other variable (m) and the effect of that variable on our dependent variable can be significant. in that case, we have the mediation model, where the corresponding variable is called the mediation variable. the mediation analysis model is performed through three univariate linear regression analyses and it is given in the following model. figure 2: basic mediation model performed on variables with standardized values � � � � ���� � � � � � ���� � � 7 management: journal of sustainable business and management solutions in emerging economies forthcoming 4. results and discussion concerning the place where companies conduct business, the sample distribution was as follows: twentynine companies were from belgrade (29.59%), nine from novi sad (9.18%), seven from novi pazar and nis (7.14% each), four from kragujevac (4.08%), three from vranje, uzice and becej (3.06% each), two from sombor, kraljevo, nova varos, majdanpek, raska and ruma (2.04% each), and one from leskovac, zrenjanin, prijepolje, bujanovac, indjija, subotica, kosjeric, crvenka, paracin, zlatibor, bor, arilje, vrnjackabanja, novi becej, smederevskapalanka, aleksinac, kovin, cacak, valjevo, vrbas and zagubica (1.02% each). the classification of the companies according to the legal form and business size is presented in table 1. table 1: legal form and business size of the sample concerning the legal form of the businesses involved in the current research, joint-stock companies were present in the largest number (60.20%), followed by fifteen partnerships and limited liability companies (15.31% each), seven entrepreneurs (7.14%) and two public companies (2.04%). the sample included medium-sized enterprises in the largest number (45.92%), followed by small (36.73%), large (10.20%) and micro (7.14%) enterprises. concerning the core business, thirty companies from the sample did business in the field of manufacturing (30.61%), nine in wholesale and retail trade, and repair of motor vehicles and motorbikes (9.18% each), eight in mining (8.16%), seven in construction industry, transport and warehousing, accommodation and food services, together with agriculture, forestry and fishery (7.14% each). the distribution of the remaining businesses in percentage terms was as follows: six in the field of information and communication services (6.12%), four in financial services (4.08%), four in other service activities (4.08%), two in electricity, gas, steam and air conditioning supply (2.04%), two in professional, scientific and technical activities (2.04%), two in education(2.04%), two in health and social security (2.04%), one in art, entertainment, and recreation (1.02%). in the following table we present this sample structure in comparison with the structure of the population of all serbian enterprises in 2018 (statistical yearbook, 2020). 8 ernad kahrović, atif avdović forthcoming �������� �� � � � �� ��� �� ������ ���������� � � ��� � � � ���� ����� ������ �� � �������� �� �� ������ �� ����� �� �� ������� ������ � � � ���� ������ �� ��� ������ �� �� � ���������� �� ����� �� �� � ���� �� � ���� �� ������ � ����� ��� � ������� ��� ����� ��� ����� ���� ����� �� ����� ��� �� ! �� � �� � ���������� ���� �� ����� "#�$���$� %&%�' (��� )������� )�������� %&�*' +�� � ,���-��� %&�!' .�� �� %&&�' .������ / �����$����� %&&0' 1����� � %&�2� 3�� ������� %&�04� 5���� ��� � ��� ��� �� ������� �� ����� ������������� �������� � ������� �� ������������ ������� ��� ������� ��������� ��������� ����������� ��������� ����� ��������� � ��� �� ��������� � � � ! " !# $ ���%$ � �&�$ � �&�$ '(�"($ "�(%$ �(( � ������������ )���� ����������� *���� ����������� )��������+�� ����������� ���,� ����������� � ��� �� ��������� � &' % �( !# $ ���%$ &'��&$ % �!"$ �(�"($ �(( table 2: business structures of serbian enterprises in 2018 and the obtained sample based on table 2 we can see that our sample is randomly obtained. the sample size could be an issue when it comes to the generalization of conclusions but considering that process of digitalization has just started in serbia, there are not many enterprises using digital technologies other than some mobile ones (mobile devices and laptops). for example, in 2019 only 27,9% of serbian enterprises distributed their products and services through digital technologies, 37% of the internet population uses e-government for getting information and 43% of them have never purchased goods or services through digital technologies (kovacevic, sutic, rajcevic & milakovic, 2020). in terms of the first question in the questionnaire, whose aim was to determine the extent to which they are acquainted with the digital technology concept and digital business transformation, the managements of all the tested businesses believed that they were familiar with the given concepts, which gave us the green light to continue with the data analysis, i.e., based on the stated facts we can consider our sample as the representative one (bogdanovic, milosevic, dolicanin & lazarevic, 2013). in the following sections, we elaborate on digital technology determinants, possibilities of their use, as well as the acceptance level of primary and secondary digital technologies by serbian businesses. we emphasise that the highest distribution in the serbian businesses was present in case of mobile technologies, such as using mobile devices and laptops (100%). social networks, as a modern business tool, were stated to be used by ninety serbian businesses (91.84%). cloud computing, as a technology for storing business data, was recognised by seventy-nine businesses (80.61%). the following two concepts, the internet of things and big data analytics are present in serbian businesses to a lesser extent than the previous three concepts. in other words, 18 businesses (18.37%) recognised the significance of using the internet of things technology, whereas only 19 (19.39%) recognised the importance of the big data analytics concept. serbian businesses from the sample are beginning to recognise the significance of these disruptive technologies. disruptive technologies are frequently termed “emerging technologies” or “converging technologies” in the literature. emerging technologies are indeed technical innovations that, as a rule, cause a shift of the already formed paradigms, regulations and standards. this is exactly the reason why only one business from the sample (1.02%) recognised the importance of 3d printing. for automation of production, twenty-three businesses (23.47%) started using different forms of robots displacing manual labour. drones were used by five companies, augmented reality by two, and artificial intelligence by eleven businesses included in the sample. 4.1. digital technology and business performance – descriptive statistics cronbach’s alpha for independent variables (items), i.e., digital technologies is 0.607 which is acceptable. hence, the data are reliable and the questionnaire is valid. cronbach’s alpha for dependent variables (items), i.e., business performances is 0.861 which is good. hence, the data are reliable and the questionnaire is valid. 9 management: journal of sustainable business and management solutions in emerging economies forthcoming ��������� � ������� ���� ���������������� ���� � ����� ����� � �� ����� � �� ����������� �������� ��� �� �� �� ����� ��� ���� ����� ��� �� ������ �� ����� ���������������������������������������������� ����� ���� ��� � !� !��"� #������ ����$���%�����$�%������������������������������������&������ ���� �� !� �� �� '����� ������ ���!� ����� �� ���"� #(������������������������$�����������������&�(���������������������� �� �� ����� ��� ��� �� )�������������������������� � "!� ��� � �� ���"� *�������������������������&��������&������ "�"� � �� �� ���"� +������������������� ��������� " �� ����� �� ���!� ,���������������&������ �"� � ����� �� �� -�������������������������������(����������&������ �� ��� � ���� ��� ���!!� *�����������&������� ���������&��������&������ �� ���� !� !��"� ,������������� ����������������������(� ��(���������� "��� ��� � �� �� )����� ������ ������� ��� ������� � table 3: descriptive statistics for variables in the model of the impact of digitisation on business performance table 4: descriptive statistics for variables with standardized values in the model of the impact of digitisation on business performance 4.2. general impact spearman’s rho correlation coefficient for variables „digital technologies utilization“ and „business performances“ is 0.723 which indicates that there is a high positive correlation. the correlation significance test gives us a p-value of 0 which is less than 0.05, thus the correlation is statistically significant. the linear model based on which business results are affected by digital technologies utilization is: ��������� � �� ����� � ����� � �������������������������������� � ���� 10 ernad kahrović, atif avdović forthcoming �������� ���� ������ ������ ��� ���� ��������� �������� ������������ �� ���� �� ����������������� �� �� �� ����� ������ ������ ���� ����������� �� �� � �� !� ��!�!� ���"�� #��$����%�$����� �� �� � ����� ������ ��""�� &���'�� ��������������� �� �� � ����� ������ ����"� (� ������ �� �� � �� !� ���"�� ��"� � )��������� �� ���� (� ��$��������� �� �� � ����� ��� !� ������ *���$��� ��+��%��� �%���� �� �� � ����� ������ ���"�� ����� ������% ������� ��� �� �� � ����� ������ ��!!�� #$���%���� ���' ������ �� �� � ����� ��"��� ������ ,%���+���� ���' ������ �� �� � ����� ���!�� ������ (��$������������� ����������� �� �� � ��"�� ������ ��!��� )� ����%���� ���$����'������ ������$���� �� �� � ���!� ���!!� ��"�"� )���� ��% ������-� ������ �� �� � ����� ������ ������ )���� ���� �'��%��� ����%���� �� �� � ���!� ������ ����"� � �������� ���� ������ ������ ��� ���� ��������� �������� ������������ �� ���� ���� ����������������� �������� ��������� �������� �� �� �� �� ��� �����!��"�� �����##� �����#$�� �������� �� �� �� ��%��&����'�&����� �������� ���#����� $��$�#�� �� �� �� ��(���)�� ��������������� ���$���� �$��$��#� ����$��� �� �� �� ��*� ������ ����#�#� �$������� �������� �� �� �� +��������� �� ���� ��*� ��&�����!��� ����#��� ����$�#�� �����$�� �� �� �� ��,���&��� ��-��'��� �'���� �������� ����$���� �������� �� �� �� ������� ������' �"����� ��� $������� ���#����� �������� �� �� �� ��%&���'���� ���) ������ $��$#��� �����#��� ��#����� �� �� �� ��.'���-���� ���) ������ $���$��� �������$� ���$��#� �� �� �� ��*��&������������� ����������� $���$��� ��������� $�����#� �� �� �� ��+� ����'���� ���&����)������ ������&���� $������� ��������� ����$��� �� �� �� ��+���� ��' �"����/� ������ $������� ��������� �����$�� �� �� �� ��+���� ���� �)��'��� ����'���� ������$� ��������� ��##���� �� �� �� � hence, if we increase the variable „digital technologies utilization“ by 1, the value of the variable „business performances“ increases by 1.538 (95% confidence interval is [1.285, 1.791]). the increase is statistically significant (p=0<0.05). multiple determination coefficient r2 equals 0.602, which indicates that 60.2% of business performances variability is determined by changes in the values of digital technologies utilization. anova results (f=145.47 with p=0<0,05) confirm that the prediction of the dependent variable (business performances) values through the obtained model are statistically significant. further results can be interpreted analogously. 4.3. the impact of digital technologies on each business performance we used the “stepwise” method of regression which excludes variables that make no significant prediction out of the model. the p-values of the significance of included variables are also given. the following tables give us the results of multivariate linear regression analysis. table 5: multivariate regression analysis results for revenue growth and productivity improvement table 6: multivariate regression analysis results for an increase in market share, employee satisfaction, reduction in operating costs, development and use of digital products and digital market expansion 11 management: journal of sustainable business and management solutions in emerging economies forthcoming dependent variables name of regression result predictors r2 anova z social networks z cloud computing f p z revenue growth b 0.327 0.306 0.291 19.526 0 95% ci for b [0.135, 0.519] [0.114, 0.498] p-value of significance 0.001 0.002 z productivity improvement b 0.259 0.635 0.618 76.482 0 95% ci for b [0.117, 0.400] [0.494, 0.776] p-value of significance 0 0 dependent variables name of regression result predictors r2 anova z cloud computing z robotics f p z increase in market share b 0.546 0.246 0.432 36.154 0 95% ci for b [0.386, 0.705] [0.087, 0.406] p-value of significance 0 0.003 z employee satisfaction b 0.158 0.779 0.699 110.290 0 95% ci for b [0.042, 0.274] [0.663, 0.895] p-value of significance 0.008 0 z reduction in opertaing costs b 0.892 -0.145 0.746 139.539 0 95% ci for b [0.785, 0.999] [-0.252, -0.038] p-value of significance 0 0.008 z development and use of digital products b 0.250 0.521 0.405 32.316 0 95% ci for b [0.084, 0.413] [0.357, 0.684] p-value of significance 0.003 0 z digital market expansion b 0.159 0.618 0.461 40.582 0 95% ci for b [0.003, 0.314] [0.462, 0.773] p-value of significance 0.046 0 table 7: multivariate regression analysis results for digital platform development table 8: multivariate regression analysis results for customer satisfaction it is worth mentioning that robotics utilization results in neglecting digital platform development (table 5) and requires additional operating costs (table 4). this fact does not mean that robotics utilization is not an important factor in optimizing business performances, quite the opposite, as it can be seen in the bigger part of analysis results. here we see that, even though beneficial, digitalization needs to be implemented after planning, previous priorities determined and innovations based on priorities. the “stepwise” method has not recognised mobile technologies as a significant factor when it comes to impact on business performances. that is because mobile technologies are an integral part of modern serbian business (kovacevic et al., 2020). therefore, the business performance of most companies operating today is determined by mobile technologies even since their inception. the same goes for our sample. hence, mobile technologies have not scaled as diverse as the other digital technologies in the model; that is why their impact is not significant in comparison with one of the other digital technologies. however, the spearman correlation coefficients for interdependence between mobile technologies and productivity improvement, and mobile technologies and reduction in operating costs are respectively 0.296 and 0.231 and are both statistically significant (p=0.003<0.05 and 0.022<0.05). in the following table, the univariate regression analysis results are also given. table 9: univariate regression analysis results for customer productivity improvement and reduction in operating costs with mobile technologies as a predictor 12 ernad kahrović, atif avdović forthcoming dependent variables name of regression result predictors r2 anova z artificial intelligence z robotics f p z digital platform development b 0.795 -0.476 0.326 22.949 0 95% ci for b [0.560, 1.031] [-0.712, -0.240] p-value of significance 0 0 dependent variables name of regression result predictor r2 anova z cloud computing f p z customer satisfaction b 0.650 0.423 70.322 0 95% ci for b [0.496, 0.804] p-value of significance 0 dependent variables name of regression result predictor r2 anova z cloud computing f p z productivity improvement b 0.367 0.135 14.961 0 95% ci for b [0.179, 0.556] p-value of significance 0 z reduction in operating costs b 0.313 0.098 10.423 0.002 95% ci for b [0.121, 0.505] p-value of significance 0.002 these seemingly contradictory conclusions indicate that mobile technologies might have a significant indirect impact on productivity improvement and reduction in operating costs. to be more precise in our conclusion we will perform the mediation analysis. the results are given in the following mediation models. figure 3: mediation model of mobile technologies impact on productivity improvement since the direct impact of mobile technologies on productivity improvement weakens by including cloud computing as another predictor, so it is no longer a significant predictor, full mediation occurs. using b=beta and standard error se we can use the aroian test. we get z=3.323 which is higher than the critical value of 1.96, hence the mediation, i.e., the indirect impact of mobile technologies, through cloud computing, on productivity improvement is statistically significant. the mediation proportion is 0.6568 which means that 65.68% of the impact is determined by mediation through cloud computing. figure 4: mediation model of mobile technologies impact on reduction of operating costs the conclusion here is the same as for figure 2, with z=3.437 and mediation proportion 0.7819. therefore, mobile networks are as well a significant factor in optimizing some of the business performances, but indirectly. based on the results the model of impact can be suggested based on the following diagram. the quantity of each digital technology utilization can be determined based on the results in tables of chapter 4 and its current utilization in a company. 13 management: journal of sustainable business and management solutions in emerging economies forthcoming figure 5: final model of the impact of digital technologies on business performance 14 ernad kahrović, atif avdović forthcoming it is important to emphasize that the model we suggest in section 3 at the moment has only a theoretical contribution, i.e., we have determined whether the digital technologies are implemented in business and how they affect business performance. this kind of result can be a basis for further research of the same type or the one that gives the results based on measurement, and not the response of the company manager which can be subjective. digital business transformation has become the “condition sine qua non” of modern organisations. the issue of digital transformation has only become the subject of interest of management theorists and practitioners in the last few years, thus there are not many contributions in this area. the introduction of a large number of digital technologies to a business may produce anticipated benefits, provided that a clear, comprehensive digital transformation strategy has been developed, underlining the key advantages. in this paper, we have shown that: ● digitalization results in higher business performance; ● every digital technology improves and optimizes specific business performance better than other ones; ● digitalization, even though beneficial, must not be spontaneous; ● none of the technologies should be neglected without a thorough analysis due to a possible indirect impact; ● advanced, properly chosen, statistical analysis with convenient data modification will yield better and more precise results, and thus conclusions. hence, we can conclude that a more objective study of the phenomenon of the impact of digital technologies on business performance is possible, but through more expenses and time requiring research. also, based on our results, new experimental models for improvement of business performance can be developed, and as such examined and elaborated through the 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(2018). the impact of the internet of things implementation on firm performance. telematics and informatics, 35(7), 2038–2053. doi:10.1016/j.tele.2018.07.007 [52] the official gazette of the republic of serbia no. 54. (2010). 16 ernad kahrović, atif avdović forthcoming 17 management: journal of sustainable business and management solutions in emerging economies forthcoming [53] the official gazette of the republic of serbia no. 104. (2009). [54] turulja, l. & bajgoric, n. (2018). information technology, knowledge management and human resource management. vine journal of information and knowledge management systems, 48(2), 255–276. doi:10.1108/vjikms-06-2017-0035 [55] vukovic, n. (1997). pc statistika i verovatnoca. fakultet organizacionih nauka univerziteta u beogradu. [56] vukovic, n. (2007). statisticko zakljucivanje. fakultet organizacionih naukauniverziteta u beogradu. [57] wamba, s. f., gunasekaran, a., akter, s., ren, s. j. f., dubey, r., & childe, s. j. (2017). big data analytics and firm performance: effects of dynamic capabilities. journal of business research, 70, 356– 365. doi:10.1016/j.jbusres.2016.08.009 received: 2021-07-01 revisions requested: 2021-09-03 revised: 2021-09-08 (2 times) accepted: 2021-10-29 ernad kahrović state university of novi pazar, department of economic sciences, serbia ekahrovic@np.ac.rs ernad kahrović is an assistant professor of business economics and management at the department of economic sciences at the state university of novi pazar, republic of serbia. he received his phd in 2013 from the faculty of economics, university of niš. his research interests include general and strategic management, organizational design and behaviour. he has published numerous papers in international and national journals, proceedings of international and national scientific conferences and thematic collection of papers of international significance. he has been the head of the department of economic sciences at the state university of novi pazar since october 2021. atif avdović state university of novi pazar, serbia aavdovic@np.ac.rs atif avdović is a teaching associate with a master’s degree in mathematics. for two years he has been employed at the department of mathematical sciences of the state university of novi pazar. atif's area of expertise is mathematical and applied statistics, with the focus on random variables modelling, monte carlo methods, goodness-of-fit analysis and quality control. he is a phd candidate in mathematics at the state university of novi pazar. about the authors << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice tipska 37 adam sofronijević1, vesna milićević2, aleksandar marković3 1 university of belgrade, university library „svetozar marković” 2,3 university of belgrade, faculty of organizational sciences, serbia management 2015/74 new internet business initiatives in the context of change management udc: 005.336.5:004 004.738.5 005.591:005.21 doi: 10.7595/management.fon.2015.0007 1. introduction the internet has been changing since its inception and as its ubiquity rises, these changes affect a growing number of industries and human activities. change management techniques thus become a standard piece of managerial equipment in the toolbox of successful managers. furthermore, the importance and omnipresence of the internet in contemporary business environment is such that it becomes an important strategic factor and not just merely another communication medium or channel of distribution. factoring in the influence and the role of the internet in new business ventures is a must for a successful conduct of business operations in almost every industry today. the planning and control of new business initiatives that are primarily based on the internet have to comprise many aspects of change management having in mind the high level of change rate affecting both the internet as an entity and its particular instances, especially those business oriented. many new features of the internet emerge, but it seems that the most important trends affecting it today are related to the concept of iot – internet of things, an omnipresent and highly networked environment comprising a multitude of seemingly intelligent independent agents running everything, from fridges and cars to temperature sensors and wallets. the emergence of big data, virtual currencies and goods, even envisioning of property independence and group self renewal for machines puts change management in the hot spot of managerial attention as it transitions from peak to everyday management activity. thus its constant evaluation becomes a very important task that provides one of the major inputs for planning and execution of new business initiatives based on the internet. the paper presents the changing role of the internet as a framework of several new business initiatives. in the last five years the internet has evolved from being just a useful tool to a force shaping business strategies and influencing long-term managerial decision making. the paper presents an analysis of several cutting edge business initiatives and relates the success opportunities they have with evolving features of the internet. the growth of importance of the internet stresses the need to evaluate the state of local ict development and precise data in this area for successful new business initiatives and meaningful change management. the paper presents the importance of such an evaluation for engaging change management that may be the crucial factor for the future of business initiatives in the era of ubiquitous, smart internet. keywords: internet business, digital business strategy, change management, internet of things-based business ecosystem, information and communication technologies. 2 this paper brings the results of research of the authors within the project no. 179081 financed by the ministry of education, science and technological development of the republic of serbia. 2. digital business strategy and internet challenges when planning new internet business initiatives managers need to factor in the strategic importance and the changing nature of the internet. more broadly, both the internet and other information and communication technologies are becoming so crucial for business that strategies related to them are not perceived as functional strategies that need to be aligned with the business strategy, but merge with them into one digital business strategy that encompasses elements of both and reflect the importance of it in contemporary business (bharadwaj, et al., 2013). in order to better analyse this new environment and help the next generation get insights into business and information-related decision making four themes of key importance for digital business strategy have been identified along with the drivers behind them (figure 1). figure 1: drivers of the four key themes of digital business strategy, (bharadwaj, et al. 2013, p. 473) the scope of digital business strategy extends beyond that of traditional business strategy and into the domain of dynamic ecosystems that span industries. major digital ecosystems based around operating systems such as ios or android provide basis for the development of new products and services that may be delivered both in physical an virtual worlds. when considering the scale of digital business strategy one needs to address the scale in both physical and digital terms having in mind information abundance as one of the key environmental factors.the speed of business-related developments can be analyzed regarding the following dimensions (bharadwaj, et al. 2013): • speed of product launches, • speed of decision making, • speed of supply chain orchestration • speed of network formation and adaptation. all these four elements reflect changing realities of the internet driving continuous activities around the globe and the utmost need to consider the timeframe of business operations as a crucial factor for their success. finally, value creation is ever more dependant and embedded in information and the internet, not just as a highway for information, but its changing features represent crucial information for many business operations today. important business vector that adds to increasing the rate of internet change is a specific way of growth of major companies shaping the internet and general global environment such as apple, google, microsoft, 38 2015/74management facebook, amazon and samsung. the evolutionary way of development of these companies in the framework of their respective ecosystem created by ubiquitous internet and availability of services, devices, apps and content provided by these companies give rise to new business behavior models such as these in the areas of patents (gómez-uranga, et al., 2014). acquisition of patent portfolios and patent lawsuits for infringements and violations reflect a fierce competition between major businesses shaping the contemporary internet and at the same time the need for collaboration and enlarging targeted audiences and markets create new dynamics of business groups. companies developing new business activities based on technologies foremost of which are internet related are under heavy pressure of competition and pace of innovation coming from globalized markets. for such companies, strategic decision making and growth are related and intertwined with the processes of internationalization, innovation and entrepreneurship placing the new multidisciplinary internet-related field of research and business practice as the key to success of business (onetti, et al. 2012). nowadays, the internet of things – iot is in the center of analysis and attention of many industries and of academia worldwide. although the phrase was coined in 1999 (ashton, 2009) only the recent breakthroughs in different digital technologies allowed for it to increasingly become an important part of business environment. the iot as a new instigation of the internet is a major force in contemporary business environment. by the end of this year, 2015, over 25 billion various digital devices and gadgets will be connected via the internet and this number will double to 50 billion units by 2020 (cisco, 2011). the value of iot related business is assessed at $14.4 trillion (cisco, 2011) and the additional impact on other industries will be worth $ 6.2 trillion by 2025 (mckinsey, 2013). the emergence of the iot changes the business environment in such a way that new concepts are needed to replace the outdated ones. one such concept is business ecosystem in the 6 c framework (rong, et al., 2015). within this concept three patterns of the development of business ecosystems have been identified (figure 2). in order to better understand these patterns that are of utmost importance as they model possibilities for future new internet business initiatives the dimensions of 6c framework need to be explained in some detail: • context dimension defines the environmental features of a supply network in the ecosystem helping researchers and practitioners understand why and how driving forces, main barriers and key missions arise in this area. • construct dimension deals with the fundamental structure and supportive infrastructure of a business ecosystem and provides answers on how to better utilize the ecosystem infrastructure for the purpose of achieving business aims. • configuration dimension researchers and practitioners may seek to identify the external relationships among partners in the business ecosystem and its configuration patterns. • cooperation dimension is about mechanisms of partner interaction aimed at achieving common strategic goals. • capability dimension is about analyzing the key success features of a supply network and describing the functioning of design, production, inbound logistics and information management in order to explain why some supply networks are better than the others. • change dimension describes the system configuration pattern shifts within business ecosystems and the resulting change affecting business decision making. having all this in mind one can conclude that business ecosystems based on the iot are more than just a set of connected items providing supply functions for the business. they seem to be evolving into complex networks comprising various stakeholders who provide their specific contribution to achievement of shared strategic business goals and this contribution and changing patterns of inter-partner relations shape the evolution of such business ecosystems. 39 management 2015/74 figure 2: three patterns of the iot-based business ecosystem, (rong, et al., 2015, p. 51) one of the underlying technologies that provide possibilities for the omnipresence of the iot is that of wireless mobile communication, at the moment transitioning from its 4g to 5g instigation. as the internet changes so does the role and significance of the supporting infrastructures. the importance of landlines in the early internet has been replaced by infrastructures basically developed for delivering a cable tv signal. and while ever more users are cutting the cords nowadays, changes to wireless mobile infrastructures are analyzed to allow them to meet the demands, all these envisioned the iot beyond 2020. in the last two years the speed of development of ideas and research projects regarding envisioned 5g standard for wireless mobile communication technology has been increasing. this seems to be pushed in main part by the need to provide a more reliable and efficient infrastructure for the emerging iot. 5g networks are planned to allow for tens of billions devices to be connected worldwide in a sustainable and efficient way. green and soft are becoming code words for making the wireless mobile network operational in the framework of expectations of businesses and governments. in this regard a proposition for the following five interconnected areas of research has been made (chih-lin, 2014): • energy efficiency and spectral efficiency co-design, • no more cells, • rethinking signalling/control, • invisible base stations, and • full duplex radio. 40 2015/74management in order to illustrate further challenges and possibilities evolving around new internet business initiatives we will provide a short description of some aspects of several such initiatives based on the iot. one important factor affecting contemporary business is the environment and rules and regulations put in place to balance the need for industries’ growth with its sustainability i.e. environment fit for living. the problem of collecting data on environment change is complex since it requires many different inputs and specific measurements and evaluations in order not to err either on the side of growth or on long-term sustainability. to cope with such a complex task a novel integrated information system that combines the internet of things, the cloud computing, remote sensing, the geographical information system, the global positioning system and e-science for environmental monitoring and management has been proposed, set up and tested in a case study of the chinese province of xinjiang (fang, 2014). this experience proved that the main benefits in such a scenario come from data collection supported by the iot, web services and applications based on cloud computing and e-science platforms. the appropriate application of changed internet features helped improve the effectiveness of monitoring processes and the decision-making in a vital area of evaluation of industries’ effects on the environment. the internet of things provides a wide range of opportunities for industrial deployment across different industries and in all areas of management functions. a novel solution based on this new, changing internet has been proposed in the area of decentralized management of warehouses (reaidy, gunasekaran, & spalanzani, 2015). the iot provides infrastructure for collaborative warehouse order fulfillment based on rfid (radio frequency identification), ambient intelligence and a multi-agent system comprising physical devices layer, a middleware platform and enterprise resource planning functions. an especially interesting feature of this solution is an integration of a bottom-up approach with decision support mechanisms and implementation of self-organization and negotiation protocols between agents. this builds a basis for independent or semi-independent ecosystem of warehouses providing for any given industry that requires goods stored in such a warehouse system. competition, self renewal and growth of warehouse ecosystems that may emerge based on such proposed model should be beneficial for globalized business initiatives and interrelations established through the internet may provide for more efficient and resilient knowledge based economies. the omnipresence and high speed rates of data transfer are important characteristics of the internet that affect advertising and marketing. the 3d virtual advertising is an emergent field that changes both the quality and quantity of advertisement business and marketing strategies of companies. vividness of mental imagery provided for customers in an online shopping environment gave rise to further intertwining of physical and virtual business environments by allowing a need for touch to be translated into virtual by persuasive 3d imagery. early research indicates that 3d advertising outperforms 2d advertising in effectiveness and constitute an important new element in internet business projects related to advertisement (choi, & taylor, 2014). high speed rates of data transfer combined with 3d printing technology give rise to a new phenomenon related to the internet: a possibility to transfer physical objects from the internet and virtual domain back to physical world. this transformation of intangible services provided so far though the internet to tangible goods available for consumption in all richness of their physical aspects may be another revolutionary feature of a changing internet and certainly a major force that changes the internet and has to be factored in when contemplating new business initiatives based on the internet. such is the potential importance of this new development that even a name for a new phase of internet development has been coined internet of the 3d printed products (kaur, 2012). creative, innovative, new business initiatives are nowadays almost always related to the internet. thus the sheer availability of the internet is an important factor when planning such initiatives. in many regions globally this first feature – availability of the internet has been fulfilled, so more complex evaluations are needed and they are inevitably followed by the evaluation of more general ict development features that made the use of internet based business opportunities and consumption of services offered through the internet effective and efficient. the complexity of the internet and related ict developmental features makes a straightforward evaluation not-efficient and imply more sophisticated means of evaluation and measuring tools. one such useful tool is the ict development index (idi) which provides a combination of different input values for assessing a country level of development as regards ict. the ict development index is a composite index combining 11 indicators bearing different fixed weights into one benchmark measure that serves to monitor and compare developments in information and communication technology across countries (international telecommunication union, 2014). the idi was developed by international telecommunication 41 management 2015/74 union – united nations specialized agency for information and communication technologies in 2009 and is widely used since. three major indicator groups of the idi that encompass 11 indicators are: ict access, ict use and ict skills. another more sophisticated measuring approach to evaluation of ict development has been proposed recently. the i-distance method combines 11 indicators used by the idi, but in a flexible order allowing for specifics of a country environment and development stage to be focused on (dobrota, jeremić, & marković, 2012). thus more relevant results for developing and transitional countries are achieved. as regards the i-distance rank, it may be very useful in assessing new business opportunities and initiatives related to internet. for example, the more important factors when considering the described system of decentralized management of warehouses belong to ict access indicator groups since the possibility to connect a warehouse into the system depends primarily on the internet availability. on the other hand, in case we need to assess prospects of the successful implementation of the internet-based parent training for children with conduct problems, the ict skills indicator group is crucial. in order to measure the optimal influence of ict development on a certain new internet business initiative, a sophisticated method for determining weights of indicators needs to be developed that will include specifics of the particular country and of the particular internet-related business initiative. such a measurement tool may be very effective in assessing chances for success in planning phases of such ventures. having in mind the scope of global business activates and the need to expand to as many markets as possible with as little resources needed, optimizing business inputs for certain markets may be crucial for successful operations of companies in the future. finally, an important aspect of such proposed measuring tool is its flexibility. the internet is changing and so is the level of ict development of certain countries, so after certain threshold is reached, new indicators gain more importance and others lose it. therefore if a precision mechanism for determining weights of indicators is in place, such changes may be dynamically and automatically registered and a flag may be raised for management to decide if the time has come to involve another country and a new market in a certain business initiative. this may be of great value for multi project management and companies that are running many simultaneous internet-related business initiatives, and the general prospects of globalized world market and dynamic development of business environment are such that the proposed scenario for running business operations of a company is relevant including running the great number of small scale internet business initiatives globally. 3. the importance of change management for new internet business initiatives the successful management of change is crucial for any organisation envisioning new internet business initiatives. it is also a sine qua non for survival and success in the present highly competitive and continuously evolving business environment. there are many different modes of change in contemporary business; some are characterised by the frequency of change and others by the nature of how change comes about (todnem by, 2005, as in table 1). table 1 types of changes in contemporary business, adapted from (todnem by, 2005, p. 371) 42 2015/74management it would be best if a new internet business initiative is planned and executed in the organised manner of planned change. on the other hand, it is often the case the changes related to ongoing internet related business are emergent and not planned very well or present themselves as a contingency to a sudden new business situation most often prompted by a changing nature of the internet. the alternative is to have the change in the ongoing internet-related business as a planned and informed choice based on a thorough analysis of the internet and related environmental changes. discontinuous approach to change is often presented though it does not seem to provide lasting business results. opposition to this kind of change is a continuous change requiring much more resources for continuing monitoring and analysis of the internet trends and related consequences in user behaviour and expectations, but providing a solid base for longterm positive business results. continuous change describes organisation-wide changes often related to strategies, that suit well with strategic shifts of internet change such as emergence of the iot. incremental change describes departmental or operational changes that fit with day to day changes of the internet such as appearance of a new service based on the existing technology or of new content that is important either in size or quality. there are two areas of internet-related business operations where change management is of especially high importance. one is related to complex unstructured business situations where complexity arises in a number of possible options in business decision making that are based in numerous elements affecting business operations of an organization. a typical environment for such a scenario is a contemporary urban framework characterised by intertwining of numerous human and technology related issues and where complexity is amplified by dense population, multicultural context and complexity of relations between elements and entities important for business. such environment is best described by a smart city concept and change management needs to be employed with special scrutiny and elaborate planning when conducting business in such areas (sofronijević, milićević, & ilić, 2014). the other area where change management plays an especially important part in managing the internet-related business initiative is the one in which highly unstructured nature of environment and business elements emerge from complete novelty and a complex nature of employed technologies and various social, cultural and other implications that are not directly related to business itself. one example of such an area is coming from the domain of automation of intellectual jobs (sofronijević, milićević, & ilić, 2013). with many different new aspects affecting work processes traditionally performed by humans and by leaving even highly qualified humans jobless, such areas are related to meticulous managerial planning under conditions of continuous change. service-oriented computing (soc) prompted many changes in many sectors, but the overall effect was such that business organizations got the chance to deliver their functionalities via web services. this change of the internet and related ict elements enabled collaboration among organizations on a larger scale, with partners more loosely coupled and involving distributed networks of collaborators summing up for a more flexible way of conducting business. a composed service is an on-demand and dynamic collaboration between autonomous web service providers that collectively provide a value added service (liu, et al, 2011). in terms of timeframe of conducting business it can be short-term or long-term. a long-term composed service (lcs) has a long-term business relation with its users. examples of lcs can be identified in scientific computing, aircraft industry, travel industry, and automobile industry (liu, et al, 2011). a typical lcs is an organization that is entirely web-based, consisting of loose couplings of smaller web services (khoshafian, 2006). a lcs is composed of autonomous services specialized in their respective core competencies. this kind of competency specialization and sharing reduces cost and increases quality and efficiency for the lcs. change management of lcs has been a challenging task because of their complex nature and many elements involved with business processes and affecting relations between business entities making up the lcs. a change management framework for lcs has been proposed in (liu, et al, 2011). its business related aspects are illustrative of importance of change management in business initiatives related to the internet. as presented in figure 3, it is business related motives that trigger change in this framework. 43 management 2015/74 44 2015/74management figure 3: a layer of changes in a lcs, (liu, et al., 2011, p. 91) the changes themselves are ict related, and business reasoning is interpreted at two instances. the lcs schema represents a more general structure of interconnected ict functions that make up the essence of distributed lcs structure. the changes affecting it are propagated to instances that represent autonomous ict services and functions. here we can see that in a wide range of activities represented by lcs model business and ict, i.e., internet reasoning are pushing and pulling each other with a high level of interconnections and causalities driving business logic and decision making into the area of ict and vice versa. another interesting example that illustrates the need for meticulous change management based on thorough evaluation in business operations related to the internet is provided in the area of ict unit service management (spasić, & marković, 2013). by using itil (information technology infrastructure library) standards, a set of practices for it service management (itsm) that focuses on aligning it services with the needs of business, management of ict unit can be made efficient and less prone to problems caused by the internet and other ict related changes. quality implementation of itil standards may be an exemplary way to manage the ict unit and in a broader sense an internet business initiative, that are always reliant and by and large executed to a considerable degree by such units. the successful implementation brings the benefits such as alignment of it services with business goals, comparison with the best players in the field of it services, risk and it service cost reduction and creates a steady framework that fosters automation in service management (spasić, & marković, 2013). one can conclude that all these benefits add to success of a general purpose internet-related business initiative and thus presented framework is highly relevant to such business ventures. conclusion new business initiatives are at the core of a successful economy in an era of 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(2005). organisational change management: a critical review. journal of change management, 5 (4), 369-380. receieved: january 2015. accepted: february 2015. 45 management 2015/74 46 2015/74management about the author adam sofronijević university of belgrade, university library svetozar marković sofronijevic@unilib.bg.ac.rs adam sofronijević is a management engineer – master and works at the university library ‘’svetozar marković’’ of the university of belgrade. he has written chapters in several scientific monographs and a large number of scientific and professional papers in the field of librarianship, management and it in domestic and foreign journals. he participates in activities of the association of european research libraries. adam sofronijević has many years of managerial experience in the areas of creative industries and digitization. vesna milićević university of belgrade, faculty of organizational sciences, serbia milicevic.vesna@fon.bg.ac.rs dr vesna milićević is a professor at the faculty of organizational sciences, university of belgrade where she teaches courses in the areas of business economics, internet economics, management and international business. she is the author or co-author of a number of monographs, textbooks and articles in national and international scientific and professional journals. vesna milićević is elected member of the scientific society of economists of serbia. she has participated in strategic scientific & research projects and in projects and management training in companies. aleksandar marković university of belgrade, faculty of organizational sciences, serbia aleksandar markovic is a full professor at the faculty of organizational sciences, university of belgrade, serbia, where he got his msc and phd degrees in the field of computer simulation.areas of his research include: e-business management, computer simulation, business simulation, business dyinamics. he is editor in chief of journal management. 08_milos milosavljevic:tipska.qxd 77 miloš milosavljević1, nemanja milanović1, slađanabenković1 1university of belgrade, faculty of organizational sciences management 2016/81 tourism and hospitality have received an immense attention from scholars, policy holders, decision makers and other important stakeholders in belgrade, a main tourist destination of serbia. the aim of this paper is to determine the main drivers of profit margins in the hotel sector in belgrade. a particular aim is to explore the effects of variables – size, market concentration, and market share and customer satisfaction – on hotel profit margins. the study analyzed the secondary reliable sources. the data were analyzed with correlations and regressions. the results indicate that customer perception is a paramount factor driving the financial performance of hotels. these findings could be useful to scholars and practitioners interested in business performances of belgrade hotels. keywords: profitability drivers, profit margin, hotels, customer perception, belgrade udc: 005.52:640.412(497.11) 330.143 antecedents of hotel profitability: empirical evidence from belgrade doi: 10.7595/management.fon.2016.0031 1. introduction tourism and hospitality industry has been highly positioned on the agenda of both policy holders (milosavljević, milanović, benković, 2015), and decision makers (filipović, jovanović & cicvarić kostić, 2013; krstić, radivojević & stanišić, 2016) in serbia. the rationale for this is the high impact of tourism on the economic development of the belgrade region and the economy as a whole. academic publications almost equally intensively elaborate on the importance of tourism, the sources of development, the features of processes in the industry and its economic effects (mulec& wise, 2013). from a micro-perspective, a broad body of knowledge has been developing in the area of hotel performance measurement (sainaghi, 2013; mcmanus, 2013). nevertheless, a paucity of scholarly contributions has been related to the examination of origins of hotel financial performances. this particularly refers to the belgrade’s hotel sector. this study aims to fill the aforementioned lacuna in the scholarly research. the aim is to analyze different drivers of profitability, such as size, market concentration, market share and customer perception, that affect the profitability of hotels in belgrade. in particular, the study aims to test the effects of these factors on the hotels’ financial performance. hitherto, a myriad of studies were focused on elaborating on hotel financial success drivers (ganchev, 2000; o’neill & mattila, 2006; dalci, tanis & kosan, 2010). further on, ben aissa&goaied (2016) empirically tested the main determinants of 27 tunisian hotels. lado-sestayo et al. (2016) conducted a study encompassing nearly 9000 hotels in spain to test the impact of location on profitability in the spanish hotel sector. nevertheless, the originality of this study is based on two important pillars. first, to the best of authors’ knowledge, the study is unique in this geographical region. some aspects of the belgrade hotel sector, such as the change in offer, have been discussed in the extant literature (šimičević&štetić, 2015), but none of the studies dealt with the profitability of the sector. second, the study is unique in the developed set of indicators selected as the main drivers of profitability the remainder of the manuscript is organized as follows. section 2 deals with theoretical background. particular emphasis is given to the business case of the hotel industry in belgrade. section 3 elaborates on the methodology used in the study. section 4 depicts the results and discusses the main findings. section 5 provides concluding remarks, dealing with the resume of key findings, managerial and other implications, limitations and further recommendations. 2. theoretical background 2.1. profitability drivers in hotel industry profitability drivers are frequently elaborated in the extant literature. ever since the pioneering attempts of kotas (1982), sheldon (1983) and croston (1995) research has been examining various determinants of profitability, thus striving to find the best methodology for the analysis of financial operations and appropriate business strategy. according to the nature of profitability drivers, several streams of scholarly publications are particularly important in this field. the first stream are the publications that emphasize the importance of market power, location and concentration on business performances of hotels. for instance, pan (2005) investigated the effects of market structure on hotel profitability and found significant positive effects of the international hotels’ location on profitability. singh & dev (2015) have analyzed hotels as winners and losers in the aftermath of the recession, suggesting that marketing expenses play an important role in financial success. lado-sestayo et al. (2015) explored the influence of location, market power and other factors to the profitability of the spanish hotel sector. they find that profitability depends largely on the market structure and the level of demand of the tourist destination. accordingly, this study hypothesizes that [h1a]: location has a positive effect on profitability and [h1b]: market power has a positive effect on profitability. the second stream are the papers dealing with operational and financial efficiency. zeglat (2008) finds that profitability is positively influenced by sales growth, as a consequence of customer retention, and negatively influenced by premium price by analyzing the uk hotel sector. chiu and huang (2011) analyzed the effects of occupancy rate and operational efficiency on profitability of taiwanese hotels and found that occupancy rate and increase in sales are not the best way to increase financial performance. this is not in line with the main findings of o’neill & ma. instead, they suggest an optimal occupancy rate and focus on operational efficiency. another study from the same country deals with the effects of service quality, and indicates that, for instance, food and beverage quality has non-linear relationship with profitability (chen & lin, 2012). in the example of the croatian hotel industry, škuflić&mlinarić (2015) find that size, concentration, liquidity, solvency and productivity significantly affect hotel profitability. based on the aforementioned review of literature, this study hypothesizes that [h2a]: size has a positive effect on profitability, [h2b]: hotel capacity has a positive effect on profitability, [h2c]: hotel category has a positive effect on profitability, and [h2d]: financial leverage has a negative effect on profitability. the third stream are studies examining the role of online hotel presence and the effects of social media on hotel performance. the results are to some extent adverse. for instance, neirotti, raguseo &paolucci (2016) find that the increasing importance of user-generated reviews in online communities for tourists is “shifting hotel competition from unit profit margin to volumes and to higher room occupancy rates, with online retailers capturing most of the value created in online transactions through social media features and with a limited effect brought on net profitability”. using a more sophisticated approach of neural networks, phillips et al. (2015) study the interactive effects of online reviews on the determinants of swiss hotel performance, finding a positive effect of four nodes to a hotel performance. following this stream of research, this study hypothesizes that [h3a]: social reach has a positive effect on profitability, and [h3b]: customer satisfaction has a positive effect on hotel profitability. some studies do not fit into this three-stream pattern. certain studies address macroeconomic features and their influence over the profitability (pan, 2005). on the other hand, a broad body of evidence takes into consideration the human factor as an important pillar of profitability. for instance, morey &ditman (1995) examined the effects of general managers’ efficiency on the hotel profitability. finally, profitability is examined through the prism of long term yields generated from the adequate customer profitability analysis (noone& griffin, 1999). 2.2. a business case for the hotel sector in belgrade belgrade accounts for more than a third of all tourist capacities of serbia, which puts a spotlight on the importance of this industry for the total economic output of the country. belgrade is the most important tourist destination in serbia. the following figures illustrate the portion of total arrivals and nights of tourists in serbia and in belgrade in particular (rzs, 2015). 78 2016/81management figure 1: total arrivals of tourists in serbia and in belgrade figure 2: total nights of tourists in serbia and in belgrade according to horwath (2015), internationalization of the demand profile is evident, followed by permanent increase in the relative share of foreign hotel overnights in total overnights. this study points out the international demand as a primary source of demand for belgrade hotels, with annual growth rate of 10% (2009-2014). 3. methodology 3.1. variables for the dependent variable – hotel profitability, we used profit margins following lado-sestayo et al. (2016). as regards the independent variables, their indicators, calculations and rationale for the use are given in the following table. table 1: variables, indicators, calculations and rationale for their use 79 management 2016/81 variable indicator calculation rationale location distance from three focal points – city center, central bus station and airport (dcen+dbus+dair)/3 developed by authors market power market share (revenue based) net revenue for a hotel/total revenue for industry based on chen & chiu (2014) economy of scales size natural logarithm of hotel assets rewarded from demsetz (1974) and lado-sestayo et al. (2016) financial structure financial leverage liabilities/equity based on milosavljevic, milanovic & benkovic (2013) social reach social media reach no of facebook page likes based on virginia phelan, chen & haney (2013) customer satisfaction aggregate hotel ranking booking.com ranking based on noone, kimes & renaghan (2003) word-of-mouth net promoter score highest to lowest ranks of customers according to grisaffe (2007) margins net margin net income/revenue developed by authors capacity total accommodation share no of beds of a hotel/no of beds of all hotels based on pan (2007) hotel category category of a hotel no of stars based on kim & kim (2005) 3.2. sampling and data collection the study examined 42 hotels located in the city area of belgrade. the sample was randomly generated from the total of 530 hotels. the study is based on secondary data collected from different reliable sources. financial data (assets, operating revenues, operating income, net income, liabilities, equity, average number of employees, foundation date) were retrieved from the serbian agency for business registers. these data refer to the year 2014. the data on the location and the distance from three aforementioned focal points were generated from google maps. the data on customer satisfaction were retrieved from the booking.com online service for hotel bookings and rankings, where the scores from 1 to 10 assigned by hotel customers were used as an input. social media reach as an important variable for this study was analyzed through the usage of facebook. the data on number of hotel facebook page likes and scores from 1 to 5 awarded by page visitors were collected. the data on number of available beds and rooms were retrieved from hotels’ official websites and the tourist organization of belgrade. hotel ranking, reputation and luxury were measured by the number of stars retrieved from the tourist organization of belgrade. foundation dates were collected from hotel official websites. 3.3 data analysis after filtering the collected data, the lack of data on booking.com scores for several hotels was noticed. the orange canvas software was used to replace the missing values with the average value of the booking.com scores available for other hotels. furthermore, orange algorithm recognized a few outliers and excluded them from database before proceeding with analysis. due to perceived anomalies, the data on hotels constantine the great and zepter were also excluded. finally, the statistical analysis of refined data was conducted through spss software. 4. results and discussion 4.1. descriptive statistics the following table displays the descriptive statistics: means and standard deviation for 37 observed hotels. table 2: descriptive statistics 4.2. hypotheses testing in order to test the hypotheses the study employed the correlation analysis (pearson moment two-tailed correlation) and the multiple regression. the correlation analysis is performed as a preliminary analysis in order to assess the strength of relationships among the variables in the study. the results of the correlation analysis are displayed in the following table. the correlation coefficients reflected low to medium values and therefore did not indicate a potential multicollinearity among variables. 80 2016/81management variable mean std. deviation profit margin (%) 1.02711 31.693632 average distance (km) 8.67805 3.206473 market share (%) 2.30195 2.296098 ln(assets) (#) 19.77232 1.521281 financial leverage (#) 8.144443 92.881617 no of facebook likes (#) 3812.19 6449.961 average score on booking (#) 8.308 .8855 net promoter score (%) 55.23511 28.186677 net margin (%) -11.57597 48.096229 accommodation capacity (%) 2.00535 1.499629 number of stars (#) 3.68 .626 table 3: correlation matrix the correlation matrix shows that the highest correlation exists on the average score on booking to profit margin. the results of employed t-test underline this variable as the only statistically significant variable for profit margin. the next variable according to the value of correlation coefficient is the net margin, followed by the number of stars, implying that hotels with higher ranking, reputation and luxury generate a higher profit margin. the analysis of correlation between independent variables shows that the most correlated variables are the number of stars and the average score on booking, with the value of correlation coefficient 0.634. the correlation of ln (assets) to market share (0.556) confirms that hotels that achieve economies of scale take greater market share. the model was tested with regression analysis (results are displayed in the table below). table 4: regression model and anova as for the overall model, the results (f=7.362, sig=.000) indicate that the model is statistically significant. the individual results and hypotheses tests are further elaborated as follows. average distance. the initial hypothesis: there is a negative relationship between average distance and profit margin. the average distance variable should influence the decision of tourist/customer to choose 81 management 2016/81 p ro fit m a rg in ( % ) a ve ra g e d is ta n ce (k m ) m a rk e t sh a re ( % ) ln (a ss e ts ) (# ) f in a n ci a l le ve ra g e ( # ) n o o f f a ce b o o k lik e s (# ) a vg . sc r. o n b o o ki n g .c o m ( # ) n e t p ro m o te r s co re ( % ) n e t m a rg in (% ) a cc o m m o d a tio n ca p a ci ty ( % ) n u m b e r o f st a rs ( # ) profit margin (%) 1.000 .040 .212 -.013** .006** .102 .788 .367 .634 .082 .438 average distance (km) .040* 1.000 .008** -.271** -.080** -.236** .037* .284 .024* -.152** -.151** market share (%) .212 .008 1.000 .556 .023 .389 .277 .011* .107 .338 .400 ln(assets) (#) -.013** -.271** .556 1.000 -.260** .307 .138 -.217** .073 .410 .445 financial leverage (#) .006** -.080** .023* -.260** 1.000 .225 .051 .014* .201 .001** -.194** no of facebook likes (#) .102 -.236** .389 .307 .225 1.000 .281 -.304** .143 .300 .320 avg.scr. on booking (#) .788 .037* .277 .38 .051 .281 1.000 .204 .535 .009** .561 net promoter score (%) .367 .284 .014* -.217** .014* -.304** .204 1.000 .501 -.116** -.036** net margin (%) .634 .024* .107 -.073** .201 .143 .535 .501 1.000 .149 .126 accomm. capacity (%) .082 -.152** .338 .410 .001** .300 .009** -.116** .149 1.000 .169 number of stars (#) .438 -.151** .400 .445 -.194** .320 .561 .036* .126 .0169* 1.000 regression model unstandardized coefficients standardized coefficients t sig. b std. error 1 constant average distance (km) market share (%) ln(assets) (#) financial leverage (#) no of facebook likes (#) avg. scr. on booking.com (#) net promoter score (%) net margin (%) accommodation capacity (%) number of stars (#) -112.747 -.729 1.490 -4.739 -.032 -0.001 22.364 .074 .163 2.382 5.496 70.341 1.128 1.900 3.094 .040 .001 5.538 .153 .099 2.508 7.284 -.074 .108 -.227 -.095 -.126 .625 .066 .247 .113 .109 -1.603 -.646 .784 -1.531 -.814 -.964 4.038 .484 1.639 .950 .754 .121 .524 .440 .138 .423 .344 .000 .632 .113 .351 .457 dependent variable: profit margin (%) anova sum of squares df mean square f sig. regression residual total 26723.265 9438.243 36161.507 10 26 36 2672.326 363.009 7.362 .000b dependent variable: profit margin (%) predictors (constant), number of stars (#), net promoter score (%), financial leverage (#), accommodation capacity (%), average distance (km), market share (%), net margin (%), no of facebook likes (#), ln (assets) (#), avg.scr. on booking.com (#) particular hotel according to the amount of time needed to get to the city’s most important focal points (city center, central bus station and airport). hotels with smaller average distance have higher occupancy rates, which could lead to higher profit margin. the result of t-test t = – 0,646 with sig = 0,524 indicates that this variable is not statistically significant for profit margin. market share. the initial hypothesis: there is a positive relationship between market share and profit margin. the assumption is that hotels with higher market share are more recognizable by the tourists, which can increase their profit margins. however, the result of the t-test t = – 0,784 with sig = 0,440 indicates that market share is not statistically significant for profit margin. ln (assets). the initial hypothesis: there is a positive relationship between hotel size and profit margin. hotels with a higher value of ln (assets) achieve economies of scale and reduce expenses, which increases their profit margins. the result of the t-test test t = – 1,531 with sig = 0,138 indicates that this variable is not statistically significant for profit margin. financial leverage. the initial hypothesis: there is a negative relationship between financial leverage and profit margin. it is assumed that hotels with lower financial leverage are more efficient, which can lead to higher profit margins. the result of the t-test t = – 0,814 with sig = 0,423 indicates that this variable is not statistically significant for profit margin. social media reach. the initial hypothesis: there is a positive relationship between the number of facebook likes and profit margin. the number of likes on social networks indicates to what extent a particular hotel is popular among customers. a higher number of likes and followers increases the potential of a hotel to be chosen by tourists as a place to stay. consequently, this can lead to higher profit margins. the result of the t-test t = – 0,646 with sig = 0,524 shows that this variable is not statistically significant for profit margin. aggregate hotel ranking. the initial hypothesis: there is a positive relationship between the average score on booking.com and profit margin. a higher average score shows higher popularity among tourists and higher customer satisfaction and potentially attracts more hotel guests, which can consequently increase profit margins. however, the result of the t-test t = – 4,038 with sig = 0,000 indicates that this variable is statistically significant for profit margin. net promoter score: the initial hypothesis: there is a positive relationship between the net promoting score and profit margin. the net promoting score is a marketing metrics that indirectly shows a word-of-mouth effect achieved by a certain hotel. a higher score indicates a significant difference between respondents who recommend certain hotel and those who would not recommend it. this can lead to higher profit margins, but the result of the t-test t = – 0,484 with sig = 0,632 shows that the net promoting score is not statistically significant for profit margin. net margin. the initial hypothesis: there is a positive relationship between the net margin and the profit margin. according to the result of the t-test t = – 1,639 with sig = 0,113, this variable is not statistically significant for profit margin. accommodation capacity: the initial hypothesis: there is a positive relationship between accommodation capacity and profit margin. hotels with high accommodation capacity could take advantage of economies of scale and consequently increase profit margin. the result of the t-test t = – 0,950 with sig = 0,351 indicates that accommodation capacity is not statistically significant for profit margin. category of hotel. the initial hypothesis: there is a positive relationship between the category of hotel and the profit margin. the number of stars reflects a hotel’s ranking, reputation and luxury. hotels with high ranking should attract more tourists and consequently increase profit margin. according to the result of the t-test t = – 0,754 with sig = 0,457, this variable is not statistically significant for profit margin. 82 2016/81management 83 management 2016/81 references [1] aissa, s. b., &goaied, m. 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(2007). questions about the ultimate question: conceptual considerations in evaluating reichheld’s net promoter score (nps).journal of consumer satisfaction, dissatisfaction and complaining behavior,20, 36. this paper aimed to determine the main drivers of profit margins of the belgrade hotel sector. as the results indicate, the main profit margin driver is the previous customer satisfaction with hotel services. as for the contribution to the theory and practice of hotel management, this study has twofold implications. first, the study contributes to the practice of hotel management as it empirically confirms that consumers and their opinions make the ultimate factor that adds financial value to a hotel sector. accordingly, the efforts of decision makers in hotels should be placed to the online reputation creation. as the results of statistical analysis indicate, the only variable that is statistically significant for profit margin is the average score on booking.com, so it is recommended that efforts should be made to increase the rankings on booking.com. the average score on booking.com is composed by the following elements: cleanliness, location, staff, free wi-fi, comfort, additional facilities, and price-quality relation. hotels should strive to set higher hygiene standards, improve wireless network performance, and to employ hr training and development programs in the field of customer relationship management. significant attention should be paid to tracking and in-depth analysis of customers comments on websites booking.com and tripadvisor.com, and official facebook pages. this analysis provides the information on the level of customer satisfaction and the necessity of additional facilities and service provision. a timely identification of negative customer feedback enables hotels to fix their internal processes in order to prevent a negative impact on their image and reputation. this is why these comments should be carefully tracked and responded to by a professional, regardless whether they have a positive or a negative connotation. second, the paper has implications for other researchers in the field. although the study did not cover all possible drivers of profit margins, it is important to path the way for further research in the area of hospitality industry. the study has some major limitations, both fundamental and technical. fundamental limitations are linked to the set of variables used in the study. accordingly, a recommendation for further research is to encompass a wider set of variables and statistically tested and refined indicators. technical limitations are based on the sample size, time frame, and the techniques used for the analysis. the sample size is rather small, and this study should be viewed as an ongoing project. this study is cross-sectional and based on the data from 2014. further studies should apply time series and capture the evolutionary features of the hotel profitability in belgrade. finally, as all the other quantitative studies, this study has some technical flaws. further studies should conceptualize on qualitative aspects of the topic covered and include a mixed-method approach in the analysis. accordingly, the success on this intensively competitive market in the digital era should not and cannot be based solely on improvements of offline aspects of the hotel industry. hotels must focus their efforts on improving online appearance and digital reputation management. conslusion [10] horwath (2015). special market report, issue 53: serbia, available at http://horwathhtl.com/files/2015/12/mr53_serbia.pdf, accessed 22/04/2016 [11] kim, h. b., & kim, w. g. 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(2008). an investigation of the relationship between service quality and profitability in the uk budget hotel sector (doctoral dissertation, university of surrey). receieved: november 2016. accepted: december 2016. 84 2016/81management 85 management 2016/81 about the author miloš milosavljević university of belgrade, faculty of organizational sciences, serbia milosavljevic.milos@fon.bg.ac.rs ph.d. miloš milosavljević is an assistant professor at the university of belgrade, faculty of organizational sciences. he teaches financial management and management accounting. he has participated in numerous consulting projects in the field of financial management and controlling. mr milosavljević authored or coauthored more than 60 articles and conference papers, text books and international monographs. nemanja milanović university of belgrade, faculty of organizational sciences, serbia milanovic.nemanja@fon.bg.ac.rs msc. nemanja milanovićis is currently employed as a teaching assistant at the university of belgrade, faculty of organizational sciences, department of financial management and accounting. his main fields of research interests are financial management, management accounting and startup funding models. he gained international professional experience through a number of international study and professional exchanges and research projects. he is a member of the european finance association and the youth committee of the national petroleum committee of serbia world petroleum council. slađana benković university of belgrade, faculty of organizational sciences, serbia benkovic.sladjana@fon.bg.ac.rs ph.d. slađana benković is a full professor at the faculty of organizational sciences in belgrade since 2014. she has participated in numerous projects. during 2007/2009 she spent a period of time at the george washington university, washington d.c. as a research fellow. she is the president of the management board of the “endowment of milivoje jovanović and luka ćelović”, 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 04_predrag jovanovic:tipska.qxd 35 predrag jovanović1, tamara vlastelica2, slavica cicvarić kostić3 1philip morris international 2,3university of belgrade, faculty of organizational sciences management 2016/81 udc: 658.8:659.2 659.113 005.583.1:355 impact of advertising appeals on purchase intention doi: 10.7595/management.fon.2016.0025 1. introduction due to the increase in competition in almost all industries, the importance of marketing communication for organizations keeps rising, for both corporate, non-profit and public sectors, especially for an integrated approach in planning and realizing activities (holm, 2006). although there is no consensus in literature when it comes to a unique definition of integrated marketing communications, this concept includes combining promotional tools, planned, as well as unplanned messages in order to achieve their maximum influence (mudzanani, 2015). integrated marketing communications represent an effective and an efficient manner of directing messages harmonized across all points of contact between the company and the consumer (popesku et al., 2013). the concept has been already applied in various fields, for example, hawkins et al. (2011) confirmed the feasibility and effectiveness of its implementation in social marketing. the basic role of advertising, as a tool of marketing communication, is to inform potential consumers about the products of the advertiser and to provide necessary information so that they should be able to compare them with products of the competition, to later create awareness in potential consumers that these products are adequate for purchasing and to finally lead to a purchase in favour of the product which is being advertised (vlastelica, 2007). in researching the impact of advertising on the purchase intention, the authors used as the basis the causal framework of experience, beliefs, attitudes, intentions and behaviours in relation to the given object, set by fishbein and ajzen and then defined beliefs as the basis of this conceptual chain (fishbein and ajzen, 1975). beliefs can be formed in three ways: based on experience and observation, based on external source information and based on the processes of inference. in a conceptual chain, people’s beliefs determine their attitudes, i.e., attitudes towards an object. attitudes later create certain intentions in relation to the given object, which are directly connected to a certain behaviour. based on this framework, the authors of this paper have perceived advertising as an external source of informacompanies use various appeals in their advertising practice to impact consumers’ attitudes and purchase intention by an advertisement. advertising appeals can be divided into rational or emotional, depending on whether companies want to influence the rational or the emotional motives of the consumer to purchase of the advertised product. since there is no general pattern for the use of appeals and the success of an advertising message, this study aims to explore the impact of the emotional and rational advertising appeals on the purchase intention. the results of the empirical research, conducted using the focus groups method, are shown in this paper and the focus group participants were members of the student population.the research results indicate that different advertising appeals may have a different impact on the consumer’s purchase intention; in case of women, the emotional appeal has a stronger impact while for men it is the rational appeal, while “fear appeal” proved to be effective to a certain point, after which it causes selective perception and rejection. this implies that depending on the product, its purpose and target group, advertisers can choose the type of appeal, combination of the appeals and their creative presentation, based on the empirical confirmation of the efficiency the approach. keywords: advertising, appeals, rational, emotional, purchase intention tion concerning a product, that which influences the formation of beliefs and attitudes of the consumers, which consequentially leads to the purchasing intention, and lastly leads to the decision to purchase the product. in order for an advertising message to influence the purchase intention of a consumer, it is firstly necessary that the consumers notice the advertising message, meaning it should be placed in the right place, at the right time and in the right way. due to a great amount of information and numerous advertising messages that consumers are exposed to daily (yeshin, 1999; arens, 2004), an advertiser must put in a lot of effort into planning and executing efficient advertising, where the key processes are represented by the choice of adequate form of media or a combination of media and the choice of an adequate creative strategy to present a promotional message (sharmaand sing, 2006). based on the chosen subject, or positioning base, a communication strategy is developed in relation to the choice of advertising media, creative solutions, time and intensity of communication (vlastelica, 2016). the choice of advertising media (television, press, radio, movies, external means, internet and others) is additionally determined by the media characteristics, i.e., their possibilities and limits for a visual, auditory, contextual amplification of the persuading potential of a marketing appeal. in addition to an increasing representation in developed markets (ljubicic, 2014), veselinovic et al. (2016) found that in serbia the representation of digital communications in integrated marketing communication of the companies is more visible, and they remind us of the growing importance of adequate content and creative formats, which are used to transmit messages to consumers in the online environment (hudson et al, 2016). the basic element of a creative strategy in advertising are marketing appeals, that advertisers use in order to influence the way consumers perceive products and in order to convince them that they are useful for them, leading to the purchase intention (zhanget al., 2010). depending on the content of the message transmitted by the advertisement, appeals can be divided into rational and emotional (lee and o’connor, 2003). the paper aims to research the influence of emotional and rational appeals in advertising on the intention to purchase the advertised product. the qualitative method of focus groups was employed in this research in order to examine the hypothesis set at the beginning of the research. the advantage of this method lies in realizing reasons that have led participants to the creation of certain attitudes, and detailed examination of attitudes about advertising appeals and their influence on the purchasing intention. the next chapter represents appeals in advertising used by the advertisers to attract the attention of potential consumers and influence rational and emotional motives of the consumers for purchasing the advertised product. in the third chapter the empirical research is described, conducted with the aim of researching influences of different emotional and rational appeals in advertising on the purchase intention. the empirical research was conducted using the focus group method, and the participants of the focus group were members of the student population. the fourth chapter gives a review of results and conclusions of the research. 2. theoretical framework of the research advertising appeals are part of a creative strategy of advertising and they could be used as a basis of a certain advertised message in order to attract attention of potential consumers, to efficiently influence their awareness, beliefs and attitude towards the advertised product, and consequentially, the purchase intention. sharma and sing (2006) emphasize that the choice of an adequate appeal is one of the most significant decisions for a creative strategy of advertising. while defining appeals, belch and belch (2004) maintain that appeals in advertising refer to the approach used to draw the consumer’s attention or/and to influence the feelings they have for the product. moriarty (1991) states that appeals in advertising are used to draw attention, motivate and create an interest with the recipient of the advertising message and about the advertised object. the choice and the application of the marketing appeal depends on the advertising company, the type of the product, the set advertising goals, target groups and also of the way of advertising of the competitors and media which will carry out the advertising (leonidou and leonidou, 2009). in addition, it is necessary to research whether the potential recipients of the message, meaning the consumers, have any specific needs and desires that can be triggered by the advertising message or appeal (arens, 2004), as well as to view to wider context of the process of making a purchasing decision. however, in the available literature there is no consensus among scientists or relevant research that determine the efficiency of certain 36 2016/81management types of appeals for certain types of products or target groups, which may be of great importance for marketing professionals. in general, marketing appeals used in the advertising practice can be divided into rational and emotional (moriarty, 1991; arens, 2004; sharma and singh, 2006; zhang et al, 2010; padhy, 2011). the stated classification of advertising appeals is justified by the assumption that consumers make the purchasing decision based on rational or emotional motives to purchase a certain product, and that those beliefs and attitudes which influence the purchase intentions, that are in the base of the fishbein and ajzen model (1975), contain a rational (cognitive) and an emotional (affective) component. since the rational appeal aids the consumer to make a judgment about the message based on information, it differs in concept from the emotional appeal in creating the message (lee and hong, 2016). 2.1. rational appeals in advertising rational appeals in advertising are also called informative or logical appeals, since advertisers use them in order to represent rational reasons for purchasing an advertised product (sharma and singh, 2006). while defining rational, i.e., informative appeals in advertising, belch and belch (2004) maintain that they focus on the consumer’s real, functional or needs to use a certain product by emphasizing the characteristics of the product and/or benefits and reasons of owning or using a certain product. advertising messages with a rational appeal stress facts, product characteristics, as well as concrete benefits that consumers would have if they chose to use the advertised product; rational appeals emphasize the quality, the value, the efficiency or the performance of the advertised product (kotler and armstrong, 2012). due to their informative character, advertisers use rational appeals when they wish to persuade potential consumers that the advertised product is better that the one made by their competitors because of certain characteristics or advantages it gives (kazmi and batra, 2009). rational appeals in advertising can be classified into one of the following categories: feature appeal, competitive advantage appeal, favourable price advantage appeal, news appeal and product popularity appeal (belch and belch, 2004; kazmi and batra, 2009). 2.2. emotional appeals in advertising the use of rational appeals in advertising is not appropriate for certain products, especially for those that are not that different from the products of their competitors in functionality, olfactory or technical characteristics (kazmi and batra, 2009). by using emotional appeals in that case, advertisers wish to create certain emotional associations in the consumer’s mind towards the advertised product, i.e., a unique selling proposition is replaced by a unique emotional proposition. emotional appeals target psychological or social needs of the consumer, meaning that they are trying to cause positive or negative emotions that could lead to purchasing (kotler and armstrong, 2012). a study written by the author bruno et al. (2016) suggests that an emotional appeal, whether ‘’cold’’ or ‘’warm’’ can be effective. according to these authors, a warm appeal stimulates the purchasing intent, and the cold one positively influences the change in attitude, persuasion and consequential behaviour in purchasing. a number of needs and connected feelings can be used as a basis for emotional appeals in advertising (kazmi and batra, 2009). consumer feelings, that are used as a base of emotional appeals can be classified as personal feelings of the consumer and social-based feelings (belch and belch, 2004). personal feelings also include security, safety, fear, love, happiness, joy, attraction, excitement, pride, accomplishment, confidence, self-confidence, pleasure, ambition, etc. on the other hand, social-based feelings could be recognition, status, respect, involvement, shame, affiliation, rejection and such. the previous emotions can be more important than attributes, functions or features of the advertised product (sharma and singh, 2006). advertisers can use numerous emotional appeals like humour, love, joy but also appeals like fear and guilt (kotler and armstrong, 2012). also, padhy (2011) states that emotional appeals can create positive or negative emotions in the consumer’s conscience, meaning that positive emotional appeals in an advertising message emphasize benefits and advantages of using the advertised product for the consumers, while the negative emotional appeals emphasize danger, and negative consequences that can occur if the consumers do not use the advertised product. 37 management 2016/81 nowadays, advertisers often use the fear appeal in advertising to draw attention of consumers on the possible danger they are exposed to and to give a recommendation on how to avoid this danger, and to motivate consumers to release themselves of the fear by using the advertised product (shimp, 2008). depending on the type of the advertised product, there are two forms of fear appeals that are used in advertising: social disapproval and physical danger. the usage of the fear appeal in a certain advertising message will, however, be effective up to a certain point when its influence will begin to decline, since a large quantity of fear in an advertised message can lead to selective attention and contradict stated arguments by the observer (belch and belch, 2004). guilt, which is connected with fear, is one of the emotional appeals that are often used and that was studied by coulter and pinto (1995).the authors relied on mcguire’s theory (1969) that determined that both the low and the high guilt appeals inhibit the feeling of guilt, being that the former is due to a low level of attention while the latter is due to denying the messages that cause suspicion. in academic literature there is a certain accord among authors that consumers will more easily remember advertising messages and advertisements that cause positive emotions and it is more likely that in their purchasing intent they will be more inclined to the related advertised product (kazmi and batra, 2009). in addition, advertising messages with a humour appeal are the ones that consumers remember most often out of all the advertising messages they are exposed to (belch and belch, 2004). advertisers use the humour appeal primarily because it attracts the recipient’s attention and keeps it during the time of the advertisement. having in mind the review of literature and results of previous research which is presented, the authors have set the following hypotheses: h0: different advertising appeals can have different effects on the consumer’s attitudes and their purchasing intention. h1: emotional appeals in advertising have a stronger influence on the purchase intention than rational appeals. h2: consumers have negative attitudes towards an advertised product whose advertising message caused negative emotions. 3. research methodology the objects of research in the paper are appeals used in advertising. the aim of the research is determining the influence of rational and emotional appeals in advertising on the purchase intention in members of the student population. for that cause, an empirical research was conducted, and the focus group method was used as the research method, which is similar to the research of influence of appeals of advertising green spaces by authors yang et al. (2015) and in the research of emotional appeals in promoting messages of organizational changes by authors fox and amichai-hamburger (2001). the focus group, as a qualitative method of research, was chosen since it is convenient for researching motivational factors and causal relation with the goal of researching attitudes and behaviours of participants (vukmirovic and vukmirovic, 2001). in addition to that, and with the aim of research which is represented in the paper, the existence of the possibility to further clarify responses and attitudes of members of the focus group was important, based on argumentation of certain responses and attitudes, illustrating attitudes and giving examples (djuric, 2005). hence the advantage of focus group research lies within the fact that it enables the examination of not only knowledge and experience that the participants possess, but their opinion on the matter, their way of thinking and why they think in this way (krueger, 1988), as well as the possibility to comprehend the non-verbal communication of participants. the research was conducted in september 2015 in belgrade, in accordance with the procedure to conduct focus groups defined by vukmirovic and vukmirovic (2011), from designing the environment, then recruiting and choosing participants, choosing a moderator, preparing a discussion guide, conducting the focus group and preparing a report. as the researchers recommend homogeneity of the group in the demographic and social-economic factor senses, the research was conducted among students of the belgrade university (faculty of law, faculty of economics, faculty of organizational sciences, faculty of political sciences, faculty of philosophy, faculty of philology) . students of the second and third years of studies were invited to participate in the focus group and 14 of them signed up. according to djuric (2005), the most common number of focus group participants used in research varies from six to 14 participants. additionally, in order 38 2016/81management to make conclusions and to gather insights from the focus groups, one group with 6-7 respondents is not enough since the results need to be confirmed through minimum one more group of respondents. if the results in the second are the same as in the first group, then the two groups are sufficient for making conclusions and giving recommendations. for the moderator to be able to coordinate the conversation and for him to obtain a unanimous attitude of the group, the students that applied were divided into two groups of seven students each, making sure of the gender balance within the group. since in this research the results in both focus groups were the same, the conclusions were made with enough confidence according to the received results. after defining goals and hypotheses that will be tested in the research, the researcher determines his research questions and prepares a discussion guide, which the moderator uses as a discussion plan for the focus group (djuric, 2005). in the beginning, the participants were informed about the goals of the research they were taking part in, and about the way of functioning of a focus group. in this way, all participants knew the rules of participation and they could be included in the discussion more easily. the duration of the discussion in focus groups was around 140 minutes. the participants firstly responded to research questions, and then saw advertising videos with different appeals, and the moderator noted their reactions and comments. 4. results and discussion at the beginning, participants were asked the following question: is your purchasing intention influenced more by information of the product given by the advertisement (commercial) or the emotion a certain advertisement (commercial) gives you? all participants agree on the matter and state that in case of an advertisement for a new product, information about the product given by advertising were crucial. in case the advertised product is already known or they have previously used it, positive emotions that an advertising message can cause can remind them of the existence of the advertised product if they have forgotten about it or to lead them into purchasing if they were previously satisfied by its performance. in addition, all participants agree that in general, the purchase decision is made based on rational motives for purchasing, whilst emotional motives for the purchase intention are decisive only when they have already used a certain brand an when they are, in a way, emotionally attached to the brand and do not consider competitor brands in this case. namely, participants prefer advertising messages that cause positive emotions, but speaking of actual purchasing, they often do not have a long-term influence. for the purpose of researching appeals in advertisement on the purchase intention, the participants of the focus group viewed different advertisements of the product ‘’toothpaste’’. this category of products was chosen since the members of the focus group were members of the student population and they make the purchase decision on their own only when it comes to products they buy or use often. after reviewing all available advertising videos for the named product category, it is safe to say that in the largest number rational advertising appeals were used, while from emotional advertising appeals the appeal of attraction, the humour appeal and the fear appeal were used. in addition to the criteria of representation of different types of appeals in advertising videos, the researchers have composed the final list of 11 advertising videos, which will be shown to participants of the focus group, based on criteria of representation of different creative strategies and technical solutions in demonstrated advertising messages such as endorsements, testimonials, computer animations and animated character usage, ‘’scientific evidence” demonstration for claims and others. the chosen videos come from new or improved product launch campaigns of the following advertisers: colgate, blend-a-med, aquafresh, lacalut, paradontax and vademecum. advertising videos shown to participants, as well as reactions and attitudes of participants to each video are presented in table 1. 39 management 2016/81 table 1: reactions and attitudes of participants to advertising videos 40 2016/81management 1. „max white one optic“ producer: colgate appeal: attraction available at: https://www.youtube.com/watch?v=gedb2e8ijma description: this advertising video demonstrates a model on a runway whose smile diverts the crowd’s attention from other details. the advertiser in this case claims that the models’ smile is a consequence of using the advertised product, thus appealing on consumers that their teeth will be whiter within a week of using the advertised product. this video caused various reactions with the participants. just a few participants state that it is pointless and that they do not see a connection between the advertising video and the advertised product, but that it reminds them of a perwoll commercial, since the highlight was on the girl and her red dress. on the other hand, this video caused laughter in most participants since they consider that the girl’s smile is fake and that it most certainly does not look like that because of the toothpaste. in addition to that, all participants agree on the fact that the focus is on the girl and the runway, and it distracts the attention from the advertised product. all participants agreed that based on the video they have seen, they would not even consider the advertised product as a purchase alternative, because they did not like the video and because they did not remember the product that was advertised. 2. advertising video: “blend-a-med glamorous white“ producer: blend-a-med appeal: attraction available at https://www.youtube.com/watch?v=pctta6k5dmo description: in this advertising video the advertiser claims that since a smile has the ability to charm, the world famous singer shakira uses the advertised product, appealing to potential consumers that their smile will be like hers if they use the advertised product. this video caused positive reactions among all participants, primarily because of the celebrity starring in it and their opinion of her, but also because it is in their opinion more meaningful than the last one, since the attention is directed towards the face and the smile. the majority of participants claim that they will remember the advertising video by the celebrity and that they will associate blend-a-med brand with her. on the other hand, a small number of participants claim that they have remembered the advertised message because they liked the advertisement, but they will not consider purchasing since besides the celebrity and the advertised product, they have not remembered the features of the product. 3. advertising video: “colgate fresh confidence mind blowing“ producer: colgate appeal: humour available at: https://www.youtube.com/watch?v=cis-0snsbhg&index=3&list=plmptbcelnshbadms0jfrvf wln—of_c0p description: this advertising video shows a sleepy girl entering her bathroom and starting to use the advertised product. due to toothpaste ingredients that contribute to a fresh breath, while brushing her teeth the girl is shivering from cold and laughing, while the mentioned characteristic of this product is demonstrated by ice cubes around the girl and her smile. this video caused participants’ laughter and excitement and they all agreed that they liked it due to the fact that it demonstrated the actual using of the product, hence the advertised product was in the spotlight and its characteristics which were represented in an interesting way. in addition to that, all participants claim that based on the advertisement they have remembered the advertising product and its characteristics, and they would definitely consider it as one of their options during their next purchase. also, all participants agree that they will always connect the advertised product to the commercial they liked and the positive emotions it caused. advertising video: short description reactions and attitudes of participants 41 management 2016/81 4. advertising video: „aquafresh“ producer: aquafresh appeal: humour available at: https://www.youtube.com/watch?v=pctta6k5dmo description: this video does not show the use of the advertised product, the product is represented as a hero, captain aquafresh to be precise, who fights sugar attacking the world in an interesting way, in the participants’ opinion. during the showing, this video caused different reactions in participants. namely, it caused laughter in the majority of participants since it was presented as a cartoon, while the voiceover is a serious voice talking about the problem, i.e., the sugar attacking the world. the participants like that the advertised product was represented in an interesting way as the solution to the mentioned problem, that the video had their full attention and that they remembered the product that was being advertised. in addition to that, the majority of participants claim that they would consider the advertised product as a purchase option during their next toothpaste purchase since they liked the video. on the other hand, a small number of participants did not like the video, since in their opinion it makes no sense and it does not demonstrate the features of the product, so they would not consider it even as a purchase option, based on this video. 5. advertising video: “lacalut“ producer: lacalut appeal: fear available at: https://www.youtube.com/watch?v=xf-u_cips-o description: this video states all possible oral health problems, while the advertised product claims to be the solution to listed problems. this video caused fear in all participants, and all participants have started a discussion about oral health problems. additionally, all participants have remembered the advertised product even though the advertising video caused negative emotions. the majority of the participants claim that after seeing the advertising video they have become aware that they have one of the mentioned problems and that they would consider the advertised product as a purchase option, after having seen the dentist first. 6. advertising video: „parodontax 1“ producer: parodontax appeal: fear available at: https://www.youtube.com/watch?v=jpxxwgqkrpa description: this video also shows a consequence of one of the oral health problems, while the advertised product is represented as the solution to the relative problem and its consequences. this video caused stronger negative emotions with all participants, primarily fear and all participants agree that it is more effective than the previous video due to the demonstration of consequences of certain oral health problems. all participants state that they have memorized the advertised product, while participants that do have one of the mentioned problems state that after seeing this video they would most definitely purchase the advertised product. in addition to that, even a large number of participants who do not have a mentioned oral health problem claim to consider this product as a purchase option for the sake of prevention. 7. advertising video: “parodontax 2“ producer: parodontax appeal: fear available at: https://www.youtube.com/watch?v=-5o99vbsqjq description: in this video the advertiser appeals to consumers not to ignore bleeding gums since this could be the first sign of oral health problems that can lead to losing teeth. in addition to that, the amplitude of fear it causes in recipients is higher since the advertiser also appeals to consumers not to ignore bleeding gums since they most certainly would not ignore bleeding of another part of their face or body, while the advertised product is shown as the solution to the said problem and its consequences this video caused in all participants stronger negative emotions than previous videos containing the fear appeal. all participants agree that after this video they realized that bleeding gums is a serious problem that should not be ignored, which was also demonstrated in the previous video they have seen. however, this video, due to its strong negative emotion also caused hostility towards the advertiser and the advertised product, so all participants claim that they would not even consider this product as an option for purchasing. in addition to that, all participants agree that when they see this advertising message they would change the channel or ignore it. advertising video: short description reactions and attitudes of participants 42 2016/81management 8. advertising video: “blend-a-med pro expert“ producer: blend-a-med appeal: feature available at: https://www.youtube.com/watch?v=zk31uhfp0m description: in this video the advertiser claims that the advertised product, thanks to its unique formula, or ingredients it has, helps renew tooth enamel and that already after the first use the teeth are healthier and stronger. the majority of participants claim that because of the constant repetition of the toothpaste name (blend-amed pro expert), after seeing the video, they have remembered the brand of the advertised product and that in general they liked the advertisement. a small number of participants also managed to remember that the product has a unique formula; however, they need additional information about the ingredients of this particular formula in order to make a purchase decision. 9. advertising video: „vademecum expert complete“ producer: vademecum appeal: product popularity available at: https://www.youtube.com/watch?v=3deji1gci9w description: in this video the advertiser claims that dentist recommend an innovation from the vademecum laboratory, i.e., the vademecum expert complete 7, also naming benefits that the use of the advertised product provides, it being a complete protection and maintaining of gum health. all participants agree that this video, unlike the last one, have more content since in addition to stating that this toothpaste is recommended by dentists, they also named benefits that everybody can have after using this toothpaste. in addition, all participants agree that they liked the video and that they remembered the advertised product, and due to its clearly stated advantages, they would definitely consider this toothpaste as a purchase option, since they would recall the advertised video and its named advantages. also, expert opinions definitely contribute to the credibility of stated benefits of the advertised products. 10. advertising video: “colgate total 12“ producer: colgate appeal: product popularity available at: https://www.youtube.com/watch?v=8ulr68ltmbw description: unlike the previous video, this shows consumers of the advertised product that claim that after the dentist’s recommendation to use colgate total 12 they have noticed a difference, so they are pleased with the use of the advertised product. all participants agree that they liked this video due to the fact that, apart from naming benefits provided by using the advertised product and dentist’s recommendations, it shows average consumers speaking about their satisfaction by the advertised product, which significantly enhances the trust of participants in the product itself. all participants memorized the product that was advertised and agree that based on the video, they would purchase the advertised product, since they would recall the recommendation of happy average consumers during their purchase. 11. advertising video: “colgate maximum cavity protection“ producer: colgate appeal: novelty available at : https://www.youtube.com/watch?v=szqmfhkt12u&i ndex=26&list=plmptbcelnshbadms0jfrvfwln— of_c0p description: in this video the advertiser claims that the new toothpaste colgate maximum cavity protection was made after 8 years of clinical research, and that it is the only toothpaste which provides a maximal protection against tooth decay. furthermore, the additional value of the advertised product is emphasized, i.e., the sugar acid neutralizer which contributes to keeping oral health and stopping caries from appearing. this video caused different reactions and comments among participants. namely, most of the participants agree that they did not like the video, because they believe that the shown situations were not connected to the voiceover that speaks about a conducted research, fight against plaque and claims that it gives a complete protection against plaque. a small number of participants state that the advertising video has a point, so their attention was drawn to other aspects of the video – the color purple which is dominant in the video, information about the conducted video, product innovation information, etc. in addition to that, they emphasized that they memorized the named advantages that the usage of the advertised product provides; hence they would consider the product as a purchase option. advertising video: short description reactions and attitudes of participants to examine the purchase intent, after showing advertising videos, the focus group participants were asked the following question: based on the advertising videos (commercials) you have seen, which toothpaste would you purchase and why? the majority of male focus group participants name videos for vademecum and colgate total 12, as videos with the strongest influence for their purchase intention, where in their opinion, the characteristics and the advantages of the advertised products are clearly demonstrated, and confirmed by experts and satisfied consumers. the majority of the female focus group participants have said that videos with the strongest influence on their purchase intention were paradontax and aquafresh, i.e., videos containing emotional appeals. they explain their answers by the fact that they cause certain emotions. when it comes to purchasing the parodontax toothpaste the majority of the female participants claim that based on the shown videos they would purchase the parodontax toothpaste if they only saw a video demonstrating the consequences of oral health problems for the sake of prevention. however, in the case when they have seen a video for parodontax with a hyphened sense of fear, due to the amplitude of negative emotions it caused, they would not even consider the advertised product as a purchasing option. the initial hypothesis h0 was proven: different advertising appeals can have different effects on the consumers’ attitudes and the purchase intention. furthermore, results have shown that rational appeals in advertising have a stronger influence on the purchase intention among the male members. on the other hand, emotional appeals in advertising have a stronger influence on the purchase intention with the female members. it is hence possible to conclude that the hypothesis h1, that emotional appeals in advertising have a stronger influence on the purchase intention than rational appeals, was partially proven. based on the answers of the majority of the focus group participants it was confirmed with the women, while based on answers of the majority of the focus group participants we can conclude that rational appeals in advertising have a stronger influence on the purchase intention in men. based on the answers of the majority of participants, the initial hypothesis h2 was also confirmed, namely, consumers have a negative attitude towards an advertised product whose advertising message caused strong negative emotions, where the application of the fear appeal is specially protruded. namely, this research has also confirmed the results obtained by belch and belch (2004) that the use of the fear appeal in an advertising message is only effective to a certain extent, when the amplitude of the caused fear is not intensive, i.e., when it does not lead to selective attention, retention and distastefulness. 43 management 2016/81 based on the research results, the implications for marketing practice are represented by an empirically proven efficiency or inefficiency of certain types of appeals in creative strategies of advertising messages. namely, marketing professionals often approach creative strategies and techniques in advertising messages as an ‘’art expression’’ of copywriters and designers, meaning that they are treated as dimensions of advertising whose effectiveness and efficiency are not measurable. the research conducted in this paper primarily demonstrates that there are significant differences in effects of applying certain appeals, whether in a positive direction, as motivators for purchasing or in a negative direction, as disincentives of the purchase intention. considering the fact that this research included a small sample that is adequate for the student population, further research should comprise a larger sample, and it could also include other categories of products. it would contribute to a better understanding of appeal impact as well as to making conclusions and implications that are more general for the practice. furthermore, as competition and advertising on the online market are intensified, the authors believe that it would be useful to explore the influence of appeals on the purchase intention in an online environment. conslusion references [1] arens, f.w. 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(2011), marketing istraživanja, beogradska poslovna škola, beograd [29] yang, d., lu, y., zhu, w.,& su, c. (2015). going green: how different advertising appeals impact green consumption behaviour. journal of business research, 68(12), 2663-2675. [30] yeshin, t. (1999), integrated marketing communications, butterworth-heinemann [31] zhang, h., ko, e., & taylor, c. r. (2010). advertising appeals strategy’s moderating effect on the relationship between innovation and customer equity drivers in china. advances in international marketing, 21, 111–136. receieved: september 2016. accepted: december 2016. 44 2016/81management predrag jovanović philip morris international predragzjovanovic@gmail.com predrag jovanović is a market research executive at the philip morris international. he started his professional career in the marketing department at the nis gazprom neft, after which he was engaged with the digital marketing agency ellecta digital. he completed his bachelor and master studies at the faculty of organizational sciences in belgrade. during his studies he wrote several research papers, participated in case study competitions and many projects related to marketing, and was awarded the “dositeja” scholarship by the ministry of youth and sports of the republic of serbia for the school year 2013/14. his main research areas are: marketing, communication, advertising, market research and consumer behaviour. tamara vlastelica university of belgrade, faculty of organizational sciences tamarav@fon.rs tamara vlastelica, phd, is an assistant professor at the university of belgrade, faculty of organizational sciences, at the department for marketing and public relations. she is the author of five books and more than 50 scientific papers in the field of corporate and marketing communications. she specialized in marketing and csr at the london business school. she is a communication expert of the united nations food and agriculture organization and she was a chairperson of the working group of the united nations global compact for the ”serbian national strategy for corporate social responsibility“, a member of the managing board and expert jury of the public relations society of serbia. she was engaged as corporate communications advisor at the victoria group and she was corporate affairs manager at coca-cola hbc and head of marketing and communications at deloitte. in 2014 the serbian association of managers declared her “the best young manager in serbia“. slavica cicvarić kostić university of belgrade, faculty of organizational sciences cicvaric.slavica@fon.rs slavica cicvarić kostić, phd, is an associate professor at the university of belgrade, faculty of organizational sciences, at the department of marketing and public relations. she is the author of books in the fields of branding and communications. slavica is a chartered management institute approved trainer, level 5/7. she has been a visiting lecturer at several universities and business schools in europe. she works as a consultant in the fields of public relations and marketing for organizations of corporate and public sectors. slavica was director of business development in the international consulting company hauska & partner international communications. she was a public relations manager in the mpc properties investment company, a strategic partner of merrill lynch. she is a member of the managing board of the public relations society of serbia, as well as a member of several both domestic and international professional associations. 45 management 2016/81 about the author << /ascii85encodepages false /allowtransparency false /autopositionepsfiles true /autorotatepages /all /binding /left /calgrayprofile (dot gain 20%) /calrgbprofile (srgb iec61966-2.1) /calcmykprofile (u.s. web coated \050swop\051 v2) /srgbprofile (srgb iec61966-2.1) /cannotembedfontpolicy /warning /compatibilitylevel 1.4 /compressobjects /tags /compresspages true /convertimagestoindexed true /passthroughjpegimages true /createjobticket false /defaultrenderingintent /default /detectblends true /detectcurves 0.0000 /colorconversionstrategy /leavecolorunchanged /dothumbnails false /embedallfonts true /embedopentype false /parseiccprofilesincomments true /embedjoboptions true /dscreportinglevel 0 /emitdscwarnings false /endpage -1 /imagememory 1048576 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false /includeprofiles true /multimediahandling /useobjectsettings /namespace [ (adobe) (creativesuite) (2.0) ] /pdfxoutputintentprofileselector /na /preserveediting true /untaggedcmykhandling /leaveuntagged /untaggedrgbhandling /leaveuntagged /usedocumentbleed false >> ] >> setdistillerparams << /hwresolution [2400 2400] /pagesize [623.622 850.394] >> setpagedevice 06_milan pocuca:tipska.qxd 57 milan počuča1, rajko tepavac2, jana cvijić3, aleksandra mitrović4 ¹ university business academy in novi sad, faculty of law 2 university business academy in novi sad, faculty of economy and engineering management 3 belgrade business school 4 university of kragujevac, faculty of hotel management and tourism management 2016/75 potential sources for financing environmental protection projects – focusing on energy efficiency udc: 005.8:[502.171:620.92(497.11) 005.35:336.581 doi: 10.7595/management.fon.2015.0014 1. introduction the economic growth of a country depends, among other things, on available energy sources. forms of economic growth, in line with this, are oriented towards the protection of the environment through the use of renewable energy, and various forms of sustainable investments (knežević, marković & stanković, 2013). energy costs represent an important item in the structure of total costs, and any change in energy prices significantly affects cost efficiency as well as formation of selling prices of different products and services. energy efficiency means a rational use of energy which includes a set of activities that enable optimal energy production and consumption: reduction of energy loss, selection of alternative and clean energy sources, use of efficient technologies, defining standards of energy consumption and so on. energy efficiency can be achieved in any sector that requires energy consumption: industry, transport, households and services, etc. finally, energy efficiency is a way of managing the growth in energy consumption. according to the perspectives of the international energy agency (iea), the energy needs of the planet in 2030 will be increased by almost 60% relative to the current needs, and fossile fuels will remain the most widely used energy source. predictions are that the level of annual growth in energy demand will slightly drop as well as energy power, and that the economic and demographic growth connected to increased urbanization will lead to an increase in demand of about 1.7% annually over the next 25 years, unless there is a significant progress in the field of energy efficiency measurement (energy information administration, 2006). the entry strategy for financing ecological projects, including the energy efficiency projects at the international market is quite extensive. it sets financial goals, sources and a direction of international undertakings of the companies in the next period, for the period long enough to achieve sustainable development at the this paper elaborates financial mechanisms for financing energy efficiency with particular emphasis on the resources from financial institutions and equity funds and capital from the companies themselves. by conducting relevant academic research of literature and data from print and electronic sources (statistical reports, laws and regulations, statements of companies and financial institutions), as well as from the practical experience of some countries, it has been observed that the poor representation of adapted financial mechanisms is a major constraint to the emergence of a culture of energy efficiency in most countries, including serbia. even where they exist they are not necessarily known to make use of successful experiences. by conducting an analysis of the relevant academic literature and an analysis of practical experiences in the domain of energy efficiency and renewable energy sources it was concluded that energy efficiency is a significant potential for growth of the economic strength of serbia, and therefore incentives should influence a greater use of renewable energy and a reduction in use of the fossil fuels as an energy source. keywords: environment, energy efficiency, financing, financial mechanisms, socially-responsible behaviour international market. as financing sources, it includes structural funds (the climate investment funds, 2015), research programmes, eafrd, cip, life+ and others. managing and reporting on environmental performance can lead to significant business benefits as well as benefits for the environment (petrović, slović & ćirović, 2012). iea analyses and reports (energy information administration, 2006) show it is possible to cut global energy demand by 10% by the year 2030, as well as reduce the industrial emissions of greenhouse gases by 16%, primarily by redirecting investments for energy production towards introduction of projects that replace inefficient equipment with the technology that saves energy. existing technologies should enable reducing the energy consumption in current industrial installations by half, and up to 90% in those in new factories (international energy agency, 2006). developing countries in particular need financing and provision of projects in the field of energy efficiency improvement. however, commercial investors are reluctant to take a first step and take such risk. to improve this situation, public-private partnership mechanism suggests an instrument that offers subsidies that enable coverage of a part of development costs. if they join their efforts, public and private sector can have an irreplaceable role and find the needed solutions for challenges that are imposed in the area of environmental protection. this partnership would be beneficial for all (barbut, 2010). its aim is to stimulate the research into innovative technological and financial solutions to the key problems in the field of energy efficiency. barbut recommends the advantages of the application of public-private partnership in financing the energy efficiency projects, among others, the following: • reduction of ecological risks for the observed enterprise; • better positioning of an observed enterprise in the innovation and development market; • the observed enterprise should become recognizable as a partner and an investor regarding environmental solutions. the experience of european countries shows that various fiscal sources can be used for adequate environmental protection, such as certain types of taxes and duties. apart from these, in most of the countries in which transition process was completed successfully, the participation of income from privatisation in financing eco funds is very important, before all for solving inherited problems in the form of developed, historic pollution. financial programmes and institutions that are of special importance for financing ecological projects, including energy efficiency projects and the use of renewable sources, are the following (knežević, joksimović & bilić, 2012): • “the social development bank in europe (ceb bank); • eib european investment bank (the eu bank); • ibrd – international bank for reconstruction and development (with the world bank); • ipa – instrument for pre-accession assistance (an aid programme available also to the republic of serbia since 2008); • cfu – the carbon finance unit (with the world bank): prototype carbon fund; prototype carbon fund, community development carbon fund, italian carbon fund, the netherlands cdm facility, and other; • cfe – carbon fund for europe; • undp – united nations development programme; • the – climate investment funds; • gef – global environment facility; • ggf – green for growth fund southeast europe: • life+ – the financial instrument for the environment; • ebrd – european bank for reconstruction and development; etc”. the characteristic of ipa funds (instrument for pre-accession assistance) (the agency for regional development, croatia & the delegation of the european union to the republic of serbia, 2007) is that they give grants. they are a kind of assets in addition to resources already earmarked for reforms from the budget of developing countries. these assets can be used for different types of investment projects – equipment procurement, execution of works, implementation of financial arrangements with other financial institutions. 58 2016/75management 2. materials and methods the desk research method, description, and a method of generalization respecting the facts and opinions relevant to the academic and experiential level in the respective areas are applied in this paper. the research framework itself will comprise collecting data and information from primary and secondary sources. description will be used as a general scientific research method by which the modalities of financing energy efficiency will be described in general and systematically, and along this will be given a summary of the current legislation governing the research subject in this paper. description will create an introduction to analysis of possible strategies of financing energy efficiency and renewable energy sources on the basis of the previous analysis of the experiences of other countries, observed on international and regional levels. 3. results and discussion 3.1. financing energy efficiency projects in the world knežević et al. (2012, p. 150) point out that the structure of the planet’s ecosystem in the second half of the 20th century underwent a transformation faster than in any other epoch in the history, that we are confronted with enormous environmental challenges around the world, particularly in the field of obtaining energy resources and that the world economy is dependent on fossil fuels to a large extent (wced, 1987). energy management has become a central social, economical and political issue of each country. traditional energy sources, oil predominantly, are limited, and the irrational use and profit-only orientation have led to chronic disorders in the area of efficient management of energy potentials. the international finance corporation (ifc) was established in 1956, as an affiliate of the world bank, with the aim to promote economic development by stimulating the growth of private companies in member countries, especially in underdeveloped areas, thus supplementing activities of the international bank for reconstruction and development (ibrd). the ifc only invests in projects that generate profit from their own funds, by syndicating or investing in the ownership structure of non-voting private companies (international finance corporation, 2015). the world bank green bonds are used for raising funds from investors who expect a fixed return on their investment, which would serve as a support to the world bank to grant loans to eligible projects (chiginsky, 2010) of the bank aimed at mitigating climate changes or at helping vulnerable people to adapt to such changes. since 2008, the world bank has issued green bonds worth over 2 billion us dollars [(the world bank, 2009; 2011; 2014)]. the european investment bank (eib) and the german development bank – kfw (kfw bankengruppe) in cooperation with several other institutions have established a fund for the promotion of energy efficiency and renewable energy projects in south-east europe and turkey called se4f fund (kreiß & roos, 2009). the aim is to assist public and private companies and households to invest in the field of energy efficiency and renewable energy, thus facilitating europe to achieve projected climate goals. the fund was established as a public-private partnership that provides support to commercial private investors through public funds (ebrd, 2009). the ggf (green for growth fund) is a public-private partnership with an investor base comprised of donor agencies, international financial institutions and institutional private investors (green for growth fund, 2015). the green for growth fund was founded in a similar way, for the purpose of cutting energy consumption and co2 emission by minimum 20% and to that end: • provides funds to the financial sector for the purpose of financing energy efficiency projects in the segment of smes and retail; • directly finances projects on renewable energy sources, companies providing energy services, companies providing services or manufacturing energy efficient equipment. the intensification of crediting eco-industry can provide new jobs. in that sense, there may be arrangements between ebrd and national banks in respect of lending to projects in the field of energy efficiency and the use of renewable energy sources. coretchi (2009) points out that “the ebrd is increasing its commitment to energy efficiency projects with a €25 million investment in the newly established southeast europe energy efficiency fund (se4f)”. 59 management 2016/75 it is important to mention a direct ebrd financing of energy efficiency projects in the industry as well as renewable energy sources projects. it is a websedff (western balkans sustainable energy direct) which is an ebrd line for direct financing of projects in the field of sustainable energy development for two purposes 1) energy efficiency projects in the industry and 2) renewable energy sources projects (websedff, 2015). this line is designed for all countries of the western balkans, with a focus on small and mediumsized enterprises that have a dominant private ownership in total capital. the websedff operates in bosnia and herzegovina, croatia, fyr macedonia, montenegro, serbia and albania. types of projects such as renewable energy sources (run’of’river power plants, wind-generators, solar systems, hydro power plants) and industrial energy efficiency (cogeneration, trigeneration, boilers modernisation, used waste heat from technological processes and so on) can be financed through the websedff. the prototype carbon fund mobilises sources from public and private sectors to fund projects that support the reduction of the greenhouse gas emission. carbon credit is equivalent to one tonne of carbon dioxide whether removed, avoided or seized (kelly & jordan, 2004). carbon market is divided into voluntary and regulatory (carbon markets, 2010). the concept of selling and buying carbon credits at specialised markets was introduced, such as the carbon trade exchange. there is a huge number of companies that sell carbon credits to commercial and individual customers in order to reduce their imprint on greenhouse gas emissions on voluntary basis. the credit is bought through an investment fund or companies that have built up credits through their own projects. the royal bank of scotland (rbs) is one of the biggest investors of renewable energy sources in the world. the bank has become a successful provider of renewable energy grants for renewable energy projects in both the uk and the us. the policy of the european union underlines the importance of applying the ppp in sectors such as environment, energy, transportation and health care. knežević, marković & počuča (2012, p. 167.) point out that “it is important to identify the true measure of the relationship between public and private capital and increase transparency in decision making”. 3.2. level and state of environmental protection in serbia the long-term strategy of the republic of serbia in the field of environmental protection implies integration of environmental protection policy into all other sectors’ policies, acceptance of greater individual responsibility for the environment as well as an increased and more active participation of the public in the decision making processes related to the environmental protection [(official gazette of the republic of serbia, no. 80/11, 2011; no.12, 2010)]. the waste management system should be further developed and investment projects related to construction of waste management infrastructure should be favoured (petrović, išljamović & jeremić, 2010). primary energy reserves in serbia (coal, oil, hydro potential, gas) are meagre, but also are an important potential for the energy sector development. in addition to that, serbia is relatively rich in hydro energy, but such energy is insufficiently used. serbia has a significant potential to increase the energy efficiency, but due to the lack of extensive study, it is impossible to point out the quantitative parameters in the segment of potential energy savings and increase in cost efficiency (jednak, kragulj, bulajić & pittman, 2009). the energy efficiency agency of the republic of serbia was formed for the strategic purposes of improvement of the energy management quality in respect of more rational use of energy and energy sources. in serbia there are the following potential sources of financing [(official gazette of the republic of serbia, no. 135/2004, 36/2009, 36/2009 other law, 72/2009 other law and 43/2011 decision us; no. 12, 2010)]: • application of the polluter pays principle; • fee for use of natural resources; • fee for environmental pollution; • fines for non-compliance with environmental standards; • fees of local government units; • subsidies; • tax incentives exemption from payment of fees. 60 2016/75management the polluter pays principle means that the polluter under the law bears the total expenses incurred due to environmental impairment that include the expenses of environmental risk and the expenses of removal of environmental damage. environmental taxes should above all serve more as an incentive than a penalty in the sense that polluters are free to decide whether to avoid payment of taxes or to have additional expenses (official gazette of the republic of serbia, no. 135/2004, 36/2009, 36/2009 other law, 72/2009 other law and 43/2011 decision us). the role of the national register of the sources of pollutants is especially important since, in order to invest in environmental protection, it is necessary first to identify the current pollutants, potential pollutants and then to identify the financing strategy. the sources of financing environmental projects include the earmarked funds of the budgets of the republic and municipal budgets, their own funds based on the economic instruments, the loans of the republic and of municipalities, as well as international resources which are primarily related to donations, loans and credits. the public-private partnership law opens new possibilities for public-private partnerships, particularly for defining the long-term partnership relation of the public and private partnerships (official gazette of the republic of serbia, no. 88, 2011) which is also a great opportunity to promote products aimed at improving of energy efficiency. the documents ‘’the national environmental protection programme’’ (official gazette of the republic of serbia, no .12, 2010) and ‘’the national environmental approximation strategy of the republic of serbia’’ (official gazette of the republic of serbia, no. 80/11, 2011) refer to the overall financing of environment, environmental fees, i.e., the funds required for the implementation of these two documents. to obtain transparency in respect of investment into environmental protection as one of the most significant segments, the following criteria should be analyzed: • income from fees and taxes total; • the structure of income by type of fees and taxes; • the structure of income by beneficiaries (authorities that collect fees) and beneficiaries’ levels (republic/province/local governments). in addition to the previous analysis, it is necessary to differentiate the sources of funds earmarked for environmental protection (budget, own funds, donations, credits, etc.). the document ‘’regulations on the national list of environmental indicators’’, contains indicators based on which the financing of environment should be monitored (official gazette of the republic of serbia, no. 37, 2011). it is stated in the document that investment and current environmental protection expenses are all the expenses the purpose of which is to prevent, remove or mitigate adverse effects on environment (excluding investment expenses and depreciation). table 1: total annual investment into programme implementation (including indirect expenses) per sub-sectors from 2013-2019 (in mil. eur) (belgrade chamber of commerce, 2010) 61 management 2016/75 � ���������� ���� � �� ���� ���� ���� ���� ���� ������ ���� ��� ���� �� �� ���� ���� ��������������� ���� � �� � �� ��� �� �� ����� ����� ���������������� ��� ��� �� ��� ��� ��� ��� ��������� ���� ��� ��� � �� ���� ���� �� ������� �� !�� ��� ��� ��� ��� ��� ��� "����#���� ��� ��� !��� � �� ��� ���� ���� $����� ������ ��� ��� �� ��� �� ��� !�� %���� ��� ��� �� �� �� �� �� $��� �� �� �� �� �� �� �� ������ !��� ���� ���� ��� � �� ���� ��� &������ �� ��� �� �� �� ��� ��� &����� �' � �' � � �� � �� �� (��������� � � �� �� �� � � ������ ���� � ���� �� � ���� �� � �� � � �� there is still no precise record keeping in serbia in respect of investment in environmental protection per various aspects. table 1 contains projections of future investment in the period 2013-2019, which make investment and operating expenses. the programme includes activities directly related to the improvement of environment, as well as activities of sectors that improve the environment although the environmental protection is not their main purpose (transport infrastructure, drinking water treatment). a report on the condition of the environment which is created annually in serbia and approved by the government of the republic of serbia is an important tool in planning environmental policy and strategic documents of the energy sector and other sectors (the ministry of energy, development and environmental protection, 2012). serbia has made a significant progress in the financing of energy efficiency, which is driven by increased regulation in this area and activities to encourage a socially responsible behaviour. it is important to note that more attention should be paid to identifying sophisticated financial models for optimizing investments in renewable energy in order to adequately estimate performance of such projects, and so that the risk should be reduced to the lowest possible level. in addition, our state has to take a more active role in finding support mechanisms for investment in the renewable energy sector where a wide range of instruments are available such as tax breaks, guaranteed purchase prices of electricity, government guarantees, direct subsidies, long-term dedicated contracts and more. lack of capital remains a major obstacle for the implementation of energy efficiency projects, particularly in developing countries, and strong cooperation between the public and private sectors is needed with a focus on public-private partnership which should contribute to reducing environmental risks for the company and to increasing innovation in the field of energy efficiency. stošić, knežević, milutinović & lakićević, (2012, p.313.) point out that “eco-innovation can be treated as a compromise for a potential solution to this problem”. in addition to the direct funding from the municipal budget, municipal bonds or loans can also be applied to provide additional funding that cannot be collected from fees for services with a reasonable loan period. in cooperation with relevant ministries and agencies, the government should establish an energy efficiency fund that will finance measures for improvement of energy efficiency in industry and households, introduce energy consumption standards for construction of new and reconstruction of the existing buildings and introduce programmes for financing to promote insulation measures in residential and public buildings (eg., more favourable loans and tax relief) and connection of flats and buildings to the district heating or gas network. business banks are among the most important sources of project financing. project financing plays an important role in their business, since in the conditions of intense competition, the survival of banks in the market is determined by the amount and quality of investment and investment return, and the revenue at risk. a number of banks in serbia currently grant consumer loans for purchase of electrical devices and household appliances with energy rating label which shows the energy efficiency class and the average power consumption when using the devices and appliances. financing of such projects has a positive impact on energy savings and energy efficiency. in the context of new business and social environment, insurance companies may also be important actors in the financing of environmental protection. for example, through a set of activities, the dunav insurance company shows its determination to establish a system that would lead to sustainable development, through establishing a balance between corporate social responsibility and accountability for successful business operations of the company. namely, insurance companies can now be positioned in the way to affect environment by choosing how to invest their available funds. in investing in projects that contribute to environmental protection, directly or indirectly, especially in terms of construction of new facilities and plants of high energy efficiency that preferably use renewable energy, the primary goal is not to benefit from the operations of a certain plant or system that contribute to environmental protection, but the fact that constructed buildings require certain insurance coverage. knežević (2011) emphasizes that by selecting and applying appropriate accounting policies management can significantly affect an efficient management of the environment at the level of the business system in a way that the accounting policy would incorporate generating the ecological reports from a financial point of view in terms of defining 1) financial indicators to measure the economic and environmental effects, 2) identifying the need for accounting-standards of environmental protection, identifying the information necessary 62 2016/75management 63 management 2016/75 for assessing the environmental costs (knežević, 2011). in this context, it is important to bear in mind the importance of monitoring costs on the basis of use of company cars, and thus exploring the possibilities for costs rationalization and use of public transport for performing business activities in the enterprise, where this is acceptable as an option. conclusion all professionals from global energy sector realize the current necessity for energy transition. the current energy system needs to be replaced by another system that enables the provision of: (1) the long-term availability of energy, in support of economic growth necessitated by demographic growth, (2) required increase in living standards and taking into consideration things not included in current energy services and (3) safe procurement of energy sources which ensures the removal of geopolitical tensions that might rise. degradation of environment progresses at an unprecedented pace. the human impact on environment transformed the structure of the ecosystem of the planet in the second half of the 20th century much faster than in any epoch in the world history, so we are today facing extreme environmental challenges worldwide. a pro-active approach of international financial institutions in financing environmental protection projects is expected. the role of the banks in financing eco-friendly projects is especially important since they are expected to provide special financial support to environmental protection, thus a special place in the field of social responsibility. in addition to banks, various funds that approve grants participate in the financing of eco-friendly projects. capital markets will certainly have a significant role in mobilising private capital for financing procedures of climate change mitigation and adjustment projects (jančetović, cvijić, p. 17). however, in order to raise the funds required to achieve a significant effect in the struggle against climate change, investment products must be designed to appeal to investors who have substantial funds. capital markets are important sources of allocation of resources to projects that support solutions to problems caused by climate change, but employment of this capital may be risky, especially in times of crisis in financial markets. the world bank green bonds support the financing of energy efficiency projects. investment in science can also improve the quality of the environment. the lack of a single national database on investment in environmental protection and non-harmonised methodology, in particular, are the critical research points of this paper and affect the comparability of data for analysis. the environmental protection agency is responsible for collection of data on financing of environmental protection. during the research it was noted that serbian companies are not required to report to the state authorities the investments related to environmental protection, so increasing energy efficiency, on the one hand, and the lack of sufficient incentives for industry and energy sector to reduce pollution, on the other hand, both make it difficult to increase investments in energy efficiency and renewable energy. it is necessary that modalities of financing energy efficiency projects should be paid special attention in the academic circles. the banks and insurance companies are also expected to promote projects granting greater responsibility for environment, and recognizing the importance of investing in renewable energy and recycling. implementation of measures for reducing energy consumption and increasing energy efficiency has positive effects in terms of decrease in production costs and increase in competitiveness. the energy efficiency agency and regional energy efficiency centres in this country should intensify their campaigns to raise awareness and build capacity in terms of energy efficiency measures that should indicate the economic and environmental benefits from reduced fuel consumption. the necessity to further invest in the field of environmental protection is obvious. the current financing sources of environmental protection in the republic of serbia are, first of all, the budget of the republic of serbia and income from fees and taxes. a significant source of energy efficiency funding in this country comes from from financial institutions and funds, as well as the capital of the companies. the conclusion is that all sectors have to unite their efforts – public, private sector, and countries mutually, since it is a mutual responsibility. spreading useful information on energy efficiency measures has a positive impact on investors in such projects, private and public organisations and domestic and international funds. promotion of the importance of energy efficiency (rational energy consumption and greater usage of renewable energy) contributes to the development of corporate social responsibility in the field of energy consumption. references [1] barbut, m. 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[19] kreiß, c. & roos, d. (2009). southeast europe energy efficiency fund (se4f). retrieved from http://www.energy-community.org/pls/portal/docs/410181.pdf [20] official gazette of the republic of serbia, no. 12/2010. (2010). national environmental protection program. decision on determination the national programme of environmental protection.. retrieved from http://www.ekourb.vojvodina.gov.rs/sites/default/files/odluka%20nacionalni%20program_0.doc 64 2016/75management [21] official gazette of the republic of serbia, no. 37/2011. (2011). regulations on the list of environmental indicators. retrieved from http://www.kombeg.org.rs/slike/cetranirazvojtehnologija/2011/2011%20decembar/nacionalna%20lista%20indikatora.pdf [22] official gazette of the republic of serbia, no. 135/2004, 36/2009, 36/2009 other law, 72/2009 other law and 43/2011 decision us). (2011). the law on environmental protection. retrieved from http://www.paragraf.rs/propisi/zakon_o_zastiti_zivotne_sredine.html [23] official gazette of the republic of serbia, no. 80/11. (2011). national environmental approximation strategy for the republic of serbia. retrieved from http://www.misp-serbia.rs/wp-content/uploads/2010/05/eas-strategija-eng-final.pdf [24] official gazette of the republic of serbia, no. 88/2011. (2011). the law on public-private partnerships and concessions. retrieved from http://www.paragraf.rs/propisi/zakon_o_javno_privatnom_partnerstvu_i_koncesijama.html [25] petrović, n., išljamović, s. & jeremić, v. (2010). zero waste as a new concept for sustainable waste management. management-journal for theory and practice, 57, 39-46. [26] petrović, n., slović, d. & ćirović, m. (2012). environmental performance indicators as guidelines towards sustainability. management-journal for theory and practice, 64, 5-14. doi: 10.7595/management.fon.2012.0026 [27] stošić, b., knežević, s., milutinović, r. & lakićević, a. (2012). the key elements of management ecoinnovation. economic aspects of environmental policy, (pp. 313-329). belgrade, serbia: institute of economic sciences, belgrade banking academy-faculty for banking, insurance and finance [28] the agency for regional development, croatia &the delegation of the european union to the republic of serbia. (may, 2007). instrument for pre-accession assistance (ipa), cross-border programme – croatia – serbia, 2007-2013. retrieved from http://www.croatia-serbia.com/index.php?option=com_content&view=article&id=16&itemid=19 [29] the climate investment funds (cif). (2015). mdb role. retrieved from http://www.climateinvestmentfunds.org/cif/node/48 [30] the ministry of energy, development and environmental protection, republic of serbia. (2012). the report on the environmental situation in the republic of serbia for 2011. the agency for environmental protection. retrieved from http://www.sepa.gov.rs/download/izvestaj_2011.pdf [31] the world bank. (2009). green bond. retrieved from http://treasury.worldbank.org/cmd/htm/worldbankgreenbonds.html [32] the world bank. (2011). green bond. third annual investor update 2011. retrieved from http://treasury.worldbank.org/cmd/pdf/worldbankgreenbondnewsletter2011.pdf [33] the world bank. (2014). green bond. fact sheet. retrieved from http://treasury.worldbank.org/cmd/pdf/worldbank_greenbondfactsheet.pdf [34] wced – world commission on environment and development. (1987). report of the world commission on environment and development: our common future. oxford university press, oxford. [35] websedff. (2015). retrieved from http://www.websedff.com/index.php?id=25&phpsessid=bedf0583d11674d26e198d8fd1ce82c0 receieved: february 2015. accepted: june 2015. 65 management 2016/75 milan počuča university business academy in novi sad, faculty of law milan počuča was born in 1962 in gospic, croatia. he graduated from the faculty of law, university of zagreb in 1986. he completed his master and doctoral studies at the faculty of law, university business academy novi sad. he has published more than 90 scientific papers in international and national journals, and also in international and nationalconferences and scientific conventions. he is a member of the scientific committee in several international scientific conferences and national scientific and professional conventions. he is currently employed at the faculty of law, university business academy novi sad as associate professor, where he is also a vice dean for science, quality and development. rajko tepavac university business academy in novi sad, faculty of economy and engineering management ph. d. rajko tepavac (1957) graduated from the faculty of economics, university ofbelgrade and acquired a title of authorized broker dealer in 2000. he earned his master’s degree in legal and economic sciences in 2006, at the academy of commerce in novi sad, and in 2008 he defended his doctoral dissertation and earned his phd in economics. he is currently engaged as a member of the executive board of the “dunav insurance‘’ company, where he is in charge of corporate governance, strategy and product development, at the university business academy, fimek, in novi sad, in his capacity as assistant professor, where he is a lecturer at the insurance study course. he is the author of numerous books and papers, with special emphasis on diverse areas of security, regional development perspective, the insurance industry and legal regulation of these. jana cvijic belgrade business school jana cvijic, assistant professor at the belgrade business school in belgrade for the study subjects accounting and managerial accounting. she graduated from the faculty of trade and banking “janicije and danica karic” in belgrade.she defended her master thesis “contemporary global financial crisis” in 2011, at the faculty of economics and engineering management, department of business economics and finance, at the university business academy in novi sad, obtaining a title of master of science (msc). currently, she is attending her third year of doctoral (phd) studies at the faculty of economics and engineering management, department of business economics, at the university business academy in novi sad. aleksandra mitrović university of kragujevac, faculty of hotel management and tourism aleksandra.stankovic@kg.ac.rs aleksandra mitrović works as a teaching assistant at the faculty of hotel management and tourism in vrnjačka banja, university of kragujevac. she completed her bachelor studies in accounting and corporate finance as well as her master studies at the faculty of economicsin kragujevac. the fields of her scientific and professional interests are related to accounting and finance. 66 2016/75management about the author 04_biljana cvetic:tipska.qxd 37 biljana cvetić, dragan vasiljević, miloš danilović university of belgrade, faculty of organizational sciences, serbia management: journal of sustainable business and management solutions in emerging economies 2017/22(2) udc: competence requirements for logistics managers in the republic of serbia doi: 10.7595/management.fon.2017.0010 1. introduction today, logistics and supply chain management make a very attractive field for a professional career. the competences in this field are recognized as one of the ways to improve the market position of supply chain participants. thus, these competences are increasingly gaining in importance and increasingly required in the business environment. at the same time, some research points out to the gap between the market needs regarding competences of logistics and supply chain managers and acquired competences of graduates – future candidates for these positions (e.g. closs, 2000; wong et al., 2011; lutz & birou, 2013; sinha, millhiser & he, 2016). accordingly, the number of important questions can be posted in this sense, and here, we have tried to answer the following one:”what competences are most expected from the logistics and supply chain managers by the employers in the republic of serbia?” the aims of the paper are to identify the most required professional and fundamental competences of logistics and supply chain managers in the republic of serbia and to derive general recommendations for improvement of the study programmes and plans in the relevant field. in order to achieve these aims, an empirical study of job advertisements (ads) in the field of logistics and scm is designed and conducted. the study is based on the assumption that the contents of the published job ads in the field of logistics and scm are a valid representative of employers’ demand for the managers in this field (e.g., the assumption of this abstract: this paper examines the competences that the employers in the logistics and supply chain management (scm) field require most from employees in the republic of serbia. to identify these competences, we conducted a study of online advertisements of logistics and scm jobs published in the renowned national job portal infostud. we used a deductive content analysis and related quantitative indicators to process and analyse the data. the results, among other conclusions, indicate the most required professional and fundamental competences from the logistics and supply chain managers in the republic of serbia. when the results of this study are compared to several earlier studies done in the us, the united kingdom and germany, some similarities between these empirically obtained results are found. several recommendations for educators that intend to improve study programmes and plans in the field of logistics and scm are also offered. the results of this study can be valuable to interested educators, to individuals who are interested in logistics and supply chain career development, to human resource managers who are recruiting candidates for these jobs, and to other interested parties. keywords: logistics, supply chain management, managers, competences, study, job advertisements, the republic of serbia. jel classification: m11, m12, m19. corresponding author: biljana cvetić, e-mail: cvetic.biljana@fon.bg.ac.rs type was used in the area of information systems and technologies (ist), see todd, mckeen & gallupe, 1995; kennan, et al., 2007). the idea for conducting this type of study in the republic of serbia primarily came from similar empirical research done in the us (sodhi, son & tang, 2008; radovilsky & hegde, 2012) and in the united kingdom (cacciolatti & molinero, 2013). we wanted to offer relevant results related to domestic market and to draw comparative conclusions based on previous studies. the remainder of the paper is organized as follows. in the next section, a review of studies on competences of logistics and supply chain professionals is given. in section 3, the methodology of the study is presented, with attention regarding content analysis and two related quantitative indicators. in section 4, the results of a study of job ads in the field of logistics and scm conducted in the republic of serbia are presented. in section 5, the results of the study are discussed and compared with the several empirical studies from the us, the united kingdom and germany. finally, some concluding remarks are offered. 2. literature review a number of studies considered human resource issues in the fields of logistics and supply chain management. some of these studies focused on developing framework, concept or model of competences of logistics and supply chain professionals, and/or their use for testing the importance of a wide variety of their competences. thus, the well-known blm (business, logistics and management) framework originally developed by poist in 1984 (murphy & poist, 1991) presents all skill requirements for logistics professionals under three main categories, namely business, logistics and management skills. the first version of blm framework considers a total of 83 competences. afterwards, poist worked with murphy on further development of this framework and its application in the us (e.g. murphy & poist, 1991; murphy & poist, 2006; murphy & poist, 2007). some researchers like mangan, gregory & lalwani (2001), razzaque & sirat (2001), thai, cahoon & tran (2011) also used the blm framework in their research. gammelgaard and larson (2001) identified 45 supply chain management competences that are required for logistics managers and grouped them under interpersonal/managerial basic skills, quantitative/technological skills and scm core skills, with some overlaps in these groups. giunipero and pearcy (2000) described 7 key skill sets for supply managers and pointed to the most important skills for them. in further work, giunipero with colleagues continued examining specific skill areas for the supply managers (giunipero, denslow & eltantawy, 2005; giunipero, handfield & eltantawy, 2006). myers, et al. (2004) considered skill requirements for logistics managers through the following groups: social, decision making, problem solving and time management skills. mangan and christopher (2005) presented two key knowledge areas (general and logistics/scm specific) and key competences/skills required by logistics and supply chain managers, without explanation for this division of terms. the famous organization apics (association for operations management) developed five competence models for professionals in the field of operations management, concretely for supply chain managers, materials managers, buyer-planners, distribution and logistics managers, and master scheduling managers (apics, 2014). cvetic (2016) presented the competence model for logistics and supply chain managers that were developed on the basis of several competence concepts and models for logistics/supply chain managers, available empirical studies of job ads in the field, and an overview of a few relevant occupational standards. up to now, several empirical studies were carried out with the aim to identify competences really required from the professionals in the field of logistics and scm. these studies analyse the content of published job ads in the field of logistics and scm. it is believed that the first one is conducted in 2007 by radovilsky, hegde and kandasamy, in order to identify the required knowledge and skills for executing the jobs in the field of logistics and scm, and their connection with the offer of study programmes and subjects in the relevant field in higher education institutions (according to radovilsky & hegde, 2012). thereafter, radovilsky and hegde (2012) repeated their study and presented major changes in the contentand skill-based categories of the scm job requirements in the us. sodhi, son and tang (2008) analysed job ads for mba graduates and derived lists of supply chain topics and broad skills required by employers. further, they indicated how mba-level scm programmes of the top business schools in the us respond to that employers’ needs. rossetti and dooley (2010) analysed job ads associated with the field of scm and pointed out three major types of scm jobs, namely sourcing manager, operations consultant and supply chain information manager. cacciolatti and molinero (2013) collected scm job ads in the uk and after a detailed analysis concluded that all scm jobs could be grouped into two main categories “managers” and “clerks”. additionally, 38 biljana cvetić, dragan vasiljević, miloš danilović 2017/22(2) they identified the most preferred skills and personal characteristics required from employees and offered practically-oriented recommendations for designing logistics and scm courses. kotzab and wünsche (2015) considered the primary and secondary qualifications for logistics jobs in germany. it can be concluded that although the empirical studies of this type are very useful to understand the employers’ real needs, there is a lack of them in some developed but especially in developing countries. there are also a lot of other interesting papers that examine the competences of the logistics and supply chain professionals from different perspectives (ellinger & ellinger, 2013; lorentz, et al., 2013; lutz & birou, 2013; prajogo & sohal, 2013; sohal, 2013; hohenstein, feisel & hartmann, 2014; dubey & gunasekaran, 2015; cvetic, 2016; derwik, hellström, & karlsson, 2016; etc). 3. methodology the study of logistics and scm job ads was conducted in 2014 in the republic of serbia (cvetic, vasiljevic & danilovic, 2015; cvetic, 2016). the relevant job ads were collected from 1 april to 1 july 2014 in the renowned domestic job portal infostud (http://poslovi.infostud.com). the total of 37 ads was collected and coded. then, the two of them were excluded because of their sole focus on the provision of consultancy services related to specific modules for material management, production planning, and control of one known erp (enterprise resource planning) solution. also, some doubts exist in relation to five more ads because of the names of the positions, but finally, they were included based on their contents. finally, the ads were analysed by deductive content analysis. generally, the content analysis is used to systematically and objectively describe and quantify certain phenomena (elo & kyngäs, 2008, p. 108), and “precisely the deductive content analysis is used when the structure of analysis is operationalised on the basis of previous knowledge” (elo & kyngäs, 2008, p. 109). some of the advantages of using this method for the analysis of job ads are (cvetic, vasiljevic & danilovic, 2015; cvetic, 2016): • the contents of ads portray the real needs of a company. the main aim of listed data in ads is to satisfy the specific requirements of a company, without thinking about the needs of research. • the limitations in terms of a sample size do not exist, because of use of the secondary data. • the analysis during the time is easier with secondary data use. • the changes regarding the required competences for specific jobs can be followed. (derived from todd, mckeen & gallupe, 1995, p. 24). on the other hand, the obstacles to using this method for the analysis of job ads are: • the contents of job ads do not have a consistent structure, and they vary in detail. this greatly complicates attempts to compare some data. (todd, mckeen & gallupe, 1995, p. 24) • the developing of coding scheme and/or the process of coding words, terms, and phrases require a lot of time and efforts from the researcher. • the specific existing software solutions for content analysis have different characteristics, and they mostly enable processing of data expressed in the english language (see lowe, 2002). • the obtained data must be considered in relation to limitations such as the time period and place of collecting data. the deductive content analysis of observed ads from the field of logistics and scm was conducted by using the competence model for logistics and supply chain managers (previously developed by the first author and presented in cvetic, 2016), based on which the job-ads database was made in ms excel. in the end, two quantitative indicators were used in order to analyze and present the results (for example, more indicators can be viewed in todd, mckeen & gallupe, 1995, p. 27). these are: • the percentage of ads in which the specified competence has at least one occurrence; and • an average number of occurrences of the specified competence per job ad. 39 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) the percentage of ads in which the specified competence has at least one occurrence ( ) represents the relation between the number of ads in which the competence ( ) has at least one occurrence ( ) and the total number of ads ( ). (1) the average number of occurrences of the specified competence per job ad ( ) represents the relation between the total number of occurrences of competence in all ads ( ) and the total number of ads ( ). (2) it should be noted that the comprehensive coding scheme was not developed because the software solution which enables conducting the content analysis for data expressed in the serbian language was not available at the time when the analysis was performed (lowe, 2002). 4. results the study included a total of 35 ads in the field of logistics and scm that were published by domestic and foreign companies operating in the republic of serbia. some of the jobs offered by employers are: logistics manager, supply chain manager, procurement and inventory control manager, warehouse and transport manager, distribution centre manager, etc. more than half of jobs were offered in belgrade (51.43%), followed by novi sad (11.43%), ruma (11.43%), kragujevac (5.71%) and seven other towns (each with 2.86%). the largest number of jobs was offered by international companies that do business in the republic of serbia (68.57%) compared to national companies (31.43%). the jobs were mostly offered in the manufacturing industry (57.14%), followed by those in wholesale and retail trade, repair of motor vehicles and motorcycles (17.14%), transportation and storage (17.14%), construction (5.71%), and agriculture, forestry and fishing (2.86%). a closer look at the manufacturing section shows that the largest number of jobs was offered in the following industries: manufacture of motor vehicles, trailers, and semi-trailers, manufacture of beverages, manufacture of textiles, repair, and installation of machinery and equipment, etc. the job ads vary in structure, but generally, they include the data about the job title, job location, job description, competences required from candidates, and instructions on how to apply for the open positions. also, more than half of ads included the main data about the company that offered a job. in connection with this, it is interesting that only 17.14% of ads contain the official website of the company. next, the driving licence of b category was required for almost all open positions. the data about salary were not given in any of the ads. the number of ads published in english (45.71%) was a little smaller in comparison with the ads published in the serbian language (54.29%). the results show that, regarding education, at least a university degree is required for 60% of the observed open positions in the field of logistics and scm. secondary school qualification as a minimum requirement was present in 28.57% of ads and the possibility of having a two-year post-secondary school qualification or university degree was present in 2.86% of ads. the requirement for an eligible candidate to have a university degree from a specific faculty was not present in any of the ads. generally, when the desirable faculties/study programmes were mentioned, the three or more possibilities were given (for faculties: faculty of organizational sciences, faculty of transport and traffic engineering, faculty of economics, faculty of mechanical engineering, faculty of electrical engineering, and similar; for study programmes: logistics, operations management, industrial engineering or similar). requirements regarding education were not explicitly cited in 8.57% of ads. when it comes to previous work experience, it was required for 80% of positions and desired for 14.29%, while for 5.71% of positions it was not mentioned. at least one year of relevant experience was required in 11.43% of total number of ads, a minimum of two years of experience was required in 20% of ads, a minimum of three years of experience was required in 17.14% of ads, a minimum of five to eight years was required in 14.29% ads, while in the remaining 17.14% ads the data were not given. 40 biljana cvetić, dragan vasiljević, miloš danilović 2017/22(2) when it comes to the professional and fundamental competences, two indicators were used in order to analyze them. these are the percentage of ads in which the specified competence has at least one occurrence (pk); and the average number of occurrences of the specified competence per job ad (mk) (tables 1 and 2). it was concluded that the five most required professional competences according to both of these indicators are: performance management, demand forecasting and inventory management, customer relationship management, supplier relationship management, and manufacturing management (table 1). on the other hand, the most required fundamental competences are: communication, planning, and organizing of tasks, foreign languages, basics of ist (special focus on spreadsheets and databases), interpersonal skills, team-work, solving problems, business management, etc (table 2). table 1: indicators of professional competences of a logistics and supply chain manager based on these results, several general recommendations can be derived with the aim to improve the study programmes and plans in this field. these are: • find proper ways how to enable students to gain relevant and possible work experience in the field of logistics and scm and prepare them for a fast understanding of supply chain processes during their study days. some of the potential ways could be: relevant internship, monitored and guided by a mentor from enterprise and a mentor from the faculty (e.g., this type of internship is applied in the institutions of higher education in france, such as ecole centrale paris, université paris 1 panthéon sorbonne); working on different kinds of papers (like seminar papers, project papers, etc) in which the concrete processes/activities of some company or supply chains must be presented, among other things; organizing study tours of companies, etc. the importance of this type of recommendation for the institutions of higher education in the united kingdom and germany is also emphasized (cacciolatti & molinero, 2013; kotzab & wünsche, 2015). • analyze and improve the existing contents of study programmes and plans according to expected professional and fundamental competences from the logistics and supply chain managers by the employers in the republic of serbia. to this end, the focus should be on practically applicable topics with the adequate presence of strategy-oriented topics. similarly, the recommendation in relation to an increasing number of practiceor process-oriented topics and the decreasing number of conceptual and strategy-oriented topics for institutions of higher education in the us is given in sodhi, son and tang (2008), p. 482. • analyze and improve the existing combination of teaching methods in order to better prepare graduate students for effective and efficient communication, team-work, solving problems, etc. therefore, behind the traditional teaching methods, the educators should use logistics and scm games, simulations, spreadsheet applications, educational versions of erp packages, case studies, etc. 41 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) professional competences of a logistics and supply chain manager kp [%] km [1] performance management 74.29 2.23 demand forecasting and inventory management 71.43 2.20 customer relationship management 68.57 1.54 supplier relationship management 48.57 1.51 manufacturing management 45.71 1.49 warehouse management 40.00 1.09 transportation management 37.14 0.77 distribution management 34.29 0.94 ist as a function of logistics support 34.29 0.71 lean management 31.43 1.23 international logistics 22.86 0.31 maintenance management 17.14 0.29 reverse and green logistics 11.43 0.17 product introduction into the market 5.71 0.14 designing supply chain 2.86 0.03 table 2: indicators of fundamental competences of a logistics and supply chain manager it is believed that the higher education institutions with the help of these recommendations can contribute to narrowing the gap between the market needs regarding competences of logistics and supply chain managers and acquired competences of graduates – future candidates for these positions. also, other types of improvements of study programmes and plans in this field are not excluded. discussion of results according to the available data, this is one of the first empirical studies of job ads in the field of logistics and scm which is conducted in the republic of serbia. the results of this study are interesting as they are derived from the real requirements of employers for the professionals in this field. however, these results should be considered in the light of the following limitations: one time period of collecting data in 2014, one job portal, and the republic of serbia as a geographic area where jobs were followed. several other studies that will be used for drawing comparative conclusions (sodhi, son & tang, 2008; radovilsky & hegde, 2012; cacciolatti & molinero, 2013; kotzab & wünsche, 2015) are also limited in the time period of collecting data and in a geographic area. the results of this study show that what the employers in the republic of serbia always expect from the future logistics and supply chain managers, regarding education and work experience, are a university degree in the field of technical or economic sciences and relevant work experience. in some cases, they are open for candidates with a minimum secondary school qualification and extensive work experience that includes supervisory experience within a specific industry area. two other studies that were done in the united kingdom and germany (cacciolatti & molinero, 2013; kotzab & wünsche, 2015) also emphasize the importance of relevant work experience and the ability of fast understanding of logistics and supply chain processes. thus, cacciolatti and molinero (2013) have found that previous experience in a similar position and understanding of the job/industry processes are the most required skills from employees. kotzab and wünsche (2015) recognized relevant work experience as “the most important qualifier for an employment position in logistics” (p. 517). as regards professional competences, the most demanded from potential candidates in the republic of serbia are: performance management, demand forecasting and inventory management, customer relationship management and supplier relationship management; while a reverse and green logistics, product introduction into the market and designing supply chain are the least demanded professional competences (see table 1). these obtained data might be compared with findings of a study done in the us by sodhi, son and tang, 2008 (p.474-475). that study, among other conclusions, found that sourcing and supplier management, and inventory and forecasting (that can be related to supplier relationship management and demand forecasting and inventory management) were clearly quite important skills to us employers. furthermore, skills pertaining to marketing and channel restructuring, and metrics and performance (that can be related to customer relationship management and performance management) are very important to em42 biljana cvetić, dragan vasiljević, miloš danilović 2017/22(2) fundamental competences of a logistics and supply chain manager kp [%] km [1] communication 88.57 2.00 planning and organizing of tasks 82.86 2.14 foreign languages 82.86 1.09 basics of ist (special focus on spreadsheets and databases) 80.00 0.91 interpersonal skills 77.14 1.66 team-work 77.14 1.17 solving problems 62.86 0.91 business management 57.14 0.71 continuous learning 45.71 0.97 decision making 42.86 0.49 leadership 34.29 0.71 integrity 22.86 0.31 project management 22.86 0.31 math and statistics 22.86 0.23 43 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) conclusion this is one of the first empirical studies of job ads in the field of logistics and scm conducted in the republic of serbia. the importance of this study lies in an attempt to perceive the real market needs in terms of professional and fundamental competences of logistics and supply chain managers and to give general recommendations to institutions of higher education to address these needs. the results of this study can be useful to academics who are trying to improve programmes and/or subjects in the field of logistics and scm, to professional associations that are providing training and certification, to individuals who are interested in career development, to human resource managers who are recruiting candidates from this field, and to other interested parties. in future, the empirical studies of this type in this country should be repeated in order to follow changes in terms of required competences of logistics and supply chain managers and to reach a higher level of generalization of findings. it will be interesting to draw conclusions about employers’ knowledge and preferences for candidates. also, a new international empirical study of relevant job ads can be prepared and organized with the aim to compare the competence requirements for logistics and supply chain managers in the different business environments of selected developed, developing, and underdeveloped countries. acknowledgements the earlier version of the paper was selected as one of the best papers presented at the x symposium of business and science spin’15 “innovative solutions of operations management for serbian economy revitalisation”, in belgrade, the republic of serbia, november 2015 (see cvetic, vasiljevic & danilovic, 2015). the results of this study are also presented in the phd thesis of cvetic (2016). ployers. on the other hand, product design and new product introduction, reverse logistics and green issues, and location and supply chain design are among the least demanded skills from candidates in the us. accordingly, there are some similarities between these empirically obtained results. when it comes to fundamental competences, a number of these competences are required for more than the half of job openings (see table 2). among all of them, the communication can be seen as the most important to serbian employers. the findings of some empirical research in the us (e.g. sodhi, son & tang, 2008; radovilsky & hegde, 2012) also point out the communication as the most demanded competence. according to sodhi, son and tang (2008, p. 475), communication includes verbal, written and presentation skills, and is the most important category of broad skills to us employers. radovilsky and hegde (2012) longitudinally compared job requirements in scm and found that communication remained the most required skillbased category. other fundamental competences, such as planning, organizing of tasks, foreign languages, basics of ist (special focus on spreadsheets and databases), interpersonal skills, team-work and solving problems, are also very demanded from job candidates in the field of logistics and scm in this country. some of these competences are recognized as very important in the mentioned studies done in the us. thus, broad skills from categories team (which includes interpersonal skills and team-related skills) and general analytical skills (which include analysis, general abilities and problem-solving skills) are highly in demand from candidates in the us (sodhi, son & tang, 2008, p. 475), while the skill-based categories: team work, general analytical and problem solving, spreadsheet and database, and erp and other software, follow category communication by relevance in a study done by radovilsky and hegde (2012, p. 176). additionally, it is interesting to comment on the importance of foreign languages for the employers in the republic of serbia, especially of the english language. thus, good knowledge of foreign languages is required for more than 80% of positions, and especially knowledge of english for more than 70% of positions (precisely 74.29%). knowledge of the russian language is required for 5.71% of positions, the italian language also for 5.71% of positions, while knowledge of german and french besides the english language is considered as an advantage for several positions. only companies which exclusively operate on the domestic market do not mention the knowledge of the english language as a prerequisite for eligible candidates. on the other hand, in the english-speaking countries, the situation is completely different and the knowledge of foreign languages is not given great importance (e.g., murphy & poist, 2006; 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(2014). logistics and supply chain education and jobs: a study of uk markets. the international journal of logistics management, 25(3), 537-552. doi: 10.1108/ijlm-01-2013-0003 (received/accepted) (may 2016 / july 2017) 45 management: journal of sustainable business and management solutions in emerging economies 2017/22(2) 46 biljana cvetić, dragan vasiljević, miloš danilović 2017/22(2) biljana cvetić university of belgrade, faculty of organizational sciences, serbia biljana.cvetic@fon.bg.ac.rs biljana cvetić is a teaching assistant at the faculty of organizational sciences (fos), university of belgrade, serbia. she earned her bsc, msc and phd degrees in operations management from the fos, university of belgrade. she also earned the ms in industrial engineering systems from the ecole centrale paris (france). her research interests include logistics and supply chain management (scm) as well as computer integrated manufacturing management. dragan vasiljević university of belgrade, faculty of organizational sciences, serbia dragan.vasiljevic@fon.bg.ac.rs dragan vasiljević is a professor of computer integrated manufacturing and logistics at the fos (faculty of organizational sciences), university of belgrade. he received his phd degree in the field of logistics and operations management at the same faculty. he published more than hundred papers in peer-reviewed journals, conference proceedings and industry reports. he is the author or co-author of four books: computer integrated logistics: models and trends, logistics and supply chain management, fundamentals of operations management and kaizen: japanese paradigm of business excellence that are used as textbooks at the fos’ department of operations management. his current research interests and areas of expertise include lean and high-performance manufacturing, logistics management and supply networks. dr vasiljevic has extensive experience in numerous consulting projects done for domestic and foreign companies and also serves on several editorial boards. miloš danilović university of belgrade, faculty of organizational sciences, serbia milos.danilovic@fon.bg.ac.rs miloš danilović was born in belgrade, serbia, on april 1985. he received his bachelor’s degree (2009) and master’s degree (2011) at faculty of organizational sciences (fos), university of belgrade. now, he is a phd student in the field of operations management at the fos. he currently works as a teaching assistant at department of operations management at the fos. his main research interests and areas of expertise include algorithms, combinatorial optimization problems, supply networks, scheduling theory, operations management and computer integrated manufacturing systems. he has published several papers as an author or co-author in leading journals such as journal of manufacturing systems, international journal of production research, computers and operations research and more. he is a member of the technical committee of the international 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/enu (use these settings to create adobe pdf documents for quality printing on desktop printers and proofers. created pdf documents can be opened with acrobat and adobe reader 5.0 and later.) >> /namespace [ (adobe) (common) (1.0) ] /othernamespaces [ << /asreaderspreads false /cropimagestoframes true /errorcontrol /warnandcontinue /flattenerignorespreadoverrides false /includeguidesgrids false /includenonprinting false /includeslug false /namespace [ (adobe) (indesign) (4.0) ] /omitplacedbitmaps false /omitplacedeps false /omitplacedpdf false /simulateoverprint /legacy >> << /addbleedmarks false /addcolorbars false /addcropmarks false /addpageinfo false /addregmarks false /convertcolors /noconversion /destinationprofilename () /destinationprofileselector /na /downsample16bitimages true /flattenerpreset << /presetselector /mediumresolution >> /formelements false /generatestructure true /includebookmarks false /includehyperlinks false /includeinteractive false /includelayers false 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